KUALA LUMPUR (Apr 28): Sumatec Resources Bhd’s external auditor has cast doubt on the ability of the group and company to continue as going concerns, in view of their negative cash flows.

The auditor, Messrs SJ Grant Thornton highlighted that the group and company posted negative cash flow of RM50.15 million and RM46.02 million, respectively, on their operating activities for the financial year ended Dec 31, 2016 (FY16), according to Sumatec's Bursa Malaysia filing today.

“The ability of the group and company to continue as going concerns are highly dependent on the timely and successful implementation of the proposed corporate exercises for obtaining new source of funds to generate cash flow for the development and production of oil and gas at the Rakushechnoye oil and gas field, and to achieve profit and positive cash flows from its operating activities," said Grant Thornton.

The auditor was referring to the slew of corporate proposals, including via private placement, share issuance and rights issues with warrants, that Sumatec announced on Feb 17 to raise some RM400 million for the Rakushechnoye oilfield project in Kazakhstan.

“The successful implementation of the proposals and viability of the O&G operations in Rakushechnoye field indicate that a material uncertainty exists that may cast significant doubt on the ability of the group and company to continue as going concerns,” it added.

The auditor also expressed a qualified opinion over the recoverability of the group’s current trade receivable, which amounted to RM185.05 million as at Dec 31, 2016. The sum is due from Markmore Energy Labuan Ltd, a company controlled by Tan Sri Halim Saad, who has a 19.6% stake in Sumatec.

“A significant portion of this balance has been long overdue. In the absence of any documentary evidence and alternative procedures, we are unable to obtain sufficient appropriate audit evidence to ascertain the recoverability of [the] amount due from MELL as at Dec 31, 2016,” the auditor said.

Other than the possible effects of the matter raised in the basis of its qualified opinion, the auditor said Sumatec’s financial statements for FY16 gave a “true and fair view” of the group and company’s financial positions, performances and cash flows.

In response, Sumatec said it was confident its proposed corporate exercises would succeed and has appointed a local financial institution as placement agent and underwriter for the corporate exercise.

As for the outstanding receivables, Sumatec said their “recoverability should be attributable [to] the gas production stream. Notwithstanding, the recoverability [of the sum] may also be derived from the proposed corporate exercise, under Phase II, as announced on Feb 17, 2017”.  

Meanwhile, its indirect associate Semado Maritime Sdn Bhd is now forced to sell two of the latter’s vessels to settle a debt of RM143.32 million owed to Bank Pembangunan Malaysia Bhd, which secured a court order yesterday to its application for a judicial sale of the assets to recover the sum owed.

The vessels are Semua Mutiara and Semua Muhibbah. Semado is owned by Semua International Sdn Bhd, in which Sumatec has a 49% stake.

Sumatec’s share price gained 0.5 sen to 7.5 sen today, giving it a market capitalisation of RM289.96 million.