Restructuring plans, trading suspension a result of poor property market conditions: Capital World

PROPERTY developer Capital World said "acute oversupply conditions in the property market in Malaysia", together with the Covid-19 pandemic, pushed its decision to propose a restructuring and suspend the trading of its shares in February 2020.

Responding to queries from Securities Investors Association Singapore (Sias) in a bourse filing on Monday, Capital World, whose shares have been suspended since Feb 14, 2020, said it plans to submit a resumption proposal by the end of December 2021 and resume trading of its shares by the first half of 2022.

Capital World's restructuring plan came four months after the company told its independent auditors to prepare its financial statements for FY 2019 on a going concern basis.

Capital World halted trading after the group proposed restructuring through a scheme of arrangement, due to reasons including zero unit sales at Capital City Mall in Q2 amid an oversupply in the property market in Malaysia, and a lack of visibility of cash flow to repay its creditors in the next 12 months. The group had posted its Q2 FY 2020 results the day before.

In its queries to the property developer on August 23, Sias noted that the auditors were "unable to obtain sufficient appropriate audit evidence to conclude whether the use of the going-concern assumption to prepare the FY 2019 financial statements is appropriate".

The auditors said at the point of preparation, the group's plans to resolve its liquidity problems were unclear and its ability to realise the inventory properties at the expected value and timing was uncertain.

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The group responded that its management did not intend to liquidate the group or to cease operations as at its financial year end on June 30, 2019 and as at the date of its FY 2019 annual report on Oct 11, 2019, hence "the then-directors were of the view that it was appropriate to prepare the FY 2019 financial statements on a going-concern basis."

Capital World added that as at June 30, 2019, it had inventory property of RM223.3 million (S$72.1 million), which exceeded its loans and borrowings of RM44.6 million, although the auditor's report pointed out that the group's cash and cash equivalents stood at just RM2.4 million.

Sias also noted that independent auditors were unable to assess the net realisable value and the recoverable amount of the group's hotel, service suites and serviced apartments under construction, as they could not obtain sufficient appropriate audit evidence to assess the reasonableness and appropriateness of the assumptions used.

Capital World responded that its management was unable to provide sufficient audit evidence as its assessments were largely based on expectations of future selling prices, which were market-driven information that was "beyond the control of the management and audit committee", given the uncertainty of economic recovery due to the pandemic.

It added that the assessment of the net realisable value remains challenging as it expects the macroeconomic circumstances will remain largely similar, although the group "remains committed to selling the inventory property and property, plant and equipment for the best available market-driven pricing".

When probed for an update, the group said it is looking to reopen its Capital City Mall in September 2022 as it expects the Covid-19 pandemic will be under control by the end of 2021. It said it is also exploring joint ventures to resume the construction of its uncompleted hotel, serviced suites and serviced apartments.

The group added it is considering fundraising to improve the cash, working capital position and operating cash flow of the group and is open to any proposal to "reposition the group for long-term value creation".

The group said it is "mindful of the challenges facing the group in its core property business and remains cautiously optimistic about the longer term outlook for the Capital City Mall in view of the healthy financial position of the group post-restructuring".

Post-restructuring, Capital World expects substantial liabilities of the group will be "extinguished", and it would assume ownership and continue the sales of the inventory property.

However, it expects sale of the inventory properties will remain challenging due to broader economic and property market considerations. Legal retention and ownership of the company's inventory property is bound by its July 2021 settlement agreement with landowner Achwell Property.

Capital World will be convening an annual general meeting on Aug 31, 2021 for its FY 2020 results. It expects to announce quarterly financial results for FY 2021 by Sept 30, 2021.

The counter's share price last closed at 0.5 Singapore cent on Feb 13, 2020.