New Silkroutes tanks 30% after chairman and finance director quit

Editorial Team
Editorial Team

New Silkroutes Group (SGX:NSG) announced in regulatory filings on late 15 October 2020 that non-independent, non-executive chairman Goh Jin Hian and finance director Teo Thiam Chuan William have resigned.

Dr Goh, the medically-trained son of former Singapore prime minister Goh Chok Tong, was New Silkroutes Group’s CEO from 2015 till 1 October 2020, when he assumed the position of non-executive chairman. Mr Teo was appointed to his role of finance director on 30 April 2018, after the previous chief financial officer and joint company secretary Lim Koon Hock retired after 13 ½ years with the company.

These resignations came on the same day its independent external auditor (Deloitte & Touche LLP) announced that it has issued a disclaimer of opinion on the financial statements of the Group for the financial year ended 30 June 2020 (FY2020).

This comes on the back of the announcement that the Commercial Affairs Department is investigating NSG for a possible offence by the company under the Securities and Futures Act (Chapter 289) of Singapore. NSG had disclosed on 30 September that Dr Goh, Mr Teo and former Executive Director and Chief Corporate Officer Mr Oo Cheong Kwan Kelvyn were asked to assist CAD in the said investigation. NSG had stated that it understands that the alleged offence is false trading and market rigging pursuant to section 197 of the SFA in view of past share buy-backs and acquisitions of shares.

Dr Goh quit to “devote more time to his personal affairs”, while Mr Teo stepped down “to focus on personal matters and to pursue other interests”.

Dr Goh was also recently sued by the judicial managers of Inter-Pacific Petroleum (IPP) for alleged breach of directors’ duties. Dr Goh was a director with IPP from 28 June 2011 to 12 August 2019. IPP was placed under judicial management in September 2019.

He also quit being the chairman of listed Cordlife Group a week ago, but he has remained as an independent director.

Dr Goh was first appointed as Chief Executive Officer on 7 July 2015. Prior to joining NSG, Dr Goh was with ParkwayHealth from 1999-2011 but left them in 2011 to start oil and gas trading firm International Energy Group (IEG). IEG was incorporated into the restructured Digiland group in 2014 (renamed New Silkroutes Group in July 2015). NSG had previously announced Dr Goh’s resignation as Chief Executive Officer and appointment as Chairman on 24 July 2020. The resignation was to take effect from 1 October 2020.

NSG’s share price has tanked almost 30% to 0.080 at time of writing.

Auditor’s Opinion:

A disclaimer of opinion is usually issued to financial statements when the auditors could not complete an examination of a company’s accounts, or the examination is not broad enough in scope to enable them to form an opinion and is usually the most serious type of audit opinion.

Deloitte & Touche LLP stated in their Independent Auditors’ Report dated 14 October 2020 that “because of the significance of the matters described in the Basis for Disclaimer of Opinion section of our report, we have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on these financial statements.”

Firstly, NSG’s and its wholly-owned subsidiary Shanghai Fengwei Garment Accessory Co., Ltd (Shanghai Fengwei)’s had entered into on 18 April 2020 two agreements with a company incorporated on 22 April 2020 in the People’s Republic of China (Entity). The entity will provide Shanhai Fengwei services including human resource management, corporate image planning and more, from period 1 Apr 20 to 31 Dec 20.

The auditors were unable to obtain sufficient audit information to determine if any adjustments to and/or disclosures in the accompanying financial statements may be necessary, on the following matters:

  • The business rationale, commercial substance and structuring of the agreements and whether the group continues to have control over Shanghai Fengwei, the appropriateness of the corresponding accounting treatment and related presentation of the agreements in the financial statements, and whether these are in the normal course of business, including the arrangement for the receipt of the Consideration;
  • In relation to the Management Service Agreement, the business rationale and commercial substance regarding the management service fees charged by the Entity during the period from April to June 2020, and whether there are any potential tax exposures and impact of any non-compliance with regulatory and/or legal requirements arising from the above transactions. If there is no commercial substance for the management service fees, according to the relevant tax regulations of the People’s Republic of China, the charges and expenses without appropriate business substances are not tax deductible in the calculation of income tax and the related input value added tax are not allowed to be deductible with the output tax in the declaration of value added tax.

Secondly, the auditors were unable to obtain sufficient appropriate audit evidence on the fair value of the financial asset of the Group’s financial asset measure at fair value through other comprehensive income (FCTOC) in Thai General Nice Coal and Coke Co., Ltd (Thai GNCC), an entity they hold 4.534% equity interest in. As at the end of the financial year, Thai GNCC has yet to commence its operation and management has “no visibility to the future plans and developments and access to its records”. As such, auditors are unable to determine the appropriateness of the valuation methodology nor evaluate the reasonableness of the key assumptions underlying the valuation carried out by the independent professional valuer on the valuation on the equity interest of Thai GNCC using the income approach.

The auditor’s opinion is not modified in respect of the CAD probe into NSG.

New Silkroutes Group is an investment holding company which operate in the Healthcare and Energy Sectors. The Group’s healthcare division focuses on the provision of healthcare and related services, and operates mainly under its subsidiary, Healthsciences International Pte. Ltd. (HSI). HSI owns and operates primary care medical and dental clinics in Singapore. It also

has a team that specializes in hospital development and management, with a focus in Southeast Asia and China.

The Group has also extended its healthcare portfolio into healthcare-related supplies through its subsidiary, Shanghai Fengwei Garment Accessory Co., Ltd (Shanghai Fengwei) in China which produces the non-woven material which is used to manufacture disposable medical consumables such as hospital gowns and linen, personal protective equipment and masks.

The Group now owns 16 clinics comprising one dental specialist clinic, eight dental clinics, five family medicine clinics, one aesthetic clinic and one traditional chinese medicine (TCM) clinic as well as two dental supplies companies.

The Group’s energy division is through its wholly-owned oil trading subsidiary, International Energy Group Pte. Ltd. (“IEG”), which counts oil majors and national oil companies among its counterparties. Incorporated in 2014, IEG focuses on physical oil trades in the key markets of Southeast Asia and North Asia. To maintain efficiency, IEG charters and operates its own fleet of vessels to support the necessary logistics.