Hyflux's replies to Sias raise more questions

Firm bought back shares up till Nov 2015 at prices above its NAV per share, contrary to mandate


HYFLUX chief executive Olivia Lum is "deeply saddened for the pain and loss" suffered by those who invested in or lent money to her now insolvent company.

But she too will "suffer a significant loss - her personal net worth is tied inextricably to her stake in Hyflux", the Hyflux board wrote in an 18-page reply to stakeholders on Friday.

On Monday, David Gerald, president of the Securities Investors Association (Singapore) (SIAS), wrote in an open letter that Ms Lum had received over S$60 million in dividends from her 34 per cent shareholding in Hyflux, "in the time that shareholders and bondholders have seen their entire investment destroyed."

The board clarified that Ms Lum did not receive any cash dividend for the 2017 financial year. However, the board failed to mention that in Feb 2018, Ms Lum received a dividend in specie, amounting to a 23.8 per cent stake in Hyflux's smaller consumer water business, Hyfluxshop.

The board, which is chaired by Ms Lum, added: "Over a period of 10 years from 2007 to 2016, she received about S$58 million in proportional cash dividends declared and paid to shareholders. During the same period (2007 to 2016), Hyflux recorded cumulative profit after tax and minority interests of S$527 million and total ordinary shareholders dividends was S$186 million."

Despite stating in its buyback mandate that purchases made below the company's net asset value (NAV) per share would enhance value, Hyflux's company announcements show that it had conducted share buybacks at prices above its NAV per share up till Nov 2015.

For many, Hyflux's replies threw up more questions than answers.

One perp holder said: "Why did Hyflux mention that the 2016 audited accounts for Tuaspring was the latest set of audited financial statements? They have already published their 2018 annual report, is Hyflux hinting that 2017 Tuaspring numbers are not audited?"

The board also said that when KPMG issued an unqualified opinion on the full-year results for Hyflux in March 2018, there were no events that cast significant doubt on the going concern assumption.

This perp holder said: "Auditors are supposed to assess continual use of going concern assumptions over the next 12 months as per the Singapore Auditing Standards SSA 570. With the (bankruptcy) protection filing date being two months after KPMG's sign-off date, what are the material variances which have not been contemplated resulting in this failed assessment?"

This question was not raised in Mr Gerald's letter, so Hyflux did not address it.

In his open letter, Mr Gerald also questioned why "it appears... that almost every Hyflux asset has material faults and defects".

For instance, the Qurayyat and Magtaa projects cannot operate at or close to capacity; the Tuaspring and Tianjin Dagang plants are loss-making and cannot service their debt with cashflow from operations, Mr Gerald said.

The board replied that " it is not uncommon for projects to experience operational issues".

In the case of Tianjin Dagang, the board blamed "local financial industry regulations which resulted in a mismatch of the loan tenure to the concession period".

In any case, Hyflux had regularly provided updates on its assets, the board argued. The board asserted that the company's collapse was largely due to its investment in the Tuaspring Integrated Water and Power Project: "When the Tuaspring project was first awarded in 2011, the outlook for the Singapore power market was very favourable.

"However... the average wholesale electricity price has dropped from about S$220 per MWh in 2011 when the Tuaspring project was awarded to an average of S$81 per MWh in 2017, resulting in significant losses from electricity generation."

Hyflux is expected to release a proposed restructuring plan to its creditors, including retail perpetual and preference shareholders, by Saturday.


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