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Eratat Lifestyle Ltd - Where has the cash gone?

26/5/2014 – Eratat Lifestyle Ltd's shareholders are going through agonizing times ever since the stock was suspended on January 30, after the company couldn't establish where RMB 646 mln in cash at its subsidiary Fujian Haimingwei Shoes Co Ltd in China had disappeared to.

The bank account was kept with the Agricultural Bank of China's Jinjiang Chendai branch.

As Fujian Haimingwei couldn't remit a sum of RMB 5.38 mln to Eratat Lifestyle's bank account outside China, Eratat Lifestyle defaulted on a bond interest payment which fell due December 24.

Consequently, Eratat Lifestyle suspended its CEO Mr Lin Jiancheng as he failed to provide 'any satisfactory explanation' why the funds weren’t transferred, despite a huge balance in the bank account of Fujian Haimingwei.

Eratat Lifestyle appointed its CFO Mr Ho Ker Chern as the interim CEO.

However, Mr Lin Jiancheng continues to be the Executive Chairman and, with a 25% stake, the single-largest shareholder of the company.

In June last year, Eratat Lifestyle raised RMB 100.5 mln in aggregate through 12.5% redeemable non-convertible bonds and issue of 82,500,000 warrants convertible into one share each at S$0.25 per share.

The bonds were issued at a discount to the face value of RMB 134 mln.

Both the bonds and warrants were issued to Sun Hung Kai Investment Services Ltd, which is a principal subsidiary of HKSE-listed Sun Hung Kai & Co Ltd.

Also, Sun Hung Kai & Co Ltd nominated Julian So Han Meng as a non-executive director on Eratat Lifestyle's board on August 5.

He resigned from the board on April 28 'due to health reasons'.

Subsequent to the default on interest payment, the bondholder served a notice to Eratat Lifestyle on January 28 to redeem the bonds and accelerating the repayment of the outstanding principal and interest.

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

Question
Question

1. What is the progress in recovering the cash?

Eratat Lifestyle last updated the shareholders about the developments on February 25.

It has been three months since that announcement.

On the one hand, shareholders can't sell their shares as the stock remains suspended.

On the other, they don't know what the developments are to resolve the matter.

What are the developments in the last three months?

Question
Question

2. When will the special audit be announced?

In its February 25 announcement, Eratat Lifestyle said:

"Given the discrepancies relating to the bank cash balances, the Audit Committee intends to conduct a special audit into the financial affairs of the Group, which could include, inter alia, ascertaining the bank cash balances, verifying the accounts receivables and payables and confirming the property, plant and assets of the Group.

“However, given that this would require the cooperation of the PRC management, there is no assurance that the special auditors (when appointed) would be able to conduct the special audit."

The management has not said anything on the special audit in the last three months.
Total number of questions in the full story: 10)


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

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


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