Singapore’s highest-profile distressed company, Hyflux Ltd., faces more woes after its legal adviser said it plans to walk off.
WongPartnership LLP has expressed its intent to resign from the case due to “loss of confidence in a good cause,” Singapore high court judge Aedit Abdullah said Wednesday in a hearing where Hyflux sought to extend its debt moratorium by three months.
That forced the court to adjourn the hearing to Feb. 20, while asking for a reconciliation between WongPartnership and the company, if possible.
“On Feb. 20, we will be before the judge for a formal discharge,” Manoj Sandrasegara, a partner at WongPartnership, said in Wednesday’s hearing.
Later Wednesday, Hyflux said in a statement to the Singapore exchange that “it has lost confidence and trust” in WongPartnership.
Hyflux’s fall has left some 34,000 retail investors in the lurch. The case shows few hints of resolution after more than 18 months under court supervision.
Hyflux will have to appoint a new legal adviser if it can’t resolve the dispute with WongPartnership. The court cited a point under Singapore’s legal professional conduct rules that allows a law firm to withdraw from representing a client in a case where “there is a serious loss of confidence” between them.
Meanwhile, the court extended Hyflux’s debt moratorium by a month to Feb. 28.
The drawn-out process is causing angst among Hyflux investors. Middle Eastern utility Utico FZC, which reached a pact in November to rescue Hyflux, has already expressed frustration over the delay in closing the deal. It has threatened to walk away if it can’t win investor support for its offer.
Investors have been left facing more uncertainty after a mystery rival suitor called Aqua Munda Pte made a surprise offer last month to buy the company’s debt. As the two companies are locked in a battle for control of Hyflux, there’s still no clear timeline on when the debt of the noteholders will get settled.
End of the road for Hyflux as High Court okays winding up of water treatment firm
Beleaguered water treatment firm Hyflux has finally reached the end of the road after the High Court approved its winding up on Wednesday afternoon (July 21).
The move followed a three-year-long restructuring attempt that involved a number of surprising twists.
The ruling also means the long-suffering creditors of Hyflux, including around 34,000 retail investors holding its perpetual and preference (PnP) shares and who were owed $900 million, will likely end up with nothing.
This comes after former white knight Utico failed to meet minimum commitments to present a viable restructuring proposal before the hearing on the winding up application that was filed last month by Hyflux's judicial managers.
The managers made the application after restructuring negotiations with several potential investors collapsed.
Hyflux's winding up hearing was initially set for July 12 but was adjourned after Utico pleaded to be heard on its application to intervene.
The Securities Investors Association (Singapore) or Sias was supportive of Utico's attempt but put down a marker on July 15.
It told the Middle Eastern utility that it "required concrete milestones" and a "credible" restructuring proposal from Utico for Sias to "canvass support" from the retail PnP holders to extend Hyflux's judicial management order.
But Utico failed to meet minimum commitments, including providing a non-refundable deposit of $10 million in Utico's lawyer's account or an escrow account in Singapore by 10 am Wednesday.
With Hyflux expected to run out of working capital by the end of July and no viable restructuring offer on the table, its winding up was inevitable, sources close to the matter said.
Sias president and chief executive David Gerald said: "I am saddened by the result but the court was very patient and accommodating. I feel really sorry for the PnPs who may now end up getting nothing.
"They put their trust in Olivia Lam and the board entirely. These are small investors and they have lost their investments. Those responsible for bringing down Hyflux will have to live with their conscience."
More at https://www.straitstimes.com/business/companies-markets/end-of-the-road-for-hyflux-high-court-oks-winding-up-of-water-treatment
Singapore's Hyflux saga shows folly of court-supervised restructuring
When Singapore water treatment company Hyflux announced in May 2018 that it had asked the Singapore High Court to commence a court-supervised restructuring, investors were left reeling.
Coming just two months after KPMG had issued a clean audit opinion, Hyflux -- a market darling -- not only once counted Singapore sovereign wealth fund Temasek Holdings as an investor, it had won a number of major projects from the Singapore government. Olivia Lum, the company's charismatic founder, was the first woman to win the Ernst & Young World Entrepreneur Award back in 2011.
At its peak, Hyflux had a market capitalization of nearly 2.1 billion Singapore dollars ($1.6 billion). By the time it collapsed, it owed banks S$1.84 billion, noteholders S$265 million, and 34,000 preference and perpetual security holders S$900 million.
Last month, after granting 10 extensions, the High Court finally put an end to the supervised restructuring, approving an application by a group of unsecured bank creditors to place the company under interim judicial management. Suspicious that details of another potential investor surfaced every time the company came to ask the court for an extension, the ruling judge suspected some sort of gamesmanship was at work.
A successful restructuring is difficult to execute, as it requires the support of various stakeholders with competing interests. Those who have lost much of their investment under the existing board may not want the same board to oversee the company's rehabilitation, especially if there are clear signs of poor corporate governance or mismanagement.
And because a third party such as a judicial manager may uncover wrongdoing and take action against the board, the board's preference for a court-supervised restructuring may be driven by its desire to control the process and shield itself from potential liability. Thus the board's own interests may affect its judgment when it comes to potential saviors.
In Hyflux's case, certain potential saviors appeared less than bona fide. Some included conditions that the current directors be retained and released from potential liability -- despite the directors being under investigation. Others said that any offer that released the directors would not be accepted.
But with judicial managers now in place, there is the possibility of action being taken against the directors if there has been wrongdoing. This could result in personal liability, which was never a possibility when the board was overseeing the restructuring. While it is too early to tell if the directors breached their duties, there were plenty of signs of poor corporate governance and questionable decision-making.
Olivia Lum was the controlling shareholder, board chairman, CEO, chair of the investment committee, and attended most of the meetings of the other committees despite not being a member. Clearly, she has had a dominant role. Four of the independent directors on the eight-member board had served for more than 14 years.
Some were former employees or substantial shareholders who were redesignated from nonindependent to independent or had business relationships with the company -- such as their companies providing internal audit or legal services. All this points to a board that is far from independent.
Lum's entrepreneurial skills and perseverance undoubtedly contributed to the company's early success, but she did not have the necessary experience to manage a growing company or to oversee investment decisions. Other senior management also appears to have lacked the necessary experience.
For example, in 1996, Hyflux appointed a business development head who was a medical doctor specializing in family medicine, and whose previous job was as a registrar in the health ministry. She was later made an executive director and became COO and then deputy CEO.
Hyflux's core business revolved around providing water treatment solutions for municipalities and industries. However, it expanded into power generation and waste-to-energy solutions. It won the tender for the huge Tuaspring Integrated Water and Power Plant in 2011 -- a major contributor to its downfall -- through aggressive bidding, counting on the synergy between water desalination and power generation. But it had no experience in the power business. The plant has been loss-making since it began operations.
Hyflux sought to have an asset-light strategy but its business model was in fact highly capital-intensive, relying more on borrowings rather than operating cash flows to fund growth. While it was reporting high revenues and making profits, those numbers were subject to high volatility. Operating cash flows told a consistent and dire story, becoming negative from 2010 and never returning to positive territory.
As its debt grew, Hyflux resorted to preference shares and perpetual securities which were accounted for as equity. Yet this did not stem its high reliance on debt. In 2011, it issued preference shares, or prefs, and in 2014, it issued its first two tranches of perpetual securities, or perps. Those perps were only available to institutional and accredited investors.
In May 2016, it issued another tranche of perps that was so successful that it raised S$500 million, rather than the initially proposed S$300 million. Much of the amount raised from the 2016 perps came from retail investors, and the institutional and accredited investors who subscribed to the earlier perps were bailed out.
One key lesson from the restructuring of Hyflux is this: when poor corporate governance and mismanagement is a major contributor to a company's collapse, put someone else in charge of its rehabilitation.
https://asia.nikkei.com/Opinion/Singapore-s-Hyflux-saga-shows-folly-of-court-supervised-restructuring
How Hyflux and founder Olivia Lum fell from grace
In 2001, Hyflux – with Hydrochem as its wholly-owned subsidiary – became the first water treatment company to be listed in Singapore. It was a big deal. The company was founded locally in 1989 by Olivia Lum, then just 28, who left her chemist job to strike out on her own with one clerk and one technician. By the time Hyflux listed, the S$20,000 (US$15,000) she started the company with had multiplied to around S$70 million.
And for a long time, Hyflux was a corporate darling in the city state.
It developed the membrane technology that paved the way for the country to begin recycling water and in turn put it on the map as a global hub for innovation in water management and treatment.
Lum became a Nominated Member of Parliament and a poster child for innovation and entrepreneurship. She became Her World magazine’s Woman Of The Year in 2003, was worth hundreds of millions of dollars, and ranked in various Forbes’ lists.
But in May 2018, Hyflux surprised the world when it called for a halt on trading, and four days later, said it had applied to the Singapore High Court to begin reorganising its liabilities and businesses. By then, it already had a global presence and employed more than 2,500 people.
Its liabilities added up to a whopping S$2.95 billion. Under a new law to deal with corporate insolvencies and restructuring, 19 banks banded together as an unsecured working group (UWG) holding more than US$931 million of debt; another S$900 million is owed to 34,000 retail investors, who are mostly based in Singapore, holding Hyflux’s perpetual and preference shares (PnPs). These shares trade on the Singapore stock exchange and it is up to the company when to redeem this from the investors.
The UWG sought a judicial manager while the company, by then under bankruptcy protection, sought to cobble together a restructuring plan. Yet two and a half years later and with 12 extensions to the debt moratorium, the seven-member board has not offered creditors a clear path forward. Stakeholders are losing patience. The court hearing for the UWG’s judicial manager has been postponed multiple times after the company presented an array of potential bidders. The next court date is November 16.
Retail investors such as teacher Paul Lim, 40, are suspicious that Hyflux is using the prospect of suitors to extend their court protection. Investors like him had bought into Hyflux, believing the Singapore government would not let it fail. Said Lim, who bought S$37,000 worth of PnPs, said: “Notice how they reveal new suitors whenever a court date is near.”
Lawrence Loh, an associate professor of business administration at the National University of Singapore (NUS), said: “The fabled white knight that comes in shining armour and rescues the company doesn’t seem to happen. Even with what’s on the plate now, and there are still many potential white knights, I don’t think Hyflux will hit anything big.”
If Hyflux is put under judicial management, the 34,000 retail investors are likely to bid adieu to their S$900 million because of their low pecking order as claimants. The only hope for PnP holders lies in deals promising a pro-rata share.
Mak Yuen Teen, an associate professor of accounting at NUS Business School and corporate governance expert, said: “Whatever the deal, we would expect deep haircuts or near total losses for junior claims.”
A ‘BASIC’ MISTAKE
How did a corporate darling fall so far from grace? To Nitin Pangarkar, an associate professor looking at business policy at NUS, it was simply “a basic mistake”.
In 2010, Hyflux had put in the most competitive bid for Singapore’s biggest desalination plant – Tuaspring Integrated Water and Power Project – offering to supply water at a first-year price of S$0.45 per cubic metre compared to other offers of S$0.67 and S$1.42 per cubic metre. The project cost was stated at S$890 million, and Hyflux added on a power plant so it could generate what it needed for the desalination process and sell excess power to the power grid.
By the time the plant was operational in 2016, though, the energy market had liberalised with competitors coming on board, creating a massive overcapacity that depressed energy prices.
Meanwhile, Hyflux issued PnPs and took on loans worth hundreds of millions of dollars. The project cost of Tuaspring was also revised upwards to S$1.05 billion.
Hyflux had taken on too much debt, said Pangarkar, and in the power generation sector which was outside its core business of water treatment. He said other mistakes were basing the water price on the price of electricity from its power plant, and not considering the impact of new competitors.
“Prices in power generation proved to be volatile,” he said. In fact, wholesale electricity prices in 2018 cleared at levels below fuel costs.
So losses continued to mount in the first three months of 2018 and reached S$22.2 million. At the same time, Hyflux’s debts came calling. The water treatment firm had a coupon payment due May 28 on its S$500 million of 6 per cent perpetual securities, it also had another S$100 million of 4.25 per cent bonds maturing that September.
To Loh, Hyflux had “bitten off more than it can chew”.
He said it came down to corporate management and risk management. “They moved into an area of business they were not familiar with and funded that with a fairly risky capital strategy which is debt, so it’s a double whammy. Of course this is in hindsight, but the board probably didn’t take the necessary due diligence in the risk assessment and business evaluation.”
Lum has come under scrutiny for receiving between S$750,000 and S$1 million in salary, benefits and bonuses despite Hyflux reporting losses in 2017. The Securities Investors’ Association (Singapore) (SIAS) singled her out for, on top of her “large remuneration”, getting more than S$60 million in dividends “in the time that shareholders and bondholders have seen their entire investment destroyed”.
Hyflux and Lum declined to speak to This Week in Asia. But last year, while talking about a possible takeover of Hyflux in a townhall session with creditors, Lum said: “I know many people do not like to see my face anymore. I’m okay. I’m prepared to step down.”
Lum is still executive chairman and group chief executive officer of Hyflux. One independent director fell out with the board and resigned and the other members remain unchanged.
WHAT WENT WRONG
While the government took over the operations of the loss-making Tuaspring desalination plant without seeking compensation, alleviating pressure on Hyflux, it made clear last year it would not use taxpayers money to help the company or investors recoup their losses.
Loh said he was surprised Hyflux’s last chance saloon offered by the courts had gone on for so long.
“In my memory, I haven’t seen a case that dragged so long in terms of a moratorium,” said Loh.
Even the Court appeared frustrated. Talking about the repeated extensions without better progress shown in closing a restructuring deal, Justice Aedit Abdullah who on October 14 granted Hyflux its “last” extension, said: “Suspicion is building up considerably whether there is some sort of gamesmanship going on here.”
Loh estimates about seven parties were interested in a restructuring deal with Hyflux. The experts say there are a few offers still on the table but it is unlikely Hyflux’s board would take any up before the next court date.
American fund manager Strategic Growth Investments (SGI) is among those that have made offers. It proposed to invest at least S$204.8 million, with senior unsecured creditors getting S$97 million, trade creditors S$15.8 million and the PnP investors S$32 million – all on a pro-rata basis.
Aqua Munda, described as “rather mysterious” by Mak as no one knows much about this suitor, is proposing to buy up the debts. The other two offers are from Middle Eastern utility firm Utico, which has made the biggest offer at S$486 million; and Pison, the investment vehicle of Indonesian magnate Johnny Widjaja, which set aside S$200 million for a “reverse Dutch auction” where potential sellers make the bid rather than the buyer.
To Loh, it was hard for Hyflux to accept these deals because there was a “big mismatch” between the offers and the company’s debts.
Mak said the issue was getting the support of all the different stakeholders who have different interests, and those interests also differ from those of the board which is leading the restructuring effort.
Mak said: “The board would prefer deals that release them from any potential liabilities. The proposed Utico deal would not do that, and a judicial manager may well take action against the directors if there are breaches of duties.”
Even the retail investors who rank as junior claimants could exert pressure on Hyflux because they were “always in limelight”, added Loh.
Mak said the restructuring “might have had a chance” if most of the existing board members had stepped down at the beginning so there would have been “a fresh slate of truly independent directors” with no skin in the game. “But then, that was also unlikely to happen because a new truly independent board may also take action against the former directors if there are potential breaches,” he added.
A PANDORA’S BOX OF NEW POSSIBILITIES?
Loh and Mak see judicial management as the preferred outcome.
Loh said: “I think it is good to have a rapid resolution. I don’t think it is meaningful to drag on while the value of Hyflux is depreciating. November 16 is the thin red line that must be crossed. We’ve already given the company such a long time to address this.”
Mak said this was “the best solution”. He said the judicial manager could “objectively evaluate the deals on the table and reboot the restructuring process”.
Both agree that it does not mean Hyflux will automatically go into liquidation. Loh said the judicial manager could revisit the deals or come to a hybrid solution, liquidating some assets and restructuring others. “The only certainty is the board will not continue to have a say,” he said.
The judicial manager would have six months to restructure and could apply for extensions, said Mak, though it would have to keep the court updated. It could also investigate wrongdoings or potential breaches of duties and sue the directors, he added.
Of course, “the longer this drags on, more resources will be spent, and the likelihood of a liquidation increases”, said Mak.
Having Hyflux go under judicial management also meant legal processes such as civil suits and criminal proceedings could go ahead, said Loh.
This is an outcome retail investors are hoping for. Lim, the teacher who invested S$37,000 in PnPs, wants this to happen so independent third parties can “dig out evidence of their non-disclosures and that they already knew Hyflux was insolvent when they sold S$500 million PnPs to the public”.
Another investor, an investment specialist who works in a private bank but asked to not be named, hopes the outcome of the investigations will ensure a Singapore bank that issued the PnPs is held accountable for its role.
“The bank has to do due diligence … The banks need to ask hard questions, stress test financial models and business plans to make sure the company can repay their debts in a variety of scenarios, not just take in the case the company is presenting to them.”
Loh said: “It’s not going to be the end point. In fact, it’s going to open a Pandora’s box of new possibilities.”
https://www.scmp.com/week-asia/economics/article/3109531/how-singapores-corporate-darling-hyflux-and-founder-olivia-lum
Hyflux just got fucked big time, the end is nigh for this former corporate darling of SG.
Hyflux put under judicial management; founder Olivia Lum loses control over firm
SINGAPORE - The sword finally fell on Hyflux when the High Court ruled on Monday afternoon (Nov 16) that the beleaguered water treatment firm will come under judicial management (JM) with immediate effect following an over-two-year-long debt restructuring attempt.
This means that Hyflux founder Olivia Lum and the rest of the board will no longer be in control of the company, as appointed judicial managers Hamish Alexander Christie and Patrick Bance of Borrelli Walsh have taken over the company’s operations on Monday.
The restructuring firm had been advising a large creditor - the unsecured working group (UWG) of 19 banks that hold more than $931 million of Hyflux debt. Hyflux also owes about $900 million to 34,000 retail investors holding its perpetual and preference shares (PnPs).
Sources told The Straits Times that representatives of Borrelli Walsh were at Hyflux's premises on Monday to take control, change locks and check computer servers.
This is even as Hyflux's lawyers and some creditors support a further short extension of the debt moratorium in view of a plan proposed by American fund manager Strategic Growth Investments (SGI) to acquire and privatise it in a deal that would include a cash injection of $208 million.
But Justice Aedit Abdullah ruled on Monday: "A debtor-in-possession restructuring... must come to an end at some point. A moratorium mechanism is not intended to be continued indefinitely. It is meant to give temporary reprieve... but this has not been the case here.
More at https://www.straitstimes.com/business/companies-markets/hyflux-put-under-judicial-management
Olivia lumpar still hasn't gone into Changi Hilton to squat?
Hyflux investors 完了完了什么都完了!!!!!!!!
Hyflux's asshole must be gaping big by now after getting fucked on countless occasions. Probably time to rename the company "HYFUCK".