Court case sheds light on BPMB’s processes

This article first appeared in The Edge Malaysia Weekly, on December 10, 2018 - December 16, 2018.
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A statement of claim filed by AWH Equity Holdings Sdn Bhd and businessmen Datuk Wan Ariff Wan Hamzah and Nadzru Azhari against GMV-Borcos Sdn Bhd and four other parties, including Bank Pembangunan Malaysia Bhd (BPMB), in the High Court late last month gives some indication of how things are done at the development financial institution. The three other parties are GMV-Borcos’ parent, shipping venture fund Global Maritime Ventures Bhd (GMV) (a unit of BPMB), BPMB’s former president and CEO Datuk Mohd Zafer Mohd Hashim and legal firm Ram Reza & Muhammad.

While the statement of defence had yet to be filed at press time, the crux of the dispute stems from the sale of AWH’s 65% stake in Syarikat Borcos Shipping Sdn Bhd to GMV-Borcos in January 2013 for RM190.45 million, which resulted in the shipping company becoming a wholly owned unit of GMV-Borcos.

The statement of claim viewed by The Edge states, “At all material times during the negotiations and completion of the sales and purchase agreement, the defendants were fully aware of the undisputed fact that several corporate and personal guarantees had been given by the plaintiffs to various parties who had advanced credit and other banking facilities to the company and its various subsidiaries.”

According to the statement of claim, the plaintiffs allege that Mohd Zafer had made it seem that GMV-Borcos would receive the full backing and support of BPMB and would undertake to fulfil all obligations and liabilities of GMV-Borcos via Global Maritime Ventures, pursuant to the sales and purchase agreement.

In a nutshell, the plaintiffs are saying that when they sold the 65% stake in Syarikat Borcos Shipping to GMV-Borcos, it was agreed that their corporate and personal guarantees for loans taken by the shipping company would be discharged and cancelled.

The corporate and personal guarantees undertaken by AWH and other plaintiffs were for three Islamic term-financing facilities and one Murabahah Cash Line-i facility.

According to the plaintiffs, post the completion of the sales and purchase agreement, their lawyers Ariff & Co had sent several letters to the fifth defendant (Ram Reza & Muhammad) seeking the full and effective discharge of the plaintiffs from the corporate and personal guarantees of Syarikat Borcos Shipping.

The plaintiffs allege that the fifth defendant had knowingly and/or negligently failed to effectively and fully discharge them from the corporate and personal guarantees.

After the completion of the sales and purchase agreement, Maybank Islamic Bhd had written to Syarikat Borcos Shipping, informing it of the release and replacement of the personal and corporate guarantor to GMV-Borcos, GMV and or BPMB. Via a solicitor’s letter dated Sept 26, 2017, to the first three defendants — GMV-Borcos, GMV and BPMB — the plaintiffs had sought the defendants to discharge and cancel the corporate and personal guarantees within 14 days.

However on Oct 4, 2017, the solicitors for the second and third defendants (GMV and BPMB) wrote to the plaintiffs’ solicitors denying liability to the plaintiffs.

On Jan 12 this year, Maybank made a claim against the first and second plaintiffs (AWH and Wan Ariff) for one of the term financing facilities, of RM67.34 million, which is the outstanding sum from the purchase price, interest, compensation fee and late payments, among others.

In respect of another two Islamic financing lines, Maybank claimed RM57.56 million and RM1.31 million respectively.  By a writ and statement of claim dated Jan 12, 2018, Maybank sought RM463,718.85 from AWH and Nadzru from their profits in selling Syarikat Borcos Shipping, plus interests and other costs.

At the High Court, Maybank obtained summary judgment with costs, but AWH, Wan Ariff and Nadzru appealed to the Court of Appeal on Aug 9 this year.

Now, AWH, Wan Ariff and Nadzru allege that GMV-Borcos, GMV and BPMB had knowingly and/or negligently failed to discharge the plaintiffs from the corporate and personal guarantees.

To recap, in December 2010, Dayang Enterprise Holdings Bhd proposed to dispose of its 40% stake in Syarikat Borcos Shipping to AWH for RM135 million cash. While Dayang booked only a small gain of RM43,678 from the sale, the acquisition made Borcos a wholly owned unit of AWH.

According to news reports, GMV acquired 35% of Syarikat Borcos Shipping for RM146.55 million in 2011, and the remaining 65% for RM190.45 million in January 2013 from AWH.

In 2009, when things were better, Syarikat Borcos Shipping was touted to be an IPO candidate, raking in a net profit of close to RM50 million a year. To put things in perspective, Syarikat Borcos was once Malaysia’s second largest offshore support vessel operator, but it became one of the casualties of tumbling oil prices, which plunged from US$150 per barrel in 2008 to below US$28 in February 2016.

By the time BPMB took over 100% of Syarikat Borcos Shipping, things had turned bad. Syarikat Borcos Shipping racked up after-tax losses of RM238.39 million for its financial year ended December 2014 on the back of RM123.28 million in revenue.

As at end-December 2014, Syarikat Borcos Shipping’s total liabilities exceeded RM510 million, while its total assets came to RM574.34 million.

KPMG was appointed as liquidators in end-December 2016.

KPMG Deal Advisory Sdn Bhd was reported to have hived off as many as seven anchor-handling tugs controlled by the ailing Syarikat Borcos.

Checks on RAM Credit Info indicate that GMV-Borcos had not registered any revenue for its financial year ended December 2015 but incurred RM111.87 million in after-tax losses. The company had accumulated losses of RM440.54 million.

As at Dec31, 2015, GMV-Borcos had RM591,580 in current assets and RM104.13 million in current liabilities, but did not have any non-current assets or any non-current liabilities.

A check with RAM Credit Information on Syarikat Borcos Shipping indicates that the company has a RM62.70 million unsatisfied facility with BPMB and a RM12.07 million unsatisfied facility with Maybank Islamic Bhd.

The Edge understands that the board of BPMB commissioned Deloitte to conduct a review of and forensic investigation on GMV in mid-April 2015, and a large portion of the report is dedicated to the acquisition of Syarikat Borcos Shipping.

 

The Deloitte report

The report states that the three objectives of the report are to review the investment-related processes in relation to GMV’s investment in Syarikat Borcos Shipping, including governance and decision-making, assess the overall governance and reporting structure within the BPMB group, and advise BPMB on the potential loss/contingent liability exposure arising from the Syarikat Borcos Shipping investment.

According to the report, apart from acquiring 35% of Syarikat Borcos Shipping for RM146.55 million in 2011 and 65% in January 2013 for RM190.45 million, GMV-Borcos also forked out RM50 million in August 2013 for 15.77% of the company’s ordinary shares converted from preference shares. This nudged the acquisition price up to RM387 million.

Some of the observations by Deloitte are serious, one of which is the “possibility of intervention by top management during the process of developing the investment proposal to facilitate the approval process. Several instances whereby conflicting views and decisions made by the top management as compared to the external consultant and group legal and corporate secretarial department of BPMB’s views were noted, as evidenced by email communications addressed to the personnel involved at the working level by the relevant top management”.

Deloitte goes on to say that some investment proposals approved by GMV’s board were not reviewed by the group credit committee of BPMB, such as the acquisition of the 65% equity stake in Syarikat Borcos Shipping from AWH for RM190.45 million and the acquisition of 15.77% in preference shares in the same company for RM50 million.

Also noteworthy is that BPMB’s risk analysis report for the investment proposal for the acquisition of the 65% equity stake in Syarikat Borcos Shipping from AWH was never brought up for discussion with the GMV board.

Deloitte also highlights that the market valuation of Syarikat Borcos Shipping when the 65% stake was acquired in 2013 was higher than the valuation amount suggested by PwC, without adequate justification. In addition, projected financial information presented in the investment proposal was different from the due diligence report prepared by PwC, without adequate justification.

PwC had been hired to conduct a due diligence on the acquisition of the 35% interest in Syarikat Borcos Shipping in 2011.

The valuation of Syarikat Borcos Shipping, based on net tangible assets of RM293 million, was higher than the net tangible asset amount reported by PwC, which was RM220 million, when the company acquired the 35% equity interest.

Deloitte adds, “Furthermore, the valuation of Syarikat Borcos Shipping based on net tangible asset of RM293 million was solely based of Syarikat Borcos Shipping’s management accounts and not based on audited financial statements.”

After leaving BPMB, Mohd Zafer was a director at FGV Holdings Bhd and was once tipped for the top job at Khazanah Nasional Bhd.

 

 

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