Hyflux’s ex senior VP of energy edited out some details of Tuaspring energy component in news release

SINGAPORE – The information omitted from early drafts of a news release about Hyflux’s Tuaspring project could have been inconsistent with the company’s investor relations strategy, a court heard on Aug 20.

This information was related to the energy component of the project. At the time, Hyflux’s strategy was to focus on being a growth company to get better market valuations, rather than a utilities company.

In his cross-examination of Ms Winnifred Heap, the prosecution’s second witness, Senior Counsel Davinder Singh drew the court’s attention to certain e-mails sent when Hyflux was drafting the March 7, 2011 news release.

They showed that Ms Camille Hurn, Hyflux’s former senior vice-president of energy and infrastructure development, had raised concerns that “could be related to utilities and its IR (investor relations) strategy”.

Mr Singh, the lead counsel for Hyflux founder Olivia Lum, noted that this concern was raised even before the draft went to Lum and former chief financial officer Cho Wee Peng.

Lum, Cho and the four independent directors – Teo Kiang Kok, Gay Chee Cheong, Christopher Murugasu and Lee Joo Hai – are each charged with Hyflux’s failure to disclose material information on the Tuaspring project.

Lum is accused of having consented to Hyflux’s intentional non-disclosure on March 7, 2011, by withholding information on the project.

Cho was charged with conniving in Hyflux’s omission to disclose the information about Tuaspring, while the four board members are also accused of neglect in relation to this.

On Aug 20, Mr Singh took Ms Heap, the company’s head of corporate communications and investor relations at the time, through a series of her presentations to Hyflux’s risk management committee.

In these presentations, managing shareholder confidence was a growing focus, and the key was for Hyflux to position itself as a growth company.

Building a strong pipeline of projects, including Tuaspring, was one strategy to achieve this, Mr Singh added.

Prior to Hyflux being named preferred bidder for the Tuaspring project in March 2011, concerns over the water treatment company being rerated from a growth company to a utility company emerged in one such meeting with its risk management committee in January 2011.

In one section, Ms Heap had presented on the difference between a growth company and a utilities company.

According to minutes from that meeting, she had said: “Once a growth company proves that it can deliver results, the market rewards them ahead of time, such an example being Apple Inc.

“On the other hand, the PE (price to earnings) ratio of a utilities company is comparatively lower and the market only rewards the company when delivery is proven.”

When asked by the prosecution on Aug 19 why concerns emerged over the possibility of Hyflux being rerated, Ms Heap responded: “I don’t think there was a concern.

“It’s more a fact that as a listed company, you need to know how you are positioned and what is your strategy.

“So I think the idea of this risk management meeting was really to set up some kind of a discipline surrounding that.”

In his cross-examination on Aug 20, Mr Singh also made reference to this meeting.

What was being discussed was the importance of keeping that positioning, so that the market will continue to treat Hyflux as a growth company, he said.

“As far as you were concerned, this was an exercise conducted in good faith, not just in Hyflux but in the interests of its shareholders. And it was an exercise to continue positioning of Hyflux as a growth company truthfully?” he asked.

Ms Heap agreed.

He also asked what she meant by setting up “some kind of a discipline”, to which she responded: “It’s really a process you want to put in place, take feedback from shareholders and stakeholders, and look at their concerns.”

Mr Singh asked if the exercise to put this process in place “was being conducted honestly and truthfully”. Ms Heap concurred.

She had earlier told the court that the risk management committee discussed the need to grow Hyflux’s order book and continue to win new contracts, as existing long-term contracts tend to provide recurring income but “might not give the delta incremental growth”.

This was a vital difference, Mr Singh pointed out, as the market would value differently a growth company that continues to win new orders and contracts, from a utilities company earning income from long-term contracts.

When asked about whether divestments were part of Hyflux’s business model, Ms Heap replied: “We call that capital recycling. The capital requirements for a water plant can be quite huge.

“The idea is to recycle assets and get the valuation out of it and reinvest into another water plant. The strength is the company has expertise to originate new water plants.”

Mr Singh asked: “And the feedback you received from major shareholders and analysts’ reports led you to present that... as key shareholders have been increasing their holdings, it is important to continue to position the company as a growth company, and therefore important to continue to do so for the purpose of its valuations?”

Ms Heap replied: “Correct”.

Mr Singh pointed to a slide in a Jan 21, 2011 presentation by Cho and Ms Heap, during a risk management meeting on managing shareholder confidence.

The slide said that “Hyflux trades at 24 times earnings because the company is perceived as more than just a water (utilities) owner.”

Mr Singh pointed to another news release on Jan 11, 2011 announcing that Hyflux will invest US$45 million in three build-own-transfer water projects in Chong Qing city, underscoring confidence in the potential of the Chinese municipal water business.

“This was in line with the messaging of Hyflux as a world-leading fully integrated water solutions company? And it focused on matters related to the growth model, by reference to order wins?” he asked.

Ms Heap agreed.

She was also cross-examined on a Dec 20, 2010 e-mail chain, relating to the draft announcement of Hyflux being named preferred bidder of Tuaspring.

The draft had been sent to Mr Nah Tien Liang, who was head of the investment team, Ms Hurn and Ms Seah Mei Kiang, for fact-checking before it was presented to Lum and Cho.

In one e-mail, Ms Hurn had said she agreed with Mr Nah that Tuaspring’s desalination plant and power plant would be owned by the same company.

She added: “Am not sure if we need to go into detail about our energy retailing arm, so have completely deleted that sentence.”

The detail refers to a part in the draft that states: “The remaining capacity will be sold through Singapore’s wholesale electricity market, the National Electricity Market of Singapore to electricity retailers and subsequently to contestable customers.”

Mr Singh asked Ms Heap: “Would I be right to say you cannot remember if you spoke to Camille or e-mailed or contacted her to discuss this comment of hers?”

Ms Heap replied: “I am trying to recall. I could have walked over to discuss with her. But don’t remember doing so.”

Mr Singh also asked: “The intent behind your version of the draft was not to say this is a utilities company, but is integrated?”

Ms Heap said: “Correct.”

Mr Singh pointed out that he had spent much of his cross-examination on Ms Heap’s presentations that focused on Hyflux as a growth company, not a utilities company.

“You yourself said there’s a difference between growth and utility,” he told Ms Heap.

“The last thing you want to do is give (the) message to (the) public Hyflux is getting into the utilities business with earnings over a long period of time?”

She replied: “This thought process didn’t occur.”

Mr Singh pointed out: “If anyone involved in the process thought the messaging was inconsistent with your IR strategy, it would be reasonable to raise it?

“...Camille raised a concern and you can’t even remember asking her for the reason for her concern?”

Ms Heap said she could not remember.

“And so, here was a senior management person raising a concern which could be related to utilities and IR strategy, you did nothing to understand it?” he asked.

Ms Heap replied: “I cannot remember.”

The hearing continues.