Auditor flags KOP’s ability to continue as going concern on material uncertainty

KOP ’s independent auditor has flagged a material uncertainty that may cast significant doubt on the real estate, hospitality and entertainment group’s ability to continue as a going concern.

Separately, the group said it is proposing to sell 2 units of a condominium development at Dalvey Road for S$11.7 million to immediate family members of businessman Sam Goi, a controlling shareholder of the company.

In a bourse filing released on Wednesday (Sep 7), KOP’s board said the group’s independent auditor, UHY Lee Seng Chan & Co, issued a qualified opinion on the group’s financial statements for the year ended Mar 31, 2022. It also included an “emphasis of matter” regarding a material uncertainty related to going concern in its report.

Several issues highlighted include the inability to determine whether any adjustments to the group’s opening balances were needed for its FY2022 statements, as it was unable to ascertain if the group’s opening balances as at Apr 1, 2021, were fairly stated.

The auditor also experienced difficulties in obtaining the financial information required to audit Shanghai Snow Star Properties, KOP’s joint venture where it holds a 30 per cent interest. At present, the group is undergoing arbitration proceedings in the Shanghai International Arbitration Centre with its partners over the joint venture.

UHY Lee Seng Chan & Co noted several factors which indicate material uncertainty that may cast significant doubt about the group and company’s abilities to continue as a going concern.

On top of posting a net loss for the financial year ended Mar 31, 2022, the auditor noted that the group’s current assets comprised mainly of development properties and non-current assets held for sale.

KOP is also in a net current liabilities position of S$51.3 million as at Mar 31, 2022. Included in its current liabilities are 2 loans from a shareholder (S$37 million) and its ultimate holding company (S$11.1 million).

KOP’s hospitality segment was also adversely impacted by the Covid-19 pandemic for the past 2 years, the auditor said.

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In view of the auditor’s report, the directors believe it is appropriate to prepare its FY2022 financial statements on a going concern basis as it expects the group’s hospitality segment to recover in the next financial year. They are also confident that the group will be able to generate enough cash flows from operating activities in the next 12 months.

Moreover, KOP’s controlling shareholders Ong Chih Ching and Leny Suparman have agreed to subscribe up to S$10 million in new shares in the event the group is not able to meet its financial obligations. The repayment of the S$11.1 million loan has also been extended until KOP’s cash flow improves, the board said.

The group will also receive proceeds from the disposal of its non-current asset in the next 12 months, it added.

In the event this does not occur in a timely manner, the shareholder who extended the S$37 million loan due Nov 9 has agreed not to seek repayment for the principal amount and S$5.5 million interest accrued until KOP receives the proceeds, or Sep 7, 2023, whichever is earlier.

In a separate announcement late on Wednesday, KOP said its indirect wholly-owned subsidiary proposed to sell 2 units of condominium development located at Dalvey Road to Goi Lang Ling, Judith Goi Lang Peng and Goi Kok Min. (* see Amendment Note)

These individuals are immediate family members of Singapore businessman and “Popiah King” Sam Goi Seng Hui, who is also KOP’s controlling shareholder. As at Aug 24, Goh has a direct 21.17 per cent interest in the company.

At a sale price of S$11.7 million, the properties are being sold at 7.4 per cent discount from its valuation market price as there is no agent commission. There was also a bulk purchase discount extended to the purchasers.

As the proposed sale is an interested person transaction, it is subject to approval from independent shareholders, the group noted.

Shares of Catalist-listed KOP closed Wednesday $0.002 or 2.9 per cent lower at S$0.068, before both announcements were made.

* Amendment Note: A previous version of this article incorrectly stated that KOP’s indirect subsidiary entered into an agreement to sell 2 units of the condominium when in fact it has not, as the transaction is pending shareholder approval.