Recently, on or around 5 Sept 2023, CGS-CIMB Nominees (Asing) Sdn Bhd an existing exempt authorised nominee (Exempt AN) for CGS-CIMB Securities (Singapore) Pte Ltd on behalf of Andreas Heeschen, a German national together with a group of existing shareholders, apparently holding in excess of 10% of the total paid up capital of sent a notice of requisition to Practice Note 17 (PN17) company KNM Group Bhd 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” questioning whether the attempted takeover of KNM by Heeschen is a cheaper way for him to acquire Borsig Group and FBM Hudson Group.
KNM as a company listed on the Main Board of Bursa Malaysia is governed by the Malaysian Code on Take-Overs and Mergers 2016 (“Code”) Rules on Take-Overs, Mergers and Compulsory Acquisitions 2016 (“Code Rules”) 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 that shareholders requisitioning or attempting to requisition for a board control-seeking proposal in a general meeting and Rule 4.04 where a change in the composition of a group of persons acting in concert that 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 his shareholding by one member of a group acting in concert to other existing members or to another person.
If it is so i.e those shareholders holding in excess of 10% 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.
The present Chairman of KNM was appointed to the Board as a Non-Independent Non-Executive Director on 1 November 2021 before subsequently redesignated as Chairman on 9 February 2023.
Except for 2 of the 9 members of the board, who were appointed in March 2023, the other 7 members of the Board were appointed almost the same time in the 4th quarter of 2021.
During the period i.e from their appointment in late 2021 to until the present time – Sept 2023, almost a 2 year period where the existing members of the board were overseeing the operations of KNM, the company,
- Went through a few rounds of unsuccessful corporate exercises including announcing on 16 Dec 2022 the proposed listing of Borsig on the main board of the Singapore Stock Exchange (SGX) by way of an IPO, with a view of achieving a market capitalisation of up to US$300 million (RM1.37 billion) and a placement of 49% of the enlarged capital,
- Winding up petitions were served on KNM Process Systems Sdn Bhd and KNM Global Ltd,
- became an affected listed issuer under PN17 on 31 Oct 2022,
- defaulted on loans amounting to RM416.8 million, borrowed through three of its indirect wholly-owned units – Peterborough Green Energy Ltd, KNM Renewable Energy Sdn Bhd and Splendid Investments Ltd in Dec 2022,
- reported a net loss of RM157 million while revenue came in at RM1.07 billion for the financial period ended June 30 (FY2023),
- saw its share price trading at 19.5 sen as at 1 Nov 2021 i.e approximately the period when 7 of the present members of the Board were appointed tumbled down to 10 sen as at 5 Sept 2023, the day when the requisitionists send the notice to the company calling for the EGM. The share price did worse in Dec 2022, where it retreated and was trading at a low of 5.5 sen. The share did see some active trading as the price on 25 Sept 2023 was trading at 13 sen, probably indicating that some shareholders are increasing their stakes ahead of the EGM set for 12 Oct 2023,
- announced a sale on 24 May 2022 of Borsig for €220.8 million (RM1.03 billion) which was well below the price tag of €300 million (RM1.47 billion) sought by KNM’s previous board and potentially could result in an estimated loss of approximately RM490.55 million to KNM only for the sale to be called off by the company end of Nov 2023. In their 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 filing on 24 May 2023 with Bursa Malaysia, 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 currently being expanded, and a waste-to-energy (WTE) plant in the UK currently under construction, previously slated to have a capacity of 36MW.
The Board and the CEO should be truly well aware that Borsig was the cash cow that KNM 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 million which it needs to repay.
The CEO himself was quoted to have reportedly said in an interview with the Malaysian Reserve 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 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 so that all those shareholders present can compare the existing plans which the CEO said has the support of majority of the creditors and those planned and proposed by the members that are nominated by the requisitionists.
Example, how those nominated to replace the current board planned and how they 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.
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