Monday, March 16, 2009

Privatisation For KNM?


Sometimes its better to keep your thoughts to yourself. I cannot believe it when the report came out in Bloomberg and New Straits Times on KNM's MD wanting to take the company private. The article kind of confirmed my suspicion that something is not quite right. IF YOU ARE SERIOUSLY CONSIDERING A BUYOUT, THE LAST THING YOU WANT TO DO IS ALERT THE MARKET. If you are alerting the market, you could very well be paying a much higher buyout price in the end. Why would you do that? Smoke and mirrors???.., mainly smoke and baloney really. This tells me things are really not quite right at KNM, don't you think so?

Bloomberg: KNM Group Bhd managing director Lee Swee Eng said he will consider leading a management buyout of the Malaysian oil and gas services provider as long as banks can raise the funds. Investment bankers have approached Lee, who owns 25 per cent of KNM, and suggested he buy the remaining shares, though none has made a proposal that includes financing, he said. KNM has lost 71 per cent in the past six months in Kuala Lumpur trading, cutting its market value to RM1.31 billion (US$354 million).

“We are very undervalued,” Lee, who set up Selangor-based KNM in 1990, said in an interview on March 13. “The opportunity for privatisation is a good opportunity, but it’s the source of funding. There’s no offer on the table.”

Lee, 53, has seen the value of his stake plummet as the global recession, tumbling oil prices and a selloff by foreign investors combined to make KNM the second-worst performer on Malaysia’s benchmark index in 2008. He said he probably needs between RM1 billion and RM2 billion to fund any takeover. KNM was unchanged today at 33 sen at 9:28 am. The shares reached a record RM2.48 in January 2008.

Cashflow at the Selangor-based company would be sufficient to service any borrowings after a buyout and associated cost cuts, Lee said. Annual profit at KNM has climbed every year since 2004.

“With our earnings, we should be able to handle that,” he said. “I don’t think that would be an issue.”

Tighter Credit

Banks worldwide have restricted lending during the financial crisis, and Malaysia’s government last week pledged RM25 billion in guaranteed funds to help businesses obtain credit and raise money on the bond market in the Southeast Asian nation. Even so, Lee said it’s not clear whether banks, foreign or domestic, would be willing to lend funds for a management buyout.

KNM’s business prospects are tied to the price of crude oil because exploration projects, for which producers hire companies such as KNM, become less viable as prices fall. KNM has had to reduce its bids for most of the projects up for tender, Lee said.

The Malaysian company, with an order book of RM3.9 billion, won about RM300 million of orders between December and January, Lee said. The revised value of all the contracts that KNM is seeking is RM18 billion, he said.

“The business has been a bit slow because of the volatility of the price” of oil, Lee said. “We’re expecting the second quarter onwards to be better. Most of the rebidding has taken place. We will sail through this with flying colors.”

Crude oil for April delivery fell as much as 5.2 per cent to US$43.85 a barrel in after-hours electronic trading on the New York Mercantile Exchange after the Organisation of Petroleum Exporting Countries decided against deeper output cuts. Crude, which has slumped 70 per cent from its July record, was at US$44.58 at 10:37 am Singapore time.

Lee said he expects oil and gas producers to proceed with more exploration projects if oil rises beyond US$50 a barrel, or stabilises at a level between US$45 and US$50.

p/s photo: Son Dam Bi

9 comments:

David said...

Citigroup is going up at record speed!!!

David said...

And the Citi Execs are make a killing on the stock's surge.

http://www.cbsnews.com/blogs/2009/03/13/business/econwatch/entry4863570.shtml

Butt said...

This is similar to AirAsia. Its all about shoring up or at least maintaining their share px. SC should clamp down on such irresponsible statements which may mislead investors.

Chowpiao said...

hahahhha...it didn't work for AASIA....of cos it won't work for KNM. Just wondering who next? After "Rights in the wrong time" and "Lend me money to buy you out". In US, "TOO BIG HAS FAILED", in Malaysia...invincible hand is full....how now brown cow?

Wayne said...

I bought KNM shares over RM 1 per shares, what will the price if the privatization takes place?

http://howtoearnusdonline.blogspot.com

Salvatore_Dali said...

wayne,

if there is a genuine privatisation now, a 45-50 sen valuation is possible... but I really really dont think anyone will lend to fund this exercise...

malaysiabegini said...

Don't simply talk if you dont understand the company! You are destroying the working people in KNM. I think you better look at those counters which nearly go bankrupt still selling at high price. KNM greatness to acquire foreign business should be applauded as Malaysian success company. This is typical sour grape of Malaysian People. In the first place, many idiots including paticularly our investment analyse recommend the buy. They even mention, the purchase of borsig was under fair. Today, since market is down, the same analysis who said its a good buy is valuing this company at less than 4X the PE. What sense does it make when they recommended a PE at 20X. What a sour grapes we Malaysian Investor are!

WY said...

In general case,
I wonder whether that is because the company has buyback all it can as stipulated in share buyback mandate.

Another possibility is like what you say: smoke & mirror
to drive up the price then dump

GOBLOG09 said...

KNM kedekut nak mampus