Investments gone bad

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Vivian Balakrishnan

 

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Lee Hsien Loong

 

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Lao Hero Still around?

 

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Hyflux got only $150 million bank loan for $890 million project because of cash flow concerns​

The prosecution’s third witness, Mr Nah Tien Liang, Hyflux’s former vice-president of investment, outside the State Courts on Sept 2.

Summary

• Hyflux wanted a term loan of $527 million for its Tuaspring project, but concerns over the power plant led to lower offers from banks.
• Hyflux had to provide a $252 million base equity for a $150 million loan.
• Hyflux's collapse, funded by preference shares instead of bank loans, left 34,000 investors with $900 million in losses due to weak electricity sales.

AI generated

Sep 02, 2025

SINGAPORE – Even after Hyflux won its bid for the $890 million Tuaspring project in March 2011, it managed to secure only a $150 million bank loan.

This was because the banks estimated that cash flows from the desalination plant would support only around $150 million to $170 million of debt, a court heard on Sept 2.

To finance Tuaspring, Hyflux had sought a term loan of about $527 million from a consortium of banks. In October 2010, six banks signed in-principle commitment letters indicating their willingness to lend the money.

But they raised “serious concerns” after learning of Hyflux’s plan to build a power plant and sell excess electricity to the grid. In January 2011, they told Hyflux that they could not lend money on the terms previously indicated as the power plant introduced new “merchant sale risk and operational risk”.

“The banks were saying: ‘Without the benefit of due diligence or extensive financial modelling, we estimate that the cash flows generated under (Hyflux’s) water purchase agreement may be able to support around $150 million to $170 million of debt,’” noted Deputy Public Prosecutor Kevin Yong on Day 8 of the criminal trial.

“Therefore, the rest of Tuaspring’s project cost has to come from an additional base equity commitment from Hyflux.”

“That’s the worst-case scenario,” the prosecution’s third witness, Mr Nah Tien Liang, told the court. Mr Nah was Hyflux’s former vice-president of investment. Part of his testimony was heard earlier in private.

The banks were concerned because Hyflux had no track record in operating a power plant. They also had misgivings about the tech capabilities of Shanghai Electric, a sub-contractor which was being considered to build the power plant, as well as fuel price risks, and a new termination clause introduced by PUB.

Singapore’s national water agency wanted the option to take over only the desalination plant, without the power plant, in the event of termination.


This was because “the original tender called only for the desalination plant. There was no power plant”, Mr Nah said.

‘Need to do a lot of convincing’: Lum​

In a Dec 4, 2010, e-mail, Hyflux founder Olivia Lum had told several senior management officers: “Need to do a lot of convincing job in energy strategy to the banks.”

She had also noted that Island Power, another power plant under construction at the time, was having a “financing challenge”.

When asked what Island Power’s financing challenge had to do with Tuaspring, Mr Nah replied that both were power plants.

“Whatever concerns the lenders had on the power market would also apply to the lenders of Tuaspring and Island Power,” he said.

In the end, only three of the original six banks – DBS Bank, Mizuho Corporate Bank and Sumitomo Mitsui Banking Corporation – extended financing of $150 million for the construction of the desalination plant.


Hyflux had to promise to provide a base equity of $252 million to the Tuaspring project for the loan.

This condition was set out in a July 4, 2011, deed between Tuaspring Pte Ltd, Hyflux and DBS. The parties had to commit to the deed before the banks would make advances under the loan.

DPP Yong asked why Hyflux needed to provide a base equity of $252 million for a $150 million loan.

Mr Nah responded: “Because if you want to complete the desalination plant, the construction... costs more than the $150 million the banks are providing. Therefore, the remaining has to be funded by equity.”

The court heard that Hyflux had confirmed in a Jan 7, 2011, letter to PUB that should it be successful in its bid for Tuaspring, it was willing to commit an equity injection of $363 million.

In this letter, Hyflux listed various sources of funding. This included “cash at hand of $307 million as of Sept 30, 2010”, as well as increased debt financing from project finance, cash from operations and a new issue of medium-term notes.

The $150 million financing was eventually terminated by Hyflux.

Tuaspring was ultimately financed by a shareholder’s loan of $840.4 million in October 2011. This loan, in turn, was refinanced with Maybank Singapore and Maybank Kim Eng Securities in September 2013.

In an Oct 31, 2011, announcement to the Singapore Exchange, Hyflux said: “In view of internal resources and funds raised from issuance of perpetual preference shares and medium-term notes, Tuaspring will rely on corporate funding to complete the development and construction of the Tuaspring desalination plant and power plant installed on site.”

Hyflux eventually issued preference shares to fund the integrated water and power project. The company’s collapse, due to weak electricity sales, left about 34,000 investors of perpetual securities and preference shares, who had sunk in a combined $900 million, with nothing.

When asked by DPP Yong if perpetual preference shares refer to the April 2011 preference share issue, Mr Nah agreed.

Lum, Hyflux’s former chief financial officer, Cho Wee Peng, and four independent directors – Teo Kiang Kok, Christopher Murugasu, Gay Chee Cheong and Lee Joo Hai – are contesting several charges. These relate to non-disclosures of material information about the Tuaspring project in a regulatory announcement in March 2011 and in the information document for the issuance of preference shares in April 2011.

 

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Prosecution, defence spar over request for evidence on how banks reacted to Hyflux power strategy​

Hyflux building in Kallang Bahru in 2020. The prosecution and defence had a war of words in the Hyflux criminal trial on Sept 3.

Sep 03, 2025

SINGAPORE - A war of words erupted between the prosecution and defence in the Hyflux criminal trial on Sept 3, following a surprise request by Senior Counsel Davinder Singh for correspondence between Hyflux and all the banks it had asked for financing.

Mr Singh, who is representing Hyflux founder Olivia Lum, had sought evidence on whether Maybank and other banks had issues with Hyflux’s power strategy when they considered financing the Tuaspring project.

Tuaspring was ultimately financed by a shareholder’s loan of $840.4 million in October 2011. The loan, in turn, was refinanced with Maybank Singapore and Maybank Kim Eng Securities in September 2013.

The prosecution had alleged that Hyflux “had motive” to downplay material information because it knew that the six original banks from which it had sought $527 million in financing had concerns about its power strategy.

It was referring to information about the Tuaspring project’s electricity sales component in a March 2011 announcement, as well as in the offer information statement (OIS) for the issuance of preference shares in April 2011.

Mr Singh had challenged these allegations.

Lum, Hyflux’s former chief financial officer, Cho Wee Peng, and four independent directors – Teo Kiang Kok, Christopher Murugasu, Gay Chee Cheong and Lee Joo Hai – are contesting charges relating to non-disclosures of material information about the project in the March 2011 announcement and the April 2011 preference shares issue.

According to the prosecution, six banks had signed in-principle commitment letters indicating their willingness to lend, but raised “serious concerns” after they learnt of Hyflux’s plan to build a power plant and sell excess electricity to the grid. In January 2011, Hyflux was told that they could not lend money on the terms previously indicated, as the power plant introduced new “merchant sale risk and operational risk”.

In the end, Hyflux only managed to secure a $150 million bank loan. This was because the banks estimated that cash flows from the desalination plant would support only around $150 million to $170 million of debt.

But the prosecution’s third witness, Mr Nah Tien Liang, told the court in his cross-examination that the $150 million financing was “very likely” meant “to meet the financial close deadline set by PUB”. Mr Nah was Hyflux’s former vice-president of investment.

After the $150 million was offered, the banks were still continuing to look at financing for the entire project, including the power plant, Mr Singh said.

This came after a spat between Mr Singh and Deputy Chief Prosecutor Christopher Ong, when Mr Singh asked for communications between Hyflux and all the banks.

“The prosecution considers it relevant to its case to set out how the six banks reacted. But they are refusing to let us have the exchanges between Hyflux, Maybank and the other banks,” Mr Singh said.

Mr Ong said he was not expecting the defence to bring this up.

Mr Singh said he requested this information because the prosecution had asked Mr Nah about “the financing arrangements and the impression that the banks were reluctant, and Hyflux was having difficulty raising funds”.


District Judge Toh Han Li pointed out: “But Maybank gave a loan of $720 million. So factually, some banks have reservations, and Maybank gave a loan.”

Mr Singh argued: “You can’t just pick a few letters from the banks to say there were concerns without showing whether there were any remaining concerns after due diligence was done.

“Maybank lent much later, but Hyflux was talking to Maybank and other banks.”

But Mr Ong countered: “In no way was (the) prosecution being selective. This is clearly in the context of what led to the March 2011 announcement coming out the way it did.”

It was these six banks that gave the in-principle commitment letter that Hyflux submitted to PUB for its bid, and “supported Hyflux in whatever way they are willing to”, he said.

“So these are the relevant banks,” he added.

During the hearing, Mr Singh took Mr Nah through a June 17, 2011 letter from Hyflux to PUB that showed that it was proposed that financing of the project be structured in two phases.

When asked about the link between the $150 million and the financial close deadline, Mr Nah said: “Based on a requirement that X months after signing, there is a financial close where there has to be financing to show PUB that there are funds for the project.”

He acknowledged that there was an approaching deadline for submission of financing from early-2011 to mid-2011 under PUB’s terms, and that Hyflux was also in discussions with other banks apart from the six banks in January and February of 2011.

Mr Singh said: “I suggest to you that the six banks in January 2011 said they needed more time, and that’s not unusual at all. They were prepared to submit a letter to Hyflux to be passed on to PUB, but as the banks were still assessing Hyflux’s requested financing, and the deadline for (submission of financing) was coming up, Hyflux couldn’t just sit and wait for the six banks, it had to do something.

“And one of the things it did was to have PUB agree to the $150 million financing first, and, in the meantime, continue to talk to the six banks and other banks. Ultimately, financing was obtained.”

In trying to debunk the prosecution’s case that Hyflux senior management downplayed the fact that the power plant would sell electricity to the grid and that Tuaspring’s profitability depended on these electricity sales, Mr Singh argued that it would not be possible for Hyflux to deliver desalinated water to PUB without the power plant.

“In fact, the power plant and the desalination plant were like conjoined twins. And it was fundamental and inherent to the entire model that was presented to the PUB?” he asked.

Mr Nah agreed.

The prosecution’s case is that Tuaspring was pitched as a desalination plant to investors, and the power plant’s main purpose was to supply electricity to the desalination plant, when in fact nearly 92 per cent of power produced by the plant was projected to be sold to the national grid and only 3 per cent was meant for powering the desalination plant.

Because Tuaspring’s revenue was a big component of the group’s strategy, its failure due to weak electricity sales led to Hyflux’s collapse.

“If you had a power plant like Tuaspring where you were going to sell excess power to the electricity grid, your exposure lies in the event of electricity prices going down, right?” Mr Singh asked.

Mr Nah replied: “It is more if the spark spread reduces, and if the electricity price also drops, that would impact the power plant financially.”

Spark spread refers to the difference between selling price of electricity and the short-run marginal costs of fuel, or the costs of production using gas.

In the afternoon of the hearing, Mr Nah’s evidence was given in camera, with the public and media not allowed in, as it touched on issues of national security involving Singapore’s water security.

 

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Analysts upgraded Hyflux’s ratings despite its power strategy: Defence​

Ms Winnifred Heap, who used to head corporate communications and investor relations at Hyflux, was the prosecution’s second witness on Sept 10.

Sep 10, 2025

SINGAPORE – By scrutinising the March 2011 project announcement for the Tuaspring desalination plant, financial analysts would be able to work out that Hyflux would need to sell a large part of excess power generated to the grid to meet profit targets.

Nonetheless, most analysts maintained or upgraded their outlook on Hyflux’s share price based on bullish financial projections, which were published in reports that investors could access.

On Sept 10, these reports formed a key plank of the defence’s case in the criminal trial involving ex-Hyflux chief executive Olivia Lum.

She is facing charges of non-disclosure of material information in the March 2011 announcement, as well as in the issue of preference shares the following month.

To illustrate his point, Senior Counsel Davinder Singh drew on five research reports from DBS, Kim Eng, Credit Suisse, JP Morgan and Indian financial services company IIFL, all released within days of the announcement.

He was continuing his cross-examination of the prosecution’s second witness, Ms Winnifred Heap, who used to head corporate communications and investor relations at the defunct water treatment provider. Before joining Hyflux in 2009, Ms Heap was formerly head of Singapore research at JP Morgan.

He began by asking Ms Heap what information an analyst covering Hyflux would need to determine the excess electricity capacity of a plant like Tuaspring, and to project the impact of the sale of electricity on both revenues and profits.

“The math can only be done if you consult a water desalination specialist who can tell you the typical (electricity) consumption of such a plant,” Ms Heap said.

However, in response to a follow-up question from Mr Singh, she acknowledged that consulting such an expert is not required if the information is publicly available.

Assumptions on the potential demand, supply and resulting price of electricity would also be required for the analysis, she noted.

Afterwards, Mr Singh asked her the extent of industry knowledge an analyst covering Hyflux could be expected to have, as well as the role of an analyst in investment research.

“How do analysts compete with each other? In other words, if I were an analyst in Company A and there’s another analyst in Company B both covering Hyflux, what gives us the competitive edge?” he asked.

To this, Ms Heap said key to this is the ability to “scrub the financials” to understand the visibility and certainty of cash flow, as well as verifying technical details with industry experts for the analysis.

Mr Singh then cited the report from IIFL, in which an analyst estimated that Hyflux would have to sell at least 65 per cent of the excess power not used in desalination to achieve a “low-teen” equity internal rate of return of between 10 per cent to 14 per cent.

The internal rate of return is a key measure of profitability.

The IIFL analyst raised the target price for Hyflux from $1.60 to $1.79, but maintained a “Sell” recommendation due to concerns over Hyflux’s future order book, in a report targeting institutional investors.

The target price is the estimated value of a given stock for optimal returns.

The other four analysts had cited the Tuaspring order win as the basis for maintaining or improving their calls - which ranged from “Outperform” to “Buy” - despite a large order in Libya remaining in limbo.

Asked if the name of the IIFL analyst - who had called Ms Heap and whom she had sent an e-mail about to Lum and former chief financial officer Cho Wee Peng - rang a bell, Ms Heap said the company and analyst’s names were both unfamiliar, and not known to cover Hyflux regularly.

She also could not recall if the analyst had been invited for a briefing on the Tuaspring project.

Mr Singh said: “Despite them not being one of (the analysts) you see regularly… they were able to come out with the report (the) same day.”

Mr Thong Chee Kun from Rajah & Tann, who represents former chief financial officer Cho, cross-examined Ms Heap afterwards.

Mr David Chan from Shook Lin & Bok, who represents the remaining four independent directors, will conduct his cross-examination on Sept 10 afternoon.

After this, the prosecution will do a brief re-examination of Ms Heap.

The hearing continues.