The first blogging about Edgeworth Properties received a lot of hits, therefore the second article from Singapore, I haven't read any news from Malaysia yet. I sincerely hope not too many Malaysians and Singaporeans are caught in this. Things are not looking well at all, according to below article.
Also mentioned are the sales commission and marketing expenses, 34%. How is it possible to promise returns up to 100% of the investment amount after such commissions?
These kind if investments are not bought but sold, the hard way.
Update:
There is an article in The Star, in the Property Scene:
http://www.starproperty.my/PropertyScene/TheStarOnlineHighlightBox/19231/0/0
A very interesting link about the legal proceedings:
http://www.grantthornton.ca/resources/creditor_updates/documents/Edgeworth%20Properties/Second%20Report%20to%20Court%20of%20the%20Monitor%20dated%20February%2017,%202012%20incl%20appendices.pdf
The last pages (the appendices) contain letters/emails mostly from angry customers. Also an email from Grace Leong, she is really chasing this case, I love her attitude. Since I have left Malaysia after 16 years, I am quite surprised about the Singaporean journalists, they are doing a good job especially in these kind of Corporate Governance issues. A very big difference compared to Malaysia.
From The Business Times (Singapore):
By GRACE LEONG
EDGEWORTH Properties Inc - whose land-banking scheme had drawn thousands of investors in Singapore - has laid the blame for its liquidity crisis on the recession that had hit both the property and financing markets hard. And unexpectedly high cost overruns only made matters worse, the Canadian company declared in court papers to back its bid to restructure its operations while keeping creditors at bay.
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Edgeworth chairman Donald Hurst, in an affidavit filed with the Ontario Superior Court of Justice in Toronto last fall, said that the company had C$69 million (S$87 million) in secured debt, C$31 million in unsecured debt, and potentially owes C$144 million to nearly 4,000 investors in Asia and 100 more in Canada.
According to Mr Hurst, the C$144 million represents the company's obligations to buy back the Asian investors' undivided property interests (UDI) or beneficial ownership in 12 parcels of land in Alberta at a premium when it comes due over the following five years. It also includes the company's obligations to buy back UDI in one other parcel from the Canadian investors.
But with insufficient liquidity to service its debt and its current assets worth less than its cumulative obligations, Edgeworth is insolvent, Mr Hurst said.
There are 'no funds to satisfy, in whole or in part' the buy-back obligations to these investors, he said. In fact, the monies raised by the UDI programmes were 'insufficient on their own to complete the development of the properties'.
In seeking restructuring protection, Mr Hurst said that the Asian UDI investors, among others, are 'most at risk' if there is no 'orderly value maximisation process' to deal with their claims and property interests.
The nearly 4,000 investors, which sources said include over 2,000 in Singapore, had invested some C$70 million between 2007 and 2011 but received land titles to only three of the 12 properties. The investors had alleged that Edgeworth, after taking their money, used some of the properties as collateral for loans that it received from mortgage firms. Sources say that Singapore investors accounted for more than half of the C$70 million investment.
Land-banking firms typically buy rural land with the intent to rezone it into commercial or residential use, or both.
In Edgeworth's case, the company planned to use investment monies raised through the UDI programmes to fund the costs of rezoning and subdividing the properties as well as the payout of mortgages. The company, Mr Hurst said, would then sell or develop the property and use the income generated to buy back the UDI units from the investors.
'Unfortunately, due to the recent recession and its impact on the real estate and financing markets, financing became extremely expensive or otherwise, unavailable. As a result, Edgeworth was unable to raise sufficient financing for its numerous projects.'
Thus, the rezoning and subdivision of the properties have not been completed and only three UDI programmes have had their mortgages paid off and their titles transferred to the Asian investors.
To date, none of the 20 parcels owned and managed by Edgeworth in Alberta have been fully developed, Mr Hurst said.
'The lack of adequate financing coupled with significant overhead and operating costs left the Edgeworth Group in a state of constant financial struggle, forced to use all of its resources just to service debt and pay operating expenses.
'The monthly interest costs on the mortgages on the properties are roughly C$800,000, and prior to downsizing initiatives . . . maintaining offices and staff throughout Canada and Asia was costing Edgeworth roughly C$1 million per month.'
He also cited other 'unforeseen factors' including 'mandated changes to the investment market . . . and shareholder-related issues'. 'These collective difficulties have depleted Edgeworth of its cash reserves, leaving Edgeworth in a liquidity crisis, and unable to satisfy its current and future obligations.'
According to Mr Hurst, Edgeworth raised C$64 million from the Asian and Canadian investors under the UDI programmes. After paying sales agents' commissions and the marketing expenses of its sales offices in Singapore, Malaysia and the Philippines, which amounted to C$22 million, the remaining C$42 million was transferred to Canada. Of this amount, Edgeworth refunded C$5.3 million to several UDI investors for various reasons, he said.
Of the remaining C$36.7 million, C$29.5 million went to property acquisition, C$3.7 million was used to pay down mortgages, C$2.8 million was used to cover 'additional Asian remuneration and selling expenses' and the remaining C$700,000 covered head office administrative expenses.
Published February 22, 2012
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