Founder and CEO of struggling water treatment company Hyflux Olivia Lum refuted claims that she received S$60 million in dividends in 2017.
Hyflux came under the scrutiny of the Securities Investors Association Singapore (SIAS) and was given 40 questions to respond to with regard to the company’s financial activities.
Lum sent the letter to SIAS on behalf of her Board expressing their concern towards Hyflux’s investors.
It said that they are “deeply saddened and disappointed that despite our continued efforts through the years, the company did not succeed in the manner we had intended and now finds itself in its current state.”
According to the letter, the issues faced by Hyflux was mainly due to its investment in Tuaspring Integrated Water and Power Project in Singapore, their largest asset, which was supposed “to turn in profits from day one” but due to the drop in electricity prices since 2011, the projections weren’t fulfilled, and significant losses were incurred.
The letter proceeded to answer the questions sent in by SIAS that covered topics such as operations, shares and securities, financial performance, Tuaspring, management, and the restructuring process.
Q. Hyflux Group has generated negative operating cashflow every year since 2009. Was this highlighted to bondholders and shareholders? If so, in what form?
Hyflux responded to this by saying that their financial metrics were publicly disclosed quarterly, including to all bondholders and shareholders. This was done through the company’s website, annual reports, and the SGX website.
Q. Why did the Board continue to pay dividends, when the operating cashflow was negative and accumulate more debt during this time?
Hyflux corrected SIAS by saying that before 2017, not 2009, the company has been recording net profits. Dividends were declared and paid based on Hyflux’s retained earnings from divestment gains such as those from the China water plants, the Hyflux Innovation Centre, and the Marmon joint venture.
The negative operating cashflow highlighted by SIAS was due to the development of infrastructure projects for subsequent divestment and sale. Also, investments on these projects were funded by debt and equity, thus leading to more deficit during the period. It was only in 2017 that the company experienced a net loss which led to no cash dividends being declared nor paid for that year.
Q. In the time that shareholders and bondholders have seen their entire investment destroyed, Olivia Lum has received over SGD60 million in dividends from her 34% ordinary shareholding in Hyflux. In addition, she has received significant salary, benefits and bonuses and earned between SGD750,000 and USD1 million in 2017, a year in which Hyflux reported losses of SGD115.6 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. Why isn’t Olivia contributing her gains to the restructuring process?
To this, the company replied by saying that Lum, whose personal net worth is “tied inextricably to her stake in Hyflux and has not sold any of her shares since 2006,” will also suffer a significant loss. She is also deeply saddened by the loss sustained by the other investors.
Regarding the sum of dividends, Hyflux clarified that there have been inaccuracies and that she did not receive any cash dividend on 2017, however, she did receive about S$58 million over the span of ten years from 2007 to 2016.
This period was when the company recorded cumulative profit after tax and minority interests amounting to S$527 million of which S$186 million was paid to shareholders.
Q. On what basis was Tuaspring being valued at SGD1.4 billion? This has proven to be overstated by at least SGD900 million as Hyflux has confirmed any bids received in the 2018 sale process for Tuaspring were for less than Maybank’ s outstanding project finance debt of approximately SGD500 million?
According to Hyflux, the Tuaspring project was modeled on the cashflow projections and financial model audited by an external auditor and furnished to the offtaker in 2011. An independent market study was also commissioned and all arrived at similar conclusions regarding the book value of Tuaspring.
The values changed by 2016 when the power plant entered into commercial operations in 2016, the 2017 divestment process attracted three preliminary non-binding bids, the 2018 sale process for Tuaspring and due to the limited number of parties pre-qualified to perform due diligence at such time.”
When asked about the restructuring process and whether executives, such as Lum, are contributing anything to the transition, Hyflux replied by saying that “Executives are incentivized to align their interests with the company through the issuance of employee stock options under the company’s Employee Stock Option Scheme.
These stock options form part of each executive’s remuneration. As a result of the restructuring, these stock options are now worthless and likely to be extinguished as part of the restructuring.
As such, these executives are in similar straits as that of the stakeholders.”
Read the full 18-page letter sent via email and published on Friday, February 15.
https://www.hyflux.com/wp-content/uploads/2019/02/Hyflux-responses-to-SIAS-letter.pdf