Serba Dinamik has indicated its banks have not frozen or withdrawn any facilities to date, says Fitch

by RAHIMI YUNUS / pic by TMR FILE

SERBA Dinamik Holdings Bhd may face a more challenging access to funds if its independent review on the auditing irregularities flagged by its external auditor reveals any anomalies, according to Fitch Ratings Inc.

The credit ratings agency, which has downgraded Serba Dinamik to ‘B-’ on rating watch negative (RWN), believes the issues raised by KPMG PLT and the review would constrain the oil and gas (O&G) services company’s ability to access capital markets to manage its liabilities.

“We think the company had strong access to multiple forms of capital before the KPMG findings, which, combined with its proactive refinancing strategy, would have enabled it to refinance its short-term debt and undertake liability management.

“However, the independent review has hurt its ability to address its short-term maturities, resulting in the multiple-notch downgrade,” Fitch said in a rating action commentary on Wednesday.

Fitch has downgraded the energy-service provider’s longterm issuer default rating to ‘B-’ from ‘BB-’, two days after S&P Global Ratings did a similar move.

At the same time, it has downgraded Serba Dinamik’s senior unsecured sukuk due 2022 and 2025 to ‘B-’ from ‘BB-’ with a recovery rating of ‘RR4’.

Fitch added that Serba Dinamik’s ‘B-’ rating and RWN reflect its heightened liquidity risk following the questions raised over the quality of its earnings by its auditor, which gives rise to the possibility lenders may cut their exposure to the company, and investor or lender interest in the company may be constrained, if the audit review is unresolved or prolonged.

Serba Dinamik has indicated it plans to complete the review within one month.

Fitch believes the process is generally complex, necessitating ground checks to ascertain the accuracy, thus may take longer than anticipated.

The ratings agency noted Serba Dinamik had RM836 million in cash at the end of 2020 versus short-term debt due of RM807.5 million.

The company raised RM508.6 million in a private placement in February 2021 and drew down RM100 million from an Islamic commercial paper issue.

It also has US$225 million (RM928 million) of sukuk due in 2022, for which it may have to consider other refinancing options.

“We believe Serba Dinamik’s top priority under these circumstances will be to ensure the continuity of its operations. In our opinion, cash will be deployed to ensure that its O&G service contracts are carried out smoothly, rather than servicing or redeeming debt,” Fitch added.

It noted that Serba Dinamik has indicated its banks have not frozen or withdrawn any facilities to date.

Fitch stated Serba Dinamik’s working-capital needs surged to RM1 billion in 2020, from its earlier projection of about RM420 million, due to a disproportionate increase in inventory.

It estimates even if Serba Dinamik reins on its dividend distribution, its working capital and capital expenditure needs will use up about RM90 million to RM100 million cash per month.

On Tuesday, S&P lowered Serba Dinamik’s long-term issuer credit rating and its guaranteed sukuk to ‘B-’ from ‘B+’ and placed the ratings on CreditWatch with negative implications.

KPMG has flagged irregularities on Serba Dinamik’s transactions involving some of its suppliers and 11 customers, accounting for total sales transactions of RM2.32 billion, trade receivables balance of RM652 million and materials-on-site balance of RM569 million.

Serba Dinamik’s management and KPMG are expected to engage each other to resolve the auditing issues involving multi-billion ringgit transactions.

The move followed the company’s non-independent non-ED Datuk Abdul Kadier Sahib, also the second-largest shareholder, withdrawing his motion on Wednesday for an EGM to be convened for the proposed removal of KPMG and appointment of new auditors.

“Abdul Kadier is looking forward to the management and KPMG to arrange for an engagement session to enable both parties to achieve an amicable solution to the raised matters,” the company stated on Wednesday.

Serba Dinamik’s shares recovered some of its losses, closing one sen or 1.2% higher at 83.5 sen, valuing the company at RM3.09 billion.

The stock price has plunged 48% since last week, losing almost RM2.9 billion in market value.

Abdul Kadier and Serba Dinamik’s largest shareholder and group MD Datuk Mohd Abdul Karim Abdullah bought five million new shares each in the open market in the past few days as institutional investor Retirement Fund Inc sold down its stake on the accounting issues news.