SIAS Questions to EC World REIT

Date: January 29, 2024

1) Chairman and Board Members,
2) Chief Executive Officer

On 2 January 2024, the REIT manager announced that certain “third ranking mortgages” have been imposed on three properties owned by EC World REIT. The properties are Fuzhou E-Commerce, Fu Heng Warehouse and Hengde Logistics. The mortgages were imposed without the consent or knowledge of the manager.

In addition, the manager further disclosed that Forchn Holdings Group Co., Ltd. (the “Sponsor”) had created the mortgages in favour of two entities linked to the Fuyang Government (富阳政府) in the People’s Republic of China between 20 November 2023 and 24 November 2023 in connection with the Fuyang Government providing the Sponsor with certain rescue funds (approximately RMB 268.6 million based on preliminary inquiries).

For the avoidance of doubt, the REIT also clarified that the rescue funds were provided to the Sponsor pursuant to various arrangements between the Fuyang Government and the Sponsor group and the REIT is not privy to, and did not consent to, such arrangements.

In addition, the REIT announced on 15 January 2024 that there are no other instances of illegal mortgages on the remaining four properties of the REIT.

The manager has also sent letters of demand to the Sponsor requiring the latter to, inter alia, state that the mortgages have been illegally entered into and that they will not set up any further mortgage, pledge or any other encumbrance over the properties of the REIT.

Subsequently, on 18 January, the manager confirmed that the illegal mortgage imposed over Hengde Logistics has been discharged and that the sponsor is working to discharge the remaining two illegal mortgages imposed over Fuzhou E-Commerce and Fuheng Warehouse.

SIAS would like to follow up with the following questions:

  1. Impact of Illegal Mortgages:
    a) Can the board clarify the potential impact of the illegal mortgages on the REIT’s operations and financial situation? Has the REIT’s operations been compromised in any way due to these mortgages?
    b) Can the REIT manager confirm that it is in possession of all relevant certificates, company seals, finance stamps, legal representative stamps, security keys etc of all the assets belonging to the REIT? Can the manager confirm that there are no duplicates of such stamps and seals?
  2. Role of Sponsor in Day-to-Day Operations:
    What specific role does the sponsor play in the management and day-to-day operations of the REIT?
  3. Involvement of Mr. Zhang Guobiao:
    Specifically, what is the level of involvement of the chairman and non-executive director, Mr. Zhang Guobiao, in the affairs of the REIT manager?
  4. Nominating Committee Assessment:
    a) Has the nominating committee assessed whether the chairman has fulfilled his statutory duty to prioritise the interests of EC World REIT unitholders over those of the REIT manager and the sponsor?
    b) Would the REIT benefit from having an independent director as the chairman to mitigate conflicts?
  5. Manager’s Assurance Amid Sponsor Distress:
    Given the Sponsor’s distressed state, how can the REIT manager assure unitholders and regulators that it will discharge its duties efficiently, honestly, and fairly, in accordance with the relevant Acts and MAS guidelines (such as SFA04-G07: Criteria for licensing, General criteria 2.2)?
  6. Independent Directors’ Oversight:
    a) Can the independent directors provide insights into their level of involvement in overseeing the REIT’s affairs since the trading suspension in August 2023?
    b) Additionally, what is their familiarity with Chinese real estate and the property legal framework?
    c) In addition, it is clear that the sponsor is in financial distress as it requires rescue funds from the Fuyang Government. The sponsor has also fallen behind its payment to the REIT for the master-leased properties. Due to the trading suspension, the offshore facilities can be declared due and payable immediately by the lenders. Distributions to unitholders have also been deferred. One of the REIT’s top tenants, Zhejiang China Tobacco Industrial Co., Ltd., which accounted for 9.9% of total gross rental income as at 31 December 2022, has also discontinued its lease at Hengde Phase 1. Please comment.
  7. Operational Performance and Rent Collection:
    a) Could the REIT manager update unitholders on the operational performance of the REIT’s assets?
    b) Has the manager been able to collect rent from the REIT’s other tenants, other than from Forchn Holdings Group Co. Ltd. and its subsidiaries?
  8. Outstanding Rent Receivables:
    a) What is the outstanding rent receivable from the sponsor, and what is the aging of these receivables?
    b) How does the board intend to resolve the outstanding payments due from the sponsor?
  9. Recapitalisation Strategy:
    a) What is the board’s strategy to recapitalise the REIT?
    b) Has the board deliberated on weaning itself from the sponsor who is in distress?
  10. Resumption of Trading Proposal:
    Can the board provide unitholders with greater insights into the milestones required before it can submit a resumption of trading proposal to SGX?

We should be pleased to receive your replies on behalf of your shareholders. We should also be pleased to meet you if you would like to have a meeting with us to discuss the above issues.


David Gerald
Founder, President & CEO