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Irregularities, potential breaches uncovered at Raffles Infrastructure

IRREGULARITIES at Raffles Infrastructure Holdings (formerly known as China Fibretech) and potential breaches in listing rules were highlighted in an interim independent review report published by KPMG Forensic, a division of KPMG Services, on Tuesday.

There were, however, limitations to the special auditor's findings, as "a considerable number of documents that were requested as part of the supporting documents have not been available to the review team", it said.

Furthermore, Wu Xinhua, the legal representative of Raffles Infrastructure's wholly-owned subsidiary, Shishi Sinwa Knitting and Dyeing, "did not cooperate fully with the review team, in particular, having failed to provide documents requested by the review team and to attend a formal interview with the review team".

The special auditor was thus not able to determine the findings conclusively, except to note that Shishi Sinwa's announcements on purported compensation and payments to claimants, and disposal of a property for RMB 48.7 million (S$9.6 million), would have been factually inaccurate if taken at face value, and would have been "misleading" to readers of the announcements.

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The report did not recommend any particular remedial action to be taken, so the company said it will consult with SGX Regulation, and if needed, will convene an extraordinary general meeting to seek shareholders' approval to take legal actions against persons who have caused loss and damage to the company arising from the purported compensation and property disposal.

The fieldwork was conducted in Shishi, Fujian province in China at Shishi Sinwa's premises at Shishi City, Wubao Industrial Zone in two trips. 

The first trip turned out to be futile, as Mr Wu was uncontactable and the supporting documents were not available. Mr Wu's cooperation was critical as many of the special auditor's procedures required his express authorisation, KPMG said. Without him, the team could not perform review procedures, such as obtaining Shishi Sinwa's bank statements directly from the banks. 

On the second trip in January 2019, the team obtained some bank statements and a listing of Shishi Sinwa's RMB-denominated bank accounts, but did not have access to Shishi Sinwa's finance team, accounting books and records, the accounting systems used to maintain its accounting books and records and computers assigned to its employees. 

The trip was suspended when the requests for additional information were declined by Mr Wu. But its analysis of bank statements showed  several irregularities. For example, between September 2013 and August 2016, the verified bank statements' month-end balances were significantly lower than those recorded in the Shishi Sinwa management accounts by an average of RMB 406.6 million. 

In addition, the Shishi Sinwa management accounts and the group's quarterly results announcements and annual reports recorded that the company had a fixed deposit account held from March 2015 to May 2016 containing hundreds of millions in RMB, but the team found no other documentary evidence substantiating the existence of this fixed deposit account.

The bank statements also showed a large number of withdrawals and deposits made by Mr Wu and his son, totalling RMB 134.2 million, but these "interested person transactions" were not reported in the management accounts nor the group's quarterly results announcements and annual reports.

"If the withdrawals were not made for the purposes of the commercial activities of the group, they might constitute improper payments," KPMG said.

Purported compensation payments of some RMB 466 million which the company disclosed were also suspect, as the respective legal representatives of the claimants, when interviewed, said that their companies had neither requested nor received the purported compensation from Shishi Sinwa, and provided signed confirmations to that effect.

Lastly, with regard to a property disposal announced in 2014, the team found that the payment was deposited in Shishi Sinwa's bank account before the company's announcement and execution of the sale-and-purchase agreement, which could be a breach of listing rules.

Raffles Infrastructure shares are still trading and last closed at S$0.46 on Aug 8.