Yesterday, EC World REIT announced in SGX that three of its properties have been mortgaged without the consent or knowledge of its manager.
OMG!
Forchn Holdings, sponsor of EC World Reit, plunged the company into turmoil by secretly mortgaging key assets to secure financial aid from the Fuyang government without informing the REIT manager. The manager of EC World Reit said in a SGX filing those three properties – Fuzhou E-Commerce, Fu Heng Warehouse and Hengde Logistics – were mortgaged to two Fuyang government-linked entities in China. These funds – approximately 268.6 million – were provided to Forchn as arranged between the Fuyang government and the sponsor.
The Manager added that EC World REIT was not aware of and did not consent to the arrangements, and have formally condemned the mortgages as "illegal" and a potential breach of fiduciary duty in a letter sent to the sponsor on December 29th, highlighting the mortgages' irrelevance to the REIT.
How can this have happened???
In the first place, its rather absurd for EC World Manager says they have “no idea” of their asset being mortgaged. I mean, the Manager is part of the Sponsor group, isn’t it?
Secondly, it is almost unbelievable EC World said that their assets are being mortgaged right under their nose. You mean the title deeds of the assets are just lying around in the office and one fine day a colleague from the Sponsor Group took it to mortgage and get rescue funds? This raises a lot of questions of security and oversight. If you are a homeowner, what is the chance of your house getting mortgaged by others without your consent?
The Woes continue
This incident is the latest in a series of troubles for EC World. Since August 2023, EC World REIT's units have been suspended from trading on the Singapore Exchange due to their inability to fully cover offshore interest expenses. In October 2023, Hengde Logistics faced a double whammy as both tenant retention and asset divestment faltered. A major tenant opted out of renewing one of their leases at the Hengde Logistics warehouse, leaving a vacancy in the crucial property. Adding to the woes, efforts to sell two logistics assets in Zhejiang stalled due to the sponsor's inability to secure adequate financing for the proposed divestment. These setbacks cast a shadow over EC World' future, raising concerns about its financial health.
This is a big lesson to all investors – A strong foundation matters more than fleeting financial figures – prioritize good governance for a resilient portfolio.
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