PN17/GN3 relief measures; greater vigilance required from shareholders
Investors of stocks which are in dire financial straits can rejoice for the Securities Commission (SC) and Bursa Malaysia have recently accorded a further lifeline to potential affected public listed companies under Practice Note 17 (PN17) and Guidance Note 3 (GN3) of Main and ACE Market Listing Requirements.
Under the latest relief and flexibility measure announced by SC and Bursa Malaysia on 16 April 2020, a listed issuer that triggers any of the following criteria under PN17 of the Main Market Listing Requirements (Main LR) or GN3 of the ACE Market Listing Requirements (ACE LR) between 17 April 2020 and 30 June 2021 will not be automatically classified as an affected listed issuer under PN17 or GN3:
• Its shareholders’ equity on a consolidated basis is 25% or less of its share capital (excluding treasury shares) and such shareholders’ equity is less than RM40 million (applicable to Main Market listed issuers)
• Auditors have highlighted a material uncertainty related to going concern or expressed a qualification on the listed issuer’s ability to continue as a going concern in its latest audited financial statements and the shareholders’ equity of the listed issuer on a consolidated basis is 50% or less of its share capital (excluding treasury shares)
• Default in payment by the listed issuer, its major subsidiary or major associated company pursuant to paragraph 9.19A/Rule 9.19A of the Main LR/ACE LR and the listed issuer is unable to provide a solvency declaration to Bursa Malaysia.
• It has incurred loss in any 1 full financial year (FY) commencing on or after its listing, which equal to or exceed the amount of its shareholders’ equity at the end of the said FY and the shareholders’ equity is equal to or less than 50% of the share capital of the listed corporation at the end of the said FY (applicable only to ACE Market listed issuers)
• It has incurred aggregated losses in any 2 consecutive full financial years commencing on or after its listing (said financial period)
- which exceed the amount of its shareholders’ equity at the end of the said financial period
- the loss incurred in the second full financial year of the said financial period is 50% or more of the loss incurred in the first full financial year of the said financial period
- the shareholders’ equity is equal to or less than 50% of the share capital of the listed corporation at the end of the said financial period; (applicable only to ACE Market listed issuers)
Additionally, the listed entities will also be relieved from complying with the obligations under paragraph 8.04/Rule 8.08 and PN17/GN3 of the Main LR/ACE LR for a period of 12 months from the date of triggering the relevant criteria.
More broadly, this latest relief measure follows an announcement on 26 March 2020 that Bursa Malaysia has extended the time frame for submission of regularisation plan from the existing 12 months to 24 months from the date the companies first announce they are in financial distress (or do not have an adequate level of operations as set out in paragraph/Rule 8.03A of the Listing Requirements). This applies to listed issuers that trigger the criteria in 2019 and 2020.
Amid current market uncertainties stemming from the COVID-19 pandemic, the relaxation of the PN17 and GN3 classification is timely for it provides some breathing space for financially distressed companies to restructure, reform and remodel themselves.
This will spare retail investors the rude shock of their stocks suddenly being classified as PN17 and GN3 issuers and ultimately getting delisted.
Greater vigilance required from shareholders
Due to the abovementioned reliefs, a PLC may technically be a PN 17/GN3 PLC without being so classified. This is where greater vigilance is required by shareholders.
Before investing in a PLC that may have technically triggered the PN 17/GN 3 classification, (which may be likely under the current MCO), investors must consider the following aspects, amongst others, before putting their money into the company:
- Is the poor performance of the company just temporary?
- Is the management team and the board competent to normalise the situation in future?
- Has the company experienced any crisis before and how well they managed that crisis?
- Is the track record of the company satisfactory prior to the COVID-19 crisis?
For those who decided to invest in these “PN17/GN3” companies, they have to closely monitor the performance of these companies and their measures and strategies to regularise the business, as these companies are not obligated to report these details to regulators for a period of 12 months from the date of triggering the criteria.
Company's obligation to shareholders
Despite the temporary relief granted to PN17/GN3 companies to comply with the obligations pursuant to paragraph 8.04/Rule 8.04 and PN17/GN3 of the Main LR/ACE LR, the obligation to announce the financial position, measures and strategies taken as well as other relevant information remains.
The Board should be more transparent in reporting the relevant information in their quarterly reporting and announcements.
With the extension of timeframe for the PN17/GN3 companies for submission of its regularization plan from 12 months to 24 months, the Company would be relieved of the pressure to regularize the business during this difficult and challenging time. Notwithstanding this, the board should be committed to regularise the business as soon as possible despite the extension period granted.
As of 31 March 2020, there are 25 Main Market-listed PN17 companies and three GN3 companies on the ACE Market which need to regularise their financial positions.
Devanesan Evanson
Chief Executive Officer
MSWG AGM/EGM Weekly Watch 29 April - 30 April 2020
For this week, the following are the AGMs/EGMs of companies which are in the Minority Shareholders Watch Group’s (MSWG) watch list.
The summary of points of interest is highlighted here, while the details of the questions to the companies can be obtained via MSWG’s website at www.mswg.org.my.
|
Date & Time |
Company |
Quick-take |
|
29.04.20 (Wed) 3.00 pm |
Bursa Malaysia Berhad (AGM) |
Focus will be on recent issues revolving around removal and appointment of new chairman |
|
30.04.20 (Thur) |
Nestle (Malaysia) Bhd |
Nestle generated a revenue of RM5.5billion in FY19 with net profit of RM670million. Its key focus in FY20 is to grow its MILO brand and coffee products. |
|
One of the points of interest to be raised: |
|
|
Company |
Points/Issues to Be Raised |
|
Bursa Malaysia Berhad (AGM) |
There were a lot of governance issues highlighted in the media and by the SC relating to certain board members of Bursa and the CG structures at Bursa. Please explain the Board’s position on these issues. |
|
Nestle (Malaysia) Bhd |
|
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MSWG TEAM
Devanesan Evanson, Chief Executive Officer, ([email protected])
Linnert Hoo, Head, Research & Development, ([email protected])
Norhisam Sidek, Manager, Corporate Monitoring, ([email protected])
Lee Chee Meng, Manager, Corporate Monitoring, ([email protected])
Elaine Choo Yi Ling, Manager, Corporate Monitoring, ([email protected])
Lim Cian Yai, Manager, Corporate Monitoring, ([email protected])
Nor Khalidah Mohd Khalil, Executive, Corporate Monitoring, ([email protected])
DISCLOSURE OF INTERESTS
•With regard to the companies mentioned, MSWG holds a minimum number of shares in all these companies covered in this newsletter.
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ENDS. /
