DBS suggested Hyflux issue preference shares in 2011, Olivia Lum’s lawyer reveals
Senior Counsel Davinder Singh, representing the ex-Hyflux CEO, charges that the investigation officer was unfair to his client during the probe
[SINGAPORE] The issuance of S$400 million in preference shares by Hyflux in 2011 was suggested by DBS , going by evidence that emerged in the trial of Hyflux’s senior management and directors on Tuesday (Aug 12).
The police statement by Olivia Lum, Hyflux’s founder and former chief executive, also indicated that DBS was “upset” that the multimillion-dollar deal to finance Hyflux’s desalination and power plant project in Tuas went instead to Maybank.
Lum, along with the company’s former chief financial officer Cho Wee Peng and four independent directors – Teo Kiang Kok, Gay Chee Cheong, Christopher Murugasu and Lee Joo Hai – is contesting the charges of failing to disclose material information on the Tuaspring project, as was required under the listing rules of the Singapore Exchange (SGX).
Lum is accused of having consented to Hyflux’s intentional failure on Mar 7, 2011, by withholding information on the project.
Cho was allegedly complicit in Hyflux’s non-disclosure to SGX, while the four board members were said to be neglectful in this.
They allegedly failed to disclose that Hyflux was entering the power business for the first time, and that the Tuaspring project would draw the bulk of its top line from the sale of electricity; they also did not disclose that the profitability of the project would depend on electricity sales, which was supposed to subsidise the loss-making desalination operations of the project.
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Lum and the four independent directors each also face another charge for Hyflux’s having omitted the same information in its statement issued for the offer of the 6 per cent preference shares on Apr 13, 2011.
Preference shares confer on their holder certain rights that are superior to those of ordinary shares. Typically, these preferential rights include the right to fixed dividends, priority over receiving dividends over ordinary shareholders, and priority in the return of capital if the company is liquidated.
Senior Counsel Davinder Singh, who is representing Lum, pointed out on Tuesday that DBS – one of six banks in a consortium that Hyflux initially approached to finance the Tuaspring project – had prepared and offered to work with Hyflux on the issuance of the preference shares.
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With lead investigating officer Jacqueline Wei on the stand as the prosecution’s witness, he asked if she knew that DBS was the party that floated the idea of Hyflux issuing preference shares to raise funds in 2011. She acknowledged this fact.
The prosecution had said in its opening statement that DBS was engaged by Hyflux as the lead manager and bookrunner for the issuance of those shares in February 2011.
The prosecution has argued that Hyflux resorted to this way of raising funds because the water-treatment company had problems securing bank loans amid concerns raised by the consortium of financial institutions over Hyflux’s venturing into power generation – a business new to it.
But Singh sought to show that, notwithstanding the perceived business risk, Maybank and Maybank Kim Eng Securities had agreed to extend Hyflux an 18-year term-loan facility of S$720 million – higher than the S$527 million Hyflux had sought to borrow from the consortium.
Lum’s police statement, cited during the trial, included her saying that DBS was “upset that we awarded the project financing to a Malaysian bank”, and that “Maybank provided very attractive terms that they were unable to match”.
Singh pointed out to Wei that the term-loan facility from Maybank and Maybank Kim Eng Securities was an endorsement of the bank’s faith in the project, after it had done its due diligence.
He also suggested to the investigating officer that no Maybank documents would be produced in the trial, and that the prosecution was not going to call any Maybank personnel to testify, because “those statements and evidence will undermine the prosecution’s case” that Hyflux’s power plant and sale of electricity were a concern.
Wei disagreed with this.
He also accused her of not being fair to Lum by showing the ex-CEO only the letter dated Jan 4, 2011, from the consortium of banks expressing concern over the risk of Hyflux’s entry into the power business and other associated merchant sale and operational risks – but not the letter the banks issued 10 days later.
In that later letter dated Jan 14, 2011, the banks said they had obtained in-principle management support for a credit facility of up to S$283 million for the desalination plant, and shared infrastructure and credit facility of up to S$244 million for the power plant, subject to terms and conditions.
The senior counsel said: “You also have the duty to be fair, asking her about the banks’ concerns on Jan 4 (2011) and not showing her the in-principle commitment of Jan 14 (2011) was completely unfair.”
Wei disagreed and replied that she thought it was irrelevant to show Lum the second letter, because she was then quizzing the entrepreneur about a S$150 million bridging loan that Hyflux had secured. Also, she had mentioned the subsequent letter to Lum.
Singh offered in response: “The reason you did not feel it was relevant to show her is that you wanted to run the line that because the banks learnt of the power plant, they panicked... when that was not the case. Ms Wei, I am putting that to you.”
She once again disagreed.
The senior counsel continued: “I am putting it to you that the reason you didn’t show her the Jan 14 letter is you were trying to create a scenario... that the banks were affected by concerns over merchant sale risk.”
Wei disagreed, saying that it would have been better for her to ask the banks instead.
It also emerged in the course of her cross-examination that the SGX filed the first report that triggered the investigations into the alleged non-disclosures by Hyflux of its investment in the Tuaspring project.
The trial continues on Wednesday, with the prosecution slated to re-examine Wei.
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