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Midas to be liquidated after failing to find a white knight

Singapore

FORMER stock market darling Midas Holdings is on the verge of liquidation after it failed to get a rescue deal from Hong Kong-listed CRRC Corp.

This bleak outcome will end all hopes of a recovery for its thousands of shareholders. According to its most recent annual report for the financial year ended Dec 31, 2016, Midas has 15,766 shareholders, 99.7 per cent of whom are likely to be retail investors.

In a Singapore Exchange filing on Monday, the insolvent aluminium train components supplier reported an unaudited net liability position of S$47.1 million as at end-2018. The negative equity included S$81.1 million of net current liabilities and just S$4.1 million of current assets.

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Midas cited court documents which indicated that on Sept 26, 2018, the subsidiaries of Hong Kong-listed CRRC Corp were awarded 236 million Midas shares, representing a 12.44 per cent stake, that belonged to former executive chairman Chen Wei Ping. If transferred, those shares would make CRRC the single largest shareholder of Midas.

However, "efforts to initiate a discussion with CRRC with a view to rescuing the company was not successful", Midas said.

Meanwhile, government agencies are pressing Midas to file annual returns, file tax returns, as well as hold its annual general meeting, the company said.

"In the absence of a rescue and dwindling funds, Midas will be unable to maintain its listing status" in Singapore and Hong Kong.

The company also faces a statutory demand from executive director Xu Wei Dong for unpaid salaries due to him.

Midas said that because it does not have funds to contest this and other legal actions that other creditors may decide to take, the company will be liquidated when ordered to do so by the court.

Midas-guaranteed loans total 1.9 billion yuan (S$383.4 million), with the company disputing 779 million yuan worth of these loans.

These guarantees are enforceable on Midas if the related loans remained unpaid after payouts from the sale of pledge assets. As the payouts and asset sales will not occur soon, the final amount due from Midas is unknown, and the uncertainty makes a Midas rescue hard at this juncture.

Not included in the guaranteed loans were disputed guarantees provided to individuals based on previously undisclosed loans provided mainly by Mr Chen when he was chairman, without authorisation from the board of directors.

In its update on April 1, Midas also made the following disclosure:

  • Jilin Midas Aluminium Industries' (JMAI) judicial manager Qiming will sell all of JMAI's business assets for about 1.8 billion yuan, which makes up about 13 per cent of the amount owed to a total of 321 creditors.

Qiming also declared that Jilin Midas Investment (JMI), a 51 per cent subsidiary of JMAI, has no assets and is "worth zero".

  • Jilin Midas Light Alloy's (JMLA) and Luoyang Midas Aluminium Industries (LMAI) will be liquidated as its judiciary managers could not find buyers.
  • Dalian Huicheng Aluminium Industries' (DLHC) judicial manager had until March 28 to restructure DLHC with interested buyers. Its outstanding approved debt was about 1.6 billion yuan, versus a cash balance of about 390,000 yuan.

A creditor meeting report noted that the financial accounts were improper and off-balance sheet accounts were used to transfer funds.

  • Shanxi Wanshida Engineering Plastics' (SWEP) land and buildings were pledged to Shanxi Rural Credit Cooperative for a 14 million yuan loan that was never disclosed. Its bank balance was also missing more than 61 million yuan.

Through a series of round tripping, the discrepancies in the cash balance was disguised as a receivable from LMAI.

Midas said it was also unaware that SWEP had a China court order to repay another previously undisclosed loan of 400,000 yuan, at 3 per cent interest a month. Neither did it know what the loan proceeds were used for.

As the Chinese auditors for SWEP have changed many times between 2014 and 2017, its audited China accounts cannot be located and the directors are unable to file any police report.

  • Midas' 32.5 per cent share in associate company CRRC Nanjing Puzhen Rail Transport (NPRT) was pledged to noteholders of a medium-term note programme.

The notes have a principal value of US$60 million and their related coupons are due, but Midas said the pledge was not properly approved by its board and is contesting the claim at the Hong Kong International Arbitration Court (HKIAC).

"Due to shortage of funds, we are not represented by any legal professionals for the proceedings at HKIAC," Midas said.

Midas shares have been suspended since February 2018 when the company discovered certain financial irregularities. In March 2018, the company's independent directors lodged a police report with the the Singapore Police Force's Commercial Affairs Department.

The shares last changed hands at S$0.192 on Feb 7, 2018. In the heydays in 2007, they regularly traded at above S$2.