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CityNews reports,

CHC Trial: Defendants Worked Out Budget To Ensure Xtron Recouped Its Investment

$4.5m fee executive producers demanded was deemed unreasonable; defendants reworked budget plan to ensure Xtron could recoup its investment in the Crossover Project. Also raised: the Riverwalk purchase and Ren Ci case caused defendants to seek advice of auditor Foong Daw Ching.

This morning in court, lawyer Edwin Tong brought his client Kong Hee through a series of emails to show how Kong and his team had worked hard to arrive at a budget plan that would allow Xtron to recoup its investments into the US album, thus letting it make good on the bonds it had issued to CHC.

The court saw emails dated July 2008, which showed how Kong worked with co-defendants Tan Ye Peng, Serina Wee and Chew Eng Han to ensure that Xtron was able to allow redemption of the bonds, and at the same time raise more funds to support the US album.

The emails first revealed the discussions Kong had with Justin Herz, Sun Ho’s manager in the US, regarding the budgeting of the US album. The court heard that by that time, Herz had brought in songwriter and producer Wyclef Jean to “polish up” the album. Jean felt that the album needed to be re-recorded in an Asian-Reggae style that would make Ho more marketable. Jean also roped in Lisa Ellis, then the vice president of Sony Music. About S$5 million had been spent on the album so far, and with Jean’s and Ellis’ involvement and change of direction, there was a demand for an additional US$13.4 million, US$4.5m of which would go to advance fees for Jean, Ellis and a third partner.

Given the cost of the US producers’ demands, Kong considered the project to be of high risk—the projections had become unbalanced. Kong told the court that he was not ready to subject Xtron to that risk.


The court saw how Tan worked out different scenarios of the budgeting exercise. Kong said it was understood that given a 50 percent profit-sharing scenario with the US producers, Xtron would make a loss.

Concurrently, detailed email discussions in Jul 2008 with Tan, Wee and Chew showed that Kong had been made aware that the Xtron bond redemption date was approaching and monies had to be paid back to City Harvest Church.

Kong felt that advance required by the US producers was “unreasonable” and made the projection “imbalanced”; it put the financing of the music album at high risk. Kong thus asked Herz to negotiate with Jean and Ellis for a more favorable profit sharing ratio between the two parties, so that Xtron could receive better commercial returns and be able to recover all that it had invested into the project.

Kong told the court that while he was leading the negotiations for the US album, he was fully mindful that CHC was investing $13 million into Xtron. If the album proceeds did not meet the requirements, the church may in turn suffer loss.

In other emails, the court saw how Wee reworked the seven-year projection by Herz to arrive at win-win solutions. Wee calculated that if Jean wanted USD$4.5m in consultation fees, the profit-sharing ratio needed to be a 90-10 split in favor of Xtron, in order for Xtron to recoup and make some profit.

When it came down to having a lower, more reasonable budget for the album versus having a successful album that would propel the Crossover to a global level, Kong said that he was mindful of the mandate given to the church by God. But he could not subject Xtron to such risk where it could not pay CHC back. Kong said he would always put the church first.


chc-trial-kongheeIn an email from Chew to Kong and Tan on Jul 6, 2008, Chew proposed that Xtron buy the Riverwalk property and collect rent from CHC, as a means to capitalize Xtron. Kong questioned if the property could be easily sold and was given assurance by Chew. Kong then gave instruction that the auditors, namely Foong Daw Ching, had to vet through and advise on the proposal.

The court saw a subsequent email from Wee to Foong on Jul 9, 2008 asking him if there was an issue of CHC investing heavily into Xtron when it had been insolvent for the past few years, even though Xtron paid CHC a high interest of 7 percent per annum.


Tong brought up a chain of emails and Blackberry messages to show that Kong had wanted Foong to check through all the transactions pertaining to the Xtron bonds and also to advise on Chew’s idea for Xtron to purchase Riverwalk and collect rental from CHC and other tenants.

This was sparked off by CHC staff member, Suraj, who, in the wake of Ren Ci’s founder Ming Yi being found guilty of fraud, forgery and corruption, emailed Kong to highlight possible corporate governance issues. CHC was paying Xtron a retainer fee and at the same time, Xtron was managing Ho. Kong then asked Suraj and Tan, with two other members of senior management, to meet with Foong and do an internal audit of the Xtron bond transactions. Kong explained that he wanted to conduct an investigation and to rectify any governance issues.

When asked what the sentiment of the senior management was at that point in time, Kong replied that he believed that, by getting the auditors to check all the transactions pertaining to Xtron bonds, they wanted to satisfy themselves that there had been no lapses in corporate governance. He also wanted the auditors to check through the plans to issue more bonds in order to support the US album and the purchase of Riverwalk.

He explained further that he wanted the team to meet with Foong urgently because Foong was aware of all the transactions and would be the best person to do the check. Kong agreed with his defense counsel that he had nothing to hide from the auditors.

Court resumed at 2.15pm.

Source: The City News Team, CHC Trial: Defendants Worked Out Budget To Ensure Xtron Recouped Its Investment, CityNews, http://www.citynews.sg/2014/08/chc-trial-defendants-worked-out-budget-to-ensure-xtron-recouped-its-investment/, Updated 4:30pm 13/08/2014. (Accessed 14/08/2014.)