Analysts say the corruption charge against one of its general managers brings a new dimension to the Sime Darby saga
Shares of Sime Darby Bhd (4197) held steady yesterday although its image took a hit after one of its general managers was charged in court with accepting a bribe.
The charge came a day after Sime Darby lost RM1 billion in market value following reports that it was heading for record losses.
Sime Darby shares closed unchanged yesterday at RM7.52. On Thursday, the company said it expected to stay in the black for the year ended June 30 2010.
Analysts said the corruption charge brings a new dimension to the Sime Darby saga as, initially, their focus had only been on mismanagement.
Sime Darby suffered a loss of RM308.6 million in the third quarter ended March 31 2010 due to provisions made for cost overuns.
Yesterday, Zamri Mohd Iderus, 39, general manager for marine/business and investment development/international projects, was charged in the Sessions Court with accepting a bribe of RM99,000 from a company two years ago.
The bribe was for Syarikat Arrow Platform (M) Sdn Bhd to know the bidding price for a RM14.4 million subcontract for architectural works and a subcontract for copper nickel piping works.
"All this while we thought it was mismanagement. But now there is also fraud involved, which is something totally different. It just shows that internal control is not strong and something needs to be done," an analyst said.
While research houses, like CIMB Research, expect Sime Darby to post a profit of about RM1.5 billion for financial year 2010, others warn that there could be further provisions for bad judgments in the energy and utilities division.
Sime Darby's oil and gas unit, a sub-unit within the energy and utilities division, could also be heading for more problems.
The unit has an order of about RM2 billion, made up of two projects in India with Oil and Natural Gas Corp Ltd - the RM450 wellhead platform contract, which started in May, and the RM1.6 billion process platform contract, which started about a month ago.
RHB, in a report released on Thursday, said Sime Darby's bid for the process platform job was considerably lower than the second lowest bid.
"Should Sime not complete these projects within budget, there could be a risk of more provisions in future. Sime is aware of this risk," analyst Hoe Lee Leng wrote in the report.
The research house also noted that most of the problems faced by the division were self-inflicted.
"Most of the problems stem from poor project management and an absence of documentation of client design changes and subsequent cost overruns," Hoe said.
"This was particularly the case for the Middle Eastern projects as the previous management had relied a lot on 'word-of-mouth' and trust that the clients would come through with the variation order payment," she added.
RHB also noted that Sime Darby had yet to receive any new contracts from Petroliam Nasional Bhd this year, which means that its fabrication yard will likely be operating at very low utilisation rates. The capacity was boosted by 190 per cent to 105,000 tonnes after the acquisition of Ramunia Bhd's assets.
By June Ramlee
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