This thread reminded me that the "penalty" arrangement you describe might be illegal under Singapore law. Regardless, you could consider mentioning in your reply that you'll be notifying, and forwarding their demand to, Singapore's Ministry of Manpower unless they drop their outrageous claim.
....OK, some background here. Most governments, including Singapore's, require employers to jump through some hoops in order to hire foreign workers. That's for a very simple public policy reason, namely that the governments want to give every opportunity to resident workers first. So many governments, including Singapore's, make it illegal to have "side" arrangements where the employee is effectively or actually paying for a visa. They want the employer to take the risk, including financial risks and risk of visa denial, when attempting to hire a foreign worker. It should be harder to a higher a foreign worker. This demand runs counter to that public policy objective. The MoM might also have serious concerns (or more) about an employer that did not disclose the contractual "penalty" you describe. It smells like a salary "kickback," and it might be.
I'm not a lawyer and certainly not an expert on this area of the law, but I'm skeptical that this demand is legal under Singapore law. It's at least questionable. I suspect, if the Ministry of Manpower knew about this attempted shakedown, they might at least want to have a word with this firm. If the firm has a track record of questionable visa behaviors, or worse, then the Ministry of Manpower could come down on them hard.
Anyway, I would consider using that leverage, properly so in my view. Good luck.
