Midas could be insolvent soon amid fraud allegations

Midas Holdings, once a billion-dollar company with a promising future in China's booming rail sector, may join the list of insolvent companies as it falls victim to alleged fraud and misdeeds overseas, leaving minority shareholders in Singapore to pay the price and cry out in desperation for accountability.

Listed on Feb 23, 2004 on the Singapore Exchange (SGX) and on the Stock Exchange of Hong Kong (SEHK) on Oct 6, 2010 in a secondary listing, Midas was once favoured as a leading manufacturer of aluminium alloy extrusion products for China's rail transportation sector. At one point, JP Morgan had an almost-8 per cent stake in the company. It is unclear if it still owns Midas shares.

But things took a quick turn for the company, now struggling with law suits filed in China over unauthorised loans by its former chairman Chen Wei Ping, and guarantees involving its Chinese subsidiaries.

Mr Chen, now under probe by China's Economic Crime Investigation Unit for fraud, resigned a month ago. Four senior executives in China have also resigned, after internal checks found a failure to report material information to the company. Former chief executive officer Patrick Chew, who had been Midas' chief executive since it was listed in 2004, resigned on March 22, citing health reasons. The board had said his legal stamp was used to approve the loan transactions without his knowledge.

In early February, Midas disclosed that it had uncovered several litigation suits, enforcement orders and court documents; these included an enforcement order filed against one of its wholly-owned subsidiaries, Jilin Midas Aluminium Industries, for a previously undisclosed liability of 30 million yuan (S$6.3 million).

Several research houses, including DBS Research and OCBC Investment Research, have since halted coverage of the stock, with the former saying it was "not able to rely on the group's financial statement".

Stock price

Midas' share price, which traded at a high of S$2.13 a share on May 31, 2007, tumbled to a low of 9.2 Singapore cents last Dec 8. The share price was last hovering at around 19.2 cents before trading was halted on Feb 8 this year; trading was suspended a day later amid police investigations in Singapore and China over financial irregularities such as cash balances that did not tally with records.

At a shareholders' dialogue with some 80-odd investors on Wednesday, Midas' executive director Tong Din Eu said the company would likely be insolvent within the next month if creditors push it towards liquidation.

Expecting a white knight to salvage the company may be challenging, given the spider web of debts created by the many cross-guaranteed loans between the parent and its units. Midas and its Chinese subsidiaries had about 4.46 billion yuan (S$0.94 billion) in loans outstanding as at last Sept 30.

Mr Tong said the company is liable for about S$401 million in debt. These numbers are still preliminary. The S$401 million figure excludes 25.6 million yuan being sought by one creditor, Chen Gui Zhi, who had apparently inked a deal to lend 30 million yuan to Jilin Midas Aluminium Industries.

Another shocking revelation is that Midas' cash holdings now stand at about S$700,000, compared to the 944 million yuan (S$198 million) based on the result announcement made for the third quarter ended September 2017. The final amount may be even lower after paying lawyers' fees and the three-month salary due at its subsidiary in Luoyang.

Investment specialist S Nallakaruppan said: "It is shocking to see a billion-dollar company with a viable business brought to the ground with fraudulent acts and misdeeds.

"Basically, most of the money is gone. The people involved must be made accountable. What were the independent directors doing? What about the auditors Mazars LLP, who had been paid to do their due diligence? How can they explain the huge discrepancies in the audited bank balance for 2016 and now?"

Mr Tong said Mazars had informed the board that they too had been deceived.

Midas' non-executive chairman of one month and former minister of state Chan Soo Sen, who was silent during most of the dialogue, apologised to shareholders for the saga and promised not to run away from the company, drawing applause from shareholders.

He said: "Being a former politician, I know what the ground is like. Bear in mind that we will try to see what we can salvage. Bear in mind also that we are on your side. I cannot promise any panacea. But the three of us will do our best."

At Wednesday's five-hour dialogue with shareholders, Mr Tong - previously an independent director and chairman of the audit committee - fielded 64 questions that had been posted on an investor forum last week. The queries centred on the extent of Midas' legal troubles, and actions that can be taken to salvage the company.

Shareholders also took issue with the timeliness of the company's disclosure. One shareholder said: "The issue was flagged in January. It took the company two weeks to make the announcement to the public. Meanwhile, trading continued. Is this fair?''

Mr Tong was first alerted to the ongoing litigation by Midas' chief financial officer on Jan 29. After consulting with lawyers and SGX, Midas announced the legal issues on Feb 8.

Eventually, if fraudulent acts are proven to have taken place, the company will try to cancel the shares of those individuals found liable.

Angela Tan

03 May 2018