The unfolding Hyflux saga is like a cheesy Taiwanese drama series – so bad that its good. Why is that so, if you may ask? After all, 34,000 investors had lost their life savings investing in Hyflux preference shares and perpetual securities. In my opinion, there are plenty of important lessons to be learned out of this fiasco. And Hyflux investors had better learn from this episode or it would be like throwing good money after bad.
From the implosion of Lehman Brothers’ Minibonds in 2009 to the toxic gold buy-back schemes to the outrageous Swiber junk bond defaults, Singapore had witnessed numerous investment tragedies. Some of the investment schemes were so downright ridiculous that you would be surprised many Singaporeans actually bought into them. For sure, Hyflux saga is not the first, but it will not be the last as well. What made this Hyflux saga so intriguing is that investors had not learned the lessons through the years. Many of the Hyflux investors were also previously investors of Minibonds, gold buy-back schemes or Swiber corporate bonds.
To make matters worse, trading of Hyflux shares were halted since last year, giving shareholders no way of running for their lives. No wonder investors are angry with founder Olivia Lum. She simply gives them no way out. If Hyflux shares were not suspended, at least share investors can short-sell shares and claw back some losses through short-term trading.
Hyflux saga stems from crisis of confidence
Indeed, the whole Hyflux saga is nothing short of shambolic. You have Public Utilities Board (PUB) announcing its rights to take its key asset – Tuaspring desalination plant – at zero dollar if Hyflux’s default issues are not resolved by 30 April 2019. You have white knight SM Investments getting cold feet and considering to pull out at the last minute due to its claim of Hyflux holding back “material information”. There are so many twists and turns for Hyflux saga that no scriptwriter is capable of coming up with similar plot.
And then there is the voting of the restructuring scheme on 5 April 2019. Under the restructuring scheme, Hyflux retail preference shareholders and perpetual securities holders face recovery rate of only about 10%, out of which only 3% would be in cash. Against this backdrop, many investors are threatening to vote against the scheme. However, in doing so, they need to be mindful that they stand to get nothing if Hyflux went into liquidation, which is likely to happen if SM Investments decided to drop the rescue deal.
In my view, Hyflux’s troubles should stem from crisis of confidence among its bank creditors. By itself, the business model of water treatment is sustainable in a country like Singapore. But problems started to snowball when Hyflux decided to take on the Tuaspring Deslination project from PUB in 2011. The plant not only generates desalinated water, but also electricity. The entry into the energy market changed the business dynamic for Hyflux as it lacks competency in this segment. That deal also saw Hyflux taking on a massive $720million loan from Maybank.
Then the collapse of oil price in 2014 caused mayhem for Hyflux as it incurred losses from operating Tuaspring. The weak power market also led to delay in the sale of Tuaspring, Hyflux’s largest asset on hand. It was a perfect storm for Hyflux because if Olivia Lum had chosen to cut losses and sold off the plant, the bank creditors’ confidence would not be shaken and the house of cards would not have collapsed. But of course, all these are water under the bridge.
Taking ownership on investment losses
So what are the lessons for Hyflux investors? First of all, the argument that Hyflux investors do not deserve to suffer losses because many of them are retirees is [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]
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