SINGAPORE — In the time that shareholders and bondholders of Hyflux had their entire investments destroyed, the founder of the water treatment firm Olivia Lum received more than S$60 million in dividends from her 34 per cent ordinary shareholding.

This prompted Singapore’s investor watchdog to ask: Why is she not contributing her gains to the restructuring process?

This was among more than 40 questions the Securities Investors Association Singapore (SIAS) has posed to Ms Lum and the Hyflux board in a letter issued on Monday (Feb 11).

Mr David Gerald, President and CEO of SIAS, said in the letter that the association was “seriously concerned” that many questions regarding the operations, valuation and accountability of the directors of the Singapore-based firm have yet to be addressed.

Apart from the more than S$60 million in dividends, Mr Gerald noted that Ms Lum also received “significant salary, benefits and bonuses” and earned between S$750,000 and US$1 million in 2017. In Hyflux’s annual report, key executives were said to have had received a total remuneration of S$2,695,134.20 for that financial year.

“(This was) a year which Hyflux reported losses of S$115.6 million and a period which was five months prior to Hyflux Group filing for court protection from creditors and when Hyflux has been losing huge amounts of cash and building projects,” noted Mr Gerald.

He also asked whether the group chief executive would continue to have a role in the company after it is restructured.

Once regarded as the darling and trailblazer of Singapore’s entrepreneurial scene, Hyflux is undergoing a court-supervised reorganisation after chalking up a debt of S$2.95 billion as of March 31, 2018.

Mr Gerald also asked if bondholders and shareholders were informed that Hyflux had been generating negative operating cash flow every year since 2009.

“If so, in what form? (And) why did the Board continue to pay dividends, when the operating cash flow was negative and accumulate more debt during this time?”

He also asked how it was possible that despite the negative operating cash flow, Hyflux continued to report profits in each year prior to 2017.

QUESTIONS ABOUT TUASPRING PLANT

Other questions by the association centred on Hyflux’s Tuaspring plant.

Mr Gerald pointed out that the plant was partly funded by a shareholder loan of S$57 million, and asked how this loan from Hyflux to Tuaspring was in turn funded.

“Tuaspring has been loss-making since it commenced operations in 2015,” he added. Consequently, he asked why the board of directors did not consider it prudent to either write down or impair the asset.

Mr Gerald also questioned the basis of valuing Tuaspring at S$1.4 billion.

“This has proven to be overstated by at least S$900 million as Hyflux has confirmed any bids received in the 2018 sale process for Tuaspring were for less than Maybank’s outstanding project finance debt of approximately S$500 million.

“What is the monthly cash burn at Tuaspring? What are Tuaspring’s current cash reserves? What is the current market value for the Tuaspring asset?”

The company has been trying to sell its Tuaspring plant since February last year to repay its creditors.

On Oct 18, 2018 the company was handed a multi-million-dollar lifeline by SM Investments — made up of Salim Group and Medco Group — which will acquire 60 per cent of Hyflux for S$400 million and grant a shareholder's loan of S$130 million.

However, questions have been raised over whether the proposed investment would get approval from the authorities here. Besides having to get stakeholders — bank lenders, noteholders, preference share and perpetual securities holders — to agree to the scheme of arrangement, Government agencies such as PUB and the National Environment Agency will also need to give the green light.

On Feb 4 this year, Hyflux announced that it had obtained Maybank’s approval to have more time to execute an agreement with the Malaysian bank regarding the divestment of the plant — the fifth postponement of the deadline.

Maybank is the only secured lender of Hyflux’s combined water desalination and power plant.

Hyflux now has up to and including Feb 28 to conclude a binding agreement with a successful bidder or investor for the asset. The previous deadline was Jan 31.