Former Hyflux CEO, CFO, independent directors charged

FORMER Hyflux chief executive Olivia Lum was charged in court on Thursday (Nov 17) with disclosure-related offences under the Securities and Futures Act (SFA), along with former chief financial officer Cho Wee Peng and four independent directors.

Lum was charged with two counts of failing to disclose information about Tuaspring Integrated Water and Power Project, when such disclosures were required under the Singapore Exchange Listing Rules.

She was also charged with one count under the Companies Act for failing to ensure the water treatment company’s compliance with accounting standards, which entails a fine not exceeding S$50,000.

Lum was offered a bail amount of S$100,000.

Cho was charged with one count under the SFA for conniving in Hyflux’s intentional failure to disclose key details related to Tuaspring.

The four independent directors face two counts each for their negligence in the matter. One count pertains to Hyflux’s failure to disclose required information on Tuaspring, while the other is connected to the omission of those details from a 2011 offer information statement.

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The independent directors are: Teo Kiang Kok, Gay Chee Cheong, Murugasu Christopher and Rajskar Kuppuswami Mitta. (*see amendment note)

If convicted, they will face imprisonment of up to seven years, a fine not exceeding S$250,000, or both, on each SFA charge.

The charges, announced in a joint statement by the Singapore Police Force, the Monetary Authority of Singapore, and the Accounting and Corporate Regulatory Authority (Acra), form the latest chapter in the Hyflux saga.

Hyflux, a water treatment company, filed for bankruptcy protection in 2018. After a series of failed rescue deals and restructuring attempts, it went into liquidation in July 2021.

The authorities subsequently launched a probe stemming from a review into Hyflux’s disclosure, accounting and auditing issues concerning Tuaspring.

Hyflux, 35 of its subsidiaries, and two of its liquidators from Borrelli Walsh have since filed suit against Lum. This lawsuit as well as the one against Hyflux’s former external auditors KPMG are proceeding, after Hyflux filed statements of claims against the two defendants in separate cases.

Funding for the Tuaspring project was financed by the issuance of perpetual securities (perps). Signs of trouble first emerged in February 2018, when the group said it would not redeem a S$400 million tranche of perps at the first call date in April that year. Hyflux did not have to redeem the perps, but the coupon would increase for each year that they were not redeemed. Hyflux had aimed to divest Tuaspring in order to redeem the perps, but was unable to do so before the first call date.

At the time, Tuaspring was held in Hyflux’s books at a value of S$1.3 billion. In June 2022, the plant was acquired by Malaysia-based YTL Power International for S$270 million in cash.

Even as it struggled to turn Tuaspring around, Hyflux continued to expand its business – relying to a large extent on debt.

Hyflux’s liquidation leaves shareholders and holders of perps and preference shares unlikely to recover any of their investment. They had sunk in about S$900 million.

On Thursday, a group of Hyflux perp and preference share holders re-issued a statement that was originally posted on Aug 23, 2021. The statement called on other shareholders to pool funds to obtain a legal opinion.

The statement was signed by six shareholders, who said they had voluntarily formed a litigation committee on behalf of investors. They aim to raise S$20,000 for the legal opinion, and hope to receive contributions of S$50 from at least 400 shareholders to meet their goal.

In November 2021, Hyflux’s liquidators said they had received proofs of debt amounting to roughly S$1.5 billion. The realisations from the asset sales, however, are unlikely to exceed S$100 million.

They added that unsecured creditors – including medium-term noteholders – are likely to receive a “small dividend” following the sale of assets, although the size and timing will only be assessed once the sale has been completed.

DBS was also investigated for its role as issue manager in the 2011 offer information statement. No action will be taken against the bank.

Acra has inspected the audits done by KPMG, one of Hyflux’s auditors. The outcome of this inspection will be finalised “in due course”.

*Amendment note: An earlier version of this story carried a misspelling of Gay Chee Cheong’s name. It has since been corrected.