Focus View
Barakah needs to act firmly to stem losses
FocusM team | 04 May 2018 00:30
It is not always that an independent auditor of a listed company raises the prospect of a company continuing as a going concern. Hence, when Crowe Horvath, independent auditors for Barakah Offshore Petroleum Bhd, made an announcement on May 2 on Bursa Malaysia on its ability  to continue as a going concern, investors took notice. 
Crowe Horvath says Barakah has borrowings amounting to RM38.53 mil in 2017, which is due for repayment in the next 12 months. This, say the auditors, “could cast significant doubt on the ability of the group to continue as a going concern”.

Last year, Barakah incurred a big loss of RM216.75 mil for its year ended Dec 31, 2017. It also recorded negative cash flow of RM71.83 mil for the same period. Interestingly, Barakah has fixed deposits amounting to RM102.91 mil.  

While owing RM38.53 mil to creditors may not be a big deal for most listed companies, the fact that Crowe Horvath raised the matter in Barakah’s annual report, which the company  highlighted via the Bursa announcement on May 2, warrants further scrutiny. 

The company’s share price has declined drastically since hitting its historical high of RM1.75 on Jan 31, 2014. The counter now trades at just 24 sen.   

Its current market capitalization of RM198.3 mil is one third of its market capitalisation in 2014. To be fair, in the same Bursa announcement, the company says its balance sheet is still manageable despite the reduction in its net assets. 

The company’s management says it plans to pursue a tax refund from the authorities, renegotiate existing contracts with contractors and suppliers,  and explore ways to raise further capital from the equity market, among other things. This, it says, will take about six to nine months, resulting in an improved financial position and liquidity. 

But it has been more than a quarter since the matter was raised by the independent auditors. What exactly is going on with Barakah? What has the board been doing since then?  

Barakah’s board really needs to act firmly to stem the losses and restore investor confidence. More than assuring shareholders that its balance sheet is manageable, the board should also be looking into setting deadlines and coming up with a plan to return to profitability.     

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