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for all the wrong reasons May 13, 2010

Posted by youppe in business, finance, investment, politics.

shares of Sime Darby Bhd, the second largest publicly-traded company in the Malaysian exchange, were suspended today pending a ‘material announcement’ to be held via press conference at 2.30 pm. if you’re a stock market investor, you’ll know what that means… trouble. well, trouble has been brewing for quite some time in Sime and it’s not like we didn’t know about it. most people know this ‘material announcement’ will almost likely be about the cost overruns incurred by the energy & utilities division (Sime Darby Engineering or SDE), but what was to be announced proved to be quite a shocker.

‘Sime Darby Removes Chief Executive Officer After Overruns’ was the headline at BusinessWeek website, and NST Business Times followed with ‘Sime Darby Says CEO To Quit’, click on those links to view the story. for the full statement by the Sime Darby board, click here. according to the official statement, and to confirm the rumours and hearsay, SDE has indeed incurred heavy losses to their Qatar venture (with 2 clients, namely Qatar Petroleum and Maersk Oil Qatar) as well as the more well-known debacle of Bakun Dam. the losses totaled near RM 1 billion which to be accounted for in Sime’s second half of FY10. monumental losses indeed, and the board has decided the ultimate sword has to befallen the head of the head-honcho himself, DS Ahmad Zubir Murshid. no one see that coming by a long mile.

what has happened to Sime? you see, when it was first announced that PNB would marry the plantation companies under their umbrella into one gigantic, super palm oil producer-cum-property developer with substantial auto and oil & gas business, the nation rejoiced. there were some skeptics, as always, but generally, Malaysia is proud to have the biggest palm oil producer in the world and an international conglomerate touted to be blazing a trail of glory for Malaysian companies internationally. with market cap of RM 50 billion and annual revenue of around RM 30 billion, the new Sime Darby looked set to shake Corporate Malaysia in a big way. although there were capable people within Guthrie and Golden Hope, the choice of Zubir Murshid as the head of the new Sime was mutual, and easy. he stands out, it’s just as simple as that, and a new management team looked set to be united and functioning properly with him at the helm. plus, he’s clean, and some people pointed out the fact that he is not just one of TS Nor Mohamad Yaakop’s former Danaharta guys of whom he picked to head most of GLCs. (that’s another story, if you’re interested click here)

but the fact is, post-merger, Sime Darby has been rocked with scandal after scandal. the merger dust has not even settled yet, and there was already accusation of witch-hunting within the new Sime, with Golden Hope’s former top executives being the victims and put to the sword for an accounting/trading loss. former Golden Hope CEO himself was booted out, with couple of his guys, provoking lawsuits-galore from the accused. i still don’t even know what the hell was that about, but for sure it was bad blood, and bad blood is not good. the purported ‘victims’ must have been smiling seeing those headlines today. oh no, no you don’t… don’t think this was an act of vengeance by ex-GHs, no you don’t. you’re getting too creative for your own good there, mister! well, whatever it is, bad blood is not good for any organization, and it will crumble from within if it’s not meted out. and oh, the IJN privatization is also another scandal the new Sime could do a lot without.

Sime Darby should be the role models, the next-gen huge Malaysian conglomerate headed by competent professionals, making it big in the international scene, and should be a toast of Corporate Malaysia. it is now in disarray, and had to deal with 2 major issues;

1.  With the board successfully ousting the CEO, the mutual one, head of the Old Sime, Sime Darby will be in management crisis. we already know about the factional infighting, the spewing bad blood between the merged entities, and with the CEO no longer there to steady the ship, it will be interesting to see who has more aces up their sleeves. the abrupt dismissal of Zubir Murshid will lead to a lot of finger-pointing, screaming to each other, etc. the old guards of Sime might have to watch their back a lot more often that the head-honcho is now gone from the picture.

2.  The losses. a company with the size of Sime should be able to bite the bullet and swallow it, but if their cashflow position is not strong, RM 1 billion deficit could do a lot of damage and shake their foundation. put the management crisis/succession issue on top of that, and you’ll be scratching your head if you have a lot of Sime’s shares with you!

corporate governance and transparency is key in determining the solution. the public must know how and why a decision is made. it will be a sad, sad day for Malaysia if Sime Darby couldn’t recover from this. infighting must be resolved, and most people are skeptical if the Acting CEO, head of Sime Plantations Azhar Abdul Hamid could be the one to do it.

keep watching.



ps.. BigDog has been writing about the Qatar scandals since early February 2009, more than a year ago. today we found out that it was indeed true! check it out here.

pss.. Jejak Pujangga, apparently a former GH employee, has been keeping tabs with the new Sime Darby since it was formed. check him out for the whole history.



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