Published March 25, 2009

Going-concern issues raised on 2 more S-chips

Focus this time falls on China Enersave and Sino-Environment

By LYNETTE KHOO

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AUDITORS have raised the red flag on two more S-chips - China Enersave and Sino-Environment Technology Group - over the uncertainties surrounding their abilities to continue as going concerns.

China Enersave auditors, in an 'emphasis of matter', cited concerns over the group's full-year loss, liabilities, a lack of compliance with certain covenants of credit facilities agreement with convertible bondholders and a default of bank loans by a subsidiary.

'These factors indicate the existence of a material uncertainty which may cast significant doubt about the group's and the company's ability to continue to operate as going concerns,' said Mazars LLP in an independent auditor report dated March 23.

For the year ended Dec 31, 2008, the group incurred a net loss of $150.6 million and had net current liabilities of $62.5 million. It also did not comply with certain covenants under a credit facilities agreement with convertible bondholders and a subsidiary of the group had defaulted in the repayment of certain bank loans of 898.8 million yuan in China.

In addition, the group was due to repay a loan from a bank of US$20 million on Jan 30. Several banks and financial institutions are also demanding the immediate repayment of their loans after a default of a credit facilities agreement.

Separately, auditors of Sino-Environment, PricewaterhouseCoopers LLP, raised going-concern issues in an independent auditor's report yesterday.

PwC said it is in no position to express an opinion on its 2008 financial statements.

Explaining the disclaimer of opinion, PwC said that the group faces a potential change in control as its controlling shareholder and chairman Sun Jiangrong had defaulted on certain financial obligations, which could result in his pledged Sino-Environment shares being force-sold.

The change of control would give holders of Sino-Environment's $149 million convertible bonds the right to seek immediate conversion and/or redemption.

And Sino-Environment may not be able to make payment for such an unscheduled redemption.

'These factors cast significant doubt on the ability of the company and the group to continue as going concerns,' said PwC in its independent auditor's report.

Sino-Environment could not be reached yesterday to provide updates on this matter.

Earlier this month, the group announced that Mr Sun, who owns his Sino-Environment stake through Thumb (China) Holdings Group, had defaulted on certain financial obligations.

Mr Sun had pledged his shares and other personal assets to hedge funds for original notes worth $120 million. An outstanding $65 million became due on Feb 16.

Latest filings on SGX showed that some of the pledged shares representing about 5.06 per cent of Sino-Environment's share capital had been transferred to the security-trustee of the hedge funds. This pared Mr Sun's stake to 51.23 per cent as of March 10.

A surge in the price of Sino-Environment shares last Friday prompted a query from the Singapore Exchange but the group denied any knowledge of the reasons behind the spike. The counter closed 7.9 per cent lower yesterday at 17.5 cents.