Thursday 29 Feb 2024
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This article first appeared in The Edge Malaysia Weekly on March 28, 2022 - April 3, 2022

SERBA Dinamik Holdings Bhd fired the first salvo against the authorities when it sued Bursa Malaysia Securities Bhd on the ground that the latter had acted in excess of its power on the requirement to conduct a special independent review (SIR) and disclose the findings.

Bursa Malaysia subsequently filed an originating summons against Serba Dinamik for breach of listing requirements and failure to disclose the fact finding update (FFU) prepared by EY Consulting Sdn Bhd in the SIR.

Court documents in the legal battle between Bursa and Serba Dinamik sighted by The Edge reveal several interesting aspects of the ongoing saga.

Serba Dinamik’s then chairman Datuk Mohamed Ilyas Pakeer Mohamed said in his affidavit that the intention of the suit filed by the company was to seek relief in court to obtain orders that would lead to the lifting of the suspension by Bursa of the trading of Serba Dinamik shares.

Mohamed Ilyas resigned from his position in November last year and Serba Dinamik shares have remained suspended since last October after the former failed to disclose the FFU by EY Consulting.

Mohamed Ilyas’ affidavit also states that the actions of Securities Commission Malaysia (SC), Bursa and its former statutory auditor KPMG had resulted in a sum of RM5.8 billion being wiped out from the market, with the losses being borne by public investors.

Consistent with what Serba Dinamik managing director Datuk Mohd Abdul Karim had contended when the issue first surfaced in May 2021, Mohamed Ilyas pointed out in his affidavit that KPMG had been its statutory auditor for seven financial years, with the seventh year being the financial year ended Dec 31, 2020 (FY2020).

What is interesting, though, is that up until FY2019, the auditing of Serba Dinamik’s financial statements had always been done by a KPMG partner from the Sarawak office.

It was only for the FY2020 financial statements that the audit firm made a change in the engagement partner to someone based out of its Kuala Lumpur office.

It should be noted that Serba Dinamik was founded in Sarawak but in recent years had relocated its head office to Selangor. In its first annual report upon listing, for the financial period ended Dec 31, 2016, the location of its head office was stated as Pusat Dagangan Umno Shah Alam.

Subsequently, the 2018 annual report showed the group relocating to a building named after the company, Menara Serba Dinamik, in Section 14 of Shah Alam.

The affidavit by Mohamed Ilyas essentially described the events of the audit chronologically from the perspective of the company. The affidavit said that the statutory auditors “did not find anything unusual to report” during the first audit and risk management committee meeting on Feb 17, 2021.

However, subsequent meetings in the months that followed saw the auditor raising audit issues, which included a “lengthy discussion concerning the identity of a ‘designated person’ in respect of a project in Qatar”, according to the affidavit.

From audit issues about the project in Qatar to concerns about debtor balances, the auditor raised other issues, including external customer and local supplier confirmation, customer and supplier in Bahrain and legitimacy of IT contracts.

The affidavit added that KPMG did not in any of the recorded communication indicate that Serba Dinamik had breached any requirement or provisions of the securities law or the rules of the stock exchange, nor did it indicate any matter that might adversely affect the financial position of the company materially.

According to the affidavit, KPMG communicated that it would not continue its audit until an independent review was undertaken by another auditor and the results of the review were available.

What happened subsequently was the raid by the SC on Serba Dinamik. Mohamed Ilyas said in the affidavit that the company did not know that KPMG had approached the SC.

Bursa was made aware of the audit issues raised by KPMG on May 25, 2021.

“It was not known to the Plaintiff (Serba Dinamik) as regards whether such audit issues were communicated by the SC to the Defendant (Bursa Malaysia) or communicated by KPMG to the Defendant. What is significant was that it was communicated,” the affidavit said.

In June, KPMG resigned as Serba Dinamik’s statutory auditor. EY Consulting was appointed and directed by Bursa Malaysia to undertake an SIR.

As the group’s troubles surfaced in May, institutional investors started to sell down their shares in Serba Dinamik. The affidavit highlighted that this created a downward pressure on the share price of the company.

Kumpulan Wang Persaraan (KWAP) pared down its stake in the company and ceased to be a substantial shareholder on June 1, 2021. On June 25, 2021, the Employees Provident Fund (EPF) also ceased to be a substantial shareholder.

Between May 28, 2021 and June 29, 2021, the counter shed 80%, from RM1.61 to 32 sen apiece.

Lenders’ potential exposure

Serba Dinamik’s lenders pulled the plug on their lending facilities by freezing redrawing, notes the affidavit, owing to the negative publicity on the group.

“The inability to re-draw on banking facilities is a game-changing event that would throw the Plaintiff into a tail-spin,” added the affidavit by Mohd Ilyas.

According to the list of lenders detailed in the affidavit, the Serba Dinamik group’s total credit limit from its lenders amounted to approximately RM2.7 billion and US$215 million in foreign currency (see table).

Most of the lending provided to Serba Dinamik comprises revolving credit facilities.

At this point, it is unclear how much the group has drawn down on each facility. It is also uncertain if the borrowings are collateralised.

However, according to its latest available financial statements for the quarter ended Dec 31, 2021, the group’s financing amounted to RM1.6 billion in secured and unsecured borrowings in local currency and RM2.06 billion in foreign currency denominated secured and unsecured loans.

The bank which appears to be offering the largest facility to the company is HSBC Amanah Malaysia Bhd, with a RM1.3 billion limit and a foreign currency facility limit of US$47 million. A far second is Standard Chartered Saadiq, with a RM315 million limit and a foreign currency facility limit of US$93 million.

Local banks like Hong Leong Islamic Bank Bhd, Bank Rakyat, MBSB Bank, RHB Islamic Bank Bhd and Ambank Islamic Bank Bhd have also extended credit facility limits that are over RM100 million each.

When contacted for comments regarding the facility limit extended to the company, the banks — Standard Chartered, HSBC and RHB — separately said they declined to comment as the matter was in the court and they did not comment on matters concerning their customers.

AmBank Group, which was also contacted by The Edge, said it would not be commenting on the matter as it would be a breach of the Financial Services Act 2013 and the Islamic Financial Services Act 2013.

“Suffice to note, we continue to be proactive and prudent in managing risks and have taken pre-emptive provisions against certain loan portfolios. In fact, for the nine months ended 31 Dec 2021, it is important to note that our gross impaired loans (GIL) ratio was lower at 1.35% compared to 1.54% as of FYE Mar 2021,” adds the banking group.

Creditors reacts to frozen facility

As a result of the banks’ freezing the lending facility to the group, Mohamad Ilyas said in his affidavit, creditors imposed a cash-on-delivery policy on the group.

“This situation had significantly and fundamentally impacted the Plaintiff’s cash flow and it had also restricted the Plaintiff in terms of mobilising for projects and bidding for new projects,” he said.

Nonetheless, he also admitted that it was not surprising that the suppliers and vendors would impose a cash-on-delivery policy when trading with the company given that the banking facilities had been stopped by the lenders.

 

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