Renaissance uncovers fraud at Topaz unit

Oman's Renaissance Services said it uncovered serious issues at its Topaz unit, including financial misconduct and fraud, in a rare act of disclosure for a regional company, sending its shares down 10 per cent on Monday.

Topaz Energy and Marine pulled a $500 million London listing in March amid valuation concerns and regional unrest. Its chief executive left the firm two months later.

"We have uncovered some serious issues in the Topaz Group ... If not arrested, these matters could damage the company's reputation," Renaissance Chairman Samir Fancy said in a statement.

Renaissance said evidence of fraud and ethical misconduct at a Topaz subsidiary abroad, centered on the use of $2.9 million, had led to a broader probe across Topaz and raised similar concerns. It did not give further details.

Renaissance said it was moving to quickly address the issues, the one-off impact of which could climb to as much as $30 million. The company will cut more than 100 jobs in Topaz's engineering business and expects to realise savings from the move in 2012.

The oilfield services firm said it had taken over direct management of Topaz, a wholly-owned unit, and would close or restructure all its loss-making operations.

"The sustained viability of some smaller divisions of the business remains in question," Fancy said.

Renaissance said it will withdraw from a Kazakhstan boat yard project, and end a joint venture with British energy services firm Doosan Babcock set up in 1999 to provide boiler servicing and repairs.

Dubai-based Topaz operates mainly in the Middle East, North Africa and Caspian Sea region, running a fleet of 100 offshore support vessels.

"Transparency is good and perhaps the fact they were going for a London listing forced them to open their books and provide more disclosure," said Mohammed Yasin, chief investment officer at CAPM Investment in Abu Dhabi.

"But there are a lot of legal and financial considerations that could have dire consequences on the mother company, which we will have to watch closely."

Shares in Renaissance tumbled 10 per cent on the bourse, limit down, after which trade in the shares was halted.

Yasin said there is concern that bank loans and bank debts may be called as a result of financial misconduct.

Renaissance's chairman said the firm was in talks with lead banks on refinancing some debt in the wake of Topaz's aborted IPO. If an IPO does not happen by March 2012, the $8 million cost of the process will be written off.

Fancy said Topaz's marine and loss-making engineering unit are being organized as separate businesses and the two listed separately over different periods with Topaz marine first.

"What is now clear, is ... the problems we have encountered internally in Topaz need to be fully resolved before any further contemplation of a listing," the chairman said.

Renaissance reported net profit of 2.25 million rials ($5.84 million) for the first half, compared with 9.8 million rials in the year-ago period.

The results were far below expectations of 5.5 million rials to 6 million rials but revenue was still buoyed by strength in Renaissance's marine and contracting businesses, said Joice Mathew, head of research at United Securities in Muscat.

First half revenues were 132.8 million, compared to 117.8 million rials in the same period last year.

"On a fundamental level, I'm not as bearish on the company as the market is," Mathew said.

"But the company did take three months to come out and say this is happening, which is definitely going to have an impact on investor confidence."

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