THE manager of EC World Real Estate Investment Trust : BWCU 0% (Reit) said that its property manager in China bypassed internal processes to lend seals and documents to the sponsor, Forchn Holdings, for illegal mortgage applications.

This was in response to Singapore Exchange Securities Trading’s (SGX-ST) queries on the processes that led to three mortgages for loans of 268.6 million yuan (S$50.3 million) taken by Forchn without the Reit manager’s consent.

In a bourse filing on Wednesday (Jan 24), the Reit manager said that the property manager, Yuntong Property Management, relied on the approvals of Forchn’s chief executive officer to lend the relevant seals and stamps, as well as the title deeds, to the sponsor’s treasury department.

It noted, however, that the sponsor’s CEO, Zhang Zhangsheng, has no authority to grant such approval. “The internal written request to the sponsor CEO deviates from EC World Reit’s existing control procedures,” said the Reit manager, adding that the sponsor’s treasury department had bypassed such procedures.

The Reit manager also responded to a Jan 17 article in The Business Times, which had raised the question of why the property management teams held the seals and title deeds despite not having the authority to do so. It said that it was “necessary” for the property manager to have access to the relevant seals, stamps and deeds to carry out its duties.

Title deeds have to be kept in China due to ad hoc inspections from stakeholders including insurers and government authorities; they also need to be used for litigation and financing-related registration, the Reit manager said.

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It also clarified that, under Chinese law, “the mere possession of a title deed does not give the possessor any right in relation to the relevant property”, and does not entitle the possessor to register a mortgage over said property.

“Instead, the key documents required for mortgage registration generally include the mortgage agreement and other application materials affixed with the mortgagor’s relevant company seal and submitted in the name of the mortgagor.”

The Reit manager added that the seals and stamps are needed by the property manager to carry out other operations, including the approval of company resolutions and the filing of documents with government authorities.

On Jan 2, the Reit manager revealed the three mortgages over its Chinese properties: Hengde Logistics, Fuzhou E-Commerce and Fu Heng Warehouse. It said on Jan 18 that one of the three mortgages had been discharged, and that the sponsor was working on solutions to discharge the remaining two mortgages.

Trading of EC World Reit units has been suspended since Aug 31, 2023, after its manager said the Reit and its subsidiaries were unable to fully repay their offshore interest expenses due.