I was in Hong Kong and was interviewed by a journalist from an Asian Finance magazine, about Hyflux. Here is a summary of some of the points I talked about: – Leong Sze Hian, past president of the Society of Financial Service Professionals commented – Hyflux would have done the cashflow projections when the $500 million perpetual securities were offered to the public in May 2016, and these would have been given to the issuers. What does the issuer’s internal analyst report say? In this connection – “Issuers and their advisers must bear full responsibility for ensuring adequate and accurate disclosures, and will be subject to civil and criminal liabilities for false or misleading statements in or omissions from a prospectus. ” – SECURITIES AND FUTURES ACT (CHAPTER 289) FREQUENTLY ASKED QUESTIONS”.
Its profits had collapsed from less than $10 million in 2016 to a loss of $116 million in 2017. and $1.1 billion for the first three quarters of 2018.
According to DrWealth – “Negative Free Cash Flow destroying Hyflux’s financial strength since 2013.￼Hyflux paying 1 time its net income in 2013. 1.4 times its net income in 2014. And a staggering 4.9 times its net income in 2015. This precipitated the crash.”
The auditors signed off on the 2017 annual report on 22 March 2018, and about two months later – Hyflux announced the suspension of the trading of its shares and securities.
Over the last eight years, the earnings per share showed a steady downward trend after 2012, before turning negative in 2016. Even in 2016 when Hyflux reported record revenues, profits were rather modest — in fact, they exhibited a decline over the years prior to 2016 (source: Channel NewsAsia, Mar 8, 2019).
According to professor Loh of NUS – their Risk Management Committee only met once in the year of 2017, which in my view is arguably, quite unacceptable given the size of its debt and gearing.
This is the biggest financial loss (about 50,000 investors lost an estimated $1.4 billion). We must get to the bottom of “why and how it happened” – so that it will never happen again.
Where was the media all these years? Is it any wonder why our Press Freedom Ranking is at 151st?
As to “But the plant has had operational issues since early 2017, and Hyflux lacked the funds to resolve these issues. It has been unable to replace poor-performing membranes in its ultra-filtration and reverse osmosis systems promptly, which affected the quantity and quality of the water produced. It has also failed to supply PUB with 70 mgd of desalinated water on numerous occasions.
Mr Koh, speaking to reporters on Tuesday morning, said: “Membranes replacement is necessary to ensure that plant capacity remains at designed capacity… Certain membranes need to be cleaned regularly. If not maintained, their performance will deteriorate faster… The default was that the concession company was unable to deliver the required capacity when needed.” He declined to give details of the production shortfall” (source: Straits Times, May 21) – were the various parties involved aware of this eventuality when the perpetual securities were offered in 2016?