At the heart of the debacle is Tuaspring, a desalination and power plant that cost $809mn and was heralded as one of the “national taps” for an island that had long depended on importing water and harvesting rainwater for survival. The company’s glowing prospects encouraged investors including Li Meicheng and Violet Seow to funnel some of their savings into $900mn of junior debt to help fund the venture and group expansion.
Tuaspring was opened to great fanfare in September 2013, with the head of the Public Utilities Board and two government ministers flanking Prime Minister Lee Hsien Loong, who called the plant “the latest milestone in Singapore’s water journey,” praising its “unique and cost-efficient design.”
But the facility hasn’t made money since under its 25-year water-supply agreement. And losses snowballed after its gas-turbine power plant started selling excess capacity in 2016 to the power grid, which had a glut of electricity caused by the opening of the market to competition. As cash depleted and liabilities approached $2.7bn, Hyflux sought court protection from creditors to restructure.
Many investors expected the government to step in and help a venture it had enthusiastically praised. But the authorities have rejected calls for intervention into what they call a “commercial matter.” The PUB served a notice of default on the Tuaspring plant owner for operational and financial lapses. Hyflux was given 30 days to make good on its obligations, or the state could terminate the contract and seize the plant.
“I’m very disappointed that the government has decided to take a tough stance instead of offering a helping hand to an iconic Singapore company,” said Li, a 42-year self-employed businessman who owns Hyflux perpetual notes and preference shares. “This is another dagger in the chest for retail investors.”
The government deadline for Tuaspring to comply, April 5, is the day creditors must vote on Hyflux’s restructuring plan, effectively forcing them to accept the workout deal or risk losing everything. Hyflux must persuade more than 50% of those who turn up to the meeting and 75% in value of claims, to back the reorganisation. The company will reschedule a town hall previously planned for March 13 as a large number of noteholders wish to attend.
“This adds to the urgency and pressure on Hyflux and its creditors to pass the restructuring plan,” said Ang Chung Yuh, a senior fixed-income analyst at iFast Corp. “They are stuck between a rock and a hard place.”
The PUB said in response to questions that its responsibility is to safeguard Singapore’s water security and that desalination plants are integral to that security. “PUB’s decision to issue a default notice is to ensure the asset is secured and continues to produce water,” according to emailed comments from a spokesperson.