Credit woes and corporate governance issues appear to be on the rise among small and mid-cap companies, as the financial upheaval continues unabated.
WesTech Electronics, which was listed on the SGX in 2002, said it got hit by defaults in US$34.95 million worth of accounts receivable, and has initiated legal proceedings to recover the payment.
As the firm is now in talks on a standstill agreement with its lenders, it has appointed PricewaterhouseCoopers as a special accountant to monitor and review its cash flow and cash position.
Meanwhile, China- based Zhonghui Holdings has defaulted on a loan from UOB, while beauty and cosmetics firm Sun East Group announced it could not meet a US$15 million debt repayment due to weak credit markets.
Like WesTech, Sun East got hit by a delay in debt collection from five major customers with total aggregate overdue trade receivable balances of HK$84.8 million (S$16.3 million), and it also failed to raise US$8 million in convertible bonds, after ABN Amro Bank pulled out of the subscription.
Besides these firms, credit troubles also hit FerroChina which halted its operations early this month due to mounting debts. To date, at least five small or mid-caps have reported financing problems since the credit crunch started.
Terence Wong, analyst at DMG & Partners is not surprised. He said: ‘At times like these, the banks are typically quite cautious and may cut back on lending to small companies even if they are fundamentally sound. This probably explains what we are seeing now.’
Carmen Lee, head of OCBC Investment Research, agreed, saying that ‘as lenders have turned extremely cautious, firms that are highly geared or have near term refinancing obligations are under pressure to secure credit lines and face higher interest costs.
‘For the small-cap firms, these are viewed as being more vulnerable operationally. This further heightened lenders’ reluctance to lend to this group of companies, adding to their operation woes as some smaller-cap companies are not as cash-rich as the established firms and any credit crunch will curtail their operation. This is not helped by the present market slowdown which has also hurt demand.’
In terms of corporate governance, trouble appears to be brewing at Zhonghui Holdings when Lim Lian Soon stepped down as its independent director, citing reasons such as an uncooperative management.
In his resignation letter, Mr Lim explained that the audit committee and board of directors had held several meetings with the management on the loan repayment, a divestment plan, as well as other matters.
‘However, I find that the flow of information from the executive directors undesirable,’ he wrote, adding that the chief executive officer also opposed the appointment of a special accountant to help with the issues.
In its defence, Zhonghui’s management told Singapore Exchange it will be appointing a special accountant soon.
Meanwhile, E3 Holdings, involved in real estate in China, has appointed Deloitte and Touche to investigate allegations in seven poison pen letters pertaining to issues with its recent projects and strategy.
According to Mr Wong, weak corporate governance practices are typically ignored during good times, but they receive greater scrutiny when stock prices plunge.
‘Investors usually get very jittery during this period, and that is when management practices come under the radar.’
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Credit crunch takes toll on smaller firms
By CHEW XIANG AND OH BOON PING
29 October 2008
Credit woes and corporate governance issues appear to be on the rise among small and mid-cap companies, as the financial upheaval continues unabated.
WesTech Electronics, which was listed on the SGX in 2002, said it got hit by defaults in US$34.95 million worth of accounts receivable, and has initiated legal proceedings to recover the payment.
As the firm is now in talks on a standstill agreement with its lenders, it has appointed PricewaterhouseCoopers as a special accountant to monitor and review its cash flow and cash position.
Meanwhile, China- based Zhonghui Holdings has defaulted on a loan from UOB, while beauty and cosmetics firm Sun East Group announced it could not meet a US$15 million debt repayment due to weak credit markets.
Like WesTech, Sun East got hit by a delay in debt collection from five major customers with total aggregate overdue trade receivable balances of HK$84.8 million (S$16.3 million), and it also failed to raise US$8 million in convertible bonds, after ABN Amro Bank pulled out of the subscription.
Besides these firms, credit troubles also hit FerroChina which halted its operations early this month due to mounting debts. To date, at least five small or mid-caps have reported financing problems since the credit crunch started.
Terence Wong, analyst at DMG & Partners is not surprised. He said: ‘At times like these, the banks are typically quite cautious and may cut back on lending to small companies even if they are fundamentally sound. This probably explains what we are seeing now.’
Carmen Lee, head of OCBC Investment Research, agreed, saying that ‘as lenders have turned extremely cautious, firms that are highly geared or have near term refinancing obligations are under pressure to secure credit lines and face higher interest costs.
‘For the small-cap firms, these are viewed as being more vulnerable operationally. This further heightened lenders’ reluctance to lend to this group of companies, adding to their operation woes as some smaller-cap companies are not as cash-rich as the established firms and any credit crunch will curtail their operation. This is not helped by the present market slowdown which has also hurt demand.’
In terms of corporate governance, trouble appears to be brewing at Zhonghui Holdings when Lim Lian Soon stepped down as its independent director, citing reasons such as an uncooperative management.
In his resignation letter, Mr Lim explained that the audit committee and board of directors had held several meetings with the management on the loan repayment, a divestment plan, as well as other matters.
‘However, I find that the flow of information from the executive directors undesirable,’ he wrote, adding that the chief executive officer also opposed the appointment of a special accountant to help with the issues.
In its defence, Zhonghui’s management told Singapore Exchange it will be appointing a special accountant soon.
Meanwhile, E3 Holdings, involved in real estate in China, has appointed Deloitte and Touche to investigate allegations in seven poison pen letters pertaining to issues with its recent projects and strategy.
According to Mr Wong, weak corporate governance practices are typically ignored during good times, but they receive greater scrutiny when stock prices plunge.
‘Investors usually get very jittery during this period, and that is when management practices come under the radar.’
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