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Ernst & Young issues disclaimer of opinion on Hatten Land's financial statements for FY2019

MALAYSIAN property developer Hatten Land's independent auditor, Ernst & Young, has made a disclaimer of opinion on Hatten's financial statements for the year ended June 30, 2019.

While Hatten's directors have prepared the financial statements on a going concern basis based on the assumptions disclosed in the financial statements, Ernst & Young highlighted conditions that have given rise to material uncertainties on the group's ability to continue as a going concern.

Among other things, Ernst & Young noted in its report dated Nov 8  that as at end-June 2019, the group’s total loans and borrowings amounted to 416.52 million ringgit (S$136.96 million), of which 328.83 million ringgit was classified as current liabilities and exceeded the group’s cash and bank balances of 28.48 million ringgit.

The company’s total loans and borrowings amounted to 186.06 million ringgit, all of which was classified as current liabilities, and exceeded the company’s cash and bank balances of 269,000 ringgit.

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Subsequent to the year-end, the group had not been able to meet its forecast sales target for its development properties, and experienced slower recovery of its receivables.

"The continuing challenges affecting the property market in Melaka, Malaysia, continues to impact the realisation of the group’s development properties, causing a strain on its cash flows. In addition, completion delays experienced with certain development projects may further strain the group’s cash flows," Ernst &  Young said.

Furthermore, Hatten announced on Oct 10 this year that a convertible loan totalling US$20 million had matured on that day, and the lender had agreed to extend the loan maturity with staggered repayments up to Oct 10, 2020 at a higher interest cost, subject to terms and conditions to be finalised with the execution of a definitive agreement.

"As at the date of this report, the definitive agreement has not yet been executed. These conditions give rise to material uncertainties on the ability of the group and company to continue as going concern," Ernst & Young said.

"The directors have prepared the financial statements on a going concern basis based on the assumptions disclosed in Note 2.1 to the financial statements. However, based on the information available to us, we have not been able to obtain sufficient appropriate audit evidence to satisfy ourselves whether the use of the going concern assumption in preparing these financial statements is appropriate as the arrangements to secure additional funding and loan refinancings have yet to conclude satisfactorily at the date of these financial statements." it added.

Given the  significance of the matters described in the Basis for Disclaimer of Opinion section of its report, Ernst & Young said: "We have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on these financial statements."

However,  Hatten's board disagreed. Among other things, it cited that on Oct 10 this year, the group obtained a seven-year term financing agreement for a facility amount of 60 million ringgit to refinance the existing facilities of a subsidiary in Malaysia. "Continued support from the company’s major shareholder, namely managing director Colin Tan and deputy managing director Edwin Tan, will provide additional financial resources to the company to ensure any going concern can be addressed."