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Auditor flags going concern uncertainty on Capital World's leverage

CATALIST-LISTED Capital World's board has said it can continue as a going concern despite its auditor's and the Singapore Exchange's (SGX) concerns over its loans.

Auditor Messrs Ernst & Young LLP issued a disclaimer of opinion on the group's balance sheets for fiscal 2019 ended June 30, which highlighted the company's high leverage and uncertainty to continue as a going concern.

As at June 30, the group's loans and borrowings amounted to RM44.6 million (S$14.6 million), all of which were current liabilities, and exceeded its cash and cash equivalents of RM2.4 million.

The auditor noted the group's working capital comprised mainly inventory properties.

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Capital World's FY2019 financial results were "adversely affected by the challenging conditions affecting the property market in Johor" said Messrs Ernst & Young, with the property firm recording a net loss of RM45.6 million.

"These factors and the continuing challenges affecting the property market in Johor, Malaysia, could continue to negatively impact the realisation of the group's inventory properties," added the auditor.

It said the group's plans to resolve liquidity problems and its ability to cash in on inventory properties at the expected value and timing are uncertain.

The SGX has also recently queried Capital World on the sustainability of entering a cycle of loans with increasing interest rates and high arranger fees.

The board said Capital World has extended the repayment dates of RM26.5 million in loans due Oct 31, 2019 by a further 12 months and has in July raised S$17.6 million after issuing new shares to two new subscribers.

The firm has also struck a deal with a key supplier to set an upper limit on payment and to defer payment for the supplier's construction services over the next 15 months from July 2019 to September 2020.

It cited certain current liabilities such as RM3.1 million in deferred revenue, which will be "recognised as revenue based on the percentage of completion method and will not entail cash outflow".

Additionally, cost of land owed to Achwell Property Sdn Bhd totalling RM24.3 million, accrued based on the group's forecasted receipts from the progress billings and projected sales of Capital City mall and Capital Suites, will not need to be paid during the construction phase of the development project.

Capital World said these factors will allow it to generate sufficient cash flows and meet its obligations as and when they fall due.

Its shares were unchanged at S$0.016 as at 10.24am.