CFA Society Singapore
SINGAPORE (Oct 9): Innopac Holdings, one of the companies tainted by its involvement with the penny stock crash of Oct 2013, is likely to see a new group of shareholders taking control. At the same time, the company plans to cast away a clutch of subsidiaries that owe money to creditor Saxo Bank.
John Soh, alleged mastermind of the crash who is now facing trial, was managing director of the company previously known as Inno-Pacific Holdings between 1995 and 1999.
On early Tuesday morning, the company announced investors will be subscribing to 8.4 billion new shares at 0.1 cent each, raising gross proceeds of $8.4 million. From the net proceeds of $7.95 million, $3.95 million will be used to fund new investments, $1.5 million for general working purposes and $2.5 million for repayment of outstanding loans. According to Innopac, the new investors have no plans to acquire additional shares.
The new investors were introduced by HL Bank, which is charging a fee of 3.5%.
In conjunction with the new investments, Wong Chin Yong, Innopac’s current chairman and CEO, will be buying over a clutch of subsidiaries now owned by the listed company for $100,000. Back in April 2014, the company announced that Wong was under probe by the Commercial Affairs Department.
The subsidiaries are Heritage Investment Corporation (HIC), Wang Da Investment (WDIL), Golden Eagle Mining (GEM), Extera (EPL) and Malaysian Microalgae Enterprise (MME).
These subsidiaries, according to Innopac’s announcement, are in various different business activities. For instance, HIC is an investment holding company; WDIL is also in investment and trading; GEM is an entity whose sole investment is a 50% stake in Artel Trade LLC, which holds two gold exploration licenses in Kyrgyz Republic. EPL, meanwhile, holds a 90% interest in Dezhou Shenrong Gas, a China-based operator of compressed natural gas stations. Last but not least, MME is a dormant entity.
Together, these subsidiaries carry a negative book value of around $8.3 million, as of June 30. This means if Wong pays $100,000 for these entities, he is paying a premium of 1,012% over the book value of these companies. The listed company can then book a gain on disposal of some $8.4 million.
“The performance of each of the Entities in terms of revenue and profitability had been in deterioration for a number of years and the outlook is not expected to improve in the medium term,” says Innopac.
Upon completion of the sales and purchase agreement, Wong will resign from Innopac’s board and there will be no liabilities among him, the entities to be sold, and the company.
Innopac’s Oct 9 announcement made no mention of the letter of demand sent by Saxo Bank on June 1, asking for nearly $14.7 million owned by two of Innopac’s subsidiaries from “negative account balances”. The two subsidiaries named are Heritage Investment Corporation and Wang Da Investment, which are to be sold to Wong.
Just the day earlier on May 30, Innopac announced that a private investor Jack Lim, described as a compliance professional in a bank, planned to subscribe to a placement that will give him 26% of the enlarged share base. Innopac was to raise $5 million from the placement.
The company also did not update if its shares, which have been suspended since June 4, will resume trading. It last traded at 0.2 cent.
In conjunction with Wong’s exit, the new group of 11 investors will be taking control.
The largest shareholder, upon completion of the placement, will be Choo Beng Kai, who is taking up 2.5 billion shares. The second largest investor is Lim Soon Huat, who is taking up 2 billion shares. They will hold 19.44% and 15.55% respectively of Innopac’s enlarged share capital. The remaining new investors will hold stakes ranging between 2.33% and 4.66% each.
According to Innopac, Choo is now managing director of Masmeyer Holdings, a private investment holding company, while Lim is executive chairman of Asia File Corporation, listed on Bursa Malaysia.
In a separate announcement on earlier on Oct 9, Innopac said that it will be borrowing $2.5 million from an entity called Joy Maker International, which is fully owned by new controlling shareholder Choo. The loan carries a hefty interest cost of 18% per year and will be secured with a slew of assets owned by Innopac, including first-ranking charge over all shares of Inno-Pacific Realty and Awana Rentak; Clearwater Residence condominium unit in Kuala Lumpur; two shophouses in Kota Kinabalu, an unspecified plot at Tanjong Malim land rental proceeds from this asset.
The placement, disposal of subsidiaries and change of control will require shareholderes' approval at an extraordinary general meeting to be convened.
The sudden collapse of Blumont, LionGold and Asiasons (now Attilan) in October 2013 was a wake-up call. Since then, a slew of regulatory initiatives has been implemented. But will that be enough? Login and read our stories Getting ready for the next chapter of the penny stock saga and Five years after the penny stock crash in this week's The Edge Singapore (Issue 851, week of Oct 8). Or subscribe here.