Tens of thousands of investors have been stunned by the catastrophic slump of Hyflux, Singapore ’s much-vaunted water and power company that seemed to have a gold seal of government approval and at one time promised a 6 per cent annual return forever. At the heart of the debacle is Tuaspring, a desalination and power plant that cost S$1.1 billion (US$811 million) to build and was heralded as one of the “national taps” for an island that had long depended on importing water and harvesting rainwater for survival. The company’s glowing prospects encouraged investors to funnel hundreds of millions of dollars into it to help fund the plant’s construction and the company’s expansion. Tuaspring was opened to great fanfare in September 2013, with the head of the Public Utilities Board and two government ministers flanking Prime Minister Lee Hsien Loong, who called the plant “the latest milestone in Singapore’s water journey” and praised its “unique and cost-efficient design”. But the facility, which was under a 25-year water-supply agreement, failed to make any money. Losses snowballed after 2016 when its gas-turbine power plant started selling excess capacity to the power grid, which had a glut of electricity already caused by the opening of the market to competition. As cash depleted and liabilities approached S$2.7 billion, Hyflux sought court protection from creditors to restructure. ‘COMMERCIAL MATTER’ Many investors expected the government to step in and help a venture it had enthusiastically praised. But the authorities have rejected calls for an intervention into what they call a “commercial matter.” The Public Utilities Board served a notice of default on the Tuaspring plant owner for operational and financial lapses. Hyflux was given 30 days to make good on its obligations, or the state could terminate the contract and seize the plant. “I’m very disappointed that the government has decided to take a tough stance instead of offering a helping hand to an iconic Singapore company,” said Li, a 42-year self-employed businessman who invested in Hyflux. “This is another dagger in the chest for retail investors.” ]]> The government deadline for Tuaspring to comply is April 5, when creditors must also vote on Hyflux’s restructuring plan – effectively forcing them to accept the deal offered or risk losing everything. To proceed, Hyflux must persuade more than 50 per cent of those who turn up to the meeting – and 75 per cent in value of claims – to back the reorganisation. The company will reschedule a town hall meeting previously planned for March 13 as a large number of investors wish to attend. “This adds to the urgency and pressure on Hyflux and its creditors to pass the restructuring plan,” said Ang Chung Yuh, a senior fixed-income analyst at iFast. “They are stuck between a rock and a hard place.” Singapore’s water companies aim to quench China’s thirst In an emailed response to questions, the Public Utilities Board said that its responsibility is to safeguard Singapore’s water security and that desalination plants are integral to that security. “[The] decision to issue a default notice is to ensure the asset is secured and continues to produce water,” it said. INVESTORS ‘ABANDONED’ Investors stand to lose as much as 90 per cent of their capital in the restructuring proposal, under which Indonesia’s Salim Group and energy company Medco Group will gain a 60 per cent stake in exchange for a S$530 million cash injection. Banks and senior bond holders would lose about 75 per cent. “The new investor isn’t a white knight when it only wants the assets but not the debt,” said Seow, a homemaker in her 50s who owns Hyflux shares and bonds, and intends to vote against the deal. Like many individual investors who put their life savings into the company, “we feel abandoned and sacrificed”, she said. Which 3 places do the world’s wealthiest people like to call ‘home’? Hyflux said on Friday that it would alter its repayment plan to help retail investors, with staff getting a scaled-down incentive plan to complete projects, and senior lenders and creditors sharing some of their future payouts. The changes “hardly moved the needle,” said Li. Hyflux may not even survive that long for retail investors to collect any recovery, Seow added. Hyflux did not respond to requests for comment, beyond referring to its stock exchange filings. CREDIT RISKS The company is the latest in a series of at least 15 corporate defaults since 2014 that highlight the risks in a dark corner of Singapore’s S$386 billion credit market – unrated bonds paying junk-level yields in a near-zero interest-rate era. From a 77-year old millionaire hit by Rickmers Maritime liquidation to a 71-year old former civil servant who felt cheated in Noble Group’s implosion, retail investors have been battered by the failures. Why Hong Kong and Singapore should tax wealth more “This episode is really a wake-up call for the Singapore financial sector, how we promote such novel and risky instruments, the role of financial intermediaries and the education of the investing public,” said Lawrence Loh, director of NUS Business School’s Centre for Governance, Institutions and Organisations. The Monetary Authority of Singapore said in response to queries on Hyflux that all investments carry risks and that businesses can come under financial stress. ‘CLOSELY MONITORING’ “As a listed company, Hyflux is required under [Singapore Exchange’s] disclosure rules to provide investors with up-to-date, material information such as its financial condition and prospects,” it said. “[The monetary authority and Singapore Exchange] continue to monitor the situation closely, including ensuring that Hyflux actively engages its investors, and provide regular and timely updates to the market on its restructuring plan.” For Hyflux investors, the terms of its debt sales certainly seemed attractive at the time. The company sold S$400 million of preference shares in April 2011, double the amount marketed, to help finance Tuaspring. Another S$500 million bond sale came in May 2016, largely to redeem maturing debts. Mahathir Mohamad: ‘I’m pro-Malaysia, not anti-Singapore’ Without a maturity date, both unrated instruments had promised to pay 6 per cent or more annually to eternity. Buyers 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 career in pharmaceuticals with S$20,000 from selling her car and flat. After selling shares to the public in January 2001, Hyflux started winning municipal contracts in Singapore. Lum became a role model for local entrepreneurs, winning accolades and a seat in parliament reserved for distinguished community members. STOCK SLIDE The Hyflux saga should have rung alarm bells, said NUS’s Loh. The company was fuelling growth by taking on a large amount of debt, while investors had misplaced their trust in what they perceived as a state-backed entity, he said. “Unfortunately, no one stepped back and asked questions.” Hyflux previously counted state investment arm Temasek Holdings as a business partner and an equity holder, according to a 2005 annual report. Temasek fully exited its position in 2005, and isn’t a shareholder, according to an emailed reply to questions. What a Singapore Strait traffic jam says about the world economy At its peak in late 2010, Hyflux was worth nearly S$2.1 billion. The shares were suspended in May last year at S$0.21 apiece, valuing the company at S$165 million. When Hyflux sought court protection last year, its legal adviser, WongPartnership LLP, called it a home-grown success whose business continues to be relevant to Singapore’s future economy. The company is now seeking to wipe S$1 billion of debt off its balance sheet to survive. “What they are offering to us is simply ridiculous,” said Christopher Ching, a construction industry consultant who invested hundreds of thousands of dollars in the company in late 2017. Although he stands to recoup a higher percentage than some investors, he is prepared to fight alongside them. “We might as well go down together.”