This article first appeared in The Edge Malaysia Weekly on December 26, 2022 - January 1, 2023

IN late 2019, Serba Dinamik Holdings Bhd’s stock price was at its peak at above the RM4.20 band, buoyed by announcements of exciting, gargantuan ventures into the Middle East. A special-purpose acquisition company it was sponsoring — Data Knights Acquisition Corp — was listed on Nasdaq. To cut a long story short, it was on top of the world.

Back then, many saw Serba Dinamik as a bright light in the oil and gas industry. The analyst fraternity and fund managers were positive on Serba Dinamik’s prospects and its substantial shareholders included the Employees Provident Fund and Kumpulan Wang Persaraan (Diperbadankan) (KWAP), which are huge, respected local funds.

But the tide has turned. Serba Dinamik’s shares on Bursa Malaysia were suspended last week as the company failed to submit its annual report for the financial year ended June 2022, and it was in the cash-strapped Practice Note 17 (PN17) category.

Failing to submit its annual report is just the tip of the iceberg, as Serba Dinamik’s stock, prior to its suspension, was trading at one sen apiece, translating into a market capitalisation of RM37 million, in stark contrast to its market valuation of RM6 billion before accounting issues cropped up in May 2021.

In terms of its financial performance, its losses are widening. For its first quarter ended September 2022, Serba Dinamik suffered a net loss of RM104.6 million on the back of RM213.58 million in revenue. In the previous corresponding period, it suffered a net loss of RM42.11 million on RM799.34 million in turnover. In May 2021, Serba Dinamik changed its accounting year-end to June 30 from Dec 31.

The company has suffered five consecutive quarters of losses since the accounting issues surfaced in mid-2021.

As at end-September, Serba Dinamik had cash and cash equivalents of RM35.87 million, while on the other side of the balance sheet, its short-term debt and long-term liabilities stood at RM2.54 billion and RM1.2 billion respectively. Cash flow from operating activities was a negative RM65.13 million, and losses amounted to RM152.87 million.

On its prospects, Serba Dinamik says, “The board of directors anticipates that the group’s operations will remain challenging going into 2023 due to the uncertainty of the global economy. The group views that the operations and maintenance segment will remain its core competency and provide the fundamentals of its operations.

“With the group being classified as a PN17 company, the board pledges to resolve the ongoing issues, including the restructuring and regularisation plan, in the best interests of stakeholders.”

The management and board’s take on Serba Dinamik’s fortunes seem overly optimistic, to put it mildly.

Issues at Serba Dinamik first came to light when long-time external auditors KPMG highlighted discrepancies regarding transactions worth some RM4.54 billion in its FY2020 accounts to independent directors.

After much wrangling with frontline regulator Bursa Malaysia, Serba Dinamik appointed Ernst & Young Consulting Sdn Bhd to undertake a review of KPMG’s work and findings, which were being vehemently disputed by the O&G service provider.

In short, Serba Dinamik said that KPMG had blown things out of proportion and, in an unusual move, sought legal redress against KPMG, forcing the latter to resign.

The group then sued EY Consulting and Bursa Malaysia to stop any disclosure of the review carried out by EY Consulting, and challenged its appraisal as well.

In August 2021, there were murmurings that the Securities Commission Malaysia (SC) had conducted a raid on Serba Dinamik’s office in Section 14 Shah Alam, carting away 60 boxes of documents. The SC personnel were said to have had to take the stairs in the 15-storey building as the electricity supply had been cut for some reason.

Only when the court documents on Serba Dinamik’s lawsuit against Bursa Malaysia surfaced was there some clarity as to what had transpired at the company.

SC officials, it seems, found 59 company and personal stamps of external parties, including oil and gas companies such as Malaysia LNG Sdn Bhd, Petronas Gas Bhd, Petronas Carigali Sdn Bhd, Petronas Methanol (Labuan) Sdn Bhd, Petronas Chemicals Methanol Sdn Bhd, Petronas Refinery and Petrochemical Corp Sdn Bhd, Petronas Chemicals Ammonia Sdn Bhd, Sarawak Shell Bhd, Petronas Chemicals LDPE Sdn Bhd, Exxonmobil Exploration and Production Malaysia Inc, Petronas Carigali (Turkmenistan) Sdn Bhd, Petronas Chemicals Derivatives Sdn Bhd, Sabah Shell Petroleum Co Ltd, Shell MDS (Malaysia) Sdn Bhd, PRPC Utilities and Facilities Sdn Bhd and Shell Cyberjaya.

Bursa Malaysia Bhd chief regulatory officer Julian Mahmud Hashim, in his affidavit given in the case against Serba Dinamik, aptly said, “Premised on the above observations, there is a question as to the rationale for Serba Dinamik to have in its possession company stamps of external parties. Further, depending on the circumstances surrounding the use of these company stamps, then the above could lead to concerns on the veracity of the (company’s) transactions.”

Putting two and two together, there appears to be massive issues at Serba Dinamik, to the tune of billions of ringgit.

To recap, KPMG had red-flagged transactions amounting to RM2.32 billion in total, a trade receivables balance of RM652 million and materials on site balance of RM569 million, and there were issues with some suppliers — which had paid-up capital of only RM100,000 and had similar registered addresses — carrying out transactions valued at RM60 million to RM96 million. These transactions amounted to RM481 million.

Questions were also raised about a customer and supplier in Bahrain whose office addresses could not be located — transactions with this outfit totalled US$101 million (RM417.48 million then) and the trade receivables balance was US$24 million (RM99.2 million then).

In total, the transactions deemed questionable amounted to RM4.54 billion.

The EY Consulting report, which was comprehensive and more than 1,000 pages long, confirmed KPMG’s suspicions and made it clear that the issues at Serba Dinamik were real and material. This also explained why Serba Dinamik fought tooth and nail to prevent the EY Consulting report from being made public.

In December last year, Serba Dinamik’s executive director Datuk Syed Nazim Syed Faisal, who was also chief financial officer from June 2016 until mid-2020; group chief financial officer Azhan Azmi; and vice-president of accounts and finance Muhammad Hafiz Othman were each charged by the SC under S369(a)(B) of the Capital Markets and Services Act 2007 (CMSA) for making a false statement relating to revenue of RM6.01 billion recorded by the group for the financial year ended Dec 31, 2020.

Group managing director Datuk Dr Mohd Abdul Karim Abdullah was charged a day later. All four claimed trial.

However, in April this year, the SC and the Attorney-General’s Chambers offered the four men the option of paying a compound.

They were compounded RM3 million each. Muhammad Hafiz was also charged an additional RM1 million for falsifying the accounting records of one of Serba Dinamik’s subsidiaries.

The four were deemed to have got off easy.

The SC, possibly realising that the punishment was not commensurate with the wrongdoing, said, “This (RM3 million) is the maximum amount of compound permissible under Section 369(a)(B) of the CMSA for submission of false information in a company’s financial statement.”

Coincidentally, shortly after the compounding, the SC announced that Datuk Syed Zaid Albar was stepping down as executive chairman at the end of May. No reason was given for his resignation and what was more, Syed Albar’s three-year contract with the SC had only begun the previous November.

Three other senior SC officials also left at around the same time.

Those who were of the view that the punishment meted out did not commensurate with the crime highlighted that Mohd Abdul Karim took home RM4.96 million in remuneration made up of fees, salary and other emoluments for the 18 months ended June 2021.

Contrast this with the punishment meted out to former CEO and executive director of Transmile Group Bhd Gan Boon Aun. In January this year, the High Court increased his jail sentence from one day to 24 months and upheld the RM2.5 million fine for furnishing misleading statements, with intent to deceive, relating to the air cargo company’s revenue for the year ended December 2006. The quantum of Gan’s misleading statement was over RM333 million worth of fictitious sales.

Gan fled the country without serving his sentence but the message from the court was clear.

With Serba Dinamik’s stock now suspended and trading at one sen, it is likely that the company will soon be off the radar and forgotten, but it leaves behind a dangerous precedent.

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