Fast-expanding oil and gas player KNM GROUP which is proposing an "Exchangebale Bond Issue" may face some difficulites due to the current weak market says GOLDMAN SACHS.

The KNM GROUP had taken a Euro 350m (RM1.8 bil.) bridging loan to finance the acquisition of German-basedBORSIG in Jun 2008. The Company has since partially pared down some of these loans, by utilising proceeds from a RM1.1 bil. one-for-four rights issue, which was completed end Jun 2008.

KNM had proposed raising another Euro350m (or its equivalent) in exchangeable bonds to settle the remaining amount of the outstanding debts taken for the purchase.


THE EDGEONLINE reported Jul 24, 2008 that GOLDMAN SACHS said that checks with the Company revealed that in line withthe widening global credit spreads the indicative yield for their proposed exchangeable bond has risen by 100 bps to 4.8% now (30%-35% conversion premium) against the existing bridging loan of 5.2%. ".... Given the significantincrease, KNM is exploring other options, including thepossibility of issuing plain vanilla debt, which the Company says has indicative yields of 5.5%-6% ...".

GOLDMAN said that KNM may launch the Exchangeable Bondswhen market conditions improve and that it views the alternative plan positively.


Foreign funds such as FMR llc and FIL ltd have beenactively trading in KNM shares emerging as substantialshareholders at end Jul 2007 with 5.2% or 54m. Since then, the funds have upped their shareholding to above 10.7% or about 141.4m shares. Another fund, which has been activelytrading KNM's shares is the Employees Provident Fund (EPF). The EPF has about 6% in KNM now.
For 1QE Mar 2008, KNM posted Net Profit of RM54.1m on the back of RM331.2m Revenue. For the corresponding period in 2007, Net Profit improved by about 41%, while Revenue increased 26%.

In a short span of three years, KNM has grown to becomeone of the top oil and gas players providing a wide spectrumof services. In Mar 2008, the Company proposed to buy the German-based BORSIG to expand its reach in Europe.(By KLSETRACKER.com)