FRESH from suffering a bond default, KNM Group Bhd has a lot of cleaning to do in order to put its business back on track.

       The group is in the midst of a liquidity crisis with its current liabilities exceeding its current assets, a situation that has prolonged since 2020.

       KNM is also in need of cash to meet its obligations, especially with a debt of RM1.28bil on its books as at Sept 30.

       In comparison, its cash holding stood at just about RM258mil. Almost RM706.6mil or 55% of this debt is short-term in nature.

       Amid lower production output and a slow order replenishment that have affected KNM’s revenue, the higher interest paid on borrowings is also causing the group to bleed.

       In the first nine months ended Sept 30, the group recorded a finance cost of RM79.2mil, exceeding the operational profit of RM73.1mil.

       KNM is a diversified multinational group with core businesses in project management, engineering, manufacturing and construction services for the renewable energy, power, utilities, refining and petrochemical industries.

       KNM’s bid to fundraise via a private placement of 30% share capital was rejected by shareholders in June.

       Nevertheless, on Nov 22, the group once again proposed a private placement to raise RM53.46mil for debt repayment and working capital. This time around, KNM plans to place out 10% of its share capital.

       The group is also planning to raise cash via asset monetisation.

       On Dec 22, KNM announced five measures to improve its financial position, including the listing of its crown jewel Germany-based Borsig GmbH and the disposal of its Thai and UK assets.

       The group is also looking at injecting selected subsidiaries into a special-purpose acquisition company (SPAC) “for a combination of cash consideration and certain percentage of shares in the SPAC”.

       The measures were recently announced as the group is seeking to resolve its recent default on its 2.78 billion baht (RM346.76mil) Thai bonds.

       The default, according to KNM, is an “isolated though material event”.

       KNM said the proceeds from the proposed Thai asset disposal, namely the 72% equity interest in Impress Ethanol Co Ltd (IEL), will be used to “fully settle” the outstanding amount related to the Thai bonds.

       IEL owns and operates a 200,000-litre-per day bio-ethanol plant in Thailand and its expansion of additional 300,000-litre-per day production capacity is under construction.

       “The financial needs of KNM had arisen, in the first instance, due to the prolonged consequences of the Covid-19 pandemic, which had affected KNM and its traditional market far beyond initial assumptions in early 2020 and which subsequently played a domino effect on several businesses, investments and operations at group level,” according to KNM in an earlier statement.

       As for Borsig, a German process equipment manufacturer that was acquired back in 2008 at RM1.7bil, KNM plans to list it on a “suitable stock exchange” within the next six to 12 months.

       Despite the initial public offering (IPO) plan, KNM has said that it will still pursue different options to monetise Borsig’s assets, including via the sale of its shares in its German subsidiaries.

       Any move to unlock value at Borsig would not be new for KNM.

       It was first talked about in 2019 when founder and former group CEO Lee Swee Eng said the group was looking at monetising its investment in Borsig and was considering getting a strategic partner to take up a stake besides an IPO.

       Lee, in a Nov 2019 media interview, had said that Borsig had been profitable all those years while the group’s other businesses were bleeding.

       KNM recently said that the proceeds from the proposed corporate exercises will enable the group to rectify the outstanding amount due under its Thai bonds.

       In addition, the exercises will enable the management to focus on growing its businesses and unlock the “sum-of-the-parts” value of KNM for its shareholders.

       “The enhanced financial position 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 dealings with us and would further improve employee retention,” said KNM.

       If the proposed corporate exercises turn out well as planned within the estimated timeline, KNM should be able to regain its footing.

       It remains to be seen whether the group can once again replicate its heyday more than a decade ago.

       At its height in 2007, KNM had a market capitalisation of about RM8bil. Currently, the size has shrunk to just RM523mil.

       Despite the ongoing crisis in KNM, dealers say the group’s potential turnaround story under the stewardship of Terence Tan Koon Ping, who was appointed as group chief executive officer on July 9, 2020, may pique investor interest.

       One such investor has turned out to be MAA Group Bhd.

       MAA, which is involved in investment holdings and the insurance business, emerged as a major shareholder in KNM in September this year.

       MAA revealed that it has acquired a 7.01% stake in KNM from the open market at an average price of 22.7 sen per share or for a total of RM52.89mil.

       It added that the purchase was made with internally generated funds and represented a good opportunity to buy at a low price relative to KNM’s net asset per share of 53 sen.

       Currently, MAA’s direct stake in KNM stands at 7.98%, while its indirect stake is about 2.4%.