The Story of a Hyflux Investor [That No One Talks About]

Irving Soh
Irving Soh

You’re a university graduate. You’re a professional worker 15 years into your career.

You’re a retiree.

It doesn’t really matter. What matters is that you have cash – boatloads of it.

And if you don’t, you’re going to make it. You’re planning for the family you want to have, the house you want to buy, the holidays you want to take, the retirement you want to have.

And these things don’t come cheap. So you start trying to grow your money.

Business is out. Too much you don’t know, and you’ll need too much money you don’t have.

What about investing? Investing seems infinitely achievable.

You just need some elbow grease and study time. Like the good old days of school. You head down to Kinokuniya and you start with the classics. The Intelligent Investor, by Benjamin Graham, and Security Analysis.

And then you sit yourself down to study. Months pass.

As your knowledge grows, you start looking for companies to grow your money. You sign up for a Central Depository Account. You put the notice out to your bank brokers.

Like most books, the ones you bought remain on your desk, half finished. It’s a “constant work in progress”. You start browsing blogs and reading articles.

Investopedia gets added to your home page favourites. A bullet-pointed list of Warren Buffet’s famous quotes hangs on your wall.

You go to sleep staring at that poster and wake up looking at it. You learn more. Read more.

Your confidence grows with each chapter of knowledge consumed.  

Investing seems simple. It starts looking black and white: what should be invested in, and what should not be invested in. It feels like enlightenment. It feels like you’ve reached…a new level.

The next level. And you’re feeling on top of the word. Ready to rumble. Ready to make your money multiply.

And one day, something happens. Your eyes land on this little water and energy company…in land scarce, water-short Singapore, natural-resource-poor Singapore.

Multiple things draw your attention.

The CEO sold her house and her car to start the company. The company’s share value tripled from 2008-2010, going from S$0.70 to S$2.1 in a span of two years. That same CEO went on to win the Ernst and Young Entrepreneur of the Year Award in 2011.

Prime Minister Lee Hsien Loong alongside PUB Head and two ministers opened TuasSpring, calling it “the latest milestone in Singapore’s water journey”.

Even better: Temasek Holdings, owned by Singapore, was counted among the shareholders and partners of Hyflux.

The ultimate deal? Hyflux signed a deal with the PUB in 2011, 70 million gallons of desalinated water a day for twenty-five years.

This was the moment. Remember it.

The moment you said to yourself that if Hyflux made even $0.10 of profits off every gallon of water sold, they stood to make $7 million dollars a day. $210 million dollars a month.

This was the moment you decided that Hyflux was worth whatever you could dump in it. It was the Singapore Facebook, Apple, Amazon, Netflix and Google combined.

It was all of this with a government Golden seal of approval.

So you went all in.

You took whatever you could get your hands on, and bought as much of Hyflux as you could. You bought ordinary shares.
You bought preference shares.
You bought bonds.

Later on, you bought their perpetual securities too.

Why not?

Getting 6% returns….forever? It was so simple even an idiot would have taken it.

So when your broker called you and asked if you wanted those perpetual bonds?

Your reply was: “How much can I get?”

Some time later, Hyflux collapses.

The shock of it sends you to the toilet, vomiting out your meal.

You call the brokers feverishly. Google even more feverishly. You call family and friends. You call associates you know in the industry. You call anyone you can get your hands on.

Slowly, the pieces come together.
Mounting debt.
Years of lacking profitability.
Negative free cash flow for those same years.

Negative Free Cash Flow destroying Hyflux’s financial strength since 2013.
Hyflux paying 1 time its net income in 2013. 1.4 times its net income in 2014. And a staggering 4.9 times its net income in 2015. This precipitated the crash.

Perpetual securities disguised as equity under the company balance sheet thanks to accounting standards.   
A lack of risk-management from Hyflux’s Board of Directors when they decided to buy gas for the long term based on only short-term electric prices.

You’re horrified.

How could the Board of Directors have been so…pathetically inept?
How could anyone even sell you those perpetual securities?
How could all of this even pass audit?
Wasn’t KPMG supposed to flag such risks earlier? Weren’t they supposed to be better informed, better able to analyse such flaws compared to the public?

Slowly, perhaps even quickly, the anger builds up inside your guts. Clawing, frothing, boiling like lava to the surface.

Then it starts taking over your life. Your job. Your relationships. Your anger starts to make itself known amidst family.

Meanwhile? There are creditors coming after you. A long line of them. Some of them are even relatives.

They want what they lent you and what they lost.

“But it was your choice to invest! Would you have shared the profits with me if things had been good?!”

Your question, shouted through the door as they bang on it doesn’t draw a response. All they know is you owe them big, and they don’t care how, but they want it back.

Meanwhile, the one saving grace that is a lifeline extended by indonesian white knights drops off the table.

Your life crumbles around you until the only bright point seems to be a possibility of regaining just 10% of what was lost. And only 3% of that is in cash.

Everything is destroyed.

You are miserable.

And you spend the next twenty years of your life trying to pay off that debt.  

Wait. This story is bullshit. If you got the chance to rewrite your story as a Hyflux investor, what would you do?


This is the rewrite I’d hope for you.

You’re a university graduate. You’re a retiree. You’re a professional worker 15 years into your career.

It doesn’t matter. What matters if you have cash. Boatloads of it. And if you don’t, you’re going to make it.

You’re planning for the family you want to have, the house you want to buy, the holidays you want to take, the retirement you want to have.

So you start trying to grow your money.

You want to be, no, you will be the kind of investor who knows exactly why you buy, why you sell, and why you hold.

So naturally, you start with the classics of investing books. The Intelligent Investor by Benjamin Graham and Security Analysis by Benjamin Graham and David Dodd.  

The books are hard to read.
And they’re even harder to draw lessons from.

But you’re determined, and you’re well-trained by the Singapore schooling system.

You bite the metaphorical bullet and start learning.

Page by page. Chapter by chapter.

What did Singapore’s education system teach you to do when taking exams?

That’s right.

You don’t take just one test paper. You take all the top schools’ test papers.

So what do you do when you want to start learning investing?

You start looking at what others are saying and doing and experimenting with. You start looking at what Temasek Holdings are doing to validate your stock ideas. You look at whether insiders like CEOs and company executives are selling the stock.

You know that if insiders are sucking up shares, there’s a good chance they have good news.

Similarly, you know there’s a good chance they have bad news if they start selling their own shares.

You follow blogs of people who put their money where their mouth is. You start engaging them. Asking for opinions. Maybe they have differing opinions. Maybe their methodology is different.

Maybe their ideas are different. The wide spectrum of opinions and thoughts that you’re receiving is infinitely better than your individual, secluded thoughts.

That broad base of different opinions serves to inform you if you’ve screwed up. It shows you your blind spots. Shows you new ideas. New considerations. The new opinions open you up to looking at places you might have missed which could have delivered a fatal blow to your investments.

Of course, everything is taken with a pinch of salt. Not everyone knows their shit.

Least of all you.

And maybe even most especially you.

You stay humble and start learning how to diversify. Investopedia still gets tagged to your favorites. Buffet’s poster still goes up.

But now you know…there’s more.

When Hyflux pops up on your screener one day that you’ve implemented from various teachings, you evaluate it methodically and you decide to buy.

You enjoy the ride while it lasts, watching the share price triple from 2008-2010. You pay attention to the company’s announcements and deals.

Then one day something Hyflux does worries you. They decide to start placing an emphasis on operations and maintenance vs procurement and construction. Something which was not entirely in line with what they had done in the past.

This is the moment.

Things start looking grim. You start checking on Hyflux share prices everyday.

You’re wondering how they’re going to fare in the coming year.

And you’re not very optimistic. But you hold. Praying that the underlying fundamentals of the company, that the management which had thus far managed the business well, will continue to manage the business well.

When the Energy Market Authorities starts vesting out contracts of Liquified Natural Gas for electricity production, you note that Hyflux doesn’t get awarded any of it.

Even better.  

They decide to build their own power plant. While optimistic, you’re certain that if they can make a profit off of selling electricity, the company will be in good stead.

Instead Hyflux records a year of losses as energy prices tank sharply. Wholesale electricity prices tumble from $215 per megawatt to $63 per megawatt.

Alarm bells go off in your head. And you dig through documents and agreements ferociously.

Those vesting contracts for the other generation companies: they last years!!

Hyflux had tied a noose around its neck!!

If they couldn’t find a way to turn this up into profits, they’d lose – badly. And their shareholders were going to pay the price for it.

We both know what happens next.

The company starts taking massive losses.

So now they have no buffer. It’s sink or swim.

And Hyflux is sinking faster than the Titanic ever did.

Amazingly, no one in the markets seem to give a damn.

The bonds are over subscribed on release.

And they release it three times. 2011, 2014, 2016.

You know better.

Bonds are debt.

Debts always come due.

And a company which is not profitable, burning cash trying to maintain operations can’t pay that off.

Something has to give. Sooner or later.

You’re horrified at the take up rate. At the amount of debt now suddenly on Hyflux’s balance sheet.

Debt now suddenly masquerading as cash.

You know better.

It’s too much debt, too fast, too hard.

You know it’s time to get out. In your head, the drums of war reach a feverish staccato.

Self doubt kicks in.

Do you know for sure?

Who’s to say the energy business wouldn’t turn around?

Of course not. Of course you don’t know for sure. No one does. We can only guess.

But you dedicated yourself to learning. You know a little thing called risk-management. You know that your money doesn’t have to stay in a non-profitable company. You know you can move your money out now and still retain a large portion of the gains you made.

You don’t need that risk. That’s for sure.

So you take what you can and you get the hell out of the position.  

This time, you spread the word.

You are the one warning your relatives away from it.

You are the one telling your friends to stay away from it.

You are the one doing everything and anything you can to get whoever you know and care about to get out.

Thanks to you, none of your friends and family stand to lose close to 90% of their invested monies. Most of your friends and family will live to invest another day.

Yeah…this is the way I wish it was for you.

Concluding Thoughts

The past is immutable. We only have the power to change our future.

I wish that was not the case. I wish that the price of learning such a lesson was not so painful. But we know better.

There is no point crying over what is the past now.

We can only look ahead.

Learn from this. Evolve from this. Be a better investor than this. Dig deeper.

Ask tougher questions.

Don’t know the answer to something? Find out! There’s always google.

Don’t know how to read a financial statement? Learn!

We have a Facebook group dedicated to answering questions from investors on all sorts of things. This is what we want to help people avoid.

Don’t know why debt and free cash flow matters?!

Here it is!

Don’t know if a company’s management is doing the right thing or not?

Google for analyst reports!

Check with popular and knowledgeable financial bloggers who put their money where their mouth is.

Don’t know if you should invest? Ask!

Help and clarification is always but a Facebook post away.

At Dr Wealth, we believe in a simple formula:

Events (out of our control) + Reactions (within our control) = Investor Returns

We cannot control what happens.

We similarly cannot fully control what our returns will be like.

After all, we can’t control how much customers will like the companies we invest in.

What we can control is our reaction to external events.

Before Hyflux, there was Ezra Holdings and Swiber Holdings. Events which saw shareholders lose most of their investments.

How did these investors react?

  • Did they learn & adjust?
  • Did they evolve into better, more knowledgeable investors?
  • Did they start to learn perpetual securities?
  • Did they learn to evaluate contracts?
  • Did they learn to project oversupply and the fall of demand and its effect on commodity prices?
  • Did they learn to evaluate a company’s free cash flow?

I know only one thing for certain. If you fail to learn from past mistakes, you are doomed to repeat them.

How you react to situations and events determines how much you improve. How much you take it upon yourself to master investing will determine your returns.

Who’s to say you can’t learn from this, invest better, and recoup your losses?

So don’t quit.

Don’t lose hope.

Keep learning.  Keep growing. Keep getting better.

That’s the only way you’re going to recoup your losses, and stand a fighting chance again.

Irving Soh
Irving Soh
Behavioural Psychology fanatic. I like good food, movies, intelligent conversations and logical reasoning. I also dabble with options, factor-based investing, and data analytics.
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15 thoughts on “The Story of a Hyflux Investor [That No One Talks About]”

  1. Magnum opus. Add ‘quit investing’ altogether. Investing in stocks is a gamble. Running a biz, you are in control, not stocks. Unless you are CEO or BoD, your only right is attending AGMs and vote for resolutions, totally no say. You use metrics like PB, but in acquisition, nobody use that, only fools like us. Even when time comes for dividends, we got scrips! In every IPO, these people, through smart issuers mark up their worth many times over, you are scammed and screwed legally, their founders laughing their way to the banks. When markets tank, they go back to their bloated banks and buy back on the cheap, 2 hoods to Book values, calling it ‘privatisation’ actually a camouflage for scam. Then after a time, re-surface and repeat the process despite the fact many Bloggers like yourself, had foretold ‘caveat emptor’.

    • you’re right. but I’m sorry you see it this way. it’s easy to get lost in the negativity of the world. and I cannot deny that in a way, what you have said is true. but there will always be unscrupulous people. I choose to acknowledge that I am far better off knowing than not knowing, and trying rather than not trying.

  2. Great story, Dr. Wealth. IMHO, the authorities should have made financial literacy & how to read annual reports as compulsory education before anyone can even open a CDP account & brokerage accounts.

  3. Dr Weakth. You have missed some salient points. Good leadership is the key to corporate success. Hyflux has a Board of Directors. We need to look deeper into the Board and evaluate the credentials of each members and how they had contributed to Hyflux’s new proposals. We also need to know who is calling the shots? Is it the CEO that made all decisions without consulting the Board, or is it that Board’s recommendations were ignored? What about management? Does input from top management being se aside by those calling the shots? Had capable managers from the company resigned for no specific reason? If good managers resigned, had the company sought out for more better and qualified replacements? Did its HR recruitment function independently without due influence from its CEO? All these are questions we need to address as they could hinder corporate success. Last but not least, what about the quality of its CFO? Is he able to provide proper financial guidance to the organisation, and thoroughly evaluate new projects, ensuring they enhance shareholders’ value and maximise return for the group.

    • Hi Chan Kit Whye! As an investor, you have little to no control over the internal workings and hirings of the company. you can find warning signs, but do little else. as an investor, the 3 primary actions you can take are buy, hold, or sell. my investigations into a company will always be skewed towards informing the buy/sell/hold trifecta of decisions better. furthermore, capability of managers is ill conceptualised as a number. that is a human factor that cannot be quantified. i would prefer to judge the business based on its fundamentals versus its management. certainly, if i had the chance to dig into its management and verify only truth “as if i were a fly on the wall” so to speak, i’d love to. but we don’t always have the time that would take. it might be years before you complete an investigation in such a way.

  4. I think a lot of “Insiders” are still millionaires out of this Hyflux’s fiasco.

    It is always retailers know it to late.

    It will never change.

    So better be safe than sorry (aka read greedy).

    Any ill wind blowing that nobody’s good, flee as fast and as far as U can.

    To me it is better to be safe than sorry.
    Even if Hyflux managed to turn around.
    I am not worry or sorry.

    Having said all this I missed buying the initial 3 years of Hyflux then all the years of preference securities and perfectual securities (which to me was beyond my understanding then. Of course now forever).

    Thank God I missed buying the 1st 3 years. if not hmmmm….. I would have bought some preference shares. May be not the Perfs. because it is beyond my understanding seeing it as an investment.

  5. i think most probably I would have fled when Hyflux started to issue Prefs.
    If not definitely the Perfs because i could not see it as an investment.

    I usually will flee when there is an ill wind blowing about the stock I hold. Better be safe than sorry because if there is Smoke, there is Fire most of the times.
    Hate to cut loss but from experiences, it is better then holding and hoping to River of no return.

  6. Figures aside, the risks were well documented in the prospectus especially her entry as a energy player in the form of Tuaspring.


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