(April 21): The recent RM16 million compound issued by the Securities Commission to Serba Dinamik Holdings Bhd and four of its top officials does not mark the end of the saga for stakeholders affected by the company’s audit issue.

First of all, Serba Dinamik shares have remained suspended from trading. Furthermore, there has been little update in the four months since it defaulted on its US$222.22 million sukuk, with three weeks to go before the maturity date on May 9.

With its Special Independent Review (SIR) factual finding update (FFU) yet to be released, and after external auditor Nexia SSY PLT issued a disclaimer of opinion in January, Serba Dinamik’s shareholders have no way to assess the company’s balance sheet, which could undergo a sizeable restatement. What is before the minority shareholders now is not any better compared with 11 months ago when the former auditor KPMG flagged audit issues on its financial accounts.

Further trading suspension

On April 14, Bursa Malaysia Securities Bhd (Bursa Securities) filed contempt of court proceedings against Serba Dinamik for the latter’s refusal to reveal the FFU.

This suggests that the trading suspension would not be lifted soon, should Serba choose to ignore the court order. The stock, which has plunged by 78%, has been suspended from trading for six months since Oct 22, 2021.

“At that time, [the suspension] was enforced to compel Serba Dinamik to release the FFU. Lifting the suspension now would be different from the earlier rationale,” a senior consultant told The Edge.

“But by now Bursa should think harder about lifting it and let things take its course, because there is almost a stalemate [in court]...minorities are in a difficult position. You can’t exit, you don’t know the real damage,” the consultant said.

“Perhaps Bursa wants to exhaust all legal avenues before lifting the suspension,” he opined.

Creditors keep silent

Following the December 2021 default on its US dollar sukuk, holders of its other RM100 million commercial paper — also due in May 2022 — declared an event of cross-default, Malaysian Rating Corp Bhd said on April 4.

However there is no announcement on the sukuk holders exercising their right to seek payment of all outstanding principal and coupons. Serba Dinamik said in its filing dated Dec 15 last year that the request is “subject to a 25% quorum” of the sukuk’s aggregate value.

The biggest sukuk holders listed on Bloomberg include City National Rochdale LLC (6.02%), Emirates NBD Asset Management Ltd (3.74%), Lemanik Asset Management SA (3.16%) and Azimut Investments SA (2.67%).

It is worth noting that Serba Dinamik’s short-term borrowings amounted to RM1.45 billion plus long-term debts of RM2.27 billion as at end-2021.

A fixed income analyst, when contacted, said the non-action is “quite unusual” but opined that the reluctance from bondholders could be due to the lack of quality information on Serba Dinamik’s financials.

While details are scarce, Serba’s Dec 15 filing noted that sukuk default “will give rise to several other potential events of default of the indebtedness under the company by virtue of the cross-default provision under the respective financing agreements”.

The default also suggests that banks would have frozen its credit line.

Concurrently, four of Serba Dinamik subsidiaries have applied for judicial management earlier in February “to regularise the financial condition of the group”, but has since withdrawn the application upon getting pushback from creditors.

It considered opting for a scheme of arrangement instead — as seen in Sapura Energy Bhd — whereby management retains control of the company while negotiating a restructuring plan with creditors.

“But the problem is getting support from at least 50% of the creditors,” a corporate lawyer told The Edge. “For that to happen, the management must be trusted and the business needs to remain intact.”

The group is currently under Practice Note 17 (PN17) status, with another eight months to come up with a regularisation plan by January 2023 or risk being delisted. It has yet to appoint an adviser to firm up a regularisation plan.

No official picture on financials

The disclaimer of opinion by Nexia in January 2022 is an indicator that concerns over the discrepancies in Serba Dinamik’s books are not baseless.

“A full review (of the company’s accounts) is needed for the auditor to sign off [the account],” a fund manager pointed out.

In the case of Transmile Group Bhd, it was the board that ordered a special audit in 2007 to later find the company overstated its revenue by RM530 million across two financial years. It was delisted four years later in 2011.

“Serba’s case is different,” the consultant said. “Anyone can come in to undertake any review but they will still have to engage with the same parties [who are involved in the compound],” he said, pointing to the ongoing legal actions by Serba Dinamik against KPMG and the special independent review E&Y Consulting Sdn Bhd.

Notably, Serba Dinamik has not made any announcement on any changes in the management.

So far, the SC has also not given an official indication of any additional action against the compounded individuals, such as barring them from their board and management roles in the company.

“There is not much that minority shareholders can do,” said the consultant in reference to the fragmented minority shareholding in the company. “But the banks can take action [if Serba defaults on its loans].”

Serba Dinamik’s largest shareholders include group managing director and group CEO Datuk Mohd Abdul Karim Abdullah (21.23%), chairman Datuk Abdul Kadier Sahib (16.33%), the Sarawak State Financial Secretary (4.3%) and Safari Asia Ltd (2.91%), Bloomberg data showed.

The state of the company

To recap, the compound by SC is linked to Serba’s revenue of RM6.01 billion for the 12-month period ended Dec 31, 2021.

KPMG, which first raised concerns over the Serba Dinamik’s financials in 2021, flagged transaction, material and receivable balances and transactions worth a combined RM4.02 billion, as well as dealings with unidentified parties worth a combined US$125 million (RM535 million).

The company had two private placements in January 2018 and February 2021, which raised RM935.81 million in total.

In the six-month period ended Dec 31, 2021 (6MFY22), Serba Dinamik booked a net loss of RM332.44 million on revenue of RM976.49 million.

It had retained earnings of RM724.82 million at end-December, down RM332.44 million from RM1.06 billion at end-June.

Current trade payables stood at RM778.29 million, up RM284.09 million from RM494.19 million at end-June.

In short, the minority shareholders have yet to get off from the nerve-racking roller-coaster ride.