SINGAPORE - Insolvent Midas Holdings will undergo liquidation pending instructions from the courts after it failed to get a rescue deal from Hong Kong-listed CRRC Corp.
In filing to the Singapore Exchange on Monday (April 1), the aluminium train components supplier reported an unaudited net liability position of $47.1 million as at end-2018. The negative equity included $81.1 million of net current liabilities and just $4.1 million of current assets.
Midas said that on Sept 26, 2018, court documents indicated that Hong Kong-listed CRRC Corp has been awarded the 12.44 per cent stake that belonged to former executive chairman Chen Wei Ping. If transferred, those shares will make CRRC the single largest shareholder of Midas.
However, "efforts to initiate a discussion with CRRC with a view to rescuing the company was not successful", Midas said.
"In the meantime, many government agencies are pressing Midas to file annual returns, file tax returns, hold (its annual general meeting)," the company said.
"In the absence of a rescue and dwindling funds, Midas will be unable to maintain its listing status" in Singapore and Hong Kong.
The company also faces a statutory demand from executive director Xu Wei Dong for unpaid salaries due to him.
Midas said that because it "does not have funds to contest this and other legal actions that other creditors may decide to take", the company will be liquidated when ordered to by the court.
Midas shares have been suspended since February 2018 when the comapny discovered certained financial irregularities. In March 2018, the company's independent directors lodged a police report with the the Singapore Police Force's Commercial Affairs Department.
Midas-guaranteed loans total 1.9 billion yuan ($383.4 million), with the company disputing 779 million yuan of those loans.
These guarantees are enforceable on Midas if the related loans remained unpaid after payouts from the sale of pledge assets. As the payouts and asset sales will not occur soon, the final amount due from Midas is unknown, and the uncertainty makes a Midas rescue hard at this juncture.
Not included in the guaranteed loans were disputed guarantees provided to individuals based on previously undisclosed loans provided mainly by former chairman Mr Chen without authorisation from the board of directors.
Jilin Midas Aluminium Industries' (JMAI) judicial manager Qiming will sell all of JMAI's business assets for about 1.8 billion yuan, which makes up about 13 per cent of the amount owed to a total of 321 creditors.
Qiming also declared that Jilin Midas Investment (JMI), a 51 per cent subsidiary of JMAI, has no assets and is "worth zero".
Jilin Midas Light Alloy's (JMLA) judicial manager Gongcheng has proposed to liquidate JMLA's assets after it could not find interested buyers. Gongcheng does not expect liquidation proceeds to exceed the amount owed to creditors.
The same goes for Luoyang Midas Aluminium Industries (LMAI), another JMAI subsidiary. Its judicial managers Jianye and Xinda will liquidate LMAI and make any surplus amount available to JMAI.
Dalian Huicheng Aluminium Industries' (DLHC) judicial manager had until March 28 to restructure DLHC with interested buyers. Its outstanding approved debt was about 1.6 billion yuan, versus a cash balance of about 390,000 yuan.
As all material assets have been pledged, it is unlikely to have any net balance in a liquidation. A creditor meeting report noted that the financial accounts were improper and off-balance sheet accounts were used to transfer funds.
Shanxi Wanshida Engineering Plastics' (SWEP) land and buildings were pledged to Shanxi Rural Credit Cooperative for an undisclosed 14 million yuan loan. It also had a missing bank balance of over 61 million yuan.
Through a series of round tripping, the discrepancies in the cash balance was disguised as a receivable from LMAI.
Midas said it was also unaware that SWEP had a China court order to repay another previously undisclosed 400,000 yuan, 3 per cent per month loan arranged by its legal representative Ma Min Zhang. Midas said it does not know how the loan proceeds were used. On the same day, the same Chinese court also froze SWEP's bank account due to an ongoing labour dispute.
As the Chinese auditors for SWEP have changed many times between 2014 and 2017, its audited China accounts cannot be located and the directors cannot file any police report.
Midas had a 32.5 per cent share in associate company CRRC Nanjing Puzhen Rail Transport (NPRT), and it was pledged to noteholders of a medium-term note programme.
The notes have a principal value of US$60 million ($81.2 million) and their related coupons are due. Midas said the pledge was not properly approved by its board, and it is contesting the claim at the Hong Kong International Arbitration Court. If validity of the pledge is contested successfully, NPRT will still likely be sold and the proceeds distributed pro rata among all accredited creditors of Midas.
Midas shares have been suspended since February 2018 when the company discovered certain financial irregularities. In March 2018, the company's independent directors lodged a police report with the the Singapore Police Force's Commercial Affairs Department.