Investment shares bought and paid for last year have yet to be transferred: PwC
By CHEW XIANG 8 April 2009
Zhonghui Holdings’ financial advisers said yesterday that at least two payments totalling 90 million yuan (S$19.8 million) were not to their knowledge approved by the company’s board, and that shares of an investment in China bought and paid for last year have yet to be transferred.
PricewaterhouseCoopers (PwC) was appointed last November to assess the financial position of Zhonghui after former independent director Lim Lian Soon quit in October, citing an undesirable information flow from management.
Zhonghui has defaulted on loans from United Overseas Bank. Question marks remain over the 2007 acquisition of Baoji Zhongcheng Machine Tooling Co - the sale of which is vital to Zhonghui’s survival.
Zhonghui bought a 42.06 per cent stake in Baoji for 218.9 million yuan. No shares have been transferred so far and Zhonghui’s ownership is represented merely by a letter of undertaking, PwC noted. Zhonghui has, nevertheless, consolidated Baoji’s profits into its own accounts.
PwC also said that it did not sight board approval of several agreements pertaining to the deal - in particular a supplementary agreement, later discarded, on the acquisition of another 20 per cent of Baoji and advance payment of 50 million yuan to the vendors.
PwC said that another agreement, signed in June 2007 with Shaanxi Zhongjian Industry Co to operate a solid waste treatment plant, was not properly carried through.
PwC noted that Zhonghui’s subsidiary went ahead with the deal without independent legal and financial due diligence, despite the terms of the original agreement and a request from the board. A deposit of 40 million yuan was also paid, again without board approval.
PwC said that its findings highlight certain approval processes ‘which could be improved’, such as obtaining board approval for major decisions, as well as appointing more non-executive and independent directors, given that Zhonghui now has just two executive directors and one independent director.
It said that Zhonghui’s ability to meet its financial commitments depends on whether it can sell its stake in Baoji, collect amounts due from debtors and reach an agreement with UOB to restructure the bank loan.
On April 1, Zhonghui’s auditor issued a qualified report. Paul Wan & Co said that it could not obtain sufficient evidence that the sale of Baoji would go ahead, or that profit from Baoji totalling 16.6 million yuan last year was recognised properly.
The auditor also noted 20.48 million yuan in ‘long outstanding’ receivables and said that it could not be sure of the recoverability.
Zhonghui’s stock has been suspended since December.
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Zhonghui payments had no board assent
Investment shares bought and paid for last year have yet to be transferred: PwC
By CHEW XIANG
8 April 2009
Zhonghui Holdings’ financial advisers said yesterday that at least two payments totalling 90 million yuan (S$19.8 million) were not to their knowledge approved by the company’s board, and that shares of an investment in China bought and paid for last year have yet to be transferred.
PricewaterhouseCoopers (PwC) was appointed last November to assess the financial position of Zhonghui after former independent director Lim Lian Soon quit in October, citing an undesirable information flow from management.
Zhonghui has defaulted on loans from United Overseas Bank. Question marks remain over the 2007 acquisition of Baoji Zhongcheng Machine Tooling Co - the sale of which is vital to Zhonghui’s survival.
Zhonghui bought a 42.06 per cent stake in Baoji for 218.9 million yuan. No shares have been transferred so far and Zhonghui’s ownership is represented merely by a letter of undertaking, PwC noted. Zhonghui has, nevertheless, consolidated Baoji’s profits into its own accounts.
PwC also said that it did not sight board approval of several agreements pertaining to the deal - in particular a supplementary agreement, later discarded, on the acquisition of another 20 per cent of Baoji and advance payment of 50 million yuan to the vendors.
PwC said that another agreement, signed in June 2007 with Shaanxi Zhongjian Industry Co to operate a solid waste treatment plant, was not properly carried through.
PwC noted that Zhonghui’s subsidiary went ahead with the deal without independent legal and financial due diligence, despite the terms of the original agreement and a request from the board. A deposit of 40 million yuan was also paid, again without board approval.
PwC said that its findings highlight certain approval processes ‘which could be improved’, such as obtaining board approval for major decisions, as well as appointing more non-executive and independent directors, given that Zhonghui now has just two executive directors and one independent director.
It said that Zhonghui’s ability to meet its financial commitments depends on whether it can sell its stake in Baoji, collect amounts due from debtors and reach an agreement with UOB to restructure the bank loan.
On April 1, Zhonghui’s auditor issued a qualified report. Paul Wan & Co said that it could not obtain sufficient evidence that the sale of Baoji would go ahead, or that profit from Baoji totalling 16.6 million yuan last year was recognised properly.
The auditor also noted 20.48 million yuan in ‘long outstanding’ receivables and said that it could not be sure of the recoverability.
Zhonghui’s stock has been suspended since December.
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