EC World REIT Update: Legal Proceedings and Unauthorised Mortgages – Key Investor Implications

Overview

EC World Asset Management Pte. Ltd., the manager of EC World Real Estate Investment Trust (ECW), has released a significant update regarding ongoing legal proceedings tied to the imposition of unauthorised mortgages over certain assets in China. This announcement contains potentially price-sensitive information that shareholders and investors should pay close attention to, as it relates to the validity of mortgages, ongoing lawsuits, and the financial exposure of ECW’s subsidiaries.

Key Points from the Announcement

• Legal Judgements Against ECW Group: The People’s Court of Fuyang District, Hangzhou City dismissed ECW’s applications to invalidate and revoke mortgage contracts over Fuzhou E-Commerce (FZDS) executed in favour of Fuyang Financial Institutions. These judgements were issued in April 2025.
• Appeal Filed: ECW’s manager, advised by its PRC legal counsel, has appealed the April 2025 judgements due to certain issues not being addressed during the proceedings. The appeal is now pending at the Hangzhou Intermediate People’s Court.
• Pending Lawsuits Initiated by Fuyang Futoufa: Fuyang Futoufa, one of the Fuyang Financial Institutions, has initiated two lawsuits against ECW subsidiaries:
  • First Lawsuit: Against HDSP and FZDS regarding guarantees signed on 26 September 2023 (the “Sep 2023 Guarantees”) for a loan of up to RMB140 million granted to Forchn Holdings Group Co., Ltd. (the “Sponsor”).
  • Second Lawsuit: Against HDSP, FZDS, and FHCC (collectively, the “ECW Guarantors”) regarding guarantees signed on 20 November 2023 (the “Nov 2023 Guarantees”) for a loan of up to RMB120 million to the Sponsor.
• Outstanding Mortgage Exposure: Of the unauthorised mortgages previously granted, only the mortgage over FZDS remains outstanding. The mortgages over FHCC and Hengde Logistics have been discharged.
• Nature of Rescue Funds and Guarantees: Both lawsuits relate to rescue funds provided by Fuyang Futoufa to the Sponsor as part of arrangements between the Fuyang Government and the Sponsor group. EC World REIT was not privy to and did not consent to the unauthorised mortgages or guarantees.
• Lack of Disclosure by Sponsor: ECW’s manager demanded relevant documents from the Sponsor regarding the unauthorised mortgages and guarantees, but these documents were not provided. The Sponsor admitted to failing to disclose the guarantees due to a manpower shortage arising from its financial crisis.
• Current Status and Manager’s Response: The Sponsor is negotiating a settlement plan to repay RMB286 million in outstanding rescue funds with other collaterals. The purpose of the lawsuits, according to the Sponsor, is to preserve creditor rights rather than actively enforce the guarantees. ECW’s manager intends to defend both lawsuits, with advice from PRC legal counsel.
• Potential Share Price Impact: The ongoing legal disputes, unauthorised guarantees, and exposure to substantial debt (RMB286 million) present material risks to EC World REIT. These developments may significantly affect the trust’s financial standing and investor confidence.

Important Matters for Shareholders

• Material Litigation Risk: EC World REIT is confronting unresolved legal risks associated with the outstanding unauthorised mortgage and the two lawsuits regarding guarantees. The outcome of these cases could have a direct impact on the REIT’s assets and liability structure.
• Lack of Consent and Disclosure: The REIT did not consent to the arrangements (mortgages and guarantees) and was not privy to the Sponsor’s dealings. This lack of transparency and oversight may raise corporate governance concerns.
• Potential Recovery of Assets: The Sponsor’s negotiation for alternative collateral provides some prospect for mitigating risk, but there is no certainty of favourable outcomes.
• Active Legal Defense: ECW’s manager is actively defending its position in court and has retained PRC legal counsel to manage the litigation process.
• Caution Advised: The Board advises shareholders and investors to exercise caution when dealing in EC World REIT units, given the ongoing uncertainties and potential for material developments.

Forward-Looking Considerations

Investors should monitor the progress of the appeals and lawsuits in the Hangzhou courts, the Sponsor’s settlement negotiations, and any further announcements from EC World Asset Management. Material changes in the status of these disputes could move the share price of EC World REIT, either positively or negatively.

Conclusion

The legal proceedings and exposure to unauthorised mortgages and guarantees present significant risks and uncertainties for EC World REIT. Investors should remain vigilant and seek professional advice if unsure about the implications for their investment. All material developments will be disclosed by the manager in accordance with SGX listing rules.

Disclaimer

The information presented above is based on the latest announcement issued by EC World Asset Management Pte. Ltd. It is intended for informational purposes only and does not constitute investment advice or an offer to purchase securities. Past performance is not indicative of future results. Investors are advised to consult their stockbrokers, bank managers, solicitors, or other professional advisers if they have any doubt about the actions they should take.

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