CW Group explains delay in giving details on 69m-euro payment for German firm

Singapore

MORE than eight months after CW Group paid a 69 million-euro (S$110 million) deposit for German machine manufacturer Zuse Hüller-Hille in December last year, the machine tool supplier has yet to provide shareholders and bond holders with key financial details of the deal.

CW Group, which is managed from Singapore with shares listed in Hong Kong, now wants to restructure its debt after slipping into insolvency in June when it defaulted on S$55.25 million of Singdollar notes after plans to refinancing the debt through the Singapore bond market fell through.

The group's largest lender, the Hong Kong branch of Bank of China (BOC), is also demanding repayment of about US$34.6 million.

The bank told a Hong Kong court last month that an independent investigation into the affairs of CW Advanced Technologies (CWAT) in Hong Kong was needed to preserve its assets and records.

According to court documents made public last month, BOC raised several questions about CW Group's German acquisition, and claimed to have found irregularities in accounting records relating to CWAT's trade receivables.

CWAT did not dispute BOC's evidence, according to the Hong Kong court's July 19 written judgement approving BOC's application to appoint provisional liquidators for CWAT.

When contacted by The Business Times, A CW Group spokesman explained that "we were advised by legal and other advisers to withdraw our Hong Kong applications, but with no admission as to any of the factual matters and allegations raised by BOC."

CW Group has instead chosen to focus on proceedings in the Cayman Islands, where it is incorporated, the spokesman added.

Earlier this month, a Cayman Court ruled in favour of appointing RSM Corporate Advisory as CW Group's joint provisional liquidators on a "soft touch" basis, with CW Group's board retaining management powers.

The CW Group spokesman said: "The (Cayman) court has not been persuaded by BOC's evidence regarding their allegations which mirrored those pleaded by them in the Hong Kong proceedings."

BOC has since sought leave to appeal the Cayman court's order to appoint RSM.

Meanwhile, CW Group has yet to produce financial details of the substantial German transaction that it had promised to share with investors by April.

In December 2017, CW Group made a deposit of 69 million euros to acquire 60 per cent of Brownstone Ventures from Brownstone Investments. Both the Brownstone entities are incorporated in the British Virgin Islands.

The main operating subsidiary of Brownstone Ventures is Zuse Hüller-Hille, a machine manufacturer that owns a plant in Germany. Brownstone acquired Hüller-Hille in May 2017 from the Taiwanese Fair Friend Group (FFG) and renamed it Zuse Hüller-Hille.

CW Group told shareholders that by April 13, it would despatch a circular containing a valuation report of the Brownstone group and its audited consolidated results for 2017. The reason for the delay was that Zuse Hüller-Hille Werkzeugmaschinen and the manufacturing plant had not been incorporated and included in the Brownstone group until mid-2017.

At the end of May, CW Group said it was still in the process of obtaining the required information and hoped to make the despatch by August 17. Likewise, the shareholder meeting where shareholders were to have voted on the Brownstone acquisition was postponed.

Asked for the reasons behind the delay, the CW Group spokesman told BT: "We are working to have the valuation report completed soon, together with other due diligence work. Unfortunately delays have been caused by the ongoing legal proceedings and restructuring work commenced in May."

Although CW Group had engaged consultants to help it assess Hüller-Hille prior to May 2017, it has maintained that it was not involved when Zuse acquired Hüller-Hille in May last year, as that acquisition involved "labour, union and tax issues", BT was told.

Neither was CW Group privy to the price that Zuse paid for Hüller-Hille in May, the spokesman said. FFG did not respond to questions from BT about the sale price. The historical earnings of Hüller-Hille, which would provide guidance to the entity's value, have never been made public.

German consultants that worked with CW Group also did not throw any light on the matter. When contacted by phone, Klaus Woerner of management consulting firm Staufen said he no longer worked there. Dr Maximilian Pluta, managing director of Pluta Management, cited client privacy restrictions.

In any case, CW Group agreed to pay a total of 115 million euros cash for the Brownstone group in December.

The spokesman explained: "We had been looking for an acquisition since 2015 when we issued the notes. We looked at a few deals, four deals before we closed this deal. Judging from the four deals, that was the market price we were going for... I can't say they (each of the four target companies) are the same, but they are European companies in the high-precision engineering industry."

CW Group said it was unable to comment on who their point of contact at Brownstone was, or who had referred the deal to them.

Until recently, CW Group chairman and chief executive William Wong Koon Lup was also named as a founder of Zuse Automation on its website. Zuse Automation is another Brownstone subsidiary incorporated in 2017. When asked by BT why this relationship was never disclosed in any of CW Group's filings with the Hong Kong exchange, the group replied that Mr Wong had been erroneously named.

CW Group told BT: "As announced by us in August 2016, CW Group have been collaborating with the Zuse Group previously to secure turnkey projects relating to the automotive manufacturing and precision engineering industries in Germany. In this regard, they have included CW Group as a business partner in their website and Mr William Wong (is a representative) for the partnership."

The website has since been edited. Mr Wong declined to speak to BT.