11 Jun 2007: Cover Story: Mega problems at Megan Media
Theextent of business and financial fraud that has so far been uncoveredat Megan Media Holdings Bhd is baffling and brings into question thecompany's long-term solvency status.
Late last Thursday, Megan, an optical data storage discmanufacturer, announced that accounting misstatements in its books goback to its 2005 financial year, when its trade receivables were firstinflated. Over the last two financial years, it also inflated revenue,cost of sales, inventories as well as deposits and prepayments usingfictitious transactions.
Preliminary findings by investigative auditors, Ferrier Hodgson,reveal that the highly fraudulent accounting and trading activities atMegan's subsidiary — Memory Tech Sdn Bhd (MTSB) — may result in ashortfall of at least RM456 million in the net realisable value of thegroup's assets. The accountants have also raised doubts over the actualvalue of MTSB's fixed assets of RM585 million.
Apart from exposing the possibility of fake trade debtors andcreditors as well as a fabrication of growth in the company's "trading"activities, Ferrier Hodgson also highlighted the misappropriation ofRM211 million.
The sum was supposedly put down as a deposit for 13 productionlines sometime during its 2006 financial year. The machines weresupposed to have enabled Megan to produce newer technology HD-DVD andBlu-Ray discs.
What the investigative accountants have uncovered so far couldpotentially wipe out Megan's reported RM507 million shareholders'equity, pushing it instead into a deficit of RM141 million.
In an illustrative proforma balance sheet released last Thursday,the company showed that instead of retained earnings of RM263 million,it may actually have accumulated losses of up to RM385 million,eliminating the entire RM206 million in its share capital.
The proforma balance sheet as at Jan 31, 2007, also shows thatMegan's current assets were overstated by almost 80%. Post-adjustments,its current assets only amount to RM206 million instead of RM853million as reported earlier. With Megan's restated current liabilitiesadding up to more than twice its current assets, its solvency statuscomes into question.
Megan's auditor KPMG, however, has never raised any doubt overthe company's accounts. KPMG has audited Megan's accounts, at leastsince it was listed in 2000.
A KPMG source says he is confident the improprieties only tookplace in the current financial year, which ended in April 2007. KPMG,adds the source, has yet to audit the FY2007 accounts. However, goingby Megan's announcements, the misstatements go back to FY2005.
Separately, creditors attending a meeting with the company lastFriday were told that Megan's records for the periods prior to 2005were "accidentally destroyed".
Meanwhile, the Securities Commission has already stepped in totake action. Sources say the SC raided Megan's offices on Fridaymorning and seized company records.
Following initial investigations, Megan has suspended itsfinancial controller. According to sources, the financial controllerhad provided a written confession to investigators. He is now assistingin investigations to unravel the accounting improprieties. How it all started
Thetroubles at Megan first surfaced in early May, when the companyannounced it had defaulted on RM47 million worth of trade facilities.The default, Megan explained in May, were due to cash-flow troubles atits core subsidiaries — MTSB and MJC (Singapore) Pte Ltd. Thesecash-flow problems were caused by an untenable rise in the group'sreceivables, the company explained.
At this point, Megan appointed Sage 3 Capital Sdn Bhd, aspecialist advisory group, to investigate the underlying causes ofdefault and initiate a debt-restructuring exercise. It was this initialinvestigation that brought to light the accounting improprieties atMegan.
By the end of January this year, Megan's total borrowings wereRM888 million, including RM320 million in Islamic bonds. Last week,Rating Agency Malaysia (RAM) downgraded the bonds to "D", classifyingit a default. Megan's principal bankers, according to its latest annualreport, are Citibank Bhd, CIMB Bank, DBS Bank Ltd, RHB Bank, Maybankand HSBC.
When Megan met its creditors for the first time on May 11, itinformed them that its deputy CEO, George Yeo Wee Siong, had left thegroup sometime in April. Yeo, who was also Megan's founder and majorshareholder until March this year, had been paring down his sharessince last November.
A source says Yeo had been "absent from active management atMegan since July last year. The company has been effectively running onauto-pilot since then".
Yeo, a finance and management graduate from the University ofWisconsin, US, was Megan's largest shareholder at the end of August2006 with an 11.21% stake. At the end of March, his shareholding hadbeen reduced to 1.94%. Except for 2.3 million shares disposed ofthrough a bank sale between Feb 6 and 9 this year, all his other shareswere sold to the market.
A former DBS bank empoyee says Yeo has had a long-standingrelationship with DBS. Describing Yeo as someone from "a well-to-dobackground," he views Megan's current situation as shocking.
According to data compiled by Bloomberg, Megan's largestshareholder is now Lembaga Tabung Haji with a 5% stake followed byDatuk Mohd Adam Che Harun, Megan's chairman and CEO. Adam, who held4.41% of Megan last December, had reduced his shareholding to 2.32% byMay.
It is believed that Yeo is currently not in the country. A sourcesays he declined an invitation to attend a recent board meeting.
Last Thursday, Megan's board decided to accept Yeo's resignationfrom the board. "Yeo tendered his resignation a couple of months ago.But the board only accepted it this week," says the source. "In thelight of all that has happened, the board thought it best to accept hisresignation now."
Meanwhile, Alice Kuek Ai-Lee, an executive director who was alsoCEO of MJC (Singapore) Pte Ltd, resigned from Megan's board on May 3.Kuek is said to have resigned as CEO of MJC in April.
MJC, which mainly carried out trading activities for Megan,ceased all operations recently, says a source. Independentinvestigations into MJC's books began last week after the courtappointed PricewaterhouseCoopers as the interim judicial manager.
On April 16 this year, Megan appointed a new deputy CEO,Jayabalan Parasingam. Jeyabalan, an accountant by training, whopreviously served at Ernst & Young, RHB Sakura Merchant Bankers andCLSA, was brought on board to help address the group's debts andimprove its financial position.
Megan met its creditors and bondholders again last Friday topresent them with Ferrier Hodgson's findings. Sources say Adam was notpresent at the meeting, which was instead chaired by Jayabalan andrepresentatives from Sage 3.
Where has all the money gone? "That's a question that cannot beanswered yet. At best, we can only suspect that it's been siphoned offthrough padded-up transactions," says a banker.
What's next?
The nextstep is civil action. Sources say there are plans to lodge policereports against those responsible for the accounting misstatements andfraud.
Bondholders, meanwhile, are waiting for the investigative auditto be completed, which is expected within the next six to eight weeks.
Megan's shares, which were suspended on June 6, will commencetrading this Monday. The stock has lost about half its value since theproblems surfaced in May, closing at 32 sen on June 5. |
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发表于 25-6-2007 10:33 PM
楼主
外面的風風雨雨，真擔心被人捉了，如果被捉到，從此一身關在牢籠里過一生了，這樣就慘了。
成交量好底哦，
1448 
13
