This article first appeared in The Edge Malaysia Weekly on November 6, 2023 - November 12, 2023

THE financial woes at KNM Group Bhd are back in focus, as the shareholder feud at the Practice Note 17 (PN17) status firm seems to have dissipated — at least for now — after the extraordinary general meeting (EGM) called to remove the entire board in mid-­October.

More pressing now for the management of KNM is the fact that the High Court last Thursday dismissed its application to extend a restraining order, which involved KNM and its unit KNM Process Systems Sdn Bhd.

The restraining order came into force last December and allowed the two companies to address outstanding financial obligations without having the threat of any proceedings, legal action or liquidation being brought against them by creditors.

The court’s decision will permit creditors to exercise their rights over KNM’s assets to recover their loan sums.

In a Bursa Malaysia announcement, KNM says it will appeal the decision to the Court of Appeal.

Prior to that, the company announced that it was seeking another year to work on its regularisation plan, having missed the Oct 31 deadline to submit the plan to Bursa Malaysia.

Given the latest developments, more uncertainties have arisen as to management’s plan to list its crown jewel Borsig GmBH on the Singapore Exchange, bringing KNM out of financial woes that have lasted for more than a decade.

KNM took over Borsig for RM1.65 billion in 2008, but received dividend payments from the German engineering company.

In May 2022, KNM had sought to sell Borsig to GPR Siebzigste Verwaltungsgesellschaft mbH for €220.80 million, but the deal fell through.

In a circular to shareholders two months ago, KNM states that the indicative value of Borsig is €300 million (RM1.5 billion). The valuation is based on Borsig’s projected price-earnings ratio of 13 to 15 times, on a forecast annual net profit of €23 million.

Borsig has been KNM’s core earnings generator since 2008, contributing an annual net profit of RM112 million to RM141 million over the past three years.

Nonetheless, KNM was loss-making over the past two financial years ended June 30, 2021, and 2022. It is still bleeding, posting a net loss of RM19.29 million for the 12-month period ended June 30, 2023.

The company changed its financial year to Dec 31 starting from July last year.

It is noteworthy that since 2008, KNM’s highest net profits were in FY2008, when it raked in RM336.4 million, and its worst showing was in FY2018, when it suffered a net loss of RM784.7 million.

For the year ended Dec 31, 2022 (FY2022), Borsig chalked up profits of €24.79 million on revenue of €24.42 million. Borsig’s accounts receivable as at end-2022 were €67.87 million, and the amount due from related companies was €66.42 million.

Meanwhile, Borsig’s operating expenses in FY2022 were sharply higher, at €19.52 million, up 161.2% from €7.47 million in FY2021.

Borsig’s total assets amounted to €79.05 million and its current liabilities were €26.1 million, with no long-term debt commitments.

At last month’s EGM, a group of shareholders led by German businessman Andreas Heeschen, who has an 8.25% stake in KNM, failed in their attempt to oust nine board members, including chairman Tunku Datuk Yaacob Khyra. They only managed to remove two directors, Tan Sri Zulhasnan Rafique and Steve Ho Soo Woon.

In an unexpected twist, Ho has been reappointed to the board as an independent, non-executive director within three weeks of being voted out at the EGM. He has also been appointed a member of the company’s Remuneration Committee and Audit Committee.

Datuk Seri Mahmud Abu Bekir Taib, son of Sarawak governor Tun Abdul Taib Mahmud, who was supporting the Yaacob faction, has since trimmed his 5.03% shareholding and ceased to be a substantial shareholder.

Yaacob has a 9.5% stake in KNM via Melewar Industrial Group Bhd, and MAA Group Bhd.

Market talk has it that several other characters were behind the scenes pulling the strings, but nothing has been substantiated.

Immediately after the EGM, Johor princess Tunku Kamariah Aminah Maimunah Iskandariah Sultan Iskandar, who is with the Heeschen faction looking at a takeover of KNM, came out to denounce the results of the EGM, saying there were “possible irregularities in the vote count”.

While some quarters doubt whether the shareholder tussle was genuine, suggesting that the whole drama was merely to create excitement over KNM shares, sources close to the feuding parties say the fight is indeed for real. KNM’s share price spiked 200% to a high of 18 sen on Oct 5, from six sen on May 31.

Questions linger, however, as to why, for example, it is so hard for Heeschen to take control of KNM. It should not be an uphill task for a German billionaire to take over a firm whose market capitalisation is barely €80 million, if he were keen on it.

Against this backdrop, what is clear thus far is that the problems of KNM’s management are far from over. 

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