This article first appeared in The Edge Malaysia Weekly on March 28, 2022 - April 3, 2022
OVER a three-day period in August last year, the Securities Commission Malaysia (SC), which regulates the country’s capital markets, conducted raids on oil and gas outfit Serba Dinamik Holdings Bhd. It carted away 60 boxes of documents from Menara Serba Dinamik in Section 14, Shah Alam, in Selangor.
Market scuttlebutt has it that the SC personnel were forced to take the stairs up and down the 15-storey building as the electricity supply had been cut for some reason.
Nevertheless, the authority found 59 company and personal stamps of external parties in a box, according to court documents. Some of the stamps were from prominent companies such as Malaysia LNG Sdn Bhd, Petronas Gas Bhd, Petronas Carigali Sdn Bhd, Petronas Methanol (Labuan) Sdn Bhd, Petronas Chemicals Methanol Sdn Bhd, Petronas Refinery and Petrochemical Corp Sdn Bhd, Petronas Chemicals Ammonia Sdn Bhd, Sarawak Shell Bhd, Petronas Chemicals LDPE Sdn Bhd, Exxonmobil Exploration and Production Malaysia Inc, Petronas Carigali (Turkmenistan) Sdn Bhd, Petronas Chemicals Derivatives Sdn Bhd, Sabah Shell Petroleum Co Ltd, Shell MDS (Malaysia) Sdn Bhd, PRPC Utilities and Facilities Sdn Bhd and Shell Cyberjaya.
Bursa Malaysia Bhd chief regulatory officer Julian Mahmud Hashim in his affidavit in the case against Serba Dinamik says, “Premised on the above observations, there is a question as to the rationale for Serba Dinamik to have in its possession, company stamps of external parties. Further, depending on the circumstances surrounding the use of these company stamps, then the above could lead to concerns on the veracity of the (company’s) transactions.”
To recap, Bursa Malaysia had sought legal redress against Serba Dinamik for not adhering to its instructions and making public a factual findings update (FFU) after a special independent review (SIR) undertaken by Ernst & Young Consulting Sdn Bhd (EY Consulting). EY Consulting was roped in after former auditors KPMG highlighted irregularities at the oil and gas engineering services company, and was tasked with coming up with a FFU.
KPMG had flagged total sales transactions of RM2.32 billion, a trade receivables balance of RM652 million and materials on site balance of RM569 million, and there were issues with suppliers, with paid-up capital of only RM100,000 and having similar registered addresses, carrying out transactions of between RM60 million and RM96 million. In total, these transactions amount to RM481 million.
Questions were also raised about a customer and supplier in Bahrain whose office address could not be located. Transactions with this outfit totalled US$101 million (RM417.48 million then) and the trade receivables balance was US$24 million (RM99.2 million then).
While Serba Dinamik had sought to dispel all of KPMG’s allegations as trivial, the EY Consulting report, which is more than a thousand pages in total, seems to confirm KPMG’s suspicions and makes it apparent that the issues at Serba Dinamik are not only real but material.
It is also now clear why Serba Dinamik has been trying very hard to prevent the EY Consulting report from being made public.
Many other discoveries, which in the normal course of business would raise red flags, were also seen in the court documents filed last November by frontline regulator Bursa Malaysia.
Other findings include email exchanges between Serba Dinamik’s staff asking for purchase orders to be prepared under the names of Serba Dinamik’s local suppliers.
EY Consulting named four of Serba Dinamik’s local suppliers — Eastgate Dynamics Sdn Bhd, Kekal Jitu Sdn Bhd, NFZ Engineering Sdn Bhd and Naftech Energy Sdn Bhd — as being connected or related directly or indirectly to employees of Serba Dinamik, indicating that Serba Dinamik was in control of these companies. Two other suppliers, Edaran Kejuruteraan Bengkel Sdn Bhd and FRZ Scientific Sdn Bhd, had other issues.
The EY Consulting report stops short of stating that Serba Dinamik was utilising the company stamps and falsifying documents, boosting contracts to raise funds from financial institutions and paying off suppliers (under its control) that issued invoices, purchase orders and delivery orders.
Some of EY Consulting’s findings
In July 2018, national oil company Petronas launched a new vendor development scheme under which 18 organisations — six petroleum arrangement contractors and 12 oil and gas service and equipment companies (Serba Dinamik was one of them) — were slated to replicate Petronas’ vendor development programme (VDP).
Two of Serba Dinamik’s vendors under the VDP — Vibrant Victory Sdn Bhd and Technorette Sdn Bhd — had links either directly or indirectly to Serba Dinamik’s employees.
Editable Microsoft spreadsheet files containing templates of invoices and delivery orders of 10 vendors under Serba Dinamik’s VDP and email communications with a list of suppliers’ company stamps were found in devices and server files of Serba Dinamik employees. The total transactions in these files amounted to RM357.49 million.
According to Julian’s affidavit, EY Consulting’s findings showed that Serba Dinamik had paid for the purchase of furniture in NFZ Engineering’s office.
EY Consulting also found hard copy invoices for incorporation fees of both Naftech Energy and Edaran that bore the words “to pay using EIL” in handwriting believed to be that of Serba Dinamik’s managing director and largest shareholder (21.22%) Datuk Mohd Abdul Karim Abdullah. “EIL” refers to Emirtech International Ltd, in which Karim and Serba Dinamik non-independent non-executive director Datuk Awang Daud Awang Putera are directors as well.
Transactions with Naftech and Edaran listed as trade creditors in FY2020 amounted to RM169.05 million.
EY Consulting also found that Serba Dinamik’s employees had helped in the incorporation of Regen Batt (M) Sdn Bhd and the setting up of its bank account. Regen Batt is linked to Edaran and FRZ.
Serba Dinamik’s IT business in Bahrain, for which KPMG had sought clarification, could also be plagued with issues.
EY Consulting identified six of Serba Dinamik’s customers in Bahrain, namely Najmat Al Maisan Technical Services LLC, Technobyte Computing WLL, Amban Trading & Contracting WLL, Pentatech Ltd, Tecbit Lanka Pvt Ltd and SPRM Techno Infirmiere Pvt Ltd. Two suppliers identified were Litotec and MJ Trading & Contracting.
EY Consulting found company stamps of both Technobyte and Najmat Al Maisan among the items seized by the SC.
Also found were editable Microsoft Excel spreadsheets containing Technobyte’s invoices and delivery orders in excess of US$10 million.
There was also email communication among Serba Dinamik’s employees requesting for the preparation of purchase orders for 12 of Serba Dinamik International Ltd’s customers, amounting to US$66.89 million, among others. Serba Dinamik International Ltd is a wholly owned unit of Serba Dinamik.
As for KPMG’s queries on Serba Dinamik’s business in Bahrain — on the validity of the transactions and balances of a customer, Lata International Trading and Services SPC, and a supplier, Spectrum Oilfield Solution WLL — EY Consulting found that Serba Dinamik could have been managing, processing and paying the salaries of Lata’s employees, with approvals for the payments given by Mohd Abdul Karim via phone text messages.
There were also email communications between Lata and Serba Dinamik which suggest that Serba Dinamik was involved in preparing invoices for Lata. Lata’s company stamp was also found in one of the boxes seized by the SC.
KPMG’s grouse about Lata had been that its commercial registration address was that of workers’ accommodation.
EY Consulting also found Microsoft Excel spreadsheets containing nine invoices and delivery order templates of Sprectum Oilfield amounting to US$12.72 million in a device belonging to one of Serba Dinamik’s employees.
“The cumulative effects of the findings substantiate the concerns of KPMG,” a court document read.
The management of Serba Dinamik has thus far denied any issues at the company. Speaking to The Edge last June when the issues first surfaced, Mohd Abdul Karim claimed that the company had been treated unfairly by KPMG. “It’s not fair. We have been transparent, we have been in constant contact with Bursa [Malaysia], our shareholders, [as per] our responsibility.
“They (KPMG) have been our auditors for seven years. Why now, suddenly, [have they raised these issues]? The company is intact, we have strong fundamentals, we will ride through this,” he said.
“I’m also bound by the legal framework,” he added, explaining that he was not at liberty to elaborate on the issues adversely affecting the company.
With Serba Dinamik’s management refusing to divulge the FFU, Bursa Malaysia suspended the company’s shares from trading in October last year.
Serba Dinamik had sought an injunction to restrain Bursa Malaysia from compelling it to make an announcement pertaining to the FFU by EY Consulting and attempted to declare EY Consulting’s appointment as void ab initio. It even tried to obtain an injunction to restrain EY Consulting from publishing the FFU.
In Serba Dinamik’s failed attempt at obtaining an injunction against the frontline regulator, its then chairman Datuk Mohamed Ilyas Pakeer Mohamed had said in support of the move that in the event the FFU “is made publicly available/searchable through efiling system prior … the defendant (Serba Dinamik) will suffer irreparable damage and is extremely prejudicial to the defendant if any such material is published whether by design or by accident as the existence of the ‘Factual Findings Update’ itself is being put into question at the moment.” The FFU “remains a private and confidential document”, Ilyas contended.
Thus far, all of Serba Dinamik’s attempts to scuttle the court processes have been futile. Nevertheless, the company has not given up and its appeal against a High Court order to comply with Bursa Malaysia’s instruction to make public the FFU has been fixed on April 11.
On March 8, the High Court dismissed an originating summons by the company for an injunction to be imposed on EY Consulting to restrain it from disclosing findings of the SIR to Bursa Malaysia or other parties.
Meanwhile, Serba Dinamik’s legal action against KPMG resulted in the auditor stepping down in June last year, with the void being filled by Nexia SSY PLT a month later. However, it is understood that no suit has been filed against KPMG thus far.
While the wrangling continues, Serba Dinamik has lost more than RM4.7 billion in market capitalisation — from RM6 billion at its peak prior to the issues to RM1.3 billion at present — and could slip more when the suspension is lifted. Serba Dinamik was trading at 35 sen before its suspension.
In early January this year, Serba Dinamik fell into the Practice Note 17 category for cash-strapped companies.
For its six months ended December 2021, it suffered a net loss of RM332.44 million from RM976.49 million in revenue. There are no comparative figures as Serba Dinamik changed its financial year end, just before the issues cropped up, from December 2020 to June 2021.
As at end-December last year, Serba Dinamik had cash and cash equivalents of RM218.94 million. During the period under review, the company had RM2.27 billion in long-term borrowings and RM1.45 billion in current liabilities. Serba Dinamik also had retained earnings of RM724.81 million and other reserves of RM44.99 million.
Serba Dinamik’s finance costs for the six-month period were pegged at RM117.3 million. It is also noteworthy that its cash flow for the six months ended December was negative RM8.77 million.
On its prospects, Serba Dinamik says in its financial report, “Oil prices ended 2021 significantly higher than they did in late-2020, according to major oil futures contracts. However, crude oil futures prices fell for the second consecutive month in December, falling from multi-year highs set in October, owing to persistent market volatility fuelled by rising uncertainty about the impact of the rapidly spreading Omicron variant on the global economy and oil demand.
“However, due to recent geopolitical tensions and resilient oil demand, the consensus has raised their crude oil price forecast from US$75 per barrel to US$80 per barrel, and this re-rating catalyst could benefit the group’s operations.
“Despite the fact that the group has now been classified as a PN17 company, the Board is confident that the restructuring and regularisation plan will benefit shareholders in the long run.
“The Board of Directors anticipates that the group’s operations will remain challenging. On the other hand, the board of directors’ pledges to resolve the ongoing issue, including the restructuring and regularisation plan, in the best interests of stakeholders,” the company says.
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