UPDATE 12: Hilong Far On Resolution With Bondholder AHG on Restructuring Plan Largely Due to Unresolved Questions About Lack of Cash From Asset Sale to Chairman’s Family

Thu Nov 07, 2024 03:10 AM ET: Hong Kong-listed oilfield engineering company Hilong Holding Ltd.’s bond-restructuring impasse is centered on the bondholder ad hoc group’s, or AHG’s, questions over the whereabout of the proceeds from the CNY 700 million ($97.7 million) sale of a China unit to Chairman Zhang Jun’s family last year, according to a source familiar with the matter and bondholder citing a person involved in the talks.

The talks remain far apart, said the source familiar and a second holder citing a person involved in the talks.

The questions are being prompted in part by the Hong Kong-listed, Shanghai-based oilfield equipment manufacturer and service provider’s contention that it can only pay less than 10% as an upfront fee to term out its already-restructured $314 million-outstanding, 9.75% senior secured notes due Nov. 18, 2024, said the sources.

The AHG, advised by Houlihan Lokey and Linklaters, controls most of the notes and comprises six firms, mostly global and different from the group that represented holders in Hilong’s 2021 bond restructuring, said the source familiar.

As reported, Hilong announced on Oct. 30 that it has worked with financial advisor Admiralty Harbour to engage with the AHG on a restructuring plan, and has delivered “preliminary restructuring proposals” to some members of the holder group for the $314 million due Nov. 18 notes, featuring an upfront payment, with the rest amortizing over up-to four years, a “modest” coupon reduction with a PIK option and the capitalization of the final coupon on the existing notes.

Kirkland & Ellis is the company’s legal advisor for the restructuring, said the source familiar. Sidley Austin advised the company on its initial bond restructuring, which in 2021 swapped two tranches of defaulted notes into the existing due November 2024s.

Hilong in November 2023 sold its then-wholly owned Hilong Pipeline Engineering Technology Service Co. Ltd. to an entity indirectly wholly owned by its Chairman Zhang Jun and his mother at a CNY 700 million cash consideration. Hilong also disclosed in a shareholder circular on the deal dated March 31, 2023 that it also expected to receive CNY 339 million dividends from the target company within three months of the transaction’s completion.

Yet the expected total CNY 1.03 billion from the sale does not seem to be reflected in Hilong’s FY’23 and H1’24 financials. Its reported cash and equivalents of CNY 840.4 million as of Dec. 31, 2023 was almost flat from CNY 838.1 million as of June 30, 2023. That figure dropped to CNY 610.1 million as of June 30, 2024, as per its unaudited H1’24 results. Neither the belatedly released FY’23 and H1’24 financial statements contain a cash flow statement

Management has not provided the AHG with a satisfactory explanation for the lack of cash post the sale, the sources said.

Hilong delayed the release of its 2023 annual results for about six months after its then-auditor PricewaterhouseCoopers identified issues in transactions between certain Russian subsidiaries and a business entity, known as “Entity A” domiciled in Russia. The financial results were finally published in mid October, after the company appointed Crowe (HK) CPA Ltd. in July as new auditor.

Two days before the 2023 results were finally released, Hilong announced on Oct. 16 the results of an investigation by Ernst & Young into the Russian dealings, which found that employees of the company had set up Entity A as a trading intermediary ostensibly to help raise local financing amid global sanctions, though the entity made a profit from transactions with Hilong that “lacked commercial substance, potentially inflating revenue and profit reported by the subsidiaries.” The report added that, nonetheless, “the documentary evidence did not reveal any issues of integrity, competence or character on any current Directors”.

Shortly after the investigation results were announced, Hilong announced the resignation of executive director and CEO Wang Tao “due to work adjustment.”

Crowe disclaimed opinion of the 2023 financials, citing the ongoing bond restructuring, the need for new financing, and management’s plan to speed up collecting receivables and to control costs to improve liquidity. It doesn’t mention anything about the issues in Russia.

Linklaters declined to comment. Hilong and Kirkland did not respond to requests for comment.

UPDATE 11: Hilong $314M 9.75% Secured Notes Due Nov. 18 Restructuring Proposal Includes Upfront Cash, Up to 4Y Termout; No Agreement Yet With Holder AHG

Wed Oct 30, 2024 09:06 PM ET: Hong Kong-listed oilfield engineering company Hilong Holding Ltd. announced to the Hong Kong stock exchange on the evening of Oct. 30 that it has been working with its financial advisor, Admiralty Harbour Capital Ltd., to explore a potential restructuring and/or amendment of its outstanding $314 million 9.75% senior secured notes due Nov. 18.

The company has been communicating and constructively engaging with certain holders of the notes, or an ad hoc group (AHG), and their financial advisor, Houlihan Lokey (China) Ltd., to formulate a consensual restructuring proposal. The AHG collectively hold or control a significant principal amount of the notes.

Since then, the company and its advisers have delivered preliminary restructuring proposals to certain members of the AHG and its advisers. The proposals contemplate (but are not limited to) the following features:

(1) the rolling of the interest payment that is due in November 2024 into the total outstanding amount under the Notes, to be subject to the revised repayment schedule as described below;
(2) a portion of the total outstanding amount under the Notes payable in cash on the restructuring effective date, with a further amount payable in cash within six months from the restructuring effective date;
(3) extension of the maturity date by no more than four years from the restructuring effective date, with an obligation to repay a minimum amount of the Notes by each anniversary of the restructuring effective date;
(4) a modest downward adjustment to the interest payable on the Notes, with flexibility to pay interest in kind only beyond the payment of a minimum amount of cash interest;
(5) retention of substantially the same credit protection package that the Notes already benefit from (including asset security, guarantees and other covenants); and
(6) offering consent or equivalent fees for holders of the Notes who provide their support to the restructuring proposal.

As of Oct. 30, no agreement on the terms of the restructuring of the notes has been reached between the company and the AHG. Notwithstanding the foregoing, the company maintains a constructive dialogue with the AHG and its advisors, with a view to reaching an agreement on various economic terms as soon as practicable, the announcement states.

As reported, the 9.75% notes were issued in 2021 following a restructuring of Hilong’s then $200 million 8.25% notes due 2022 and $165.1 million 7.25% notes due 2020 via a scheme of arrangement at the Cayman court following an unsuccessful exchange offer for the due 2020 notes.

UPDATE 10: Hilong Holding $314M 9.75% Due Nov. 18 Notes Holder AHG Engages Houlihan Lokey as Financial Advisor for Restructuring Talks

Mon Oct 28, 2024 04:25 AM ET: A holder ad hoc group, or AHG, of Hong Kong-listed oilfield engineering company Hilong Holding Ltd.’s outstanding restructured $314 million 9.75% notes due Nov. 18 has engaged Houlihan Lokey as financial advisor for debt extension talks with the company, according to two sources familiar with the matter.

The 9.75% notes were issued in 2021 following a restructuring of Hilong’s then $200 million 8.25% notes due 2022 and $165.1 million 7.25% notes due 2020 via a scheme of arrangement at the Cayman court following an unsuccessful exchange offer for the due 2020 notes.

According to the two sources familiar, options to implement the restructuring of Hilong’s New York law-governed due Nov. 18 notes likely include an exchange offer and a scheme of arrangement, given that the notes’ terms required consent from no less than 90% in aggregate outstanding principal amount to amend money terms.

The restructuring of the $314 million 9.75% notes due Nov. 18 was raised in March by Hilong’s then auditor PricewhaterhouseCoopers as an issue the company needed to resolve to demonstrate its ability to continue as a going concern. In May, Reorg reported that the company hired Admiralty Harbour as financial advisor for restructuring discussions of the due Nov. 18 notes. Hilong also noted in its first half results announcement today, Oct. 28, that it’s been proactively working with a legal advisor on discussions with the 9.75% holders.

As of June 30, 2024, Hilong’s current liabilities included borrowings of CNY 2.722 billion ($381.7 million), comprising the $314 million notes due Nov. 18 and CNY 473.7 million of bank and other borrowings that are repayable within 12 months from the end of the reporting period. The group’s cash and cash equivalents amounted to CNY 610.1 million at the end of June, its 2024 interim results show.

Hilong could not be immediately reached for comment. Houlihan Lokey did not respond to requests for comment as of press time.

UPDATE 9: EARNINGS: Hilong FY’23 Revenue Up 38% YoY to CNY 4.3B; Profit Up 55% YoY to CNY 171.5M; Cash, Equivalents at CNY 840.4M on Dec. 31, 2023; Going Concern Depends on Extension of $314.6 Due-Nov.18 Notes

Sun Oct 20, 2024 09:43 PM ET: Hong Kong-listed oilfield engineering company Hilong Holding Ltd. announced to the Hong Kong stock exchange on Friday night, Oct. 18 its long-delayed annual results for the year ended Dec. 31, 2023, reporting revenue of 4.252 billion Chinese yuan ($598.7 million), up 38.4% year over year, from CNY 3.073 billion. The operating profit for the year decreased by 6.6% year over year, to CNY 434.5 million from CNY 465.4 million.

During the reporting period, its gross profit was CNY 915.5 million, representing an increase of 33.6% as compared with 2022. Gross profit margin was 21.5% in 2023, representing a decrease of 0.8% as compared with 2022.

In 2023, the company’s profit for the year was CNY 171.5 million, representing an increase of 55.3% as compared with the profit for the year of CNY 110.4 million in 2022. Profit attributable to equity owners of the company for the year was CNY 148.7 million, representing an year-over-year increase of 40.8% as compared with the attributable profit of CNY 105.6 million.

As of Dec. 31, 2023, the company’s total current assets were CNY 5.141 billion, including restricted cash of CNY 93 million and cash and cash equivalents of CNY 840.4 million, against total current liabilities of CNY 4.395 billion.

Going Concern

On Dec. 31, 2023, the company’s current liabilities included borrowings of CNY 2.744 billion, of which loan notes of CNY 2.234 billion ($314.6 million) and bank and other borrowings of CNY 510 million, are repayable within 12 months from the end of the reporting period. The conditions indicate the existence of a material uncertainty which may cast significant doubt on the group’s ability to continue as a going concern.

In view of such circumstances, the directors of the company have given careful consideration to its future liquidity and performance and its available sources of financing in assessing whether the group will have sufficient funds to fulfill its financial obligations and continue as a going concern. The group has formulated the following plans and measures to mitigate the liquidity pressure and to improve its cash flows:

• the group has been proactively working with its legal advisor and financial advisor for communicating with the holders of the CNY 2.234 billion 9.75% loan notes due Nov. 18 to seek their support on the proposed restructuring for extension of maturity date, and will continue its efforts to successfully complete the holistic proposed restructuring within the scheduled timetable, in order to achieve a long-term sustainable capital structure and to resolve its liquidity issue;
• the group will continue to seek for other alternative financing and borrowings to finance the settlement of its existing financial obligations and future operating and capital expenditures;
• the group will continue its efforts to implement measures to speed up the collection of trade and other receivables and effectively control cost and expenses so as to improve its working capital and cash flow position.

The directors are of the opinion that, the holders of the loan notes will agree to the proposed restructuring plan to extend the maturity date, the group will successfully obtain new finance, the group will have sufficient funds to finance its operations and to meet its financial obligations as and when they fall due within twelve months from Dec. 31, 2023. Accordingly, the directors are satisfied that it is appropriate to prepare the consolidated financial statements on a going concern basis.

Notwithstanding the plans and measures taken by management, significant uncertainties exist as to whether the group is able to achieve its plans and measures as described above. Whether the group will be able to continue as a going concern would depend upon the followings:

• successfully completing the holistic restructuring of the loan notes for extension of maturity date;
• successfully obtaining additional new sources of financing as and when needed; and
• successfully implementing measures to speed up the collection of trade and other receivables and effectively control costs and expenses.

Should the group be unable to achieve the above-mentioned plans and measures and operate as a going concern, adjustments would have to be made to write down the carrying values of the group’s assets to their recoverable amounts, to provide for any further liabilities which might arise, and to reclassify non-current assets and non-current liabilities as current assets and current liabilities, respectively. The effects of these adjustments have not been reflected in the consolidated financial statements, according to the announcement.

The board resolved not to recommend any dividend for the year ended Dec. 31, 2023.

Trading in the company’s shares has been suspended from April 2, and will remain suspended pending the fulfillment of the resumption guidance as specified by the exchange, the announcement states.

UPDATE 8: Hilong EY Investigation Finds Russia-Based Entity A Lacks Independence, Co.’s Internal Control Insufficient; CEO Wang Tao Resigns

Thu Oct 17, 2024 01:09 AM ET: Hong Kong-listed oilfield engineering company Hilong Holding Ltd. announced to the Hong Kong stock exchange late Wednesday, Oct. 16, the findings of an independent investigation into unresolved audit issues related to sale and procurement of pipe materials transactions involving its four Russian subsidiaries and a company established in Russia, or Entity A. The investigation, conducted by independent advisor Ernst & Young (China) Advisory Ltd., finds, among other things, that Entity A lacks independence from Hilong’s Russian subsidiaries and Hilong’s executives demonstrated insufficient sensitivity on relevant internal control processes and due diligence over matters related to Entity A.

In 2022, the Russian subsidiaries faced liquidity issues and were unable to proceed with the bank loan application. Entity A was established accordingly and became an intermediary supplier of the Russian subsidiaries to obtain loan financing from the Russian bank, as well as to facilitate procurement of pipe materials from a Belarusian supplier through prepayments with funds obtained through financing, and in turn selling those pipe materials to the Russian subsidiaries with a more favorable settlement term, the announcement details.

The independent advisor set out key findings and observations as below:

• Lack of independence of Entity A: the independent advisor had not observed sufficient evidence suggesting that Entity A was operating independently from the Russian subsidiaries. There were overlaps in the personnel, day-to-day operations and management reporting process between Entity A and the Russian subsidiaries;
• Entity A’s source of funding: As of Dec. 31, 2023, the total drawdown amount of the Russian bank Loans applied by Entity A was about 4.043 billion Russian rubles ($41.5 million). As of Oct. 16, the outstanding balance of the bank loans is approximately RUB 1.34 billion;
• Involvement of personnel for Entity A establishment and bank loans: Involvement of relevant personnel of the Russian subsidiaries and certain senior management members of the group regarding the establishment of Entity A and the Russian bank loans;
• Repurchase transactions: The Russian subsidiaries engaged in six groups of repurchase transactions with Entity A, selling pipe materials and fixed assets. The total sales amounted to RUB 1.571 billion, with a repurchase amount of RUB 1.728 billion, resulting in a gross profit of RUB 157 million for Entity A. These transactions lacked commercial substance, potentially inflating revenue and profit reported by the subsidiaries;
• Payment of marketing expenses: Marketing expenses were improperly paid through Entity A. RUB 93.5 million was declared as dividends to the finance employee of Drilling Technology who proposed to set up Entity A, intended to settle marketing costs for salespersons. However, there was no individual approval process for these payments, and they were not authorized by the Board. The full amount has since been recovered from the employee;
• Lack of approval process involved and compliance with company policies: the Investigation revealed that the establishment of Entity A lacked proper documentation, authorization, and due diligence, violating the group’s internal policies and procedures regarding conflicts of interest, procurement, and financial management;
• Financial impact of Entity A on the group’s financial statements: The independent advisor noted that consolidating Entity A into the group’s financial statements would lead to financial adjustments. These include an increase in inventories, a decrease in accounts receivable, increases in prepayments and short- and long-term borrowings, and a decrease in net profit after tax. The board is also working closely with Crowe to determine if a restatement of the group’s prior financial information for the year ended Dec. 31, 2022 is required.

However, the independent advisor said that the investigation faced limitations due to restricted access to electronic documents, inability to recover deleted emails, and lack of consent from certain employees for forensic analysis, impacting the comprehensiveness of the findings.

In addition, the independent advisor identified several internal control weaknesses, including inadequate oversight of reporting and approval processes for special purpose entities, insufficient due diligence on Entity A, lack of proper approval records for Russian guarantees, unclear policies for material contracts, and missing conflict of interest declarations from relevant employees, the announcement details.

The investigation committee has reviewed the investigation report and accepted the key findings of the investigation. The committee concluded that the findings are reasonable and address previous auditor concerns, revealing internal control weaknesses but finding no evidence of malicious intent or integrity issues among current directors or senior management, despite limitations in document access, according to the announcement.

Specifically, the acts of Cao Yuhong and the omissions on the part of Wang Tao, Dai Daliang and Chen Yong demonstrated insufficient sensitivity on relevant internal control processes and due diligence, there was no documentary evidence to suggest that Wang, Dai and Chen had actual knowledge of the establishment of Entity A, the transactions and related business dealings of Entity A at the relevant times or that Cao, Wang, Dai and Chen had a personal interest in such matters, according to the announcement.

The board has accepted several recommendations to address the investigation’s findings, including integrating the findings into the 2023 financial audit, implementing management changes and penalties, enhancing reporting mechanisms, conducting an internal control review, and providing ongoing governance and compliance training for staff, the announcement says.

Trading in the company’s shares on the exchange has been suspended from April 2 at 9 a.m. and will remain suspended until further notice.

In a separate announcement, Hilong disclosed that Wang Tao has resigned as the company’s CEO and an executive director, as well as a member of the nomination committee with effect from Oct. 15 due to work adjustment. Accordingly, Zhang Jun, an executive director, the chairman of the board and executive chairman of the company, will assume the interim duties and responsibilities of the CEO with effect from Oct. 15 until a new CEO is appointed.

Zhang served as the company’s CEO from 2010 to 2017, he was re-designated to executive chairman of the company in December 2017. Zhang previously served as vice general manager in the petroleum industry at First Machinery Factory of Huabei Petroleum Administration Bureau, a subsidiary of state-owned China National Petroleum Corp., the announcement says.

Zhang is a substantial and controlling shareholder of Hilong Holding. As of Oct. 16, he is interested in about 48.9% of the total number of the company’s issued shares, according to the announcement.

Further, With effect from Oct. 15 and following the resignation of Wang, Yang Qingli, a non-executive director, has been appointed to be a member of the nomination committee in place of Wang, the announcement states.

UPDATE 7: Hilong Holdings Says EY Engaged for Independent Investigation Into Russia-Based Entity A Transactions, Probe to Conclude by September-End

Sun Sep 29, 2024 09:19 PM ET: Hong Kong-listed oilfield engineering company Hilong Holding Ltd. announced to the Hong Kong stock exchange late Friday, Sept. 27, that as of the same day, the group continues to operate its business operations as usual in all material respects amid trading suspension due to delays of its financial results. Further, the company disclosed its resumption plan with actions that it has taken as of Sept. 27 or intends to take with the expected timeframe in fulfilling each of the six resumption guidance.

Regarding its resumption plan, an independent investigation led by Ernst & Young, into the matters relating to the transactions [with the Russian-domiciled Entity A] and impacts on the company’s business operation and financial position, is expected to conclude by the end of September. Details of all six resumption guidance and update on the corresponding progress are as follows:

The group is principally engaged in the manufacture and distribution of oil and gas drilling equipment and provides oilfield and offshore engineering services worldwide. The group operates its business through three segments, namely (1) drill pipe-related business; (2) oilfield services business; and (3) offshore-engineering services, the announcement details.

The company said that it will continue to closely monitor its financial position and business operations, the announcement adds.

Trading in the company’s shares on the exchange has been suspended from April 2 at 9 a.m., and will remain suspended until further notice, according to the announcement.

UPDATE 6: Hilong Further Delays Release of FY’23 Annual Results, H1’24 Interim Results as Additional Time Required for Auditor

Thu Aug 22, 2024 09:37 PM ET: Hong Kong-listed oilfield engineering company Hilong Holding Ltd. announced to the Hong Kong stock exchange on Thursday night, Aug. 22 that the publication of its annual results for 2023 will be further delayed as additional time is required for its new auditor Crowe (HK) CPA Ltd. to complete audit work. With regard to the ongoing investigation related to issues raised by its former auditor PricewaterhouseCoopers, additional time is required for the investigator to conduct necessary works as required before the formal submission of the report to the investigation committee.

The investigation mainly relates to the company’s transactions with a Russia-domiciled entity known as Entity A, as reported.

Further, due to the delay in the publication of the 2023 annual results, the company is unable to publish the interim results of 2024 by the end of August and despatch the report by the end of September.

The company said it is working closely with Crowe in order to complete the audit procedures as soon as possible, and the expected publication date will be announced as and when appropriate.

UPDATE 5: Hilong Holding Appoints Crowe as Auditor Effective July 8

Mon Jul 08, 2024 08:54 PM ET: Hilong Holding Ltd. announced to the Hong Kong stock exchange on July 8 that Crowe (HK) CPA Ltd. has completed its internal clearance procedures and has been appointed as the new auditor of the company with effect from July 8, and will hold office until the conclusion of the company’s next annual general meeting.

UPDATE 4: Hilong Receives Resumption Guidance From HKEX

Tue Jun 18, 2024 08:41 PM ET: Hilong Holding Ltd. announced to the Hong Kong stock exchange on Tuesday night, June 18 that on June 12, it received a letter from the exchange setting out six guidances for the resumption of trading in the shares of the company, with details as follows:

(a) conduct an appropriate independent investigation into the matters relating to the Transactions [with the Russian-domiciled Entity A], assess the impact on the company’s business operation and financial position, announce the findings and take appropriate remedial actions;

(b) publish all outstanding financial results required under the listing rules and address any audit modifications;

(c) demonstrate that there is no reasonable regulatory concern about the integrity, competence and/or character of the group’s management and/or any persons with substantial influence over the company’s management and operations, which may pose a risk to investors and damage market confidence;

(d) conduct an independent internal control review and demonstrate that the company has in place adequate internal controls and procedures to meet its obligations under the listing rules;

(e) demonstrate the company’s compliance with Rule 13.24 of the listing rules; and

(f) inform the market of all material information for the company’s shareholders and other investors to appraise the company’s position.

The company said it is currently taking necessary steps to fulfill the resumption guidance, to remedy the issues causing its trading suspension and to comply with the listing rules to the stock exchange’s satisfaction, and will seek to resume trading in its shares as soon as possible, the announcement.

As reported, trading in the company’s shares on the exchange has been suspended from April 2 at 9 a.m., and will remain suspended until further notice. The stock exchange may cancel the listing of the company’s securities if they are suspended from trading for a continuous period of 18 months until Oct. 1, 2025, the announcement notes.

The company is required to announce quarterly updates on its development including, among other relevant matters, its business operations, its resumption plan, the progress of implementing its resumption plan, and any material changes to the resumption plan. The first quarterly update will be announced on or before July 1, 2024 and further quarterly updates will be announced every three months from that date until resumption or cancellation of listing.

UPDATE 3: PwC Resigns as Hilong Holding’s Auditor, Raises Unresolved Issues in FY’23 Audit; Co. Appoints Crowe as New Auditor

Sun Jun 02, 2024 10:49 PM ET: Hilong Holding Ltd. announced to the Hong Kong stock exchange on Friday night, May 31 that PricewaterhouseCoopers, or PwC, has tendered its resignation as the company’s auditor with effect from May 30. The board has recommended PwC to resign as the auditor on May 22, the announcement states.

The board has resolved to appoint Crowe (HK) CPA Ltd. as the new auditor of the company to hold office until the conclusion of its next annual general meeting, the announcement states.

In PwC’s resignation letter dated May 30, it set out certain key unresolved audit issues, including transactions with Entity A, the prepayments and debt extension, as well as other matters that shall be brought to the attention of the shareholders and the creditors of the company, with the details as follows:

In relation to transactions with Entity A, PwC said it had been invited to attend the verbal progress update meetings and/or interviews taking place during the course of the investigation until April 18. As the investigation is ongoing, it has not yet obtained reasonable explanations and sufficient information of transactions with Entity A from the company as of May 30. As reported, Entity A is a business entity domiciled in Russia, PwC had raised questions over, among other things, the company’s relationship with Entity A and the commercial basis of its transactions with Entity A.

Regarding the prepayments, PwC said that the main concerns on certain prepayment balances as of Dec. 31, 2023 include: (a) certain prepayments accounted for a substantial percentage of the total contract amount, and purchased fixed assets or inventories had not been delivered to the company within the contracted time period; and (b) certain prepayments were settled by various transactions (cash, other services or other goods), which were different from the original purchase contracts. PwC was concerned about the commercial rationale for certain prepayments, the reasonableness of the delivery of fixed assets or inventories in a longer time period and the recoverability of certain prepayments. In addition, one of the prepayments which was fully settled in 2023 for the procurement of certain fixed assets was later transferred by the supplier to a third party as payment for renovation services to the company’s vessel. Such payment was fully capitalized and recorded as fixed assets on Dec. 31, 2023, which PwC requested the company to provide further supporting documents and confirm appropriate accounting treatment.

In relation to the debt extension, PwC claimed that as of May 30, no definitive agreement on the terms of the debt extension has been entered into by the parties. PwC has not obtained all the necessary information to perform its audit procedures related to the assessment of the company’s ability to continue as a going concern.

PwC also stated in the letter that the following matters shall require attention in relation to the audit of the annual results for 2023: (a) the reasons for the inconsistency between the financial information reported by the subsidiaries in Pakistan and Ecuador to the Group for the purpose of preparing the consolidated financial statements and the financial statements used by such subsidiaries for local tax filing, and the corresponding follow-up evaluation; (b) impairment assessment of inventory/long-term assets of certain subsidiaries; and (c) assessment of the potential impact of the outstanding audit matters on the company’s very substantial disposal transaction which was completed in November 2023 and the corresponding annual consolidated financial statements, according to the announcement.

Given the aforementioned key audit issues and other matters, PwC could not estimate the scope of additional audit work and timetable for completing the audit of the 2023 annual results. With a view to shorten the trading suspension period and having considered the audit timetable and audit fee, the board has recommended PwC to resign as the auditor on May 22, the announcement says.

The official appointment of Crowe as new auditor is now subject to the completion of Crowe’s internal clearance procedures which are now being conducted, and the company will issue a separate announcement in relation to the appointment of Crowe upon completion of such procedures.

Additionally, due to the delay in the publication of the annual report for 2023, the board wishes to inform the shareholders and potential investors of the company that its 2024 annual general meeting will be postponed accordingly until further notice.

UPDATE 2: Hilong Holding to Further Delay 2023 Annual Results Release, Board Meeting; No Agreement on Debt Extension Terms

UPDATE 2: 10:43 p.m. ET 5/1/2024: Hilong Holding Ltd. announced to the Hong Kong stock exchange overnight April 30 that the publication of its 2023 annual results will be further delayed as additional time is required for investigation related to issues raised by its auditor PricewaterhouseCoopers regarding certain transactions, and for the auditor to complete the 2023 audit. The board is not able to determine the expected date of publication of the 2023 annual results. Accordingly, the board meeting for approval of the 2023 annual results and its publication is also postponed.

As of April 30, an investigation into the three issues cited in the March 19 announcement raised by the auditor are still in progress. The updates regarding the key issues are as follows:

1. The company has engaged a financial advisor to formulate a proposed plan for the debt extension. The company, together with the debt advisor, are in the process of diligently evaluating the company’s operational and financial situation, and engaging in dialogues with the company’s creditors, with a goal to formulate a consensual debt extension plan as soon as practicable. As of April 30, no definitive agreement on the terms of the debt extension has been entered into by the parties.
2. As of April 30, the investigation for the transactions for sale and procurement of pipe materials between Russian subsidiaries of the group and a business entity domiciled in Russia is still in progress and the independent advisor Ernst & Young (China) Advisory Ltd. has not drawn any conclusion on the transactions.
3. Further, as of April 30, the auditor is still in the process of reviewing the company’s explanations and supporting documents of the prepayments in relation to the procurement of pipeline materials, equipment and others provided by the company.

Trading in the company’s shares on the exchange has been suspended from April 2 at 9 a.m., and will remain suspended until further notice, according to the announcement.

UPDATE 1: Hilong Selects Admiralty Harbour for Bond Extension Talks

UPDATE 1: 6:03 a.m. ET 3/21/2024: Hilong Holding has selected Admiralty Harbour to advise on a further extension of offshore debt maturities, including outstanding restructured $314 million, 9.75% due Nov. 18 notes, according to two sources familiar with the matter.

The Hong Kong-listed Chinese oilfield equipment and services company also selected an international legal advisor, said one of the sources.

Hilong announced on Tuesday, March 19 that it had “engaged a financial adviser” and was “in the process of assessing and communicating with the creditors to formulate a plan and the implementation of related measures for the extension of debts”.

The debt was among three issues the announcement cited as being raised by auditor PricewaterhouseCoopers while in the process of preparing Hilong’s 2023 results. The other two issues involved the trading of certain pipe materials by Russian subsidiaries in the past two years and payments made to some suppliers.

The outstanding senior bonds stem from a restructuring that Hilong completed in May 2021 to term out two precursor tranches, including one that was past due. Admiralty Harbour also advised on that exchange offer along with Sidley Austin.

Hilong didn’t respond to an emailed request for comment. Admiralty Harbour declined to comment.

–Ziyu Zhang

Original Story 11:46 p.m. UTC on March 19, 2024

Hilong Holding Auditor PwC Raises Issues Regarding Co.’s Transactions, Co. to Delay Release of FY’23 Results, Engages EY for Investigations; Trading in Shares to Be Suspended Effective April 2

Relevant Document:
Announcement

Hilong Holding Ltd. announced to the Hong Kong stock exchange on March 19 that during the course of the audit process and preparation of its annual results for the year ended Dec. 31, 2023, PricewaterhouseCoopers, the auditor of the company, identified certain issues in relation to some of the group’s transactions. The key issues identified by the auditor are summarized below:

1. As of Dec. 31, 2023, the group’s outstanding principal amount of senior notes amounted to $314 million with a maturity date on Nov. 18, and it is noted that the company is still in the process of assessing and communicating with the creditors to formulate a plan and the implementation of related measures for the extension of debts to support that the group will be able to continue as a going concern.

2. The transactions for sale and procurement of pipe materials entered into by certain Russian subsidiaries of the group for the years ended Dec. 31, 2022 and 2023 and a business entity (“Entity A”) domiciled in Russia. The auditor raised concerns about certain details of the transactions and suggested that, among others, (i) the audit committee of the company is responsible for the formation of an independent investigation committee; (ii) the independent investigation committee shall appoint an independent third-party investigative agency to assist its investigation on, among others, (a) the concerns raised by the auditor with respect to the transactions; (b) the relationship between the group and Entity A; and (c) the commercial basis of the transactions.

3. The auditor raised concerns about certain details of prepayments made by the group to its suppliers in relation to the procurement of pipeline materials, equipment and others, and the company is obtaining further information and supporting documents to ascertain the business substance and support the relevant audit work.

As of March 19, the board and the audit committee are working proactively with the auditor to address the above issues and any other matters raised by the auditor, and the investigation committee has engaged Ernst & Young (China) Advisory Ltd. on March 12 as the forensic accounting specialist to conduct the investigation with the intention to complete the investigation and finalize the 2023 annual results before the end of March, the announcement states.

The board said as it needs more time to finalize the 2023 annual results and complete the investigation, and the auditor also needs more time to collect information and complete the audit, it will delay the publication of the annual results. Therefore, trading in its shares is expected to be suspended with effect from April 2 at 9 a.m., pending the publication of the annual results, according to the announcement.

Hilong Holding’s capital structure is below: