The phosphate business, which is parked under Cahya Mata Phosphates Industries Sdn Bhd (CMPI), remains a “financial blackhole” for the group, several minority shareholders told FMT.
The loss-making phosphates business has been a millstone around the neck of CMSB in recent years.
For the year ended Dec 31, 2024 (FY2024), the group posted improved results with a 48% increase in profit before tax (PBT) to RM190.1 million from RM128.24 million the previous year.
The group also reported unrealised forex gains of RM50 million for the fourth quarter of 2024 (4Q2024). However, there was no clear explanation of how this gain arose.
Nonetheless, all its business divisions saw higher profit in FY2024 except the troubled phosphates division which suffered a loss before tax (LBT) of RM96.8 million. In FY2023, it had registered a larger LBT of RM156.7 million.
The company implicitly acknowledged that the phosphates division has been a drag on its financials.
“Cahya Mata is pleased with its achievements in 2024 which are in line with our expectations, with the exception of the phosphates division, where the commercialisation of the plant has been deferred,” the group said in its bourse filing on Feb 18.
“We expect to commence commissioning in the fourth quarter of 2025 (Q4 FY2025),” it added.
The minority shareholders are also perplexed that CMSB’s latest financial statement recorded a RM28.6 million operating profit for the phosphates division in Q4 FY2024 from a RM57.6 million loss in Q4 FY2023.
“However, the phosphates division had no revenue in Q4 FY2024. As such, it is not clear how this operating profit arose.
“The RM28.6 million operating profit in Q4 needs to be adequately explained by CMSB for a proper understanding of phosphates’ financial performance,” they added.
CMSB had constructed Malaysia’s first integrated phosphate complex at the Samalaju Industrial Park in Bintulu. The venture was envisaged to increase its footprint across the Sarawak Corridor of Renewable Energy (SCORE), thus strengthening its earnings base.
The group had announced its plan to build the phosphate plant, involving an estimated capital expenditure (capex) of RM1.04 billion, back in January 2014.
Construction was scheduled to start in 2014 and the plant fully commissioned by 2018. However, construction was delayed and it was only completed in late 2022, with commercial production yet to commence.
CMPI’s latest available financial statement — for the year ended Dec 31, 2023 (FY2023) — revealed that construction in progress amounted to RM754 million.
Unresolved dispute with Sesco
The minority shareholders also flagged the operational, financial and legal issues plaguing the project and asked if these problems would undermine its viability.
In particular, they highlighted the unresolved dispute over the power purchase agreement (PPA) between CMPI and state utility firm Syarikat Sesco Bhd (Sesco) that was inked in 2019.
CMPI has since been hit with a RM342.25 million counterclaim by Sesco over electricity charges billed to the former.
The dispute flared up when Sesco billed the group for cumulative electricity consumption shortfall and payment security shortfall amounting to RM266 million as at end-December 2022, despite CMSB contending the plant is not deemed to have commenced commercial operations.
Sesco cut off power supply to the phosphate plant in July 2023 after the Court of Appeal dismissed CMPI’s application for a preservation order.
The minority shareholders argued that without electricity for almost 20 months, the company cannot operate and might have to be liquidated.
“How can testing and commissioning be carried out without electricity supply? When will the plant be ready for commercial operation?”
In a recent filing, CMSB said the hearing dates for the arbitration proceedings between CMPI and Sesco have been changed from last August to May 2025.
Technically insolvent?
The shareholders also pointed out the dire state of CMPI’s financial situation. Based on its latest financial statement, it had net current liabilities of RM275 million as of Dec 31, 2023.
This, they claimed, could mean the company is “technically insolvent”.
This begs the the question whether CMSB should pour in more funds to save the project or just cut its losses and sell it off, they asked.
The minority shareholders are also unhappy the group has not appointed a new head of internal audit after the previous head Asril Rahman Abdul Hadi vacated the position in October 2022, almost two-and-a-half years ago.
“This is an important position, so why has this been left vacant for so long?” they questioned, noting that internal auditors play a crucial role by assessing risks, ensuring compliance, and promoting ethical behaviour within the organisation.
They added that simply allowing the position to be handled by someone in an acting capacity does not bode well for transparency, financial accountability and corporate governance.
With CMSB’s annual general meeting (AGM) scheduled for May 23, it is likely shareholders will raise uncomfortable questions on corporate governance and the viability of CMPI moving forward.
The call by the group of minority shareholders to strengthen financial accountability and transparency follows on the heels of CMSB deputy chairman Mahmud Abu Bekir Taib filing a lawsuit against the group on March 6 to inspect its accounts.
The suit, filed at the High Court in Kuching, sought an order for CMSB to produce and open its accounts as well as those of five subsidiaries, including CMPI, for an inspection.
Abu Bekir, 61, the son of the late Sarawak chief minister and governor Abdul Taib Mahmud, holds a 0.5% stake in CMSB as of March 29, 2024, according to its latest annual report.
Its shares fell as much as 8.17% to 95.5 sen — its lowest level in 11 months — the day after the suit was filed. The counter closed at 99 sen on Friday, valuing the group at RM1.05 billion. Year to date, it has fallen 16%.