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 Ishak Ismail mulling over a stake in KNM (7164) KNM GROUP BHD

CORPORATE player Datuk Ishak Ismail has been approached to buy a stake in KNM Group Bhd, and is still mulling over the merits of an acquisition into the company. KNM is involved in project management, engineering, manufacturing and construction for the renewable energy, power, utilities, refining and petrochemical industries.

“I am still looking at the company,” he confirms in a WhatsApp message to The Edge. “So far, there is no major shareholder in the company,” he adds, referring to KNM’s fragmented shareholding.

It is understood that Ishak could have been approached by KNM CEO and executive director Terence Tan Koon Ping to take up a stake.

In the 1990s, Ishak controlled such companies as KFC Holdings (M) Bhd, Idris Hydraulic (M) Bhd and Parit Perak Bhd, among others, before he went below the radar later during the decade. Now, he controls Raya Airways Sdn Bhd, a restructured unit of air cargo transport company Transmile Group Bhd, which was embroiled in an accounting fraud.

KNM’s largest shareholder currently is MAA Group Bhd, which has a little more than 7% equity interest. Others holding large stakes, albeit just below the 5% threshold for disclosure, include Brahmal Vasudevan, who helms private equity fund Creador. However, the stake in KNM is understood to be held in his personal capacity.

Apart from the above, Tan and parties friendly to him are understood to have about 10% equity interest. Meanwhile, Lee Swee Eng — KNM founder, and former controlling shareholder and CEO — and his wife Gan Siew Liat, who was until recently executive vice-chairman of the company, and friendly parties may have about 7%.

The Edge understands that MAA, with its 7% shareholding, has been seeking board representation on KNM, but whether there is any resistance is unclear.
Umno-linked individuals to surface?

There is also market talk that there could be individuals with links to political party Umno buying into KNM, but this is conjecture at press time. This came about after Tan Sri Zulhasnan Rafique was appointed independent non-executive chairman of KNM on Sept 17.

Zulhasnan, a lawyer, is chairman of Umno’s disciplinary board. He is a former Federal Territories minister and member of parliament for the Wangsa Maju and Setiawangsa constituencies in Kuala Lumpur.

Zulhasnan was also chairman of Umno-linked vehicles such as Realmild (M) Sdn Bhd, and was on the board of Temasek Padu Sdn Bhd, another Umno vehicle.

While all parties in KNM deny any friction between the shareholders, market talk has it that Lee, who stepped down as CEO in July last year, is at loggerheads with Tan.

In late June, there was a slew of resignations from the board of KNM. Independent directors Datuk Khalid Ngah and Soh Yoke Yan left, while non-independent directors Datuk Ab Halim Mohyiddin, and Mohd Rizal Bahari Md Noor and Gan, who at that time held a 9.98% stake, also exited, adding fuel to rumours of a tussle for control of the company.

Last month, KNM announced that 107.64 million shares were being offered under an employee share option scheme at 19 sen. Tan opted for 21 million shares, while other members of the board took up small stakes as well, nudging KNM’s share base to 3.32 billion shares.

Apart from Zulhasnan, another appointment to the KNM board, Ho Soo Woon, also generated interest.

Ho, who is managing director and 67% shareholder of consultancy outfit Tesoro Capital Sdn Bhd, was an executive director of Kenmark Industrial Co (M) Bhd, a troubled company in which Ishak had a stake as well.
What is in KNM

For its six months ended June 2021, KNM posted a net profit of RM8.55 million from RM477.21 million in revenue. For the corresponding period a year ago, it chalked up a net profit of RM31.48 million on the back of RM669.59 million in sales.

As at end-June this year, KNM had cash and cash equivalents of RM256.47 million, while total short and long-term loans and borrowings stood at RM1.3 billion, resulting in a net gearing of 0.58 times.

It is also noteworthy that KNM had accumulated losses of RM197.58 million, after three consecutive years of losses in FY2016, FY2017 and FY2018. In FY2018, KNM suffered a massive after-tax loss of RM784.68 million.

KNM also has close to RM370 million in Thai baht bonds maturing in a few months, which, judging by its current financials, may pose a problem.

Nevertheless, there is no doubt that KNM has a number of good assets.

As at end-June this year, its net asset per share was pegged at 55 sen, more than double its trading price of 23 sen at last Thursday’s close, which values the company at RM765.45 million.

A check on KNM’s annual report for FY2020 indicates that its top 10 properties around the globe — including in Italy, Thailand, Germany, UK, Dubai, Canada and Indonesia, apart from Malaysia — had a net book value of RM994.17 million. That is higher than its market capitalisation of RM765.45 million at its close during the morning trading session last Thursday.

A key asset of KNM’s is wholly-owned Borsig GmbH, a German engineering company that makes heat exchangers, pressure vessels, process gas compressors and membrane systems, among others.

KNM had acquired Borsig, which is more than 180 years old, and its group of companies in 2008 for about RM1.7 billion. While news reports have it that KNM is seeking a minimum price of €300 million, or close to RM1.5 billion, for Borsig, others say that the German engineering company could be spun off as a special purpose acquisition company (SPAC) for US$600 million or RM2.5 billion.

Whether these estimates are too bullish, considering the current damp economic climate, remain to be seen.


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