When cash balances in a Chinese bank is not as it seems..... I have highlighted some parts in red.....
---------------------
Reference is made to the Company’s announcement dated 29 January 2014 (“First
Announcement”). Capitalised terms used herein and not otherwise defined shall have the same
meanings as ascribed to them in the First Announcement.
(A) VERIFICATION OF GROUP’S CASH BALANCES
As mentioned in the First Announcement, the Company’s former CEO Mr Lin Jiancheng (“Mr
Lin”) had represented to the Board and the Bondholder that the Group had sufficient funds to
meet interest payment due under the Bonds. In particular, Mr Lin had produced online bank
statements, the latest of which showed that the Company’s principal operating subsidiary
Fujian Haimingwei Shoes Co., Ltd (“HMW”) had unencumbered cash balance of approximately
RMB646 million (“HMW Cash Balance”) as at 24 January 2014 in its bank account maintained
with the Agricultural Bank of China (“ABC Bank”), Jinjiang Chendai Branch (“24 January
Statement”).
The above appeared to be consistent with an earlier document given by ABC Bank (“ABC
Confirmation”), which showed that there was approximately RMB577 million of unencumbered
cash balance in HMW bank account at ABC Bank as at 31 December 2013.
In view of the repeated delays in making the interest payment due under the Bonds, the
Company’s interim CEO, Mr Ho Ker Chern, the Audit Committee Chairman, Mr Lim Yeow Hua
and the independent auditors (collectively, the “Working Parties”) made an impromptu visit to
ABC Bank, Jinjiang Chendai Branch. They managed to meet the ABC Bank staff who handled
the ABC Confirmation previously and she reaffirmed that the ABC Confirmation was verified by
the bank branch. At the same visit, the Working Parties also met up with the branch manager of
ABC Bank, Jinjiang Chendai Branch, Mr Zhang Liwei (张立伟) (“Manager Zhang”) and showed
him the ABC Confirmation. Manager Zhang also affirmed that the ABC Confirmation was
verified by ABC Bank and informed the Working Parties that HMW has been a good customer
and did not have any bank loans with the bank.
Following the visit, the Company wrote to ABC Bank, Jinjiang Chendai branch on 29 January
2014 (“29 January Letter”) to notify ABC Bank of the Group’s decision to suspend Mr Lin from
all his positions within the Group with immediate effect and that Mr Lin has no authority to
represent the Company, HMW or any other entities within the Group to sign any document,
effect any transaction or to do anything whatsoever. In addition, the Company also annexed the
24 January Statement and the ABC Confirmation to the 29 January Letter and put the bank on
notice that Mr Lin has no authority to transfer the funds therein or otherwise deal with HMW
bank account.
The Company’s interim CEO Mr Ho subsequently called Manager Zhang to confirm that he
received the 29 January Letter. Over the Chinese New Year holiday period, Mr Ho kept in touch
with Mr Lin and urged him to cooperate by handing over the seals (such as corporate seal,
legal representative seal, financial seal, etc.) of the various Group entities in China (collectively,
“Corporate Seals”) and to assist the Board in the verification of the bank cash balance. Mr Lin
was elusive and kept saying that he needed more time to resolve all the issues.
On 14 February 2014, the Company received a reply from ABC Bank, Jinjiang Chendai Branch
(“ABC Response”). In their response, ABC Bank alleged that that the 24 January Statement
and the ABC Confirmation were not given by ABC Bank but were provided by the “finance
company of HMW”. They also enclosed a confirmation signed by Mr Lin (in his capacity as the
legal representative of HMW) on 8 February 2014 stating the same (“Lin Confirmation”). In the
ABC Response, the bank also clarified that the cash and loan balances stated in the aforesaid
documents were inconsistent with the bank’s records but did not elaborate further. They also
said that the dispute between the Company and Mr Lin was an internal matter and they would
continue to honour any properly executed and sealed instructions from HMW. The Board was taken aback by the ABC Response as the 24 January Statement was taken
from ABC Bank’s website and the ABC Confirmation was given by the bank’s employee at the
bank’s premises previously. Moreover, the Working Parties had also met up with Manager
Zhang as aforesaid and he had reaffirmed the documents then.
In view of the above inconsistencies, the Company wrote to ABC Bank on 15 February 2014
(“15 February Letter”) to seek their clarifications and also highlighted the above factual
discrepancies. The Company also informed ABC Bank that Mr Lin had no authority to sign the
Lin Confirmation on 8 February 2014 as he had already been suspended from office and this
fact was already communicated to the ABC Bank in the 29 January Letter. On 18 February
2014, the Company received another letter from ABC Bank stating that they are maintaining
their position as set out in the ABC Response.
Since then, the Company has sought to obtain Mr Lin’s clarification on the above but he was
unwilling to share any further details beyond saying that there are discrepancies between the
bank balance figures in the ABC Confirmation and the actual balance in the HMW bank
account.
In view of the aforesaid, the Company is still not able to verify the HMW Cash Balance
as at the date of this announcement. infopub.sgx.com/FileOpen/Eratat_Update_of_Events.ashx?App=Announcement&FileID=276130
