ON Sept 5, CGS-CIMB Nominees (Asing) Sdn Bhd had on behalf of German national Andreas Heeschen and a group of existing shareholders who apparently hold in excess of 10% of the total paid up capital of KNM Group Bhd sent a notice of requisition to the Practice Note 17 (PN17) company to convene an extraordinary general meeting (EGM) to remove and replace the entire board of directors.

The CEO of KNM was quoted to have said publicly that the requisition of the EGM to remove the current board of directors came as “no surprise” while questioning whether the attempted takeover of the oil & gas (O&G) group by Heeschen would be a cheaper way for him to acquire the Borsig Group and FBM Hudson Group.

As a company listed on the Main Board of Bursa Malaysia, KNM is governed by the Rules on Take-Overs, Mergers and Compulsory Acquisitions 2016 which contains principles and rules governing the conduct of all persons or parties involved in a take-over offer, merger or compulsory acquisition, including an acquirer, offeror, offeree and their officers and associates.

Rule 4.03 (1) (c) of the Code on Takeovers and Mergers 2016 clearly sets out shareholders requisitioning or for a board control-seeking proposal in a general meeting while Rule 4.04 highlights that a change in the composition of a group of persons acting in concert which effectively results in a new group being formed or the balance of the group being changed significantly, may give rise to a mandatory offer obligation.

This may occur, for example, as a result of the sale of all or a substantial part of the shareholding of one member of the group acting in concert to other existing members or to another person.

If this is so in that those shareholders holding in excess of 10% are requesting for an EGM to be convened to remove and replace the entire board of directors is an attempted takeover as questioned by the CEO, then it is imperative for the current board of directors of KNM to make an official announcement on this.

In the absence of any announcement by the board, it appears that the statement by the CEO cast an aspersion on the requisitionists for the EGM which appears to be unfair to other shareholders of the company.

Share price headed south

The present chairman of KNM was appointed to the board as a non-independent non-executive director on Nov 1, 2021 before subsequently re-designated as chairman on Feb 9 this year.

Except for two of the nine members of the board who were appointed in March 2023, the other seven members of the board were appointed almost the same time in 4Q 2021.

During the period, notably from their appointment in late 2021 till end-September during which the existing members of the board were overseeing the operations of KNM, the group has faced the following development:

The share price did worse in December 2022 when it retreated and was trading at a low of 5.5 sen. The share did see some active trading as it was traded at 13 sen on Sept 25 this year - probably indicating that some shareholders are increasing their stakes ahead of the EGM on Oct 16; and

In its announcement to Bursa Malaysia, the board justified the sale price as representing an enterprise value (EV) over earnings before interest, taxes, depreciation and amortisation (EBITDA) of 6.63 times compared with peer EV/EBITDA valuation of between 2.85 times and 7.73 times with an average of 5.29 times.

In the same Bursa Malaysia filing on May 24, the board said the sale of Borsig would facilitate its business strategy of “growing its renewable energy business” which presently are loss making, namely the 72%-owned 200,000 litres-per-day bio-ethanol plant in Thailand which is currently being expanded, and a waste-to-energy (WTE) plant in the UK that is currently under construction (previously slated to have a capacity of 36MW).

Replacing of present board vital

The KNM Group board and its CEO should be well aware that Borsig was the cash cow that the group needed to subsidise other loss making businesses in the group. With the termination of the sale of Borsig, KNM still has its bank borrowings of RM874.23 mil which it needs to repay.

The CEO himself had reportedly told the Malaysian Reserve in an interview that the creditors of KNM waited for a year and still not paid while “there is this person appearing out of nowhere telling them to wait for another year”.

From the above, does the CEO expect shareholders and creditors to continue to sit down and keep quiet when their investments continued to depreciate? In fact, the shareholders and creditors of KNM stand to lose all if nothing significant is done.

As to their existing monetisation process, it appears to be mere talk and could end up like all the exercises mentioned above.

It is obvious that those requisitionists who are also the existing shareholders are extremely concerned with their investments and are of the view that a board comprising of new people is needed to guide the company out of its present quagmire.

For fairness and equality, maybe the CEO and the present board should seek out the requisitionists for them to present their plans to revive the company to the shareholders at the EGM.

By so doing, shareholders who are present can compare the existing plans which the CEO said has the support of majority of the creditors with that planned and proposed by the members that are nominated by the requisitionists.

An example would be how those nominated to replace the current board have planned and expect to repay the debts owing to the creditors.

The request to remove and replace the present board members is obviously not a takeover or an attempt to buy into the assets of the company for cheap. It appears to be a plan merely to remove and replace an ineffective board that could potentially benefit all the long suffering stakeholders of KNM. - Oct 2, 2023

FLK used to do a bit of work in corporate restructuring, corporate `undertaker. His views first appeared in content aggregator NewsWav site on Sept 30, 2023. 

https://focusmalaysia.my/is-the-ceo-of-knm-group-ignoring-not-prioritising-shareholders-interest/