IPCO International Limited - Can IPCO sell a 70% stake in Sun Spirit Group Ltd despite the court's order freezing its assets?

15/12/2013 – IPCO International Ltd is caught in a legal battle following the crash on October 4.

The US-based broking firm Interactive Brokers, which lost US$68 mln in the crash, is suing a subsidiary of IPCO International.

Interactive Brokers is also pursuing arbitration through the American Arbitration Association to recover the losses.

Recently, The Edgereported the broker obtained interim court orders to freeze the assets of Neo Kim Hock (the former Chairman of Blumont Group Ltd), Peter Chen Hing Woon (LionGold's business and corporate development Director), Tan Boon Keat (who appears to be an associate of Dato' John Soh Chee Wen), Quah Su-Ling (the CEO of IPCO International), Lee Chai Huat (who emerged as a shareholder of Merlin Diamonds Ltd just before Innopac Holdings Ltd's takeover offer), Kuan Ah Ming, Neptune Capital Group Ltd (an associate company of Neo Kim Hock) and Sun Spirit Group Ltd (a wholly-owned subsidiary of IPCO International).

Apparently, IPCO International is directly impacted by the court's orders against its wholly-owned subsidiary Sun Spirit Group Ltd.

While investors are still waiting for IPCO International's response to the lawsuit(s), its announcement on December 4 would have taken them by surprise: IPCO International sold a 70% stake in Sun Spirit Group Ltd to Belvedere Inc for S$875,000.

Belvedere Inc – a company incorporated in the British Virgin Islands – is wholly-owned by Mr Nelson Fernandez.

That would sound familiar to those who have been following Investor Central's coverage of the network of SGX-listed companies.

Nelson Fernandez bought significant stake in Joseph Gutnick's Acadian Mining Corp just before LionGold Corp Ltd launched a takeover bid for it (refer Investor Central's earlier story).

In 2011, LionGold Corp also announced acquisition of Belvedere Assets Inc – a company incorporated in the Marshall Islands – which was wholly owned by Nelson Fernandez.

Later in that year, LionGold Corp also announced plans to buy Abundant Minerals Pte Ltd for US$16 mln from Nelson Fernandez.

However, LionGold terminated its plans to buy both the companies in subsequent years.

Clearly, Mr Fernandez is no stranger to the network.

Investor Central. Asian insights for global investors. We ask the tough questions of Asian companies which global investors need answers to.

Question

1. Can IPCO sell a 70% stake in Sun Spirit Group Ltd despite the court's order freezing its assets?

While the court's order means Sun Spirit Group Ltd cannot sell its assets, we still wonder if IPCO can lawfully dispose a majority stake in the wholly-owned subsidiary.

And who would buy it, given the apparently difficult time it is facing.

Question

2. Why would Mr Fernandez buy a majority stake in a company with frozen assets?

Given the circumstances, an unrelated person would be unlikely to buy a subsidiary from IPCO International.

That makes us wonder if Mr Nelson Fernandez is unrelated to the directors and management of IPCO International.

Question

3. Why did it sell a 70% stake in Sun Spirit Group for peanuts?

As mentioned in the announcement, Sun Spirit Group Ltd holds a significant portion of IPCO International's trading portfolio.

Sun Spirit Group Ltd's net asset value (NAV) was S$39.9 mln on April 30 and S$43.9 mln on July 31 (pages 2 & 4 of December 4 announcement).

IPCO International says it arrived at the consideration of S$875,000 for a 70% stake based on a net value of S$1.25 mln of Sun Spirit Group's current portfolio of quoted securities on December 3.

Apparently, IPCO International didn't take the NAV of Sun Spirit Group into account while arriving at the consideration.

Based on the NAV on July 31, a 70% stake in Sun Spirit Group was worth S$30.7 mln.

That's about 35 times more than what Nelson Fernandez paid for the stake.

It seems IPCO International gave away a valuable subsidiary for peanuts.

Question

4. Why didn't IPCO announce the agreement on October 28?

In its December 4 announcement, IPCO International says a non-binding memorandum of understanding (MoU) was signed with Mr Fernandez five weeks earlier, on October 28.

A quick look at SGX's website shows nothing in this regard was announced at the time.

IPCO International would have been bound to announce the non-binding MoU on October 28 as the entire deal constitutes a 'discloseable transaction' under SGX-ST listing rules.

We have no way of knowing if the company back-dated the MoU, but it's tempting to think so.

It would also have meant it did not need to account for the fair value loss due to the crash on October 4 in its Q2 earnings report.

Past emails to Mr Fernandez to seek clarification for our reports have gone unanswered.

(Total number of questions in the full story: 10)

We have sent these questions to the company (ghc@ipco.com.sg) to invite them for an on-camera interview, and/or seek their written response.

Sofar, we have not had a reply (which is why you are seeing this message).

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