KUALA LUMPUR (Oct 31): Perwaja Holdings Bhd's and Lion Diversified Holdings Bhd's external auditors have raised their concerns over the viability of the two long-suffering steelmakers' restructuring plans based on their annual audited accounts for the financial year ended June 30, 2016 (FY16).

In separate filings with Bursa Malaysia today, Perwaja and Lion Diversified informed the regulator that their external auditors Messrs Crowe Horwath and Messrs Ernst & Young had issued a disclaimer opinion on their latest audited accounts.

In Perwaja's case, Crowe Horwath said it could not obtain sufficient audit evidence to confirm the financial statements on a going concern basis.

"The going concern assumption is highly dependent upon the successful restructuring of the defaulted debts, the successful approval and implementation of the regularisation plan," it said.

"In the event that these are not forthcoming, Perwaja may be unable to realise their assets and discharge their liabilities in the normal course of business.

"Accordingly, the financial statements may require adjustments relating to the recoverability and classification of recorded assets and liabilities that may be necessary should Perwaja be unable to continue as going concerns," said the audit firm.

The audit firm noted Perwaja incurred net loss of RM387 million while current liabilities stood at RM2.45 billion and recorded capital deficiencies of RM1.89 billion as at June 30, 2016 (FY16).

"The group was unable to meet its loan obligations since FY14. Its outstanding borrowings and bank overdrafts amounted to RM1.07 billion as at FY16," it said.

Perwaja, which is currently 28.75%-owned by Kinsteel Bhd, is a Practice Note 17 (PN17) company that is set to receive a RM1.8 billion cash injection from China's Tianjin Zhiyuan Investment Group Ltd, which will see the latter hold a majority stake in the ailing steelmaker.

Last Thursday, Crowe Horwath had also expressed disclaimer opinion on Kinsteel's audited financial statements for FY16 due to their inability to obtain sufficient audit evidence to ascertain the appropriateness of the preparation of its consolidated financial statements.

The audit firm noted Kinsteel incurred a net loss of RM91.7 million for FY16. The group's current liabilities, meanwhile, exceeded its current assets by RM701.7 million.

The report also noted that certain trade receivables and amount owed by related parties, amounting to RM10.2 million (RM10.2 million in 2015), have been long overdue.

"The directors are of the opinion these amounts are recoverable and accordingly, no impairment is required to be made in the financial statements.

Kinsteel, which has been slapped with PN17 status, is working on a restructuring scheme and negotiating with financial lenders in the exercise.

It is also required to submit a regularisation plan to the Securities Commission if the plan will result in significant change to its business direction or policy; otherwise to Bursa Malaysia if the plan will not create significant impact within 12 months.

For Lion Diversified, Ernst & Young issued a disclaimer opinion based on two matters.

Firstly, Lion Diversified incurred net losses of RM840 million and RM473.3 million at the group and company level respectively for FY16.

As at June 30, 2016, the audit firm noted Lion Diversified's current liabilities exceeded their current assets by RM840.8 million and RM75.2 million at the group and company level respectively.

The audit firm said above-mentioned matter along with other matters discussed in Note 2.1 may cast significant doubt on the Lion Diversified's ability to continue as going concerns.

The second ground for a disclaimer opinion pertained to Note 38 of the company's financial statements and the resulting constraints.

"We were unable to obtain sufficient appropriate audit evidence in relation to the measurement of revenue and raw materials and consumables used of the group of RM277.8 million and RM210.5 million respectively and the valuation of inventories of RM28.6 million," it said.

"As disclosed in Note 12(f) to the financial statements, the recoverable amount for the direct reduced iron plant owned by Lion DRI was estimated by an independent professional valuer using the cost approach," it added.

Ernst & Young, however, was unable to ascertain whether the assumptions used by the valuer to derive the recoverable amount were appropriate.

"Consequently, we were unable to determine whether any adjustments to these amounts were necessary," it added.