Interest payments bleeding cash. That is the problem KNM Group Bhd is trying to fix with a private placement of up to RM167.9 million. The bulk of that money — RM120 million — will go straight to repaying bank borrowings. The company says that will save it RM5.4 million a year in interest, based on an annual rate of 4.55 percent.
The math is straightforward. The group carries RM1.36 billion in total bank loans. That figure includes bank overdrafts, bank acceptance drafts, revolving loans, instalment purchases and term loans. A single-digit interest rate on that mountain of debt eats into profit every quarter. Cutting even a small piece of it frees up cash for operations.
KNM plans to issue the placement shares at two prices. Independent investors will pay 16 sen per share. The major shareholder, Gan Siew Liat, who is also the executive vice-chairman, will pay 18 sen apiece. Half of the placement shares will go to him. That means Gan is putting in more money per share than outsiders. It is a signal. A major insider willing to pay a premium suggests he sees value others might miss.
The remaining RM44.08 million from the placement is earmarked for capital purposes. That money is not sitting idle. The company has broken it down. Sixty percent will buy raw materials and consumables to keep work moving. Thirty percent will pay subcontractors and other suppliers. The goal is to avoid disruptions caused by unpaid wages or overdue bills. The final ten percent covers shipping of raw materials and delivery of process equipment. These are the nuts and bolts of keeping a heavy engineering firm running.
KNM’s share price closed at 17 sen before the announcement. That gave the company a market capitalisation of RM559.91 million. The placement is expected to be completed by the fourth quarter of 2021. That timeline puts pressure on management to move fast. Markets do not like uncertainty, and a drawn-out placement can spook investors.
What happens next depends on execution. Repaying RM120 million in loans will improve the balance sheet. It will reduce interest expense. But RM1.36 billion in total borrowings is a heavy load. One placement does not erase that. It only chips away at the edges. The company will need to keep generating cash from operations or find other ways to deleverage.
For Gan Siew Liat, the placement is both a commitment and a bet. He is increasing his stake at a price above the market. If the company’s fortunes improve, he stands to gain. If they do not, he is deeper in. That is the nature of a major shareholder-led placement. It concentrates risk and reward in one person’s hands.
For independent investors, the 16 sen issue price is a discount to where the stock traded. But it is not a giveaway. The company is not offering shares at a deep cut to attract just anyone. It is targeting those who will hold and support the business. The structure of the deal — two prices, two groups of buyers — reflects that.
The broader picture is a company wrestling with debt. KNM is not alone. Many Malaysian industrial firms loaded up on borrowings during years of low interest rates. Now they are paying the price. A private placement is one tool to manage that burden. It dilutes existing shareholders but strengthens the company’s financial position. Whether the trade-off is worth it will show up in the next few quarters. If the saved interest payments flow into profitable projects, the dilution may be forgotten. If not, shareholders will remember the sting of a lower stake in a struggling firm.
