(July 22): In its previous incarnation as China -Fibretech, the company now called Raffles Infrastructure Holdings was but one in a long string of S-chips plagued by corporate governance problems. In 2015, its then CEO made unauthorised payments to three major customers who demanded compensation for products they claimed did not meet their standards. Since last year, however, new shareholders have taken control of the company, and a new board and a new management team put in place. It replaced its core business of fabric dye with infrastructure projects.
KPMG, which was appointed special auditor in late 2017, has concluded its probe into the financial irregularities and the draft report is being finalised. Eric Choo, Raffles Infrastructure’s new CEO and executive director, is anxious for the report to be released so it can put this chapter behind it. “Hence, we are pushing for the audit report to come out,” he says in an interview with The Edge Singapore.
New shareholders
The company’s new controlling shareholder is a Chinese state-owned enterprise, China Capital Investment Group (CCIG), which in turn is a subsidiary of the Beijing state-owned Assets Supervision and Administration Commission.
In May 2018, Raffles Infrastructure issued about 50 million new shares at 60 cents each. CCIG subscribed for 16.67 million placement shares, which gave it a 24.53% stake in the enlarged share capital of Raffles Infrastructure. At 60 cents, the issue price represented a premium of 17.6% over the weighted average price for the last full market day before the shares were suspended, after taking into account a share split exercise. Li Jia Chen, CCIG vice-chairman and president of operations, was subsequently appointed as the company’s non-executive non-independent director.
The emergence of CCIG as the controlling shareholder of Raffles Infrastructure, among other factors, enabled the trading in the company’s shares to resume on Sept 28, after being suspended since late 2015. It also helped convince other parties to become major shareholders in Raffles Infrastructure, after local funds chose not to.
“They [viewed] us as an S-chip again. So it is very difficult to get [local] investors, especially those who do not understand [our business in China], [even] though our board comprises mainly Singaporeans,” says Wills Lin Sin Hoe, who introduced himself as an “adviser” to Raffles Infrastructure at the same interview. His name card, which bears the company’s logo, does not state his title or role.
Lin is the sole shareholder and director of Asia Hausse Investments, one of the subscribers to the placement. The others were Newsome Holdings and Wayman Holdings. Asia Hausse Investments is a business management and investment holding firm, while Newsome Holdings is a Hong Kong family investment fund. They each own a 12.26% stake. Wayman Holdings is a British Virgin Islands-incorporated trading firm and holds a 4.54% stake.
Two individuals — Carol Choong and Su Wan Ru — were also subscribers. Following the placement exercise, Choong, CEO of PIF Global Capital, owns a 12.26% stake, while Su, a property and equity investor, holds a 7.73% stake.
During Raffles Infrastructure’s restructuring process, Singapore Exchange sent representatives to Beijing to meet CCIG, says Lin. “[They] personally flew there to meet up with CCIG,” says Lin, adding that he has not known SGX to conduct such due diligence before.
The trip to meet CCIG was neither confirmed nor denied by SGX. In response to queries by The Edge Singapore, an SGX spokesperson says, “Generally we do engage with companies on compliance matters. But we won’t be able to comment on specific companies.”
Infrastructure projects
Of the net placement proceeds of $29.9 million, Raffles Infrastructure plans to invest $22 million in a build-operate-transfer rural road project awarded by the Yibin Municipal People’s Government. The company will co-invest in the project with Dingneng Group, which has completed 30% of the construction. Raffles Infrastructure will hold a 90.91% stake in the project. Dingneng Group is a wholly-owned subsidiary of Sichuan Coal Industry Group, which is in turn wholly owned by the Sichuan provincial government. Its main businesses include large and medium-sized mining design and construction, coal products, mining operation, mechanical and electrical installation, demolition blasting and tunnel engineering.
Raffles Infrastructure is also working on the Xingwen County rural road infrastructure project, which came under the company following its investment in BoDao Road Construction. Worth an estimated RMB550 million ($108.9 million), the project is expected to be completed by FY2019.
In addition, Raffles Infrastructure has signed a framework agreement with the Tourism Board of the People’s Government of Dengfeng City for a tourist railway project with an estimated contract value of RMB6.0 billion. More infrastructure projects could be underway. The company, via a wholly-owned subsidiary, signed a tripartite agreement with China Railway Construction Corporation — 23 Bureau and Tianfu Railtech Valley to form a consortium that will bid for two other tourist railway projects, namely the Bashan Railway worth RMB280 million and Meishan Railway worth RMB600 million.
Given the size of these projects, Choo says Raffles Infrastructure is exploring ways to raise more funds this year. “We are talking to some funders,” he says. “We are now trying to see what is more beneficial to the company, whether it is equity or debt.”
Asked why it chose to enter the infrastructure industry in China, Choo says infrastructure projects typically provide stable cash payments. “The projects that we choose normally have a secure repayment. We normally work with the government,” he says. Choo, who had a career in corporate advisory and investments previously, adds that the company is in talks to secure infrastructure projects in Vietnam and Bangladesh, whose economies are growing rapidly.
Raffles Infrastructure is in the midst of completing the change of its financial year end to June 30 from Dec 31, which means the current extended financial year will end on June 30.
For the quarter ended March 31, the company reported earnings of RMB33.1 million, a turnaround from losses of RMB1.9 million in the previous year. Revenue for the same period was RMB155.9 million, up from RMB2.35 million, when the restructuring had not been completed and the company was barely operating.
Year to date, Raffles Infrastructure’s share price has gained 50% to close at 48 cents on July 17, giving it a market value of $32.6 million. As at March 31, its net tangible assets per share was RMB3.23, up from RMB1.84 on Dec 31, 2017.
