This article first appeared in The Edge Financial Daily on December 19, 2018

KUALA LUMPUR: The Securities Commission Malaysia (SC) is maintaining its decision to reprimand and impose penalties on Lotte Chemical Titan Holding Bhd (LCTitan) and its two executive directors for failure to inform the regulator material developments prior to the company’s listing in July last year.

In the statement yesterday, the SC said it maintained its decision after dismissing review applications by LCTitan and other relevant parties. The penalties imposed amount to RM2.19 million in total.

The parties reprimanded are the issuer LCTitan and its executive director Lee Dong Woo plus Lee Kwan Ho, reporting accountant Ernst & Young (EY), and the principal adviser to the listing exercise Maybank Investment Bank Bhd (Maybank IB).

To recap, LCTitan did not reveal to the SC that the 11 days of water cuts at its plant in April had resulted in a significant impact on the company’s earnings.

Shortly after it debuts on Bursa Malaysia on July 11, LCTitan announced that its net profit slumped 72% to RM113.62 million for the second quarter ended June 30, 2017 (2QFY17). Quarterly revenue fell 11.2% to RM1.78 billion from RM2 billion on lower sales volume arising from Hari Raya festivities. The company’s share price took a nosedive after the unpleasant surprise, falling by a third to RM4.10, compared with its initial public offer price of RM6.50.

LCTitan’s initial public offer was the biggest since 2012.

While LCTitan had disclosed the water supply disruption in its IPO prospectus, the significance of the impact was not made clear as the market did not expect the incident would have taken a heavy toll on its profit.

In its prospectus, the group said it suffered a period of shutdowns between two and 11 days in April, with its plants restarting operations on a staggered basis. The shutdowns resulted in a 75 kilotonne decline in production volume.

In addition, the SC also maintained its directive for EY and Maybank IB to conduct a comprehensive review and assessment of their policies and processes related to their roles as reporting accountant and principal adviser respectively.

Both EY and Maybank IB have submitted their respective reviews and assessments of their policies and processes related to their roles, according to the statement.

The application to the SC by three LC Titan independent non-executive directors Tan Sri Abdul Rahman Mamat, Tan Sri Dr Rafiah Salim and Ang Ah Lek to review the imposition of reprimand was allowed and the reprimand was set aside, said the SC, adding that the non-independent non-executive director Cho Seongtaeg’s further reply in relation to his application for review is still pending.

The SC had earlier reprimanded and fined LCTitan, its two executive directors and EY on July 9, 2018 for their failure to inform the SC on material developments prior to LCTitan’s listing.

In addition, the SC reprimanded and fined Maybank IB for its failure to carry out appropriate due diligence on LCTitan.

“Given the severity of the failure of parties to inform the SC of the material developments, the SC imposed a fine of RM560,000 on LCTitan and a fine of RM297,500 on EY.

“The executive directors of LCTitan were fined RM441,000 each, whereas a fine of RM450,000 was imposed on Maybank IB,” the SC said.