Bursa’s enhanced disclosure requirement on outstanding related party receivables may serve to provide early alerts to potential abuse.
Bursa Malaysia Bhd has recently undertaken an assessment of receivables for related party transactions (RPTs) and recurrent related party transactions (RRPTs) involving listed companies on the bourse.
Based of on its evaluation, the exchange directed a number of companies with outstanding receivables on RPT and RRPT beyond its credit period to take steps to recover the outstanding amount.
However, Bursa did not provide the actual number of companies that were issued directives to disclose the status of their outstanding related party receivables.
“Arising from our actions, there have been both settlements of the outstanding sums by the related parties as well as ongoing steps to recover these amounts,” a Bursa official said in an email reply to StarBizWeek.
A RPT is a transfer of resources, services, obligations or risk between related parties like subsidiaries and directors.
This is regardless of whether a price is charged for the transaction. Some companies may offer more information on such transactions especially when the sum involved is huge.
A check on the exchange’s website revealed that in the past two months, quite a number of companies had issued “outstanding related party receivables” statements. Some of these firms explained that the declaration was made in response to the directive issued by Bursa.
In the case of Progressive Impact Corp Bhd, Bursa’s directive may have helped the company recover a debt that was more than a year overdue.
The company told the exchange on Monday that a related party had fully settled its outstanding debt of RM580,243. That was barely a month after the firm received a directive from Bursa to disclose its outstanding RPT debt position.
While prompt settlement of old debts will probably rank as the best possible outcome from this process, it may not always be the case.
At least some companies do provide investors with a clear picture regarding the risk from its related party receivables in their response to the exchange’s issued directives.
A recent one was from Redtone International Bhd. As at end May, Redtone’s total outstanding RPT receivables stood at RM1.2mil.
Almost the entire sum is owed by eB Technologies Sdn Bhd and the debt is more than a year overdue.
“To be prudent, the board has decided to provide all the outstanding balances due from eB Technologies as doubtful debts,” Redtone said in a July 30 filing with Bursa.
“However, the company is still actively negotiating with eB Technologies to settle the oustanding balances,” it added. Redtone gave itself a timeframe of one year from May 25 to “fully recover” the related party receivables.
The group’s annual report showed Redtone and eB Technologies’ parent company, eB Capital Bhd, are related through a common shareholder, Tan Sri Vincent Tan.
Kulim (M) Bhd revealed in a filing with the exchange that it had RM20.94mil overdue for more than a year from related parties. The group’s total RPT debt exposure, including those less than a year, amounted to a hefty RM83mil.
Kulim is a diverse group, with interest in palm oil business at home and in Papua New Guinea, as well as a huge fast food franchise and entrepreneur development programmes.
Obviously the are lot of RPTs, but Kulim made no mention about the nature of the sums owed. It only offered this: “The settlement plan will be monitored closely” and full recovery is expected by the second quarter of next year.
Of the companies that have recently revealed their RPT debts following Bursa’s directive, most have RPTs that are less than three years old.
ACE market company Metronic Global Bhd has a huge amount due from a related party for a transaction that took place more than three years ago.
The firm said on June 25 that its RPT receivables amounted to RM46.85mil for sub-contract work completed for a “related party that is a main contractor on certain public sector projects for the government.”
Of the total amount, the related party was supposed to pay RM36.3mil to the company more than three years ago.
To recover the dues, Metronic has obtained consent from the contractor to proceed with the certification and collection directly from the Health Ministry, Finance Ministry (MoF) and Public Works Department (JKR). “The claim is pending certification by JKR before submitting to the MoF for approval,” it said.
While the company will pursue the receivables directly from the Government, it also said it may commence legal action to ensure full payment. Metronic is mainly involved in information technology (IT), specialising in building and security management systems.
The firm reported a turnover of RM60mil but made a loss of RM2mil for the year ended Dec 31, 2009. It made a loss of RM5.3mil on RM9.56mil revenue in the latest quarter ended March 31. That was the group’s biggest quarterly loss since it went public in 2004.
Another IT firm that has been bogged down by heavy uncollected related party debts is Key Asic Bhd. The group’s total outstanding RPT stood at RM25.9mil as at March 31.
Of this amount, RM18mil was overdue by more than a year while another RM688,172 was outstanding debt between three and five years old.
The company told Bursa it was “actively pursuing with the relevant related party in addressing and recovering the long overdue outstanding sum.” It hopes to get paid in six months.
Bursa is proposing to amend and enhance its Listing Requirements (LR) and getting companies to reveal more material information about the status of these RRPT and RPT receivables are among the items proposed.
A consultative paper was issued on July 15 and the exchange is currently seeking feedback from the industry.
Remisiers Association of Malaysia’s (Persama) president Sam Ng says the proposed enhancement to the RRPT and RPT will help “cover some of the loopholes” in the current LR.
“The additional disclosures will increase transparency and help prevent possible abuse by the controlling shareholders,” he says.
Bursa says an enhanced disclosure requirement on outstanding related party receivables may serve to provide early alerts to potential abuse.
This will go a long way towards helping the public make informed investment decisions.