KNM NEXT~

Its prospects hinge on the Peterborough project as well as Borsig. Only after the group has got the project started off the ground and successfully listed Borsig will investors regain confidence in its stock.

Borsig GmbH …

In Dec 2013 it was reported that KNM Group Bhd has obtained credit facilities of up to €220 million (RM986 million) from a number of European banks.

The facilities comprise a term loan of €60 million to fully discharge and settle its existing term loan for its acquisition of Borsig GmbH in 2008. They also include a bank guarantee of up to €160 million for general corporate and working capital requirements of the Borsig group and to refinance existing bilateral guarantee facilities.

The participating financial institutions are UniCredit Bank AG as arranger and UniCredit Luxembourg SA as agent. The credit facilities have a maximum tenure of five years.

The facilities would “enhance the financial debt maturity profile of the group and improve its financial ratios as well as give rise to substantial savings in terms of interest expenses due from the credit facilities’ lower financing cost”.

In 2008, KNM acquired German engineering and manufacturing supplier Borsig for €350 million. The acquisition took place just as the global financial crisis began unravelling.

Although KNM’s revenue more than doubled in the year of the acquisition and its net profit leapt 80%, its profit margin dipped from 15.2% to 13.3% and its return on equity almost halved from 34% to 19%. Sales in Europe fell from RM1.49 billion in 2008 to a low of RM1.07 billion in 2010. It has not recovered until now (Jan 2014).

With the acquisition of Borsig, KNM’s total debt-to-equity ratio shot up from 54.4% to 80.4% in 2008. As at Sept 30 2013, the ratio had fallen to 44.82%. Borsig has been KNM’s cash cow throughout the crisis. The years following the acquisition saw a streak of profit depression in all its geographical segments; Europe alone had been consistently profitable.

When KNM recorded its first loss as a public-listed company in 2011, the losses were from Asia and America.

The outlook is still cloudy (Dec 2013) for KNM. Market observers are concerned about KNM’s erratic earnings track record.

Borsig Listing …

KNM had proposed to list Borsig on the Singapore bourse in 2013, with an indicative valuation of between RM1.8 billion and RM1.9 billion. But analysts viewed the valuation as too high.

Borsig’s listing plan has been delayed indefinitely. The capital raised from the listing could be used for KNM’s RM2.3 billion renewable energy plant project in Peterborough, UK, which was also delayed due to funding problems.

Renewable Energy Plant Project In Peterborough …

KNM is also undertaking a waste to energy power plant project in Peterborough in the UK that is worth about rm2.4 billion. It has yet to start due to lack of funding. KNM acquired a 55 acre tract in Peterborough for rm122.7 million with Exim Bank as the lead bank.

While there has been no word from the group on the scrapping of the project. KNM had sold its 80% stake in Energy Park Investments Ltd, the project owner of the Peterborough renewable energy plant. KNM is a turnkey contractor for the project.

It continued to face a delay in securing a financial close for its rm2.3 billion renewable energy plant project in Peterborough, the UK.

Earlier source says Exim Bank of Malaysia which is the lead arranger for a syndicated loan to fund 80% of the Peterborough project, is still looking for another partner bank to provide KNM with the funding requirement. It is learnt that KNM’s management had hoped to secure the financial close by end of 2012.

Initially, Deutsche Bank Bhd was supposed to be the partner bank but it is no longer in the picture. Exim Bank is now (May 2013) trying to rope in another bank to provide the syndicated loans.

The Peterborough plant is touted as an anchor project for KNM as it represents 47% of the group’s outstanding order book of rm4.9 billion. However it was reported in Feb 2013 that the Peterborough project has been delayed.

Excluding the UK project, KNM’s order book stands at rm2.1 billion including the rm308 million TAIK-NK sulphur recovery unit project in Russia.

KNM’s balance sheet will be stretched if it was to undertake the project.

At the end of first quarter 2013, the group had a net gearing ratio of 0.41 times but this could rise significantly to 1.03 times should KNM proceed with the first phase of the project, assuming a 80:20 debt and equity financing as guided by management.