SINGAPORE: Despite reporting losses of S$115.6 million in 2017, troubled water treatment firm Hyflux spent about S$2.7 million on remuneration for its key executives, with CEO Olivia Lum receiving between S$750,000 and S$1 million in salary, benefits and bonuses.
In addition to this "large remuneration", Ms Lum also received more than S$60 million in dividends "in the time that shareholders and bond holders have seen their entire investment destroyed", according to the Securities Investors’ Association (Singapore) (SIAS).
Highlighting these points, SIAS asked why the Hyflux founder - which has 34 per cent ordinary shareholding in the company - did not contribute her gains to the restructuring process. The investor watchdog also asked if Ms Lum would have any role in the Hyflux group after the firm’s restructuring.
These were just two of more than 40 questions put to Ms Lum and the Hyflux board by the investor watchdog in a letter issued on Monday (Feb 11) and signed off by its President and CEO David Gerald.
"SIAS, representing the interests of the numerous stakeholders of various securities, is seriously concerned that many questions regarding the operations, valuation and accountability of the board of directors of Hyflux have not been addressed, so as to help securities holders make an informed decision, with respect to the restructuring," Mr Gerald said.
"In addition, (Ms Lum) has received significant salary, benefits and bonuses and earned between S$750,000 and S$1 million in 2017, a year in which Hyflux reported losses of S$115.6 million and a period which was five months prior to Hyflux Group filing for Court protection from creditors and when Hyflux has been losing huge amounts of cash and building projects,” Mr Gerald said in asking Hyflux to justify Ms Lum’s remuneration.
Mr Gerald also asked if many of the executives who “appear” to be shareholders are contributing anything to the restructuring.
The role of the Hyflux Group Remuneration Committee was also under scrutiny, as SIAS questioned its responsibilities and the basis as to how it established the remuneration paid to Hyflux executives in 2017 as “appropriate”.
FINANCIAL TRANSPARENCY QUESTIONED
Beyond clarifications on the decisions regarding remuneration, SIAS also raised queries over the firm’s financial operations.
“Hyflux Group has generated negative operating cashflow in every year since 2009. Was this highlighted to bondholders and shareholders? If so, in what form? Why did the Board continue to pay dividends, when the operating cashflow was negative and accumulate more debt during this time?”
The investor watchdog also highlighted that Hyflux, despite the negative operating cashflow, reported profits in each year before 2017 and asked how this was possible.
The Hyflux Board was also questioned over the level of scrutiny it exercised on the operations of the main assets of Hyflux and why the “faults and defects” were not announced in annual reports.
The Board was also queried as to why it failed to ask for help earlier when Hyflux was unable to meet its debt obligations.
“On Mar 22 2018, KPMG provided a clean a clean audit report for Hyflux Group for the financial year 2017. On May 22 2018, Hyflux Limited and a number of subsidiaries filed for court protection from creditors,” SIAS said, asking what transpired between Mar 22 and May 22 in 2018.
QUESTIONS OVER TUASPRING
Several questions were also raised on the Tuaspring Integrated Water and Power Plant project, which marked the company’s foray into the energy business in 2011.
Among them was the basis as to which Tuaspring was valued at S$1.4 billion which SIAS said has been proven to be overstated by at least S$900 million and why the Board did not consider it “prudent to write down or impair the asset” since it had been loss making from the time it commenced operations in 2015. SIAS also sought clarification as to how a shareholder loan of S$57 million from Hyflux to Tuaspring was funded.
The low electricity prices that Hyflux cited as a reason for its financial issues was also scrutinised.
“Hyflux claims that its financial issues were caused by the low electricity prices and thus Tuaspring was unable to make a profit. A liquidation of Hyflux would compromise S$2.6 – 2.7 billion of outstanding and contingent debt,” SIAS said, asking what other factors that contributed to the firm’s position.
Finally in the letter, SIAS questioned the “rushed timetable” that Hyflux has set for investors.
“By releasing the restructuring terms one month before the intended scheme meeting, Hyflux is providing very little time for investors to evaluate the deal,” SIAS said.
Hyflux said in a statement on its website that it has received SIAS' letter and is currently preparing its response.
"The Board and Ms Olivia Lum appreciate the opportunity to communicate to the stakeholders with regard to their queries," the company said.
Hyflux "will publish the responses as soon as possible on Hyflux Ltd corporate website".