Further to my article on the reasons for capital reduction, append below is an example to drawn upon: 

 Pan Malaysian Industries proposes 90% capital reduction:-

Pan Malaysian Industries Bhd (PMI) has proposed a 90% capital reduction as part of a capital reconstruction exercise to set off its accumulated losses totalling RM1.34 billion. The company, a PN17 company with a shareholders’ equity deficit, also proposed to reduce its share premium account of up to RM224 million and a renounceable rights issue of up to 2.67 billion shares.

As at Dec 31, 2005, the group’s interest-bearing borrowings totalled RM686.41 million. Based on the minimum level of rights issue, its net gearing will decrease to 0.72 from 1.48 times. The company’s accumulated losses of RM1.34 billion as at Dec 31, 2005 would be completely written off after the capital reconstruction exercise. Based on the minimum level of proceeds, the rights issue would enable it to write off completely the group’s shareholders’ equity deficit of RM17.55 million and result in a surplus of RM102.79 million.

(Source: The Edge Daily, 8/3/2006)

If you found this post useful, keep updated with future posts by subscribing to FMAccounting (for free) through RSS or email.

Related Entries

• PN17 Company’s FCW Proposes 5-into-1 Capital Reduction
• Reasons For Capital Reduction And Its Accounting Treatment
• Cautious with Bonus Issue
• Rights Issue: Understanding Its Purpose, Mechanism & Difference Between Bonus Issue
• AMolek ABORTS Proposed Rights, Bonus Issue