Thursday, April 05, 2012

85.7 Million Account Irregularity Confirmed In Xian Leng

Let's see.

On 5 Oct 2011 it was published that Special Audit To Be Carried Out On Xian Leng!

Xian Leng announced that there might be some financial irregularities involving some RM17.36 million in capital expenditure.

Then on 11 Jan 2012, Xian Leng announced its quarterly earnings and I posted Xian Leng's 52 Million Ringgit Loss Provision!!!

Two things were highlighted:

  1. RM11.39 million impairment loss was provided for a subsidiary involved in the breeding of other tropical fish, such as guppy, platy fish and cat fish
  2. RM52.11 million of impairment loss was provided for in respect of the value of fish ponds incurred by another subsidiary involved in the breeding of Arowana fishes.
A 11.39 million for the breeding of tropical fish such as guppy, platy fish and cat fish?????"

Yesterday, on the Edge Malaysia: Xian Leng MD resigns over accounting issue
  • Xian Leng MD resigns over accounting issue
    Written by Kamarul Azhar
    Wednesday, 04 April 2012 14:25

    PETALING JAYA: Ng Huan Tong, managing director of ornamental fish breeder Xian Leng Holdings Bhd, resigned yesterday amid accounting irregularities in the group’s books that could reach RM90.7 million.
    According to Xian Leng’s filing with Bursa Malaysia yesterday, Ng, the group’s majority shareholder, has resigned from the top post as the audit investigation of the group’s capital expenditure is in the final stages.

    “Coupled with the deteriorating financial results of the group for the past few years, I believe it would be prudent for me to relinquish my position as the managing director of Xian Leng voluntarily of my own accord,” said Ng.

    He has also resigned from Xian Leng’s remuneration committee and as chairman of the group’s employees share option scheme (Esos).

    Ng and his wife Lim Wan Hong hold 46.5% of Xian Leng’s paid-up capital. It is believed that Ng and Lim hold more than 51% of Xian Leng via friendly parties.
    Replacing him in both positions is Kuan Kai Seng, a 38-year-old chartered accountant, who gained experience in carrying out statutory audits on private and public limited companies when he was with Ernst & Young between 1999 and 2002.

    According to an observer, the group’s board of directors has been trying to oust Ng as the MD since the accounting issue was discovered, but failed due to his majority ownership of Xian Leng.

    The Edge weekly reported last weekend that a draft report by PricewaterhouseCoopers Advisory Services Sdn Bhd (PwCAS) alleged that Xian Leng cannot account for the RM90.7 million in capital expenditure to build various fish farms between FY05 and FY08.

    It was reported that Xian Leng’s board of directors are aware of the “missing” sum, but it did not give consent for the expenditure.

    Xian Leng has provided for the amount in its accounts, which contributed to losses of RM56.23 million in FY12 ended Jan 31, on RM14.94 million in revenue.

    Four contractors were allegedly awarded jobs without tenders or competitive bids, and three out of the four were not registered businesses when they issued invoices to Xian Leng, The Edge reported.

    The draft also revealed that all four contractors were sole proprietors and secured RM85.9 million worth of jobs out of the RM90.7 million unaccounted for capex. The rest of the amount was shared among 52 other contractors.

    On March 30, Xian Leng announced to Bursa Malaysia that the expected completion of a special audit by PwC had been delayed to end-April from end-March this year.

    In October 2011, the group announced that “there are possibly some financial irregularities pertaining to capital expenditure of RM17.36 million as stated in the company’s financial statements, the nature and extent of which cannot be accurately determined at this juncture”.

    In February, Datuk Chin Seak Huat emerged as a substantial shareholder with 3.65 million shares or 5.05% equity interest. He has since increased his shareholding to 5.36% or 3.87 million shares.
Well the Edge Malaysia just published another article on Xian Leng: PwC : Irregularities in Xian Leng’s accounts
  • PwC : Irregularities in Xian Leng’s accounts
    Written by Chong Jin Hun of
    Thursday, 05 April 2012 18:46

    KUALA LUMPUR (April 5) : The special audit on XIAN LENG HOLDINGS BHD [] revealed financial irregularities in its fish farm development capital expenditure amounting to RM90.7 million of which a total of RM85.7 million was disbursed under "questionable circumstances".

    In a statement to the exchange on Thursday, Xian Leng which undertakes commercial breeding of ornamental fish, said the auditor PricewaterhouseCoopers Advisory Services Sdn Bhd (PwC), had disclosed that there was lack of evidence that the RM85.7 million portion was paid to four contractors, as indicated in Xian Leng's records during financial years 2005 to 2008.

    According to the audit findings, the cheque payments were authorised by on Xian Leng managing director Ng Huan Tong, while signatories to the cheques were two former board members: Chua Chong Seng and Lim Wan Hong.

    Lim is the spouse of Ng, who had voluntarily resigned from his position last Tuesday as PwC finalised its investigation. Xian Leng said its board is deliberating on the next course of action, which may include lodging a police report.


solomon said...

Question raised on whether the independent directors are blind or act as a party condone the act?

Little transmile? Major shareholder cum management is it a red flag? Better way to monitor RPT transaction?

It seemed never ending...Megan, transmile...or our education system breed smart person but not honest people...

Mun Wai said...

Quote : A 11.39 million for the breeding of tropical fish such as guppy, platy fish and cat fish?????"

Emm, do you mean loss from the segment of these other fishes business incurred RM11.39 mil losses ?

Moolah said...

On Jan 2012, Xian Leng reported a 52 million loss in their quarterly earning.

52 million hor...

And in its notes... Xian Leng said it made a "RM11.39 million impairment loss was provided for a subsidiary involved in the breeding of other tropical fish, such as guppy, platy fish and cat fish"

Mun Wai said...

I share with you my interpretation

RM11.39 million impairment loss (IL) was provided for a subsidiary....... = provision for write-down of investment in subsidiary (& hence ze carrying amount of investment in subsidiary will be reduced by the same figure in balance "shit" :P)

Value of PPE in that subsi is to be impaired by 11.36mil(due to lack of anticipated CFs to be generated from these PPE), so value of investment in subsi reduced by the same amt. Don't think that this 11.36 mil is the actual loss in income statement. In fact, this 11.36mil could well be just one portion of the total loss to date.

Effect only be felt at company level. No impact on consol figure as investment in subsi will be eliminated.

The above is based solely on my understanding. Correction is most welcomed.

M.A. Wind said...

Lots of question have not been answered, I find the BM announcement very weak. In 2006 BOD noticed very high Capex, takes 6 years to investigate?

Very fishy ......

bonny b said...

And to expect in advance that hardly anyone will be jailed for these transgressions. Maybe a little fine and a word of disapproval. Well, Bursa and our SC have been very encouraging all these years, to these sorts I mean. By the time Malaysia's corporate governance is given priority, there may not be many investors left.

Mun Wai said...


A total addition of 31.2mil to land dev, fish ponds & others in 2007, which is a 29% increase in this PPE class, do you think it is material ?

Me, :=) I think yes la.

Furthermore, out of the 31.2 mil, 23.8 mil was reclassified from construction WIP. This makes my little inquisitive mind thinks that the Independent Directors and the auditors are reasonably expected to go extra miles for a very very detailed assessment.

Glee.... there was also a change in auditors from different offices.
2005 - 2007 - EY KL Office
2008 - EY JB Office

Could this be one of the reason? shh... systemic fundamental quality level of the independent "checker"

Mun Wai said...

Not just 2007, similar pattern since 2005.

I really do not understand the determination of materiality level as claimed by them auditors.

Like this also deemed immaterial, insignificant to warrant a highlight in the auditors report? Not even by an emphasis of matter?