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Thursday 9 April 2009
Silence at S-chips disconcerting
Several companies have started to default on their loans as they find themselves sandwiched between dwindling profits and the increasing difficulty of securing refinancing.
Several companies have started to default on their loans as they find themselves sandwiched between dwindling profits and the increasing difficulty of securing refinancing.
The problem appears to be more acute at some S-chips (China-based companies listed in Singapore) whose ability to continue as going concerns hinges on whether they can obtain refinancing or reach an agreement with lenders to reschedule loan repayments.
Among them, Beauty China has been slapped with a statutory demand from its syndicated lenders to repay an outstanding loan of HK$134 million (S$26.1 million). Zhonghui faces a demand from United Overseas Bank (UOB) for repayment of two outstanding loans totalling about $19.6 million. Bio-Treat’s default on convertible bonds triggered a default on its HK$360 million loan from a former substantial shareholder.
Anxious investors are eager to know the outcome of the companies’ negotiations with the lenders. But weeks and even months have passed without any updates on these issues, leaving shareholders clueless about the state of affairs at these companies.
Often, their disclosures follow a similar pattern: a notice of default made public is followed by a period of silence. Then comes the bad news.
A case in point is Guangzhao Industrial Forest Biotechnology, whose external auditors could not give it a clean bill of health last week. Its going-concern status rests on various factors such as talks over a convertible note covenant breach, about which it has stayed mum since January.
Last week, the external auditors at Zhonghui Holdings, Paul Wan & Co, also drew attention to uncertainties clouding the company’s ability to continue as a going concern. Zhonghui’s survival now depends on a successful conclusion of its proposed divestment of a 42.06 per cent associate, Baoji Zhongcheng Machine Tooling Co, to repay the debt.
But four months have passed without any updates from Zhonghui on its talks with UOB.
Could the discussions be taking so long? If so, investors should know what are the issues hindering a solution. Even if it is status quo since the last announcement, an update would signal to the market that the management and the board are still diligently working on the matter.
But it has emerged this week that at least two payments totalling 90 million yuan (S$20 million) were made by the company without board approval, and findings by financial adviser PricewaterhouseCoopers (PwC) confirmed the fact that shares of Baoji bought and paid for have yet to be transferred.
Though PwC’s assessment of Zhonghui’s corporate governance was broadly worded, the observations pointed to a lack of internal controls and weakness in the board’s oversight.
Another assertion yesterday by the one and only independent director of Zhonghui - that the executive directors could not be reached for a response to the PwC report - raises even more questions over the state of affairs at Zhonghui.
To allay investors’ worry, it is time that the executive directors at Zhonghui break their silence and provide some updates on what they have been doing all this while to clear the debt issue.
It is sad that this story of silence applies to other companies too.
Bio-Treat had disclosed last December that its entire assets had been pledged to former substantial shareholder Precious Wise Group after it defaulted on a HK$360 million loan facility it obtained from Precious Wise.
Four months have passed and there’s still no word from the company on how it intends to repay the debt and stall any forced sale of its assets.
Then, there was Beauty China, which was said to be in talks with a potential financial investor who would bring in a cosmetics industry player as strategic investor and expected the proposed cash injection to be enough to meet its immediate obligations to lenders.
Investors are wondering how this plan is panning out now. Just a month ago, Beauty China was still laying out its grandiose expansion plans for this year, seemingly unfazed by its fourth-quarter losses and mounting debts. Considering the sudden twist of circumstances, some updates on its plans would be necessary.
No doubt, it is tricky to make a call on disclosure when it comes to sensitive issues such as loan repayment, and some may perceive that since most of these companies have suspended trading of their shares, there is less urgency and need for speedy disclosures.
But this is not true, and certainly not in the spirit of the Singapore Exchange (SGX) disclosure policy. Shareholders need to know what’s going on with these companies even as their investments are haplessly strapped in the suspended shares. And they want to know if directors - who keep getting paid in the interim - are doing everything they can to turn the ship around.
Hopefully, companies will not subscribe to the ‘no news is good news’ axiom that has proven wrong so often in the past.
1 comment:
Silence at S-chips disconcerting
By LYNETTE KHOO
9 April 2009
Several companies have started to default on their loans as they find themselves sandwiched between dwindling profits and the increasing difficulty of securing refinancing.
The problem appears to be more acute at some S-chips (China-based companies listed in Singapore) whose ability to continue as going concerns hinges on whether they can obtain refinancing or reach an agreement with lenders to reschedule loan repayments.
Among them, Beauty China has been slapped with a statutory demand from its syndicated lenders to repay an outstanding loan of HK$134 million (S$26.1 million). Zhonghui faces a demand from United Overseas Bank (UOB) for repayment of two outstanding loans totalling about $19.6 million. Bio-Treat’s default on convertible bonds triggered a default on its HK$360 million loan from a former substantial shareholder.
Anxious investors are eager to know the outcome of the companies’ negotiations with the lenders. But weeks and even months have passed without any updates on these issues, leaving shareholders clueless about the state of affairs at these companies.
Often, their disclosures follow a similar pattern: a notice of default made public is followed by a period of silence. Then comes the bad news.
A case in point is Guangzhao Industrial Forest Biotechnology, whose external auditors could not give it a clean bill of health last week. Its going-concern status rests on various factors such as talks over a convertible note covenant breach, about which it has stayed mum since January.
Last week, the external auditors at Zhonghui Holdings, Paul Wan & Co, also drew attention to uncertainties clouding the company’s ability to continue as a going concern. Zhonghui’s survival now depends on a successful conclusion of its proposed divestment of a 42.06 per cent associate, Baoji Zhongcheng Machine Tooling Co, to repay the debt.
But four months have passed without any updates from Zhonghui on its talks with UOB.
Could the discussions be taking so long? If so, investors should know what are the issues hindering a solution. Even if it is status quo since the last announcement, an update would signal to the market that the management and the board are still diligently working on the matter.
But it has emerged this week that at least two payments totalling 90 million yuan (S$20 million) were made by the company without board approval, and findings by financial adviser PricewaterhouseCoopers (PwC) confirmed the fact that shares of Baoji bought and paid for have yet to be transferred.
Though PwC’s assessment of Zhonghui’s corporate governance was broadly worded, the observations pointed to a lack of internal controls and weakness in the board’s oversight.
Another assertion yesterday by the one and only independent director of Zhonghui - that the executive directors could not be reached for a response to the PwC report - raises even more questions over the state of affairs at Zhonghui.
To allay investors’ worry, it is time that the executive directors at Zhonghui break their silence and provide some updates on what they have been doing all this while to clear the debt issue.
It is sad that this story of silence applies to other companies too.
Bio-Treat had disclosed last December that its entire assets had been pledged to former substantial shareholder Precious Wise Group after it defaulted on a HK$360 million loan facility it obtained from Precious Wise.
Four months have passed and there’s still no word from the company on how it intends to repay the debt and stall any forced sale of its assets.
Then, there was Beauty China, which was said to be in talks with a potential financial investor who would bring in a cosmetics industry player as strategic investor and expected the proposed cash injection to be enough to meet its immediate obligations to lenders.
Investors are wondering how this plan is panning out now. Just a month ago, Beauty China was still laying out its grandiose expansion plans for this year, seemingly unfazed by its fourth-quarter losses and mounting debts. Considering the sudden twist of circumstances, some updates on its plans would be necessary.
No doubt, it is tricky to make a call on disclosure when it comes to sensitive issues such as loan repayment, and some may perceive that since most of these companies have suspended trading of their shares, there is less urgency and need for speedy disclosures.
But this is not true, and certainly not in the spirit of the Singapore Exchange (SGX) disclosure policy. Shareholders need to know what’s going on with these companies even as their investments are haplessly strapped in the suspended shares. And they want to know if directors - who keep getting paid in the interim - are doing everything they can to turn the ship around.
Hopefully, companies will not subscribe to the ‘no news is good news’ axiom that has proven wrong so often in the past.
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