S’pore’s Hyflux falls from grace

Poster girl Olivia Lum pays the price for diversifying into energy sector

PETALING JAYA: Singapore-listed Hyflux Ltd, a company owned by Malaysia-born Olivia Lum, is facing trouble following its diversification into the power-generation sector.

The company, whose mainstay is in the business of water treatment, is under scrutiny following the sharp fall in the prices of its two financial instruments, namely S$400mil (RM1.18bil) in preference shares and S$500mil (RM1.48bil) worth of perpetual securities.

Perpetual securities are fixed-income instruments with no maturity date, while preference shareholders receive their dividends before ordinary shareholders.

According to a report by Bloomberg, Hyflux’s S$500mil perpetual securities carrying a 6% coupon yield were the worst-performing local currency retail note this year among 10 such securities listed on the city’s exchange.

Its perpetual securities have fallen 25% this year to a record low of 55 Singapore cents.

The company’s S$400mil preference shares, which pay 6% dividends, took a dive to a near-record low of S$76.60, after being issued at a par value of S$100 in 2011.

The low prices of the securities and the preference shares reflect the lack of confidence in the sustainability of the business.

The plunge in prices came after the company, founded by Lum, posted its first annual loss of S$116.4mil in 2017 since its listing in 2001. Bloomberg pointed out that the stumble follows an expansion in recent years in the energy business, beyond Hyflux’s mainstay of building desalination plants.

Hyflux said an oversupply of gas in Singapore depressed electricity prices and the weakness in the power market will likely pose challenges for its performance in 2018.

According to the Singapore Straits Times,

Hyflux is not the only power-generation firm that is struggling. It said Singapore’s electricity market is “heavily oversupplied”.

One of the concerns raised was the company’s ability to redeem its S$400mil preference shares, which will reach first call date on April 25.

The company has been generating negative cash flows from operations every year since 2010.

The interest (coupon) payable on this instrument will increase to 8% per annum from 6% until they are redeemed.

It is understood that Hyflux was aiming to partially divest up to 70% of its Tuaspring water desalination and power plant last year, and that the delay is likely to prevent the company from calling its preference shares on April 25.

Tuaspring made a net loss of S$81.9mil last year from a restated S$114.5mil in 2016.

Lum, who became a poster girl for many entrepreneurs for her rags-to-riches story, founded Hyflux in 1989.

Hyflux was listed on the Singapore Stock

Exchange in 2001.

Lum grew up in Kampar, Perak, where she was adopted by a poor woman. She has worked since she was nine years old, juggling her studies and helping her family to make ends meet.

When she turned 15, Lum left for Singapore and was accepted into the Tiong Bahru Secondary School.

She gave tuition to support herself, graduating with a degree in chemistry from the National University of Singapore. She worked in a multinational company prior to Hyflux, a water treatment specialist.

She was named Ernst & Young World Entrepreneur 2011, making her the first woman to receive the honour.

In June 2011, the value of Lum’s shares in Hyflux was worth S$500mil. Lum’s company had also won contracts to build Singapore’s first Newater plant and first desalination plant.

Yesterday, shares in Hyflux closed at 27.5 Singapore cents, giving it a market capitalisation of S$216mil. Lum owns 35% in Hyflux worth S$73.5mil,