SINGAPORE - The board of yarn supplier China Gaoxian Fibre Fabric Holdings has said that it believes that the company will be able to operate as a going concern, in response to queries from the bourse operator over its full-year results for 2017.
Operating cash flows from its Huaxiang (China) Premium Fibre plant at full production, surplus cash from a tie-up with another company and "financial support" from a shareholder were why the directors believe that "the going concern assumption is appropriate", the board said on Monday night (April 9).
These cash sources were also cited as means for the company to repay or refinance short-term loans, alongside a government scheme in the city of Huzhou, 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. Such aid includes, but is not limited to, restructuring of existing loans that have been drawn down.
The Singapore Exchange (SGX) had asked for the board to say how China Gaoxian could operate as a going concern, given a capital deficit of 450.88 million yuan (S$93.75 million) and negative working capital of 1.8 billion yuan.
With the company's 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, as well as 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 at Dec 31, 2017, the board disclosed.
Given this arrangement, the SGX also asked for the board to give its consideration and opinion as to whether and how Mr Cao has the financial strength to support such guarantees.
The board replied that it believes that Mr Cao "has met financial institutions' strict credit assessment" to have his personal guarantees accepted.
And the fact that lenders are willing to continue to provide fresh financing to the group - despite a deficiency in net current assets - "indirectly demonstrates Mr Cao's credit-worthiness in the perspective of the lenders", it added.
China Gaoxian's auditor had previously raised doubt over the company's ability to remain as a going concern, in June 2017, over losses and net current liabilities as at end-2016.
Besides the "material uncertainty" on the going concern issue, the auditor gave an unqualified opinion of the company's financials.
The counter closed up on Monday by 2.9 Singapore cents, or 93.5 per cent, at six Singapore cents, before the announcement.