KUALA LUMPUR: The Minority Shareholder Watchdog Group (MSWG) has called on Sime Darby Bhd to be accountable to its shareholders for its massive losses at its energy and utilities (E&U) division.

In a statement yesterday, MSWG reiterated Prime Minister Datuk Seri Najib Razak’s statement that the board of the conglomerate should deal with the estimated RM1 billion in cost overruns arising from four of its projects in a transparent manner.

“Sime Darby’s size and significance to Malaysia’s reputation locally and abroad makes it absolutely axiomatic that a detailed and full disclosure of the goings-on in Sime Darby’s energy unit be made public,” said MSWG CEO Rita Benoy Bushon.

“As minority shareholders, we expect the board to be fully accountable and conduct a forensic investigation and make its findings transparent to shareholders in a prompt manner.”

MSWG also raised several questions about the risks of the four projects, namely the Qatar Petroleum project, the Maersk Oil Qatar project, the MOQ marine project and the Bakun Hydroelectric project.

It questioned whether the risks of the projects were appropriately addressed and why provisions were not made at the time of doubts of recovery.

MSWG also raised the issue of the role of Sime Darby’s independent directors in overseeing the governance of the company, and whether the group should redirect its attentions to its core business in order to streamline the management of the company.

“It is common knowledge that many investors buy Sime Darby shares not for its hotchpotch of businesses, but mainly for its plantation business, which in 2009 contributed to 70% of group net profit,” said Bushon.

“In fact, Sime Darby shares are accorded a discount compared to other plantation stocks because of the company’s other non-plantation businesses.”

She said MSWG had sent a letter to the chairman of the board in March 2009 regarding the issues in the E&U division, in addition to raising questions about the significant decline in the division’s bottom line at Sime Darby’s November 2009 AGM.

According to Bushon, the board had attributed the decline to rising costs and said the group would have regular performance reviews while monitoring the projects through its Project Management Committee.

She also questioned whether the MSWG’s queries were appropriately addressed by Sime Darby’s board.

In a separate statement, Malaysian Rating Corp Bhd (MARC) said it did not foresee an immediate rating impact on Sime Darby’s Islamic debt issuance following the news of the cost overruns from the E&U unit.

It said its MARC-1ID /AAAID/ stable ratings on the debt notes were unaffected in the near term after Sime Darby said it expected its results for the second half of the financial year ending June 30, 2010 to be impacted by RM964 million in losses.


This article appeared in The Edge Financial Daily, May 21, 2010.