FALLEN INTO DISTRESS
TWENTY-two listed companies have been classified as Practice Note 17 so far this year and analysts expect the number to rise gradually due to attrition brought by the looming economic slowdown.
MORE listed companies on Bursa Malaysia may fall into financial distress this year, worn down by attrition brought about by the economic slowdown.
There are 22 companies which have been classified under Practice Note 17 (PN17), and analysts expect the number to rise gradually.
As of July 31, Bursa Malaysia said there were 24 firms classified under PN17 and Guidance Note 3 (GN3), accounting for 2.5 per cent of the total 909 companies listed on the local bourse.
GN3 status refers to distressed companies that are listed on ACE Market of Bursa Malaysia.
The seven companies that fell into PN17 this year include Utusan Melayu (Malaysia) Bhd, Sumatec Resources Bhd, Amtek Holdings Bhd, APFT Bhd and Bertam Alliance Bhd.
The PN17 tag comes mainly when Main Market-listed companies are in financial distress or face some difficulties.
These include cases such as companies’ shareholders funds being less than 25 per cent of paid-up capital, or receivers being appointed to take control of their assets.
Other reasons for the PN17 status are when auditors express adverse opinions on companies’ defaults on loan interest and principal repayments, and companies suspend or cease operations, or do not have any significant businesses or operations.
Inter-Pacific Securities Sdn Bhd head of research Pong Teng Siew said the Malaysian economy looked like it was in its late-cycle phase, which was typical when growth slowed. As a result, the number of PN17 companies might increase gradually.
“I think it will happen gradually. Partly this is an attrition and product life-cycle process, and partly because of the business cycle.
“We are in a late-cycle stage but we do not observe a spike in business failures due to interest rates remaining almost permanently accommodative.
“Every rise in the inflation rate is deemed transitory and elicits no monetary policy response. On the other hand, every perceived slowdown in the economy gets a rate cut,” said Pong.
Malaysian Association of Technical Analysts adviser Nazarry Rosli agreed with Pong that more companies could fall under the PN17 category, in line with the economic slowdown.
“This very much depends on the type of business or sector the listed companies are operating in.
“The question is whether they can escape or avoid the adverse impact from a slowdown?”
Nazarry added that companies in the construction sector were most likely to fall into the PN17 status as businesses slowed and competition remained stiff.