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Auditor issues disclaimer of opinion on Pacific Star Devt's FY19 financial statements

THE independent auditor of property developer Pacific Star Development has issued a disclaimer of opinion on the firm's use of the going concern assumption for its fiscal 2019 results.

For the full year ended June 30, auditor Ernst & Young said the firm's current liabilities exceeded its current assets by S$12.7 million. It also incurred a net loss of S$123.1 million, including S$120.4 million of impairment in subsidiary investment eliminated on consolidation – resulting in it having no bearing on the group's results.

The firm's loans and borrowings had amounted to S$117.8 million, with S$4.1 million classified as current liabilities. In addition, the group is in net cash deficit position of S$446,000.

Its current assets, meanwhile, stood at S$175.0 million, comprising mainly of development properties amounting to S$136.2 million, as at June 30.

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The report added that the firm's fiscal 2019 results were "adversely affected" by the weak property market in Johor, Malaysia, with the company incurring a net loss of S$25.2 million.

These factors together could "adversely impact" the sale of Pacific Star's development properties, giving rise to material uncertainties on the firm's ability to continue as a going concern, Ernst & Young said.

The auditor added that it was unable to obtain sufficient appropriate evidence to conclude whether the use of the going concern assumption to prepare the fiscal 2019 results was appropriate.

This was because the outcome of Pacific Star's plans to address its liquidity challenges "cannot be reasonably determined at this time" and the firm's ability to realise its development properties as planned is "uncertain".

Regarding the disclaimer of opinion, Pacific Star said its board called the use of going concern assumptions in the fiscal 2019 results appropriate.

To continue as a going concern, the firm is dependent on the continued financial support from PSD Holdings – a company wholly-owned by one of its directors and controlling shareholder Glen Chan.

While the S$11.52 million loans granted by PSD Holdings is subordinated to the S$70.0 million facility agreed on in 2018, PSD Holdings has undertaken to provide up to S$5.72 million of loans to support its short-term cash shortfall if needed, the firm said.

Continuing as a going concern is also dependent on the sale of unsold units at Puteri Cover Residences (PCR) in Iskandar Puteri, Malaysia – together with the timely repatriation of the profits involved.

Pacific Star said it is "exploring with various parties" over the en bloc sale for Tower 3 in PCR and has received a letter of offer from one of these parties. It is reviewing the offer and pursuing divestment opportunities with others, and is "cautiously confident" in moving such discussions towards a positive conclusion.

The firm is also in discussions to sell unsold remaining units at Tower 1 and 2 of PCR to a buyer, while also discussing with potential bulk buyers who are considering buying 10 to 20 PCR units.

Despite challenging market conditions in Iskandar Puteri, the firm said it continues to market and promote sales of PCR.

From July 1 to Oct 11, it signed eight sales and purchase agreements for PCR units for a total net contract value of RM11.1 million (S$3.6 million), of which RM7.0 million has been collected. It has also collected another RM0.5 million from its trade receivables as at June 30.

The firm's ability to continue as a going concern is also reliant on the refinancing of its investment via its joint venture Posh Twelve project in Bangkok.

To this, the group said it is working to secure a refinancing package for Posh Twelve, subject to consent of lenders of a S$70 million facility. If this materialises, the group will receive some S$18.7 million in capital and loans repatriation, based on current projections.

"The board is of the opinion that sufficient information has been disclosed for the trading of the company's securities to continue in an orderly manner, and confirmed that all material disclosures have been provided for the trading of the company's shares to continue," it added.

Pacific Star shares closed flat at S$0.159 on Friday.