THE sponsor of EC World Real Estate Investment Trust (Reit) said that a lapse in an approval process had resulted in three properties being mortgaged without consent.

On Jan 2, the manager of EC World Reit said the properties – Fuzhou E-Commerce, Fu Heng Warehouse and Hengde Logistics – had been mortgaged between Nov 20 and 24, 2023, in favour of two Fuyang government-linked financial institutions in China, without its approval.

In response to a letter of demand from the manager dated Jan 4, the sponsor Forchn Holdings said on Jan 8 that it had been negotiating with the two financial institutions to obtain relief funds for itself, and that the financial institutions had required the funds to be secured by assets.

Forchn Holdings provided a list of assets to the financial institutions, which included the three properties. The properties thus came to be part of the various assets that the financial institutions imposed mortgages on.

In its Jan 8 reply, the sponsor said that its treasury department did not go through the requisite approval processes of EC World Reit to execute the mortgages. Instead, a written request was made by the department to Forchn Holdings’ chief executive officer to seek approval and usage of the company and legal representative seals.

After this approval was granted, the mortgages were executed.

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The manager sent another letter of demand on Jan 9 to Forchn Holdings, asking for a timeline and proposal to discharge the mortgages on the three properties, and all relevant documents pertaining to the mortgages. The sponsor has since provided certain related documents, which the manager said it is seeking legal advice on.

The manager said the mortgages “will cause a breach in the existing onshore facilities of EC World Reit”. It added that they would result in an event of default and trigger a cross-default under the Reit’s existing offshore facilities, giving lenders under the onshore facilities the “right to send a notice to accelerate repayment”.

The breach in the offshore facilities, if not remedied within 10 business days of EC World Reit being made aware of it, will also result in a default. Lenders of the offshore and onshore facilities have given the sponsor up to Jan 20 to remove the mortgages, failing which the lenders may consider taking legal action, the manager said.

The manager added that, since Jan 5, it has taken control of company and legal representative seals, as well as the contract and finance stamps from the property management teams in China. The legal representative seal and finance stamps are being kept in the manager’s registered office in Singapore, while the company seal and contract stamps are under the custody of the manager’s legal counsel in Shanghai, China.

The Reit manager said Forchn Holdings has met the financial institutions to resolve the matter, and the institutions are agreeable to remove the mortgages on the three properties. The sponsor has been asked to provide other assets to secure the loan, in exchange for the removal of the mortgages.

Forchn Holdings said it is seeking to review its internal processes and personnel training. The Reit manager, meanwhile, is in the process of appointing an external auditor to review the internal control and processes of EC World Reit.

EC World Reit’s units have been suspended from trading on the Singapore Exchange since Aug 31, 2023, after its manager disclosed that the Reit and its subsidiaries could not fully repay their offshore interest expenses due.