SINGAPORE (Feb 15): Olivia Lum, chairman and CEO of Hyflux, expressed regret that the water company she founded had imploded in such a spectacular manner that it required a bailout.
"We are deeply saddened and disappointed that despite our continued efforts through the years, the company’s business did not succeed in the manner we had intended, and the Company now finds itself in its current state. We seek your understanding as the company works its way through this very difficult time,” says Lum in its cover letter.
Questions from the stakeholders had ranged from Hyflux's operations, valuation and accountability, which they claimed were not addressed by management.
These included the Qurayyat and Magtaa projects which could not operate at full capacity due to operational defects, the loss-making Tuaspring and Tianjin Dagang projects which could not service their debt with cashflow from operations as well as the Tuasone and Tlemcen projects which were not even completed.
In its response, Hyflux said it was not uncommon for projects to experience operational issues and that it had regularly updated shareholders regarding the assets.
The group said it had reported in its 2011 annual report that the Tlemcen plant was completed and had started commercial operations, as well as the delay in completion of the Magtaa plant.
Similarly, the group had, in its 2016 annual report, reported that the Quarayyat project was completed and had began testing and commissioning, while disclosing the losses at Tuaspring, which had started operations.
Meanwhile, the losses incurred by Tianjin Dagang were disclosed in annual reports 2014 and 2015. In its update, Hyflux said the plant is currently generating positive cashflow, but not enough to service its current level of debt due to a mismatch of the loan tenure and the concession period.
SIAS had also asked how Hyflux could continue to pay dividends and accumulate more debt given it had recorded losses since 2018 and generated negative cashflow since 2019 and whether this was highlighted to bondholders and shareholders at all. The group was also asked to justify the remuneration for its top executives, given its current financial position and performance.
In response, Hyflux said that its dividends are declared and paid out of its retained earnings. This included its profit from divestment gains, as well as profit generated from EPC and other contracts.
As Hyflux recorded net profits before 2017 which resulted in significant retained earnings, it was able to declare dividends on an annual bases. The dividends were also reflective of the year’s profit achieved, it added.
But when the the group had recorded a net loss in 2017, no cash dividends were declared for that year.
Hyflux further noted that due to the nature of its business -- the ownership and development of infrastructure projects for subsequent divestment and sale -- it could record a negative cashflow during the construction phase of the project.
However, the group was still able to report profits despite the negative operating cashflow as these were largely derived from EPC activities and divestment gains.
Hyflux also explained it was required to invest and fund substantial capital expenditure through debt and equity for the construction of a project, but will not record any incoming revenue derived from it until construction is completed and operations have commenced.