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CAD, MAS and Acra launch joint probe into Hyflux and its directors

Former and current directors assisting in investigation include founder Olivia Lum

Hyflux filed for bankruptcy protection in May 2018, after a costly venture into the electricity market with its Tuaspring water desalination and power plant left it with weak cash flow and a huge debt pile.


HYFLUX and its current and former directors are under investigation by the authorities for suspected false and misleading statements and breaches of disclosure rules that may have taken place over a period of years.

The Commercial Affairs Department (CAD) of the Singapore Police Force, the Monetary Authority of Singapore (MAS) and the Accounting and Corporate Regulatory Authority (Acra) said on Tuesday that a joint probe was launched after the findings of a review that began last year gave them reason to suspect that offences had been committed.

Hyflux filed for bankruptcy protection in May 2018, after a costly venture into the electricity market with its Tuaspring water desalination and power plant left it with weak cash flow and high debt.

This includes S$900 million still owed to 34,000 retail investors who had bought Hyflux's perpetuals and preference shares.

Concerns were raised over Hyflux's compliance with accounting and auditing standards and disclosure rules. In response to the outcry, MAS, Acra and the regulatory arm of the Singapore Exchange said in April 2019 that they were reviewing the issues.

"The review was an extensive exercise covering the announcements and financial statements issued by Hyflux over a period of eight years between 2011 and 2018 inclusive," said CAD, MAS and Acra on Tuesday.

"The investigation will ascertain whether there were lapses in Hyflux's disclosures concerning the Tuaspring Integrated Water and Power Project, as well as non-compliance with accounting standards between 2011 and 2018."

Hyflux said it is assisting with the investigations and will "cooperate fully".

As part of the probe, investigators have obtained accounting and other corporate records from Hyflux and its subsidiary Tuaspring Pte Ltd. Hyflux's directors and key officers who were involved in the Tuaspring project have also been interviewed by the authorities.

The suspected breaches under the Securities and Futures Act relate to continuous disclosure, criminal liability for false or misleading statements contained in the prospectus for a securities offering, and false or misleading statements that are likely to induce others to subscribe for securities, to induce the sale or purchase of securities, or that might affect the market price of securities.

The suspected breaches under the Companies Act relate to the preparation of financial statements.

The authorities could not comment on the exact nature of the breaches, but Hyflux has previously drawn flak on multiple counts.

For instance, it distributed shares in its smaller consumer water business, HyfluxShop, to shareholders via an unusual dividend in specie months before it filed for bankruptcy. Hyflux boss Olivia Lum then made a general offer to buy back these shares from investors.

Questions have been raised about whether this was a pre-emptive move to ring-fence HyfluxShop from the troubled mother ship in the event creditors came calling.

Hyflux had also repeatedly emphasised that "it was not until 2017 that Hyflux recorded a net loss", though in fact it was already losing money for ordinary shareholders the year before, after making deductions for coupons owed to quasi-debt holders.

Another question is whether Hyflux may have overstated the value of Tuaspring in its books up till March last year, when it decided to take a S$824 million impairment for the period ended Sept 30, 2018, mainly to adjust for crucial electricity price assumptions used in 2016 that had become unrealistic.

Auditor KPMG signed off on Hyflux's audit report in March 2018 having concluded that there were no events that cast significant doubt on Hyflux's going-concern assumption.

Two months later, Hyflux filed for bankruptcy.

The authorities said that the subjects of their probe are all the directors who served on the board of Hyflux between 2011 and 2018.

They include Ms Lum, independent directors Gay Chee Cheong, Teo Kiang Kok, Lee Joo Hai, Christopher Murugasu and Lau Wing Tat, as well as non-executive and non-independent director Gary Kee. Former independent director Simon Tay, who resigned in February over disagreements with the board, is also part of the group.

Mr Gay sold all 4,860 of his Hyflux pref shares while they still traded at their par value of S$486,000 in June 2017, though he remains a Hyflux perp holder.

The authorities stressed that the criminal investigations are separate from and do not pertain to Hyflux's ongoing corporate-rescue process.

"The investigations are not intended to interfere with Hyflux's current reorganisation plans as it focuses on determining the role of the subjects in the alleged disclosure lapses and non-compliance with accounting standards between 2011 and 2018," the authorities said.

Asked whether Hyflux investors can expect to recover the losses suffered from their investments arising from this investigation, the authorities said: "Criminal investigations are distinct from civil claims. Affected investors who wish to consider civil claims are advised to seek independent legal advice on the possible recourse available to them."

Separately, potential investor Aqua Munda told Hyflux on Tuesday that it is committed to helping Hyflux complete its debt restructuring, and would now like to acquire Hyflux's preference shares and perps.

Aqua Munda had earlier offered to buy only Hyflux's senior debt and had "some success" in attracting bids, but is now re-assessing how its offer should be priced. It said: "We can confirm that appropriate funding arrangements are in place and, barring unforeseen circumstances, we expect to secure a significant tranche of the unsecured debts shortly."

Aqua Munda added that it is ready to provide no less than S$10 million to Hyflux by way of a loan or other structure to help keep the business running.

However, that would be conditional on Hyflux winning the High Court's approval to extend its debt moratorium beyond July 30.

Hyflux's next case-management conference is on June 11.

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