Friday, November 11, 2005

Need To Quicken The PN4/PN17 Process Even More

As reported in The Star (10/11/05) a public listed company that is financially distressed and makes little effort to restructure within the new time frame set by Bursa Malaysia faces de-listing. If, in the past, Bursa has been lenient in extending time for companies to restructure, that would no longer be the case. A specific time frame, for instance eight months, will be given. If nothing is done in that time, the exchange would no longer be “generous’’ in allowing extensions.

In the past, the exchange had often been lambasted for being too slow and too lenient in its actions to penalise companies that did not conform with listing requirements, e.g. negative shareholders’ funds. Previously, companies that were financially distressed were categorised under Practice Note 4 and given a lot of time to regularise or restructure.
There were times when up to two years' grace period was granted by Bursa for companies to restructure while minority shareholders of those companies held on to their shares.

Since the 1997 Asian financial crisis, Bursa has de-listed only 27 firms but it was a long and winding process.

Under the "new" PN17, companies are give 8 months to be successful in regularising their financial situation during the time set, failing which they would be de-listed fairly quickly. Some companies that ceased to be PN4 are now in financial trouble again. If PN4 companies that are restructured get into trouble again, and if the situation is not rectified, they would then fall into the PN17 category. If still nothing is done, they would be de-listed.

When discussing the PN4/PN17 companies, we need to bear in mind the following:

a) companies are still allowed to trade even when they were on PN4, and if I remember correctly, there were "hot stocks" even within the PN4 circle, and some did attract substantial trading volume and price movements - i.e. it has been too long for companies that were classified in PN4, stayed there. If a company is in PN4, there must some urgency in restructuring its financial affairs and NOT allowed to be languishing for over 2 years - its like being held in lock-up but not locking the door at all

b) the lack of urgency (before) also helped create a false sense of security among investors. Just ask any share investor on the street and they would say that PN4,..."no difference la.." ... "can still make money if got action.."

c) USUALLY it is those companies with dubious financials that would engage "syndicates" to financially engineer their stocks (and vice versa) - a bit like.. well.. last chance to really make some money here. Specky stocks can attract big players, big syndicates and big traders because everyone thinks that there is no danger of financial calamity or that the authorities would even act on them, and even if they did the process will take such a long time anyway. If a syndicate knew that a "bad stock" could very well land itself in PN4 anytime, and that once in PN4 it would scare the bejeezus out of all investors (thus removing all volume) - I doubt very much that big syndicates would want to "play those stocks" as they could be left holding a huge chunk of a "suddenly-PN4ed" counter to the grave.

So, all in all, a bit over due but better late than never, and please stick to the proposed time frame - 8 months means 8 months, no ifs or buts... there have been just too many ifs and buts allowed in our country, just look at the application deadline for the new MYKAD, or the shifting goal posts for Universal Brokers...

Oh, btw good job Bursa...

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