Quora Answer: Should the Singapore Government Bail Out Hyflux?

The following is my answer to a Quora question: “Should Singapore bail out Hyflux, its advanced water treatment firm that has filed for bankruptcy protection?  Why leave its fate to its Malaysian creditor Maybank?  Would not Mahathir bin Mohamad take advantage?”

The Singapore government should not bail out Hyflux.  That would be using public funds to save a private vehicle.  It sets a bad precedence, and condones bad corporate governance.  If the Singapore government were to do so, it gives life to allegations that certain people who are connected to people in the government have preferential treatment, such as Olivia Lum’s relationship with Ho Ching.  The government would never take that risk.

Hyflux’s technology is not something that is secret.  Singapore already has that technology.  We could speculate that was the primary purpose of Temasek Holdings’ initial investment.  Temasek then had them sell their building before exiting.  Hyflux is the quintessential example of bad risk management.  When an asset impairment wipes off 80% of its value, it tells us that corporate governance was lax.  When Olivia Lum sold perpetuities to mainly members of her church, and then to people who did not bother to perform due diligence, it is difficult to feel sorry.  This was simply ignorance and greed.  When Hyflux claimed they projected oil prices to remain at a high level over the course of the Tuaspring credit exposure, that was a level of leverage that should have raised alarms to their risk managers.

In light of all that, the various creditors, including Maybank, have to decide what they want to do to get their money back.  The current assets and cash flow is insufficient to service the debts, and all financial obligations.  That is the free market.

Mahathir bin Mohamad, and the Malaysian government, have nothing to do with Hyflux.  This point is non sequitur.