In the space of one week, Serba Dinamik Holdings Bhd lost more than RM3 billion, half of its market value. The shares sank more than 52% and closed at 76.5 sen on the Friday, according to The Edge Malaysia’s cover story of 7 June 2021.
The cause was a set of questions from auditor KPMG covering more than RM4.54 billion of transactions. Management, led by managing director and CEO Datuk Mohd Abdul Karim Abdullah, insisted nothing was wrong. In a filing to the bourse, the company said it saw “no issue with regard to the legitimacy and existence of the contracts.” It offered an independent review. Neither Serba Dinamik nor KPMG answered The Edge’s questions.
What KPMG flagged
The core of the audit queries was sales transactions worth RM2.32 billion, trade receivables of RM652 million and material on site balances of RM569 million, adding up to RM3.54 billion.
Other items were stranger. KPMG questioned trade payables of RM481 million where supplier addresses were in doubt, and where amounts owed ran from RM60 million to RM96 million to companies with paid-up capital of just RM100,000. It also pointed to a customer and supplier in Bahrain whose office address could not be found. That party accounted for US$101 million (RM417.36 million) in sales and US$24 million (RM99.17 million) in trade receivables.
In information technology contracts, some supplier invoices carried no company registration numbers. Some customers paid subcontractors directly, and Serba Dinamik then received the net amount. One customer’s principal business was not IT at all. KPMG said it could not always judge “the appropriateness of the contracts and transactions as well as the revenue and cost recognised,” though it attached no value to those cases.
A record that looked too good
Serba Dinamik listed in February 2017, and its numbers had been remarkable. For the year ended December 2016 it reported a net profit of RM156.15 million on RM1.39 billion of revenue. For the four quarters ended December 2020, net profit was RM631.74 million on RM6.01 billion. It never posted a loss-making quarter after listing, even as Brent crude swung between just above US$20 a barrel and just above US$85. Its order book stood at RM18.7 billion, including an RM7.7 billion Abu Dhabi contract won in April 2020 from Block 7 Investments LLC.
Shareholders and regulators respond
KWAP cut its stake from 5.25% to below 5%. EPF, with 10.18%, said it sought “the highest level of transparency and corporate governance” at companies it invests in. PNB told Reuters it had passed its deep concern to the board. The Minority Shareholders Watch Group urged minority holders to vote against removing KPMG, saying “there is no urgency to remove the auditor at this juncture.” The Securities Commission confirmed it was investigating.
The dispute later widened. According to a Thomas Philip law firm article dated 24 February 2022, Serba Dinamik appointed EY as special independent reviewer, the Securities Commission began its investigation after receiving a notice from KPMG, and Bursa Malaysia suspended trading in the shares in October 2021. The company sued KPMG, Bursa Malaysia and EY.
Sources
- Serba Dinamik – Auditors and Reporting Irregularities
- Cover Story: Serba Dinamik in the eye of the storm
Sources
- Serba Dinamik – Auditors and Reporting Irregularities – Thomas Philip
- Cover Story: Serba Dinamik in the eye of the storm | The Edge Malaysia
