Defence, prosecution spar over Hyflux’s stated plans for share issue proceeds

SINGAPORE – The accuracy and relevance of disclosures relating to how Hyflux intended to use proceeds generated from a preference share issuance in 2011 became a bone of contention in court on Nov 17.

Tense exchanges between Deputy Chief Prosecutor (DCP) Christopher Ong and Senior Counsel Davinder Singh, who is defending former Hyflux chief executive Olivia Lum, punctuated proceedings throughout the day.

Lum is accused of failing to disclose material information in both the initial announcement of the Tuaspring project win in March 2011 and subsequent share issue in April 2011, regarding the defunct water treatment provider’s entry into power generation.

Corporate lawyer Ng Joo Khin was called to the stand on Nov 17 as the 18th prosecution witness.

Mr Ng, who is with a law firm known then as Stamford Law and now as Morgan Lewis Stamford, had advised Hyflux on the share issue and preparation of the shares’ offer information statement (OIS) in 2010 and 2011.

DCP Ong began by asking Mr Ng about the role Stamford Law played in the OIS drafting.

Mr Ng said the law firm prepared the first draft of the OIS based on instructions and information from Hyflux’s management, as well as relevant public information.

There were then several rounds of exchange between Hyflux and the law firm, he added.

Mr Ng said it was rare for firms that were not banks to issue preference shares.

DCP Ong went on to ask Mr Ng if anyone at Hyflux had told him the reason it wanted to issue preference shares, to which he replied he did not recall being told.

Mr Ng said Ms Joscelyn Tan, Hyflux’s former legal officer for corporate finance, had first approached him about the share issue.

DCP Ong moved on to ask Mr Ng various questions about the parts of the OIS dated April 13, 2011, detailing Hyflux’s plans for the share issue proceeds.

The document said: “The net proceeds from the issue of the Class A cumulative preference shares will be used to fund the group’s water and infrastructure projects and for general working capital in the estimated proportions of 80 per cent and 20 per cent, respectively.”

DCP Ong asked Mr Ng: “If the entire proceeds were instead used to fund just one particular project, would that be consistent with what is stated here?”

Responding, Mr Ng said the “usual advice” given in that scenario would be for Hyflux to specify what the project was.

Mr Singh rose to object, sparking an extended exchange with DCP Ong.

The defence lawyer said the charges and allegations against Lum did not relate to whether disclosures on the use of the proceeds were misleading or inaccurate.

He added that the “only allegation” before this line of questioning was that Hyflux did not disclose three pieces of information: its entry into the electricity business, that the sale of electricity would make up a large part of Tuaspring’s revenue, and that the profitability of the project hinged on electricity sales.

“This new line (of questioning) is about the use of the funding, which is a completely different thing,” Mr Singh said.

Demurring, DCP Ong said the statement on the use of proceeds was “part and parcel of the concealment of the true nature of the Tuaspring project”.

Principal District Judge Toh Han Li interjected, saying he preferred the prosecutor did not go on for too long with the line of questioning.

To this, DCP Ong said the questions were relevant to show if there was a decision at the time of the OIS to hide aspects of the Tuaspring project, as evidence on “obfuscating the use of the preference shares” goes towards proving intent to omit the three pieces of information.

The judge said he would allow the questions, but reserved judgment on how to evaluate the evidence on usage of proceeds and whether to place any weight on it.

Mr Singh cross-examined Mr Ng when court resumed after lunch.

He asked Mr Ng about the extent of oversight he had on the drafting of the OIS.

To this, Mr Ng said he mainly worked with a team comprising then junior partner Soh Chun Bin and two associates, including one named Leo SueAnne.

He also said Ms Leo would “more likely than not” be the one looking at each section of the OIS for compliance with Singapore Exchange listing rules then.

Mr Singh asked if Ms Leo had helped draft the OIS and examined the drafts for compliance with listing rules, including asking Hyflux for necessary information, and Mr Ng replied yes.

Mr Ng also later said Ms Leo was senior enough to decide if any changes needed discussion with him.

Mr Singh then asked Mr Ng to compare two drafts of the OIS: one from March 8, 2011, and another from March 17, 2011.

The defence lawyer pointed out that a paragraph on plans to build a power plant to supply electricity to the desalination plant in Tuaspring, and that excess power would be sold to the power grid, was not added by Ms Leo, but by Hyflux.

Mr Singh pointed out that Mr Ng’s team would have had access to that information, as it was included in the March 7, 2011, announcement of the project win and was public information, appearing to suggest that the lawyers should have included the public information in the draft disclosures but did not.

Mr Singh repeatedly suggested to Mr Ng that he did not read the drafts closely, or he would have understood that the paragraph signalled Hyflux’s entry into a new business.

“(What) is clear is that it was Hyflux, who having seen Stamford’s draft... communicated this information and asked to insert this information in this section,” he added, later clarifying for the judge that the addition was a tracked change in a document.

Mr Singh is expected to continue his cross-examination of Mr Ng on Nov 18. Ms Joscelyn Tan of Hyflux is slated to be the next witness after him.