ANNOUNCEMENT ACOUSTECH BERHAD ( AB OR THE COMPANY )

Transcription

1 ANNOUNCEMENT ACOUSTECH BERHAD ( AB OR THE COMPANY ) PROPOSED PROJECT COLLABORATION BETWEEN PIJ PROPERTY DEVELOPMENT SDN BHD ( PPDSB ) AND TERAS ECO SDN BHD ( TESB ) FOR THE DEVELOPMENT OF A SIXTY (60) UNITS OF THREE STOREY SHOP OFFICES, AMONG OTHERS ON A PIECE OF LAND HELD UNDER LOT PTD 9378 LOCATED IN TANJUNG SEPANG, DISTRICT OF KOTA TINGGI, STATE OF JOHOR ( PROPOSED COLLABORATION ) (REFERRED TO AS PROPOSED COLLABORATION ) 1. INTRODUCTION 1.1 The Board of Directors of AB wishes to announce that on 18 May 2016, TESB, a wholly owned subsidiary of AB had entered into a Development Agreement ( Agreement ) with PPDSB where TESB at present has committed to the development of 60 units of three storey shop offices on hectares of land held under Lot PTD 9378 located in Tanjung Sepang, District of Kota Tinggi, State of Johor ( Land ). 2. DETAILS OF THE PROPOSED COLLABORATION 2.1 Background information of TESB TESB was incorporated on 4 October 2011 under the Companies Act, 1965 as a private limited company. Its registered office is at No. 7, 2nd Floor, Jalan Persiaran Yayasan, Kluang, Johor Darul Takzim. The principal business of TESB is construction and property development. It is currently developing Senibong 88, a project where a total of 45 units of Cluster and Detached Factory together with all necessary infrastructure and amenities are being constructed over 3 freehold industrial lands held under GM 417 Lot 17650, GM 418 Lot and GM 420 Lot 17652, all in Mukim of Plentong, District of Johor Bahru, State of Johor. 2.2 Background information of PPDSB PPDSB is a wholly owned subsidiary of PIJ Holding Sdn Bhd (formerly known as Perisind Holdings Sdn Bhd) ( PIJH ) which is in turn a wholly owned subsidiary of Perbadanan Islam Johor, a body corporate established under the Perbadanan Islam Johor Enactment No. 1 of 1976 (as amended under Enactment No. 3 of 2004 ( PIJ ). PIJ is in the business of providing the State Government of Johor financial support for Islamic activities and businesses. PIJH is in the business of investment and property holdings. PPDSB is in the business of property development and investment holdings. In the early days of incorporation, PPDSB developed religious schools for Johor Islamic Religious Council. The Directors of PPDSB are En. Mohd Ibrahim Bin Mohd Said, En. Rozan Bin Mohd Sa at, Haji Atan Bin Ibrahim, En. Abdul Rahman Bin Mohamed Dewam and En. Mahadon Bin Marnin. 2.3 Information on the Proposed Collaboration The Land which is subject to the Proposed Collaboration is currently registered in the name of the Johor State Government. To facilitate the Proposed Collaboration, on 25 February 2016, PJIH made an application to the State Authority to alienate the Land in favour of PJIH in order for PPDSB to secure and grant to TESB the legal and beneficial rights over the Land. Currently, the alienation process is still ongoing and is expected to be completed by completed by June

2 (ii) Upon alienation of the Land in PIJH s name, PPDSB will obtain a valid and enforceable irrevocable Power of Attorney from PIJH empowering PPDSB with powers to deal with the Land in any manner as PPDSB deems fit as if PPDSB were the registered owner of the Land. PPDSB will then grant sole and exclusive rights to TESB to carry out development works on the Land based on development plans to be submitted and approved by the parties and subject to relevant authorities approval. At present, TESB propose to develop sixty (60) units of three storey shop offices ( Project ) and/or such number or composition of units as approved by the relevant authorities. (iii) (iv) Under the Proposed Collaboration, TESB will pay PPDSB the sum of Ringgit Malaysia Eight Million (RM8,000,000) excluding Goods and Services Tax (GST), as consideration ( Development Rights Payment ) for the sole and exclusive development rights granted by PPDSB over the Land. The payment consideration under the Agreement will be satisfied by internally generated funds and/or proceeds from the sale of the units under the Project. The terms of payment are further set out in Section 2.4 (c) of this Announcement. TESB will be responsible to finance the entire construction costs and bear all the risks associated with the development works, marketing and sale of the properties developed. 2.4 Background information of the Project Under the initial development plans to be submitted, TESB will propose to undertake the construction and development of sixty (60) units of three (3) storey shop lots or such number or composition of units to be approved by the relevant authorities. The Project is anticipated to be completed within two (2) years. Presently, the layout plans and building plans for the Project are yet to be finalized and still subject to review by the appointed architects and consultants. The salient details of the Project and the Land are as follows:- Development details : The Project comprise 60 units of three storey shop offices. Current registered Owner : Johor Sate Government Land title particulars : Lot PTD 9378 located in Tanjung Sepang, District of Kota Tinggi, State of Johor Tenure of Land : The tenure will be subject to the state authority s approval and decision upon alienation of the Land Size of Land : Hectares Type of development : Shop office (tentatively) Project completion period : 24 months Estimated Gross : RM43 million Development Cost* Estimated Gross : RM55 million Development Value* * Estimated based on the current construction costs and management s current anticipated selling price. Barring unforeseen circumstances, depending on the date in which the Land is alienated, the Project is expected to be completed by September (ii) Details of the Land The Land is located near Kampung Tanjung Sepang, 1 km away from Jalan Teluk Ramunia, 15 km from Pengerang,Oil and Gas City, and 105 km from Johor Bahru. The surrounding area is undeveloped with the exception of Tanjung Sepang Beach Resort and Pengerang Resort. 2

3 2.5 Salient terms and conditions of the Development Agreement The salient terms and conditions of the Agreement between TESB and PPDSB ( Party or Parties ) are as follows:- (a) Development Rights Subject to the payment of the Development Rights Payment, PPDSB grants to the TESB as the developer ( Developer ) the sole and exclusive rights to develop, construct and complete the project on the Land throughout the development period including the right to sell all completed units in the Land in accordance with the submitted and approved development program. (b) Conditions precedent The Agreement is subject to among others, the following salient conditions precedent to be fulfilled by the Developer. (ii) (iii) (iv) (v) Submission of the Developer s certified true copies of the Memorandum and Articles of Association together with its Certificate of Incorporation (Form 9), together with its latest Form 24, Form 44 and form 49 of the Companies Act 1965 (Act 125), Developer s Board of Directors resolution respect of the entering and execution of the Agreement; The bankruptcy search result of not less than Six (6) months from the date of the Agreement conducted on all of the directors and each shareholders of the Developer confirming that each of them is not a bankrupt; The winding up search result of not less than Six (6) months from the date of the Agreement confirming that the Developer has not been wound up; and A written undertaking from the Directors of the Developer s company that there shall be no material alterations or changes in its business, equity shareholding structure, value, shareholder s ownership; The Developer shall deliver certified true copies of relevant documents reflecting an increase of its paid up capital to minimum Ringgit Malaysia Two Million (RM2,000,000.00) only ordinary shares. ( Conditions Precedent ) The Conditions Precedent are to be fulfilled within Four (4) months from the date of the Agreement ( Conditional Period ). In the event that any of the condition is not fulfilled within the Conditional Period, the Parties agree for a further extension of Three (3) months from the expiry of the Conditional Period or any other extension period as mutually agreed by both Parties may be allowed for the fulfillment of such conditions ( Extended Conditional Period ). In the event the Agreement fails to become Unconditional within the Extended Conditional Period, the Agreement shall be rescinded and all such sum or sums of monies already paid by the Developer to PPDSB towards Development Rights Consideration shall be refunded to the Developer or the Developer s solicitors save and except if the Agreement fails to become Unconditional within the Extended Conditional Period due to the Developer s omission to act or delay to act without reasonable cause, PPDSB shall have the right to forfeit a sum of Ringgit Malaysia One Million (RM1,000,000.00) only being the Commitment Fee. 3

4 (c) Consideration TESB shall pay to PPDSB the sum of Ringgit Malaysia Eight Million (RM8,000,000) as consideration for the Agreement to be paid in the following manner: Stages 1 Commitment Fee payable upon execution of Agreement towards part payment of the Development Rights Payment 2 Second tranche equivalent to the premium charges imposed by the relevant authorities or state authority, payable within 12 months from the date of Agreement or within time stipulated by the said authorities, whichever earlier and towards part payment of the Development Rights Payment 3 Final sum payable within 24 months from date of Agreement as balance of the Development Rights Payment Total Sum RM1,000,000 RM3,500,000 RM3,500,000 RM8,000,000 (d) TESB S Obligations Under the Agreement, the Developer will amongst others undertake the following: (ii) (iii) (iv) (v) (vi) perform all necessary obligations and ensure the successful completion of the submitted project in accordance with the agreed development programme; be solely responsible for the provision of technical knowledge, skills, expertise, consultancy and such other services incumbent upon the Developer to provide in respect of the project including overall planning marketing, management and coordination of all project consultants, preparations of plans, survey and other works relating to the project, and shall ensure at all times the progress and due completion of the project with full responsibility and due diligence in accordance with sound financial and commercial standards and practices for the benefit of both Parties; prepare all applications, forms, plans whatsoever documents and do all things whatsoever to obtain and procure all licenses, consents, approvals and/or permits necessary for the development of the Land including the approvals; carry out the project whether on its own or by appointing such contractor or contractors as the Developer deems fit in accordance with a schedule to be mutually agreed between the Parties; construct or cause to be constructed all infrastructures, premises and buildings to be erected on the Land in a good and workmanlike manner in compliance with generally recognized building standards and practices and shall not deviate from all approvals; in carrying out the construction, operation and the related development of the Project, it shall not do or permit to be done any act or thing or suffer or cause to be suffered any omission which may contravene or violate the provisions of any prevailing an binding written law of Malaysia; 4

5 (vii) (viii) it shall at its own cost and expense diligently supply, construct and complete all infrastructure works required for the Land and any other infrastructural construction whatsoever as required by and in accordance with the requirements of the relevant authority. shall at its own cost and expense be responsible for the submission of the application to the relevant authorities for subdivision and conversion of the Land, where applicable, and to procure the approval thereof including the issuance of the subdivided title and/or issue document of title and/or strata title of the Land and for the project. (e) Obligations of PPDSB PPDSB warrant and represents amongst others to TESB the following: (ii) PPDSB shall at its own cost and expense be responsible for the submission of the application to the relevant authorities for the alienation of the Land and to procure approval thereof including the issuance of the issue document of title of the Land for the purpose of the project. Upon issuance of the issue document of title of the Land in favour of PIJH, PPDSB shall as soon as practicable obtain a valid and enforceable irrevocable Power of Attorney from PIJH empowering PPDSB with powers to deal with the Land in any manner as PPDSB deems fit as if PPDSB were the registered owner of the Land. (f) Project Management Committee In ensuring successful implementation of the Agreement, TESB and PPDSB shall, upon execution of the Agreement, set up a Project Management Committee which shall have the overall decision, planning, control, supervision, coordination, sale and management of the project. (g) Default and Termination (I) Events of Default by the Developer PPDSB shall be entitled to give a notice in writing to the Developer specifying the relevant event of default and requiring the Developer to remedy the event of default within Forty-five (45) Days from the date of the notice (hereinafter referred to as PPDSB s Termination Notice ). The events are any one of the followings: (a) if the Developer without reasonable cause or unlawfully: (ii) fails to submit all necessary approvals required for the Project from the Relevant authorities within the time period stipulated under the provisions of the Agreement; or fails to commence by the commencement date as prescribed in the development programme; or 5

6 (iii) (iv) (v) suspends the construction of the project for a continuous period of Thirty (30) Days after receiving PPDSB s notice to proceed; or fails to complete the project within the completion period; or fails to launch the sales of the units in the project; (b) (c) (d) (e) (f) (g) (h) (j) if the Developer fails to satisfy the consideration or any part thereof entitled to by PPDSB under the Agreement; or if the Developer fails to provide or to renew or to furnish, as the case may be, the Bank Guarantee to PPDSB, if any; if the Developer fails to effect and keep in force the required insurance if the Developer acts in breach of or neglects to comply with or carry out any fundamental and material obligations under the Agreement ; or if the Developer unlawfully or without reasonable cause ceases or threatens to cease to carry on its business or abandon the whole or any part of the project; or assigns the whole or any part of the Agreement without obtaining prior written consent from PPDSB (the consent of which shall not unreasonably withheld); or willfully fails to submit the progress report and relevant information to PPDSB; or if a petition shall be presented or an order be made or a resolution be passed for the winding up of the Developer unless for the purpose of amalgamation or reorganisation thereof without the consent of PPDSB (the consent of which shall not unreasonably withheld); or if any legal proceedings, suit or action shall be instituted against the Developer or an event or events has or have occurred and a situation exists that will materially and adversely affect the Developer s ability to proceed with the Project and or to perform its obligations under the Agreement in accordance with the terms hereof; or if PPDSB has been misrepresented, willfully misled or pertinent information has been willfully withheld by the Developer with regard to any matter in connection with the execution and delivery of the Agreement by PPDSB at the time of such execution and delivery; or if there is any change to its business, equity shareholding structure, value, shareholder s ownership whether by way of amalgamation, reconstruction, sale, transfer of the company shares or anything of the similar nature without prior consent from PPDSB. If a PPSB s Termination Notice is duly given and the Developer fails to remedy the relevant default within the period specified in the said notice, then PPDSB may without prejudice to any other rights of remedies available to PPDSB under the Agreement be entitled at the costs and expense of the Developer and at PPDSB s sole discretion to the following remedies: 6

7 (a) (b) to the remedy of specific performance of the Agreement against the Developer and to all reliefs flowing therefrom if such breach is capable of being remedies; or to terminate the Agreement. (II) Consequences of Termination by default of the Developer In the event that the Agreement is being terminated by PPDS (a) (b) PPDSB shall have every rights to draw the Bank Guarantee, if any. the Developer shall upon instruction by PPDSB unconditionally surrender all of its rights and obligations under the Agreement to PPDSB or its nominees including all plans, drawings and specifications and other documents relating to the Project and shall from the date of the termination notice have no rights whatsoever over the Land where it shall be lawful for PPDSB to enter upon and take possession of the Land (c) (d) (e) (f) (g) (h) The Developer shall leave intact all buildings and structures erected on the Land and such buildings or structures, whether wholly or partly completed at the time of termination, shall vest absolutely in PPDSB; the Parties shall mutually agree on the apportionment of the costs and expenses of the construction works for the Project up to and including the date of the termination notice; PPDSB shall be entitled but not obligated to complete construction of all the premises which the Developer has commenced construction in any phase PPDSB may also at its absolute discretion elect to employ and pay another contractor or other person or body to complete the same upon such terms as may be agreed upon by PPDSB and such other contractor, person or body. In which case PPDSB and the Developer shall be required and which they hereby undertake to execute any document including any deed of novation or any equivalent document transferring the obligations of the Developer Upon such handover, PPDSB shall refund all sum or sums of monies already paid by the Developer to PPDSB towards the Development Rights Payment save for the Commitment Fee which shall be forfeited by PPDSB as agreed liquidated damages; and Any liability incurred by the Developer before the termination date shall continue to be borne by the Developer and shall remain a debt due and owing to PPDSB by the Developer. (III) Default by PPDSB Without prejudice to any other rights or remedies that the Developer may possess and provided always that the Developer is not in breach of any provision of the Agreement, if:- (a) PPDSB shall default in any material provisions of the Agreement (which is not capable of remedy or if capable of remedy, is not remedied within Thirty (30) Days notice or such extended period as reasonably 7

8 determined mutually by both Parties from the date of a notice from the Developer to PSSB requesting PSSB to remedy the same); or (b) An event of insolvency occurs in relation to PPDSB, then the Developer shall be entitled to the remedy of specific performance against PPDSB and/or such the remedies as may be available to the Developer. (h) Goods and Services Tax (GST) (ii) (iii) Any sum set out in the Agreement or otherwise payable by any Party to any other party pursuant to the Agreement shall be deemed to be exclusive of any GST which is chargeable on the supply (or supplies) of goods or services for which such sum is (the whole or part of) the consideration for GST purposes if the same is so chargeable under the law. The Parties acknowledge the giving of right to develop a project on a land which contains any commercial element, may attract the payment of GST. Accordingly, the Developer shall in addition pay the GST on Development Rights Payment or any part thereof as and when the same is due and payable. If so required, the Developer hereby agrees and undertakes to pay the GST on the Development Rights Payment or any part thereof to PPDSB as and when the same is due and payable including providing such indemnity for failure to pay. Governing Law and Dispute Resolution The Agreement shall be govern by and construed in accordance with the laws of Malaysia. The Parties agree to use all reasonable efforts to attempt to mutually settle all disputes, controversies, or differences ( Dispute ), which may arise between the Parties out of, in relation to or in connection with the Agreement. The Parties must confer in good faith to overcome any such Dispute within Three (3) Months (or such other period as the Parties may agree in writing) after notice by any Party to the other Parties of the Dispute. 3. RATIONALE FOR THE PROPOSED COLLABORATION 3.1 In line with AB s roadmap in diversifying into property development business to strengthen its earnings base and to enhance the Group s overall growth prospects in the longer term, the Board of Directors consider the Project to be an opportunity to enhance its development business profile and to ensure continuity in rolling out development products. The Management is confident that TESB has the skill sets to undertake the development works after having successfully completed its maiden project, Senibong 88. As the Senibong 88 development has now reached practical completion and ready for handover to purchasers, the Proposed Collaboration is a timely opportunity to further its projects and be a stepping stone for other types of development. In this regard, the Group will ensure that is property arm will not be idle or lose business momentum moving forward. The Board has taken into consideration the following factors in its decision for the Proposed Collaboration: (a) the commercial property development business is expected to positively contribute to the immediate earnings and improve the AB Group s overall profitability. 8

9 (b) (c) the commercial property development business remains stable and resilient in Malaysia. TESB has proven that it has ready and available knowledge, experience and expertise to successfully carry out the Project and meet the timescales set out by the state government. 3.2 Locality of the Project The Board of Directors is of the view that the location of the Project is strategic and located within a vital economic corridor in Southern Johor where both the Federal and State Government of Johor has committed to support the oil and gas industry situated in Pengerang. Under the government s Economic Transformation Programme initiative, Pengerang has been earmarked as the focal point for oil and gas projects such as RAPID which has seen or will see mega investments committed in the region. Within this region, the RAPID project which is under the purview of PETRONAS is estimated to cost about RM60 billion and will comprise a crude oil refinery with a refining capacity of 300,000 barrels-per-day, a naphtha cracker with a combined annual production capacity of approximately three million tonnes of ethylene, propylene, C4 and C5 olefins and a further development of about 22 mini petrochemical complexes. There is anticipate to be major downstream oil, gas and petrochemical projects and other supporting industries in Pengerang, Johor within the near future. RAPID will be the largest green-field investment within the Asia Pacific region. The development site at Pengerang is strategically located to access regional demand centres, near international shipping lanes, deepwater port facilities and complement existing refineries and petrochemical hubs within Malaysian eastern corridor and Singapore. Source: Refinery_and_Petrochemical_Integrated_Development_(RAPID).aspx#sthash.fpfFdK0F.dpuf The upshot from this development in the region is that there is will be an anticipated influx of investments and businesses which will create countless job opportunities once these petrochemical projects take off in the near future. Based on this trend, TESB is expected to be a beneficiary via the Project as TESB anticipates that there will be demand for commercial space to accommodate the growth of population and businesses in the region. As the area where the Project is situated has accessibility and fronts the main road, the Project will enjoy good frontage and visibility. Given that the Project will be among the first few developments along the main access road towards the petro-refinery areas, Management is confident that the Project will be a catalyst for growth of other commercial centers in that particular area. 4. OVERVIEW AND PROSPECTS AB Group is confident property development business segment which it has ventured into offers great potential. The Board of Directors is optimistic that the outlook and prospects of the commercial and industrial property development business segment will remain upbeat in choice and strategic areas. AB Group will continue to source for suitable and strategic land bank and owners of such land with a view to either acquire or develop such parcels of land on a joint venture or project management basis. At present, the Group intends to primarily focus on development within the Iskandar region and southern regions of Johor. 9

10 4.1 Malaysian Economy The Malaysian economy expanded by 4.2% in the first quarter of 2016 (4Q 2015: 4.5%). The expansion was driven mainly by private sector spending which is projected to remain as the key engine of domestic demand. Based on available data, domestic demand continued to be supported by domestic oriented manufacturing activity such as the 10MP project in Pengerang Integrate Complex (PIC) where the Project is situated nearby. Source: Economic Report 2015/2016, Ministry of Finance On the risk appetite for lending, according to statistics, risks from banks exposures to the business sector remain contained. The aggregate leverage of Malaysian businesses, as measured by the median debt-to-equity ratio, improved to 44.5% in the fourth quarter of 2015 (3Q 2015: 46.8%). Business sector borrowings expanded at a slower pace of 8.8% as at end first quarter of 2016 (4Q 2015: +13.2%) in line with the moderation in domestic economic activity. However, bank financing to businesses expanded by 4.9% (4Q 2015: +8%) indicating that financing to small and medium businesses continue unabated. Source: Bank Negara Quarterly Bulletin First Quarter 2016 For the civil and construction sector, despite the softening local economy, the Oil and Gas ( O&G ) industry which started in 2015 continues to play an important role to support the civil engineering subsector. According to statistics, public investment is expected to rebound by 2.6% in 2016 (2014:-4.7%) due to higher capital spending by the Federal Government which continues to play an active role in the O&G industry with the focus on downstream and upstream projects in the Refinery and Petrochemicals Integrated Development (RAPID) in Pengerang, amongst others. Source: Economic Report 2015/2016, Ministry of Finance Management is of the opinion that the Tanjung Sepang area where the Project is situated will benefit from the multiplier effect from continued and sustained public investment in the RAPID project. In this regard, AB Group believes that within this region there will be demand for industrial and commercial properties since there is already a vibrant development project taking place with enhanced facilities and road accessibility. 4.2 Prospects of the Property Market For the first quarter of 2016, overall growth in the property sector remained modest. The real estate and business services sub-sector expanded by 6.4% (4Q 2015: 6.1%) supported mainly by the business services segment. Growth in the specialised construction activities sub-sector improved during the quarter, reflecting increased early work activities such as demolition, piling and earthworks. In the non-residential sub-sector, the pace of expansion was subdued due to slower construction activity for industrial and commercial buildings. Source: Bank Negara Quarterly Bulletin First Quarter 2016 In terms of property market activity, market volume was recorded at 362,105 transactions worth RM149.9 billion in 2015, down marginally by 5.7% in volume. For the commercial, industrial, agriculture and development land sub-sectors there was a downward drop by 10.6%, 13.0%, 7.5% and 2.4% respectively, with development land being the least affected. For the same period, there were 31,776 transactions worth RM26.4 billion recorded, down by 10.6% in volume and 17.1% in value. Major states recorded lacklustre performance with Johor recording the highest decrease of 21.9%, followed by WPKL at 15.0%, Selangor at 11.1% and Pulau Pinang at 10.7%. 10

11 It is anticipated that the economic and financial environment will remain challenging in 2016 given the cautious approach by investors in being more selective in the choice and type of properties. For the industrial property segment, growth would remain moderate in the coming year. Source: National Property Information Centre (NAPIC), Valuation and Property Services Department (JPPH) Ministry of Finance Malaysia 19 April 2016 Overall, the property outlook remains subdued and only properties in growth areas and with the right mix and pricing will receive encouraging response. 4.3 Prospects of the Project Given that there are not many niche commercial/industrial developments taking place in the Pengerang region, there is opportunity for such development to be launched and AB Group is confident that the product will be well received given the location of the Project. Management of AB Group is confident that based on market feedback, small to medium ( SMI ) industry companies remain optimistic about the long term economic prospects of the country and therefore will continue to invest in acquiring low to medium sized commercial space for its current and future use. As commercial and industrial properties are for income generating purposes demand for niche commercial/industrial factories will remain robust amongst SMI players. AB Group intends to focus on small scale developments where it can have a faster turnaround time. Based on management s own internal feasibility study, it is anticipated that there will be more businesses that will take root in the region once the O&G industry matures and there is greater traffic into and out of the area. 5. RISK FACTORS 5.1 Business Risks The Proposed Collaboration is subject to certain risks inherent in the property development and construction industry. These include, but not limited to, shortages of building materials, price fluctuation of building materials costs, increase in labour costs, shortages of labour including foreign workers, drop in demand for residential and commercial properties, changes in general economy and business conditions, renegotiation or nullification of existing contracts, changes in the legal and environment framework within which the industries operate, default by purchasers and availability to finance the purchase of property. Risks inherent in the current Project include timely commencement and/or completion of Project, obtaining required relevant approvals, satisfactory performance of contractors, adverse economic events or recession, material escalation of cost in labour and raw materials, rise in financing costs and fluctuating demand for real estate properties may contribute to a higher overall development cost, thereby impacting the profit margins of the AB Group s projects. The demand of the properties is dependent on the general economic, business and credit conditions as well as the availability of supply in the market. The management seeks to limit these risks through, inter-alia, prudent financial policies, continuous review of operations to improve efficiency and to ensure proper due diligence are implemented during the period between planning, construction and the eventual delivery of properties. However, no assurance can be given that any change to the said risk factors will not have a material adverse effect on the property development business. Constant communication with PPDSB will ensure that the business goals of the Project can be still be achieved by altering the mix of development if required 11

12 5.2 Operation risks The competitiveness of TESB is dependent on the ability of its management to secure strategically located land banks for development, property development contracts, supply of labour and building materials as well as to price its products competitively, to provide quality and timely delivery of developments and to sell its properties. While management believes that the Land is located in a prime location, there is no certainty that upon completion, the uptake of units will be good as the Pengerang area is still very much undeveloped with sizeable stretches of land still not subject to any forms of commercial or residential development. In this sense, there is no track record that the Pengerang area will attract investors who are willing to invest in this area. In this regard, the AB Group will continue to take prudent measures to guage the public and investing public s receptivity towards the type, mix and composition of development to be undertaken so as to ensure that all units launched will be capable of being successfully sold in the short to medium term. With the experience of the Directors and Management of TESB, together with the assistance from the Board of Directors and key management of AB and the consultants and PPDSB as TESB s local partner in this Proposed Collaboration, the Board is confident that it has the required expertise to undertake the development of the Project. 5.3 Default risk Should an event of default by TESB or PPDSB under the Agreement occur before the completion of the Project, the Project may be delayed or put on hold pending the settlement of disputes. Provisions for remedies on default have been provided for under the Agreement to resolve the disputes. The parties seek to mitigate this risk by continuously working together and through the implementation of prudent business strategies, continuous review of the operation and marketing strategies, efforts taken to improve efficiency, as well as, close monitoring of the Project. 5.4 Risks of unforeseen delays in the completion of the Project The Project is subject to risks inherent in the property development industry, including among others, timely completion of the Project, changes in relevant governmental priorities, satisfactory sales level for the Project, risk of purchasers defaults and other unforeseen circumstances. Any of these could result in cost overruns and/or lower demand for units developed for the Project. Delays in the process of obtaining the requisite licenses, permits or approvals from the Government agencies or authorities could also increase the cost, delay or even stall the development of the Project. Construction delays can result in economic losses. The failure or delay in completing a development or construction project according its specifications may result in liabilities, reduced efficiency and less desirable returns. The timely completion of the construction of the Project is dependent on various external factors, which include inter-alia, the timely receipt of requisite licences, permits or regulatory approvals, the work performance of the appointed building contractors, sub-contractors and consultants, need and availability of financing and availability of construction/building materials, equipment and labour. Wet weather may also delay the timely completion of the Project. Any adverse developments can lead to interruptions or delays in the completion of the Project, which may consequently result in cost overruns that affect the Project s profitability and cash flow. The Group seeks to limit this risk by careful planning, closely monitoring of the Project progress and implementing prompt actions to ensure the overall positive progress of the Project. 12

13 Although these risks are inherent to all property development projects, the Board will take proactive steps to counter and/or mitigate these risks by, among others, leveraging on the experience of our Directors, effective planning, timely implementation and continuous review of the Project. 5.5 Political, economic and regulatory risks Like all other business entities, changes in political, economic and regulatory conditions in Malaysia, could have a material effect on AB Group s foray into the property development business segment and consequently the financial performance of AB Group. Amongst the political, economic and regulatory uncertainties are the changes in political leadership and environment, laws and legislation, expropriation, nationalisation, re-negotiation or nullification of existing sales orders and contracts, changes in interest rates, method of taxation and currency exchange rates. For example, the property development business segment will be sensitive to, inter-alia, interest rate movements, consumer sentiments, regulation and taxation changes or the gradual tightening of credit conditions. The Group takes cognisance of the changes to the property development sector and while the Group will seeks to limit the impact of such risk to its business, there is no assurance that any change in the above factors will not have a material adverse effect on the business and operations of the Group. 6. EFFECTS OF THE PROPOSED COLLABORATION 6.1 Share Capital and substantial shareholders shareholdings The Proposed Collaboration will not have any effect on the issued and paid-up share capital and substantial shareholders shareholdings of AB as the Proposed Collaboration does not involve any issuance of new shares. 6.2 Earnings and earnings per share ( EPS ) The Proposed Collaboration is not expected to have any material impact on the consolidated earnings and EPS of AB for the financial year ending 31 December The Group estimates that the Project is expected to result in an estimated net profit of RM9 million (after taking into account the Consideration payable to PPDSB). For illustrative purposes only, based on the latest audited consolidated financial position of AB as at 31 December 2015 and on the assumption that the Project had been completed on 1 January 2016 (being the beginning of the financial year ending 2016), the proforma effects of the Proposed Collaboration on the consolidated earnings and EPS of AB for the financial year ending 31 December 2015 are as follows:- RM 000 (1) EPS/ Loss per share sen Profit after taxation 11, Add: Net profit expected to be contributed from the Project 9, Proforma profit after taxation of AB 20, Note:- (1) Based on 168,476,028 weighted average ordinary shares of 50 sen each in AB, as at 31 December

14 6.3 Net Assets ( NA ) and gearing The Proposed Collaboration is not expected to have any material impact on the consolidated NA and gearing level of AB for the financial year ending 31 December The Project is expected to result in an estimated net profit of RM9 million (after taking into account the Consideration payable to PPDSB). For illustrative purposes only, based on the latest audited consolidated financial position of AB as at 31 December 2015 and on the assumption that the Project had been completed on that date, the proforma effects of the Proposed Collaboration on the NA, NA per share and gearing position of AB Group are as follows:- Audited as at 31 December 2015 RM 000 After the Proposals RM 000 Share capital 88,911 88,911 Share premium 7,342 7,342 Treasury shares (7,621) (7,621) Accumulated profit 29,299 (1) 38,299 Shareholders funds/na 117, ,931 Total equity 117, ,931 Weighted average no. of AB shares in issue ( 000) 168, ,476 NA per AB share (RM) Total borrowings 33,596 33,596 Gearing (times) Notes:- (1) After taking into consideration the estimated total net profit of RM9 million to be contributed by the Project to AB Group (after taking into account the Consideration payable to PPDSB). 6.4 Convertible securities As at the date of this announcement, AB does not have any convertible securities in issue. 7. INTERESTS OF THE DIRECTORS, MAJOR SHAREHOLDER AND/OR PERSONS CONNECTED TO THEM None of the directors, major shareholders and/or any persons connected with them have any interest, direct or indirect, in the Proposed Collaboration. 8. STATEMENT BY THE BOARD The Board of Directors, after considering all aspects of the Proposed Collaboration, including, inter alia, the rationale of the Proposed Collaboration and the prospects of the property development industry, as well as the effects on the earnings of AB Group and prospects of the Project, is of the opinion that the Proposed Collaboration is in the best interest of the Company and the shareholders of the Company. 9. PERCENTAGE RATIO The highest percentage ratio applicable to the Proposed Collaboration pursuant to paragraph 10.02(g) of the Main Market Listing Requirements is approximately 21.66% based on the latest audited consolidated financial statements of AB for the financial year ended 31 December

15 10. APPROVALS REQUIRED The Proposed Collaboration is not subject to the approval of the shareholders of AB or any relevant authorities. 11. TENTATIVE TIMELINE FOR COMPLETION Barring unforeseen circumstances, the Agreement is currently is expected to be completed in June OUTSTANDING PROPOSALS ANNOUNCED BUT PENDING IMPLEMENTATION Save for the Proposed Collaboration and the Disposal of Port Klang leasehold land and building, as at the date of this announcement there is no other intended corporate exercise which has been announced but not yet completed. This announcement is dated 18 May