This article first appeared in The Edge Financial Daily, on November 12, 2015.

KUALA LUMPUR: Perwaja Holdings Bhd’s and Kinsteel Bhd’s external auditor has warned on the viability of the two long-suffering steelmakers’ restructuring plans based on their annual audited accounts for the financial year ended June 30, 2015 (FY15).

In separate filings with Bursa Malaysia yesterday, both Perwaja and its parent Kinsteel told the regulator that their external auditor Messrs Crowe Horwath had included a disclaimer opinion on Perwaja’s latest audited accounts, and qualified an audit opinion on Kinsteel’s.

In Perwaja’s case, Crowe Horwath said it could not obtain sufficient audit evidence to confirm Perwaja’s financial statements on a going concern basis.

It also could not verify the carrying accounts of Perwaja’s bank balances, borrowings and payables.

“The going concern assumption is highly dependent upon [Perwaja’s] successful restructuring of the defaulted debts, approval and implementation of the regularisation plan, and the ability of the group and the company to attain profitable operations to generate sufficient cash flows to fulfil their obligations as and when they fall due,” said the audit firm.

Perwaja, which is currently 28.75%-owned by Kinsteel, is a Practice Note 17 company that is set to receive a RM1.8 billion cash injection from China’s Tianjin Zhiyuan Investment Group Co Ltd, which will see the latter holding a majority stake in the ailing steelmaker.

Crowe Horwath said it had problems verifying some numbers in Perwaja’s FY15 accounts. For example, Perwaja’s subsidiary Perwaja Steel Sdn Bhd’s (PSSB) transaction of RM12.8 million between July 1 and Sept 30, 2014 — which were mainly receivables and other payables.

This was due to difficulties in accessing PSSB’s statutory accounting principle accounting system, it added.

For Kinsteel, Crowe Horwath issued a qualified opinion based on two matters. One, Kinsteel refused to impair some RM10.2 million in trade receivables and RM8.7 million in amount owed by related parties, even after they had been overdue for more than a year.

“[Kinsteel’s] directors are of the opinion that these amounts are recoverable and accordingly, no impairment is required to be made in the financial statements. However, we were not able to obtain sufficient appropriate audit evidence on the recoverability of these trade receivables and amount owing by related parties,” said Crowe Horwath.

The second ground for a qualified opinion was pertaining to Note 24 in Kinsteel’s FY15 financial statement. “The group and the company have not accrued for overdue interest in accordance with the terms of the banking facilities as the directors are of the opinion that such amounts are deemed not necessary as all the bankers agreed to the proposed restructuring scheme,” said Crowe Horwath.

The audit firm opined that since the restructuring scheme had yet to be executed, Kinsteel should have included the interest payment worth RM51.04 million in its books, which would then add to its loss and accumulated loss.