KNM to dispose of Borsig in RM1.03bil deal

KUALA LUMPUR: KNM Group Bhd's subsidiary Deutsche KNM GmbH (DKNM) has entered into an agreement with GPR Siebzigste Verwaltungsgesellschaft mbH (GSV) for the proposed disposal of 100% equity interest in Borsig GmbH for a consideration of EUR220.8mil (RM1.03bil).

The sale comes as no surprise as the cash-strapped group has been working towards the monetisation of Borsig, which will go towards addressing its financial constraints.

"While Borsig Group has contributed positively to the financial performance of KNM Group over the years, the group is undertaking the proposed disposal to provide a timely cash injection to improve the group's financial position and in view of the group's ongoing plans to streamline its operations to focus on expanding its renewable energy segment," it said in a filing with Bursa Malaysia.

It said the proceeds received from the disposal after deducting the amount of the cash upstream loan receivables and exit bonus will amount to EUR207.87mil. Of this amount, EUR188.87mil will go towards the repayment of bank borrowings, EUR15.55mil for working capital and EUR3.45mil for expenses in relation to the proposed disposal.

The group said its total bank borrowings is expected to reduce from RM1.28bil to RM391.53mil upon the completion of the proposed disposal and repayment of borrowings.

Borsig, which was purchased by KNM via DKNM in 2008, is principally involved in the manufacturing of process equipment mainly used in the petrochemicals as well as oil and gas industries.

Borsig and its subsidiaries contributed about 59.51% of the group's total revenue for the latest audited financial year ended Dec 31,2020, and about about 67.72% of the group's total revenue for the unaudited financial year ended Dec 31, 2021.

According to KNM, it will have recognised a total cash inflow of about EUR398.21mil, based on the aggregate sum of the disposal consideration and cash flow from Borsig over the years, less upstream loan receivables and repayment of a term loan.

With an implied enterprise value (EV) of about EUR179.34mil, the disposal consideration represents an EV divided by earnings before interest, taxes, depreciation and amortisation (Ebitda) multiple of 6.63 times.

KNM added that the disposal consideration also represents a premium of about 292.6% and 174.49% to the net assets of Borsig for its latest audited FY20 and unaudited FY21 of about EUR56.24mil and EUR80.44mil, respectively.

The proposed disposal is expected to result in an estimated loss of about RM490.55mil to KNM.

Moving forward, KNM will continue its existing process equipment manufacturing business and expand in the renewable energy industry with the long-term objective of increasing the revenue contribution from the segment to 50% of the group's consolidated revenue.

"The proposed disposal is expected to improve the group's cash position and demonstrate increased financial capability of the group to undertake contracts for the fabrication of process equipment and/ or renewable energy projects moving forward," it said.

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