SINGAPORE - Hyflux’s founder and former chief executive Olivia Lum Ooi Lin, former chief financial officer Cho Wee Peng and four former board members were on Thursday charged with violations of the Securities and Futures Act.
This comes 17 months after the water treatment firm was approved to be wound up, which likely left about 34,000 investors of perpetual securities and preference shares, who had sunk in a combined $900 million, with nothing.
In a joint statement, the authorities said the six were charged over “Hyflux’s intentional failure to disclose information relating to the Tuaspring Integrated Water and Power Project”.
According to the charges, this information was necessary to avoid the establishment of a false market in Hyflux’s securities.
Lum, 61, who was handed three charges, is out on bail of $100,000.
She was charged with consenting to Hyflux omitting information relating to Tuaspring , when disclosure was required under Singapore Exchange (SGX) listing rules.
According to the charge, she consented to intentionally failing to notify SGX that the Tuaspring project was Hyflux’s expansion into a new business of selling electricity, and that the plant’s profitability was contingent on electricity sales revenue, which was projected to make up a significant proportion of its overall revenue. If convicted, she faces jail of up to seven years, a fine of up to $250,000, or both.
Lum was also charged over Hyflux’s omission to disclose the information about Tuaspring in the 2011 offer information statement issued for the offer of $200 million, 6 per cent preference shares on April 13, 2011. If convicted, she faces jail of up to two years, a maximum fine of $150,000, or both.
She was charged with an offence under the Companies Act over her failure to ensure Hyflux’s compliance with accounting standards when it disclosed its statements for the financial year ended Dec 31, 2017, at a Hyflux annual general meeting in 2018. This included failing to disclose the breach of a subsidiary’s loan agreement that permitted its lenders to demand accelerated repayment. If convicted, she faces a fine of up to $50,000.
Senior corporate finance lawyer Robson Lee noted that under the Companies Act, a company’s audited financial statements must contain enough information to give a “true and fair view” of its financial position and performance.
Cho, who is also Hyflux’s former group executive vice-president, was charged with conniving in Hyflux’s omission to disclose the information about Tuaspring. The 53-year-old, who is out on $160,000 bail, left his most recent role as CFO of real estate investment firm ESR Group on Sept 19, 2022, for health reasons.
The former Hyflux independent directors also charged with disclosure-related offences were: Teo Kiang Kok, 66; Christopher Murugasu, 63; Gay Chee Cheong, 66; and Rajsekar Kuppuswami Mitta, 65.
The four men were charged with two counts each – one for neglect relating to Hyflux’s failure to disclose information relating to Tuaspring as required under SGX listing rules, and another for omitting material information in the 2011 offer information statement.
Teo and Gay are out on bail of $160,000 each. Mitta is out on bail of $240,000, while Murugasu is out on $80,000 bail.
The charges follow a joint probe in June 2020 by the Commercial Affairs Department, the Monetary Authority of Singapore and the Accounting and Corporate Regulatory Authority (Acra), which the agencies initiated after a review of Hyflux’s compliance with accounting and auditing standards as well as disclosure rules. The probe looked at whether there were lapses in Hyflux’s disclosures concerning the Tuaspring project, and non-compliance with accounting standards between 2011 and 2018.
On Thursday, the authorities said they have investigated DBS Bank over its role as issue manager in the offer of $200 million, 6 per cent preference shares on April 13, 2011. No further action will be taken after reviewing the evidence, but the outcome of Acra’s inspection of audits conducted by Hyflux’s auditor KPMG will be finalised later, they added.
Hyflux was placed under judicial management in November 2020, and the High Court in July 2021 approved its winding up, after the company failed to secure a white knight while it was under a debt moratorium for almost two years.
Hyflux’s troubles began after its foray into the energy business through the Tuaspring plant. Once Hyflux’s largest asset, Tuaspring had been a drag on earnings since it began operations in March 2016.
The plant was hit badly by an oversupply of gas that depressed electricity prices below fuel costs, creating a cash-flow crunch, while Hyflux continued to borrow heavily from banks and investors through the issuance of perpetual securities.Analysts also said that Hyflux might have taken on too many capital-intensive projects with long gestation times, borrowed beyond its means, and was too optimistic with its projections.
The authorities said in June 2020 that they were investigating all the directors who served on the Hyflux board between 2011 and 2018, including Lum, former independent directors Gay, Teo, Murugasu, Lee Joo Hai and Lau Wing Tat, as well as non-executive and non-independent director Gary Kee.
Mr Lau was appointed to the board in July 2014, replacing Rajsekar Kuppuswami Mitta, who left the board in 2012 after having served as non-executive independent director since April 2007.
Former independent director Simon Tay, who resigned in February 2020 over disagreements with the board, was also part of the group under scrutiny.
Meanwhile, it is unclear if a pre-emptive lawsuit brought by Hyflux, its subsidiaries and their liquidators from Borrelli Walsh against Lum is still on hold. Hyflux’s liquidators are still investigating if there are sufficient grounds to pursue claims.
When asked by The Straits Times, Mr Eddee Ng of Tan Kok Quan Partnership, representing the plaintiffs, said: “We have made clear our position on not being able to comment.”