SINGAPORE (May 2): Midas Holdings will likely be insolvent within the next month if creditors push it towards liquidation, according to executive director Tong Din Eu.

The current board hopes to salvage the holding company by asking creditors not to proceed with actions to wind up the embattled rail parts maker, Tong says.

Speaking to some 80 minority shareholders at a dialogue today in Kebun Baru Community Club, Tong acknowledges that attracting a “white knight” will be difficult.

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Midas may be an attractive reverse takeover target as a listed company in Singapore and Hong Kong, but the holding company and its subsidiaries have many cross-guaranteed loans. This creates a “spider web” of debt, Tong notes.

Midas and its Chinese subsidiaries have about RMB 4.46 billion ($933.3 million) worth of loans outstanding as at Sept 30, 2017. Tong assessed that the Singapore-based parent company is now liable for about $480.7 million in debt. These numbers are still preliminary and may grow, Tong says.

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The $480.7 million figure excludes RMB 25.6 million being sought by one creditor, Chen Gui Zhi.  Midas had signed on as a guarantor for the loan made to key operating subsidiary Jilin Midas Aluminium Industries Co. Tong says that Chen, whom he describes as a “loanshark” in China, will likely not be able to recover the money from Singapore.

Tong notes the debt far outweighs the company’s cash holdings of about $700,000 which came from a $3.9 million loan previously made by former chairman Chen Wei Ping and former CEO Patrick Chew.

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From the loan, $2.9 million was used for the extension of Midas' Series 003 medium term notes while $1 million was used for its Singapore operations of which $500,000 was left.

The other $200,000 came from the sale of Chew’s car.

In addition, the company has not paid its lawyers and investor relations company. Salaries at its subsidiary Luoyang Midas have also not been paid for three months.

“We are surviving because we owe people a lot of money,” Tong says.

If the company is liquidated, creditors would only receive a fraction of what they are owed. But if the company may be worth more if remains listed, he adds.

As of Sept 30, 2017, Midas reported a net asset value of RMB 4 billion.

The five-hour dialogue saw Tong address a list of 64 questions that was posted on an investor forum last week. Questions centred on the extent of Midas’ legal troubles, and actions that can be taken to salvage the company.

Several shareholders chided Tong – previously an independent director and audit committee chairman – for not spotting and disclosing the irregularities earlier.

He was first alerted to the ongoing litigations by Midas’ chief financial officer on Jan 29. After consulting with lawyers and the Singapore Exchange, the company announced the existence of the litigations on Feb 8.

“When the company announced its [financial] results, the board was told that things are getting better. Then subsequently I [questioned] how come we had to extend our medium term notes instead of taking money from China. They told me that there are restrictions in taking money from China,” Tong explains.

“I should sue you as well,” one dissatisfied shareholder later tells Tong.

Others questioned why auditor Mazars did not validate the subsidiaries’ cash balances by requesting statements at the bank counter, in the same way Tong has recently done. One shareholder asked if Mazars can be held legally liable for the discrepancies.

“Mazars said that they have done their work according to audit procedures. They claim that in these instances, they have been deceived,” Tong says, drawing some laughter from the crowd.

Eventually if any fraudulent acts are proven, the company will try to cancel the shares of liable individuals.

“If wrongdoing is proven, then the board can apply to the Monetary Authority of SIngapore to cancel the shares. But unfortunately, the board on its own cannot cancel the shares now,” Tong says.

At the end of the dialogue, independent director Chan Soo Sen apologised to shareholders for the situation. He also vowed not to run away from the company, drawing applause.

“Being a former politician I know what the ground is like,” says Chan, a former minister of state. “Bear in mind that we will try to see what we can salvage. Bear in mind also that we are on your side. I cannot promise any panacea. But the three of us will do our best.”

Several shareholders asked if he could use his network to salvage the company. “If I could use my political connections like a magic wand, I would have done it. But it does not work like that,” Chan says.

Midas’ shares last traded at 19 cents, before it was suspended on Feb 9.