SGX RegCo to review GS Holdings’ potential listing-rule breaches
Elysia Tan
THE Singapore Exchange Regulation (SGX RegCo) will look into potential listing-rule breaches by GS Holdings and refer the matter to relevant authorities.
This comes after an independent review of the company flagged lapses in its handling of its branding, operation and procurement (BOP) business.
The review also noted potential breaches of directors’ fiduciary duties.
GS Holdings’ audit and risk committee had appointed Deloitte to conduct the independent review, after its statutory auditors subjected the company’s FY2020 financial statements to a disclaimer-of-audit opinion over issues surrounding the BOP business.
In March 2019, Wish Hospitality Holdings, a GS Holdings subsidiary, entered into a master service agreement with Henan Jufeel Technology Group.
Under the agreement, Wish was to provide BOP services to outlets, which were to be secured for it by Henan Jufeel.
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By May 2019, agreed service fees with the outlets amounted to 50 million yuan (S$9.7 million) per quarter. In FY2019, the BOP business contributed to a majority of the group’s revenue and was its only profitable business segment.
But in FY2020, GS Holdings’ statutory auditors subjected the company’s FY2020 financial statements to a disclaimer-of-audit opinion, as a significant amount of BOP service fees were outstanding.
The group claimed that 100 million yuan of BOP services fees were received and held in its bank account in China.
But the auditors believed that these should continue to be classified as outstanding trade receivables. This was in view of an encumbrance on the monies, which cast doubts on the group’s recourse to the receipt. By August 2021, the business was terminated, as it was adversely affected by the Covid-19 situation in China.
The independent review, released on Friday (Apr 14), identified several issues with the company’s diversification into and management of the BOP business and collection of BOP fees.
It highlighted that the management did not meet conditions for diversification set by the board. The board had required management to conduct due diligence – including site visits to investigate traffic and operations and desktop due diligence on contracting parties – on all the BOP outlets before entering into service agreements.
The company also did not adequately conduct legal and financial due diligence on relevant parties before diversification, the review found.
Although the management considered the investment value of S$400 as not being substantial, Deloitte said that due diligence was still warranted, as the investment value does not reflect the risks of the new business, and the associated legal risk and contractual obligations.
The review also flagged a lack of management control and supervision over the BOP business and inadequate control over bank accounts.
In addition, it found that the BOP business lacked governing internal policies and procedures, such as the onboarding of new outlets, the monitoring of its operations and the performing of customer credit assessments.
It also inaccurately represented the terms of the master service agreement on the Singapore Exchange, announcing that the securing of 200 outlets was on a best-effort basis, when Henan Jufeel was in fact required to assign and secure at least 200 outlets.
This was among other inaccuracies in GS Holdings’ exchange filings relating to the BOP business.
SGX RegCo said: “Where investigations indicate any breaches of the listing rules, SGX RegCo will proceed to take disciplinary actions against the culpable parties.”
Shares of GS Holdings closed flat at S$0.115 on Friday, before the announcement.
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