ISKANDAR WATERFRONT CITY BERHAD ( IWCity OR THE COMPANY ) COMPULSORY ACQUISITION, PROPOSED ALIENATION AND DEVELOPMENT

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1 ISKANDAR WATERFRONT CITY BERHAD ( IWCity OR THE COMPANY ) COMPULSORY ACQUISITION, PROPOSED ALIENATION AND DEVELOPMENT 1. INTRODUCTION Reference is made to the Company s earlier announcements dated 7 May 2014, 26 September 2014, 28 October 2014, 28 January 2015 and 30 November The Board of Directors of IWCity ( Board ) wishes to announce that Tebrau Bay Sdn Bhd ( TBSB ), a wholly-owned subsidiary of IWCity, has on 8 August 2017 entered into a conditional alienation cum development agreement ( ADA ) with the State Government of Johor Darul Ta zim ( Johor State Government ) whereby the parties have agreed that:- Johor State Government shall cause the relevant state authority to compulsorily acquire the following lands belonging to TBSB pursuant to the Land Acquisition Act 1960:- (a) (b) (c) land known as PTD held under HSD measuring about acres ( TBSB Land A ); part of the land known as PTD held under HSD measuring about acres ( TBSB Land B1 ); and part of the land known as PTD held under HSD ( TBSB Land B2 ), PTD held under HSD ( TBSB Land C ) and PTD held under HSD ( TBSB Land D ) measuring about acres, all located in Mukim of Plentong, District of Johor Bahru, Johor Darul Ta zim (collectively, the TBSB Lands ) for a total compensation sum of RM222,800,000 ( TBSB Lands Compensation ) ( Compulsory Acquisition ); and (ii) (iii) the Johor State Government shall appoint TBSB and award TBSB the construction of 570 residential units and 9 shop lots on TBSB Land B2, TBSB Land C and TBSB Land D (collectively referred to as the Construction Lands ) ( Construction Works ) for an agreed construction costs of RM189,177, ( Construction Costs ) which shall be borne by TBSB; in consideration of TBSB s irrevocable agreement to the Compulsory Acquisition, the Johor State Government shall alienate lands held under PTD , PTD , PTD , PTD , PTD and PTD , Mukim of Plentong, District of Johor Bahru, Johor Darul Ta zim measuring about acres (collectively, the Alienated Lands ) to TBSB for a total cost of RM531,917, ( Alienated Lands Cost ). The difference between the TBSB Lands Compensation and Alienated Lands Cost of RM309,117, ( Balance Alienated Lands Cost ) is to be satisfied by TBSB in the following manner:- (a) (b) bear the Construction Costs (which is RM189,177,382.86) and ancillary costs of RM9,940,250 ( Ancillary Costs ); a cash payment of RM100,000,000, being the premium imposed by the relevant state authority for the alienation of the Alienated Lands in accordance with the provisions of the National Land Code 1965 and Johor Land Rules 1996 ( Net Alienated Lands Premium ); and 1

2 (c) a cash payment of RM10,000,000 to Kumpulan Prasarana Rakyat Johor Sdn Bhd ( KPRJ ), a wholly-owned subsidiary of the Johor State Government ( Cash Payment ). (collectively, (ii) and (iii) above are to be referred to as the Proposed Alienation and Development ) To clarify, as per the Company s announcement on 30 November 2015, TBSB had on 30 November 2015 accepted an offer from the Johor State Government to compulsorily acquire TBSB Land A and TBSB Land B1 for a total compensation sum of RM170,099, Further thereto and as part of the ADA, the Johor State Government will also compulsorily acquire TBSB Land B2, TBSB Land C and TBSB Land D ( Remaining Lands ) from TBSB as part of the Compulsory Acquisition. 2. DETAILS OF THE COMPULSORY ACQUISITION, PROPOSED ALIENATION AND DEVELOPMENT 2.1 Compulsory Acquisition The Compulsory Acquisition involves the compulsory acquisition of the TBSB Lands by the Johor State Government pursuant to the Land Acquisition Act 1960 at the TBSB Lands Compensation. Information on the TBSB Lands is set out below:- TBSB Land A TBSB Land A is a piece of agricultural land situated along Jalan Plentong Baru 2, in the locality of Kampung Plentong Baru and Kampung Jasa, about 15km north-east of Johor Bahru City centre. It is easily accessible from Johor Bahru City via the Eastern Dispersal Link ( EDL ) and then across the Permas Jaya Bridge onto Bandar Baru Permas Jaya for about 13km until the AEON traffic lights intersection. TBSB Land A is also accessible via the Pasir Gudang Highway towards Kampung Plentong Baru. (ii) TBSB Land B1 and TBSB Land B2 (collectively, the TBSB Land B ) TBSB Land B is a piece of agricultural land situated in the locality of Kampung Rumah Sepuluh, at the rear of the housing estate of Taman Desa Harmoni, about 15km north-east of Johor Bahru City centre. The alternative access is via Kota Tinggi Highway to Taman Desa Harmoni. (iii) TBSB Land C TBSB Land C comprises three (3) plots of freehold agricultural lands with a combined area of acres, situated in the locality of Kg. Senibong about 12km north-east of Johor Bahru City centre. This lot is on the southern side of the Coastal Highway and is easily accessible from Johor Bahru City via EDL for about 6 km and then across the Permas Jaya Bridge onto Bandar Baru Permas Jaya. (iv) TBSB Land D TBSB Land D comprises of freehold agricultural land with a portion measuring 1.58 acres out of the total area of acres, situated in the locality of Kg. Senibong about 12km north-east of Johor Bahru City centre. This lot is on the southern side of the Coastal Highway and is easily accessible from Johor Bahru City via the EDL. 2

3 Further details of the TBSB Lands are set out below:- TBSB Land A TBSB Land B TBSB Land C TBSB Land D Title No. HSD PTD HSD PTD HSD PTD HSD PTD Mukim, District and State Mukim of Plentong, Johor Bahru, Johor Property Address In the locality of Kampung Plentong Baru and Kampung Jasa, about 15km northeast of Johor Bahru city centre In the locality of Kampung Rumah Sepuluh and Kampung Sri Bahagia, at the rear of Taman Desa Harmoni, approximately 15km northeast of Johor Bahru City centre Within Senibong Seafood Village, next to Bandar Baru Permas Jaya, approximately 12km northeast of Johor Bahru city centre In the locality of Kampung Senibong, directly south of the housing estate of Bandar Baru Permas Jaya, approximately 12 km northeast of Johor Bahru City centre Buildings Erected Mostly occupied by squatters Land Area About acres About acres, of which a portion measuring about acres is the subject matter of the Compulsory Acquisition About acres, of which a portion measuring acres is the subject matter of the Compulsory Acquisition About acres, of which a portion measuring 1.58 acres is the subject matter of the Compulsory Acquisition Registered Owner and Beneficial Owner TBSB Category of Land Use Agriculture Existing Usage Currently occupied by squatters Occupied by squatters and part of the land requires some earth filling and siteworks Occupied by squatters and part of the land is still under water Proposed Usage - Tenure 99 years leasehold interest expiring on 27 December years leasehold interest expiring on 27 December 2105 Freehold Freehold Express Conditions Tanah ini hendaklah ditanam dengan tanaman getah / kelapa sawit / dusun; (ii) Pemilik tanah hendaklah sepanjang masa mengambil langkah-langkah menurut perintah yang dikehendaki oleh Pentadbir Tanah 3

4 TBSB Land A TBSB Land B TBSB Land C TBSB Land D menjaga tanah ini daripada hakisan Restriction in Interest Tanah yang dikurniakan ini tidak boleh dijual, dicagar, digadai, dipajak atau dipindahmilik dengan apa cara sekali pun termasuk dengan cara menggunakan segala surat perjanjian yang bertujuan untuk melepaskan/menjual tanah ini tanpa kebenaran Pihak Penguasa Negeri - Tanah yang dikurniakan ini tidak boleh dijual, dicagar, digadai, dipajak atau dipindahmilik dengan apa cara sekali pun termasuk dengan cara menggunakan segala surat perjanjian yang bertujuan untuk melepaskan/menjual tanah ini tanpa kebenaran Pihak Penguasa Negeri Encumbrances Private caveat entered by TBSB Private caveat entered by TBSB - - Audited net book value as at 31 December 2014 (only applicable for the lands already acquired by the Johor State Government in 2015) RM25,587,048 B1 RM31,517,870 Not applicable Not applicable Audited net book value as at 31 December 2015 (applicable for the lands which will be acquired by the Johor State Government) Not applicable B2 RM9,980,352 RM10,715,778 RM1,351,220 [THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK] 4

5 2.2 Proposed Alienation and Development The Proposed Alienation and Development involves the alienation of the Alienated Lands by the Johor State Government to TBSB as compensation for the Compulsory Acquisition instead of cash. The Balance Alienated Land Cost (being the difference between the TBSB Lands Compensation and Alienated Lands Cost) is to be satisfied by TBSB in the following manner:- (ii) (iii) bear the Construction Costs and absorb the Ancillary Costs; the payment of the Net Alienated Lands Premium; and the Cash Payment for the purpose of constructing the multi-purpose hall in Bandar Baru Permas Jaya, Johor Bahru. The Alienated Lands, which are adjoining TBSB s existing coastal land in Plentong, Johor Bahru, will require reclamation as they are presently completely submerged. The Alienated Lands are situated in the Straits of Johor, off Kampung Senibong, within the locality of Kampung Senibong, about 12km northeast of Johor Bahru City center and south of Bandar Baru Permas Jaya. Pursuant to the terms and conditions of the ADA, the Johor State Government shall cause the relevant state authority to issue documents of title in respect of the Alienated Lands in six (6) block titles in the name of TBSB based on the following terms:- Alienated Land A (1) Alienated Land B Title No. PTD PTD ; (ii) PTD ; (iii) PTD ; (iv) PTD ; and (v) PTD Land Area Approximately acres Approximately acres Tenure In perpetuity 99 years (2) Premium RM21,354, RM78,645, Quit Rent In accordance with the Johor Land Rules, 1966 Category of Use Express Conditions Restriction in Interest Mixed development To be determined by state authority The Alienated Lands cannot be transferred, charged or leased without the prior written consent of the relevant state authority Encumbrances - 5

6 Notes:- (1) Alienated Land A forms part of the lands in Plentong, Johor measuring about acres to be disposed of by TBSB ( Disposal Lands ) to Greenland Tebrau Sdn Bhd, being the joint venture entity set up between Southern Crest Development Sdn Bhd ( SCDSB ), a wholly-owned subsidiary of IWCity, and Greenland Malaysia Real Estate Operator Sdn Bhd for the joint development of the Disposal Lands ( Land Disposal ). As at 8 August 2017 ( LPD ), the Land Disposal is in the midst of fulfilling the relevant conditions precedent in accordance to the terms of the sale and purchase agreement and has yet to be completed. Please refer to the circular to shareholders of IWCity dated 13 November 2015 for further information on the Land Disposal. (2) Upon completion of the land reclamation works of such relevant part of the Alienated Land B, TBSB shall surrender the relevant issue document of title of that relevant part of the Alienated Land B to the relevant state authority and the Johor State Government shall cause the relevant state authority to convert and issue a title in replacement for each of the relevant part of the Alienated Land B from 99 years leasehold to freehold, within 30 days from the date of surrender of the relevant title without further payment of any premium. TBSB shall procure and deliver to the Johor State Government within 6 months from the date of the ADA a bank guarantee guaranteeing TBSB s due performance of its obligation in relation to the Construction Works ( Bank Guarantee ). The Company had appointed C H Williams Talhar & Wong Sdn Bhd ( C H William ) to undertake an independent valuation on the Alienated Lands and the final valuation report will be issued in due course. 2.3 Information on the Johor State Government The Johor State Government is headed by the Chief Minister (Menteri Besar). The current Chief Minister is Y.A.B. Dato Mohamed Khaled Bin Nordin and he is assisted by 9 members of the executive council (EXCO), whose members are selected from the state assembly members. 2.4 Basis and justification of arriving at the Alienated Lands Cost The Alienated Lands Cost was arrived upon taking into consideration the land premium imposed by the Johor State Government on the Alienated Lands of RM50psf. The manner of settlement of the Balance Alienated Lands Cost was agreed between the parties upon taking into consideration the TBSB Lands Compensation and the Construction Costs. 2.5 Source of funding The Net Alienated Lands Premium, Cash Payment, Construction Costs and Ancillary Costs will be funded via combination of bank borrowings and/or internally generated funds, the breakdown of which has yet to be finalised at this juncture. 2.6 Salient terms of the ADA Conditions Precedent The effectiveness of the ADA and the rights and obligations of the parties are subject to the fulfilment and satisfaction of the following conditions:- the ADA shall have been duly executed, stamped and delivered to the parties hereto; 6

7 (ii) (iii) (iv) the Johor State Government shall have received a certified true copy of TBSB s board of directors' resolution authorising the acceptance and the execution of the ADA; the Johor State Government shall have received a certified true copy of the memorandum and articles of association of TBSB and the Johor State Government is satisfied that TBSB has the necessary powers to issue, execute, deliver and perform its obligations under the ADA; and the approval of the shareholders of IWCity, being the holding company of TBSB approving for TBSB to enter into the ADA. Provided always that in the event of non-fulfilment or satisfaction of: (a) (b) Section 2.6.1, (ii) and (iii) above within 14 working days from the date of the ADA; and Section 2.6.1(iv) above within 4 months from the date of the ADA, unless extended, waived and/or modified by mutual agreement of the parties, the ADA shall terminate automatically without any act of any party and no party shall have any claim of whatsoever nature against any other party Consideration In consideration of TBSB s irrevocable agreement to the acquisition of the TBSB Lands by the Johor State Government in accordance with the Land Acquisition Act at the TBSB Lands Compensation, the Johor State Government agrees towards part settlement of the TBSB Lands Compensation to alienate the Alienated Lands to TBSB at the Alienated Lands Cost upon the terms and conditions set out in the provisions of the ADA and to appoint and award to TBSB the Construction Works for the Johor State Government at the Construction Costs which shall be borne by TBSB. The Balance Alienated Lands Cost is to be settled by TBSB in the following manner:- (ii) (iii) TBSB shall pay the Net Alienated Lands Premium; TBSB shall pay the Cash Payment on a deferred payment basis within 6 months from the date of the ADA, and TBSB may appeal to the Johor State Government in the event that TBSB is unable to settle the Cash Payment within the aforesaid period; TBSB shall construct and complete for the Johor State Government and deliver vacant possession of the Construction Works by the relevant dates in accordance with the terms of the ADA ( Construction Works Completion Dates ) and bear the Construction Costs and Ancillary Costs in accordance with the ADA. Subject to the terms of the ADA, in the event the Construction Costs and Ancillary Costs have not been fully expended to the reasonable satisfaction of the Johor State Government and whose decision shall be final, then TBSB shall within 60 days thereof settle the difference in cash to the Johor State Government without prejudice to the right of the Johor State Government to invoke the Bank Guarantee to recover such difference upon TBSB s failure to settle the same in accordance with Section below. 7

8 2.6.3 TBSB s default Without prejudice to any other rights or remedies which the Johor State Government may possess if TBSB shall make default in any one of the following respects, inter-alia:- has abandoned the Construction Works and TBSB shall be deemed to have abandoned the Construction Works if: (a) (b) (c) it fails without reasonable excuse to commence the actual construction of the Construction Works by the relevant commencement dates; or it suspends without reasonable excuse the Construction Works or any uncompleted part thereof for a continuous period of 60 days after receiving the Johor State Government's notice to proceed; or it has delayed the completion of the Construction Works or any part thereof and such delay shall have exceeded 2 months from the Construction Works Completion Dates or if any of the Construction Works Completion Dates is extended and such delay shall have exceeded 2 months from the period of extension granted by the Johor State Government to the respective Construction Works Completion Date; or (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) fails to comply with Section 2.6.2; or has a winding up order made against it; or becomes insolvent or compounds with or makes arrangements with its creditors; or goes into liquidation whether voluntarily (save for the purpose of permitted amalgamation or reconstruction) or compulsorily; or has a provisional liquidator, receiver or manager or receiver and manager appointed in respect of its business or undertaking or possession of its property is taken by or on behalf of creditors or debenture holders secured by a floating charge; or has committed a fundamental breach of any of its obligations of the ADA and TBSB shall be deemed to have committed a fundamental breach of the ADA if the breach of the relevant obligations of TBSB hereunder is serious enough to give rise to a right to treat the ADA as terminated; or fails to execute the Construction Works in accordance with the ADA or persistently neglects to carry out its obligations under the ADA; or defaults in performing the duties under the ADA; or breaches any of its obligations or fail to comply with any other terms or conditions of the ADA, then the Johor State Government may give notice in writing to TBSB specifying the default and if TBSB shall fail to remedy such default within 60 8

9 days after receipt of such notice or such other extended period as agreed by the parties, the Johor State Government shall thereupon by notice forthwith terminate the ADA Johor State Government s default Without prejudice to any other rights or remedies which TBSB may possess if the Johor State Government shall make default any of its material obligations herein, then TBSB may give notice in writing to the Johor State Government specifying the default and if the Johor State Government shall fail to remedy such default within 60 days after receipt of such notice or such other extended period as agreed by the parties, all obligations of TBSB in the ADA shall become suspended until such default is remedied by the Johor State Government and in such event an extension of time for the Construction Works Completion Dates corresponding to the resultant delay of the Construction Works shall automatically be granted for such period of suspension of all obligations of TBSB. Provided always if the relevant default is still not remedied by the Johor State Government within 90 days from the commencement of the aforesaid suspension period, then the ADA shall be deemed to be terminated in which case TBSB shall have recourse to all available legal remedies it may have against the Johor State Government. 2.7 Liabilities to be assumed Save for the assumption of Construction Costs and Ancillary Costs, the Bank Guarantee as well as any potential borrowings to be procured to fund the Net Alienated Lands Premium, Cash Payment and the reclamation costs to be incurred for the Alienated Lands, there are no other liabilities, contingent liabilities or guarantees to be assumed by IWCity and its subsidiaries ( IWCity Group or Group ) pursuant to the Proposed Alienation and Development. The Johor State Government will not assume any liabilities, including contingent liabilities and guarantees, pursuant to the Proposed Alienation and Development. 2.8 Additional financial commitment Save for the potential reclamation cost and development cost to be incurred in the future in relation to the Alienated Lands (if any), there are no other material additional financial commitment which is expected to be incurred by the Group in relation to the Proposed Alienation and Development. Any development costs to be incurred by the Group will depend on, amongst others, the time span of the development projects, type of development to be undertaken, financing cost as well as cost of raw materials, construction cost and other miscellaneous costs. 2.9 Original cost of investment The original cost of investment of the TBSB Lands, is approximately RM64,083,172, whilst the date of acquisition of the TBSB Lands is 16 April RATIONALE FOR THE PROPOSED ALIENATION AND DEVELOPMENT 3.1 Benefits to IWCity As IWCity is a master developer within Flagship A of Iskandar Malaysia, the Johor State Government s decision to alienate more lands to be included in the masterplan is further affirmation of its confidence in IWCity. 9

10 IWCity, and its holding company Iskandar Waterfront Holdings Sdn Bhd ( IWH ) have been one of the key drivers behind the Iskandar Malaysia vision, heavily investing in the development of waterfront land around Danga Bay and the Tebrau Coast. The expansion of the masterplan via the Lands Alienation by the Johor State Government will allow IWCity to increase the overall value of the masterplan and Iskandar Malaysia as a whole. 3.2 Benefits to the Johor State Government The Compulsory Acquisition coupled with the Construction Costs and Cash Payment under the Proposed Alienation and Development will enable the Johor State Government to observe its duty to attend to the welfare of the residents of Johor with improved housing and better facilities. As the site for the Construction Works is within IWCity s Tebrau Coast Masterplan, the Johor State Government is ensuring that the residents involved will eventually reside within a well-planned development with good infrastructure. The nature of the Proposed Alienation and Development means that the Johor State Government will not have to fund any part of the Construction Costs. This will be paid for by the Alienated Lands to be alienated to IWCity. 4. RISK FACTORS IN RELATION TO THE PROPOSED ALIENATION AND DEVELOPMENT 4.1 Risk of failure The Proposed Alienation and Development is subject to the approval from the Company s shareholders and there can be no assurance that the Company s shareholders would approve the Proposed Alienation and Development at an extraordinary general meeting ( EGM ) to be convened. Accordingly, if the Proposed Alienation and Development is not approved, TBSB will have to renegotiate with the Johor State Government on the Compulsory Acquisition. The Board will take reasonable steps to ensure that the conditions precedents are met within the stipulated timeframe and that every effort is made to obtain all necessary approvals in order to complete the Proposed Alienation and Development in a timely manner. 4.2 Reclamation risk IWCity Group is required to undertake the reclamation works on the Alienated Lands to enable development to take place on the Alienated Lands. However, the reclamation process is complex and tedious in nature and there can be no assurance that the Group will be able to successfully complete the reclamation works. Failure to obtain relevant approvals for the reclamation project would result in the Group being unable to undertake the reclamation and non-compliance with any of their approval conditions may result in stop-work orders being issued to the Group. During the course of reclamation, the Group may be exposed to operational risks which include, inter-alia, unstable soil conditions post-reclamation, which may result in possible erosion or land cave-in. In the event of such incidents occurring, the Group may incur substantial financial losses as well as possible damage in reputation. Notwithstanding the above, the Board is confident that the Group has the necessary experience to oversee the successful completion of the required reclamation works. Furthermore, the Board shall take all measures to secure the necessary approvals and employ a reputable reclamation company with the necessary expertise and capabilities to undertake the reclamation works. 10

11 4.3 Risks of not fulfilling the obligations in relation to the Construction Works Pursuant to the terms of the ADA, in the event that TBSB:- (ii) (iii) fails without reasonable excuse to commence the Construction Works by the relevant commencement dates; suspends without reasonable excuse the Construction Works or any uncompleted part thereof for a continuous period of 60 days after receiving the Johor State Government's notice to proceed; or has delayed the completion of the Construction Works or any part thereof and such delay shall have exceeded two (2) months from the relevant completion dates as stipulated in the ADA or any extension thereof, the Johor State Government shall have the right to terminate the ADA. In the event the ADA is terminated due to a default of TBSB, amongst others, TBSB will not be paid any form of compensation. Notwithstanding the above, the Group will take all reasonable steps to ensure that the Construction Works are completed in a timely manner in accordance with the terms of the ADA. 5. OUTLOOK AND PROSPECTS OF THE ALIENATED LANDS 5.1 Outlook of the Malaysian and global economy The Malaysian economy registered a strong growth of 5.6% during the first quarter of 2017 (Q1 2016: 4.1%) mainly supported by higher domestic demand. On the supply side, the growth was broad-based with all sectors registering positive growth. Global growth is expected to pick up with stronger activity in the emerging market and developing economies. The improvement and stabilisation of commodity prices as well as higher-than-projected growth in advanced economies will also contribute to overall growth. Growth in China is anticipated to remain strong supported by accommodative fiscal and monetary policies as well as higher public investment. In the ASEAN region, economic growth is expected to increase slightly underpinned by higher domestic demand and public spending. The Malaysian economy is expected to remain on its growth trajectory in the second quarter of The growth will be supported primarily by domestic demand. Private sector expenditure will remain the key driver of growth attributed to strong household spending and investment activities. On the supply side, growth will be largely contributed by expansion in services and manufacturing sectors. Labour market is expected to remain stable while inflation continue to be manageable. (Source: Quarterly Update on the Malaysian Economy 1st Quarter 2017, Ministry of Finance Malaysia) 5.2 Outlook of the Malaysian property market The Malaysian economy recorded a 4.0% growth in the second quarter of 2016 (Q1 2016: 4.2%) whilst quarter on-quarter growth toned down at 0.7% (Q1 2016: 1.0%). This was in line with the moderate pace in global economic growth as advanced 11

12 economies recorded modest growth. Market activity recorded 163,527 transactions worth RM64.60 billion in the first half year, down by 12.3% and 15.7% in volume and value against similar half of Residential sub-sector continued to dominate the market, with 62.4% contribution in volume and 50.6% in value. All sub-sectors recorded softening market volume ranging from -34.5% to -5.3% with the exception of agriculture sub-sector up by 7.3%. Correspondingly, value of transactions also recorded similar downward pattern. The property market would continue to soften in the coming subsequent half-year, trailing from the challenging economic and financial environment both on the local and global front. With the flagging market sentiments, developers have responded accordingly by holding back new launches. Coupled with the slowdown in construction activity and the increasing numbers of unsold properties, the new launches deferment would allow market to make the necessary adjustments. The market adjustments and corrections by both demand and supply sides are crucial to ensure property market remains sustainable in the long run. Residential market would remain the focus of the industry, particularly the affordable segment. The ongoing incentives to assist the first home buyers namely the First House Deposit Financing Scheme (MyDeposit) launched in April 2016 shows the continuous commitment of the Government in ensuring that each household is given a fair opportunity to own a home. The response towards MyDeposit scheme was overwhelming with more than 13,000 applications till 30 April The Ministry of Urban Wellbeing, Housing and Local Government has targeted between 6,000 to 7,000 eligible applications for the RM200 million fund. The reduction in Overnight Policy Rate (OPR) by 25 basis points from 3.25% to 3.00% in July 2016, the first in seven years, may help improve domestic demand, facilitate existing loans repayments and reduce costs of borrowing. However, even with the OPR cut, its significance would barely impact the presently high household debt facing the nation. The move by Bank Negara Malaysia (BNM) to further promote sound and sustainable household sector through responsible lending practices have helped contain the level of indebtedness and indirectly, curbed speculative activities in the property sector since the past two years. Despite these measures, BNM announced in July 2016 that outstanding housing loans continued to expand at 10.6% as at end May 2016 with 75% of the borrowers (equated to around 1.5 million borrowers) comprised first time house buyers. This shows that credit-worthy home buyers would continue to have access to financing, which is a positive indicator to support the residential sub-sector. On the commercial front, the ample future supply in the office sector in particular, should post a concern to the industry players. Given the current challenging economic environment with slower business expansion, the rental market is expected to experience downward pressure. The indicator for retail market is also less convincing. The Retail Group Malaysia reported a 4.4% fall in sales in Q1 2016, which was higher than the expected 4.0% fall. The cautious sentiment amongst households in their spending would have an eventual impact on the retail sub-sector s performance. The property market would be able to endure this challenging period. Given the resiliency of the economy and the optimistic 2016 economic growth at 4.4%, though property market may see moderation in market activity, the slowdown would be manageable as the market fundamentals remain sound and stable. (Source: Malaysia Property Market First Half of 2016, Valuation and Property Service Department, Ministry of Finance Malaysia) 12

13 5.3 Prospects of the Alienated Land IWCity has a unique business model, in which as a strategic master developer, the Company is involved in the following activities: (ii) (iii) Land accumulation currently, the IWCity Group has a total of 824 acres of land bank based on its effective interests in the respective subsidiaries/ joint ventures/ associate companies, which own the land banks. Upon completion of the Proposed Alienation and Development, the size of the land banks is expected to increase to approximately 1,052 acres; Land preparation and conversion preparation of land parcels for development by land reclamation and enhancement through infrastructure development e.g.: road construction; and Joint development with strategic partners, typically property developers - this involves the sale of land to the strategic partners, who are also its customers, and IWCity reinvests part of the sale proceeds by taking a minority stake in the joint venture with the strategic partners to undertake development. The management of IWCity will be pursuing various future developments across the Alienated Land, which have the potential to maximise return. Moving forward, IWCity intends to undertake reclamation works on the Alienated Lands to enable development to take place. The Company may also enhance the viability of the Alienated Land through infrastructure development such as roads construction before either jointly developing it with a strategic partner or developing the whole parcel of the Alienated Land, and/or developing a smaller fraction of the Land whilst selling the remaining parcels to other interested developers. (Source: Management of IWCity) 6. EFFECTS OF THE COMPULSORY ACQUISITION, PROPOSED ALIENATION AND DEVELOPMENT 6.1 Share capital and substantial shareholders shareholdings The Compulsory Acquisition, Proposed Alienation and Development will not have any effect on the share capital and substantial shareholders shareholdings of IWCity as no new ordinary shares in the Company ( IWCity Shares ) will be issued pursuant thereto. 6.2 Earnings and earnings per share ( EPS ) The Proposed Alienation and Development is expected to be completed by 1 st half of 2018 and is not expected to have any material effect on the earnings and EPS of the Group for the financial year ending 31 December Nevertheless, the Proposed Alienation and Development is expected to contribute positively to the future earnings and EPS of the Group for the ensuing financial years arising from the development of the Alienated Lands. The completion of the compulsory acquisition of the Remaining Lands will be subject to the receipt of the notice of compulsory acquisition from the Johor State Government. In the event that TBSB receive such notice by 31 December 2017, the Group expects to realise a gain on disposal after taxation of approximately RM18.1 million, representing approximately 2 sen per share based on the IWCity s issued and paid-up capital as at the LPD of approximately 837 million shares. 13

14 6.3 Net assets ( NA ) and gearing The proforma effects of the Compulsory Acquisition, Proposed Alienation and Development on the NA and gearing of IWCity Group based on the latest audited consolidated financial statements of IWCity as at 31 December 2016 are shown as follows:- (I) (II) After (I), the Compulsory Acquisition and Audited as at 31 December 2016 (1) After subsequent adjustment the Proposed Alienation and Development (RM 000) (RM 000) (RM 000) Share capital 368, , ,023 Share premium 251, Share based payment - 164, ,635 reserve Accumulated losses (23,730) (78,463) (2) (60,389) Shareholders equity / NA 596, , ,269 No. of ordinary shares ( 000) 736, , ,389 NA per share (RM) Borrowings 142, ,387 (3) 341,032 Gearing ratio (times) Notes:- (1) After adjusting for the following events:- (a) Issuance of 87,000,000 new IWCity Shares at an issue price of RM0.90 per IWCity Share pursuant to the Company s acquisition of lands from Malgold Construction Sdn Bhd and Eight Danga Sdn Bhd, which was completed on 7 March 2017, including the related expenses thereto; (b) Granting of options under the Employees Share Option Scheme ( ESOS ) by the Company on 9 March 2017; (c) Exercise of 13,689,000 ESOS up to the LPD. (2) After taking into consideration the estimated gain on disposal after taxation of RM18.1 million for the Remaining Lands to be acquired by the Johor State Government. Also excludes the estimated expenses relating to the Proposed Alienation and Development as the estimated expenses cannot be ascertained at this juncture. For information purpose, the Company had recognised a gain on disposal after taxation of approximately RM105.6 million arising from the disposal of TBSB Land A and TBSB Land B1 to the Johor State Government in (3) As the Net Alienated Lands Premium and Cash Payment are to be satisfied by bank borrowings and/or internally generated funds and the exact manner in which the Net Alienated Lands Premium and Cash Payment will be satisfied has yet to be finalised at this juncture, the effect of the Proposed Alienation and Development on the Group s gearing will be dependent on the final combination of bank borrowings and/or internally generated funds which will only be determined at a later stage. Nonetheless, the Net Alienated Lands Premium and Cash Payment are assumed to be fully settled via bank borrowings for illustration purposes. 7. HIGHEST PERCENTAGE RATIO The highest percentage ratio applicable to the Proposed Alienation and Development as per Paragraph 10.02(g) of the Main Market Listing Requirements of Bursa Securities is 89%, calculated based on the Alienated Land Costs as compared to the NA of the IWCity Group based on the Company s latest audited consolidated financial statements for the financial year ended 31 December

15 8. APPROVALS REQUIRED AND CONDITIONALITY The Proposed Alienation and Development is subject to the following approvals being obtained:- (ii) the Company s shareholders at an EGM to be convened; and any other relevant parties / authorities, if required. For the avoidance of doubt, the Compulsory Acquisition is not subject to approval from the Company s shareholders. In the event the Proposed Alienation and Development is not approved by the Company s shareholders, TBSB will have to renegotiate with the Johor State Government on the Compulsory Acquisition. The Proposed Alienation and Development is not conditional upon any other corporate exercises of IWCity. 9. DIRECTORS AND MAJOR SHAREHOLDERS INTERESTS Save as disclosed below, none of the directors and/or major shareholders of IWCity or any persons connected with them has any interest, direct and/or indirect, in the Proposed Alienation and Development. KPRJ, being a substantial shareholder of IWCity, by virtue of its approximately 37% equity interest in IWH and its close proximity relationship with the Johor State Government has voluntarily abstained from voting in respect of its direct shareholdings in IWCity on the resolution pertaining to the Proposed Alienation and Development to be tabled at an EGM to be convened. Izaddeen bin Daud ( Izaddeen ), a Non-Executive Director of IWCity, is the nominee of KPRJ on the Board. Abd Razak bin Mohd Yusoff is the alternate director to Izaddeen ( Abd Razak ). Accordingly, Izaddeen and Abd Razak have also voluntarily abstained and will continue to abstain from deliberating and voting at all Board meetings in respect of the Proposed Alienation and Development. They will also voluntarily abstain from voting in respect of their direct and indirect shareholdings in IWCity on the resolution pertaining to the Proposed Alienation and Development to be tabled at an EGM to be convened. Izaddeen and Abd Razak are also the Directors nominated by KPRJ on the Board of Directors of IWH ( IWH Board ). They have also voluntarily abstained and will continue to abstain from deliberating and voting at all IWH Board meetings in respect of the Proposed Alienation and Development. The direct and indirect interest of KPRJ, Izaddeen and Abd Razak in IWCity as at the LPD are set out below:- Direct Indirect No. of IWCity Shares held ( 000) % No. of IWCity Shares held ( 000) % KPRJ 53, (1) 315, Izaddeen Abd Razak Notes:- (1) Deemed interested in IWCity Shares held by virtue of its interest in IWH pursuant to Section 8 of the Companies Act, 2016 ( Act ). 15

16 10. DIRECTORS STATEMENT The Board (save for Izaddeen and Abd Razak), after having considered all aspects of the Proposed Alienation and Development, is of the opinion that the Proposed Alienation and Development is in the best interest of the Company. The opinion of the Board (save for Izaddeen and Abd Razak) was arrived at after having considered, inter-alia, the terms and conditions of the ADA and prospects of the Alienated Lands, the proforma effects of the Proposed Alienation and Development on the Group. 11. ADVISERS Astramina Advisory Sdn Bhd has been appointed as the Transaction Arranger to the Company for the Proposed Alienation and Development. C H Williams has been appointed by the Board to conduct a valuation on the Alienated Lands. 12. APPLICATION TO THE RELEVANT AUTHORITIES Barring any unforeseen circumstances, the draft circular in relation to Proposed Alienation and Development is expected to be submitted to Bursa Securities within 2 months from the date of this announcement. 13. EXPECTED TIME FRAME FOR COMPLETION Barring any unforeseen circumstances, the Proposed Alienation and Development is expected to be completed by the 1 st half of DOCUMENTS AVAILABLE FOR INSPECTION Copies of the ADA may be inspected at the registered office of the Company at Suite 1301, 13 th Floor, City Plaza, Jalan Tebrau, Johor Bahru, Johor during normal office 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 9 August