This article first appeared in The Edge Malaysia Weekly on October 7, 2024 - October 13, 2024
DATUK Shahriman Shamsuddin, managing director of property and aviation outfit, Sapura Resources Bhd (KL:SAPRES) is understood to be on a leave of absence for a month starting Sept 11, 2024, and has been relieved of his duties, functions, powers and authority, pending an internal investigation, sources familiar with the matter tell The Edge.
An internal memo sighted by The Edge and signed by chairman and independent non-executive director Ahmad Jauhari Yahya, indicates that in Shahriman’s absence, Mai Eliza Mior Mohamad Zubir, the chief corporate officer of Sapura Resources will “temporarily assume the duties, functions, power and authority of the managing director effective Sept 11, 2024”.
When contacted, Shahriman who was travelling merely replied, “No comment.” Ahmad Jauhari did not reply to a message from The Edge.
It is not known if Sapura Resources is required to disclose that it is undertaking such an investigation and that the managing director is on a leave of absence.
While details were not readily available, it is understood that two stories are circulating. The first is that Shahriman had hired an unqualified person to work at Sapura Resources, and the second is that he is being investigated after it was reported in August that a potential conflict of interest had arisen because of his interest in aviation company Explorer Group Sdn Bhd.
Explorer Group is deemed an entity in competition with Sapura Resources’ two wholly-owned aviation-related businesses — Sapura Aero Sdn Bhd and DNest Aviation Sdn Bhd.
In mid-August, Sapura Resources announced that its board had instructed Shahriman to abstain from running the company’s aviation business, and that a board aviation management committee had been set up to handle the duties previously handled by him pertaining to the aviation business.
Explorer Group, where Shahriman is an executive director, had in early December last year signed a memorandum of understanding with Abu Dhabi-based Royal Jet LLC to collaborate and to operate private flight operations out of Sultan Abdul Aziz Shah Airport in Subang, Selangor, and act as a springboard for Royal Jet to penetrate the Southeast Asian private aviation market for fixed-base operations, private charter and aircraft maintenance services.
To put things in perspective, Explorer Group runs aviation operations, including private flight-related activities, which does make it seem to be in conflict with Sapura Resources’ two aviation-related entities — Sapura Aero and DNest Aviation.
However, in mid-July last year, Sapura Resources announced that it had inked a heads of agreement with Royal Jet to hive off Sapura Aero and DNest Aviation in their entirety, pending a legal, financial, taxation, accounting, technical and commercial due diligence concerning Sapura Aero and DNest Aviation’s businesses, assets and liabilities and any other matters that Royal Jet considered necessary.
It is not known when the plan to divest these businesses was hatched but the deal did not materialise.
In its annual report for FY2023, Sapura Resources says of its aviation arm, “The group is competing in an already saturated marketplace with numerous service providers operating out of Subang. On the demand side, key challenges such as surging fuel prices, which have impacted the purchase of new jets, behavioural shift towards teleconferencing, and significant improvement in digital capabilities that allow for virtual teams across different geographic locations, resumption of commercial aviation, and growing environmental concerns of private jet flights will continue to be the bane of any meaningful growth in demand for private jets in Malaysia.”
One source highlights the fact that Shahriman has been a director of Explorer Group since 2019, just before the Covid-19 pandemic.
Nevertheless, Sapura Resources sought an opinion from a legal firm on whether Shahriman was indeed in a position of conflict according to Section 218 of the Companies Act 2016. Legal documents seen by The Edge indicate that the legal firm is of the view that Shahriman is in a position of conflict in relation to his tie-up with Explorer Group and Royal Jet.
“It is obvious from the above facts that Datuk Shahriman will be engaging in a business which is in competition with Sapura Resources. To this end, we also understand that Datuk Shahriman has not secured the approval of the shareholders of Sapura Resources to allow him to engage in a competing business with Sapura Resources in accordance with Section 218(1)(e) of the Companies Act 2016.”
Despite being an equal shareholder in Sapura Holdings Sdn Bhd, which has a 51.47% stake in Sapura Resources, Shahriman’s brother Tan Sri Shahril Shamsuddin, who is also a non-independent non-executive director of Sapura Resources, was not found to be in a position of conflict of interest.
Shahril and Shahriman each have a 40.5% direct stake in Sapura Holdings while their equally owned vehicle Brothers Capital Sdn Bhd has a 15% stake, with businessman Datuk Rameli Musa of Ingress Bhd fame controlling the remainder 4% in Sapura Holdings.
It is understood that although Shahril was cleared of being in a position of conflict, this brouhaha exacerbated the dispute between the two brothers.
On Sept 23 this year, Shahriman filed a winding-up petition on Sapura Holdings in the High Court with Shahril and Rameli Musa named as second and third defendants respectively.
At press time, Shahril had yet to file his reply to the winding-up petition.
When contacted for comment, Shahril merely says via a WhatsApp message, “As the director of a 50-year-old company (Sapura Holdings) with close to 1,000 employees, my utmost duty is to protect them, the company and all its stakeholders. This includes its shareholders, partners, vendors and most importantly our customers — both private organisations as well as the government of Malaysia that has entrusted us with security projects concerning the nation’s security and sovereignty.”
The court has set Oct 21 for the hearing.
The crux of the dispute is the development project, Project Apex, which involves Permata Sapura — a 52-storey tower with a convention centre, mechanical floors, retail podium and a four-storey basement car park, completed in 2020 and located close to the Petronas Twin Towers.
In a nutshell, Shahriman opined that Sapura Resources lacked the financial muscle to continue with the plan and suggested a sale of the building, while Shahril believed that a cash call would solve all the issues.
To recap, Project Apex involves a 50:50 joint venture between Sapura Resources and KLCC Holdings Sdn Bhd to develop and construct Permata Sapura in a deal signed in 2011. It is also worth noting that Sapura Resources has a 15-year Master Lease Agreement (MLA) in place, commencing from Oct 1, 2021, for about 70% of Permata Sapura.
While Permata Sapura was 91% tenanted as at end-January this year, 82.6% of the existing occupants are renting below the base rate of the MLA, which has been weighing on Sapura Resources’ financials.
For its six months ended July 31, 2024, Sapura Resources suffered a net loss of RM27.61 million on revenue of RM37.16 million. As at end-July, Sapura Resources had fixed deposits of RM7.26 million, and cash and cash equivalents of RM6.04 million. On the other side of the balance sheet, it had negligible borrowings.
In his affidavit filed with the court, Shahriman claims that Shahril and Rameli Musa “acted in disregard” of his rights as a director and claims that the two have been handling the affairs of Sapura Holdings in an unjust and inequitable manner, with decisions being made without prior consultation with him. He also claims that Shahril has been stalling the plan to separate their interests in Sapura Holdings, with talks having commenced in early 2023.
“Only by winding up Sapura Holdings can a clean break be achieved,” the affidavit reads.
The stakes are high. As at end-January last year, Sapura Holdings had RM2.1 billion in total assets and RM1.32 billion in total liabilities.
Other than Sapura Resources, Sapura Holdings has a 11.25% stake in Practice Note 17 oil and gas outfit Sapura Energy Bhd (KL:SAPNRG), and a whole host of private companies.
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