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Government Bailout of Hyflux - Chance Petition

Hyflux – Singapore Government Bailout Petition (Part 1)

This will probably be an unpopular article for Hyflux investors.

Hyflux has their fair share of negative news with SIAS being involved to help retail investors in as many ways as the can. Being on the bad side of news since 2018.

Many retail investors risk losing almost 90% of their invested sum. Many of them utilised their CPF funds, savings and retirement funds to invest in notes, perpetual securities and preferential shares of Hyflux. Up to a 34,000 investors are retail investors of Hyflux’s perpetual securities and preferential shares.

Each of those are more complicated instruments unlike common shares.

So large were the losses were that there is a petition calling for the government to acquire Tuas Spring so investors can recoup their losses.

Restructuring Proposal

Hyflux has indeed receive a lifeline from SM Investments. In a nutshell, there will be a restructuring where retail investors will get back roughly about 10% of their initial investment.

Once a proud success of entrepreneurship, Hyflux’s share price has been on a freefall for years.

Government Bailout of Hyflux - Hyflux Share Price

Their stock price has reflected what Hyflux is, since the start of the decade, Hyflux’s numbers has not looked convincing at all.

Government Bailout

Some investors, unable to take the blow and offer by SM Investment, which they deemed to be a low-ball offer, have initiated a petition get the government to bail them out.

Government Bailout of Hyflux - Chance Petition

The petition call for the government to step in to buy TuasSpring Desalination Plant, the largest water desalination plant in Singapore, at book value.

The reasons given were;

  1. Water assets cannot be controlled by a foreign power.
  2. The government has already set a precedent in acquiring SMRT. If they help SMRT, they should help Hyflux as well because water assets is important to the country.
  3. Rightful for government to clear up the mess as the government should be responsible for this failed partnership.

The plea to the government were as follows,

Government Bailout of Hyflux - Plea

National Strategic Asset – Iceland vs US

Well, nothing is nothing under the sun, therefore, this reminded me of the Icelandic banking meltdown of 2008-11 and The Great Recession of 2007-08 in United States.

Both countries took a very different approach in handling the crisis in their countries. Iceland allowed the banks to fail and recorrect to normal market forces, partly due to their reluctance to use taxpayers money to pay for the follies of corporate executives and investors as well as that the bailout required is simply too much for the Icelandic government to handle.

United States, on the other hand, bailed out multiple banks and financial institutions. With Lehman Brothers widely known as the one that did not get bailed out.

Even Warren Buffett didn’t managed to save Lehman Brothers. (Which is pretty much Lehman Brother’s fault than his. To be honest.)

Both strategies worked as both countries have recovered from their respective crisis.

If the Singapore government allows Hyflux to fail, natural market forces will take over. A transfer of wealth will take place, with the sensible profiting and the insensible losing out. Whether or not Hyflux will survive or even see it’s glory days again is unknown.

If the Singapore government bail out Hyflux as per the request of the petition, Hyflux will probably survive, it will likely cost as much or even more than the Bi-centennial’s bonus. The government may also have to bear the brunt of the blame by many as seen by how the American government were accused of condoning Wall Street executives.

Here is a short video of the Icelandic Banking Crisis.

In Part 2 of the article, we continue to look at the bail out petition.

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