TRANSACTIONS made by Incredible Holdings and Ntegrator Holdings, formerly known as Watches.com, were found to be prejudicial to the interests of the companies and their respective minority shareholders.

 

Independent reviewer Provenance Capital had been appointed to review all corporate actions and fundraising by both companies over a 12-month period under notices of compliance issued in June last year. In a bourse filing on Friday (Nov 10), Singapore Exchange Regulation (SGX RegCo) released Provenance&rsquo s findings.

 

The transactions, which took place between October and December 2021, involved joint investments by both companies into the same businesses and the cross-issuance of perpetual securities with free warrants by the companies to each other.

 

Provenance found that the companies paid significant consideration for the acquisitions of most of the target companies. These companies had relatively weak financials, or the consideration paid was not supported by the opinion of independent financial advisers (IFAs) and independent valuations of the target companies.

 

In the case of both companies&rsquo acquisitions of Golden Ultra and Gadmobe Group, Provenance found that certain important terms relating to the acquisitions were not made known to valuers.

 

These include the reduction of the target companies&rsquo net tangible assets to zero or negative through the distribution of substantial amounts of dividends, which could have led to overstated valuations of these target companies.

 

In addition, the companies issued promissory notes amounting to at least S$48.3 million in aggregate to fund most of these acquisitions, which they aimed to pay for through fundraising exercises.

 

&ldquo The terms of the proposed fundraising exercises were not in the interest of the companies and their minority shareholders, and/or would potentially result in significant dilution of minority shareholders&rsquo interest,&rdquo SGX RegCo said.

 

Both companies also claimed that their acquisitions of target companies such as Billion Credit Financial Company, Golden Ultra and Gadmobe Group had no impact on their net tangible assets.

 

However, the disclosures were misleading and erroneous as the considerations paid for the acquisitions were significantly above their respective attributable net tangible assets and the considerations paid for via promissory notes.

 

This would have resulted in significant goodwill or intangible assets which would materially reduce the net tangible assets of the companies post-acquisition.

 

Furthermore, Provenance found that there was generally weak or no evidence to show that directors had put in sufficient robust deliberations and due diligence to evaluate the terms of the transactions before putting them before shareholders to approve.

 

Despite the IFA suggesting that the transactions were not on normal commercial terms and may be prejudicial to shareholders&rsquo interests, the directors of both companies supported the relevant transactions and recommended that shareholders vote in favour of them.

 

Provenance also highlighted that in the acquisition of Billion Credit and Golden Ultra, IFA W Capital issued ambiguous IFA opinions, which pointed to the need for clear opinions.

 

SGX RegCo said that the findings raise &ldquo serious concerns&rdquo on the adequacy and effectiveness of both companies&rsquo internal controls.

 

The regulator added that it requires the audit committees of both companies to commission reviews on their respective group&rsquo s internal controls and implement enhancements recommended by the independent internal control reviewer (IA reviewer).

 

&ldquo As directed by the notices of compliance, both companies shall not proceed with any of the transactions nor propose any further corporate action prior to satisfactory resolution of findings raised by Provenance as well as the IA reviewer,&rdquo it said.

 

The regulator will also look into potential listing rule breaches highlighted by Provenance, and refer potential contraventions of the Companies Act and Securities and Futures Act to the authorities.

 

It also reminded directors to properly discharge their fiduciary duties and act in the best interests of the company and shareholders, failing which they would contravene section 157 of the Companies Act.

 

&ldquo SGX RegCo also expects IFA opinions to contain a clear and unequivocal conclusion supported by reasonable factors and bases,&rdquo it said.

 

Shares of both Incredible Holdings and Ntegrator Holdings remain suspended.

THE decision by Catalist-listed Watches.com : WVJ 0% to revert to its former name of Ntegrator barely a year after it switched things up should serve as a reminder of why companies should take their time rebooting.

 

In May last year, Ntegrator International &ndash a communications network specialist and systems integrator &ndash started calling itself Watches.com after it received the nod from shareholders for a name change and a diversification agenda.

 

According to the company, the new name would better reflect its new business direction and enhance its branding as it moved into the omnichannel retailing of watches.

 

The refresh had followed the entry of a new substantial shareholder &ndash Mission Well &ndash in 2021, which resulted in a board revamp. This included the appointment of Mission Well&rsquo s sole shareholder and director Christian Kwok-Leun Yau Heilesen as executive director at Watches.com. The self-styled &ldquo Internet entrepreneur&rdquo hails from Copenhagen, Denmark, but is based in Hong Kong. He is also executive director and controlling shareholder of another Catalist-listed company: Incredible Holdings : WVJ 0%.

 

But the name change from Ntegrator International to Watches.com was done and dusted even before the company&rsquo s acquisition of the domain name Watches.com was complete. In place was a mere non-binding letter of intent inked with the seller &ndash Watchismo LLC, an online seller of watches operating under the Watches.com domain &ndash which expired at the end of June 2022.

 

With that, the company has to drop calling itself Watches.com and has picked Ntegrator Holdings. It will seek shareholders&rsquo approval for this change at a meeting to be held in early March.

 

The flip-flop on the name change is not Watches.com&rsquo s biggest headache.

 

To kickstart its diversification, loss-making Watches.com made two back-to-back acquisitions worth S$29.6 million. This was funded via the issuance of promissory notes.

 

It bought an 85 per cent stake in Gadmobe Group &ndash a company that provides data analytics, payment gateways, digital advertising and e-commerce solutions, among others &ndash from a third-party vendor. The company also picked up a 55 per cent stake in Golden Ultra, whose subsidiary CKLY Trading (CTL) sells luxury watches via an online platform. This stake was acquired from Heilesen.

 

With these acquisitions, the company claimed it would be able to grow both its new and existing businesses through digitalisation and data analytics.

 

It has been tough going for the company, to say the least. The watch business has drawn some bad press with an ongoing probe by Hong Kong customs, while questions linger over the two deals.

 

In August last year, the Hong Kong Customs and Excise Department (C& E) investigated CTL&rsquo s business premises and seized some 500 watches valued at S$30,000. Heilesen and two sales staff were instructed to assist with the probe and were subsequently released on bail by the police.

 

In an October update, Watches.com said CTL has instructed its legal advisers to explain and clarify to C& E that the company has not contravened any provision under the Trade Description Ordinance and for the allegations to be withdrawn. The investigations are ongoing and there has been no update on the matter as Watches.com said &ldquo it will take a period of time&rdquo for C& E to reach a decision.

 

Meanwhile, it has been a good eight months since the Singapore Exchange Regulation or SGX RegCo shot a lengthy Notice of Compliance to query the company over its two acquisitions.

 

Heilesen-controlled Incredible had also bought into Golden Ultra and Gadmobe around the same time Watches.com entered into the share purchase agreements with these companies. The Golden Ultra acquisitions by both Incredible and Watches.com would therefore be deemed interested person transactions.

 

The regulator pointed out that the corporate actions would result in both Watches.com and Incredible having joint investments in the same businesses and cross shareholdings in each other, and that the rationale of the transactions was unclear. In addition, the regulator pointed out that both companies have &ldquo substantially similar members&rdquo on their audit and nominating committees.

 

SGX RegCo has instructed both companies to appoint a suitable joint independent reviewer to perform a holistic review of all corporate actions and fund-raising exercises announced by them in the last 12 months and has barred them from proceeding with any announced corporate actions and fund-raising exercises. Both companies also cannot propose any further corporate actions until the review is completed, and the air is cleared on the outstanding issues.

 

The companies have appointed Provenance Capital as joint independent reviewer. Meanwhile, trading in Watches.com and Incredible has been suspended since last September. Watches.com cited the need to monitor the progress of the investigation in Hong Kong and the finalisation of the independent review as per SGX RegCo&rsquo s demand.

 

A revamp that began with some promise has since morphed into a source of uncertainty. Shareholders of Watches.com can be forgiven if they are missing the group&rsquo s older business model. After all, the communications network and systems integration segment won fresh jobs over the past year. Sometimes, old is better.