The quarter sen that never came

Some promises seem too small to break. On 24 August, Zetrix AI Bhd, the company many of us still call MyEG, promised its shareholders 0.25 sen a share. On 19 October, it told Bursa Malaysia it would not keep that promise. The interim dividend was withdrawn to preserve working capital after “unexpected operational expenses”. No amount, no detail, no new payment date.

A quarter of a sen is pocket change. A broken promise is not. Only weeks earlier, analysts had this company on course for more than RM1 billion in annual profit. Now it could not find a quarter-sen per share to honour its word. That gap between the headline profit and the bank balance is where this story begins.

A rule that does not bend, but which one to follow?

Paragraph 8.26 of Bursa’s Main Market Listing Requirements says that once a dividend is declared, a listed issuer must not alter the entitlement and must pay it within three months. Withdrawing it is the most extreme alteration there is. Yet the Companies Act 2016 allows a distribution only if the company stays solvent immediately after paying it. So the board was squeezed: pay and risk the Act, or withhold and breach the Listing Requirements. It chose the second, and that choice tells us more about how the directors view their cash than any press statement could.

When they declared the dividend, the directors had to be satisfied that Zetrix would remain solvent, normally on the strength of a 12-month cash flow forecast. Either that assessment has changed, and shareholders deserve to know why, or it has not, and the board should say so plainly. A solvency statement signed by every director would do more to quash talk of a cash shortage than any one-line announcement.

The beginning of the free fall

The shares peaked at 89.5 sen in April. In late August, margin calls hit shares pledged by the managing director and co-founder, Wong Thean Soon, better known as TS Wong, who then held nearly 30% of the company. On 28 August the stock briefly fell 50% in a single session. By 2 September it was at 22 sen, a 12-year low, as The Edge reported.

September brought more cracks. A 2.89 sen dividend was postponed three times before being paid, and the external auditor resigned. In October, the government suspended MyEG and Zetrix over arrears that Transport Minister Anthony Loke put at RM314 million in collections owed. Police and MACC complaints followed. By 15 October, forced selling had cut Wong’s stake to 1.895%, putting the company’s RM2 billion sukuk in breach of a covenant. MARC cut the rating from AA-IS to BB+IS, and on 16 October the shares touched five sen, down 93.3% from April, according to the NST.

Forced selling never arrives unannounced

The word “sudden” has been used a lot. I do not buy it. Banks do not dump a founder’s shares without first asking for more collateral. According to court documents reported by The Edge, CGS International asked Wong and his holding company, Asia Internet, to top up their margin accounts on 16 June, more than two months before the selling began. Investor analyses of the filings put the pledged shares at about 23% of the company as at 1 April, spread across several lenders.

So what did the board know, and when? Wong is the managing director, not a passive investor, and the sukuk covenant tied the company’s financing to his shareholding. The risk on his pledged shares was arguably material to Zetrix itself, and Chapter 9 of the Listing Requirements requires material information to be announced promptly. If the board knew and stayed quiet, that is serious. If it did not know, that is troubling in a different way.

The company’s own warning lights

The red flags were also in the published numbers. Simply Wall St pointed out in May that Zetrix had negative free cash flow of RM110 million in the year to March 2026, despite reported profit of RM960.4 million, with large development costs capitalised rather than expensed. The Malaysian Reserve noted that at end-June, Zetrix held RM541.6 million in cash against RM853.1 million in short-term borrowings, and total borrowings had grown from about RM160 million in 2021 to over RM2 billion. The flags were there; they just sat behind a very attractive headline.

What makes Zetrix instructive is how the two levels fed each other. The cash strain made the shares fragile. The falling shares triggered margin calls on the founder. The forced selling broke the sukuk covenant. And the covenant breach now threatens the company’s own financing. From there, the story moved to the debt market, the regulators, the tax man and an emptying boardroom.

A loan in a suit

A bond is a loan dressed up as a tradable piece of paper. A company borrows from many investors at once, promising a regular coupon and repayment of the principal on a fixed date. Bondholders are lenders, not owners, so they rank ahead of shareholders when things go wrong. A sukuk is the Shariah-compliant cousin, structured around an underlying asset rather than interest, but it behaves much like a bond. Every bond comes with a trust deed containing covenants: promises the issuer must keep for the life of the bond.

Rating agencies such as RAM and MARC grade issuers from AAA down to D, which means default. BBB and above is investment grade; anything below is speculative, the polite term for “junk.” An unrated bond has had no independent assessment, which is why it usually pays more. But a rating is an opinion, not a guarantee, and it often moves only after trouble surfaces. Companies like bonds because they raise large sums without diluting the founder. But dividends can be cut in bad times; coupons and principal cannot.

One man, one clause, RM2 billion

Zetrix AI’s RM2 billion sukuk programme, launched in November 2022, carries a keyman covenant requiring the managing director to remain the single largest shareholder. Bondholders lend to a business, but they also lend to the person running it. Once Wong’s stake fell below 2%, the company had until 22 October to fix the breach.

The deadline came and went. A sukukholders’ meeting on 23 October ended without a deal. On 29 October, Zetrix AI told Bursa that the breach had triggered a dissolution event, though it said it was not required to repay the sukuk immediately. The Edge reported that Wong is seeking six months to restore compliance. At stake are RM2 billion in principal and RM164.5 million in future coupons. To be fair, no payment default has occurred. But a covenant breach left unresolved is a default waiting for its paperwork.

Profit is opinion, cash is fact

For the six months to June 2026, Zetrix AI reported net profit of over RM540 million, yet it had RM541.6 million in cash, plus a similar amount in digital assets, against about RM2.19 billion in borrowings, as The Edge reported. If the trustee accelerates, the cash covers roughly a quarter of the bill. Then there is the RM314 million in government revenue that, as Malaysiakini reported, was not remitted to JPJ despite more than 30 notices from the Finance Ministry. An agent collecting public funds holds them in trust.

Bonds can also dress up a balance sheet. Borrowing lifts cash overnight, though every ringgit is matched by debt. Swapping short-term loans for a five-year bond flatters working capital without reducing what is owed. Perpetual sukuk can even be classified as equity, lowering gearing on paper. Borrowed money spent on development can be recorded as an asset rather than an expense. The Edge noted that Zetrix AI’s development costs rose RM900 million in six months to RM3.7 billion, while debt rose to RM2.2 billion from RM1.7 billion. I make no judgement on its accounting, but two numbers rising together is exactly what a bond investor should ask about.

The plot thickens

According to sources quoted by The Edge, the Securities Commission has visited Zetrix AI’s headquarters as part of an investigation involving the company. The SC declined to comment, and we should not jump to conclusions. But when the capital market regulator turns up at the door, investors pay attention.

Anthony Loke told Parliament that the government was taking legal action, including a civil suit, over the unpaid collections, stressing that government collections cannot be used as company operating funds. Then, on 28 October, subsidiary MyEG Sdn Bhd received an additional income tax assessment of RM353.13 million from LHDN for 2021 to 2023, mostly over transfer pricing, as Free Malaysia Today and The Star reported. Transfer pricing is about how a group prices transactions between its own related companies; if LHDN believes profits were shifted away from the Malaysian entity, it can adjust them and tax the difference. MyEG has appealed to the Special Commissioners of Income Tax and says it is confident of its position. Whether LHDN is right may take years to decide. But in Malaysia, the general rule is “pay first, argue later”. For a company already short of cash, that is not a distant risk.

Add up the claims: about RM2.16 billion under the sukuk, RM314 million owed to JPJ and RM353 million demanded by LHDN, roughly RM2.8 billion in all, against RM541.6 million in cash as at June. There is one pool of cash, and the queue at the counter keeps getting longer.

An empty boardroom

Within a single month, four of Zetrix AI’s seven directors resigned, including all three members of the audit committee, each citing personal commitments. The company is left with three directors: the chairman, Datuk Dr Norraesah Mohamad, the group managing director, Wong Thean Soon, and Datuk Mohd Jimmy Wong Abdullah. Not one of them is independent, and the audit committee has no members at all. To be fair, the departing audit committee chairman, Wong Kok Chau, stated that he had no disagreement with the board, and the company says it will fill the vacancies within three months.

But as an accountant, I cannot see this as anything other than a red flag. The audit committee is the shareholders’ watchdog inside the boardroom, and independent directors exist to protect minorities and creditors when management’s interests may differ. Here, the managing director is at the centre of the covenant breach and is asking bondholders for six months to restore his shareholding. Who, on this board, is independent enough to question him? The external auditor had already resigned in September, though The Edge noted it left at least 14 other listed companies for the same stated reason. Still, with third-quarter results due on 27 November, both watchdogs have walked away.

Who gets the discount?

On the very day the sukukholders’ meeting failed, Zetrix AI offered 788.83 million employee share options at a 28% discount, exercisable immediately. Wong received the largest allocation among directors. If fully exercised, the options could raise about RM42 million. Options like these, in a cash crunch, look less like an incentive scheme and more like a fundraising exercise. The fairer route was a rights issue, offering every shareholder the same price. Those who still believe can subscribe; those who don’t can sell their rights. A rights issue needs approvals and takes longer, I grant, and the 28% discount was measured against a price that had jumped 50% that same day. But speed is not fairness. If there is a discount on offer, it should be on offer to all who own the company, not just those who run it.

The cost of silence

What troubles me most is the silence. Beyond terse filings, there has been no press conference, no open letter from the chairman and no explanation from the managing director. The company confirmed the RM314 million JPJ liability only after Bursa demanded a direct answer. And in July last year, Bursa reprimanded the company and fined seven directors RM150,000 each over misleading announcements. A company with that history should be the first to speak, not the last.

So what should Zetrix AI have done?

1. Speak early, and in person. Filings inform; people reassure.
2. Explain the JPJ money. Set out a repayment plan and keep future government collections in a separate trust account.
3. Put a credible plan on the table. Give sukukholders a cash-flow forecast, a list of saleable assets and a fundraising route.
4. Bring in independent eyes. Appoint credible independent directors and a forensic accountant, and publish the findings.
5. Show that management shares the pain, and treat all shareholders alike when raising new money.

None of this would have made the debt disappear. But it might have kept the most valuable asset any company has: the willingness of others to believe what it says.

Who is getting hurt

The bondholders face a classic trap. Waive the covenant, and they signal that Malaysian covenants can be bargained away. Accelerate, and they risk pushing the company into PN17, shrinking the pie they are fighting over.

The largest holders are three funds managed by AmanahRaya Investment Management (ARIM), which The Edge estimates hold RM500 million to RM600 million of the paper. As The Star reported, ARIM suspended subscriptions, redemptions and switching in all three funds. Think of who buys a Syariah income fund: a retiree, a cautious saver. The suspension stops the fastest redeemers escaping at full price while the slowest are left with the losses. Today they cannot withdraw, and unit prices will likely fall once the sukuk is written down. “Fixed income,” they are learning, is not “fixed and safe.”

Lessons learnt

Follow the cash, not the profit. When free cash flow keeps falling short of reported profit, believe the cash.

Read the pledge disclosures. A founder borrowing heavily against the shares that anchor the company is a risk factor, even before the price moves.

The controlling shareholder’s leverage is the board’s business. Once a covenant ties the company’s financing to one person’s stake, his margin accounts become a company risk. Boards should require pledges and margin calls to be reported to them, and set limits.

A declared dividend is a promise. Declare it when the cash is certain, not when the profit is reported.

Keep other people’s money separate. Thirty-odd reminders from the Finance Ministry should have been thirty-odd alarm bells in the boardroom.

Founders should not double-bet. Borrowing against your own shares puts your wealth and your debt in the same asset. You lose control at exactly the moment the company most needs a stable anchor.

Test covenants against reality. A clause requiring the founder to remain the largest shareholder looks protective. If his shares are already pledged, it quietly hands the default trigger to his margin lenders.

Warning signs come in clusters. A delayed dividend, a departing auditor, a rating watch, a founder unsure how many more shares might go. Each was explainable on its own; together they told the story before the price did.

Before you lend your hard-earned money

1. Ask why the return is higher. Extra yield is payment for extra risk.
2. It is not a deposit. PIDM protects bank deposits, not bonds or unit trusts.
3. Check the rating and its direction, and look at net debt and cash flow, not just profit.
4. Read the key covenants. A covenant tied to one person means you are betting on that person.
5. For funds, check concentration and the suspension clause.
6. Don’t let labels reassure you. “Income”, “Syariah” or a government-linked name says nothing about credit risk.
7. Never use emergency money, and never buy what you don’t understand.

Chasing an extra 1% or 2% is never worth risking the 100% you put in.

Know thyself before you invest

Every investment decision must begin with ourselves, not with the product. Our appetite for risk must match our net worth, our age and our priorities. A young professional can take a knock and recover. A retiree living on savings cannot.

Bonds are often seen as the safe choice, and in good times they are. But a company squeezed for cash may keep paying the coupons, because those are small and keep the lenders quiet, yet struggle to repay the principal. The coupon was never the real risk. The principal was. So ask yourself honestly: if this money were lost, would my life change? If the answer is yes, it does not belong there.

What to watch next: the sukukholders’ decision on Wong’s six months, new independent directors and auditors, the government’s suits, the tax appeal, any findings from the SC, police and MACC, and the third-quarter results on 27 November. This story began with a margin call on one man’s shares and has become a RM2 billion question for the whole market. In finance, the small things are rarely small. My views may well change as the facts unfold: ethics in stone, opinions in sand.

References:

• Bursa Malaysia announcements and Main Market Listing Requirements
• The Edge Malaysia, including its report on the 16 June CGS margin call
• The Malaysian Reserve; New Straits Times; The Star; Malaysiakini; Free Malaysia Today; Business Today
• Simply Wall St via Yahoo Finance; PwC Malaysia

Dr Paul PK Lim is the de facto towkay of Accoris Management Sdn Bhd, and he loves to daydream.