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Vibrant's Blackgold unit may have falsified accounts since the day it was acquired
BLACKGOLD International Holdings, a Chinese coal miner owned by Singapore-listed Vibrant Group, appears to have falsified accounts and grossly inflated sales figures since the day it was acquired, causing Vibrant to report false financials in a possible breach of Singapore listing rules.
Blackgold's management may also have recorded fictitious mining fees from subcontractors prior to the acquisition by Vibrant in July 2017, suggesting that the false accounts date back to the time when it was still listed on the Australian Securities Exchange.
These findings were released in a special audit report by EY Advisory on Thursday. EY commenced a probe into Blackgold's records in August last year, after auditors from KPMG discovered irregularities in the receipts and sales invoices arising from the coal mining and coal trading businesses carried on by some Blackgold units.
EY's report implicates Peng Yuguo, Blackgold's former chief executive officer, and Ou Jun, the former general manager of Heijin, a Blackgold subsidiary. Mr Peng and Mr Ou resigned last August and declined to cooperate with EY.
Blackgold's chief financial officer Tin It Phong, Blackgold's former head of finance and accounts Chen Shaokui and Chi Ho (James) Tong, a current director of Blackgold, also held key positions during the period when various questionable transactions took place. Mr Chen, whose employment was terminated last August, also did not cooperate.
EY wrote in a 35-page report that during the review period from July 1, 2017 to April 30, 2018, Blackgold's management appears to have set up more than one set of accounting books for certain subsidiaries of Blackgold, falsified accounts and bank records, and attempted to conceal the irregularities by destroying both physical and electronic records.
Among other things, EY flagged potential inflation of non-current assets. When Blackgold's management was questioned about the 1.12 billion yuan (S$224 million) in non-current assets that it had recognised as at June 30, 2017, they revised the figure down by 187.36 million yuan to 933.91 million yuan. But Mr Tin then qualified that he was not certain if the revised figure included “bona fide assets” only.
EY said: "We understand that majority of the PPE and mine infrastructures were located in the coal mine wells, and that these assets were not properly tagged. Due to the limited access to the coal mines (ie we were not allowed to enter the coal mine wells due to certain government regulations and safety reasons) and the absence of information surrounding the assets (eg physical identification tags), we were not able to verify the physical existence of the assets.
"Based on searches conducted on public domain and analysis of bank statements, we discovered that the coal mining entities were either not in operation and/or received certain form of compensations (for voluntary closure) from the Chinese government. This could potentially have an impact on the valuation of these entities."
Upon questioning, Blackgold's management also reduced the sales recognised in the review period by 2.05 billion yuan, from 2.08 billion yuan down to 29.12 million yuan. It appeared that these amounts were "fictitious sales", EY wrote.
Of the remaining 29.12 million yuan, EY believes that this figure may be overstated by 20.74 million yuan: "It appeared that the recorded sales and accounts receivable were generated from freight sales. However ... certain employees of Blackgold Shipping had represented that Blackgold Shipping had never provided freight services."
Blackgold may also have overstated its accounts receivables when it was acquired by Vibrant. EY estimated that roughly 638.74 million yuan in receivables as at June 30, 2017 were irrecoverable or doubtful. Excluding doubtful debts, Blackgold's receivables may only have amounted to 19.36 million yuan, EY wrote.
Questionable bank transactions were also carried out with related parties of the CEO and his relatives and affiliates during the review period, EY found.
To be sure, Vibrant has already written off its investment in Blackgold and receivables from Blackgold in the restated financial statements for the period ended Oct 31, 2017. Vibrant acquired Blackgold International Holdings and its subsidiaries in July 2017.
Vibrant had told shareholders on Oct 31 last year that Blackgold’s financial information was “incomplete, not accurate and unreliable”.
As well, Blackgold's financial statements were not consolidated into Vibrant's recent financial statements, given the accounting irregularities.
"Further legal review is required to determine if these purported actions by Blackgold management contravene certain laws and regulations in China," EY said. Vibrant said that it is seeking legal advice, which may involve reporting the matters to the relevant authorities.
EY did not investigate possible misdeeds dating further back than July 2017, as this was outside the scope of the review period.