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Hyflux - A bet gone wrong

I received the brochure to inform me that my area will be eligible for the "open electricity market" from 1 March. The government first rolled out the program in the western side of Singapore. 

This booklet served as a reminder about the bet that went wrong - Hyflux. Both referring to myself as well as that of Hyflux. A lot of investors thought they were investing in "water" sector at the desalination plant, but Hyflux was actually betting on the "energy" market when it won the bid for the desalination project at Tuaspring. 

According to my friends who are more experienced in the infrastructure space, Hyflux was the lowest bidder and the assumptions they used to compute the ROI were aggressive. As a result, with the crash in the electric power supply market prices locally, the Tuaspring Plant became a "negative" carry. In other words, investors who buy over the plant have to be very prudent in their projections as it is literally bleeding - the more electricity it sells, the higher the losses. Literally, it means Hyflux would need to pay people to take the "liabilities" off their books. 

Did Olivia see the downfall coming ?

Absolutely.  Olivia probably saw it coming and all her actions pointed to it. For someone who is close to the business, she probably realised that 4 years into the winning the project that she made a wrong bet. Yet, she tried to kick the can down the road by using the "Hyflux" brand to raise significant capital $500m of  perps issuance to retail investors in 2016. This allowed Hyflux to live a life on borrowed time. You can see that she is already planning for an exit by paying dividends in both cash and stock in specie - Hyfluxshop even when the Company is performing very poorly and is too highly levered. She is already planning for a life post-Hyflux. 

The biggest con Job ever - legally 

Someone in the legal world told me that perpetual securities is the biggest con job. It is neither a bond nor an equity. In other words, the Company is allowed to treat what is essentially a liability (bond) as an equity on its books. This resulted in the perps holders being "squeezed" from both ends. It is ranked quite lowly during a liquidation and in good times, it doesn't enjoy any upside from share price. Unfortunately, perps are allowed to be issued in Singapore. You can read an article about perps here

Let's take a look at the roles of the different parties in this bond saga and see if there is any "recourse" against these parties. 

DBS Bank - What role did DBS play in this saga?

DBS is the sole bookrunner and helped raised the retail money for Hyflux. Should DBS be held partly responsible? In my view, probably. Why?

1. Hyflux has a weak balance sheet and was unable to fund raise from institutional investors. As such, the bulk of the money were raised from retail investors. 

2.  Was there a proper book building process? I guess not, as this is not the market practice and the bonds are probably of junk status, hence the 6% interest rate was probably set arbitrarily without a proper book building process with institutional investors.  If this has been priced properly by institutions, it would probably need a higher interest rate than 6%. 

3. Why did DBS not stop the Hyflux from upsizing the tranche? You should know that banks are conflicted entities. The more bonds they sell, the higher the commission. On one hand, they are selling the bonds to investors, on the other hand, they are advising the company. If the demand from investors are so good, why not?

Of course DBS can always argue that at the point of issuance, everything looked hunky dory, hence this will be a tough case to prove. 

Board of Hyflux - Did the Board question Olivia diligently and rigorously ? 

The board plays an important role in any company. Hyflux probably failed many of the board governance guidelines where the CEO and Chairperson are one and the same person. Where are the checks and balances ? Own Chairwoman check own CEO? See my previous write up about my views of the board and the independent board members here

The board members have been on the board for many years and are probably her friends by now. There had not been much renewal of board to begin with and the awarding of share options to the board resulted in all of them being in a potentially conflicted position. While the independent directors may have discharged their duties, deliberation of the board may be less robust. I would be interested to know the questions that were asked when the company bid for a new "energy market" project or whenever dividends were being proposed and paid, in particular, the dividend in specie. It would be great if the board meeting minutes are released so that investors know the quality of the board meetings and the deliberations that took place before any major business decisions. Did board members ask the relevant questions, questioned the assumptions, asked why dividends are being approved when company is not doing well? It seemed rather useless for the board to "contribute its entitlements" into the pool and to make amends now. I guess the intent is to appease investors so that the scheme of arrangement can go through. 

Are there undue preference when the dividend in specie was announced? 

Undue preference is the act of acting for oneself to the detrimental of others. You read more about undue preference here. The biggest beneficiary of the distribution in specie is Olivia Lum. To declare a dividend in specie in December 2017 only to declare insolvency shortly after is to me, an act of undue preference. Hyflux was in no position to weaken itself further, engaging in dividend-in-specie added no value to the investors. If Hyfluxshop turn out to be highly profitable or can be listed now, the benefits should go to creditors and perp holders and not to Olivia Lum. The least she can do is to return the assets to Hyflux. I would be keen to know what questions were being asked when the Hyflux shop was "dividend' out

KPMG - Did the Auditors question the value of their assets diligently? 

I would like to know if the auditors raised any questions about governance or the valuation of key assets on the balance sheet? What did they do to discharge their duties that the valuation of the assets are valued fairly?

Did the audit committee ask any questions or direct the auditors on specific areas to focus over the last 3 years? Did the Auditors  impair the assets or have sufficient grounds not to ? Why didn't they qualify the accounts?

There are many questions but again, no answers. 

What role did SIAS play? 

Did SIAS play any important role? My answer is no. They are only a facilitator and part of their fee income model is to organise such "meet and greet" sessions on behalf of the companies to meet up with their members. They always try to be "cooperative" with the Company but are seldom confrontational.  

They only sent out a list of "open letter" questions right at the end of the saga where they could have been more vocal at the first instance. In my personal opinion, they lost the best chance to be the voice of the retail investors. The least they could potentially do now is to either seek justice or maybe initiate class action suit on behalf of investors? 

Why are there no class action suits against Hyflux and its board ?

America is probably one end of the extreme where law suits are flying left right and center. If the Hyflux saga has happened in the US, some Lawyers would probably have filed class action suits on behalf of retail investors against many of the parties I mentioned above. While I am not in favour of such class action suits at its extreme end, in situations like this, you just wished some heroes will stand up and fight for the retail investors. SIAS is probably the one who can do a crowd funding to start a legal action but are they doing it? Can some hero please stand up for the battered retail investors?  

How would Mr. IPO vote?

I haven't had a chance to sit down and review my options. I have already fully written off my $100,000. Since I have already fully written off my investment, I am in the "seeking justice" mode rather than being a rationale battered investor. 😅

I would rather see the company go under than being treated like this. I would definitely loved to see a if there are reasonable grounds for the liquidator to recover Hyfluxshop as well as help determine if all relevant parties have discharged their duties responsibly.

I will be voting NO but what about you?  

Here is a polling question for Hyflux investors. You can access it here.


  1. Thanks for expressing similar views.

  2. [quote] I have already fully written off my $100,000. Since I have already fully written off my investment. [/quote]

    Since you've written off your investment, I think you are somewhat more rational and therefore I can comment.

    [quote] As such, the bulk of the money were from the moms and pops retails investors. [/quote]

    Most mom and pops does not have the knowledge to go into perps, let alone write off $100,000 as if nothing big had happened.

    Any way, a logical question is why is there no-one questioning Hyflux before this happens?

    Good returns - everyone is happy and thinking/praising that they've done their due diligence/research.

    Got screw - everyone is angry and highlighting "facts" that things are not right here and there.

    To be fair -

    If we think Hyflux is correct - we can only suck thumb and exercise the options that are available to us. Vote NO , or anything that we think is correct for us.

    If we think Hyflux is doing something not legal - get SIAS to do their job and scrutinize Huflux till their balls drop.

    But please stop the mom and pop losing money non-sense.

  3. Hi mr.ipo, we have a telegram group which you are most welcomed to join. A group comprising of concerned investors of hyflux.

  4. I don't think DBS has liability. Everything in the market is caveat emptor. In any case, DBS is also one of the unsecured lenders to Hyflux, who have outstanding claims in the scheme. Hence they would argue that even they themselves believed Hyflux to be creditworthy in 2016.

    As for sias, it is not a watchdog. Most of its activities have been education, eg teaching the public how to read financial statements.

    It is in no position to sue anyone. The ones who should be watching the markets are the regulators. You should ask why mas or sgx did not do their jobs.

    As for the board and Olivia, they bear the primary responsibility for the business failure. Still, to sue them is difficult. Eg even if the company was weak, the fact is that all financial statements and disclosures were made as part of the issue and ongoing quarterly reporting. If those figures were fraudulent, then they coild be sued. But if these were true and fair, then there's nothing to do to them.

    Which brings us to the auditors. Could KPMG be liable for giving a clean audit opinion?

    Suing the board is useless because even if we win, the board can't pay 900m. But can KPMG pay 900m?

    1. KPMG might have responsibility in not imparing the assets of Tuaspring. If Tuaspring is clearly not worth as much as the book value, impairment should have been done, losses would have been recognised much earlier, and perhaps dividends would not have been given out in the earlier days.

  5. did you attend the town hall for hyflux. so many aged people. grey hair. all got con.

    no body help to stand up for them

    1. Maybe their hair turned grey overnight from 2018 to 2019? Lolz. Yes it's a cruel world. Better get used to it especially in S'pore.

  6. On hindsight, I just wonder why the regulators allowed Hyflux to sell these to retail investors when these were considered high risk investments (akin to junk bonds). The fact that you can buy and sell them on the open market and you can use CPF/SRS would have given the impression that the securities are not as risky as what they actually are.

  7. I don't get it. Hyflux is a listed company and its cashflow statements show negative cash flow in the last few years. And yet people like you plough money into Hyflux and later blame the authorities and Hyflux board for your actions?

    Gee, I better stop reading financial blogs, I glean better quality information from meeting up my business contacts at the Chinese swimming club. Back to the basics for me

  8. Well, if moms and pops don't know how to read audited accounts, profit and loss, and balance sheets, they have absolutely no business investing in any companies.

    Better just go play 4D or go Resorts World suah lah. Don't go and follow people buy stocks.

  9. Sorry about your $100k.
    But thanks for sharing this.
    I agree... the dividend in specie distribution is most telling.
    Where I'd disagree though... is in the fault finding that inevitably has to come now.
    It's not the fault of the regulators per say. SGX or MAS cannot go into such detail. It's the decision of a company.
    It's not the fault of SIAS either. They're useless! Most of their funds come from "subscriptions" from companies themselves... how can they be trusted to ask hard questions?
    The fault must surely lie at the feet of the management. The CEO herself, and the board that condoned this.
    Make no mistake, there's no independence here, as you've said, CEO and chairman of the board are the same person.
    Maybe she thinks she's Elon Musk.
    Class action suits? lol. This is SG.
    Lawsuits are only for the minority shareholders!

  10. 早知如此,何必当初。
    The questions you raised should have been asked before putting in the money.
    I asked similar questions and avoided a disaster.

  11. Agree that Banks have a huge conflict of interest. Anyway, PERPS seem to be less regulated by the authorities. MAS should really step in to prevent companies mired in huge debts from raising up even more capital (and therefore debts) from PERPS. They are really in some ways junk PERPS.

  12. Why did Olivia Lam approve the dividend payout in the first place if her company is bleeding money? This kind of thing doesn't happen overnight. Hope someone file a class action lawsuit against her to regain investor confidence in local companies.

  13. The governance is always a problem when the mahor shareholder is both the CEO and the Chairman of the board.

    1. Tell that to Warren Buffett! LOL!

  14. We all make mistakes. You are a good investor if you are right 6 out of 10 times.
    I guess what is important is to learn from the mistake. Trip, and fall and learn to pick oneself up. Life doesn't just stop here. Who knows, maybe opportunity will come knocking again. Keep a warchest ready and continue learning.

  15. Looks like a game of shells. Caveat emptor? How does one fault so many illustrious and who-is-who that makes the Board? Docile Singapore investors. Sorry for the hard truth.

  16. Too late to cry over spilled milk. Kiss your investments good bye and move on. Enjoy your Merdeka Package and be thankful that you have smart people governing Singapore and who care for your future!

  17. No point crying over spilled milk even though it has turned sour. Look towards the future ... there’s Merdeka Package waiting for you so you can move on. Those investors born in the 1950s better thank your lucky stars or rather the govt with smart people who care for your future when they care for themselves first. Pioneer Generation investors be grateful ... your welfare was already factored in 4 years ago. So don’t be silly analysing your loss in Hyflux.. it will shorten your life.

  18. The world is not fair even from respectable institutions or people if any. There lesson learn is to diversify. To prepare for the unknown.