Trouble Getting Loans Led Hyflux to Issue Shares to Fund Project: Prosecution

Banks had raised serious concerns about firm's strategy of selling electricity, court told

- Grace Leong

Hyflux looked to retail and institutional investors to fund its Tuaspring project because it had trouble getting bank loans, the prosecution said on the first day of the trial involving former senior executives of the failed water treatment company.

Deputy Chief Prosecutor Christopher Ong noted that a group of banks initially said they were willing to finance the project. But in 2011, they raised "serious concerns" after learning of Hyflux's strategy of selling electricity to subsidise the sale of water to PUB.

Hyflux eventually issued preference shares to fund the integrated water and power project. The company's collapse left about 34,000 investors of perpetual securities and preference shares, who had sunk in a combined $900 million, with nothing.

In his opening statement to the State Courts on Aug 11, Mr Ong said Hyflux founder and former chief executive Olivia Lum Ooi Lin did not disclose information about business risks because she did not want to detract from the positive news of winning a landmark water project, and feared deterring investors.

Hyflux had won a tender for Singapore's second and largest desalination plant with the lowest submitted bid. It had proposed to sell water to PUB at a first-year tariff price of 45 cents per cubic m, undercutting its competitors by at least 27 per cent.

"At this price, the desalination plant would operate at a loss," Mr Ong said.

"To make the project financially viable, and also fulfil PUB's requirement to procure or produce electricity for the desalination plant at Hyflux's cost, Hyflux intended for the power plant to supply electricity to the desalination plant, while actually selling the vast majority of the power that it generated to the national grid."

It was only from this sale that Hyflux would be able to make up for the desalination plant's losses and make the project profitable.