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Pacific Radiance auditor flags going concern issue citing 'material uncertainties'

THE independent auditor of offshore marine company, Pacific Radiance, has declined to express an opinion on the firm’s 2018 financial results, noting it is unable to obtain sufficient evidence to conclude whether the company's going concern assumption is appropriate. 

In Pacific Radiance's annual report released on Thursday, Ernst & Young (EY) stated in a disclaimer of opinion that the group's financial statements have been prepared under a going concern assumption, as directors believe that the group will be able to successfully complete its restructuring exercise.

"However, we are unable to obtain sufficient appropriate evidence to conclude whether the use of the going concern assumption to prepare these financial statements is appropriate, as the outcome of the restructuring exercise has yet to be concluded satisfactorily at the date of these financial statements, and is inherently uncertain," EY said. 

It also noted that if the going concern assumption is not appropriate, and the financial statements were presented on a realisation basis, the carrying value of the assets and liabilities may be materially different from that currently recorded in the balance sheet. 

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The group and the company may also have to reclassify its non-current assets as current assets, and non-current liabilities as current liabilities. No such adjustments have been made to these financial statements, EY noted. 

As at the end of last year, the group's current liabilities exceeded its current assets by US$486.8 million, and its total liabilities exceeded total assets by US$158.5 million. The group also posted a full-year net loss of US$101.2 million for the year ended Dec 31, which included impairment charges of US$53.6 million, and generated a negative operating cash flow of US$8.58 million. 

The company's current liabilities also exceeded its current assets by about US$145.2 million, with its total liabilities exceeding total assets by the same amount. 

As at Dec 31, the group had assets with a carrying value of US$300.3 million that have been mortgaged to banks to secure the group’s bank loans, EY noted.

In 2017, the group breached certain terms of the bank loans, and commenced discussion with bank lenders and potential investors in relation to the restructuring of its borrowings and capital structure. The group had an informal arrangement with major lenders to temporarily suspend certain debt obligations, and discussions with bank lenders and potential investors are still ongoing.

A vendor had also filed winding up applications with the Singapore High Court against certain entities of the group in relation to statutory demands for payment for services during the current financial year. The Court has granted moratoria which have been extended to April 18. 

Separately, the group has also received an alternative restructuring proposal and has executed a binding term sheet with parties who control vessel owning and logistics services entities. However, the alternative restructuring proposal is subject to regulatory and shareholders' approval as well as successful debt restructuring among other things. The group is in the process of completing its due diligence and in discussion with bank lenders on the restructuring proposals, EY noted.

"These factors give rise to material uncertainties on the appropriateness of the use of the going concern assumption in the preparation of the accompanying financial statements of the group and the company," EY said. 

Trading of the company's securities on the Singapore bourse has been voluntarily suspended on Feb 28, 2018.