Axington proposes acquisition of Web technology firm that is expected to lead to reverse takeover

AXINGTON has inked a non-binding memorandum of understanding to acquire a 60-per-cent stake in a Hong Kong Web technology company that is expected to result in a reverse takeover of the Catalist-listed cash company.

In its regulatory statement to the Singapore Exchange on Thursday night, Axington announced that the understanding inked on July 8 would form the broad basis of the definitive agreements to be entered into within a month with Delta Investment Holding Group for the proposed acquisition of the stake in Veivo Web Technology for S$405 million.

Under the acquisition, the Catalist-listed firm is to pay at least S$30 million in cash, as well as issue and allot new shares at no less than S$0.19 per share to the vendor.

Veivo Web Technology is established in Hong Kong with a paid-up capital of HK$100 (S$17.41). The company's wholly foreign-owned unit established in China is attempting to obtain full control over Beijing Ruihua Veivo Internet Technology by entering into control agreement(s) with the shareholders of Beijing Ruihua Veivo Internet Technology.

Beijing Ruihua Veivo Internet Technology is mainly engaged in operating an instant-messaging platform, paid-application store and cloud-application platform in China; it also has a telecommunications and information services business operating licence.

And Axington will see that Dorr Global Healthcare International, its controlling shareholder with a 77.88 per cent stake, gives written undertakings to vote in favour of the proposed acquisition.

The deal is, however, subject to a string of conditions being satisfied, including the resumption of trading and the completion of the ongoing announced rights issue undertaken by the company.

The company separately stated that its independent auditor Foo Kon Tan had issued a disclaimer of opinion on its financial statements for the financial year ended Dec 31, 2020.

The basis for the disclaimer of opinion relates to Axington's other receivables, cash in banks, other payables, impairment losses on plant and equipment, other expenses, gain on disposal of subsidiaries and discontinued operations, opening balances and comparative information, as well as the appropriateness of Malaysia's ringgit as the functional currency.

The disclaimer triggered a list of queries to Axington from the Singapore Exchange about the contents of its financial statements. The company said it would address these queries "as soon as possible".

Foo Kon Tan said in its independent auditor's report dated July 7 that it was unable to obtain sufficiently appropriate audit evidence to provide a basis for an audit opinion on the financial statements.

On the independent auditor's report, Axington's board said these issues arose when the group was undergoing significant changes in its board composition and key management personnel, which created challenges in obtaining the necessary information for the conduct of the audit.

Given that the company has minimal activities at present, the board believes its existing set-up and control measures in place are adequate to manage Axington's accounting, financial reporting and compliance functions.

Matters highlighted in the independent auditor's report pending resolution include the outstanding balance of S$1.1 million from the company's issuance of placement shares on Aug 17, 2020, as well as unknown receipts by the company on Aug 19, 2020.

Foo Kon Tan said it was unable to ascertain the purpose and rationale of two receipts of S$125,000 and S$200,000 received from a company on Aug 19, 2020.

For these matters, the board said Axington is seeking legal advice and considering all available options to resolve them.

Axington is the company linked to the Bellagraph Nova (BN) saga last year. It is now a cash company and faces the risk of delisting if it does not acquire a new business within a year, it said in a bourse filing on April 6.

On June 4 this year, the company redesignated independent director Ang Chiang Meng as its executive director to facilitate the pursuit of corporate initiatives given its cash-company status.

The board also outsourced its finance function to a third-party service in the interim, amid various internal controls and risk-management policies.

Axington suspended the trading of its shares on Aug 31, 2020, following reports in the media over its controlling shareholders.

Formerly a professional-services group, Malaysia-incorporated Axington has been mired in difficulty since Singaporean businessmen and cousins Nelson Loh and Terence Loh, co-founders of BN Group, bought out the firm in July.

The pair came under the spotlight for their business dealings after they announced plans for a takeover bid for English football club Newcastle United. It was later revealed that BN Group's marketing materials had been doctored, among other inconsistencies.

Separately, Terence Loh has been declared bankrupt. The bankruptcy order was granted by the High Court at a hearing on Thursday morning, after having been postponed at least five times.

Maybank launched the bankruptcy proceeding last November in a bid to recover more than S$3 million in debts.

Under the acquisition, the Catalist-listed firm is to pay at least

S$30 million in cash, as well as issue and allot new shares at no less than S$0.19 per share to the vendor.