Hyflux founder, ex-CEO Olivia Lum was determined to win Tuaspring bid, prosecution says
She wanted to cement its status as a global leader in the industry
[SINGAPORE] Hyflux’s founder and former chief executive Olivia Lum was determined to win the Tuaspring integrated water and power project in 2011. Hence, she did not want to disclose material information, including the project’s profitability hinging on electricity sales.
This was what the prosecution put forth on the first day of Lum’s trial on Monday (Aug 11).
The 64-year-old entrepreneur, as well as Hyflux’s ex-chief financial officer Cho Wee Peng, and four independent directors are contesting their non-disclosure charges in the trial. The directors are Teo Kiang Kok, 69; Gay Chee Cheong, 68; Christopher Murugasu, 66; and Lee Joo Hai, 69.
The prosecution is proceeding with two charges against Lum and the four directors each, and one charge against 56-year-old Cho, over the listed water treatment company’s alleged intentional failure to disclose material information.
Lum also faces four Companies Act charges but these have been stood down in this trial.
In its opening statement, the prosecution said the case arose from Hyflux’s non-disclosure of material information required under the Singapore Exchange (SGX) listing rules in March 2011 and offer information document in its issuance of S$200 million, 6 per cent preference shares in April 2011.
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Specifically, the material information referred to three points.
One was Hyflux’s foray into a new business with the Tuaspring project. The second was that the project would derive the significant majority of revenue from the sale of electricity from its power plant. Lastly, the profitability of the billion-dollar project was contingent on revenue from that sale of electricity.
The information was material in influencing investors’ decisions to trade Hyflux securities, said the prosecution. However, Hyflux’s statements led investors and the market to believe that Tuaspring was primarily a desalination project.
Lum is accused of consenting to both instances of Hyflux’s non-disclosures in 2011; Cho was allegedly complicit in Hyflux’s non-disclosure to SGX, while the four directors were allegedly neglectful in both non-disclosures.
Concerns of the banks
Their alleged non-disclosures took place after a consortium of six banks expressed serious concerns about new “merchant sale risk and operational risk” when they learnt about Hyflux’s strategy of using the sale of electricity to subsidise the sale of water to PUB.
“The banks took the risks of Hyflux’s power business plan so seriously that in January 2011, they jointly issued a side letter to Hyflux stating that they could not lend money to Hyflux on the same terms that had previously been indicated in the October 2010 in-principle commitment letters,” Deputy Public Prosecutor (DPP) Christopher Ong said in court.
DBS, Mizuho Corporate Bank and Sumitomo Mitsui Banking Corporation – three of the six banks – extended financing of S$150 million for the construction of the desalination plant.
However, Hyflux eventually aborted this financing and ultimately funded the Tuaspring project with a shareholder’s loan of S$840.4 million in October 2011, which was in turn refinanced by Maybank Singapore and Maybank Kim Eng Securities in September 2013.
Hyflux subsequently issued the preference shares to fund the Tuaspring project, because of the challenges it faced in obtaining financing from the banks, the prosecution alleged. The preference shares were oversubscribed and the offer amount was increased to S$400 million.
Describing the omission as not inadvertent, DPP Ong said: “First, Lum was determined that Hyflux had to win the bid and cement its status as a global leader in the water treatment and desalination industry. Hyflux was facing setbacks in its Middle Eastern ventures, and winning the Tuaspring bid was critical for strengthening the company’s order book.
“She did not want to detract from the positive news of winning a landmark water project by revealing the Tuaspring project’s reliance on electricity sales, and the fact that the low tariff price – the key to winning the tender – was only viable because of such electricity sales.”
He also pointed out that Lum was well aware of the concerns from the banks regarding the power plant component of the project and feared that full disclosure might put off investors and compromise Hyflux’s fundraising through the planned preference shares.
“This, in turn, could jeopardise the financial close for the project and potentially result in losing the bid,” the senior counsel added.
Investigating officer questioned
Commercial Affairs Department (CAD) officer Jacqueline Wei was the first prosecution witness. She was grilled by Senior Counsel Davinder Singh – who was representing Lum – over engaging a security expert only after Lum was charged, to back the officer up on the implications of non-disclosures.
The lawyer noted that the report from the expert, Kevin Gin, was dated October 2024, but Lum was first charged in November 2022.
However, Wei contended that she had spoken with Gin before investigations even commenced.
When she testified that she was the one who came up with what was defined as the omitted information in the charges faced by the six accused, Singh questioned if she was qualified to do that, noting her lack of industry experience.
She had worked as an audit associate for about a year with professional services firm PwC before joining CAD in 2014. Prior to that, she was studying accountancy at Nanyang Technological University.
“So you have never been in the industry? In the market? In listed companies? You have never had any experience in what goes into an announcement?” Singh asked.
She said: “I may not have had experience in the corporate world, but in my experience as an investigator... we do understand the listing rules. Besides that, we did seek views from regulators, experts and the prosecution.”
The officer was also taken through some of the answers that Lum gave during the investigations, with Singh pointing out that Lum was unable to recollect some events as they had happened a decade before the police interview in 2020.
Wei is one of the 27 prosecution witnesses lined up for the 57-day trial. They include former Hyflux staff who were involved in preparing the announcement or the documents on both occasions, bank representatives who interacted with Hyflux personnel in negotiating the financing of the Tuaspring project, Hyflux’s external legal counsel on the share issuance document, and an SGX representative.
In spite of the publicity Hyflux has garnered in this case, there were few members of the public at the hearing.
The Tuaspring project that brought Hyflux’s downfall
The Public Utilities Board (PUB) called for the Tuaspring project on Jun 30, 2010. It was Singapore’s second and largest seawater reverse osmosis desalination plant.
PUB considered the competitiveness of the tariff price at which the successful bidder would sell water to it, among other factors.
The agency also required the successful bidder to procure or produce electricity for the desalination plant at the bidder’s own risk and cost. This meant that the electricity cost of producing water had to be factored into the tariff price proposed by the bidder.
In 2011, Hyflux won the tender to design, build, own and operate the project in Tuas for a concession period of 25 years, with an on-site power plant providing electricity to the desalination plant.
Hyflux’s tender had the lowest bid among the nine submissions, as it had intended to build a power plant and sell electricity to the power grid.
The first-year price that Hyflux quoted for the sale of water was S$0.45 per cubic metre, undercutting its competitors by at least 27 per cent.
Hyflux had strategised that it would win the tender at a very low bid price but heavily subsidise the loss-making desalination plant with revenue from electricity to be generated from the power plant.
The power plant would supply electricity to the desalination plant, but selling the vast majority of the power that it generated to the national grid, with electricity sales projected to account for 92 per cent of the project’s revenue.
Hyflux had no experience in power generation, much less selling electricity, noted the prosecution in its opening statement. The Tuaspring project would thus be the first time Hyflux entered the electricity market.
The draft announcement did not mention at all the sale of electricity, but the published version had the line “excess power will be sold to the grid” after PUB requested it to avoid the impression that the desalination plant would use all the electricity generated, according to the opening statement.
The announcement was approved by both Lum and and Cho, and circulated to the four directors for their comments.
Hyflux estimated the Tuaspring project’s costs to be S$890 million during the tender phase but it later increased the forecast to S$1.05 billion in July 2012.
It approached a consortium of six banks for S$527 million in term loans in October 2010, and managed to secure written in-principle commitment letters indicating their willingness to finance the Tuaspring project.
However, the banks were allegedly not told about Hyflux’s strategy to build a power plant and sell excess electricity to the grid. In January 2011, they decided against the loans as it was not worth the additional risks of Hyflux using the sale of electricity to subsidise the sale of water to PUB.
Three of these banks proceeded to extend S$150 million in loans to fund the construction of the desalination plant. However, this was eventually replaced by an S$840.8 million shareholder’s loan from Hyflux to Tuaspring Pte Ltd (the subsidiary undertaking the project) and the S$400 million raised from the preference shares issue.
In the offer documents for the issuance of the preference shares, it was mentioned that “Hyflux will also be constructing a 411 megawatt combined cycle gas turbine power plant to supply electricity to the desalination plant. Excess power will be sold to the power grid”.
Investors and the market were led to believe by Hyflux’s statements that the Tuaspring project was primarily a desalination project, alleged the prosecution.
The desalination plant of the Tuaspring Project became operational on Sep 18, 2013, while its power plant was operational only two years later in August 2015, and began selling electricity on Feb 18, 2016.
However, lower electricity prices turned “what was intended as a flagship project into an engine of financial ruin”, noted the prosecution.
In March 2011 when Hyflux won the tender, the average uniform Singapore energy price was about S$187 per megawatt-hour, but it had fallen by over 70 per cent to around S$49.10 by February 2016.
The plunge in electricity price led to Hyflux reporting its first net loss, over S$115.5 million for FY2017, as it attributed the majority of the loss to the Tuaspring project.
It suspended trading of its shares on May 21, 2018, entered judicial management on Nov 16, 2020, and was wound up on Jul 21, 2021.
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