Good morning, everyone. You are reading a free edition of The Malaysianist, a newsletter on money and power.
To help keep the independent journalism lights on, consider a monthly or yearly subscription. Paying members get scoops into topics such as the digital economy as well as deep dives into the latest corporate ownership buzz and taxpayer-fuelled mega-projects.
Today’s issue – an analysis on embattled Serba Dinamik Holdings Bhd founder Mohd Abdul Karim Abdullah – is written by V. Suresh Kumar, a final-year finance undergraduate student looking to explore job opportunities in business and finance as an analyst or journalist. He can be reached at firstname.lastname@example.org.
Mohd Abdul Karim Abdullah is a man in free fall. Ever since then auditor KPMG flagged questionable transactions in his flagship, Serba Dinamik Holdings Bhd, the corporate has had his back up against the wall, trying to firefight and steer the company back on right path.
His efforts, however, seem unconvincing. Serba Dinamik’s shares ended 40 sen on Friday, down 3.66% from the previous day’s trade. It has yet to retrace losses to the day KPMG blew the whistle on May 25, where it was hovering at RM1.61.
Painfully enough, investors have had to also deal with price drops in Karim-related companies KPower Bhd (KPower) and Sarawak Consolidated Industries Bhd (SCIB) as well as London-listed BiON Plc.
To put these in perspective, Serba Dinamik’s share price has lost 75% of its value since the dispute went public. Some positive pullback was seen for a brief period when prices closed 43 sen on July 23.
The same May 25 starting point also saw KPower dive from RM1.69 to a historical low of 63 sen, a 62.72% drop. Prices has seen climbed to 74 sen to date.
KPower’s share price has always danced in unison with Serba Dinamik. A technical analysis based on historical data suggest correlation of stock price returns of Serba Dinamik and KPower increased since audit issues were announced.
From May 25 to last Friday, correlation between the two stood at 89%, compared to 36% between July 27, 2020, and July 23 this year.
Such entanglement is not only on paper. When it comes to projects, KPower is seen as merely a Serba Dinamik spinoff, a problem for the former.
KPower’s initial business was in textile manufacturing. Following its listing on Bursa Malaysia in 2002, the group went on to make two notable acquisitions, including a student hostel in Liverpool, the UK, in 2013, and development rights for a commercial project in Sentul, Kuala Lumpur, in 2016.
But that soon changed when Karim surfaced as a major shareholder of the company.
For instance, when Serba Dinamik entered an engineering, procurement, construction and commissioning contract with Nam Taep 1,2,3 Hydropower Company Limited, a company incorporated in Laos on July 19, 2020, this contract concerned the design, supply, construction, commissioning and completion of 3 X 5MW Nam Taep 1 and Nam Taep 2 Hydropower Energy Generating Facilities.
The supply, construction, commissioning and completion of the civil works in relation to the project was awarded to KPower, with a contract value of US$ 41 million (RM175 million).
Another notable similarity includes the memorandum of understanding (MoU) agreement signed on March 13, 2020 between Serba and Nepal-based Hydro Village Private Limited (HVPL) for the development and operation of the 57.3MW Myagdi Khola hydro project.
Reported under projects awarded to KPower during financial year ended June 30, 2020, two projects procured were regarding hydropower plants in Nepal which is valued at US$48 million and US$46.2 million, respectively.
This brings the sum of both contracts to US$94.2 million, whereas the estimated contract value of the MoU signed by Serba Dinamik in Nepal is valued at US$100 million. Projects awarded in Nepal and Laos are among the highest international projects procured by KPower last year.
Karim has parried criticism of overlapping interests. He denied imposing his demands on businesses he controls and reassured investors that their respective management teams are capable of charting their own direction. But the similarities in deals raise questions to that claim of non-interference.
SCIB is naturally caught in the crossfire, dropping from RM1.48 to a new low of 46 sen and back up again to 65 sen to date, a 68.92% drop to its lowest, and a net decrease of 56%.
Karim’s London-listed company is in the spotlight, too, over audit issues. BiON, his renewable energy interest, had to delay its 2020 audit results due to the movement control order in Malaysia, citing restricted access to accounting systems and supporting documents at the office.
The announcement of the delay on June 28 had a negative impact on share prices. BiON plunged from £2.90 to £1.46, representing a drop in value of 49.65%.
Not all that 'fantastic'
Where should Karim go from here? The root cause for his Malaysian companies to languish at a discount is due to the storm around Serba Dinamik.
KPMG raised RM4.54 billion worth of transactions in Serba Dinamik while consolidating accounts for the group’s financial year ended December 31, 2020.
Exacerbating matters is Serba Dinamik taking legal action against KPMG, leading to the latter’s resignation. A slew of board appointments ensued with some resigning in protest against the suit.
Karim has come to defend himself and the company from wrongdoing. But, in return, he has associated himself with controversial characters.
Representing Serba Dinamik in its suit against KPMG is Muhammad Shafee Abdullah, who is also Najib Razak’s counsel in the former prime minister’s 1Malaysia Development Bhd suit.
The group’s new non-executive chairman Mohamed Ilyas Pakeer Mohamed also made the news a few months back when he said he signed a “fantastic deal” to own a 51% stake in Exchange 106 at the Tun Razak Exchange, only for his cooperative, Koperasi Amanah Pelaburan Bhd, to deny the deal, calling it a “miscommunication”.
He was again in the spotlight after claiming to have spoken to the Securities Commission Malaysia and Bursa Malaysia over KPMG’s conduct. Both regulators denied such engagements ever happened.
Wither a quick exit
Institutional investors have reacted differently across Karim’s companies. They have pared their stakes in Serba Dinamik. The Employees Provident Fund and civil servants pensions fund Kumpulan Wang Persaraan (Diperbadankan) are no longer substantial shareholders.
Those who have a vested interest in the company have cited forced selling, with Karim’s’ control at 25.8%, down from 27%. Co-founder Awang Putera was also forced to let go of 26.95 million shares, leaving him 25.43 million shares equivalent to a 0.68% stake.
But financial heavyweights in KPower and SCIB are stuck. In the case of KPower, insurer Allianz Life began investing in the company on June 23 last year. It did sell off shares on January 25 this year when share prices surged 263%. But Allianz still has roughly 2.34% in KPower and it may not be able to repeat its January feat.
All eyes are now on the suit as well as Ernst & Young to complete the FY20 audit and present its views on the matters raised by KPMG, which also recently quit as SCIB’s auditor. Serba Dinamik has appointed Nexia SSY PLT as its new auditor.
Minority shareholders’ watchdog groups will also be keeping a sharp eye on developments.
But whether the market will believe these overtures remain to be seen. Sadly, investors, retail and institutional, in Karim-linked stocks will just have to stomach all the negativity until Serba Dinamik’s issues are cleared.
The days of Karim being the man with the Midas touch are over.