- Joined
- Oct 5, 2018
- Messages
- 16,415
- Points
- 113
NIKKEI ASIA REVIEW: Singapore's Hyflux saga shows folly of court-supervised restructuring
Company's directors have finally lost their liability shield
https://asia.nikkei.com/Opinion/Sin...shows-folly-of-court-supervised-restructuring
When Singapore water treatment company Hyflux announced in May 2018 that it had asked the Singapore High Court to commence a court-supervised restructuring, investors were left reeling.
Coming just two months after KPMG had issued a clean audit opinion, Hyflux -- a market darling -- not only once counted Singapore sovereign wealth fund Temasek Holdings as an investor, it had won a number of major projects from the Singapore government. Olivia Lum, the company's charismatic founder, was the first woman to win the Ernst & Young World Entrepreneur Award back in 2011.
At its peak, Hyflux had a market capitalization of nearly 2.1 billion Singapore dollars ($1.6 billion). By the time it collapsed, it owed banks S$1.84 billion, noteholders S$265 million, and 34,000 preference and perpetual security holders S$900 million.
Last month, after granting 10 extensions, the High Court finally put an end to the supervised restructuring, approving an application by a group of unsecured bank creditors to place the company under interim judicial management. Suspicious that details of another potential investor surfaced every time the company came to ask the court for an extension, the ruling judge suspected some sort of gamesmanship was at work.
A successful restructuring is difficult to execute, as it requires the support of various stakeholders with competing interests. Those who have lost much of their investment under the existing board may not want the same board to oversee the company's rehabilitation, especially if there are clear signs of poor corporate governance or mismanagement.
And because a third party such as a judicial manager may uncover wrongdoing and take action against the board, the board's preference for a court-supervised restructuring may be driven by its desire to control the process and shield itself from potential liability. Thus the board's own interests may affect its judgment when it comes to potential saviors.
In Hyflux's case, certain potential saviors appeared less than bona fide. Some included conditions that the current directors be retained and released from potential liability -- despite the directors being under investigation. Others said that any offer that released the directors would not be accepted.
But with judicial managers now in place, there is the possibility of action being taken against the directors if there has been wrongdoing. This could result in personal liability, which was never a possibility when the board was overseeing the restructuring. While it is too early to tell if the directors breached their duties, there were plenty of signs of poor corporate governance and questionable decision-making.
As its debt grew, Hyflux resorted to preference shares and perpetual securities which were accounted for as equity. Yet this did not stem its high reliance on debt. In 2011, it issued preference shares, or prefs, and in 2014, it issued its first two tranches of perpetual securities, or perps. Those perps were only available to institutional and accredited investors.
In May 2016, it issued another tranche of perps that was so successful that it raised S$500 million, rather than the initially proposed S$300 million. Much of the amount raised from the 2016 perps came from retail investors, and the institutional and accredited investors who subscribed to the earlier perps were bailed out.
This professor is very good. Wish this article was published in local papers.
