The board of yarn supplier China Gaoxian Fibre Fabric Holdings has told the Singapore Exchange (SGX) that the company will be able to operate as a going concern.
Its remarks came in response to SGX queries over its full-year results for 2017.
The directors cited the firm's operating cash flows from its Huaxiang (China) Premium Fibre plant at full production, surplus cash from a tie-up with another firm and "financial support" from an investor, in stating that "the going concern assumption is appropriate".
These cash sources were also cited as means for the company to repay or refinance short-term loans, alongside a government scheme in Huzhou city, in China's Zhejiang province, to help local businesses facing financial difficulties.
Chinese government agencies have issued guidelines to the company's principal bankers to give "the necessary reasonable financial assistance", said the China Gaoxian board on Monday night. Such aid includes restructuring of loans that have been drawn down.
The SGX had asked the board to explain how China Gaoxian can operate as a going concern, given a capital deficit of 450.88 million yuan (S$94 million) and a negative working capital of 1.8 billion yuan.
With financial statements showing 1.14 billion yuan in "short-term loans", with a net current liabilities position of 1.5 billion yuan as well as the capital deficit, the board was also asked to elaborate on how the short-term loans will be repaid.
China Gaoxian is tapping the personal guarantee of shareholder Cao Xiangbin to refinance its short-term loans when they fall due and to guarantee potential "further short-term financing from financial and non-financial institutions and third parties", the board said.
The loans due to these lenders and secured by Mr Cao's personal guarantees stood at 1.66 billion yuan as of Dec 31 last year.
Given this arrangement, the SGX also asked the board whether Mr Cao has the financial strength to support such guarantees.
The board replied that it believes Mr Cao "has met financial institutions' strict credit assessment" to have his guarantees accepted.
And the fact that lenders are willing to continue to provide fresh financing to the group "indirectly demonstrates Mr Cao's credit-worthiness in the perspective of the lenders", it added.