BOURSE regulator Singapore Exchange Regulation (SGX RegCo) on Friday (Dec 1) said the actions of mainboard-listed New Silkroutes’ former directors and executive officers led to the “circumvention of rules”. 

In a regulatory announcement, SGX RegCo made reference to findings from the company’s independent reviewer KPMG.

KPMG was appointed to review certain transactions that were highlighted by the company’s statutory auditor during its review of the group’s financial statements for the year ended June 2020. KPMG reported directly to SGX RegCo and the company’s audit committee. 

KPMG had found that in May 2011, New Silkroutes signed a sale and purchase agreement with Tianjin General Nice Coke & Chemicals Co (Tianjin GNCC) to buy a 15 per cent stake in Thai General Nice Coal and Coke Co (Thai GNCC). 

After six extensions of the completion date and two amendments to reduce the company’s acquisition stake to just over 2.8 per cent, the acquisition was completed in May 2017 and New Silkroutes paid US$14.1 million for the stake. 

However, Thai GNCC has not had commercial operations since 2011, and New Silkroutes eventually deconsolidated its investment in Thai GNCC in 2021.

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This acquisition was funded by the New Silkroutes’ fundraising exercises – a placement of 16.7 per cent of the enlarged share capital to two investors in 2011, and a rights issue in 2012. 

In both fundraising exercises, the company confirmed to SGX RegCo that the two investors, Fortune Woods Global Investment and Smartful Global, were unrelated and not acting in concert. These two companies were respectively owned by the company’s former executive chairman Cai Sui Xin and an individual named Xiao De. 

For the placement exercise in 2011, the company further confirmed to SGX RegCo that the two investors had no connection or business relationship directly or indirectly with each other, and that they would not have any board or management representation as a result of the placement.

However, KPMG found that Cai and Xiao had an existing business relationship with each other through Tianjin GNCC prior to the placement. 

The company also knew that the intended investor for the placement was Cai, and was also aware of Cai’s request to control the board upon completion of the placement. It facilitated the sequence of appointments that was calculated to achieve this without attracting regulatory attention.

SGX RegCo said if not for the company’s false confirmations to the regulator regarding the investors’ relationship and board representation, the placement would have constituted a transfer of controlling interest and prior shareholders’ approval would have been required. 

It also noted that Cai, Frank Yu and Jaffe Lau had, in their capacities as directors of New Silkroutes, entered into various agreements to purchase goods and services that were not delivered. 

Despite being dormant companies, Top Post Enterprises and Baling (China) Investment entered into various agreements to purchase iron ore fines and procure consultancy services worth US$4.99 million between February 2016 and March 2016. 

KPMG did not find any evidence that the iron ore fines were delivered or consultancy services rendered, nor could it identify the shareholders and directors of the iron ore fines vendor and the consultancy provider. 

Lau and Yu resigned from the company on Oct 31, 2016, while Cai stepped down on Dec 8, 2016. 

SGX RegCo said it does not condone actions by the issuers and directors to circumvent the requirements under the bourse’s listing rules. 

The regulator said it will be looking into the potential breaches pertaining to the placement and the acquisition of Thai GNCC, and will refer the potential contravention of the companies act and the securities and futures act highlighted in KPMG’s report to the relevant authorities. 

Shares of New Silkroutes have been suspended from trading since November 2021.