Further details of the Proposed Disposal are set out in the ensuing sections.

Transcription

1 ZECON BERHAD ( ZECON OR COMPANY ) PROPOSED DISPOSAL OF 49% EQUITY INTEREST IN ZECON MEDICARE SDN BHD, A WHOLLY-OWNED SUBSIDIARY OF ZECON, TO THE GOVERNMENT OF SARAWAK THROUGH ITS STATE FINANCIAL SECRETARY ( SFSS ) FOR A CASH CONSIDERATION OF RM155.0 MILLION ( PROPOSED DISPOSAL ) 1.0 INTRODUCTION On behalf of the Board of Directors of Zecon ( Board ), ( KAF Investment ) wishes to announce that the Company had, on 27 November 2017, entered into a conditional share purchase agreement ( SPA ) with the State Financial Secretary of Sarawak ( SFSS or Purchaser ) for the disposal of 3,920,000 ordinary shares in Zecon Medicare Sdn Bhd ( Zecon Medicare ) ( Sale Shares ), a wholly-owned subsidiary of Zecon, which represent 49% of the total number of issued shares of Zecon Medicare, for a cash consideration of RM155.0 million ( Disposal Consideration ), subject to the terms and conditions contained in the SPA. Further details of the are set out in the ensuing sections. 2.0 DETAILS OF THE PROPOSED DISPOSAL 2.1 Zecon Medicare is the concession holder in respect of the proposed development of UKM Specialist Children s Hospital ( HPKK ), granted by the Government of Malaysia ( Concession Agreement ) Salient terms of the Concession Agreement (i) Parties The Concession Agreement was signed between:- (a) (b) (c) Government of Malaysia Universiti Kebangsaan Malaysia Zecon Medicare (ii) The concession period shall be for a period of 30 years which commenced from 29 May 2014 (Effective Date or Construction Commencement Date), comprising 54 months construction period, subject to terms and conditions of the Concession Agreement. (iii) The scope of the Concession Agreement includes planning, design, financing, construction, landscaping, equipping, installation, completion, testing and commissioning the Facilities and Infrastructure (1) on the Project Land (2) and to carry out the Asset Replacement Services (3). Notes:- (1) Facilities and Infrastructure - (i) HPKK which includes the buildings, structures, landscaping, equipment, plants, machinery, installation, facilities and infrastructure which are to be designed, constructed, installed, developed and completed on the Project Land 2 by Zecon Medicare together with the necessary amenities and utilities,

2 in accordance with the Concession Agreement; (ii) New IPG (institut pendidikan guru) workshop which includes the buildings structures, landscaping, equipment, plants, machinery, installation, facilities and infrastructure which are to be designed, constructed, installed, developed and completed on the Project Land 1 by Zecon Medicare together with the necessary amenities and utilities, in accordance with the Concession Agreement. (2) Project Land - Project Land 1 and Project Land 2, collectively; (i) Project Land 1 - part of H.S.(D) , PT23743 Mukim Labu, Daerah Seremban, Negeri Sembilan measuring approximately 33,604 square meters; (ii) Project Land 2 - part of GRN Lot (previously H.S.(D) , PT 6464) Mukim Kuala Lumpur, Daerah Kuala Lumpur, Wilayah Persekutuan Kuala Lumpur measuring approximately 63,454 square metres. (3) Asset Replacement Services - (i) asset management services which include, among others, replacing assets under the asset management programme, providing maintenance services for HPKK s facilities and infrastructures, and optimising the functionality, availability, capacity and efficiency of HPKK s facilities and infrastructures and not to cause any interference, obstruction or disruption to the operations of the Government; and (ii) dismantling, transfer, reinstall and commission selected existing medical equipment. which Zecon Medicare is obliged to provide in accordance with the Concession Agreement Mode of settlement The entails the disposal by the Company of the Sale Shares to the Purchaser fo a cash consideration of RM155.0 million, which is payable in the following manner:- (i) 20%, or RM31.0 million - Within 7 business days from the date of the SPA ( Deposit ) (ii) 70%, or RM108.5 million - To be paid on completion of the SPA ( Closing ) (iii) 10%, or RM15.5 million - To be paid to the escrow agent to be mutually appointed by the Compny and the Purchaser ( Escrow Agent ) on Closing, to be held and dealt with by the said Escrow Agent pursuant to the terms of the Escrow Agreement Total 100% RM155.0 million 2

3 2.2 Information on Zecon Medicare Zecon Medicare, a wholly-owned subsidiary of Zecon, was incorporated in Malaysia as a private limited company under the Companies Act, 1965 on 24 January Zecon Medicare s principal activity is that of a hospital concession, whereby it is responsible to undertake the development as specified under the Concession Agreement. As at 31 October 2017, being the latest practicable date prior to the date of this announcement ( LPD ), the issued share capital of Zecon Medicare is RM8,000,000 comprising 8,000,000 ordinary shares. The directors of Zecon Medicare are Datuk Dr. Haji Josree Bin Haji Yacob, Datuk Haji Zainal Abidin Bin Haji Ahmad, Haji Zainurin Bin Haji Ahmad, Dato Dr. Haron Bin Ahmad, Syed Mohd Muzakir Bin Syed Hussin and Datu Dr. Zulkifli Bin Jantan. A summary of the key audited financial information of Zecon Medicare is as follows:- Financial year ended ( FYE ) 30 June (RM 000 unless otherwise stated) Revenue - 77,722 93,644 Profit/(Loss) before tax (537) (1,564) 16,260 Profit/(Loss) after tax (464) (3,306) 14,924 Number of ordinary shares in Zecon Medicare ( Zecon Medicare Shares ) ( 000) 8,000 8,000 8,000 Net assets ( NA ) 7,131 3,826 18,747 NA per share (RM) Borrowings ,453 96, Information on the Purchaser SFSS is a corporation incorporated under the State Financial Secretary (Incorporation) Ordinance (Cap. 36) of Sarawak on 2 January SFSS reports to the Chief Minister of Sarawak, namely Yang Amat Berhormat Datuk Patinggi (Dr) Abang Haji Abdul Rahman Zohari bin Tun Datuk Abang Haji Openg. The principal activities of SFSS are to acquire, purchase, take and hold movable and immovable property of every description and may surrender and yield up, charge, lease, sublease or otherwise dispose of, or deal with, any movable or immovable property vested in the corporation upon such terms as the corporation deems fit. 2.4 Basis and justification of arriving at the Disposal Consideration The Disposal Consideration was arrived at on a willing-buyer willing-seller basis after taking into consideration, among others, Zecon Medicare s cash flow generating capabilities, future earnings potential as well as the nature, risk and prospects of the Concession Agreement. 3

4 Based on the Disposal Consideration and Zecon Medicare s projected cash flows to shareholders up to the end of the concession period, the implied discount rate is approximately 13.1%, which is in line with the cost of equity of companies listed on Bursa Malaysia Securities Berhad ( Bursa Securities ) having concession operations of similiar nature. The key assumptions for the cash flow projections as prepared by the management of Zecon include, among others, the contracted lease rental from the government, maintenance costs, financing costs and other operating costs. 2.5 Salient terms of the SPA The is subject to the terms and conditions set out in the SPA. The salient terms of the SPA include, inter alia, the following: Conditions Precedent The SPA is subject to the satisfaction of the conditions precedent ( Conditions Precedent ) on or before 31 March 2018, or such other date as may be agreed in writing between the parties ( Cut-off Date ). Each party shall use all reasonable endeavours to ensure the satisfaction of the Conditions Precedent set out below:- (i) Zecon Medicare (a ) the written approval of the Government through Public Private Partnership Unit, Prime Minister s Department ( UKAS ) for the acquisition of the Sale Shares by the Purchaser, on terms satisfactory to the Purchaser; (b) the written consent of the relevant financiers for the Sale Shares, if required; (ii) Zecon (a) the approval of the shareholders of the Company for the disposal of the Sale Shares to the Purchaser; (iii) Agreements to be executed (a) (b) (c) the execution of the Shareholders Agreement (1), on terms to be agreed between the parties; the execution of the Escrow Agreement (2), on terms to be agreed between the parties; the execution of the Escrow Account Charge (3), on terms to be agreed between the parties, (iv) Shareholder Advances (a) completion of the financial due diligence exercise conducted by the Purchaser to verify that the total shareholders advances as at the date of the SPA is RM69,987,769.73, to the satisfaction of the Purchaser. 4

5 Notes:- (1) (2) (3) Means the agreement to be entered into as of the date of Closing between the Company, the Purchaser and Zecon Medicare, on terms to be agreed between the parties. Means the agreement between the Company, the Purchaser and the Escrow Agent, on terms to be agreed between the parties. Means the a charge over the Escrow Account, on terms to be agreed between the parties. The Purchaser may at any time waive in whole or in part and conditionally or unconditionally the Conditions Precedent by notice in writing to the Company. If the Conditions are not satisfied or waived on or before the Cut-off Date, the parties may by mutual agreement in writing, extend the Cut-Off Date or failing agreement to extend, the SPA (subject to the terms of the SPA) shall lapse and the Company shall immediately and in any event no later than 3 business days from the Cut-off Date (or the agreement to extend the SPA, if applicable), refund the Deposit free from any interests to the Purchaser and thereafter, neither the Company nor the Purchaser shall have any claim against the other under it, save for any claim arising from antecedent breaches of the SPA, subject to the terms of the SPA Breach of Closing Obligations by the Purchaser If all the Company s obligations as per the SPA are fulfilled and the Purchaser does not pay the Disposal Consideration when due under the terms of the SPA, the Purchaser agrees and undertakes that notwithstanding any other provision in the SPA, the Company shall be entitled at their discretion (and in addition to and without prejudice to all other rights or remedies available to it under the SPA and at law) by a written notice to the Purchaser to require the Purchaser to remedy the breach and if the Purchaser fails to remedy the breach complained of within three (3) business days from the date of the notice, the Company shall be entitled to elect either of the following:- (i) (ii) (iii) to claim for specific performance against the Purchaser of its obligations stated in the SPA; or to terminate the SPA (subject to the terms of the SPA) without liability on the part of the Company, and upon such termination, the Deposit shall be refunded to the Purchaser free from any interests and thereafter, neither party to the SPA shall have any claim against the other, save for claims by one party to the SPA against the other arising from antecedent breach of the SPA; or to fix a new date to be mutually agreed between the parties to the SPA for Closing ( Extended Closing Date ) in which case, the provisions of this clause shall apply to Closing as so deferred. 5

6 2.5.3 Breach of Closing Obligations by the Company If the Purchaser is ready willing and able to fulfil all its obligations as per the SPA and to pay the Disposal Consideration, and the Company does not fulfil all its obligations set out in Closing Obligations, the Company agrees and undertakes that notwithstanding any other provision in the SPA, the Purchaser shall be entitled at its discretion (and in addition to and without prejudice to all other rights or remedies available to it under the SPA and at law) by a written notice to the Company to require the Company to remedy the breach and if the Company fails to remedy the breach complained of within three (3) business days from the date of the notice, the Purchaser shall be entitled to elect either of the following:- (i) (ii) (iii) to claim for specific performance against the Company of its obligations stated in the SPA; or to terminate the SPA (other than the Surviving Provisions) without liability on the part of the Purchaser, and upon such termination, the Deposit shall be refunded to the Purchaser and thereafter, neither party to the SPA shall have any claim against the other, save for claims by one party to the SPA against the other arising from antecedent breach of the SPA; or to fix the Extended Closing Date in which case, the provisions of this clause shall apply to Closing as so deferred. 2.6 Date and original cost of investment As at the LPD, the date and original cost of investment of Zecon in Zecon Medicare are as follows:- Date of investment Number of Zecon Medicare Shares Cost of investment 26 July RM2 21 May ,299,998 RM2,299,998 9 April ,700,000 RM5,700,000 Total 8,000,000 RM8,000, Liabilities to be assumed There are no liabilities, including any contingent liabilities and guarantees, to be assumed by the Purchaser pursuant to the save for those to be incurred in the ordinary course of business of Zecon Medicare. 6

7 2.8 Proposed utilisation of proceeds from the The Company and its subsidiaries ( Group ) intend to ultilise the proceeds arising from the as follows:- Proposed utilisation of proceeds Expected utilisation time frame Gross Proceeds (RM 000) Repayment of bank borrowings (1) Within 6 months 70,000 Working capital requirements of the Group (2) Within 9 months 84,800 Estimated expenses in relation to the (3) Immediate 200 Total 155,000 Notes:- (1) (2) The Group s total borrowings as at the LPD amounts to approximately RM350.4 million. The proposed repayment of part of the Group s bank borrowings amounting to RM70.0 million is expected to contribute to interest savings of the Group. Intended to be utilised for the Group s working capital requirements which comprise of administrative and operating expenses, payment to creditors and purchase of raw materials. The proceeds to be utilised for each component of the working capital are subject to the operating requirements of the Group at the time of utilisation and therefore have not been determined at this juncture. (3) The estimated expenses in relation to the Proposals of RM0.20 million comprise of, among others, the estimated professional fees and incidental expenses relating to convening the extraordinary general meeting to be convened. The abovementioned table is for the purpose of illustration only. At this juncture, the Board is still deliberating on the actual allocation arising from the and the exact allocation will be determined prior to the extraordinary general meeting to be convened, after taking into account the Group s business operation. 3.0 RATIONALE FOR THE PROPOSED DISPOSAL The Board believes that the is timely and provides an opportunity for Zecon to partially monetise its investment in Zecon Medicare at an attractive pricing while allowing the Company to continue participating in the future operations of Zecon Medicare via its remaining 51% equity interest in Zecon Medicare. In addition, the Disposal Consideration will provide the Company with financial flexibility in optimising its capital structure and managing its funding requirements. As stated in Section 2.8 of this announcement, part of the proceeds raised shall be utilised to repay outstanding borrowings, hence resulting in interest saving and reducing the gearing of the Group. 7

8 4.0 RISK FACTORS OF THE PROPOSED DISPOSAL Shareholders should consider the risk factors (which may not be exhaustive) pertaining to the as follows:- 4.1 Non-completion risk The completion of the is subject to, inter-alia, the fulfilment of Conditions Precedent of the SPA, the details of which are set out in Section above. In the event that the Conditions Precedent are not fulfilled within the stipulated timeframe detailed in the SPA, the may be delayed or terminated and all the potential benefits arising therefrom may not materialise. There is no assurance that the can be completed within the timeframe permitted under the SPA. Should a delay or non-completion occur, the Group will not be able to utilise the proceeds from the in the manner set out in Section 2.8 of this announcement. In relation to this, the Board will take reasonable steps to comply with the relevant Conditions Precedent so as to be able to complete the in a timely manner. 4.2 Contractual risk The Company has given warranties and/or undertakings, as set out in the SPA, in favour of the Purchaser. In this respect, the Company may be subject to claim in accordance with the terms and conditions of the SPA for the breach of any warranties and/or undertakings given. In this regard, the Board and the management of Zecon will endeavour to ensure compliance with the Company s obligations under the SPA in order to minimise the risk of any breach of the warranties and/or undertakings given. THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK 8

9 5.0 EFFECTS OF THE PROPOSED DISPOSAL 5.1 Share capital and substantial shareholders shareholding The will not have any effect on the issued share capital and the substantial shareholders shareholding in Zecon. 5.2 NA, NA per share and gearing For illustration purposes, the proforma effects of the on the NA, NA per share and gearing of Zecon based on the latest audited consolidated financial position of the Company as at 30 June 2017 and on the assumption that the had been effected on that date are as follows:- Audited as at 30 June 2017 (2) Subsequent event After the Proposed Disposal (RM 000) (RM 000) (RM 000) Share capital (1) 122, , ,944 Non-distributable reserves 4,258 4,258 4,258 Retained profits/(accumulated losses) (7,018) (7,018) (3) (4) 138,596 NA/Shareholders funds 119, , ,798 - Non-controlling interests 93,542 93,542 (3) 102,728 Total Equity 213, , ,526 No. of shares ( 000) 119, , ,017 NA per share (RM) Total borrowings (RM 000) 350, ,397 (5) 280,397 Gearing (times) Notes:- (1) (2) (3) (4) (5) After the amount standing to the credit of Zecon s share premium of RM3.559 million becomes part of Zecon s share capital pursuant to the Companies Act After adjusting for the issuance of 11,910,600 new ordinary shares in Zecon ( Zecon Shares ) and expenses incurred pursuant to the private placement exercise undertaken by the Company which was completed on 26 September The private placement exercise entailed issuance of 3,818,000 Zecon Shares and 8,092,600 Zecon Shares at RM0.55 and RM0.53 per Zecon Share respectively, and the expenses incurred were RM0.11 million. After adjusting based on Malaysian Financial Reporting Standards 10 (Consolidated Financial Statements) whereby the Company shall recognise directly in equity any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration received, and attribute it to the Company. After taking into account the estimated expenses of RM0.20 million as set out in Section 2.8 of this announcement in relation to the proceeds of the. Assuming repayment of borrowings of RM70.0 million as set out in Section 2.8 of this announcement in relation to the proceeds of the. 9

10 5.3 Earnings and earnings per Zecon Share ( EPS ) Although the Company will continue to consolidate the revenue and profits from Zecon Medicare on an overall basis, only 51% of Zecon Medicare s net profits will be accrued to the Group s profit attributable to shareholders upon completion of the. Accordingly, the is expected to have an effect on the earnings and EPS of the Group for the financial year ending 30 June In accordance with Malaysian Financial Reporting Standards 10 (Consolidated Financial Statements), changes in a parent s ownership interest in a subsidiary that do not result in the parent losing control of the subsidiary are equity transactions. When the proportion of the equity held by non-controlling interests changes, an entity shall adjust the carrying amounts of the controlling and non-controlling interests to reflect the changes in their relative interests in the subsidiary. The entity shall recognise directly in equity any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration received, and attribute it to the owners of the parent. As the Company does not lose control over Zecon Medicare upon disposal of 49% equity interest in Zecon Medicare, the shall be accounted for as an equity transaction. Accordingly, no gain or loss shall be recognised in the Company s consolidated statement of profit or loss pursuant to the. 6.0 HIGHEST PERCENTAGE RATIO APPLICABLE The highest percentage ratio applicable to the under Paragraph 10.02(g) of the Main Market Listing Requirements of Bursa Securities ( Listing Requirements ) is %, calculated based on the Company s latest audited consolidated financial statements for the FYE 30 June The is not expected to result in the Company becoming a Cash Company or a PN17 Issuer as defined under the Listing Requirements. 7.0 APPROVALS REQUIRED The is subject to the following approvals being obtained:- (i) (ii) (iii) (iv) the written approval of the Government through UKAS for the acquisition of the Sale Shares by the Purchaser; shareholders of Zecon at an extraordinary general meeting to be convened; the written consent of the relevant financiers for the Sale Shares; and any other relevant authorities (if applicable). The is not conditional upon any other corporate exercise/scheme of the Company. 10

11 8.0 INTERESTS OF DIRECTORS, MAJOR SHAREHOLDERS AND/OR PERSONS CONNECTED WITH THEM None of the Directors, major shareholders and/or persons connected with the Directors and/or major shareholders of Zecon have any interest, direct or indirect, in the. 9.0 DIRECTORS STATEMENT The Board, having considered all aspects including, but not limited to, the rationale, financial effects, valuation and risks of the, is of the opinion that the Proposed Disposal is in the best interest of the Company ADVISER KAF Investment has been appointed by the Company to act as the Principal Adviser for the APPLICATION TO THE RELEVANT AUTHORITIES The applications to the relevant authorities for the are expected to be made within two (2) months from the date of this announcement ESTIMATED TIME FRAME FOR COMPLETION Barring any unforeseen circumstances, the is expected to be completed by the first (1 st ) half of DOCUMENTS FOR INSPECTION A copy of the SPA is available for inspection at the Registered Office of the Company at 8th Floor, Menara Zecon, No. 92, Lot 393, Section 5 KTLD, Jalan Satok, Kuching, Sarawak during normal business hours from Mondays to Fridays (except public holidays) for a period of three (3) months from the date of this announcement. This announcement is dated 27 November