Hyflux – Singapore’s Enron
Hyflux, one of Singapore’s most iconic businesses, saw its market capitalisation peak above $2 billion in recent years with rapid growth in Singapore and global business. In 2011, Olivia Lum also became the first Singaporean women to be crowned Ernst & young World Entrepreneur of the Year award.
In a cruel mockery, Ernst & Young is now appointed as financial advisor to Hyflux’s debt restructuring, peddling a >90% loss-absorption scheme for perpetual bondholders and preference shareholders according to a leak from Debtwire in late Nov 2018 and rewarding Olivia and her team with a 3% stake of the enlarged share-capital. It allocated merely $39million in exchange for approximately $900million of perpetual bonds and preference shares.
$39million was not enough to fund the cumulative interest of the above-mentioned subordinated debts. While the proposal is not final, Hyflux is expected to post at least $800m to $1 billion of annual losses in the current FY which will erode almost all of Hyflux’s subordinated debts overnight.
Now, let’s turn back time to another US power generation company, Enron in 2001. Not just Enron was in the same utilities industry as Hyflux, Enron was also the largest bankruptcy reorganization in US history (back then) and biggest audit failure, dragging down Arthur Andersen.
Like Hyflux, Enron’s complex financial statements confused shareholders and analysts though false-accounting practices. It appears that both companies adopted accounting limitations to misrepresent past-earnings and asset-values in balance sheets to indicate favourable performance for fund-raising.
Over the years, Hyflux was able to attract overwhelming funding support from retail investors to fund their questionable business model; concealing its true performance through a series of risk-assessment, accounting and financing manoeuvres and hyped its leverage to unsustainable levels.
The sudden recognition of valuation-losses, cost over-runs, projects-losses since the Hyflux’s suspension, is the consequences of past reckless standards in audits without properly reviews. Looks like Hyflux has a habit of not making sufficient provisions for potential project disruptions, legal disputes and unrealistic valuations of assets.
I am still young and I can work still work for you all” said Olivia Lum in the first Townhall Meeting. In the past 12 months, Hyflux issued a stream of failed promises and assurances. Olivia further described the press conference with potential Indonesian investors as “a happy day” despite the underlying requirements for massive debt write-off.
These comments and mismanagement behind Hyflux’s fall reflects the management’s hubris, and lack of corporate social-responsibility. Retail investors funded Hyflux because of its political and strategic importance to Singapore. Short of a government bailout, along with regulatory oversights and indifference of political leaders, Hyflux’s retail investors are now trapped with no-one on their side.
