SINGAPORE: Even after Hyflux won its bid for the S$890mil Tuaspring project in March 2011, it managed to secure only a S$150mil bank loan.
This was because the banks estimated that cash flows from the desalination plant would support only around S$150mil to S$170mil of debt, a court heard on Tuesday.
To finance Tuaspring, Hyflux had sought a term loan of about S$527mil from a consortium of banks.
In October 2010, six banks signed in-principle commitment letters indicating their willingness to lend the money.
But they raised “serious concerns” after learning of Hyflux’s plan to build a power plant and sell excess electricity to the grid.
In January 2011, they told Hyflux that they could not lend money on the terms previously indicated as the power plant introduced new “merchant sale risk and operational risk”.
“The banks were saying: ‘Without the benefit of due diligence or extensive financial modelling, we estimate that the cash flows generated under (Hyflux’s) water purchase agreement may be able to support around S$150mil to S$170mil of debt’,” noted deputy public prosecutor (DPP) Kevin Yong on Day 8 of the criminal trial.
“Therefore, the rest of Tuaspring’s project cost has to come from an additional base equity commitment from Hyflux.”
“That’s the worst-case scenario,” the prosecution’s third witness, Nah Tien Liang, told the court.
Nah was Hyflux’s former vice-president of investment. Part of his testimony was heard earlier in private.
The banks were concerned because Hyflux had no track record in operating a power plant.
They also had misgivings about the tech capabilities of Shanghai Electric, a sub-contractor, which was being considered to build the power plant, as well as fuel price risks, and a new termination clause introduced by the Public Utilities Board (PUB).
Singapore’s national water agency wanted the option to take over only the desalination plant, without the power plant, in the event of termination.
This was because “the original tender called only for the desalination plant. There was no power plant”, Nah said.
In a Dec 4, 2010 email, Hyflux founder Olivia Lum had told several senior management officers: “Need to do a convincing job in energy strategy to the banks.”
She also noted that Island Power, another power plant under construction at the time, was having a “financing challenge”.
When asked what Island Power’s financing challenge had to do with Tuaspring, Nah replied that both were power plants.
“Whatever concerns the lenders had on the power market would also apply to the lenders of Tuaspring and Island Power,” he said.
In the end, only three of the original six banks – DBS Bank, Mizuho Corporate Bank and Sumitomo Mitsui Banking Corp – extended financing of S$150mil for the construction of the desalination plant.
Hyflux had promised to provide a base equity of S$252mil to the Tuaspring project for the loan.
This condition was set out in a July 4, 2011, deed between Tuaspring Pte Ltd, Hyflux and DBS.
The parties had to commit to the deed before the banks would make advances under the loan.
DPP Yong asked why Hyflux needed to provide a base equity of S$252mil for a S$150mil loan.
Nah responded: “Because if you want to complete the desalination plant, the construction costs more than the S$150mil the banks are providing. Therefore, the remainder has to be funded by equity.”
Lum, Hyflux’s former chief financial officer, Cho Wee Peng, and four independent directors – Teo Kiang Kok, Christopher Murugasu, Gay Chee Cheong and Lee Joo Hai – are contesting several charges.
These relate to non-disclosures of material information about the Tuaspring project in a regulatory announcement in March 2011 and in the information document for the issuance of preference shares in April 2011. — The Straits Times/ANN
