Nam Cheong's financial statements given disclaimer of opinion

MAINBOARD-LISTED Nam Cheong Limited's financial statements have been given a disclaimer of opinion by its independent auditors over the company's liabilities and ability to continue as a going concern.

The company's financial statements had been prepared on a going-concern basis, with a key assumption made in the cash flows forecast that Nam Cheong was not exposed to any additional liabilities in suspending 10 remaining shipbuilding contracts it had awarded to a group of sub-contracted shipyards. 

As at Dec 31, 2019, the aggregate sum of the contracts was US$121.1 million, of which payments of US$16.3 million had been made by Nam Cheong, meaning that the outstanding exposure to the group of shipyards is about US$104.8 million.

About US$24.7 million had been recorded in liabilities based on contractual milestones.

Nam Cheong's management had also represented that the group had reached an understanding without a written agreement with the group of shipyards to suspend construction or delivery of the vessels, with a view to extending the delivery period or terminating the contracts to minimise financial exposure. But the auditors, Foo Kon Tan LLP, flagged that there was no "independently verifiable" evidence to support this.

Hence, Foo Kon Tan said: "We were unable to assess the financial impact of any provision for onerous contracts and/or contingent liabilities that may arise from the default on contractual obligations."

The auditors added that any adjustment required may have a consequential "significant effect" on the cash flow forecast, net liabilities of the group, attributable profit or loss, and related disclosures in the financial statements for the financial year ended Dec 31, 2019.

In March, Nam Cheong had faced a query from the Singapore Exchange about its ability to operate as going concern. But the group had said that it had sufficient working capital and financial resources to meet its obligations for at least 12 months from the end of the financial year.