Edgeworth blames recession, credit crunch for troubles

(updated version)


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.

There are 'no funds to satisfy, in whole or in part' the buy-back obligations to these investors, said Edgeworth chairman Donald Hurst.

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

CAD on trail of Edgeworth Properties?

Article from The Business Times (Singapore) about landbanking company Edgeworth Properties. I am always very hesitant about these schemes, why would other countries (most often Canada) let Malaysians & Singaporeans run away with beautiful yields on their investments? Surely there are enough investors in Canada (or the US) who can invest and check out the land themselves? Also, the sales commissions on these kind of product are unbelievable high, from the $65 million in sales about one third went to sales commissions.

Buyer beware, when it sounds too good to be true, it often is ....

"Investors in a bind after Canadian land-banking firm's court protection move"

By GRACE LEONG

(SINGAPORE) Just a year-and-a-half after the Commercial Affairs Department (CAD) started probing Profitable Plots for allegedly not paying investors, BT understands that it is on the trail of another land-banking firm - Canada-based Edgeworth Properties Inc.

Published February 21, 2012

Singapore investors are apparently part of a group of 4,000 Asian investors who had invested some C$70 million in 12 parcels ... but received land titles to only three of them.

The Canadian company has obtained court protection to restructure its operations which includes closing its Asian offices - putting more than 2,000 investors in Singapore in a bind over their land investments in the province of Alberta.

Apparently, they are part of a group of 4,000 Asian investors from countries including Malaysia, the Philippines, Indonesia and Thailand who had invested some C$70 million (S$88 million) in 12 parcels in Alberta between 2007 and 2011 but received land titles to only three of the properties.

Sources say that Singapore investors accounted for more than half of the C$70 million investment.

A Singapore investor told BT that many investors had signed sales and purchase agreements with Edgeworth and paid for the properties in cash. But instead of transferring titles to them, Edgeworth, after receiving their money, allegedly mortgaged some of the properties to mortgage firms such as Romspen Investment Canada, the investor said.

Edgeworth also allegedly used several properties as collateral for loans that it had received from other mortgage companies, such as Firm Capital Corp, Hurlburt Farms Ltd, Liberty Mortgage Services Ltd and Sterling Bridge Mortgage Corp, she said.

Sources said that Consilium Law Corp, previously acting on behalf of the Asian investors, filed complaints with both the CAD and the Royal Canadian Mounted Police last September.

When asked, a CAD spokeswoman would only say: 'It is inappropriate to comment on police investigations, if any.'

Edgeworth Properties Singapore Pte Ltd, along with sister offices in Malaysia and the Philippines, closed after their parent sought and obtained protection in November under the Companies' Creditors Arrangement Act in Canada. The CCAA allows a business to restructure instead of immediately going into bankruptcy and allows creditors to recover part of what is owed to them.

The Ontario Superior Court of Justice in Toronto in November also issued an order placing 16 of the company's properties into receivership. Last month, the court issued an order extending the stay of proceedings until today, which prevents any claims from being pursued against the company to give it time to come to a resolution on its assets.

But Firm Capital, which holds the first registered mortgage on one of the properties, Creekside Estates, has succeeded in getting stay provisions removed on that property and is now seeking authorisation to sell it, court documents show.

Stikeman Elliott LLP, a Canadian law firm presently representing the Asian investors, said in court documents that it 'does not appear likely' that the Asian investors of Creekside Estates will receive any proceeds from that sale.

Complicating matters, Romspen Investment, another Edgeworth creditor, is also applying to the court to lift the stay of proceedings on several other properties. These include seven parcels that the Asian investors had paid for but did not get titles to, and which were instead mortgaged to Romspen, the Singapore investor said.

Grant Thornton Ltd, the court-appointed monitor of the Edgeworth Group, last Friday asked for the court to extend the stay of proceedings to May 31.

Michael Creber, Grant Thornton senior vice-president, argued in court papers that if Romspen's request was approved without additional protections, that could frustrate 'prospective transactions . . . currently being negotiated, which appear to be sufficient to repay the majority, if not all, of the amounts' due to the mortgage companies.

It could also result in other stakeholders, including the Asian investors, 'losing the ability to voice their concerns in a single forum', he said.

But should Romspen's request be granted, it should be amended to 'address the concerns of subordinate stakeholders', he added.

In particular, he asked that all interested parties, including the Asian investors, should be entitled to assert any claims that they may have to the Romspen-mortgaged properties and their sale proceeds.
Grant Thornton also supported Edgeworth's request for court approval to increase fee allowances to lawyers representing the various stakeholders including the Asian investors to C$200,000 from C$75,000.

In a Feb 13 letter to Kenneth L Campbell, Judge of the Ontario Superior Court of Justice, the Asian investors said: 'The current reality presents a grim picture to us recovering anything from the . . . parcels without issued title, but we will not go down without a fight.'

Land-banking firms such as Edgeworth typically buy rural land with the intent to rezone it into commercial or residential use, or both. These firms, in turn, invite investors to buy parcels of land.

In Edgeworth's case, the Asian investors said that they were allegedly promised net returns of 60, 80 or 100 per cent on so-called undivided property interests in Canada, depending on when the raw land obtains development approvals and when they exit their investments. This is expected to take five years or less.

'Edgeworth told me in March 2011 they wanted to buy back the land and will pay out 80 per cent returns on June 30, 2011. But in April, they claimed that they were in financial difficulty and couldn't make the payouts,' the Singapore investor said.

Many Asian investors, in their sales and purchase agreements with Edgeworth, also had to agree to not file a caveat or claim against the property, she said.

A lawyer said that that should have been a red flag to the investors. 'If you don't file a caveat against the land, then no one knows you have a claim on it.'

In the case of Profitable Plots, some 1,500 Singaporeans and 4,000 foreigners are believed to have invested in the land investment firm, which was raided by the CAD in August 2010 after some investors alleged that it owed them money. To date, the complaints involve investments of more than $30 million.