Why companies fall into PN17. Are you holding shares in these companies?

Why companies fall into PN17. Are you holding shares in these companies?

Stock market is full of bluechip counters, dividend counters and also some known as PN17 companies

If we buy the bluechip counters, chances are their price is already very close to their intrinsic value and we would just need to feel confident to buy and hold it until it exceeds its current value and the share price would go up further. Some of us would prefer to just buy dividend counters and step back and get dividends every year. Good strategy too. Well, what happens if the company falls into PN17? Should we hold or should we sell?

Criteria for a listed company to be classified as a PN17 company are as follows:-

WHAT IS PN17? Info Source: azmilaw.com

PN17 stands for Practice Note 17/2005 (“PN17”) and it is a practice note that is issued by Bursa Malaysia in relation to listed issuers that are in financial distress. Where a listed issuer triggers any one or more of the following criteria, it must comply with the provisions of PN17¹:

(a) the shareholders’ equity of the listed issuer on a consolidated basis is 25% or less of the share capital (excluding treasury shares) of the listed issuer and such shareholders’ equity is less than RM40 million;

(b) receivers or managers, or judicial managers have been appointed over the asset of the listed issuer, its subsidiary or associated company which asset accounts for at least 50% of the total assets employed of the listed issuer on a consolidated basis;

(c) a winding up of a listed issuer’s subsidiary or associated company which accounts for at least 50% of the total assets employed of the listed issuer on a consolidated basis;

(d) the auditors have expressed an adverse or disclaimer opinion in the listed issuer’s latest audited financial statements;

(e) the auditors have highlighted a material uncertainty related to going concerned or expressed a qualification on the listed issuer’s ability to continue as a going concern in the listed issuer’s latest audited financial statements and the shareholders’ equity of the listed issuer on a consolidated basis is 50% or less of share capital (excluding treasury shares) of the listed issuer; or

(f) default in payment by a listed issuer, its major subsidiary or major associated company, as the case may be, as announced by a listed issuer under paragraph 9.19A of the Listing Requirements and the listed issuer is unable to provide a solvency declaration to Bursa.

What can the PN17 company do in order to ‘escape’ PN17 status? Regularizing and Change of Business Direction and Policy

There are 2 different types of regularisation plans in which the directors of a PN17 company can formulate and they are as follows:

1. a regularisation plan which will result in a significant change in the business direction or policy (”Plan A”); or

2. a regularisation plan which will not result in a significant change in the business direction or policy (“Plan B”).

Here, the directors will have to make a very important decision for the company because there are different implications of choosing either Plan A or Plan B.

If the directors decide to undertake Plan A, then, the directors must⁴:

(a) submit the plan to the SC for approval within 12 months from the date of the First Announcement; and

(b) complete the implementation of the plan within such timeframe as may be prescribed by the SC.

On the other hand, if the directors of the PN17 company decide to undertake Plan B, then they must⁵:

(a) submit to Bursa the plan and obtain Bursa’s approval to implement the plan within 12 months from the date of the First Announcement;

(b) it has to complete the implementation of the plan within 6 months from the date the plan is approved by Bursa; and

(c) it has to record a net profit in 2 consecutive quarterly results immediately after the completion of the implementation of the plan. In this regard, the PN17 company must ensure that the relevant quarterly results are subjected to a limited review by an external auditor before they are announced to Bursa.

The main difference between Plan A and Plan B is the time frame in which the regularisation plan has to be completed. For Plan A, the time frame for regularisation is at the discretion of the SC. On the other hand, for Plan B, the directors of the company must ensure that the regularisation plan must be completed within 6 months from the date of approval of the plan by Bursa.

It is imperative to note that directors of a PN17 company have to be very careful when making a corporate decision on either to implement Plan A or Plan B because their decision ultimately decides the future of the PN17 company.

No longer considered PN17 company

To be removed as a PN17 company, the directors have to ensure that the implementation of the approved regularisation plan is carried out and completed within the timeframe prescribed by the SC or within 6 months from the date the plan is approved by Bursa, as the case may be. After the completion of the implementation of the approved regularisation plan, the directors of the PN17 company shall then submit an application and necessary documents to Bursa to prove that it is no longer a PN17 company.

Once the application is accepted by Bursa, Bursa will determine whether the PN17 company still triggers any of the PN17 criteria. If it no longer triggers any of the PN17 criteria, then the company shall be removed from the PN17 list.

Please do read the full article in this very informative site: azmilaw.com

Here are the current companies under PN17 according to Bursa Malaysia Securities Berhad (Bursa Securities). Info Source: bursamalaysia.com

Syarikat PN17 dan GN3

List updated:  3 July 2024

PN17 Companies

1. AGESON BERHAD
2. ALAM MARITIM RESOURCES BERHAD
3. ANNUM BERHAD
4. BARAKAH OFFSHORE PETROLEUM BERHAD
5. BERTAM ALLIANCE BERHAD
6. BINTAI KINDEN CORPORATION BERHAD
7. CAPITAL A BERHAD (FORMERLY KNOWN AS AIRASIA GROUP BERHAD)
8. E.A.TECHNIQUE (M) BERHAD
9. IQZAN HOLDING BERHAD
10. IREKA CORPORATION BERHAD
11. IVORY PROPERTIES GROUP BERHAD
12. KHEE SAN BERHAD
13. KNM GROUP BERHAD
14. MERIDIAN BERHAD
15. MMM GROUP BERHAD (FORMERLY KNOWN AS ASIA MEDIA GROUP BERHAD)
16. PERAK CORPORATION BERHAD
17. PHARMANIAGA BERHAD
18. REACH ENERGY BERHAD
19. RENEUCO BERHAD
20. SAPURA ENERGY BERHAD
21. SARAWAK CABLE BERHAD
22. SCOMI ENERGY SERVICES BERHAD
23. ZELAN BERHAD

GN3 Companies

1. LAMBO GROUP BERHAD
2. WAJA KONSORTIUM BERHAD

Info Source: bursamalaysia.com

Should I hold shares of PN17 companies?

I think the first question is always do I have a choice? It’s possible to sell and move the shares to another counter. It’s possible to sell and move the remaining amount to other investments too. Sometimes however, the stock price may have moved downwards and selling the share may not amount to much. If that’s the case, then the choice will be more limited and perhaps one would have to hope that the company could emerge from their PN17 status.

Sometimes, there may also be a white knight which may emerge to save that PN17 company too. Just be savvy that all these positive potential does not happen often. In 2007 I had shares in a PN17 counter called COMSA. I did not sell the shares because I chose to believe something positive could happen. This was a company in the chicken and eggs business. Surely everyone needs to consume chickens and eggs? It did NOT recover though. So, I lost many thousands of ringgit. Here are more details.

Decide and move on. There are over 1,000 companies listed in Bursa. Cheers.

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