The Thailand-listed Group Lease PCL, which provides loans for poor peasants to buy motorbikes and agricultural equipment in several Southeast Asian countries and which has become a darling of Thai investors, is actually worth a fraction of its share price and could well in effect be little more than a Ponzi scheme, according to an exhaustive report issued on Oct. 11 by a mysterious organization calling itself Anonymous Equity.
Requests to Anonymous Equity to provide a more thorough account of its identity went unanswered. However, Asia Sentinel has checked the report’s main findings with others in the investment community and corporate risk investigation and its conclusions are sound, they said.
In response to an email seeking more information, the authors did say they are based in Asia and that they are “concerned about the capital allocation process and the integrity of the capital markets in Asia." They “prefer to stay anonymous as we would like to go about our lives as normal, without attracting unnecessary personal attention. We hope that the weight of the evidence in the report speaks for itself.”
The 63-page report, titled “Is Group Lease a Fraud?” argues that the company, which is loosely tied to the Tokyo-based J Trust financial empire – whose investors include US Commerce Secretary Wilbur Ross and the behemoth California Public Employees Retirement Fund -- “would not have survived” without the controversial Tokyo-based financial group’s help.
Group Lease is said to have misrepresented itself on an extensive list of crucial issues including the identity of its key officials and has manipulated its share price via questionable financial dealings. Group Lease is said to be part of a much large group of Japanese and Southeast Asian entities known as the Group Lease/APF Group controlled by a British Virgin Islands company called APF Group Co. Ltd.
After detailing a long series of discrepancies, the report says: “It thus appears likely that Group Lease may be lying about several important issues.” The anonymous writers say the Group Lease/APF Group entities may be “round-tripping” group money through Singapore borrowers, disguising group money as ‘interest income’ in order to create the illusion of earnings for Group Lease.”
J Trust and Group Lease were the subject of extensive reports by Asia Sentinel earlier this year after it appeared that the company was kiting its share price on the Stock Exchange of Thailand, rising by more than 1,100 percent in early 2015 to late 2016. After the auditors EY issued a report featuring nine pages of questions over intercompany loans, the share price plummeted by 80 percent before rebounding. EY also raised questions about the acquisition of a 30 percent-odd stake in a Sri Lankan company from a related party, which occurred at a 120-percent premium to market price.
Despite the publicity, the company has intrigued Thai investors who have bought its stock on the theory that its business is built on the healthy growth of motorcycle and agricultural sales in the countries in the ASEAN region. However, according to the report, its core hire purchase business in Thailand has actually been deteriorating and its growth has instead been built on a series of investments and acquisitions that are ambiguous at best.
According to Anonymous Equity, Group Lease’s earnings are at least partly built on what is alleged to be “dubious interest income” from circular loans between related parties. If that income were stripped out, the company’s actual earnings for the previous year would fall by 55 percent. More than 40 percent of its earnings in 2015 and the first half of 2017 came from interest income on “suspiciously high-interest loans” to two groups of buyers in Singapore and the island of Cyprus in the eastern Mediterranean Ocean which has been a hotbed of financial legerdemain.
Anonymous Equity said in the report that it has conducted a detailed examination of corporate filings for Group Lease and its affiliated entity APL Group of companies and determined that the Singapore and Cyprus borrowers should be considered related parties moving money between themselves to inflate the value of Group Lease.
In particular, what is described as a major reason for the company’s higher revenues and profits in 2016 and the first half of 2017 were major loans to two groups of shareholders in Singapore and Cyprus that generated Bt485 million (US$14.66 million at current exchange rates) and Bt525 million (US$15.57 million) in the 12 months to end-June, amounting to approximately 40 percent of consolidated net income.
“As a result,” the report states, “we believe that GL is purposely misleading its investors, its auditor [EY] and the Stock Exchange of Thailand about its relationship with these borrowers.”
Group Lease claims that a Japanese group controls the Singapore borrowers. Anonymous Equity has identified that as Kuga Corp and related companies (i.e. the Kuga Group) because they are close to GL and match the description that GL has provided. However, corporate filings show that the Singapore borrowers are not owned by any Japanese group, but instead are actually controlled by the Cambodian tennis fan Tep Rithivit, himself one of the named Singapore borrowers, and is a friend of Konoshita's. This discrepancy effectively means GL is trying to mislead everyone
In addition, real estate put up as collateral in Hyogo Prefecture in Japan for Group Lease loans to Singapore borrowers probably doesn’t exist, the report said.
The ‘round-tripping’ described in the report is said to be similar to stock manipulation of a related Japanese company, Wedge Holdings, by Mitsuji Konoshita, the Group Lease CEO and chairman, over the previous decade, and described in an Asia Sentinel story on June 30. Japanese regulators found in 2013 that Konoshita had manipulated Wedge’s share price and hit him with one of the largest fines – the equivalent of US$37.1 million – ever levied in Japan. Konoshita is appealing the ruling and the fine, so far unsuccessfully.
“There seem to be many secrets hiding within the broader Group Lease /APF Group,” the authors write.
“Readers with further information concerning any suspicious activities from Group Lease and its group companies, as well as J Trust, are encouraged to come forward and share what they know with the relative stock exchanges and regulators.”