This article first appeared in Forum, The Edge Malaysia Weekly on November 3, 2025 - November 9, 2025

The de-listing of KNM Group Bhd (KL:KNM) has once again turned the spotlight on the Practice Note 17 (PN17) regulation of Bursa Malaysia that identifies companies whose financials do not meet its listing requirements.

KNM’s case is unique because it has debts of RM1.3 billion and an asset in Europe that is worth €270 million (about RM1.25 billion) and has a ready buyer for it. On paper, the proceeds from the sale of the asset should be sufficient to settle KNM’s debts and enable the company to find its footing again as a listed entity.

However, Bursa had a concern about KNM’s restructuring plan because after the disposal of the asset, the company would not have any assets to sustain it as a viable listed entity. Hence, its restructuring plan was not approved and KNM is now poised for a de-listing next week — four years after it was placed on the PN17 list.

In addition, KNM’s major shareholder, MAA Group Bhd (KL:MAA), is being sued by Bursa for calling a shareholders’ meeting to approve the sale of the European asset. Bursa’s contention is that MAA and KNM should have followed the rules, such as issuing a circular with independent advice for shareholders before holding an extraordinary general meeting (EGM) to deliberate on the sale.

This is necessary because the European asset is a major disposal for KNM.

Some quarters feel that the PN17 rules that govern financially strapped companies such as KNM are restrictive and do not support the spirit of allowing “market forces” to determine the investment decisions of listed companies.

On that score, those against a “rule-based” regulatory regime feel that the authorities, namely Bursa and the Securities Commission Malaysia (SC), should relax their grip in order to ease the path for companies seeking to restructure themselves.

The case for reducing regulations and transitioning to a disclosure-based regime, which is also known as a “principles-based” rules framework, received a dose of support from developments in Singapore last week.

The Singapore Exchange (SGX) announced measures to encourage companies to operate based on enhanced disclosures to guide shareholders in their investment decisions. The enhanced disclosure rules also apply to companies whose financials are inadequate to meet the demands of listing requirements.

On this matter, SGX has decided to do away with its “Watch List”, which is similar to Malaysia’s PN17 list, and the task of regulating the plans of “sick” companies. Instead, companies that incur losses for three consecutive years and with a market capitalisation of less than S$40 million (about RM129 million), are encouraged to spell out their plans to become more profitable.

What the SGX wants to see is companies that consistently report losses demonstrate a clear pathway to profitability and communicate their plans to shareholders. A de-listing, it says, may not benefit investors as it limits their participation in any potential turnaround of the company.

Another measure adopted by the SGX is to reduce the issuance of Trade With Caution (TWC) warnings, which are equivalent to Bursa’s Unusual Market Activity (UMA) queries. The rationale is that TWC warnings cause unnecessary alarm on the stock market and end up distracting investors.

The SGX also notes that the information from the company following the issuance of a TWC warning tends not to be useful.

However, would a transition from rules-based regulation to a principles-based regime, which requires higher levels of disclosure from companies, lead to a more efficient capital market? Would it help beleaguered companies whose financials are too weak to generate viable business growth for a second chance at success?

That is not necessarily the case.

Moving away from rules-based regulation to a principles-based regime is only effective when there is strict enforcement.

In Singapore, the enforcement against breaking the rules on the capital markets is strict. An example is the case of Malaysian businessman Soh Chee Wen, who is in jail in the city state because of stock market manipulation.

In Malaysia, it has been proved time and again that enforcement is weak, even when there is blatant stock manipulation. The events leading up to the Serba Dinamik Bhd fiasco are still fresh on the minds of financiers here.

The oil and gas company issued debts running into the billions, only to find that its accounts were being flagged by external auditors. Initially, the key officials of Serba were charged with criminal offences for furnishing wrong financial information to Bursa.

However, the Attorney General’s Chambers converted the criminal charges into a compound that allowed the key officials to pay the fine and walk away free.

For the Malaysian capital markets, reducing regulatory oversight and leaving the companies to operate based on best principles and higher disclosure standards do not always work.

This is because the outcome of decisions left to be made by the controlling shareholders, in most instances, is not in the best interests of minority shareholders and bankers.

The case for a principles-based regime is only strong for capital markets where the key players, which are the major shareholders and investment bankers, are principled enough to stay the course of doing what is right for other stakeholders.

In this regard, one need only refer to the famous statement made by Sir Hector Sants, the former CEO of the Financial Services Authority of the UK, in his call for enhanced supervision in 2009. “Principles-based regulation has been misunderstood as it does not work with individuals who have no principles.

“The majority of market participants are decent people who operate on the best corporate principles. However, there are individuals without principles,” he said.

The situation is the same in the Malaysian capital markets. As long as there are unprincipled players and weak enforcement to send them to jail, a shift away from a rules-based regime is nothing but a recipe for disaster.

M Shanmugam ([email protected]) is a contributing editor at The Edge

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