The Singapore Exchange (SGX) has rejected International Cement Group's (ICG) US$104.4 million (S$141.4 million) proposed purchase of a company in Namibia and ordered it to commission pre-deal anti-money laundering due diligence on the source of funds for any future major transactions or very substantial acquisitions.
The watch-listed cement producer first announced the failure to get SGX's approval for the purchase of the entire stake in cement and energy group Schwenk Namibia in a filing before trading began yesterday.
The purchase had been classified as a very substantial acquisition (VSA) under Chapter 10 of the listing manual, but SGX said it did not meet the requirements of a VSA under Rule 1015(2), and thus SGX was unable to approve it.
Later, during the mid-day trading break, ICG disclosed more detailed reasons for SGX's rejection of the deal. SGX said it is of the view that the proposed acquisition does not satisfy Rule 1015(2), which requires the target business to be profitable.
It said Schwenk Namibia is not profitable and that the foreign exchange losses from the Schwenk loan claim will remain in the pro forma financial statements after the proposed acquisition, and will continue to affect the enlarged group's accounts.
SGX also noted that ICG does not have sufficient cash resources to fund the acquisition and intends to possibly obtain significant external loans from financial institutions and shareholders' loan.
"Such loans when considered with the potential losses of Schwenk Namibia will result in a material adverse financial impact on the enlarged group," SGX said.
There is no certainty that the target business will be able to generate sufficient profits to service the loans, and SGX said the acquisition would have put ICG out of a healthy financial position.
SGX also said that for any future acquisitions, SGX will be requiring ICG to implement certain safeguards. These include commissioning its external auditors to carry out pre-deal anti-money laundering due diligence for the source of funds for any transactions classified under Rules 1014 and 1015, which cover major transactions and VSAs/reverse takeovers respectively.
So long as the group operates in Kazakhstan, Tajikistan, Namibia and/or any other developing jurisdictions, the company is to put in place adequate and effective systems of internal controls (including financial, operational and anti-money laundering controls) and risk management systems.
For its annual audits, ICG's audit committee must require its external auditors to review its cash management procedures, including for anti-money laundering controls related to ICG's sources of financing for acquisitions, and the group's customers and suppliers.
The audit committee must also ensure that its terms of reference include, on an ongoing basis, the monitoring and reviewing of the implementation of the external and internal auditors' recommendations on internal controls including anti-money laundering.
Yesterday, ICG said that as a result of SGX's decision, the draft of the shareholders' circular will also not be approved by SGX. The circular would have been dispatched for an extraordinary general meeting to obtain shareholders' approval for the acquisition.