Oriental Century CEO Claims to Have Inflated Numbers

By SE YOUNG LEE and P.R. VENKAT

SINGAPORE -- China-based education firm Oriental Century Ltd. Thursday said its chief executive had inflated the company's sales and cash balances, prompting a suspension of its shares on the Singapore Exchange.

In a filing to the exchange, Oriental Century said chief executive Wang Yuean tendered his resignation at a board meeting Tuesday. The board accepted the resignation Wednesday, and has appointed Chief Investment Officer Lei Hua as acting chief executive.

The education services provider, which is listed in Singapore but operates mainly in China, said Mr. Wang had revealed that cash and cash equivalents of 234 million yuan ($34 million) reported in its unaudited financial statement for the year to Dec. 31, 2008, had been "substantially inflated."

It said its auditor KPMG had flagged doubts over its bank balance on Monday. KPMG couldn't immediately be reached for comment.

"(Mr. Wang) alleged that he had made up fictitious accounting and related records to lead the directors, the (chief executive officer) and the auditors to believe that the cash were in existence," the company said.

Oriental Century officials said they didn't know Mr. Wang's whereabouts, and he couldn't be reached for comment.

Raffles Education Corp.'s Chief Executive Officer Chew Hua Seng said Mr. Wang was in China. Raffles Education is Oriental Century's biggest shareholder, with a 29.9% stake.

Oriental Century said it asked for its shares to be suspended due to uncertainty over its financial position. On Monday, the company had requested a trading halt, a measure short of a suspension, after its shares fell 16%, leaving its market capitalization at around 26 million Singapore dollars ($17 million). The wider Straits Times Index fell only 3.7% that day.

Oriental Century said the acting CEO as well as Chief Financial Officer Chan Yong Hock will travel "as soon as possible" to China, where the firm's principal operations are located, to investigate the matter further.

Its core business is providing management services to educational institutions such as kindergartens and high schools. Mr. Wang, who founded Oriental Century, owns a 25.4% stake in the company.

Following Oriental's share losses Monday, Raffles Education's stock fell 19% over the next two days, but was recently up almost 5% after the company moved to assuage concerns over its exposure to Oriental. Raffles Education said it has invested a total of S$30.2 million in Oriental Century since December 2006.

"In the worst case where Oriental Century ceased to be a going concern, Raffles Education Corp. will need to write-off fully its investment," it said. "Should this happen, this would result in a write-off of S$34.6 million."

Mr. Chew said Raffles's growth wouldn't be affected by its involvement with Oriental. Raffles sales in fiscal 2008 were S$190 million. "Our business model is very good, intact and our cash position is secure," Mr. Chew said.

Separately, Singapore Exchange said it is "in communication" with Oriental Century.

Oriental is one of the exchange's so-called S-shares, a company based in China but listed in Singapore. S-shares have underperformed the broader market in recent months, not least because some of these firms have run into corporate governance problems. Last week, another S-share, Sino-Environment Technology Group Ltd., asked for its stock to be suspended after disclosing that controlling shareholder Thumb (China) Holdings Group Ltd. was in default of certain financial obligations to hedge funds. The suspension of Sino-Environment's shares was lifted Thursday, and its shares promptly collapsed 73%.

Write to P. R. Venkat at p.r.venkat@dowjones.com