In the previous two articles, we discussed what a moat has to do with the economy (Part 1), as well as Economic Moats in Singapore (Part 2).
In this article we will analyse a case study about a company that lost its economic moat and the reasons behind its decline.
Hyflux Ltd (SGX:600)
NEWater is introduced on Singapore’s 37th National Day, marking its official debut in front of the nation. NEWater has been a staple item in the NDP funpacks ever since. True to our little island’s spirit of tenacity and self-sustainability, this “pangsai”(shit) reclaimed drinking water adds an innovative stroke to our Waste-to-Energy (WTE) efforts.
In 2001, Hyflux, a global environmental solutions company listed on the SGX, secured its first municipal water treatment project in Singapore to supply and install the process equipment for the country’s first NEWater plant. Other key projects included Singapore’s first seawater reverse osmosis desalination plant among other ventures in the energy sector.
On the evening of 22 May 2018, Hyflux seeked court protection for debt reorganisation. Hyflux has since voluntarily suspended the trading of its shares and securities since 23 May 2018.
What exactly happened to the juggernaut of desalinated water? In short ⏤ overleveraging (taking on too much debt)
Hyflux has been generating negative cash flows from its operation since 2010. To make matters worse, touted to be the first in Singapore and Asia to implement the Integrated Water and Power Project, Hyflux was expected to raise efficiency levels and reduce the cost of desalination. As a result, they increased their debt level and this started their decline in revenue.