Letter to editor
THE current board of directors agrees that KNM Group Bhd’s rich history and sprawling assets speak for her great potential. Some truth needs to be established to understand the difference in views over the current predicament of KNM Group Bhd.
When the current management took charge in November 2022, KNM Group had just been put under PN17 (Practice Note 17) and was facing winding up petition from creditors.
The group’s subsidiary, FBM Hudson Italiana SpA was so close to insolvency that the greatest concern was its short-term survival, let alone sale at a price fitting for its assets and potential.
The Thai Asset or Impress Ethanol Ltd was mothballed in October 2020. Green Energy Limited, the group’s waste energy project in Peterborough, UK had no plant except a piece of land with some approvals and licenses.
‘Mustn’t fall into insolvent liquidation’
- Given the inability of the buyer to fulfil the terms of contract after a multitude of long stop extension and having questions around details of the transaction, the current management team has advised the board against extending the long stop date of the Borsig GmbH sale again.
- KNM Group therefore pursued a more ambitious line to stabilise the group and preparing it for the new turnaround strategy which was used to convince creditors to stay the course with thee group. This turnaround strategy will lead to a revival of the group.
- The current management’s biggest achievement was gaining the support of its creditors to take Borsig in this new direction to which it is grateful for their decision to support the group back then and for continuing to do so.
- It has also instituted a new M&A (merger & acquisition) Track and IPO (initial public offering) Track for Borsig which is about to be delivered and has the full support of KNM Group creditors. A major creditor had the following to say in their recent letter of support to the group:
“We have worked very well with the current management of KNM Group and as a result, we have built the confidence to continue to support the group. We remain supportive of all the restructuring exercises currently undertaken by KNM Group.
“Any change to the current leadership or to the board of KNM Group will be seriously disruptive and so would cause undue delays which will be not in the interest of the shareholders or the creditors.”
- Under the current management’s IPO proposal for Borsig Group, KNM Group’s shareholders will retain a 40% stake in the listed Borsig Group and would raise €190.0 mil (RM950.0 mil) in cash to pare down a large portion of the RM1.1 bil of existing debts of the group.
- The current management team assumed FBM Hudson in December 2022 in a state of insolvency after years of large withdrawals of cash out of FBM Hudson by the previous management team of KNM Group from 2017 to January 2022.
If allowed to fall into insolvent liquidation, KNM Group will not receive any cash returns; instead, it will be forced to repay debts of €11.0 mil to FBM Hudson.
To prevent a further plummet of morale – and external confidence of clients – subcontractors and our shareholders and creditors, the CEO was replaced. The management then re-engaged with all necessary parties, including local unions and banks as well as major customers and suppliers in order to build trust and confidence, secure financial aid and above all, satisfy the statutory audit committee to keep FBM afloat.
- At the start of this new board’s tenure, the lack of liquidity hamstrung ongoing operations, the threat of liquidation loomed large, and €1 bids were received. It took much effort to stabilise the situation and return FBM to some level of normality.
It was a shame that the group found it untenable in the short term with the larger view of the needs of KNM Group to keep FBM Hudson as a subsidiary.
Its potential is plain to see as is apparent to the buyer who not only paid €12 mil (RM60 mil) cash but waived the remaining debt which arose from the cash extraction in the past by KNM Group in the region of €10 mil (RM50 mil).
- Moreover, the buyer immediately placed €7 mil (RM35 mil) in cash to repay the debts which was critical in avoiding an imminent liquidation. It has been a privilege to have worked with FBM Hudson and to have had some part to play in sailing it through its recent tumultuous period.
As mentioned above, there have been attempts to destroy this life-saving transaction for FBM Hudson Group and cash enriching transaction for KNM Group against the backdrop of €1 offers. Nevertheless, the buyer not only remained with the group but has and continues to invest more cash than initially agreed.
‘Future worth investing in’
As previously stated, the state of many assets inherited by this current board was already in substandard condition (in spite of their great potential). The group’s Thai asset was shut down in October 2020 while the UK Peterborough asset acquired in 2016 to be developed as a plant to convert waste to energy did not materialise as originally planned by the previous management.
Given the financial state of the KNM Group, the best solution is the disposal of these assets. Ever since the takeover by the current management, all sale efforts have been on a non-exclusive basis. As the current management, there is no denial that the group is in a tough situation for there are still losses to be cut and assets to be re-worked.
For now, the group believes that it has taken KNM Group and its subsidiaries to a point where not only its immediate survival is better established but its future is worth investing in. The achievement of the current management team is quite clear if we analyse the financial announcement of the quarter ended June 30, 2023:
- As soon as the group pares down its debt, it will reduce KNM Group’s quarterly burdensome interest and penalty charges of RM25 mil which will soon transpire under its turnaround plan.
- The disposal of the loss making FBM Group will make KNM Group’s profitability more secure and sustainable with greater potential for the future, fuelled by the continuation of the Borsig Group investment and a rejuvenated local KNM process system operation that will incorporate stronger association from our Borsig Group. These will come under Phase II plans for the KNM Group.
The group sees a strong future for KNM Group and its positive results in the recent few months since taking control together with the continued trust and faith in the current board of directors by the creditors is itself a very strong message to the shareholders of the group. – Oct 3, 2023
KNM Group Bhd’s management and board
Seri Kembangan, Selangor
The views expressed are solely of the author and do not necessarily reflect those of Focus Malaysia.