Regulators looking into Hyflux’s disclosure and accounting practices for possible breaches

SINGAPORE — Problems for water treatment firm Hyflux continue to mount, as Singapore’s regulators on Tuesday (April 16) said in response to media queries that they are looking into whether the public-listed firm had flouted any laws and regulations, including listing rules.

They are also reviewing whether the company had complied with accounting and auditing standards.

In a joint statement, the Monetary Authority of Singapore (MAS), the Accounting and Corporate Regulatory Authority (ACRA) and the Singapore Exchange (SGX) regulatory arm — known as SGX RegCo — said they are “currently reviewing Hyflux-related disclosure issues, as well as compliance with accounting and auditing standards, to determine if there have been breaches of listing rules and/or the relevant laws and regulations”.

When contacted, Hyflux said it is cooperating fully with the regulators on their queries.

The company has been undergoing a court-supervised restructuring process since May last year after chalking up debts amounting to nearly S$3 billion.

The spectacular fall from grace of a firm once regarded as the darling and trailblazer of Singapore’s entrepreneurial scene has sparked numerous questions among investors and shareholders. These include whether there has been any financial misconduct or mis-selling by the company, and why its auditor KPMG — which has been auditing Hyflux for the past decade — failed to flag any risk of the firm falling into heavy debt.

In March last year, KPMG provided a clean audit report for Hyflux for the financial year of 2017, only for the company to seek court protection from creditors just two months later.

In a letter to the firm’s board issued on Feb 11 this year, the Securities Investors Association of Singapore (SIAS) questioned what could have happened during those two months, and at what point did the board realise that Hyflux was not able to pay its debts.

It also asked how is it possible for Hyflux to report profits every year before 2017 despite a negative operating cashflow.

Hyflux had responded that cashflow is a separate financial metric, which sets out cash outflows and inflows over a specific period of time, but does not necessarily correlate with profit and loss in the same period. 

Because of its business model, it added, it recorded negative operating cashflow due to its heavy investment in the construction phase of its large infrastructure projects, whereas its profits are largely derived from engineering, procurement and construction activities, offshore and marine projects and divestment gains.

Consistent with its business model, Hyflux recorded negative operating cashflow due to its heavy investment in the construction phase of its large infrastructure projects such as Tuaspring, Qurayyat and TuasOne Consistent with its business model, Hyflux recorded negative operating cashflow due to its heavy investment in the construction phase of its large infrastructure projects such as Tuaspring, Qurayyat and TuasOne

Meanwhile, a report by ratings agency S&P on April 8 pointed out that Hyflux managed to issue perpetual securities in May 2016 even though its operating performance in the previous years have been “erratic”.

“Numbers at that time already suggested that the company's capital structure was hardly sustainable,” said the report.

Earlier this month, in response to media queries from Bloomberg, MAS said that it has not uncovered any impropriety on the part of DBS bank, which was the issue manager and distributor of Hyflux perpetual securities in 2016.

“As the issue manager, DBS conducted due diligence checks to ensure that material information relating to Hyflux was highlighted in the offering document,” MAS said.

The bank also reminded investors, when distributing the bonds via its automatic-teller machines, to read disclosure documents before applying, MAS added.

To add to its woes, Hyflux said in an SGX filing on Monday that it is suing Indonesian consortium Salim-Medco (SM) Investments for repudiation of the restructuring agreement inked by the two parties.

Hyflux is claiming the S$38.9 million deposit, after a rescue deal was scuppered, with both sides blaming each other for its failure.

On April 4, Hyflux cancelled the deal, saying it has “no confidence” that the supposed white knight would complete the proposed S$530 million investment.

SM Investments released a statement on the same day, stating that it has been waiting for Hyflux to disclose further information on its Tuaspring and Magtaa projects.

Tuaspring is Hyflux’s integrated desalination and power plant in Singapore. National water agency PUB has said it will take over the desalination operations if Hyflux is not able to repay its defaults by the end of this month. Magtaa is a desalination plant developed by Hyflux in Algeria.