Hyflux did not initially reveal power plant plan to avoid leak of its strategy, says defence
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Sumitomo Mitsui Banking Corporation executive Jeanne Soh said she did not remember if Hyflux’s power strategy was shared with SMBC.
ST PHOTO: KELVIN CHNG
Follow topic:
- Hyflux initially withheld its power plant plans from banks to prevent bidding strategy leaks to competitors for the Tuaspring project.
- After submitting its bid, Hyflux shared its power strategy and financial model with the banks, who remained "supportive" despite their concerns.
- Banks clarified "management support" meant credit approval was pending due diligence, and they continued working with Hyflux despite power plant risks.
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SINGAPORE – Hyflux did not initially tell potential bank lenders about plans to build a power plant, as it wanted to ensure “there was no leak of its bidding strategy to competitors” before it submitted its bid for the Tuaspring project, the defence told the State Courts on Oct 28.
In trying to show that there was nothing untoward about Hyflux not revealing its power strategy initially, lawyer Jaikanth Shankar – part of the legal team representing Hyflux founder Olivia Lum
Mr Nah, who is Hyflux’s former vice-president of investment, had made reference to an Oct 8, 2010 mandate letter, which spells out the conditions under which Hyflux and the consortium of banks will work towards a loan facility.
He had said that this letter did not reference the power plant because Hyflux viewed the power plant as being “very strategic”, Mr Shankar noted in his cross-examination of Sumitomo Mitsui Banking Corporation (SMBC) executive Jeanne Soh.
But after its bid was submitted on Oct 21, 2010, Mr Shankar said Hyflux voluntarily and openly shared its confidential information with the banks, including its bidding strategy and the power plant.
Ms Soh said she did not remember if Hyflux’s power strategy was shared with SMBC.
“But there was information shared with us,” said Ms Soh, now a managing director for structured finance at SMBC.
The consortium of banks comprised SMBC, DBS, Mizuho Corporate Bank, BNP Paribas, MUFG and ANZ.
In October 2010, they issued in-principle commitment to Hyflux’s $527 million term loan request, for its bid for the desalination project tender from national water agency PUB.
However, the banks did not know until November 2010 that the Tuaspring project included a power plant as well.
Lum, former chief financial officer Cho Wee Peng and four independent directors are fighting their non-disclosure charge, among other charges.
Mr Shankar pointed out that Hyflux “moved reasonably quickly in sharing its power strategy and financial model with the banks” soon after it submitted its bid.
He pointed out that the water treatment firm shared its power strategy
It also shared its financial model on Dec 1, 2010, and offered to provide a briefing on its power strategy and proposed power organisation on Dec 3 that year.
The lawyer also pointed to a Dec 8, 2010 letter that SMBC sent to Hyflux, after the consortium was informed of the company’s power strategy, power plant and financial model.
In this letter, it acknowledged it remained “supportive of (Hyflux’s) bid for this project”.
It said: “Subject to our financial credit committee’s approval, mutual agreement of the financing terms and satisfactory evaluation, we will work closely with you towards a successful financial close if you are awarded the preferred bidder.”
When the consortium of banks informed Hyflux in January 2011 that they were willing to explore financing the project, the word “approval” was replaced with the phrase “management support”.
The defence took Ms Soh through a Jan 12, 2011 e-mail from SMBC’s Mr Allen Hsiao to Hyflux, in which Mr Hsiao explained that the banks used “management support” because it reflected the status of the credit application process at the time.
Mr Shankar asked: “All the banks were saying at this stage was they haven’t received credit committee approval, and they want to make sure their letter reflected that?”
Ms Soh replied: “It’s clear that it’s not the credit approval stage. We preferred the phrase management support, not approval.”
The lawyer then asked: “In view of what was said about ‘management support’, management was supportive of the (Hyflux) bid?”
Ms Soh replied: “Management was supportive of us continuing to explore financing with Hyflux.”
The defence also took Ms Soh through a Jan 13, 2011 e-mail she had sent to Hyflux’s Jinny Goh. In it, Ms Soh said the bank group had discussed extensively on the “management support” phrase, and finally agreed to insert the debt amount of the power facility after initially wanting to remove it.
On Jan 14, 2011, the banks sent Hyflux another letter on its request for submission to PUB.
They said that they had in-principle management support to provide a credit facility of up to $283 million for the water desalination plant, and up to $244 million for the power plant.
It was important to split the two plants as they had different risk profiles, Ms Soh said on Oct 27.
When asked about the Jan 14, 2011 letter in her cross-examination, Ms Soh explained: “The language we used is heavily disclaimed because we have not proceeded with our due diligence of the power plant... It reflected what was provided by Hyflux to us because we have not done our own due diligence.”
Mr Shankar asked: “If at any point, the banks were so concerned about the project, the risk profile and bankability that they didn’t want to touch it, they would have said so to Hyflux?... In fact, if that was their view, they wouldn’t have issued the Jan 14, 2011 letter?”
Ms Soh replied: “I can’t speak for the other banks, but from SMBC’s perspective, we still do not have enough information about the power project.
“We still have concerns, but we (didn’t) walk away. We still continued to work with (Hyflux).”
