Hyflux Trial Resumes: Key Figures Face Charges Over Failures

The criminal trial of Hyflux founder and former chief executive Olivia Lum resumes on January 13, 2024, as prosecutors call more witnesses to testify about alleged violations of the Securities and Futures Act. The proceedings, which began last August, involve a total of seven individuals charged in connection with the company’s failure to disclose critical information regarding the Tuaspring Integrated Water and Power Project. This trial is set to continue until February 5, 2024.

Hyflux’s downfall has had a profound financial impact, particularly on the approximately 34,000 investors who purchased perpetual securities and preference shares, collectively owed around S$900 million. The case highlights the dramatic shift from what was once considered a flagship success story for Singapore’s homegrown businesses.

The Rise and Fall of Hyflux

Founded in 1989, Hyflux initially gained recognition as a pioneering water treatment company. Lum, who grew up in a Malaysian orphanage, sold her car and apartment to establish the firm, which developed proprietary membrane technology for water purification through reverse osmosis. The company went public in 2001 and secured significant contracts, including the installation of equipment for Singapore’s first NEWater plant.

By 2010, Hyflux’s market capitalization reached a peak of S$2.1 billion, with record revenues of S$569.7 million and net profits of S$88.5 million. It was during this period that Hyflux embarked on its most ambitious undertaking: the Tuaspring Project, Singapore’s largest desalination plant.

Challenges with the Tuaspring Project

The tender for the Tuaspring Project was announced in 2010, attracting nine bids. Hyflux’s submission was notably lower than its competitors, leading to its selection as the preferred bidder. In April 2011, the company signed a 25-year water purchase agreement with the Public Utilities Board (PUB).

To finance the Tuaspring initiative, Hyflux issued perpetual preference shares with a 6 percent dividend. However, by 2013, the company’s net profit had nearly halved since its peak, and it faced significant operational challenges. Delays in connecting Tuaspring to the national grid were announced in May 2014, and by 2016, Hyflux reported a staggering 91 percent drop in earnings.

As electricity prices fell due to market oversupply, the financial viability of the Tuaspring Project became increasingly uncertain. The company ultimately announced its first full-year loss in 2018, leading to a debt restructuring process initiated under court supervision.

On June 19, 2018, the Singapore High Court granted a debt moratorium, and nearly a year later, PUB took over the Tuaspring plant at no cost. By July 21, 2021, the High Court approved Hyflux’s winding up, marking the end of a once-promising enterprise.

Legal Proceedings and Allegations

The ongoing trial centers on allegations that Hyflux misled investors about the financial structure of the Tuaspring Project. Prosecutors assert that the project was marketed primarily as a desalination initiative, while its profitability hinged on electricity sales, a significant risk that was allegedly not disclosed to the public.

“Material facts were allegedly not disclosed to the investing public,” prosecutors stated at the trial’s opening.

The charges against Lum and her associates cite two key public statements that reportedly omitted crucial information about the project’s revenue structure. Of the seven individuals charged, Lum faces the most serious allegations, including failing to notify the securities exchange about vital information regarding electricity sales.

Former independent director Rajsekar Kuppuswami Mitta pleaded guilty to a related charge and was fined S$90,000. The remaining defendants, including former chief financial officer Cho Wee Peng and several other directors, are contesting their charges. The trial is expected to delve deeper into the prosecution’s case as it unfolds.

As the trial continues, the implications of Hyflux’s collapse remain significant, with many investors seeking answers and accountability from those in charge during the company’s decline. The proceedings will shed further light on the factors that led to one of Singapore’s most notable corporate failures in recent history.