Singapore water debacle risks 90% losses for investors

Bloomberg

The catastrophic slump of Singapore’s much-vaunted water and power company, Hyflux Ltd., has stunned 34,000 retail investors who were lured by the promise of a 6 percent annual return forever from a company that seemed to have a gold seal of government approval.
At the heart of the debacle is Tuaspring, a desalination and power plant that cost S$1.1 billion ($809 million) and was heralded as one of the “national taps” for an island that had long depended on importing water and harvesting rainwater for survival. The company’s glowing prospects encouraged investors including Li Meicheng and Violet Seow to funnel some of their savings into S$900 million of junior debt to help fund the venture and group expansion.
Tuaspring was opened to great fanfare in September 2013, with the head of the Public Utilities Board and two government ministers flanking Prime Minister Lee Hsien Loong, who called the plant “the latest milestone in Singapore’s water journey,” praising its “unique and cost-efficient design.”
But the facility hasn’t made money since under its 25-year water-supply agreement. And losses snowballed after its gas-turbine power plant started selling excess capacity in 2016 to the power grid, which had a glut of electricity caused by the opening of the market to competition. As cash depleted and liabilities approached S$2.7 billion, Hyflux sought court protection from creditors to restructure.

Commercial Matter
Many investors expected the government to step in and help a venture it had enthusiastically praised. But the authorities have rejected calls for intervention into what they call a “commercial matter.” The PUB served a notice of default on the Tuaspring plant owner for operational and financial lapses. Hyflux was given 30 days to make good on its obligations, or the state could terminate the contract and seize the plant.
The government deadline for Tuaspring to comply, April 5, is the day creditors must vote on Hyflux’s restructuring plan, effectively forcing them to accept the workout deal or risk losing everything. Hyflux must persuade more than 50 percent of those who turn up to the meeting and 75 percent in value of claims, to back the reorganisation. The company will reschedule a town hall previously planned for March 13 as a large number of noteholders wish to attend.
The company is the latest in a series of at least 15 corporate defaults since 2014 that highlight the risks in a dark corner of Singapore’s S$386 billion credit market — unrated bonds paying junk-level yields in a near-zero interest-rate era.

From a 77-year old millionaire in Rickmers Maritime liquidation to a 71-year old former civil servant who felt cheated in Noble Group Ltd.’s implosion, retail investors have been battered by losses in bonds and stocks.
“This episode is really a wake-up call for the Singapore financial sector, how we promote such novel and risky instruments, the role of financial intermediaries and the education of the investing public,” said Lawrence Loh, director of Centre for Governance, Institutions and Organizations at NUS Business School in Singapore.
A spokesperson for the Monetary Authority of Singapore said in response to queries on Hyflux that all investments carry risks and that businesses can come under financial stress.
Closely Monitoring
“As a listed company, Hyflux is required under SGX’s disclosure rules to provide investors with up-to-date, material information such as its financial condition and prospects,” the spokesperson said. “MAS and SGX continue to monitor the situation closely, including ensuring that Hyflux actively engages its investors, and provide regular and timely updates to the market on its restructuring plan.”
For Hyflux investors, the terms of its debt sales certainly seemed attractive at the time. The company sold S$400 million of preference shares in April 2011, double the amount marketed, to help finance Tuaspring. Another S$500 million bond sale came in May 2016, largely to redeem maturing debts. Without a maturity date, both unrated instruments had promised to pay 6 percent or more annually to eternity. Buyers could even place orders through local ATMs.
The company’s pedigree also seemed solid. It grew out of a startup founded in 1989 by Olivia Lum, an orphan who left a career in pharmaceuticals with S$20,000 from selling her car and apartment. After selling shares to the public in January 2001, Hyflux started winning municipal contracts in Singapore. Lum became a role model for local entrepreneurs, winning accolades and a seat in parliament reserved for distinguished community members.