KNM Process Systems has entered into a conditional sale, purchase and transfer agreement with Japanese ceramics company NGK Insulators Ltd for what its board of directors has described as “an attractive price” of €270 million, substantially higher than the €220.8 million it was offered in 2022.
The sale is part of the company’s plan to exit its PN17 status. Since October 2022, KNM has undertaken various measures to strengthen its financial position, later securing an extension from Bursa Malaysia to April 30, this year to finalise its restructuring strategy.
The KNM Group had, in November 2021, defaulted on its Asian Development Bank bonds, leading to its ongoing financial distress.
“As the newly appointed management team, we successfully secured a more favourable deal (than what was offered previously),” the KNM Group board of directors said in a statement announcing the pending sale.
It said that although listing was the preferred strategy, mounting pressure of the debts yet to be retired and taking the interests of shareholders and employees’ into consideration, “a radical switch was essential”.
It said an initial public offering (IPO) would have yielded the same returns anyway, making the sale a win-win solution.
It said a “substantial” portion of the proceeds from the sale will be used to pare down the KNM Group’s debt and enhance its financial flexibility to restart its Malaysian operations.
It will refocus its attention on growing its domestic operations through its plant in Tanjong Minyak, Melaka and two others in Gebeng, Pahang.
It said these plants will have the potential to collectively generate annual revenues of US$50 million.
The board said NGK Insulators does not require external funding to settle the cost of the acquisition, making it a “very attractive” option for KNM.
“KNM is receiving a very decent price,” it said.
It added that NGK Insulators will have the capacity to grow Deutsche KNM’s green technology product range under the Borsig brand, while Borsig will benefit from the very strong NGK brand support.
Rationalisation process
The board said that at the group level, KNM will continue with its efforts to monetise its assets in non-core and overseas operations, including its bio-ethanol plant in Thailand, in line with its strategy to optimise its asset portfolio and support long-term business sustainability.
“The funds raised will be invested in the revitalisation of the Malaysian operations,” it added.
Nonetheless, KNM will not turn away from offshore businesses altogether. For instance, it will consider developing waste-to-energy projects in Peterborough, UK.
Given that renewable energy is highly sought after to achieve net-zero emissions by 2050, the investment in Peterborough is expected to provide the KNM Group with a stable income stream.
Reducing debt burden
KNM Group expects to use the proceeds from the sale of KNM GmBH to reduce its total borrowings to about RM15.05 million.
As of Sept 30, 2024, its borrowings amounted to RM1.27 billion, giving it a gearing ratio of 3.94 times. The group expects to improve the ratio to 0.04 times once it pares down its debts.
“This financial restructuring will not only enhance cash flow flexibility but also reduce finance costs, improving overall financial stability,” it said.
Looking ahead
KNM Group chairman Tunku Yaacob Khyra described the proposed disposal of its business in Germany as a “significant step forward” in the group’s efforts to stabilise its financial position and set a clear path for sustainable growth.
“By reducing our debt burden, we are positioning ourselves for future expansion and strategic investments, mainly in our core Malaysian business areas,” he added.
The group plans to concentrate its efforts on its core business by leveraging on its expertise in designing and manufacturing process equipment for the oil and gas, petrochemical and fertiliser sectors.
In 2023, the Malaysia operations accounted for RM63.21 million in revenue for the group. In comparison, it reported profits of RM19 million on RM263 million in revenue in 2019, just before the world plunged into the Covid-19 pandemic.
Riding on a stronger financial position, KNM Process Systems will now be able to pursue opportunities in Malaysia and in the region more aggressively.
KNM Group CEO Ravindrasingham Balasingham said focusing on its fabrication of processing equipment business will drive long-term value for its stakeholders.
“KNM has a very strong track record in this sector, and with the right financial support in place, we can pursue opportunities both in Malaysia and regionally more aggressively, as we already have a strong standing in the industry,” he added.