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Author: savemalaysia   |   Latest post: Wed, 28 Jul 2021, 12:50 PM

 

Serba Dinamik’s EY appointment could be a baby step to many unforeseen discoveries By Lya Rahman

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KUALA LUMPUR (June 24): On June 14, Serba Dinamik Holdings Bhd took the maiden step to resolve its accounting woes by agreeing in principle to appoint Ernst & Young Advisory Services Sdn Bhd (EY) as an independent reviewer to assess the veracity and accuracy of the issues highlighted by its external auditors KPMG PLT with regard to its FY2020 financials.

This is seen as a praiseworthy move by the market, as evident in the stock of the global integrated oil & gas (O&G) service provider, which climbed 38% from an intraday low of 54 sen (prior to the announcement at the close of the morning trading session) to close the day’s trading at 74.5 sen.

However, the ‘joyride’ only lasted for one trading session, as investors began to absorb – or rather come to their senses – that the ordeal facing Serba Dinamik is far from over.

What this means is that this is merely ‘a baby step’ to the so-called ‘far-away’ ultimate solution.

After all, the company is expected to furnish an updated announcement upon finalisation of the terms and conditions of the said appointment (as per Serba Dinamik’s Bursa Malaysia filing dated June 14).

In the name of transparency, which is an important pillar of corporate governance, Serba Dinamik is widely expected to make known the job scope to ensure completeness and comprehensiveness in carrying out the task in a timely manner.

Moving away from that, the onus is on Serba Dinamik to iron out all complications to ensure that the findings, which shall ultimately be made public, are comprehensive and that the review adheres to the given timeline.  

Most importantly is that accountability is preserved, with actions taken without fear or favour – and that the review leaves no stone unturned.

However, at the recent media conference, Serba Dinamik announced it has initiated legal action against KPMG, as its board is of the view that the audit issues raised by its external auditor are insignificant to be deemed as red flags. It was also mentioned that the board will be reviewing whether it would be necessary to appoint EY to look at the various issues independently.

One cannot help but wonder whether the decisions to take legal action against KPMG and to review the appointment of EY as an independent firm were unanimously made. Question that comes to mind – what were the views of the Audit Committee (AC), given it has been a concern earlier to shareholders that the AC chairman kept mum on the various audit issues raised by KPMG, which are under the purview of the AC?

Ironically, Serba Dinamik announced the appointment of Johan Mohamed Ishak on June 21 as the AC chairman to replace Hasman Yusri. Is this really necessary at this juncture, when there are so many issues yet to be resolved?  

Another issue which we feel the urge to highlight is the appointments of three new independent non-executive directors (INEDs), which coincidentally took place on the same day that Serba Dinamik announced the board’s decision in principle to appoint EY as the independent firm.

Without questioning their qualification and experience, the concern is more on the nature of their appointments. The Edge has recently revealed that the three INEDs seem to be connected, thus raising the question of who actually nominated them.

The board has to be more transparent on the nomination process of these three new INEDs, especially in light of them being connected as both Datuk Mohamed Ilyas Pakeer Mohamed and Masleena Zaid sit on the same board in AP Holdings Bhd, while Johan is the managing director of a company that is part of AP’s group of companies. Their appointments have definitely raised many eyebrows on who actually decided on their appointments, and how the trio were identified.

Looking at the background of these new INEDs and probably the nature of appointment, would they be able to handle issues surrounding Serba Dinamik with an objective and independent mind?

Interestingly, the company also made one of the three INED appointees, namely Datuk Mohamed Ilyas, 65, as its new non-executive chairman with effect from June 15, while re-designating its former chairman Datuk Mohamed Nor Abu Bakar, 71, to the position of INED. Datuk Mohamed Nor subsequently resigned on June 19, citing personal reasons.  

Frustrations of sorts

The Institutional Investors Council (IIC) has thrice attempted to request for engagement with the Serba Dinamik INEDs, but to no avail.

It is quite a disappointment that the request for engagement was declined. Isn’t this against the principle of encouraging engagement with shareholders?

The proposed engagement is intended to seek answers to a host of queries on behalf of the IIC members, who are currently institutional investors in the company.

In terms of numbers, the Employees Provident Fund (EPF) presently holds a 9.89% stake in Serba Dinamik, while the Kumpulan Wang Persaraan (Diperbadankan) (KWAP) has 4.53%, and Permodalan Nasional Bhd (PNB) – through its unit Amanah Saham Nasional Bhd – holds 6.15%. It would not be surprising that the stakes held by these institutions are now lower, looking at the active selling volumes in the market.

Even at the time of writing, no affirmative response has been received from the chairman to whom the letter seeking engagement with the INEDs was addressed, despite the IIC having written to the company for the third time.

In this regard, it is hoped that the market regulators – namely, the Securities Commission and Bursa Malaysia – will continue to investigate and seriously monitor the situation in Serba Dinamik, given that the share price of the company has nose-dived over 60% (RM3.67 billion in market capitalisation wiped out) since the eruption of its accounting issues.

However, with the new development surrounding the Serba Dinamik saga, will regulators still proceed with their investigation? After all, Serba Dinamik as a listed entity is under the purview of the regulators and in the interest of other shareholders, this warrants the regulators to continue with their investigation.

We believe that the regulators will continue with their investigation and get to the bottom of the cause of this impasse, which is important to restore investors’ confidence in the integrity of governance in the capital market.

Along that process, many investors – from retail to institutional – will have succumbed to major losses, which again raises concerns about investors’ confidence and the risk of investing in the company.

At the very root of the issue is that shareholders are keen to ensure that market trust on the independence of the INEDs is not compromised, bearing in mind that it is the fiduciary duties of the INEDs to act in the best interest of the company and to protect the interest of minority shareholders.  

INEDs should not be seen as being beholden to the management or certain shareholders.

At any rate, suffice to say that the proof of the pudding is in the tasting. The market is eagerly waiting for the closure of this matter, with pending issues to be dealt with independently, transparently and swiftly.

IIC hopes that the independent directors in Serba Dinamik – especially the three newly-appointed INEDs – will strive to ensure that the integrity and governance of the company are not compromised at all cost.

Lya Rahman is Adviser to the IIC and she can be reached at lyarahman@me.com.

 

https://www.theedgemarkets.com/article/serba-dinamiks-ey-appointment-could-be-baby-step-many-unforeseen-discoveries

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