Caution continues

After several rating downgrades and hitting limit-down for two consecutive days, brokerages have yet to require investors to pay cash upfront to buy shares of Serba Dinamik Holdings Bhd.

PETALING JAYA: After several rating downgrades and hitting limit-down for two consecutive days, brokerages have yet to require investors to pay cash upfront to buy shares of Serba Dinamik Holdings Bhd.

Checks by StarBiz showed that brokerages such as Maybank, CIMB and Rakuten Trade have not imposed such a requirement.

Hence, the standard practice of the T+2 settlement cycle will still continue for the oil and gas services company.

Last week, Serba Dinamik announced that its external auditor, KPMG, had flagged some matters pertaining to statutory audit. The auditor had raised issues on over more than RM3.5bil of contracts and transactions that it had not been able to verify with 11 customers.

Following this, the company said it is in the midst of appointing an independent firm to commence a special independent review to “assess the veracity and accuracy of the matters.”

On Monday, Reuters reported that the Securities Commission has begun an investigation into Serba Dinamik.

In an emailed response to the newswire, the regulator said it had secured documents and records from Serba Dinamik to assist its investigation.

Following these developments, the share price of Serba Dinamik plummeted badly in less than a week, dropping by over 48% from RM1.61 on May 25 to 83.5 sen yesterday.

The stock was suspended on May 27-28, and trading resumed only on May 31. it is noteworthy that the market was closed on May 26 following Wesak Day celebration.

Yesterday, S&P Global Ratings has downgraded Serba Dinamik’s long-term credit rating to “B-” from “B+”. A similar downgrade was done for the long-term issue ratings on the company’s guaranteed sukuk.

This was due to reduced funding access faced by Serba Dinamik.

S&P Global Ratings also put the group on credit watch negative on rising refinancing risks.

It said the credit watch reflects the risk of a downgrade by one notch or more if Serba Dinamik cannot refinance its short-term debt or advance a credible refinancing plan for its sukuk in a timely manner.

“Serba Dinamik faces heightened refinancing risk of its US dollar-denominated RM900mil sukuk due May 2022 because of weakened market access due to a pending special independent review.

“In our opinion, efforts to restore capital providers’ confidence in Serba Dinamik’s operations are likely to take months, even if the company completes the independent review.

“With less than 12 months from the May 2022 maturity of its sukuk, the limited time frame to both refinance and complete the independent review creates significant uncertainty, ” S&P Global Ratings said in a statement yesterday.

A day earlier, Malaysian Rating Corp Bhd (MARC) also placed its ratings of MARC-1 IS/A+ IS on Serba Dinamik’s RM500mil multi-currency Islamic Commercial Papers Programme and RM1.5bil Islamic Medium-Term Notes Programme on the MARCWatch negative.

The MARCWatch placement arose from issues pertaining to the group’s annual accounts for the financial year ending December 31,2020.

“MARC will resolve the placement based on the outcome of the independent review, including clarification of the matters that have been raised.

“The ratings would be affirmed in the event of a satisfactory conclusion of the issues raised but could be lowered should the findings have a material impact on Serba Dinamik’s financials, ” according to the rating agency.

Yesterday, Malaysian Institute of Corporate Governance (MICG) said Serba Dinamik’s response to the dispute between the external auditor has raised serious governance concerns.

According to MICG deputy president David W. Berry, (pic below) it is inappropriate to remove an auditor when the executive is unhappy with the audit findings.

This was following the statement from Serba Dinamik that it will go ahead with the motion to change its external auditor KPMG, despite calls to stop it from doing so.

Last Friday, the group said it had received a special notice from its non-independent non-executive director, Datuk Abdul Kadier Sahib, requesting for an EGM to remove the existing auditors and to appoint new auditors namely those from BDO PLT.

Berry said any suggestion by the executive that the independent directors are unqualified to understand the accounting issues, appears to attack the competence of the company’s audit committee, which composed independent directors.

“Criticising the auditors for addressing their concerns to the company’s independent directors is perverse, therefore, when that is exactly to whom the auditor is expected to direct any concerns.

“Against that background, the silence of the audit committee and the company’s independent directors raises questions, ” he added.

Berry also said more light is needed on the audit committee’s findings and its recommendation to the board. These should be revealed to shareholders at the EGM.

He also raised the concern that the fact that an EGM is being called for this purpose by a non-independent director, albeit non-executive director, who appears to be in agreement with the managing director’s (the executive) position, raises conflict concerns.

“It is MICG’s view that in this scenario, none of the directors who are shareholders, should vote in the matter, irrespective of whether they are executive or non-executive, independent or non-independent. It should be for other shareholders to hear both viewpoints and vote accordingly, ” he said.