Hyflux secured only $150m bank loan for $890m project owing to cash flow concerns

Hyflux's plan to build power plant and sell excess electricity to grid also raised worries

- Grace Leong

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.