KUALA LUMPUR: There maybe more listed companies falling into financial distress this year, worn down by attrition brought about by the looming economic slowdown.
A total of 22 listed companies have been classified as Practice Note 17 (PN17) so far this year and analysts expect the number to rise gradually.
As at July 31 this year, Bursa Malaysia said there were a total of 24 companies classified under PN17 and GN3, accounting for 2.5 per cent of the total number of 909 companies listed on the local bourse.
Seven companies that fell into PN17 this year included Utusan Melayu (Malaysia) Bhd, Sumatec Resources Bhd, Amtek Holdings Bhd, APFT Bhd and Bertam Alliance Bhd.
According to Bursa Malaysia, the PN17 tag came mainly because companies were in financial distress or difficulties.
This included cases such as companies' shareholders' funds being less than 25 per cent of their total paid up capital or receivers being appointed to take control of the companies' assets.
Other reasons for the PN17 status are when auditors express adverse opinions on the companies’ default in loan interest and principal repayments, the companies suspend or cease their operations and companies do not have any significant businesses or operations.
Inter-Pacific Securities Sdn Bhd head of research Pong Teng Siew said the Malaysia economy looked like it is in its late cycle phase, which was typical when growth slowed. As a result, the number of PN17 companies may rise gradually.
“I think it will happen gradually. Partly this is an attrition and product life cycle process and partly this is 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,” Pong told NST Business.
“Every rise in 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,” he added.
Malaysian Association of Technical Analysts adviser Nazarry Rosli agreed with Pong, saying 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 slowdown?” he said.
Nazarry said companies in the construction sector were most likely to join the list of PN17 as businesses slowed but competition remained stiff.