Audit raises questions over its China and the Phillipines ventures
TANJUNG Offshore Bhd’s deals in China and the Philippines were irregular as they had bypassed corporate protocol, according to the forensic audit done by Ferrier Hodgson MH Sdn Bhd.
As for the company’s Birmingham deal in the UK, the audit report sighted by StarBizWeek states that the refurbishment cost of the property was never disclosed to Bursa Malaysia although the estimated development cost of the property was known to its management and board of directors.
The oil and gas services provider ventured into these new businesses after selling its core business in marine vessel services in 2012.
These three deals were among six evaluated by Ferrier Hodgson, which was engaged on March 20 to do a special audit to review issues that have emerged from Tanjung Offshore’s Independent Committee set up earlier.
On the China and Philippines venture, Ferrier Hodgson found that there was too much reliance on one Stephen Lee, who promoted both the deals to the company.
Lee was born in Taiwan now a China national, according to the report.
The audit firm notes that out of RM3.2mil spent venturing into the ethylene propylene diene monomec project in China, RM2.7mil had gone for professional fees that were “deemed as excessive”. The approval of these payments also did not follow procedures prescribed by Tanjung Offsore, the report says.
No proper corporate protocol
Similarly, Ferrier Hodgson finds that Tanjung Offshore did not follow proper corporate protocol for its RM6.2mil foray into a chromite mine project in the Philippines in 2013. Again Lee was the promoter of this project. “A trading play, the buying and selling of chromite was facilitated by Stephen Lee and his associates with Tanjung Offshore making the profit differentials,” findings of forensic audit states.
Ferrier Hodgson recommends that Tanjung Offshore implements a structure that requires initial board approval of the project, which comprises budgets, and authority limits for preliminary costs. The audit firm notes that the total cost of RM7.4mil is still capitalised in Tanjung Offshore group’s balance sheet as it is deemed a recoverable amount.
However, there appears to be more lingering questions on Tanjung Offshore’s Birmingham property purchase, the findings show. Sources say that the company is working to get to the bottom of this deal, which has seen it spending RM62.7mil, out of which £4.8mil or RM27.4 mil meant for property refurbishment is still said to be unaccounted for.
Recall in March last year, Tanjung Offshore bought a UK-based company, Wavenet Investments Ltd, for £6.70mil cash or RM37.18mil (based on an exchange rate of £1.00:RM5.55 then).
Wavenet, which is now known as 7 New Market Holdings Ltd, owns a block of an eight-storey office building in the central business district of Birmingham. On the rationale for the purchase, Tanjung Offshore had said the acquisition would diversify its income stream from the O&G industry.
Bone of contention
The deal was a bone of contention with Tanjung Offshore’s minority shareholders who felt that the company circumvented exchange rules in getting shareholders’ nod for the transaction.
A group of minority shareholders, who had filed a police report on this, contend that the funds of RM62.7mil should have been aggregated, which would have then required approval from shareholders.
Noteworthy is that the disbursement of the monies for the various transactions were made close to one after the other with the property paid up in April last year, while the money for the refurbishment done in three payments between May 28 to June 11 last year.
But by separating the price of property and refurbishment, the transaction managed to take place without a minority shareholders’ vote as the transaction did not hit the threshold set by Bursa, which requires a vote by minority shareholders.
Ferrier Hodgson notes the aggregate cost of the deal was reflected in ringgit terms in Tanjung Offshore’s second quarter 2014 results under “property, plant and equipment”. However, it notes the refurbishment cost itself of RM27.4mil was never disclosed to the market regulator.
Based on a letter dated Feb 26, 2014 by Tanjung Offshore’s legal adviser in the UK and the company’s board paper presented to board members on Feb 27, 2014, the estimated development cost of the property was known to the management and board members of Tanjung Offshore, says the report.
“Therefore, it should have been disclosed to Bursa, especially since Bursa had specifically questioned Tanjung Offshore on this matter after the company’s first announcement of the Birmingham purchase.” states the firm in the report. Ferrier Hodgson notes that the refurbishment cost was paid out to Tanjung Offshore’s lawyers in the UK to act as stakeholder.
As to whether the acquisition and refurbishment should be aggregated, the audit firm opines that the prerogative lies with Bursa.
Following its findings, Ferrier Hodgson recommends that Tanjung Offshore’s board does a site visit to the UK to view the property and meet with key parties, including the developer and vendor. It recommends that the company meet ups with the UK lawyers to determine the exact funds that have been paid out to the developer and if the lawyer still holds any funds.
It is understood that Tanjung Offshore board has made a visit to Birmingham and found no physical work on site and this has prompted it to seek legal advice for its next course of action.
As for its aborted reverse takeover of a unit of Paris-based Bourbon SA, the forensic audit found no conflict of interest or related breach of duty on the part of the company’s executive deputy chairman Tan Sri Tan Kean Soon and former director Muhammad Sabri Ab Ghani, who were earlier suspended of their duties at the height of a boardroom tussle.
Ongoing investigation by MACC
There is an ongoing investigation by the Malaysian Anti-Corruption Commission (MACC) over allegations of bribery, believed to be linked to the purchase of the remaining 49% in Gas Generators (M) Sdn Bhd.
The company has said that it will lodge an official complaint with the MACC and get legal professional view to determine if there was any wrongdoing in the transaction.
Tanjung Offshore has since seen board changes and following the forensic audit, the company has set up a special task force board committee to clean up the weakness identified. It recently bagged a RM250mil contract from Petroliam Nasional Bhd’s exploration and production arm, Petronas Carigali Sdn Bhd for the latter’s “topside maintenance” of Sarawak operations. The win is a boost at a time the company looks to mend business and investor perception. It reported a net loss of RM1.965mil in the first quarter ended March 31, compared with a net profit of RM2.095mil in the previous corresponding period.
According to industry observers, the job is expected to reap gross margins of about 20% for the two-year period of the contract. There is an option for a one-year extension.
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