САНХҮҮ ЭДИЙН ЗАСГИЙН ИХ СУРГУУЛЬ

ӨДРИЙН ХӨТӨЛБӨР
DEPARTMENT OF THE INSTITUTE FOREIGN LANGUAGES

CASE REPORT
Topic: HYFLUX LTD IN FINANCIAL DISTRESS

Course name: Financial and Economic English

Course code: ENG329
Group: 758

Submitted by: .................... Enkhzul.G /B20FA1521/

.................... Bolorchimeg.D /B22FA1017/
.................... Tsolmon.U /B22FA1162/
.................... Bayartsogts.A /B22FA1454/

Submitted to: . . . . . . . . . . . . . . . . . . .. . Otgonsukh.D /Master /

Date:2024/04/05

Ulaanbaatar. 2024
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SUMMARY
A scrutiny report delves into the pecuniary woes besetting Hyflux Ltd, an enterprise purveying
water refinement solutions, concentrating on executive governance dilemmas, liquidity regulation,
and fiscal prowess. Its mission is to excavate the foundational tribulations causing monetary
headaches for Hyflux and their repercussions on stakeholders coupled with sectorial ramifications.
Paramount discoveries underscore misguidance, financially untenable promises, lack of proper
hazard evaluation, alongside the essence of preemptive actions towards ensuring economic
endurance. This document endeavors to dissect elements precipitating Hyflux Ltd’s financial
predicament whilst zeroing in on managerial frameworks, pecuniary stewardship habits, and
approaches to dodging risks. It intends to spotlight formidable obstacles encountered by this
corporation and shed light upon ways through which advance guard maneuvers could thwart fiscal
downturns thereby guaranteeing enduring viability. Utilized methodologies within this discourse
encompass an exhaustive perusal over financial declarations from Hyflux's end, corporate command
conventions plus scholarly works about the industry so as to gauge seminal success elements versus
perilous aspects vis-a-vis economic achievements witnessed by said firm. Further dissected are
trends pertaining to profit margins enjoyed by Hyflux; indebtedness ratios besides operational
hurdles aiming at pinpointing root sources behind its fiscal malaise while offering counsel targeted
at enhancement. An exploration dedicated towards demystifying why distress has been a constant
shadow following Hyflux underscores issues like misadministration profiles marked clearly against
backdrops featuring commitments tipping scales into unrealizable territories complimented poorly
done jeopardy screenings. This enquiry throws a glaring beam over how such factors handicap
corporal efficiency driving home points concerning pivotal roles played by governing frameworks
inclined right next toward stewardship operations economically speaking — not forgetting
advocacy surrounding proactive methodologies direly needed for ameliorating brittle
finance-specific defense systems aimed at assuring years brimming with prosperous undertakings
ahead

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 TABLE OF CONTENTS

I. Introduction 1

II. Main section 2-3

III. Discussion 7

IV. Results 7

V. Conclusion 8

VI. References 9

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I. INTRODUCTION

Hyflux Ltd, a prominent water treatment company founded by Olivia Lum, faced a tumultuous
period marked by financial distress and operational challenges, notably stemming from the
Tuaspring project. This report delves into the intricate factors that led to Hyflux's financial turmoil,
examining aspects such as governance issues, liquidity management, and the company's overall
financial performance. By analyzing these critical elements, the report aims to shed light on the root
causes of Hyflux's financial struggles and the implications for stakeholders and the industry at large.

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II. MAIN SECTION

Question 1: What are the key success factors and key risks of Hyflux’s business model? Is the
business model sustainable?

Key success factors

● Technological Innovation: One of Hyflux's achievements is the introduction of innovative
water treatment technology. This technology is membrane-based for water desalination and
water recycling. The strong competition in the industry has made Hyflux more competitive
and has continuously innovated its technology.
● Government Deals and Alliances: The contracts and alliances Hyflux has with the
government have been pivotal in maintaining its long-lasting viability. From such an
agreement, there's a steady flow of income that is expected to grow over time. Additionally,
Hyflux gained a competitive edge in purifying water and bringing it closer to the masses.
● Noteworthy Performance in EPC Ventures: In engineering, procurement, and construction
(EPC) ventures, Hyflux achieved notable success. Frequently funded through debt, these
ventures required hefty investments as they stretched over several years to complete.
Besides this accomplishment, the firm shone brightly in Operations & Management (O&M)
activities—amassing an impressive order folio for EPC ventures alongside O&M services
totaling S$2.7 billion by 2017.
Key risks
● Substantial Debt Load: The total indebtedness of Hyflux escalated from S$845.2 million
back in 2010 reaching up to S$2.6 billion come 2017; hence boosting financial leverage
whilst diminishing profits markedly. In just 2017 alone, Hyflux disbursed an overwhelming
S$87.7 million towards servicing their interest on debts—a steep climb from what was paid
back in 2010—the predicament only complicating their fiscal quandaries further.
● Dependence on Monetary Support: Encountering fiscal challenges since as early as 2010 led
Hyflux into deeply depending on borrowed capital for sustenance; its collective obligations
saw a spike from $845.2 million scaling up to $2.6 billion spanning between the years of
2010 and then again by 2017—this reliance pushed it towards accumulating more debts
bearing high interests thereby putting its monetary health at risk.
● Tuaspring’s Downturns: Operational starting from year Twenty-fourteen faced severe
setbacks amidst Singapore’s cutthroat electric market climate resulting substantial post-tax
deficits recorded at astonishing figures -S$11449 million during year Two Thousand Sixteen
followed by another loss amounting -S$8189 million subsequently next year thus heavily
weighing down upon company’s financial stability threadbare.

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The sustainability of Hyflux's business model has been in doubt due to various challenges such as
high leverage, declining profitability, reliance on external funding, and the energy business,
particularly the Tuaspring project. These factors contributed to the company's financial crisis and
raised concerns about its long-term viability.

Question 2:What is your assessment of the performance of Hyflux from FY2010 to FY2017?

In the time between FY2010 and FY2017, Hyflux dealt with important problems in its financial
performance. The company showed continuous negative operating cash flows, but it still depended
on outside funding a lot which caused a big rise in total liabilities. Growing interest costs and
troubles with the asset-light strategy made its financial situation worse. Moreover, the way Hyflux
pays dividends -- giving more preference to holders of perpetual preference shares and perpetual
securities -- made people worry about its financial management focus. Generally, the company's
performance in this time showed a lot of stress on finances and unsure strategic choices.

a). How well has Hyflux performed in terms of profitability? Identify the underlying causes for the
change in its profitability from FY2010 to FY2017.

From FY2010 to FY2017, Hyflux's profitability saw a marked decline because of a mix-up in
numerous aspects. The company had ongoing negative operating cash flows which showed
problems in making enough money to cover all costs. This became worse with too much
dependence on outside funding, resulting in significant rise of interest expenses over these years
and hence reducing the profit-making ability. Moreover, the asset-light approach of Hyflux which
was designed for gathering funds for fresh projects faced problems in its implementation. This
became especially difficult when trying to offload important projects like Tuaspring project and
Tianjin Dagang desalination plant; outside factors such as tough market conditions and obstacles in
executing projects also put stress on profitability. Furthermore, Hyflux's way of paying dividends by
giving out big dividends that were more than their profits made it even worse for them financially.
These factors combined contributed to Hyflux's declining profitability during the period.

b). Is Hyflux bearing the costs of too much debt leading to financial distress and diminished
business flexibility?

Hyflux faced serious financial problems and had less flexibility in its business operations mainly
because it borrowed too much money. This happened because the company wanted to grow quickly
by investing in big projects like water treatment plants, and it needed to borrow money to fund
these projects. However, things didn't go as planned. The projects faced delays, went over budget,
and had to deal with changes in government regulations, all of which put a strain on the company's
finances.

Hyflux couldn't manage its debt payments well, which caused cash flow issues and made it hard to
pay back what it owed on time. This led to worries among the people and organizations that lent
money to Hyflux, as well as investors who were concerned about the company's future. Eventually,
Hyflux had to seek help from the court to reorganize its debts and protect itself from creditors who
wanted their money back. This reorganization process was necessary to deal with the company's
huge debt and try to get back on track financially. However, it also came with its own challenges

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and costs. Overall, Hyflux's reliance on borrowing money to fund its growth plans ended up causing
a lot of problems for the company, making it difficult for them to stay financially stable.

Question 3: Why did Hyflux for court-supervised reorganization? Identity red flags leading to the
fall of Hyflux and discuss how the reorganization had affected the company, creditors, banks and
investors.

Hyflux filed for court-supervised reorganization primarily due to severe financial distress caused by
a combination of factors. Some of the key reasons for Hyflux's decision to seek court protection
include: The reorganization procedure of Hyflux was quite complicated and involved many
challenges under the court's supervision. One of the problems faced by the company concerned high
debts, acquired from slow and pricey undertakings, for instance, Tuaspring and the Integrated Water
and Power Project for which implementation was slow and costs went beyond the plan constraining
the firm's finances. As water and powerings sectors were being regulated, they also impacted the
company's income and financial standing. As it came out with mediocre financial results for
consecutive quarters, demonstrated by lower income, major struggle with management and a harsh
rivalry, it ended up in a much more difficult situation. Along with liquidity problems, Hyflux was
unable to make fixed payments for loans and debtors and had to enter the reorganization process.

Red flags that contributed to the fall of Hyflux include: Hyflux’s implosion has its roots in not one
but lots of vital factors. First of all, above all, its borrowing on a very large scale for expansions and
strategic investment plans left it very vulnerable to being highly exposed to more economic and
market fragilities. The intricacies and cost overruns of the Tuaspring Project, which were coupled
by the delayed project outcomes played a crucial role in the conversion of outstanding factors of
risk to the financial position of Hyflux. Risk management was inadequately managed, and this issue
became very evident in the regulation changes as well as the market dynamics. They were highly
related to state and sectoral financial instability. Besides, accounts and oversight issues like the
question of accurate financial reporting and appropriate decision-making by the company’s
management were the other issues thrown by the public regarding HSBC which in the long run
destroyed investor’s confidence in the bank.

The reorganization had various impacts on different stakeholders:

Company: The restructuring allowed Hyflux to re-plan the amounts of its debt, determine the way
operations were being carried out, and create a blueprint for a business that was sustainable enough
to become stable amid the financial problems.

Creditors: The Creditors were exposed to uncertainties, such as the extent of getting their debt back
and according to the process they are following and negotiations with the stakeholders.

Banks: In the wake of Hyflux's financial troubles, banks that had supplied it with loans suffered the
risk of potential loans and required this evaluation whether their exposure to Hyflux was viable.

Investors: Shareholders and bondholders who are investors had a record of massive losses because
of volatile share prices and possible default on bonds.

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III. RESULTS

Hyflux's profitability declined due to negative operating cash flows, high interest expenses,
and asset-light approach challenges.

Projects like Tuaspring faced implementation issues, impacting the company's financial
standing.

Graphic1. Hyflux Revenue 2010-2017

Source: Hyflux annual reports

Graphic 2. Hyflux dividend paid and interest paid 2010-2017

Source: Hyflux annual reports

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Graphic 3. Hyflux total senior debt at 30 April 2018

Source: Hyflux annual reports

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IV. DISCUSSION

The analysis of Hyflux's financial distress underscores the critical importance of effective
governance structures, financial management practices, and risk mitigation strategies in sustaining
corporate viability. The case of Hyflux aligns with existing literature emphasizing the detrimental
impact of mismanagement, unsustainable financial commitments, and inadequate risk assessment
on company performance. By examining Hyflux's challenges through the lens of corporate finance
and governance literature, it becomes evident that proactive measures to address financial
vulnerabilities and enhance governance mechanisms are imperative for averting financial crises and
ensuring long-term sustainability.

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V. CONCLUSION

In conclusion, the Hyflux case shows how a company can face tough challenges that lead to
financial problems and the need for court help to sort things out. Despite having some good things
like new technology and deals with the government, Hyflux struggled because it borrowed too
much money and relied too heavily on outside funding.

Hyflux had a hard time making money, had more bills than it could pay, and depended a lot on
getting more loans from 2010 to 2017 . Their inability to handle their debts well added to their
financial troubles and made it hard for them to be flexible in their business decisions. The decision
to ask for court help was because Hyflux was in deep financial trouble with lots of debt and not
enough money to pay it back, worsened by project delays and problems with regulations. There
were warning signs like poor risk management and oversight that made things worse.

The reorganization process had various impacts on stakeholders, with the company able to
restructure its debt and operations to pursue a more sustainable business model. However, creditors,
banks, and investors faced uncertainties and potential losses due to Hyflux's financial troubles.

In essence, the case of Hyflux underscores the importance of prudent financial management, risk
mitigation, and adaptability in sustaining business viability, especially in industries prone to
regulatory changes and market volatility.

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VI. REFERENCES

Ho Kim Wai, Shirley Koh and Lau Yin Kheng. (2019).Hyflux ltd in financial distress.Harvard Business
School press.