Number of PN17 firms up this year

As at August 25, there were 34 companies under PN17, a category assigned by Bursa Malaysia to companies in financial distress

The number of public-listed companies falling under Bursa Malaysia's Practice Note 17/2005 (PN17) classification has increased this year.

As at August 25, there were 34 companies under PN17, or 3.53 per cent of the 964 companies listed on Bursa Malaysia Securities.

PN17 is a category assigned by Bursa Malaysia to companies in financial distress.

Such companies need to tell the approving authority of restructuring measures they intend to undertake to maintain their listing status.

This year alone, Bursa Malaysia has recorded 15 PN17 admissions to date. Metech Group Bhd, one of the leading world-class manufacturers of steel racking systems, was the latest entry last week.

According to Bursa Malaysia's website, six companies fell under PN17 last year, mainly related to financial distress.

Among those categorised under PN17 this year were Hock Sin Leong Group Bhd, Transmile Group Bhd, VTI Vintage Bhd, Kenmark Industrial Co (M) Bhd, Linear Corp Bhd, Malaysian Merchant Marine Bhd and Tracoma Holdings Bhd.

Prior to 2005, listed companies in similar conditions were classified under Practice Note 4.

Chartered accountant firm KL Management Services, a member of the Malaysian Institute of Accountants, said there were many reasons for companies falling under PN17.

"While there are more than 900 companies listed on the exchange, not all of them are in a financially sound position," its managing director Ken Low said.

He cited external factors such as currency fluctuations and economic crisis among the reasons for a company becoming financially distressed.

Low said the way a business was run and poor foresight could be strong factors, too.

"A company can also fall under PN17 due to the action of individual directors. These directors secure projects for the benefit of themselves and not the company," he said when contacted by Business Times.

Corporate governance was another concern, he added.

"Lack of corporate governance is a major concern in Malaysia. It's not strong enough," Low said, adding that the Securities Commission's move to enhance transparency might benefit companies in the long term.

Universiti Kebangsaan Malaysia economic researcher Dr Hassan Azman noted that, lately, owners of some companies were becoming less committed to their business.

They give up their business quite easily after encountering some financial distress.

"If they discover that the loan amount is higher than the value of their assets and they do not foresee any prospects in their current business, they give up the business and let the companies fall into PN17 and later go bankrupt," Hassan said.

He cautioned that whenever a company announces some bad news to the public, such as defaulting on their loan repayments, some accounting issues or a delay in releasing their financial results, there could be more bad news yet to be revealed.

"This is because whenever we see one cockroach in our cabinet, there tends to be many more cockroaches hiding at the back of that cabinet."

By Azlan Abu Bakar

Business Times