Eratat unit forged 577m yuan bank statement: CBRC
Unit’s representatives might have posed as staff of Agricultural Bank of China
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Unit’s representatives might have posed as staff of Agricultural Bank of China
Cai Haoxiang & Jamie Lee
19 August 2014
The trail of missing cash at mainboard-listed China fashion company Eratat Lifestyle has led to more concrete evidence of fraud.
The Fujian office of China’s bank regulator China Banking Regulatory Commission (CBRC) has found that an Agricultural Bank of China (ABC) bank document purportedly showing a cash balance of 577 million yuan (S$117 million) in an Eratat subsidiary bank account was forged by the subsidiary.
Even more egregiously, representatives of the subsidiary might have impersonated as ABC bank staff to reassure visiting independent auditors and company directors that everything was okay.
They apparently used the bank’s Jinjiang Chendai Branch premises earlier this year, verifying the forged bank statement as true. They even informed the visitors that the Eratat subsidiary concerned was a good customer and did not have any loans with the bank.
Eratat’s interim judicial manager Hamish Alexander Christie of restructuring specialist Borrelli Walsh disclosed the CBRC findings in an announcement on the Singapore Exchange yesterday. He is seeking legal advice and “preparing further enquiries of the CBRC and/or application for a review of this opinion of CBRC in Fujian by the state CBRC”.
The news is likely to hit retail investors, who own about three quarters of the company. Eratat had a market valuation of almost S$50 million before trading was suspended in January.
A subsidiary of well-known Hong Kong finance company Sun Hung Kai and Co has also lent 134 million yuan to Eratat last June in a bond issue.
It was the failure of Eratat to make a coupon payment of 4.2 million yuan last December that triggered this chain of events.
Eratat former CEO Lin Jiancheng had assured directors and the bondholder that the payment was coming and that Eratat had cash balances of 640 million yuan as at Jan 24. But he was unable to satisfactorily explain why the payment could not be made, audit committee chairman Lim Yeow Hua said in end-January.
As a result, the audit committee called for a trading halt in Eratat shares on Jan 27 and suspended the CEO from his duties.
Auditors and directors then made an impromptu visit to ABC’s branch in Jinjiang Chendai where they supposedly met ABC staff. They were subsequently stymied in their attempt to clarify inconsistencies on the purported Eratat subsidiary bank statement.
Eratat then approached ABC Bank’s Beijing headquarters, which informed them that the Eratat subsidiary, HMW, only had a balance of 73,321.63 yuan (S$15,000) at end-2013.
ABC Beijing added that HMW also had bank borrowings of 34 million yuan as well as trade bills of 30 million yuan at end-2013.
In a May 30 announcement, Eratat said it lodged reports with CBRC and Singapore’s Commercial Affairs Division. It was unable to raise funds to pay for a special audit. Interim CEO Ho Ker Chern, who was chief financial officer since 2007, also quit. The bondholder applied successfully to Singapore’s High Court to appoint the interim judicial manager to manage Eratat’s affairs to see if a better solution rather than a winding-up can be found.
For now, investors are left wondering how the investment community had got the company so wrong.
Eratat listed as a sports footwear company in 2008, reporting growing revenues and profits. But Eratat executive director Ye Sanzhi sold off his entire 6.77 per cent stake for S$4.44 million last August.
Last November, Eratat was awarded runner-up in the “Most Transparent Company Award 2013, Mainboard Small Caps Category”, by the Securities Investors Association of Singapore. The same month, with the company trading at about nine cents a share, Voyage Research had an “increase exposure” call on the company with a target price of 28 cents a share.
Eratat shares last changed hands in January at 10 cents.