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- Feb 13, 2017
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The downfall of Hyflux has caused major suffering to many Singaporean investors who had invested their hard earned money in issued preferential shares and perpetual securities.
A total of 34,000 retail investors had invested $900 million in these securities.
A big portion of the investments were made in May 2016 based on a prospectus issued by the issue manager, DBS.
Most of the retail investors who bought the perpetual securities in 2016 were risk averse and non sophisticated investors. They chose to invest in the perpetual securities as they wish to avoid investing in the shares (which they consider to be riskier).
They bought the perpetual securities in Hyflux as it operated water desalination plants that were considered to be strategic to Singapore.
The investors also thought that the securities were safe as they had been vetted by the Monetary Authority of Singapore and subsequently approved for sale through the ATM machines of DBS Bank.
On 8 April 2019, the Monetary Authority of Singapore issued a statement indicating that they had investigated matters and found that DBS did not commit any impropriety in the May 2016 sale of the $500 million Hyflux perpetual securities.
It found that Hyflux had disclosed in its offering document in 2016 that the Tuaspring power plant was expected to incur losses if electricity prices in Singapore were to remain low. The offering document was also cautious on the outlook for the water and energy markets.
We are unhappy with the findings of MAS. They did not take into account the following facts that become clear to retail investors only recently:
a) It should have been quite clear to the board of Hyflux about the extent of the loss that the power plant was incurring at that time. They had already committed to the purchase of the LNG gas at a possibly high price and wholesale electricity prices had dropped to disastrous levels.
b) The monthly losses from the power plant must be of a large magnitude. The board did not appear to indicate the seriousness of this situation in the prospectus. Were the directors hoping that wholesale electricity prices would recover? Surely, this point should be clearly mentioned in the prospectus by the board of Hyflux and by the issue manager?
c) Furthermore, there was no mention that most of the revenue of Tuaspring came from the power plant. In the annual report of Hyflux for 2011 to 2016, Tuaspring was pitched as a desalination plant and the power component was built with the objective to supply electricity to the water plant, with excesses generated sold to the national grid. Most people had the impression that water was the main revenue generator.
d) The board of Hyflux had broken a rule in the SGX listing where they are required to obtain a shareholder mandate when they embark on new business ventures (i.e. power generation) which could possibly augment the overall risk profile. They did not inform shareholders accordingly.
e) Within just two years of the issue of the perpetual securities in 2016, Hyflux had to apply for court protection from its creditors due to massive losses incurred.
More at https://tinyurI.com/yy3sqhv7
A total of 34,000 retail investors had invested $900 million in these securities.
A big portion of the investments were made in May 2016 based on a prospectus issued by the issue manager, DBS.
Most of the retail investors who bought the perpetual securities in 2016 were risk averse and non sophisticated investors. They chose to invest in the perpetual securities as they wish to avoid investing in the shares (which they consider to be riskier).
They bought the perpetual securities in Hyflux as it operated water desalination plants that were considered to be strategic to Singapore.
The investors also thought that the securities were safe as they had been vetted by the Monetary Authority of Singapore and subsequently approved for sale through the ATM machines of DBS Bank.
On 8 April 2019, the Monetary Authority of Singapore issued a statement indicating that they had investigated matters and found that DBS did not commit any impropriety in the May 2016 sale of the $500 million Hyflux perpetual securities.
It found that Hyflux had disclosed in its offering document in 2016 that the Tuaspring power plant was expected to incur losses if electricity prices in Singapore were to remain low. The offering document was also cautious on the outlook for the water and energy markets.
We are unhappy with the findings of MAS. They did not take into account the following facts that become clear to retail investors only recently:
a) It should have been quite clear to the board of Hyflux about the extent of the loss that the power plant was incurring at that time. They had already committed to the purchase of the LNG gas at a possibly high price and wholesale electricity prices had dropped to disastrous levels.
b) The monthly losses from the power plant must be of a large magnitude. The board did not appear to indicate the seriousness of this situation in the prospectus. Were the directors hoping that wholesale electricity prices would recover? Surely, this point should be clearly mentioned in the prospectus by the board of Hyflux and by the issue manager?
c) Furthermore, there was no mention that most of the revenue of Tuaspring came from the power plant. In the annual report of Hyflux for 2011 to 2016, Tuaspring was pitched as a desalination plant and the power component was built with the objective to supply electricity to the water plant, with excesses generated sold to the national grid. Most people had the impression that water was the main revenue generator.
d) The board of Hyflux had broken a rule in the SGX listing where they are required to obtain a shareholder mandate when they embark on new business ventures (i.e. power generation) which could possibly augment the overall risk profile. They did not inform shareholders accordingly.
e) Within just two years of the issue of the perpetual securities in 2016, Hyflux had to apply for court protection from its creditors due to massive losses incurred.
More at https://tinyurI.com/yy3sqhv7
