Vibrant's auditors unable to complete audit in Blackgold unit; shares down S$0.13 or 40%

SINGAPORE-LISTED Vibrant Limited on Wednesday morning said its auditor, KPMG, was unable to complete an audit of the company's financial statements for the year ended April 30 as they found irregularities and discrepancies in coal mining and coal trading receipts, and sales invoices in certain units of wholly owned subsidiary Blackgold International Holdings.

In particular, these relate to Blackgold units Chongqing Heijin Industrial, Chongqing Caotang Coal Mine Resources Development and Chongqing Guoping Heiwan Coal Mine Resources Development.

As at 10.57am, Vibrant's shares, which had been suspended since July 11, resumed trading on Wednesday and were down 13 Singapore cents or 39.4 per cent at 20 cents.

In a filing with the Singapore Exchange, Vibrant said: "As the auditors have not undertaken any further procedures, they are currently unable to determine if the irregularities have been fully identified and the associated financial impact."

The auditors are unable to complete their audit without performing additional procedures, it added.

Vibrant acquired its 94.18 per cent stake of the then Australia-listed Blackgold - a Chongqing-based producer of coal - through a scheme of arrangement approved by the Federal Court of Australia, on July 13, 2017 for A$37.6 million (S$37.9 million).

On finding irregularities, Vibrant said: "The auditors have recommended to the audit committee that the auditors carry out additional procedures on Blackgold's balance sheet as at the date of its acquisition by the group, to ascertain the existence, accuracy and completeness of the assets and liabilities acquired."

Vibrant's board has authorised the committee to appoint a special auditor to conduct an investigation into the irregularities.

Based on the company's unaudited financial results for the nine months ended Jan 31, Blackgold Group contributed to 23.5 per cent or S$318.9 million of Vibrant's S$1.4 billion of assets.

However, Blackgold accounted for 2 per cent or S$2.6 million of Vibrant's net profit of S$128.1 million. If negative goodwill is exluded , Blackgold would account for 62 per cent of Vibrant's net profit of S$4.3 million.

As at Jan 31, there are outstanding inter-group loans of S$22.6 million made to the Blackgold Group. The group has not provided any guarantees or other security in respect of the bank borrowings, loans, debts or other liabilities of the Blackgold Group.

Based on information available to the board, due to the irregularities, a reversal of all revenues arising from Blackgold subsidiaries' coal mining and coal trading business for the nine months ended Jan 31 would have resulted in a 70 per cent fall in revenue to S$132.8 million from S$436.8 million, a 77 per cent fall in cost of sales to S$89.2 million from S$386 million, and a 99 per cent fall in net profit to S$1.6 million from S$128.1 million.

Meanwhile, the company has appointed a special committee that includes chief executive officer Eric Khua Kian Keong, chief corporate development officer Henry Chua Tiong Hock, and chief financial officer Simon Sim Geok Beng to "supervise the Blackgold subsidiaries until such time that the results of the special audit are released and the new management for the Blackgold subsidiaries are in place".

Vibrant has also sent two senior finance executives to Chongqing to safeguard the cash, other assets, and accounting records of the Blackgold Subsidiaries while Yuguo Peng, the chairman of the Blackgold Group, has been placed on leave pending the outcome of the special audit.

Vibrant's board is of the opinion that the company will be able to operate as a going concern as it is expected to have sufficient cash to meet its debts and liabilities in the next 12 months and that its shares are not suspended from being traded pending the outcome of the special audit.

However, in the event that its shares are suspended for a continuous period of more than seven days, the company is obliged to, at the option of a note holder, to redeem notes from its multi-currency medium term note programme - presently S$66 million if fully exercised.

This will create an immediate and significant cash flow concern for the group, and is likely to affect the group's ability to operate as a going concern, Vibrant said.