Request Halimah, President of Singapore to appoint a commission of inquiry on Hyflux saga

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The downfall of Hyflux had caused major suffering to many Singaporean investors whom had invested their hard earned money for the preferential shares and perpetual securities.

A total of 34,000 retail investors had invested $900 million in these securities.

A big portion of the investments were made in May 2016 based on a prospectus issued by the issue manager, DBS.

Most of the retail investors who bought the perpetual securities in 2016 were risk averse and non sophisticated investors. They chose to invest in the perpetual securities as they wish to avoid investing in the shares (which they consider to be riskier).

They bought the perpetual securities in Hyflux as it operated water desalination plants that were considered to be strategic to Singapore.

The investors also thought that the securities were safe as they had been vetted by the Monetary Authority of Singapore and approved for sale through the ATM machines of DBS Bank.

On 8 April 2019, the Monetary Authority of Singapore issued a statement that they had investigated and found that DBS did not commit any impropriety in the May 2016 sale of the $500 million Hyflux perpetual securities.

It found that Hyflux had disclosed in its offering document in 2016 that the Tuaspring power plant was expected to incur losses if electricity prices in Singapore were to remain low. The offering document was also cautious on the outlook for the water and energy
markets.

We are unhappy at the finding of MAS. The finding did not take into account the following facts that only become clear to the retail investors recently:

a) It should have been quite clear to the board of Hyflux about the extent of the loss that the power plant was incurring at that time. They had already committed to the purchase of the LNG gas at a possibly high price and the wholesale electricity price had dropped to a disastrous level.

b) The monthly loss from the power plant must be of a large magnitude. The board did not appear to indicate the seriousness of this situation in the prospectus. Were the directors hoping that the wholesale electricity price would recover? Surely, this point should be clearly mentioned in the prospectus
by the board of Hyflux and by the issue manager?

c) Furthermore, there was no mention that
most of the revenue of Tuaspring came from the power plant. In the annual report of Hyflux for 2011 to 2016, Tuaspring was pitched as a desalination plant and the power component was built with the objective to supply electricity to the water plant, with the excess sold to the national grid. Most people had the impression that water was the main revenue generator.

d) The board of Hyflux had broken a rule in the SGX listing where they are required to obtain a shareholder mandate when they enter into a new business (i.e. power generation) that changed the risk profile. They did not inform the shareholders about this new business.

e) Within just two years of the issue of the perpetual securities in 2016, Hyflux had to apply for court protection from its creditors due to its massive losses.

There is a potential conflict of interest in the finding by MAS. If they stated that there was impropriety, some people could have questioned their role in allowing the perpetual securities to be sold to the retail investors.

To protect the integrity of our Singapore financial hub and to dispel any doubt about the finding by MAS, we call on the President of Singapore to appoint a commission of inquiry to take an independent review of this matter.

This review should cover the question of whether the board of directors of Hyflux, the issue manager DBS and the auditors KPMG had disclosed, as they should, the actual facts known to them about the financial situation of Hyflux when they issued the prospectus
in 2016 for sale of the $500 million perpetual securities to the retail investors.

It should also study whether MAS had carried out its duty appropriately in approving the securities for sale to retail investors.

We also suggest that the commission of inquiry should look into the part played by the EMA (Energy Market Authority) in issuing new vesting contracts that expanded the capacity to almost twice of the actual demand and causing the crash of the wholesale electricity
price.

If the actions of EMA had been unwise and had caused severe losses to Hyflux, should the government compensate Hyflux and its investors for these losses?

As 34,000 retail investors face the shocking prospect of the total loss of $900 million that they invested in Hyflux, it is important that steps be taken to demonstrate that their interest had been fairly looked after.

We call on the President of Singapore to appoint an independent commission of inquiry to look into this matter.