KUALA LUMPUR: Serba Dinamik Holdings Bhd faces increased scrutiny and pressure after it failed to announce the findings of the special independent review by Ernst & Young (EY) to assess the the veracity of the audit issues raised by its former auditor KPMG.

       The group said in a filing with Bursa Malaysia yesterday that its shares face a suspension from trading until further notice after it failed to comply with a directive to make an announcement on the findings from the factual findings update on the special independent review by Oct 26, 2021.

       The oil and gas company, whose previous auditor highlighted discrepancies involving transactions worth more than RM3.5bil, announced that the auditor’s independent review is still ongoing though did not give a clear timeframe to produce the review.

       Last week, its group managing director and chief executive officer Datuk Mohd Abdul Karim Abdullah disposed of his entire holdings of 55.9 million warrants in Serba Dinamik.

       Fund managers and analysts said the disposal raised eyebrows ahead of the release of the special independent review.

       An analyst, who does not want to be named, expects the outcome of the special independent review to not be favourable, given the long delay in producing the review within the timeframe given by Bursa Malaysia.

       Should the outcome of the review by EY be negative, the analyst cautioned that Serba Dinamik could well face difficulty in refinancing its US dollar-dominated RM900mil sukuk by May next year.

       The group’s credit rating had also faced widespread downgrades, citing its difficulties to access funding for refinancing.

       Credit rating agency S&P Global Ratings has downgraded Serba Dinamik lower to “CCC” from “B-” to reflect the group’s sizeable debt maturities of RM1.7bil.

       Currently, the group’s short-term borrowings have ballooned up to RM1.7bil compared to RM401mil as at end-financial year ended Dec 31, 2019 (FY19), with net gearing currently at 0.9 times.

       Last month, Kenanga Research in a note said: “With its operating cashflows still in the negative, coupled with the downgraded credit ratings amid lack of funding access for a needed refinancing, we believe the group may be facing real borrowings risks.”

       The research house has kept the counter “under review” pending further updates on the group’s special independent review and fully audited accounts, which would put some certainty over the status of its corporate governance.

       On Oct 22, Bursa Malaysia issued a directive to Serba Dinamik to make an announcement on “the findings from the Factual Findings Update on the special independent review”.

       On Oct 25, Serba Dinamik said the terms of engagement between the group and EY dated July 2 has provided that “no work products will be distributed to any parties including the regulators before and or after the status update”.

       The terms of engagement also prohibits any quoting or references to any report, any portion, summary or abstract.

       Serba Dinamik pointed out that any documents or report from EY does not fall within paragraph 9.03 and 9.35A of the Main Market Listing Rules.

       Trading in Serba Dinamik securities, including all warrants, have remained suspended since the afternoon of Oct 22.

       According to the stock exchange, trading would continue to be suspended until further notice.

       In addition, there has been a delay in the issuance of Serba Dinamik’s annual report and audited annual financial statement, which was supposed to be submitted by the end of this month.

       However, group announced recently that Bursa Malaysia has approved its request to delay the issuance by a month until Nov 30.

       Certainly, the market and the stock exchange is pushing for transparency of financial reporting to reduce uncertainty and determine the value of the group.

       With the environmental, social and governance theme coming strongly, a fund manager said good corporate governance has become an important requirement for a listed company, which helps investors make better decisions and increases confidence in the fairness of the markets.

       “It is important for Serba Dinamik to be transparent and provide speedier disclosure, as these are among the key actions for all public companies to observe,” said the fund manager.