- 2012.05 TITAN PETROCHEM
Company Name: Titan Petrochemicals Group LimitedStock Code: 01192Year end: December 31, 2011
BASIS FOR DISCLAIMER OF OPINION
Uncertainties relating to going concern
As set out in note 1.1 to the consolidated financial statements concerning the adoption of the going concern basis on which the financial statement have been prepared, the Group incurred a loss of HK$783,332,000 for the year ended 31 December 2011 and, as of that date, the Group’s and the Company’s current liabilities exceed its current assets by HK$1,243,237,000 and HK$2,131,051,000 respectively. In addition, the Group was in default to repay certain secured bank borrowings of RMB111,000,000 (approximately HK$137,407,000) as at the year end. Subsequent to the year end, the Company was unable to repay the overdue principal and interest of the Senior Notes Due 2012 of US$105,870,000 (approximately HK$825,786,000) and US$4,499,000 (approximately HK$35,092,000) which were due on 19 March 2012. As a result, a cross default was also triggered in respect of a bilateral loan with a financial institution in an outstanding principal amount of US$1,300,000 (approximately HK$10,140,000).
As set out in note 1.1 to the consolidated financial statements, Grand China Logistics Holding (Group) Company Limited (“Grand China”) has failed to comply with its payment obligations relating to the sale and purchase agreement for the Group’s disposal of its 95% equity interest in Titan Quanzhou Shipyard Company Limited (“QZ Shipyard”) at a consideration of RMB1,865,670,000 (approximately HK$2,309,513,000) or a maximum reduced consideration of RMB1,465,670,000 (approximately HK$1,814,353,000) if QZ Shipyard’s profit targets for the two years ending 31 December 2012 are not met. At the date of approval of the consolidated financial statements, the Company had not received the balances of the stage payments in the aggregate amount of RMB725,670,000 (approximately of HK$898,307,000) that were due in accordance with the terms of the agreement and, accordingly, the equity interests in QZ Shipyard have not been transferred to Grand China. As further explained in that note, the ability of the Group to meet its debt repayment obligations for the Senior Notes due on 19 March 2012 and the Company’s preferred shares redeemable on 22 June 2012 (at the election of the holder or the Company), based on the current liquidity of the Group, is dependent upon the receipt of the QZ Shipyard sale stage payments.
As further explained in note 1.1, the directors of the Company are taking steps to improve the Group’s liquidity and solvency position. These steps mainly include (i) negotiations with potential strategic investors in respect of a possible equity investment in the Company; (ii) actively working to require Grand China to comply with its obligations under the sale and purchase agreement; and (iii) negotiations with the Senior Notes holders and other creditors to defer or renew the Group’s bank and other borrowings. As at the date of approval of the financial statements, these measures had not yet been concluded.
These events indicate the existence of material uncertainties which cast significant doubt about the Group’s ability to continue as a going concern.
The validity of the going concern assumption on which the consolidated financial statements are prepared is dependent on the successful and favourable outcomes of the steps being taken by the directors of the Company as described above. The consolidated financial statements have been prepared on the assumption that the Group will continue as a going concern and, therefore, do not include any adjustments relating to the realisation and classification of non-current assets and noncurrent liabilities that may be necessary if the Group is unable to continue as a going concern.
Should the going concern assumption be inappropriate, adjustments may have to be made to reflect the situation that assets may need to be realised at other than the amounts at which they are currently recorded in the statement of financial position. In addition, the Group may have to provide for further liabilities that might arise, and to reclassify non-current assets and non-current liabilities as current assets and current liabilities.
Uncertainty relating to the carrying amount of a disposal group classified as held for sale
The assets and liabilities of the shipbuilding operations of the aforementioned QZ Shipyard were classified as a disposal group held for sale in the Group’s consolidated statement of financial position at 31 December 2011 and stated at the net carrying amount of HK$1,990,666,000. The recovery in full of the carrying amount is heavily dependent on Grand China honouring its obligations. Depending on the final outcome of the negotiations, a provision for impairment to state the net assets to the recoverable amount may be required. As at the date of approval of the financial statements, pending the conclusion of the negotiations, the directors of the Company are unable to determine if any, provision for impairment may be required.
Disclaimer of opinion
Because of the potential interaction and possible cumulative effect of the matters described in the basis for disclaimer of opinion paragraphs, we do not express an opinion on the consolidated financial statements as to whether they give a true and fair view in accordance with Hong Kong Financial Reporting Standards or whether they have been properly prepared in accordance with the disclosure requirement of the Hong Kong Companies Ordinance.