Red flags foreshadowed Sarawak Cable’s unravelling

Its fall from grace was marked by massive financial red flags that went unheeded by company officials.

Once a darling among stocks from Sarawak, it was widely recognised as proxy for the state’s rapid economic growth.

Following its listing in 2010 and acquisition in 2014 of two rival cable makers — Universal Cable (M) Bhd and Leader Cable Industry Bhd — it became Malaysia’s largest power cable manufacturer with annual revenues exceeding RM1.2 billion.

Being in such a dominant position in its industry, Sarawak Cable appeared poised to move on to greater heights.

However, a series of management missteps, poor decision-making and project execution saw the group implode.

The group reported a net loss of RM336.3 million on RM358.8 million revenue for the 18 months to Nov 30, 2024, reflecting substantial write-downs and interest burdens that snowballed over the years.

More importantly, its fall from grace was marked by massive financial red flags and warning signs of financial distress that appeared to have gone unheeded by those helming the company.

Auditors’ disclaimer of opinion 

Perhaps the reddest of red flags was the fact that Sarawak Cable’s external auditors refused to validate accounts for three consecutive years beginning from FY2022.

The audit reports for FY2022 to FY2024 flagged significant doubts about the company’s ability to continue as a going concern.

Ernst & Young’s disclaimer of opinion for the 17-month period to May 2022 triggered the dreaded Practice Note 17 (PN17) status. By then, Sarawak Cable was essentially technically insolvent, prompting Bursa Malaysia Securities to classify it under PN17, designated for financially distressed firms.

The subsequent external auditor, Baker Tilly Monteiro Heng, issued disclaimers for FY2023 and FY2024, citing multiple material uncertainties and a lack of sufficient audit evidence.

Repeated audit disclaimers are a screeching siren of poor financial controls and hint at deeper issues.

Impairments and write-offs 

Sarawak Cable’s financial statements also revealed significant one-off losses that hinted at prior overstatements or failed projects.

Such large impairments can oftentimes reflect aggressive past accounting or major project failures that were acknowledged much later. These are invariably seen as huge warning signals by investors and financial markets.

The most pertinent example was a RM58 million impairment in Q4 FY2019 for its idle Super Puma helicopter, bought in 2016 for about RM100 million – an indictment of its failed foray into the aviation business.

Its decision to diversify from a cable manufacturer into an integrated power solutions provider also landed the group in hot soup.

It suffered a RM53 million loss on the disposal of its mini-hydro power plant in Sumatra, Indonesia, that had been plagued by delays and cost overruns.

The plant only reached commercial operation in 2021, over a decade after the power purchase agreement was signed. Essentially, this venture tied up its capital for years and was offloaded at a steep loss.

Liquidity crunch and defaults

The company’s gearing remained high — at over two times debt-to-equity in FY2018 — with poor cash flow, indicating it was over-leveraged.

The huge debt burden weighed on the company which eventually defaulted on some of its debt obligations, resulting in creditors petitioning to wind up its subsidiaries.

As of Nov 30, 2023, its loans and borrowings amounted to RM393.77 million. The company and its units, Universal Cable and Leader Cable Industry, were sued by creditor banks, including OCBC Bank, for a total of RM95.5 million.

Sarawak Cable had resorted to short-term bank loans to fund operations at these key subsidiaries — typically a recipe for financial disaster in an operating environment where revenue is diminishing.

Failure to finalise regularisation plan 

After falling under PN17, Sarawak Cable repeatedly missed deadlines to submit a regularisation plan to turn around the company’s finances.

Bursa Malaysia granted the firm three extensions, but as at May 2025 there was “no material development” to report.

As a consequence, Bursa Malaysia suspended trading of the company’s shares on May 28, 2025, and delisted it on July 15.

This lack of compliance with listing requirements and its inability to formulate a turnaround plan over more than two years signalled a breakdown in management effectiveness.

Boardroom and management turnover 

The resignations of top officials during a crisis is often a sign of internal discord or reflects their loss of confidence in a company’s direction.

In 2024, Sarawak Cable underwent a significant change in its leadership with its group CEO Russell Walter Boyd and group CFO Teoh Wen Jing resigning in July amidst the company’s deepening financial woes. Boyd had joined the company in April the previous year.

These resignations occurred shortly after the company was placed under interim judicial management by the High Court on July 9, 2024, following an application by its law firm to settle unpaid legal fees.

The application was on the basis that Sarawak Cable was insolvent, its business and assets were in jeopardy, and there was a need for an interim judicial manager to preserve its assets. Such an appointment essentially means that all management powers of its directors would cease.

Another seismic change at the board level occurred when its long-serving chairman Mahmud Abu Bekir Taib was redesignated as director effective Oct 28, 2024.

Abu Bekir, 62, son of former Sarawak chief minister and governor Abdul Taib Mahmud, had helmed the company since 2009.

He is also its largest shareholder with an 18.64% stake, while state-owned power utility Sarawak Energy is the third largest shareholder with a 13.13% stake, as of March this year.

Some minority shareholders claim the fact a court-appointed interim judicial manager had to step in is itself evidence of a governance failure at the company. Interim judicial management is typically seen as a last resort and indicates creditors can no longer trust the existing board to manage the restructuring impartially.

They claim the company’s governance apparatus appears to have failed, and the board had not been proactive in addressing the financial red flags that eventually brought Sarawak Cable to its knees.