Letter to editor
ON Sept 5, CGS-CIMB Nominees (Asing) Sdn Bhd had on behalf of German national Andreas Heeschen and a group of existing shareholders who apparently hold in excess of 10% of the total paid up capital of KNM Group Bhd sent a notice of requisition to the Practice Note 17 (PN17) company to convene an extraordinary general meeting (EGM) to remove and replace the entire board of directors.
The CEO of KNM was quoted to have said publicly that the requisition of the EGM to remove the current board of directors came as “no surprise” while questioning whether the attempted takeover of the oil & gas (O&G) group by Heeschen would be a cheaper way for him to acquire the Borsig Group and FBM Hudson Group.
As a company listed on the Main Board of Bursa Malaysia, KNM is governed by the Rules on Take-Overs, Mergers and Compulsory Acquisitions 2016 which contains principles and rules governing the conduct of all persons or parties involved in a take-over offer, merger or compulsory acquisition, including an acquirer, offeror, offeree and their officers and associates.
Rule 4.03 (1) (c) of the Code on Takeovers and Mergers 2016 clearly sets out shareholders requisitioning or for a board control-seeking proposal in a general meeting while Rule 4.04 highlights that a change in the composition of a group of persons acting in concert which effectively results in a new group being formed or the balance of the group being changed significantly, may give rise to a mandatory offer obligation.
This may occur, for example, as a result of the sale of all or a substantial part of the shareholding of one member of the group acting in concert to other existing members or to another person.
If this is so in that those shareholders holding in excess of 10% are requesting for an EGM to be convened to remove and replace the entire board of directors is an attempted takeover as questioned by the CEO, then it is imperative for the current board of directors of KNM to make an official announcement on this.
Share price headed south
The present chairman of KNM was appointed to the board as a non-independent non-executive director on Nov 1, 2021 before subsequently re-designated as chairman on Feb 9 this year.
Except for two of the nine members of the board who were appointed in March 2023, the other seven members of the board were appointed almost the same time in 4Q 2021.
During the period, notably from their appointment in late 2021 till end-September during which the existing members of the board were overseeing the operations of KNM, the company has faced the following development:
- Had went through a few rounds of unsuccessful corporate exercises including announcing on Dec 16, 2022 the proposed listing of Borsig on the main board of the Singapore Stock Exchange (SGX) by way of an IPO (initial public offering) with a view of achieving a market capitalisation of up to US$300 mil (RM1.37 bil) and a placement of 49% of the enlarged capital;
- Winding up petitions were served on KNM Process Systems Sdn Bhd and KNM Global Ltd;
- The group became an affected listed issuer under PN17 (Practice Note 17) on Oct 31, 2022;
- KNM Group has defaulted on loans amounting to RM416.8 mil which was borrowed through three of its indirect wholly-owned units – Peterborough Green Energy Ltd, KNM Renewable Energy Sdn Bhd and Splendid Investments Ltd – in December 2022;
- The group reported a net loss of RM157 mil while revenue came in at RM1.07 bil for the financial period ended June 30, 2023 (FY2023);
- KNM Group saw its share price trading at 19.5 sen as of Nov 1, 2021 which was approximately the period when seven of its present board members were appointed but tumbled down to 10 sen as of Sept 5 this year which was the day when the requisitionists sent the notice calling for the EGM.
The share price did worse in December 2022 when it retreated and was trading at a low of 5.5 sen. The share did see some active trading as it was traded at 13 sen on Sept 25 Sept 2023 – probably indicating that some shareholders are increasing their stakes ahead of the EGM on Oct 16; and
- The group announced the sale of Borsig for €220.8 mil (RM1.03 bil) on May 24, 2022 which was well below the price tag of €300 mil (RM1.47 bil sought by KNM’s previous board and potentially could result in an estimated loss of approximately RM490.55 mil to KNM only for the sale to be called off by the company by end-November 2022.
In its announcement to Bursa Malaysia, the board justified the sale price as representing an enterprise value (EV) over earnings before interest, taxes, depreciation and amortisation (EBITDA) of 6.63 times compared with peer EV/EBITDA valuation of between 2.85 times and 7.73 times with an average of 5.29 times.
In the same Bursa Malaysia filing on May 24, the board said the sale of Borsig would facilitate its business strategy of “growing its renewable energy business” which presently are loss making, namely the 72%-owned 200,000 litres-per-day bio-ethanol plant in Thailand which is currently being expanded, and a waste-to-energy (WTE) plant in the UK that is currently under construction (previously slated to have a capacity of 36MW).
In the same Bursa Malaysia filing on May 24, the board said the sale of Borsig would facilitate its business strategy of “growing its renewable energy business” which presently are loss making, namely the 72%-owned 200,000 litres-per-day bio-ethanol plant in Thailand which is currently being expanded, and a waste-to-energy (WTE) plant in the UK that is currently under construction (previously slated to have a capacity of 36MW).
Replacing of present board vital
The KNM Group board and its CEO should be well aware that Borsig was the cash cow that the group needed to subsidise other loss making businesses in the group. With the termination of the sale of Borsig, KNM still has its bank borrowings of RM874.23 mil which it needs to repay.
The CEO himself had reportedly told the Malaysian Reserve in an interview that the creditors of KNM waited for a year and still not paid while “there is this person appearing out of nowhere telling them to wait for another year”.
It is obvious that those requisitionists who are also the existing shareholders are extremely concerned with their investments and are of the view that a board comprising of new people is needed to guide the company out of its present quagmire.
For fairness and equality, maybe the CEO and the present board should seek out the requisitionists for them to present their plans to revive the company to the shareholders at the EGM.
By so doing, shareholders who are present can compare the existing plans which the CEO said has the support of majority of the creditors with that planned and proposed by the members that are nominated by the requisitionists. – Oct 3, 2023
FLK
Petaling Jaya
The views expressed are solely of the author and do not necessarily reflect those of Focus Malaysia.
