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Investor watchdog questions PUB after ‘serious concerns’ raised over takeover move for Tuaspring plant

SINGAPORE — The Securities Investors Association Singapore (Sias) has written an open letter to national water agency PUB about its move to take over Hyflux’s Tuaspring desalination plant — if Tuaspring cannot fix its defaults by April 5 — after the firm’s investors raised “serious concerns”.

Hyflux’s investors want to know why national water agency PUB could not have waited until after April 5 before it served a default notice on Tuaspring (pictured).

Hyflux’s investors want to know why national water agency PUB could not have waited until after April 5 before it served a default notice on Tuaspring (pictured).

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SINGAPORE — The Securities Investors Association Singapore (Sias) has written an open letter to national water agency PUB about its move to take over Hyflux’s Tuaspring desalination plant — if Tuaspring cannot fix its defaults by April 5 — after the firm’s investors raised “serious concerns”.

In its letter on Tuesday (March 26) addressed to PUB's chief executive officer Ng Joo Hee, Sias' president David Gerald said that Hyflux’s retail investors were caught in a predicament, as the company possibly faces liquidation.

Sias is Singapore’s retail investor watchdog.

Mr Gerald added that the only hope for the 50,000 or so Singaporeans mired in the ailing firm’s saga is the “entry of the white knight” — SM Investments, made up of Salim Group and Medco Group. The Indonesian consortium agreed in October last year to buy a 60 per cent stake in Hyflux.

PUB’s move could throw this into disarray, as Hyflux said previously that its restructuring agreement with SM Investments might be terminated due to Tuaspring’s defaults.

While Mr Gerald said the association fully appreciates that the PUB has to safeguard the country’s water security, its recent announcements and actions, such as serving a default notice on Tuaspring, have caused “serious concerns to investors and stakeholders, quite a number of whom have raised (these) concerns with Sias”.

TODAY has contacted PUB for its response to Sias’ letter.

ABOUT PUB’S ANNOUNCEMENT

Announcing its planned takeover of the plant, the PUB said that it issued the default notice to Tuaspring for failing to keep its desalination plant “reliably operational” under a water purchase agreement.

This deal requires Tuaspring to deliver up to 70 million gallons of desalinated water daily to PUB from 2013 to 2038.

The plant was understood to have been facing operational issues since early 2017 and Tuaspring was unable to replace the facility’s poor-performing membranes promptly, which affected the quality and quantity of its water. There were also occasions when Tuaspring could not supply the PUB with the 70 million gallons of desalinated water required.

The PUB also said earlier that an independent valuer had put the water plant’s purchase price in the negative and Tuaspring would have to pay the PUB compensation under the water purchase agreement.

But PUB told Tuaspring that it was willing to buy the water plant for “zero dollars” and waive the compensation. It had done so because it was unlikely to recover the sum given Tuaspring’s financial position, the water agency said.

With the default notice, Tuaspring is supposed to have until April 5 to consult with the PUB on the steps it must take to resolve its defaults. Otherwise, the water agency has the right to terminate the contract by giving Tuaspring written notice of at least 30 days.

If this is done, the PUB is expected to take over the plant in early May.

In Sias’ letter to the PUB, Mr Gerald laid out 16 questions from investors, including the following:

WHAT IS PUB’S ROLE

Investors want to know what PUB’s role is in relation to Hyflux, how it manages private-public contracts and in what instances the agency can intervene.

HOW PUB ARRIVED AT PURCHASE PRICE

They also want PUB to explain how it arrived at its offer to buy the plant at zero cost. “Shouldn’t the purchase price be the equivalent replacement cost of (the) building or an equivalent plant?” Sias asked in its letter.

WHY PUB CHOSE TO ACT AS IT DID

The investors questioned why PUB chose to issue the default notice when it had already been aware of the situation at Tuaspring and Hyflux since 2017.

They also asked why PUB could not have waited until after Hyflux’s rescue plan is put to a creditors’ vote in a scheme meeting on April 5.

“Wouldn’t that be helpful to the plight of the 50,000 Singapore citizens who have ploughed their money into Hyflux to avoid further uncertainty?” 

The investors noted that PUB buys water from Tuaspring at 45 cents per cubic metre, but charges consumers rates starting from S$2.74 per cubic metre. They asked if the price could have been revised, knowing that the company had been incurring losses year after year.

GIVE TUASPRING MORE TIME

The investors asked if the PUB would agree to allow Tuaspring more time to remedy the defaults arising from the water purchase agreement.

“If not, why? Wouldn’t giving more time help all parties to focus on the restructuring process?” 

PLAN FOR TUASPRING PLANT

As for the plant’s and Tuaspring’s future, the investors wanted to know if the PUB would sell the plant or Tuaspring in future.

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