PROPOSED ACQUISITION OF THE ENTIRE ISSUED AND PAID UP CAPITAL OF MI POLYMER CONCRETE PIPES SDN BHD ( MIPCP )

Transcription

1 CHIN HIN GROUP BERHAD ( CHIN HIN OR THE COMPANY ) PROPOSED ACQUISITION OF THE ENTIRE ISSUED AND PAID UP CAPITAL OF MI POLYMER CONCRETE PIPES SDN BHD ( MIPCP ) 1. INTRODUCTION The Board of Directors of Chin Hin ( Board ) wishes to announce that Starken AAC Sdn Bhd (Company No D) ( STARKEN ), a wholly-owned subsidiary of the Company, had on 3 April 2017 entered into conditional shares sale agreement ( SSA ) with the MIPCP Vendors (hereinafter referred to as MIPCP Vendors ) for the proposed acquisition of the entire issued and paid up share capital of MIPCP which comprises of 1,000,000 ordinary shares in MIPCP for a total of RM35,000, ( Purchase Consideration ) ( Proposed Acquisition of MIPCP ). 2. DETAILS OF THE PROPOSED ACQUISITION OF MIPCP 2.1 Proposed Acquisition of MIPCP MIPCP was incorporated as a private limited company under the Companies Act, 1965 on 31 March As at the date of this announcement, the total issued share capital of MIPCP is represented by 1,000,000 ordinary shares, equivalent to RM1,000, The legal and beneficial owners with the entire shareholding interests are Peter James Francis Boatman (25%), Janet Anne Boatman (25%), Tay Heng San (40%), and Tay Fen Nie (10%) respectively ( MIPCP Vendors ) and the Directors of MIPCP are Peter James Francis Boatman and Tay Heng San. MIPCP s nature of business is primarily in relation to manufacturing and supply of pipes. The proportion of shares and the consideration to each of the MIPCP Vendors are as specified below:- Vendors No. of Shares held Purchase Consideration (RM) Peter James Francis 250,000 RM8,750, Boatman Janet Anne Boatman 250,000 RM8,750, Tay Heng San 400,000 RM14,000, Tay Fen Nie 100,000 RM3,500, Total 1,000,000 RM35,000, On 3 April 2017, STARKEN entered into the SSA with the MIPCP Vendors for the acquisition of 1,000,000 ordinary shares in MIPCP, representing the entire equity interest in MIPCP ( Sale Shares ) for the Purchase Consideration to be satisfied via cash. Subject to the terms and conditions of the SSA, the MIPCP Vendors shall sell and STARKEN, in full reliance on the warranties and representations by the MIPCP Vendors as set out in the SSA ( MIPCP Vendors Warranties ), shall purchase the Sale Shares free from all liens, charges and encumbrances and with all rights attaching to the Sale Shares at the Purchase Consideration and upon the terms and conditions as contained in the SSA. Upon completion of Proposed Acquisition of MIPCP, MIPCP will be a wholly-owned subsidiary of STARKEN.

2 2.2 Basis and justification of arriving at Purchase Consideration The Purchase Consideration was arrived at on a willing-buyer willing-seller basis, after taking into account the following: potential synergistic benefits to the Chin Hin Group arising from the Proposed Acquisition of MIPCP; price to earnings ( P/E ) multiple of 4.74 based on the audited aggregate profit after tax ( PAT ) of RM7,385, million per annum; profit guarantee of PAT of RM6 million provided by the MIPCP Vendors to STARKEN for the financial year beginning 1 January 2017 ending 31 December 2017 ( FYE ) ( Guaranteed Financial Year ) ( Profit Guarantee ); and (iv) the future earnings potential and prospects of MIPCP as described in Section 6 of this announcement. In addition to the above, the parties further agreed that: (iv) STARKEN shall be entitled to conduct or to appoint external auditors to conduct a physical stock-take on the Stock and Inventories and/or pre-completion inspection and/or audit on MIPCP in order to determine the amount of the Net Tangible Asset ( NTA ) on completion of the SSA ( Pre Completion Audit ). The consideration for the Sale Shares is derived based on the audited NTA of not less than RM9.77 million for MIPCP as at 31 December 2016 (ie audited accounts as at 30 June 2016 and 6 months unaudited accounts as at 31 December 2016). In the event the NTA determined based on the Pre-Completion Audit is less than the NTA, then STARKEN shall be entitled to adjust Purchase Considerations down accordingly. In the event the NTA determined based on the Pre-Completion Audit is more than the NTA, then the Purchase Considerations shall not be adjusted. 3. SALIENT TERMS OF THE SSA 3.1 Salient terms of the SSA Basis of Sale and Purchase The MIPCP Vendors agree to sell and STARKEN agrees to purchase the Sale Shares on the terms and subject to the conditions set out in the SSA. The Sale Shares are to be purchased on the basis of: free from all liens, charges and encumbrances and with full legal and beneficial title; and with all rights attaching thereto (including all dividends and distributions (if any) declared in respect thereof) with effect from the date of the SSA; and

3 (iv) together with the sales, receivables and order books of MIPCP Products comprising of polymer concrete jacking pipe which was manufactured and produced by MIPCP ( MIPCP Products ); together with an undertaking by the MIPCP Vendors that the Net Asset of MIPCP as at 31 December 2016 (ie. audited account as at 30 June 2016 and 6 months unaudited accounts as at 31 December 2016) shall not be less than RM9.77 million in MIPCP; (v) excluding all that piece of land held under HS(D) 52645, PTD 41806, Mukim Simpang Kanan, District of Batu Pahat, Johor together with a double storey bungalow house erected thereon known as No. 14, Jalan EH 15, Taman Evergreen Heights, Batu Pahat, Johor (hereinafter referred to as Land ) whereby such Land shall be duly transferred to one (1) of the Vendors namely Peter James Francis Boatman (British passport: ) ( Peter ) or his nominee whereby Peter shall bear all cost and expenses required for this transfer including the relevant sum of Real Property Gain Tax upon full settlement of the bank loan by MIPCP; and (vi) on the basis of the MIPCP Vendors warranties Conditions Precedent The SSA is conditional upon the following conditions precedent being fulfilled on or before three months from the date of SSA ( Cut-Off Date ), inter alia:- (a) (b) (c) (d) (e) the Purchaser being satisfied with the results of its due diligence investigation into the Vendors title to Sale Shares, the financial, legal, contractual and prospects of MIPCP, and MIPCP s title to its respective assets and liabilities and the due diligence shall be completed by the Purchaser on or before the Cut-Off Date or Extended Cut-Off Date ( Due Diligence Exercise ); the Purchase Consideration consistent with the findings of the Due Diligence Exercise based on MIPCP s historical gross profit margin and MIPCP s sale price of MIPCP Products; any Approvals from the Relevant Authority (if any); the approval of the shareholders of STARKEN if the transacted price triggers the percentage ratios as per Chapter 10 of the Listing Requirements of Bursa Malaysia Securities Berhad; and the approval of the shareholders of STARKEN in respect of the acquisition of Sale Shares by STARKEN from MIPCP Vendors. If any of the Conditions Precedent are not satisfied by the Cut-Off Date, not due to a default of any party or if any of the approvals are rejected or the affected party rejects any conditions or in any case after all appeals are exhausted, then any party will be entitled to issue a notice of termination to the other parties. The Conditions Precedent are inserted for the sole benefit of STARKEN and may be waived by STARKEN in whole or in part with or without any additional terms or conditions, but without prejudice to its rights to insist on the fulfillment or compliance with such conditions precedent at any subsequent time.

4 3.1.3 Mode of Settlement Upon the execution of this agreement, STARKEN shall pay the sum of Ringgit Malaysia Three Million Five Hundred Thousand Only (RM3,500,000.00) to the MIPCP Vendors as a refundable deposit (in the event that the Conditions Precedents are not satisfied) and part payment of the Purchase Consideration to the MIPCP Vendors ( Deposit ). STARKEN shall pay a sum of Ringgit Malaysia Twenty Five Million Five Hundred Thousand Only (RM25,500,000) ( Balance ), to the MIPCP Vendors upon the fulfilment of the Conditions Precedents. STARKEN shall deliver a post-dated cheque proportionately to the Vendors for the sum of Ringgit Malaysia Six Million Only (RM6,000,000) ( Retention Sum ) to the MIPCP s Solicitors as stakeholder for the purpose of the Profit Guarantee (as defined below at section of this announcement). It is hereby agreed that, upon from the signing of the audited accounts for the Guaranteed Financial Year, the Retention Sum shall be released to the MIPCP Vendors provided always that in the event of the Profit Guarantee are not met, the Retention Sum shall be utilised to pay for such shortfall in the Profit Guarantee Profit Guarantee The MIPCP Vendors agree to enter into an agreement for the Profit Guarantee upon execution of the SSA ( Profit Guarantee Agreement ) to guarantee to STARKEN that MIPCP shall for the Guaranteed Financial Year, have a PAT of not less than Ringgit Malaysia Six Million (RM6,000,000). For the avoidance of doubt, the Profit Guarantee for the Guaranteed Financial Year shall be as follows: Guaranteed Financial Year(s) (FYE) Profit Guarantee RM 000 Beginning 1 January 2017 to 6, December 2017 Total 6,000 In the event that the audited PAT for the Guaranteed Financial Year shall fall short of the Profit Guarantee for that particular Guaranteed Financial Year, the MIPCP Vendors shall forthwith pay or compensate STARKEN by the amount equal to the Profit Shortfall in the manner set out in the Profit Guarantee Agreement. In the event that the audited PAT for the Guaranteed Financial Year shall exceed the Profit Guarantee for that particular Guaranteed Financial Year, the MIPCP Vendors agree that the surplus of the profit after the Profit Guarantee shall be carried to the accounts of STARKEN Termination The MIPCP Vendors may, at any time up to and on the completion date and while such default subsists, give a notice of termination to STARKEN in the event that STARKEN defaults in the satisfaction of the Purchase Consideration in accordance with the provisions of the SSA or is otherwise in fundamental breach of its obligations under the SSA and the MIPCP Vendors shall be entitled to forfeit the Deposit paid by STARKEN to the MIPCP Vendors towards the Purchase Consideration.

5 Within seven (7) days of a notice of termination or other such period as maybe agreed by the Parties being duly given under the SSA: (a) The MIPCP Vendors shall immediately refund and repay to STARKEN all monies paid by STARKEN towards the Purchase Consideration free of interest in accordance with SSA less the Deposit which shall be forfeited by the MIPCP Vendors as agreed liquidated damages; (b) STARKEN must return all documents, if any, delivered to them by or on behalf of the MIPCP Vendors to the MIPCP Vendors with all the MIPCP Vendors rights and interest in STARKEN intact; and (c) The MIPCP Vendors must return all documents, if any, delivered to them by or on behalf of STARKEN to STARKEN. STARKEN may, at any time up to and on the completion Date and while such default subsists, give a Notice of Termination to the MIPCP Vendors in the event that the MIPCP Vendors fail, neglect or refuse to complete the sale of the Sale Shares in accordance with the provisions of the SSA and the MIPCP Vendors shall refund all monies paid by STARKEN to the MIPCP Vendors towards the Purchase Consideration free of interest. Within seven (7) days of a notice of termination or other such period as maybe agreed by the Parties being duly given under the SSA: (a) the MIPCP Vendors shall immediately refund and repay to STARKEN all monies paid by STARKEN in accordance with the SSA towards the Purchase Consideration free of interest; (b) STARKEN must return all documents, if any, delivered to them by or on behalf of the MIPCP Vendors to the MIPCP Vendors with all the MIPCP Vendors rights and interest in MIPCP intact; and (c) the MIPCP Vendors must return all documents, if any, delivered to them by or on behalf of STARKEN to STARKEN. A party may, at any time prior to completion, give a notice of termination to the other party if : (a) the other party is or becomes, or is adjudicated or found to be, bankrupt or insolvent or suspends payment of its debts or is (or is deemed to be) unable to or admits inability to pay its debts as they fall due or proposes or enters into any composition or other arrangement for the benefit of its creditors generally or proceedings are commenced in relation to that party under any law regulation or procedure relating to reconstruction or adjustment of debts; or (b) an administrator or receiver or receiver and manager is appointed over, or distress, attachment or execution is levied or enforced upon, any part of the assets or undertaking of the other party. In the event that a notice of termination is given under above conditions: (a) the MIPCP Vendors shall immediately refund and repay to STARKEN all monies paid by STARKEN in accordance with the SSA towards the Purchase Consideration free of interest; (b) STARKEN must return all documents, if any, delivered to them by or on behalf of the MIPCP Vendors to the MIPCP Vendors with all the MIPCP Vendors rights and interest in MIPCP intact; and (c) the MIPCP Vendors must return all documents, if any, delivered to them by or on behalf of STARKEN to STARKEN.

6 4. RATIONALE FOR THE PROPOSED ACQUISITION OF MIPCP The Proposed Acquisition of MIPCP is part of Chin Hin s vertical integration strategy and it represents a gateway for Chin Hin to further increase its product portfolio which create a synergy effect and is expecting to generate positive earnings to the Group. This acquisition is expected to increase the range and type of jacking pipes to be offered by STARKEN. It is also expected to complement the existing business of STARKEN and provides an opportunity for geographical expansion into the South East Asian market. This acquisition also represents an investment by the Group into new concrete technology and the possible addition of new export markets. 5. RISK FACTORS 5.1 Dependence on directors and key personnel The success of MIPCP will depend to a significant extent upon the abilities and continued efforts of the directors and senior management of MIPCP in attracting and retaining skilled personnel who have contributed to the growth of MIPCP. The loss of the services of the directors and senior management of MIPCP without suitable and timely replacement, or the inability to attract and retain other qualified personnel, could adversely affect our business operations. In accordance to the SSA, STARKEN shall procure that the key personnel in MIPCP shall remain employed on the same terms immediately prior to completion of the SSA, which is expected to ensure the continuation of business and key personnel of MIPCP. As such, a management service agreement will be entered into between the MIPCP Vendors and the Company to facilitate proper succession planning. 5.2 Risk in relation to delay and/or non-completion of the Proposed Acquisition of MIPCP If the Conditions Precedent in the SSA as described in Section 3 of this announcement are not fulfilled within the stipulated timeframe in accordance to the SSA, the Proposed Acquisition of MIPCP will not be completed and the Chin Hin Group would not be able to achieve the objectives of the Proposed Acquisition of MIPCP as stated in Section 4 of this announcement. To mitigate the said risks, Chin Hin will take reasonable steps that are within its control to ensure that all the Conditions Precedents in the SSA (including relevant approvals to be obtained) are fulfilled and the completion of the Proposed Acquisition of MIPCP occurs within the stipulated timeframe in accordance to the SSA. 6. PROSPECTS OF MIPCP Based on MIPCP s Order Books of approximately of RM10 million as at March 2017, the management of Chin Hin is optimistic that it will provide earnings visibility to Chin Hin Group. Furthermore, in view of MIPCP s good track record in servicing its clients and has vast experience and expertise in design, manufacturing and installation of MIPCP Products, Chin Hin is positive to be able to introduce new products into the market using MIPCP s in house technology and technical experience. 7. LIABILITIES TO BE ASSUMED BY CHIN HIN Save for the obligations and liabilities in and arising from, pursuant to or in connection with the SSA, there are no other liabilities including contingent liabilities and/ or guarantees to be assumed by Chin Hin arising from the Proposed Acquisition of MIPCP.

7 8. SOURCE OF FUNDING The Purchase Consideration will be satisfied entirely in cash, which will be financed through internally generated funds. 9. FINANCIAL EFFECTS ON THE PROPOSED ACQUISITION OF MIPCP 9.1 Share capital The Proposed Acquisition of MIPCP will not have any effect on the issued share capital and substantial shareholders shareholdings of Chin Hin as the Proposed Acquisition of MIPCP does not involve any issuance of new ordinary shares by Chin Hin. 9.2 Earnings and Net Assets The Proposed Acquisition MIPCP is not expected to have a material effect on the net assets per share and the earnings of the Chin Hin Group. However, it is expected to contribute positively to the future earnings of the Chin Hin Group. 9.3 Gearing The Proposed Acquisition MIPCP is not expected to have any material impact on the gearing of Chin Hin as it will be fully funded by the internally-generated funds. 10. HIGHEST PERCENTAGE RATIO The highest percentage ratio applicable to the Proposed Acquisition of MIPCP pursuant to Paragraph 10.02(g) of the Main Market Listing Requirements of Bursa Malaysia Securities Berhad is 24.44%. 11. APPROVAL SOUGHT The Proposed Acquisition of MIPCP is not subject to the approvals of the shareholders of Chin Hin or from any relevant authorities. 12. INTEREST OF DIRECTORS, SUBSTANTIAL / MAJOR SHAREHOLDERS AND PERSONS CONNECTED None of the directors and/or substantial /major shareholders of Chin Hin or any persons connected to them have any direct or indirect interest in the Proposed Acquisition of MIPCP. 13. DIRECTORS' STATEMENT The Board, having considered all aspects of the Proposed Acquisition of MIPCP, is of the opinion that the Proposed Acquisition of MIPCP is in the best interest of the Company and the terms and conditions of the SSA are fair and reasonable. 14. ESTIMATED TIMEFRAME FOR COMPLETION Barring any unforeseen circumstances and subject to all relevant approvals being obtained, the Proposed Acquisition of MIPCP is expected to be completed by the second quarter of 2017.

8 15. DOCUMENTS AVAILABLE FOR INSPECTION The SSA is available for inspection at the registered office of Chin Hin at Suite 10.03, Level 10, The Gardens South Tower, Mid Valley City, Lingkaran Syed Putra, Kuala Lumpur during normal business hours on Mondays to Fridays (except public holidays) for a period of three (3) months from the date of this announcement. This announcement is dated 3 April 2017.