Note: This article was first posted at about 2.20 pm on 13 January and has been updated at 7.00 pm the same day to reflect the “disclosure of interest” statements actually included in the company’s announcements, which are different from that specified under SGX Rules. It was further updated on 14 January at 7.15 am to amend my comment on the “disclosure of interest” statement in the Company’s announcement on 12 January. A Business Times report today quoted from an earlier version of my post which said the “disclosure of interest statements” are contradictory. The statements are not necessarily contradictory but are definitely confusing as they depart from the “disclosure of interest” statement in Chapter 10 of the SGX Rulebook.
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On 31 December 2021, Catalist-listed Econ Healthcare (Asia) announced that the Group’s aggregate cost of investment in quoted securities has increased from S$1.127 million to S$3.118 million through the purchase of “certain quoted investments” on 30 December 2021. The aggregate cost of these investments had increased from 4.6% relative to its latest audited consolidated net tangible assets (NTA) as at 31 March 2021 to 12.6%. This was the first time that the company had disclosed that it has invested in quoted securities. In its results issued on 9 November 2021 for the half year ending 30 September 2021, no such assets appear on its balance sheet.
The company said it was a “non-discloseable transaction” under Chapter 10 of the Catalist Rules and did not provide not any details of the quoted securities. However, it does state:
“To the best knowledge of the Directors, none of the Directors or controlling shareholders of the Company has any interest, direct or indirect, for 5% or more in the quoted securities of the investment (other than their respective shareholding interests in the Company, if any)”.
This statement is different from the required “disclosure of interest” statement under Rule 1010(11) of the Catalist Rulebook for discloseable transactions, which requires the disclosure of “whether any director or controlling shareholder has any interest, direct or indirect, in the transaction and the nature of such interests”(emphasis mine). Although this statement is not required for a non-discloseable transaction, it raises the question as to why the company chose to modify the statement in Rule 1010(11). It would seem to imply that one or more directors had an interest in the securities, but it was below 5%.
On 7 January 2022, the Company announced that it had “on 6 January 2022 disposed a portion of the previously acquired quoted securities and acquired new quoted securities”.
The cost of the securities disposed was S$1.128 million, almost identical to the cost of the securities it had held before it acquired the additional securities on 30 December 2021. Based on the change in the total market value of the quoted investments, the market value of the securities that were disposed was $1.160 million.
It acquired new quoted securities at a cost of S$2.002 million and the total market value of quoted investments increased by S$1.954 million. Again, it included the same “disclosure of interest” statement as the earlier announcement.
The first two announcements did not disclose what quoted securities were acquired and disposed of, or the number of such securities, and only mentioned “certain quoted investments”.
On 9 January 2022, it made a third announcement. This third announcement disclosed that the quoted securities it bought on 30 December 2021 included 6.8 million shares in Crosstec Group Holdings, described as a “one-stop provider of interior design solutions”, for a cost of approximately S$1.99 million. It also said that it had on 6 January, bought another 5 million Crosstec shares for a cost of approximately S$2.002 million. The aggregate cost of the investment was S$3.992 million.
As the aggregate value of the consideration compared to the Company’s market capitalisation was now 5.20%, it was now deemed as a “discloseable transaction”. It is likely only because of this that the Company now disclosed that the shares it bought on 30 December 2021 and 6 January 2022 are Crosstec shares.
Again, it included the same “disclosure of interest statement”. However, as the acquisitions are now deemed as a “discloseable transaction”, the “disclosure of interest” statement is not in compliance with Rule 1010(11) which requires the disclosure of any interest – and not only interest of 5% or more.
Chapter 10 requires issuers to “immediately announce” such “discloseable transactions”, providing the information under Rule 1010. The second tranche was acquired on Thursday, 6 January, but was only announced on Sunday, 9 January, at 7.42 pm.
The rationale for the acquisitions was said to be “to improve the yield on idle cash through dividends and share price appreciation. It added: “Prior to the first acquisition on 30 December 2021, the Company had observed that the share price was on a rising trend for Crosstec. Since the first acquisition and based on AWAP on 6 January 2022, Crosstec’s share price has increased by approximately 33.7%. The Company is of the view that the potential gain on investment on quoted security will improve the yield of idle cash and therefore the return of the Company’s shareholders”. It also said that the acquisitions “were funded internally by the working capital surplus of the Company and does not include any of the IPO proceeds”. Econ Healthcare had only been listed in April 2021 – it had previously been listed and delisted.
When I became aware of the purchase of the securities, I immediately posted this on LinkedIn: “A SG-listed healthcare company investing in a HK-listed interior design company to make better use of idle cash. Now tell me, what can possibly go wrong? Why not give cash back to shareholders so they can invest themselves? They are not an investment company.”
I added in a WhatsApp message to friends and in a subsequent comment on LinkedIn: “We know how common pump and dump is in HK”.
It did not take long for the worst fears to be realised. Crosstec shares fell from a close of HK$2.32 on 10 January, to HK$0.38 on 11 January, to HK$0.27 on 12 January, and to HK$0.193 today (13 January).
Last night (12 January) at 11.48 pm, the Company announced that it has sold all its Crosstec shares earlier that day, with an estimated loss of S$3.4 million, or about 85% of its investment. It took only about two weeks for the board to cause the company to lose an amount equivalent to nearly two-thirds of its profit for FY2021.
This time, the statement of interest of directors and controlling shareholders read:
“To the best knowledge of the Directors, while one of the Directors and controlling shareholder has and had interest in Crosstec shares, none of the Directors or controlling shareholders of the Company has or had any interest, direct or indirect, for 5% of more in the shares of Crosstec…”
The latest “disclosure of interest” statement confirms that the director and controlling shareholder “has and had interest”, but none has an interest of 5% or more. Again, the latest statement departs from the statement specified in Rule 1010(11) of the Catalist Rulebook. The earlier disclosures already suggest that the director/controlling shareholder already had an interest when the company bought those shares.
Given the interest of the director and controlling shareholder, did he participate in the decision for the Company to buy the Crosstec shares? What was the role of the other directors in recommending and approving the acquisition of the shares?
It is beyond belief that the board would approve such a substantial investment in a HK-listed company whose business is totally different from the Company’s. It is nothing more than a speculative bet . Did the company fall victim to a “pump and dump” scheme?
According to the company’s corporate governance report, “major investments/divestments and funding decisions” and “announcements or press releases on SGXNET, including financial result announcements” are among the matters that require approval and endorsement of the Board.
How did the board make the decision to allow the company to invest its “idle cash” in quoted securities in the first place? What safeguards did it put in place? Did the board approve the acquisition of the quoted securities, including the Crosstec shares? What were the other securities that the Company bought and later sold? Did the board review and approve the announcements, including the “disclosure of interest” statements? How about the continuing sponsor?
There are many unanswered questions, including broader questions about internal controls and corporate governance in the Company. Can shareholders now trust the board to make appropriate decisions in the best interests of the company?
SGX Regco and other regulators should step in to ensure that this debacle is properly investigated and those responsible are held accountable.
