Nam Cheong's auditors can't conclude whether group can be assessed on going concern basis

THE independent auditors of offshore vessel builder Nam Cheong said they have not obtained sufficient evidence that the group's financial statements for the financial year ended Dec 31, 2018 should have been prepared on a going concern basis.

They are therefore unable to issue an audit opinion.

The auditors, Foo Kon Tan LLP, said Nam Cheong's statements were prepared on a going concern basis, premised on a key assumption that there are no claims from creditors, primarily the Non-Fujian Group Shipyards. Nam Cheong has yet to terminate the contracts with the shipyards or restructure the debts owing to the shipyards, which are reasonably likely to have a material effect on its financial condition and operations, said the auditors.

In assessing whether the group can meet its debt obligations as and when they fall due, management prepared a cash flow forecast of the group for at least the next 12 months from the end of the reporting period.

But the auditors said they were unable to obtain sufficient evidence for certain key assumptions supporting the cash flow forecast related to the 15 shipbuilding contracts that Nam Cheong had directed the shipbuilders to suspend the construction thereon.

The aggregate contract sum of these contracts was US$226.5 million. As at Dec 31, 2018, payments of US$30.4 million had been made, and US$42.6 million had been recorded in liabilities based on contractual payment milestones.

"No information was available to corroborate management's representation that all liabilities related to the contracts had been accounted for as at Dec 31, 2018. 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," said Foo Kon Tan in its report.

"We were unable to satisfy ourselves by alternative means concerning the liabilities in respect of the contracts as at Dec 31 2018, and their consequential effect on the cash flow forecast. Consequently, we were unable to conclude whether the use of going concern basis in the preparation of these financial statements is appropriate."