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Hyflux saga reveals injudicious of court-supervised restructuring

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4 years ago

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The application to place debt-ridden water treatment firm Hyflux under judicial management was only approved by the High Court after it had granted 10 extensions to Hyflux, despite the existing poor corporate governance and mismanagement which have led to its collapse.

This was highlighted by Mak Yuen Teen – an associate professor at the National University of Singapore Business School – among other points, in his opinion article on the Hyflux saga published by Nikkei Asia on Wednesday (16 December).

“One key lesson from the restructuring of Hyflux is this: when poor corporate governance and mismanagement is a major contributor to a company’s collapse, put someone else in charge of its rehabilitation,” said Prof Mak.

Hyflux has owed S$1.84 billion to banks, S$265 million to noteholders, as well as 34,000 preference and perpetual security holders amounted to S$900 million.

The judicial management application was filed by an unsecured working group (UWG) of bank lenders on 13 August, which including Mizuho, Bangkok Bank, BNP Paribas, CTBC Bank, KfW, Korea Development Bank, and Standard Chartered Bank.

They argued that Hyflux’s management is no longer reliable to lead any restructuring effort.

On 16 November, the High Court approved the judicial management application and appointed UWG’s adviser Borrelli Walsh as interim judicial managers of Hyflux.

The Securities Investors Association Singapore (SIAS) and Hyflux’s creditor DBS voiced concerns that the appointed judicial managers should be a “neutral and independent party” with no close contact to any stakeholder group of the firm.

Justice Aedit Abdullah, however, responded that the applications for “additional or substitution” judicial managers can be applied and will be “heard another day”.

But what’s more “suspicious” in this case was the emergence of another potential investor’s details whenever the firm asked for an extension, in which the ruling judge suspected “some sort of gamesmanship was at work”, said Prof Mak.

He noted that some potential saviours of Hyflux appeared to be “less than bona fide”.

“Some included conditions that the current directors be retained and released from potential liability – despite the directors being under investigation. Others said that any offer that released the directors would not be accepted,” Prof Mak added.

Though he noted that the appointment of judicial managers could have the directors who were involved in wrongdoing to face “personal liability”, this was “never a possibility” when the restructuring of the company is being monitored by the board.

“While it is too early to tell if the directors breached their duties, there were plenty of signs of poor corporate governance and questionable decision-making,” said Prof Mak.

He pointed out that Hyflux’s CEO Olivia Lum holds multiple positions in the company, indicating that she played a dominant role.

Aside from being the CEO, Ms Lum was also the controlling shareholder, board chairman, and chair of the investment committee. She even attended meetings of the other committees without having a membership, said Prof Mak.

He also noted that four of the independent directors on the eight-member board had worked in the company for over 14 years, while some were former employees or substantial shareholders who were redesignated from non-independent to independent, or had business relationships with Hyflux in the past.

“All this points to a board that is far from independent,” Prof Mak remarked.

While Prof Mak credited Ms Lum’s entrepreneurial skills and perseverance for Hyflux’s success, what she was lacking was the necessary experience to manage a growing company and oversee investment decisions.

Similarly, Hyflux’s senior management also did not have the “necessary experience” to manage the company.

To prove this, Prof Mak said Hyflux appointed a medical doctor who was specialising in family medicine and worked as a registrar in the health ministry as its business development head in 1996.

Eventually, the business development head was promoted to be an executive director. She then became COO and later deputy CEO of Hyflux.

Prof Mak also highlighted the firm had won the tender for the Tuaspring Integrated Water and Power Plant in 2011 through “aggressive bidding”, despite having no experience in the power business.

He noted that Hyflux’s core business was providing water treatment solutions for municipalities and industries, but it expanded into power generation and waste-to-energy solutions with no experience which explains why the plant has been “loss-making since it began operations”.

Furthermore, Prof Mak pointed out that Hyflux’s business model indicated it was “highly capital-intensive” and heavily dependent on borrowings instead of operating cash flows to fund growth.

“While it was reporting high revenues and making profits, those numbers were subject to high volatility. Operating cash flows told a consistent and dire story, becoming negative from 2010 and never returning to positive territory,” he explained.

Hyflux shifted to preference shares and perpetual securities when its debt increased, however, Prof Mak noted that this “did not stem its high reliance on debt”.

“In 2011, it issued preference shares, or prefs, and in 2014, it issued its first two tranches of perpetual securities, or perps. Those perps were only available to institutional and accredited investors.

“In May 2016, it issued another tranche of perps that was so successful that it raised S$500 million, rather than the initially proposed S$300 million. Much of the amount raised from the 2016 perps came from retail investors, and the institutional and accredited investors who subscribed to the earlier perps were bailed out,” he asserted.

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Income Insurance respects government’s decision to halt Allianz deal, reviews next steps

Income Insurance Limited has acknowledged the Singapore government’s concerns and decision to halt its proposed partnership with Allianz Europe B.V. The company expressed respect for the government’s direction and emphasised its commitment to reviewing next steps while considering upcoming amendments to the Insurance Act.

Published

3 days ago

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15 October 2024

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Income Insurance Limited has responded to the Singapore government’s decision to halt its proposed transaction with Allianz Europe B.V., a deal that would have seen Allianz acquire a 51% stake in the insurer for S$2.2 billion (approximately US$1.6 billion).

On 14 October 2024, the company stated it “respects the Government’s direction” and appreciates the recognition of its strategic efforts, noting that it will work closely with stakeholders to evaluate its next steps in light of forthcoming changes to the Insurance Act.

In its statement, Income Insurance said, “Income Insurance notes and respects the Government’s direction. Income Insurance appreciates the Government’s understanding of the strategic purpose behind Income Insurance’s corporatisation exercise in 2022 and acknowledgement that the partnership with Allianz was to strengthen Income Insurance’s position for the long run.”

The company acknowledged the government’s concerns about the structure of the transaction and the need for legislative amendments to provide a clear statutory basis for reviewing similar applications in the future.

The company further recognised the conditional nature of Allianz’s voluntary cash offer, noting that it is “pre-conditional and subject to regulatory approval.”

Following the latest developments, Income Insurance committed to reviewing the proposed amendments to the Insurance Act and stated, “Income Insurance will review and take into consideration the forthcoming amendments to the Insurance Act and work closely with relevant stakeholders to study and decide on the next course of action.”

Government’s Concerns

The government’s decision to block the deal was relayed by Edwin Tong, Singapore’s Minister for Culture, Community, and Youth, who cited concerns over how the transaction might affect Income Insurance’s ability to fulfil its social mission.

While the government acknowledged the strategic importance of Income’s corporatisation in 2022, it expressed concerns about the proposed capital extraction that would follow Allianz’s acquisition.

This capital reduction could significantly reduce Income Insurance’s capacity to continue providing affordable insurance to low-income Singaporeans.

Mr Tong highlighted that Income’s corporatisation in 2022 was enabled by an exemption from Section 88 of the Co-operative Societies Act, which allowed the company to retain an S$2 billion surplus for financial strengthening.

However, the proposed Allianz deal’s capital reduction seemed to contradict this intention. Without a clear, legally binding plan to safeguard this surplus for Income’s social mission, the government was unwilling to approve the deal.

Despite blocking the current transaction, the Singapore government has left the door open for future partnerships involving Income Insurance and potential external investors. Mr Tong clarified that the government’s objection was not to Allianz itself but to the terms and structure of the proposed deal, particularly its impact on Income’s ability to fulfil its social mission.

“The government’s view is not that NTUC Income should not seek partnerships or external capital; rather, we must ensure that any deal preserves NTUC Income’s ability to fulfil its social mission and does not undermine the cooperative movement as a whole,” Mr Tong stated.

Public Response and Opposition

The public and several prominent figures had voiced concerns following the announcement of the deal in July 2024. The proposal for Allianz to acquire a majority stake in Income Insurance raised fears that the insurer’s social objectives could be undermined by profit-driven motives typical of large multinational corporations.

The public outcry centred on concerns that Allianz, as a global insurer, might not share the same commitment to affordable insurance as Income Insurance, which had been serving Singapore’s working-class population for decades.

Critics were particularly worried that Allianz’s ownership could lead to increased insurance premiums, which might put essential services out of reach for Income’s lower-income clients.

Former NTUC Income CEO Tan Kin Lian expressed concerns about the potential shift in NTUC Income’s priorities, stating that the proposed deal could undermine its original purpose.

Similarly, ambassador-at-large Tommy Koh and former Group CEO of NTUC Enterprise Tan Suee Chieh voiced their opposition.

Mr Tan Suee Chieh went as far as to call the deal a “breach of good faith” and urged government regulators to intervene.

NTUC Income, Singapore’s one and only insurance co-operative, was corporatised in 2022 into Income Insurance Limited “to achieve operational flexibility and gain access to strategic growth options to compete on an equal footing with other insurers locally and regionally”.

Shareholders were assured at the 2022 annual general meeting that NTUC Enterprise will continue to be the majority shareholder of the new company post-corporatisation.

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OrangeTee, JustCo partner to empower agents and clients with coworking solutions

OrangeTee & Tie has partnered with JustCo to provide property advisers with enhanced access to flexible workspaces. The collaboration, formalised on 27 September 2024, aims to equip advisers with industry insights and access to JustCo’s network of coworking centres, enabling them to better serve commercial clients.

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4 days ago

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14 October 2024

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Singapore’s leading proptech agency OrangeTee & Tie (OrangeTee) has signed a Memorandum of Understanding (MOU) with JustCo, Asia’s leading flexible workspace provider.

The partnership between both parties was inked on 27 September 2024 at the BMW Eurokars Experience Centre.

The collaboration between OrangeTee and JustCo further opens doors to creating more opportunities for OrangeTee’s property advisers, enabling them to “thrive and deliver greater value to their clients”, said a media release issued on 8 October.

As part of the partnership, there will be a series of seminars hosted by JustCo, focusing on the latest trends within the coworking space industry.

These seminars would equip OrangeTee agents with valuable insights to better serve their clients who are interested in flexible office solutions.

This partnership between both parties aims to benefit the property advisers focusing on the commercial client sector as they delve deeper into the industry insights of the office leasing sector in Singapore.

Beyond knowledge sharing, the property advisers will also have access to JustCo’s network of coworking centres across the Asia Pacific to get first-hand experience of the benefits of coworking spaces such as networking opportunities, greater flexibility, and access to a wide range of amenities.

Justin Quek, CEO of OrangeTee said, “This partnership goes beyond business.

“It empowers our property advisers to provide more comprehensive and flexible solutions to their clients, aligning with the evolving needs of modern workspaces.

“By offering JustCo’s vibrant and collaborative environments, our agents can help clients find the ideal spaces for their different business requirements.”

OrangeTee’s property advisers can enjoy a range of perks as part of the partnership.

This includes preferential rates for JustCo’s membership plans which will give them access to over 40 JustCo centres in Singapore and APAC.

With the flexibility to work from anywhere, JustCo’s membership is a dynamic alternative to support their business needs and provides them with opportunities to network and collaborate within the larger commercial community.

Kong Wan Long, Co-founder and Chief Commercial Officer of JustCo said, “Partnering with OrangeTee expands our agency network, allowing us to work with experts who thoroughly understand the property market in Singapore.

“This will allow us to tap into a wider base of potential clients, providing them with greater access to premium coworking spaces that foster productivity and collaboration.

“This collaboration reinforces our commitment to making workspaces more accessible and empowering businesses of all sizes to thrive in an environment tailored to their needs.”

JustCo has the largest footprint in Singapore with 20 coworking spaces in the Central Business District, East and West regions, including the prestigious Marina One office development and Changi Airport Terminal 3.

From January to September 2024, JustCo experienced a 20% increase in enquiries compared to the same period in 2023, highlighting a growing demand for coworking spaces in Singapore. Earlier this year, JustCo also opened a new centre at Hong Leong Building and 108 Robinson Road.

Chipson Ma, one of the long-service property advisers with OrangeTee since 2000, said, “Founded in 2000, OrangeTee has empowered property advisers with cutting-edge technology for over two decades.

“Tools like our online agent portal (Work@Home) and AgentApp allow agents to work seamlessly from anywhere. Our partnership with JustCo further enhances flexibility, providing agents access to coworking spaces they can also market to clients.

“This added convenience elevates the value of our services.”

The partnership with JustCo is the latest to be announced by the proptech leader.

Only recently, OrangeTee also partnered with automotive technology solutions, Motorist, which allowed OrangeTee clients to gain more leverage on their personal vehicle via Motorist while allowing agents and their clients to have access to various perks from the Motorist Premium membership.

This includes car refinancing options to reduce their clients’ total debt servicing ratio and improve their property loan eligibility.

In mid-September, OrangeTee was also the presenting sponsor for The Home Expo 2024 which brought together more than 12,000 property agents, homeowners, industry experts, and exhibitors to the Suntec City Singapore Exhibition and Convention Centre.

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