EC World Reit says 3 properties mortgaged without consent

THREE properties owned by EC World Real Estate Investment Trust (Reit) have been mortgaged without the consent or knowledge of its manager. The loans were in connection with the Fuyang local government in China providing Forchn Holdings, the sponsor of EC World Reit, with rescue funds.

The manager of EC World Reit said in a bourse filing on Tuesday (Jan 2) that the properties – Fuzhou E-Commerce, Fu Heng Warehouse and Hengde Logistics – were mortgaged between Nov 20, 2023 and Nov 24, 2023, in favour of two Fuyang government-linked entities in China.

These funds – approximately 268.6 million yuan (S$49.8 million) based on preliminary inquiries – were provided to Forchn as arranged between the Fuyang government and the sponsor, the manager said. It added that EC World Reit was not aware of and did not consent to the arrangements.

Most of the mortgages are third ranking, except for those in favour of Zhejiang Fuyue Finance Lease which are fourth and fifth ranking. This means that they do not have priority over EC World Reit’s existing first and second ranking mortgages on existing facilities, and the mortgages of its existing lenders will not be affected.

The sponsor is in the process of sourcing for funds to repay the Fuyang government.

The manager has stated that the mortgages were “illegally procured by the sponsor without informing EC World Reit to guarantee loans of the sponsor group which are irrelevant to the EC World Reit group”, in a letter to the sponsor immediately after being notified of the mortgages on Dec 29 last year.

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It also demanded in the letter that Forchn immediately procure the discharge of the mortgages by Jan 8, 2024. It also stated that it has initiated an investigation into the mortgages, and has the right to take legal action against the sponsor and relevant personnel.

Separately, it had demanded that Yuntong Property Management, the property manager of EC World Reit’s properties and a wholly owned subsidiary of the sponsor, hand over all the title deeds of EC World Reit’s properties to its onshore facility agent.

They have since been handed over, and there is no record of the mortgages on the title deeds of the properties, the manager said.

It is seeking legal advice to ascertain, among other things, the validity of the mortgages on the three properties; how to remove the mortgages; and the legal action that can be taken against its sponsor and relevant personnel.

This incident is the latest in a series of troubles for the Reit. In October 2023, it announced that one of its major tenants would not be renewing one of its two leases at Hengde Logistics warehouse property. It had also failed to sell two logistics assets in Zhejiang as its sponsor could not obtain sufficient financing for the proposed divestment.

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