KNM needs clean-up to exit liquidity crisis
The group is in the midst of a liquidity crisis with current liabilities exceeding its current assets, a situation that has continued since 2020.
KNM also needs cash to meet its obligations, especially with RM1.28 billion debt on its books as of September 30.
By comparison, its cash flow was around RM258 million. Almost RM 706.6 million or 55% of this debt is short term in nature.
Amid declining production and slow replenishment of orders that have affected KNM’s revenue, higher interest paid on loans is also causing the group to bleed.
In the first nine months ended September 30, the group recorded a finance cost of RM 79.2 million, exceeding operating profit by RM 73.1 million.
KNM is a diverse multinational group primarily engaged in project management, engineering, manufacturing and construction services for the renewable energy, power, utilities, refining and petrochemical industries.
KNM’s offer to raise funds through a private placement of 30% of the share capital was rejected by shareholders in June.
Nonetheless, on November 22, the group again offered a private placement to raise RM 53.46 million for debt repayment and working capital. This time, KNM plans to sell 10% of its share capital.
The group also plans to raise liquidity through the monetization of assets.
On December 22, KNM announced five measures to improve its financial situation, including the listing of its German crown jewel Borsig GmbH and the divestiture of its Thai and UK assets.
The group also plans to inject selected subsidiaries into a specific purpose acquisition company (SPAC) “for a combination of cash consideration and a certain percentage of SPAC shares”.
The measures were recently announced as the group seeks to resolve its recent default on its Thai bonds of 2.78 billion baht (RM 346.76 million).
The default, according to KNM, is an “isolated although material event”.
KNM said the proceeds from the proposed Thai asset divestiture, namely the 72% stake in Impress Ethanol Co Ltd (IEL), will be used to “fully settle” the outstanding amount related to Thai bonds.
IEL owns and operates a 200,000 liters per day bioethanol plant in Thailand and the expansion of its additional production capacity to 300,000 liters per day is under construction.
“KNM’s financial needs had arisen, in the first place, due to the prolonged consequences of the Covid-19 pandemic, which had affected KNM and its traditional market well beyond the initial assumptions in early 2020 and which subsequently played a role. a domino effect on several companies, investments and operations at the group level, ”according to KNM in an earlier press release.
As for Borsig, a German manufacturer of processing equipment which was acquired in 2008 at RM 1.7 billion, KNM plans to list it on an “appropriate exchange” within the next six to 12 months.
Despite the initial public offering (IPO), KNM said it would still pursue different options to monetize Borsig’s assets, including through the sale of its shares in its German subsidiaries.
Any movement to unlock value at Borsig would not be new to KNM.
This was first discussed in 2019 when the group’s founder and former CEO, Lee Swee Eng, said the group was considering monetizing its investment in Borsig and was considering finding a strategic partner to take a stake in addition to it. ‘an IPO.
Lee, in a media interview in November 2019, said Borsig has been profitable all these years as the group’s other businesses bleed.
KNM recently said that the proceeds from the proposed corporate exercises would allow the group to rectify the outstanding amount owed on its Thai bonds.
In addition, the exercises will allow management to focus on growing its business and unleashing the “sum of the parts” value of KNM for its shareholders.
“Improving the financial situation and better clarity on the future prospects of the KNM group will also be essential in convincing our customers and suppliers to engage in business relationships with us and would further improve employee retention”, said declared KNM.
If the proposed corporate exercises go as planned within the estimated timeframe, KNM should be able to get back on track.
It remains to be seen whether the group will be able to replicate their heyday again over a decade ago.
At its peak in 2007, KNM had a market capitalization of around RM8 billion. Currently the size has shrunk to only RM523mil.
Despite the current crisis at KNM, dealers say the group’s story of potential turnaround under the leadership of Terence Tan Koon Ping, who was appointed group chief executive on July 9, 2020, may spark investor interest.
MAA, which is involved in participations and insurance activities, became one of the main shareholders of KNM in September of this year.
MAA disclosed that it acquired a 7.01% stake in KNM on the open market at an average price of 22.7 sen per share or for a total of 52.89 million RM.
He added that the purchase was made with internally generated funds and represented a good opportunity to buy at a low price compared to KNM’s net assets per share of 53 sen.
Currently, MAA’s direct stake in KNM stands at 7.98%, while its indirect stake is approximately 2.4%.