Published June 23, 2009

Beauty China faces winding-up in HK

Alleged default on on HK$133m loan may derail rights issue rescue plan

By LYNETTE KHOO

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THINGS are getting uglier for Beauty China, with the group now facing a winding-up petition by its creditors at the High Court in Hong Kong.

The default has cast uncertainty over Beauty China's ability to continue as a going concern.

A winding-up petition filed on June 18 alleged that Beauty China was indebted to and had failed to pay the petitioners a sum of HK$133.36 million (S$25 million) as at June 1.

The petitioners are Industrial and Commercial Bank of China (Asia), Banco Weng Hang SA, CIMB Bank Berhad Hong Kong Branch, MCL Global Portfolios SPC Ltd - MCL Focus Opportunities Segregated Portfolio Fund and Public Bank (Hong Kong) Ltd.

Beauty China said it became aware of the filing only yesterday. The petition is to be heard on Aug 26.

A statutory demand from these syndicated lenders was first issued in March, demanding repayment by March 27.

This was followed by a 'standstill' till April 27 to allow negotiations between Beauty China and potential investors, due diligence or conclusion of any transaction to proceed.

This loan default has cast uncertainty over Beauty China's ability to continue as a going concern.

Last Friday, its joint auditors Grant Thornton and HLB Hodgson Impey Cheng steered clear of expressing an opinion on its financial statements for the year ended Dec 31, 2008, given the risks to its going-concern status.

The beleaguered firm is also grappling with difficulties in collecting trade receivables, and the auditors are unable to verify the recoverability of outstanding trade receivables of HK$85.04 million.

After factoring in more impairments and provisions, Beauty China ended up with a net loss of HK$328.16 million for FY2008, instead of a net profit of HK$115.04 million earlier stated in its unaudited statements.

The winding-up petition may deal a blow to a proposal offered by a group of investors holding a combined 27.45 per cent stake in Beauty China to sub-underwrite a rights issue to raise $32.07 million of gross proceeds.

This plan is subject to satisfactory results of due diligence undertaken by the investors, and creditors agreeing in writing to waive all prior defaults and to modify covenants in any agreement relating to the loans.

Another option involves a potential financial investor that would bring in a cosmetics industry player as strategic investor.

BNP Paribas (Asia Pacific) Ltd was appointed as financial adviser since May to assist the group in reviewing all strategic options to resolve the going-concern issue.