This article first appeared in The Edge Malaysia Weekly on December 5, 2022 - December 11, 2022
KNM Group Bhd’s decision to call off the sale of its key subsidiary Borsig GmbH has resulted again in uncertainty over its ability to address its financial woes.
The proposed €220.8 million (RM1.03 billion) divestment was a crucial step to meeting several of KNM’s financial obligations that are overdue.
The company said it was “not convinced that the closing conditions, in particular regarding financing of the proposed disposal, will be satisfied swiftly” by the buyer, Vorsprung Industries GmbH.
KNM had intended to utilise €206.55 million, or 93.5% of the sale proceeds, to repay its debts. The group had RM1.21 billion in borrowings, of which RM1.07 billion was in short-term loans.
As the deal fell through, KNM likely missed the payments for term loans amounting to US$23 million and €68.5 million due on Nov 30, following a payment extension previously.
It had already received a winding-up petition in relation to an US$8.5 million settlement sum in October. And it is still holding discussions with its guarantor, a trust fund under the Asian Development Bank, on the repayment of Thai bonds worth THB2.78 billion (RM347 million) that it defaulted on in December 2021.
With its weak balance sheet, it will be tough for KNM to refinance its debts. Furthermore, the group is under Practice Note 17 (PN17) status, and has been loss-making in six of the last eight financial quarters.
KNM’s largest shareholder, MAA Group Bhd, with a 9.93% stake, had spent RM82 million buying into the company for its long-term prospects. With the turnaround story far from materialising, any further investment by MAA will be closely watched by its minority shareholders.
While there are other smaller assets and subsidiaries for KNM to monetise, it has not been able to do so. KNM will need to look for other purchasers for Borsig or go back to the initial plan of listing the Germany-based process equipment manufacturer. Can it buy more time from creditors amid all the uncertainty?
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