Tuaspring opened to great fanfare in September 2013, with Prime Minister Lee Hsien Loong, accompanied by the top of the Public Utilities Board and two government ministers, calling the plant “the newest milestone in Singapore’s water journey” and praising its “exceptional and dear” efficiency design”.
But the power, which was covered by a 25-year water supply contract, was not making any profits.
Losses mounted after 2016, when the gas turbine plant began selling excess power to an influence grid that had excess electricity on account of the market already opening as much as competition.
With near A$2.7 billion in money and liabilities drying up, Hyflux has turned to creditors for court protection to restructure.
Many investors expected the federal government to step in and help the enterprise it enthusiastically praised. However, the authorities rejected calls to intervene in what they call a “trade matter.” The Utilities Board has notified the owner of the Tuaspring power plant of insolvency on account of operational and financial deficiencies. Hyflux was given 30 days to meet its obligations, provided that the state could terminate the contract and take over the factory.
“I’m very upset that the federal government has chosen to take a troublesome stance moderately than lend a helping hand to an iconic Singaporean company,” said Li, a self-employed businessman of 42 years who has invested in Hyflux. “This is another dagger in the chest for retail investors.”
The government deadline for Tuaspring to comply with the agreement is April 5, when creditors also must vote on Hyflux’s restructuring plan, effectively forcing them to just accept the deal on offer or risk losing the whole lot.
To proceed, Hyflux must persuade greater than 50 percent of those that show as much as the meeting – and 75 percent of the claims value – to support the reorganization. The company will postpone the town hall meeting previously scheduled for March 13 on account of the will of numerous investors to participate.
“This increases the urgency and pressure on Hyflux and its creditors to adopt a restructuring plan,” said Ang Chung Yuh, senior fixed income analyst at iFast. “They are stuck between a rock and a hard place.”
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In response to emailed questions, the Public Utilities Board said it has a responsibility to guard Singapore’s water security and that desalination plants are an integral a part of that security. “[The] “The decision to issue a notice of default is intended to ensure the security of the asset and the continuation of water production,” he said.
Investors could lose as much as 90 percent of their capital under the restructuring proposal, under which Indonesia’s Salim Group and energy company Medco Group will gain a 60 percent stake in exchange for a money injection of A$530 million. Banks and senior bond holders would lose about 75 percent.
“A new investor is not a white knight if he only wants the assets and not the debt,” said Seow, a housewife in her 50s who owns Hyflux shares and bonds and intends to vote against the deal. Like many individual investors who’ve invested their life savings in the corporate, “we feel abandoned and sacrificed,” she said.
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Hyflux said on Friday it could change its repayment plan to assist retail investors, under which employees will receive a limited incentive plan to finish projects and senior lenders and creditors will share a portion of their future payouts.
The changes “barely moved the needle,” Li said. Hyflux may not even survive long enough for retail investors to see any recovery, Seow added.
Hyflux didn’t reply to requests for comment, apart from to consult with its stock reports.
It is the newest in a string of at the least 15 corporate defaults since 2014 that highlight the risks lingering in a dark corner of Singapore’s A$386 billion credit market – unrated bonds delivering junk yields in an era of near-zero rates of interest. From a 77-year-old millionaire hit by the liquidation of Rickmers Maritime to a 71-year-old former government official who felt cheated by the implosion of Noble Group, retail investors have been suffering from setbacks.
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“This episode is truly a wake-up call to Singapore’s financial sector, how we promote such innovative and risky instruments, the role of financial intermediaries and investor education,” said Lawrence Loh, director of the Center for Governance, Institutions and Organizations.
In response to inquiries to Hyflux, the Monetary Authority of Singapore said all investments carry risk and that firms could face financial difficulties.
“As a listed company, Hyflux is obliged in accordance with Art [Singapore Exchange’s] disclosure rules to provide investors with timely and relevant information, such as financial situation and prospects,” he said. “[The monetary authority and Singapore Exchange] continues to monitor the situation closely, including ensuring that Hyflux actively engages its investors and provides regular and timely updates to the market on its restructuring plan.”
For Hyflux investors, the terms of selling its debts definitely seemed attractive on the time. In April 2011, the corporate sold A$400 million price of preferred shares, twice the quantity put available on the market, to assist finance Tuaspring. Another bond sale price A$500 million took place in May 2016, mainly to retire maturing debts.
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Both unrated, no-maturity instruments promised endlessly repayments of 6 percent or more per yr. Shoppers could even place orders through local ATMs.
The company’s pedigree also seemed solid. It grew out of a start-up founded in 1989 by Olivia Lum, an orphan who left a profession within the pharmaceutical industry for A$20,000 to sell her automobile and apartment. Following a public share sale in January 2001, Hyflux began winning municipal contracts in Singapore. Lum became a job model for local entrepreneurs, winning accolades and a seat in parliament reserved for outstanding community members.
The Hyflux saga must have set off alarm bells, said NUS’s Loh. He said the corporate fueled growth by taking over large debts while investors wrongly placed trust in what they perceived as a state-backed entity. “Unfortunately, no one backed down or asked questions.”
According to its 2005 annual report, Hyflux previously considered state investment company Temasek Holdings as a business partner and shareholder. Temasek left his position completely in 2005 and shouldn’t be a shareholder, in keeping with an emailed response to questions.
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At its peak in late 2010, Hyflux was price almost A$2.1 billion. The shares were suspended in May last yr at a price of A$0.21 each, valuing the corporate at A$165 million.
When Hyflux sought court protection last yr, its legal adviser, WongPartnership LLP, hailed it as a hit for its own company, whose operations will proceed to be necessary to Singapore’s future economy. To survive, the corporate is currently attempting to wipe A$1 billion price of debt from its balance sheet.
“What they are offering us is just ridiculous,” said Christopher Ching, a construction industry consultant who invested a whole bunch of hundreds of dollars in the corporate in late 2017. Even though he stands to get back the next percentage than some investors, he’s willing to fight alongside them. “We might as well go down together.”
