This article first appeared in The Edge Malaysia Weekly on November 11, 2024 - November 17, 2024

THE board of directors of Sapura Resources Bhd (KL:SAPRES) is understood to be considering legal action against former managing director Datuk Shahriman Shamsuddin, who resigned at the end of last month, and two consultants who have been advising the company’s property and aviation businesses over the past year or so.

At press time, it is not clear how the consultants are connected to Shahriman.

Documents pertaining to an audit of the two consultants undertaken by an accounting firm, and sighted by The Edge, reveal that the two consultants came under the spotlight because of a number of discrepancies in their appointment and job scope.

However, whether legal recourse will be initiated remains to be seen.

Sapura Resources’ recently appointed executive director Reza Abdul Rahim, who took over the running of operations from Shahriman, declined to comment on the matter.

Shahriman was not available for comment, while one of the two consultants merely said, “I am not aware of it”, referring to probable legal action against him by Sapura Resources.

However, a source familiar with Sapura Resources says, “Basically, an audit firm undertook an investigation into the two individuals who were hired by Sapura Resources as consultants, and they (the audit firm) came up with a report. It (the audit report) investigates their (the two consultants’) appointments, their remuneration and scope and execution of their services among others… Basically, there were a number of discrepancies.”

The two consultants, it seems, were hired for the retail and property management operations, and to provide advisory services related to the transformation and strategy of the aviation business.

According to the audit findings, the two consultants were paid RM833,584 collectively for consultation services for the two divisions of Sapura Resources — retail and property, and aviation — for the July 15, 2023 to July 31, 2024 period.

To recap, Sapura Resources’ key property assets include a 50% stake in Permata Sapura, a 52-storey office tower and convention centre, almost next to the Petronas Twin Towers, and carrying a net book value of RM408.09 million in January 2021. The company also has two aviation-related businesses: the wholly-owned Sapura Aero Sdn Bhd and D’Nest Aviation Sdn Bhd, which provides hangar services, among others.

The findings by the audit firm indicate that there was non-compliance with consultant appointment procedures. There was also the absence of a management paper and competitive sourcing while the consultation and approval of the managing director were not obtained prior to proceeding with direct negotiations and procurement from non-registered vendors. Moreover, the consultancy services agreement executed with the consultants was not prepared and reviewed by Sapura Resources’ legal department and an increase in the consultancy fee that followed the renewal of the consultancy services is being looked at, among other issues highlighted.

The audit firm also has recommendations for Sapura Resources, including the tightening and strengthening of controls pertaining to the consultant appointment process.

A source says Shahriman was instrumental in the two consultants’ appointment to Sapura Resources after the two had left a related company — Sapura Technology Sdn Bhd.

It is also noteworthy that Shahriman’s resignation from Sapura Resources comes on the back of a dispute with his older brother Tan Sri Shahril Shamsuddin. The two are equal shareholders controlling direct stakes of 40.5% each in Sapura Holdings Sdn Bhd while their equally owned vehicle, Brothers Capital Sdn Bhd, has a 15% stake, and businessman Datuk Rameli Musa of Ingress Bhd fame owns the remaining 4% of Sapura Holdings, which has 51.47% equity interest in Sapura Resources.

In mid-August this year, Sapura Resources announced that it had instructed Shahriman to refrain from running the company’s aviation business. He was deemed to have acted in a manner that was detrimental to Sapura Resources.

This came about after angry minority shareholders at Sapura Resources’ AGM on July 17 questioned the board and Shahriman on a potential conflict of interest.

To recap, Explorer Group Sdn Bhd — Shahriman’s private vehicle and where he is an executive director — had in early December last year, inked a memorandum of understanding with Abu Dhabi-based Royal Jet LLC to collaborate and operate private flight operations out of Sultan Abdul Aziz Shah Airport in Subang 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 — similar to Sapura Resources’ aviation business.

The situation, however, is a little murky, as in mid-July last year, Sapura Resources had announced that it had inked a heads of agreement with Royal Jet to hive off Sapura Aero and D’Nest Aviation in their entirety, pending a legal, financial, taxation, accounting, technical and commercial due diligence.

It is not known when Sapura Resources’ plan to divest itself of Sapura Aero and D’Nest Aviation was hatched, or if the two consultants were involved in Explorer Group.

On Sept 3, Explorer Group and Royal Jet mutually ended their contractual relationship, so the conflict of interest was put to rest.

As for the feud, Shahriman had on Sept 23 this year, filed a winding-up petition on Sapura Holdings in the High Court, with Shahril and Rameli named as second and third defendants respectively. Shahril has not filed his reply to the winding-up petition.

At the crux of the dispute is the development project, dubbed Project Apex, which involves Permata Sapura.

While Shahriman opined that Sapura Resources lacked the financial muscle to continue with the plan to build and operate the asset, and suggested a sale of the building, Shahril believed a cash call would resolve all problems.

Project Apex involved a 50:50 joint venture inked in 2011 between Sapura Resources and KLCC Holdings Sdn Bhd to develop and construct Permata Sapura.

Sapura Resources has a 15-year master lease agreement commencing from Oct 1, 2021, for about 70% of Permata Sapura, and as at the end of January this year, a chunk, or 82.6%, of the existing occupants were renting below the base rate of the MLA, which has been weighing on Sapura Resources’ financials.

For its six months ended July 2024, Sapura Resources suffered a net loss of RM27.61 million on revenue of RM37.16 million. As at the end of 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, Sapura Resources had negligible borrowings.

Sapura Resources ended trading last Friday at 26.5 sen, which translated into a market capitalisation of RM68.7 million for the company. 

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