SGX RegCo orders delisting of United Food Holdings Limited

United Food Holdings Limited has been on the Watch List since 6 June 2019, after posting pre-tax losses for 3 consecutive years and an average daily market capitalisation of less than S40 million.

On September 6, 2021, the Company announced that its independent auditor had issued a disclaimer of opinion on the financial statements of the Company and its subsidiaries, citing concerns, among others, about the validity of transactions of a subsidiary, Hebei Xingrun Shengwu Keji Gufen Co, Ltd., HBXR.

The auditors noted that HBXR’s minimal production activities did not support its output and raised concerns about the veracity, existence and integrity of three bank accounts of two other subsidiaries.

Following the disclaimer of opinion, the Company requested a suspension of trading on 8 September 2021 as it was unable to reasonably assess its financial position. Pursuant to SGX RegCo’s directive, KPMG Services Pte. Ltd., KPMG was appointed by the Company as special auditor on 17 December 2021 to investigate the issues raised by the auditors. KPMG communicated its findings directly to SGX RegCo and the Audit Committee of the Company and issued its final report on 5 August 2024.

KPMG’s examination was hampered by the lack of supporting documentation for most of the transactions examined. Based on incomplete supporting documents and verbal statements from interviewed personnel, KPMG reported, inter alia, the following:

The Company acquired HBXR, Chengde Purun Shengwu Zhiyao Co, Ltd and Benchmark Trade Limited (“Benchmark”) in September 2018 for the purpose of acquiring a patent owned by HBXR to produce an antioxidant product, L-ascorbyl palmitate (“L-AP”).

The forecast of L-AP’s production activities, sales quantities and estimated sales revenues used in the valuation of the acquired entities following the acquisition were based on “best possible scenarios” and not on what was most likely based on the historical performance of these companies; Production activities were halted in February 2019 as no natural gas was supplied to the production site. Production activities were briefly restarted between September 2019 and December 2019 using steam boilers and natural gas cylinders, the existence and use of which could not be verified due to the absence of supporting documentation. From January 2020, production activities ceased due to the high costs of natural gas cylinders.

SGX Securities da la bienvenida a Helens International Holdings Company Limited al Mainboard

The Company then outsourced the production of L-AP to a third party, Huizhou Kangweijian Biotechnology Co., Ltd, Kangweijian, and subsequently purchased the L-AP from Kangweijian for resale to its customers; During interviews with KPMG, Company personnel reported that Kangweijian had used HBXR’s patent to produce L-AP. However, no formal patent licensing or royalty agreement existed between them; The Company entered into other transactions with Kangweijian, including the sale of L-AP equipment to Kangweijian through another entity called Huizhou Defu Industrial Co., Ltd and an extension of an interest-free loan to Kangweijian to expand its L-AP production capabilities.

The L-AP equipment sold by the Company to Kangweijian through Defu was purchased from entities related to Kangweijian through common directorates, shareholdings and legal representatives; The legal representative of Kangweijian and Defu during the relevant period was Mr Zeng Qiwen, who is also a friend of Ms Song. Two key managers of the Group served in concurrent management roles at Kangweijian, as Ms Song explained that the appointments were intended to protect the Company’s interests and oversee Kangweijian’s finances; For the three bank accounts under review, KPMG was unable to independently obtain bank statements and bank balance confirmations for two of those accounts, as the Company alleged that the corporate seals were lost during the relocation of SZYK and SZBY’s offices in November 2021.

The bank confirmation obtained for the third bank account showed that the account was closed on 30 March 2020 with a zero balance; and As an alternative procedure, KPMG reviewed the available accounting records provided by the Group.

Despite the dormant status of SZYK and SZBY, there were unusual cash inflow and payment transactions through, inter alia, the three bank accounts from January 2018 to December 2021 which lack adequate supporting documents to explain the nature and purposes of these transactions. These payments included RMB 174 million made to parties related to Mr. Zeng Qiwen. The Company had recovered these payments, except for an amount of RMB 85 million in connection with the Company’s arrangements with Shenzhen Shareihome Technology Co., Ltd. (Shenzhen Shareihome Technology Co., Ltd.), in which Ms. Song holds an effective 14.7% stake.

The auditors highlighted their doubts about the veracity, existence and integrity of three bank accounts of two other subsidiaries

Following the above findings, KPMG highlighted potential breaches of the listing rules in relation to the directors’ failure to, inter alia, (i) make all reasonable enquiries regarding the acquisition of HBXR, CDPR and Benchmark, (ii) ensure full and accurate disclosure of the acquisition in the circular, (iii) disclose the alternative arrangements made to ensure the supply of L-AP for sale and (iv) maintain an appropriate, effective and robust system of risk management and internal controls. KPMG also raised concerns regarding potential related party transactions having considered the relationships surrounding the entities related to the company’s transactions with Kangweijian. SGX RegCo will refer KPMG’s findings to the relevant authorities.

Following the issuance of the KPMG report on 5 August 2024, the company had requested additional time to provide SGX RegCo with supplementary information to address the concerns raised in the KPMG report.

SGX RegCo had reviewed the supplementary information but noted that it did not address the concerns raised by the independent auditor and KPMG.