[SINGAPORE] Hyflux’s founder and former chief executive (CEO) Oliva Lum was determined that Hyflux win the Tuaspring integrated water and power project in 2011 that she did not want to disclose material information, including the project’s profitability hinging on electricity sales, the prosecution charged on the first day of the trial on Monday (Aug 11).
The 64-year-old entrepreneur, as well as Hyflux’s ex-chief financial officer Cho Wee Peng and four independent directors Teo Kiang Kok, 69; Gay Chee Cheong, 68; Christopher Murugasu, 66; and Lee Joo Hai, 69, are contesting their non-disclosure charges in the trial.
The prosecution is proceeding on two charges against Lum and the four directors each, and one charge against 56-year-old Cho, over the listed water treatment company’s intentional failure to disclose material information.
In its opening statement, the prosecution said the case arose from Hyflux’s non-disclosure of three pieces of information as required under the Singapore Exchange (SGX) listing rules in March 2011 and offer information document in its issuance of S$200 million, 6 per cent preference shares in April 2011.
Specifically, the material information was the Tuaspring project was Hyflux’s foray into a new business, the project would derive the significant majority of revenue from the sale of electricity from its power plant and that profitability of the billion-dollar project was contingent on revenue from that sale of electricity.
The information was material in influencing investors’ decision to trade Hyflux securities, said the prosecution.
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Lum was accused of consenting to Hyflux’s non-disclosures on both occasions, Cho was said to have connived in Hyflux’s non-disclosure to SGX, while the four directors were allegedly neglect in both non-disclosures.
Their alleged non-disclosures took place after a consortium of six banks expressed serious concerns about new “merchant sale risk and operational risk” when they learnt about Hyflux’s strategy of using the sale of electricity to subsidise the sale of water to PUB.
“The banks took the risks of Hyflux’s power business plan so seriously that in January 2011, they jointly issued a side letter to Hyflux stating that they could not lend money to Hyflux on the same terms that had previously been indicated in the October 2010 in-principle commitment letters,” deputy public prosecutor (DPP) Christopher Ong said in court.
DBS, Mizuho Corporate Bank and Sumitomo Mitsui Banking Corporation – three of the six banks – extended financing of S$150 million for the construction of the desalination plant in the Tuaspring project.
However, Hyflux eventually aborted this financing and ultimately financed the Tuaspring project by a shareholder’s loan of S$840.4 million in October 2011, which was in turn refinanced by Maybank Singapore and Maybank Kim Eng Securities in September 2013.
Hyflux subsequently issued the preference shares to fund the Tuaspring project, because of the challenges it faced in obtaining financing from the banks. The preference shares were oversubscribed and the offer amount was increased to S$400 million.
DPP Ong said: “Lum was determined that Hyflux had to win the bid and cement its status as a global leader in the water treatment and desalination industry. Hyflux was facing setbacks in its Middle Eastern ventures, and winning the Tuaspring bid was critical for strengthening the company’s order book.
“She did not want to detract from the positive news of winning a landmark water project by revealing the Tuaspring project’s reliance on electricity sales, and the fact that the low tariff price – the key to winning the tender – was only viable because of such electricity sales.”
Former Hyflux staff involved in preparing the announcement or the documents in both occasions, bank representatives who interacted with Hyflux personnel in negotiating the financing of the Tuaspring Project, Hyflux’s external legal counsel on the shares issuance document, and a SGX representative to provide evidence on the sequence of events that led to this case being investigated, are among the prosecution witnesses lined up in the 57-day trial.
Lum also faces four Companies Act charges but these have been stood down in this trial.
