SINO Australia Oil and Gas has warned it will be exposed to contractual risks with its supplier following the Australian Securities and Investments Commission’s move to extend an injunction over the freezing of the company’s Australian bank accounts.
In addition to the warning, the Chinese drilling services company also defended itself against ASIC’s claim in a shareholder update released to the Australian share market, saying the injunction was hurting the company and was unwarranted, urging the corporate regulator to remove the order.
The Perth-based company first caught the attention of ASIC back in March on suspicions that Sino Australia was seeking to transfer $7.5 million of funds raised through a 2013 $12.8 million an initial public offering for purposes not properly disclosed in the company’s prospectus.
The ASIC investigation has prevented the Perth-based company from transferring funds from two accounts it holds with HSBC in Australia so it can purchase additional drilling equipment.
There is no reprieve in sight for the company, with the Australian Federal Court recently extending an injunction preventing the company from transferring money until 28 August, 2014 to enable it to continue with the investigations. Sino Australia has the opportunity to make an application to the court to have the orders removed but the company hasn’t yet disclosed an intention to do so.
Sino Australia chairman Shao Tianpeng said the board had cooperated with ASIC, answering all requests for information, however it is now understood that Mr Shao has returned to China.
In its June shareholder update, Sino Australia expressed its dissatisfaction at the interim injunction.
“It is the unanimous opinion of the company’s directors that the restrictions imposed by the interim injunction are unwarranted, disproportionate and contrary to the best interests of the company, its shareholders and staff,” the company said.
Shedding additional light on ASIC’s concern that the prospectus issued in the recent capital raising did not clearly set out the intended use for the funds, Sino Australia said the offer documents stated in plan terms that the proceeds of the offer would be used “for specialised plant and equipment for the purpose of increasing production capacity and the margins on services offered, modernising and upgrading existing technical equipment and for working capital.”
Defending its stance further, Sino Australia said ASIC has been told that the money was to be advanced to the operating business in China.
“The prospectus said in plain terms that one of the intended purposes of the capital raising was to enable the company to buy equipment,” the company said.
According to Sino Australia, the immediate effect of the orders is that it prevents it from advancing funds to the business in China to enable it to “complete the purchase of one piece of drilling equipment.”
“The company not completing the 30 May 2014 equipment purchase exposes the company to contractual risks with its supplier,” the company said.
“Deploying the drilling rig that the company has contracted to buy will increase profitability and completing those contracts remains a priority.”
The company is in discussions with its supplier, with all options to complete the purchases being explored.
Sino Australia’s shares have been unable to trade since March after they were suspended for failing to lodge accounts.