Irregularities, potential breaches uncovered at Raffles Infrastructure

Singapore

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

Raffles Infrastructure Holdings is on the SGX Watch-List.

However, the KPMG report said on Tuesday that there were limitations to its findings, given that "a considerable number" of documents requested as part of supporting documents were not made available to the review team.

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 that he failed to provide documents the team requested for, and did not attend an interview when asked to.

The special auditor was thus unable to determine the findings conclusively, but noted that Shishi Sinwa's announcements on purported compensation and payments to claimants, and the disposal of a property for 48.7 million yuan (S$9.6 million), would have been factually inaccurate if taken at face value, and would have been "misleading" to readers of the announcements.

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

It took two trips to Shishi in China's Fujian province to conduct the fieldwork; the work was carried out at Shishi Sinwa's premises in the Wubao Industrial Zone.

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

In the second trip in January 2019, the team obtained some bank statements and a listing of Shishi Sinwa's RMB-denominated bank accounts. However, it 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 requests for additional information were declined by Mr Wu.

But the team's analysis of bank statements turned up 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 406.6 million yuan.

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

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

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

Purported compensation payments of some 466 million yuan, which Raffles disclosed, was also suspect - given that the respective legal representatives of the claimants, when interviewed, said that their companies had neither requested nor received the purported compensation from Shishi Sinwa. Signed confirmations to this effect were provided.

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.

Shares in the company are still trading. They last closed at S$0.46 on Aug 8, before the long weekend.