Presentations to board, analysts on Hyflux’s Tuaspring disclosed planned electricity sales: Defence

SINGAPORE – The defence for Hyflux founder Olivia Lum argued that presentation materials made to the board and the market before a March 7, 2011, news release of the company winning the Tuaspring project showed it did not fail to disclose information about its plans to go into the business of selling electricity.

“The team was prepared to share information that excess electricity would be sold in the wholesale market and offer retail contracts to consumers,” Senior Counsel Davinder Singh, lead counsel for Hyflux founder Olivia Lum, said on the sixth day of the criminal trial.

He pointed to a presentation stating this intention in his cross-examination of Ms Winnifred Heap on Aug 21.

She is the company’s former head of corporate communications and investor relations and the prosecution’s second witness.

Hyflux eventually issued preference shares to fund the integrated water and power project. The company’s collapse, due to weak electricity sales, left about 34,000 investors of perpetual securities and preference shares, who had sunk in a combined $900 million, with nothing.

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

Former chief financial officer Cho Wee Peng is charged with conniving in Hyflux’s omission to disclose the information about Tuaspring, while four independent directors – Teo Kiang Kok, Gay Chee Cheong, Christopher Murugasu and Lee Joo Hai – are also accused of neglect in relation to this.

Ahead of the March 7, 2011, announcement of Hyflux’s win, the company had prepared a list of questions it anticipated would be raised by investors and analysts at a briefing as well as the answers. The Q&A was also disseminated to the management team for review.

Among the questions anticipated was one on the oversupply situation in the power market at the time and a possible negative impact on electricity prices. Hyflux, in response, had said it anticipated some oversupply in the first two to three years, but demand was growing strongly.

The Q&A also included a question on whether Hyflux intended to sell the excess electricity as the maximum energy demand from the desalination plant was 60MW, but the company was building a 411MW plant.

Hyflux had answered “yes”.

“Looking at the answers in this Q&A, it appears whoever is responsible for providing facts for the answers was not holding back anything. They were freely sharing the facts,” Mr Singh said.

Ms Heap agreed.

But she said she could not remember if this was the final version of the Q&A, nor could she recall what questions were asked by the analysts during their briefing in March 2011.

Mr Singh asked: “Regarding why Hyflux is entering the power market, was the intention to tell analysts that the majority of output from the power plant would generate the revenue?”

Ms Heap replied: “It is not so clear in this Q&A.”

Pointing to a presentation slide titled “Delivering a cost-effective water solution – Energy a major operating cost component for a desalination plant”, Mr Singh asked: “So that’s understood to mean that the lower the tariff, the lower the yield. So you would need subsidy from revenue from the sale of electricity?”

Ms Heap agreed.

Mr Singh argued earlier on Aug 21 that playing down details of the energy component of Tuaspring, while highlighting Hyflux’s strength in water treatment, was the core of its investor relations (IR) strategy.

He was disputing allegations that Lum and Cho had given input to “play down” these details in the drafting of the March 7, 2011, announcement.

Mr Singh referred to a Jan 19, 2011, e-mail that Ms Heap had sent to Lum, Cho and former Hyflux legal counsel Yang Ai Chian, in which she said “the key is to play down energy, while highlighting our expanded bench strength and core capabilities”.

He asked: “This sentence encapsulates the core, if not the substance, of the IR strategy, which is to emphasise the growth aspects, not the utilities aspects, and also to emphasise the core capabilities?”

Ms Heap replied: “Fair.”

He then asked: “This was openly said to ­every­one in the e-mail because it was openly known to every­one that this was the IR strategy, correct?”

The defence also cited a slide presentation titled “The 5 Tens”, in which Lum, Cho and Ms Heap briefed the board on Hyflux’s 10-year targets from 2011 to 2020.

Hyflux’s targets included growing a $10 billion order book, and becoming a $10 billion market capitalisation company.

“That’s consistent with the strategy to focus on order wins for the order book... and billions in assets and management?” Mr Singh asked.

Ms Heap replied: “I think this was the fund management’s approach.”

Asked if she remembered her discussions on the draft announcements with Lum, Cho and the investment team, Ms Heap said: “We would have discussed the content of the announcement.”

But she could not remember what was said between her and Mr Nah Tien Liang, then head of the investment team, Lum and Cho.

“And the reason you cannot remember is because it happened 15 years ago?” Mr Singh asked.

Ms Heap replied: “I cannot remember because I am 63 years old.”

Mr Singh pointed out that it was openly made known in Cho’s briefing to the Tuas board on Feb 22, 2011, that “management understood that the desalination tariffs were going to be competitive and are to be subsidised from revenue from the sale of electricity”.

“The yield for Tuaspring will come largely from the sale of electricity, and profits will come from the sale of electricity. None of that was hidden from management?” he asked.

Ms Heap agreed.

Mr Singh continued: “And no one... suggested that the March 7, 2011, announcement had to include further information to comply by way of disclosure or with listing rules?”

Ms Heap replied: “Correct.”

The hearing resumes on Sept 1.