A
forensic audit has revealed breaches of duties and misconduct in the
beleaguered energy and utilities (E&U) division of government conglomerate
Sime Darby group, which last month reported a RM77 million fourth-quarter loss
and RM977 million in writedowns.
In an announcement made
available on the Bursa Malaysia website today, the forensic and legal
consultants engaged by the group’s board of directors in May had found
irregularities in the division’s four key projects, namely the Bulhanine and
Maydan Mahzam project with Qatar Petroleum, the Maersk Oil Qatar project, the
Bakun hydroelectric dam project and the “Marine Project”.
“The investigations have
found evidence to suggest, on a prima facie basis, that there may have been breaches
of duties and obligations an inappropriate conduct,” the announcement read.
The announcement also said
that the board had resolved to initiate legal proceedings “where appropriate”
and would lodge reports with the relevant authorities.
The nature of the
proceedings and further details from the forensic report, however, would not be
revealed, it said.
“The board has been advised
by legal counsel to keep confidential the details of the report and nature of
such proceedings so as not to adversely affect the interests of the group,” the
announcement said.
The plantations-to-property
giant had engaged forensic consultants on May 27 to conduct audits into its
energy division’s key projects and an independent legal consultant to conduct
follow-through investigations to determine whether there was any evidence of
culpability.
The controversial Sime Darby
shake-up hit the headlines earlier this year following the announcement that
its president and group chief Datuk Seri Ahmad Zubir Murshid was asked to take
leave of absence following concerns over cost overruns amounting to RM964
million from the four troubled projects.
The cost overruns were
discovered by a board work group formed in October 2009 to “assess the
corporate governance and performance” of Sime Darby’s energy and utilities
division.
On August 26, the group
turned in a net profit of RM726 million for this year but booked foreseeable
losses of RM2.1 billion for its E&U division, one of the highest ever for a
local conglomerate.
It also reported a
fourth-quarter net loss after tax and minority interest of RM77.4 million.
Sime Darby’s 2010 earnings
fell short of analyst consensus forecast of a profit of between RM1.3 billion
and RM1.5 billion excluding fourth-quarter provisions.
The last time the
conglomerate spilled red ink on its balance sheets was just after the 1997 Asian
Financial Crisis, when a plunge in the stock market and a sharp depreciation of
the ringgit led its financial arm, Sime Bank, to post a RM1.6 billion loss —
the largest in Malaysian banking history — for the six months to December 1997.
The conglomerate also went on to post a six-month loss of RM676.2 million and
closed the 1998 financial year with a net loss of RM540.9 million.
Its acting chief executive,
Datuk Bakke Salleh, a close ally of Prime Minister Datuk Seri Najib Razak, said
after the group’s second consecutive quarterly loss was revealed that Sime
Darby was now in the process of reviewing its business activities — which began
when Sime Darby first came to know about the massive costs overruns incurred by
its energy and utilities division.
However, he said it was
“still early days” and far too soon to decide if the group will divest some
non-core operations.
“We reckon it will take us a
few months before we can safely make the decision as to whether we want to
divest some of the companies that are in our stable, or we want to call it a
day in some of the business segments we’re in.
“Once we’re in a position to
make a conclusion that we should not be hanging to some of these business
activities, then the appropriate decision will be made,” he had reportedly
said.
He noted that provisions of
RM773 million at its stricken energy division pushed the firm to a
fourth-quarter net loss of RM77.35 million and did not rule out further
provisions.
Revamped in 2007 after a
merger with two other state-owned plantation groups, Sime Darby earns more than
half of its operating income from its plantation business. Its business model
has come under question, with many analysts saying a break-up would create
long-term value for the group.
“We are going to look at the
implementation of a new business structure, which is similar to the old Sime
Darby structure of having anchor subsidiaries in each business segment.
“The concept has been
endorsed by the board this morning (August 26) and we are looking to implement
it as early as January 1,” he had said.
