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

Transcription

1 MEDA INC BERHAD ( MEDA OR THE COMPANY ) PROPOSED ACQUISITION OF 100% EQUITY INTEREST IN BCM HOLDINGS SDN BHD ( BCM ), COMPRISING 2,000,000 ORDINARY SHARES OF RM1.00 EACH AND 4,000,000 REDEEMABLE CONVERTIBLE PREFERENCE SHARES OF RM1.00 EACH IN BCM FOR AN AGGREGATE PURCHASE CONSIDERATION OF RM180 MILLION ( PROPOSED ACQUISITION ) 1. INTRODUCTION On behalf of the Board of Directors of Meda ( Board ), Hong Leong Investment Bank Berhad ( HLIB ) wishes to announce that the Company had on 25 June 2015, entered into a conditional share sale agreement ( SSA ) for the proposed acquisition of 100% equity interest in BCM comprising 2,000,000 ordinary shares of RM1.00 each in BCM ( BCM Shares ) and 4,000,000 redeemable convertible preference shares of RM1.00 each in BCM ( BCM RCPS ) (collectively, the Sale Shares ) from Tan You Tiong and Yeoh Siok Choo (collectively referred to as Vendors ) for an aggregate purchase consideration of RM180 million ( Purchase Consideration ). Further details of the Proposed Acquisition are set out in the ensuing sections. 2. DETAILS OF THE PROPOSED ACQUISITION Subject to the terms and conditions of the SSA, the Vendors shall sell and Meda, in full reliance on the warranties and representations by the Vendors as set out in the SSA, shall purchase the BCM Shares free from all encumbrances including any claim, charge, security, lien, option, equity, power of sale, hypothecation or other third party rights, retention of title, right of pre-emption, right of first refusal or security interest of any kind or adverse interests and with all rights attaching to the BCM Shares and BCM RCPS together with all dividends and distributions declared in respect thereof at the Purchase Consideration and upon the terms and conditions as contained in the SSA. BCM is the registered and beneficial owner of 2 contiguous parcels of freehold land held under HS(D) PT 62 Seksyen 92, Bandar Kuala Lumpur, Daerah Kuala Lumpur, Wilayah Persekutuan measuring 1, square metres in area ( Property 1 ) and Geran 37699, Lot 5, Seksyen 92, Bandar Kuala Lumpur, Daerah Kuala Lumpur, Wilayah Persekutuan measuring 15, square metres in area ( Property 2 ) (collectively, the Properties ). Accordingly, the Properties are the sole asset component of BCM. A summary of the salient information on the Properties is set out as follows: Property 1 Property 2 Land title HS(D) PT 62 Seksyen 92, Bandar Kuala Lumpur, Daerah Kuala Lumpur, Wilayah Persekutuan Land area 1, square metres ( acres) Tenure Freehold Freehold Category of land use Bangunan Geran 37699, Lot 5, Seksyen 92, Bandar Kuala Lumpur, Daerah Kuala Lumpur, Wilayah Persekutuan 15, square metres ( acres) Tidak dinyatakan Express condition Tiada Revision under Section 4 of Enactment II 1911, or of any similar provision of law in any amending, or substituted Enactment shall not result in the enhancement of the rent 1

2 Restriction-ininterest Encumbrances Description and existing use Combined net book value as at 31 May 2015 Property 1 Property 2 Nil A charge bearing presentation no. 712/2009 in favour of EON Bank Berhad (which has been merged with Hong Leong Bank Berhad); dated 20 January 2009 Vacant land and overgrown with wild grass, trees and shrubs RM21,204,000 Nil A vacant factory complex and factory warehouse together with a guardhouse and water tank Upon the completion of the Proposed Acquisition, BCM will be a wholly-owned subsidiary of Meda. Meda proposes to develop the Properties into a mixed development comprising serviced apartments and commercial properties with an estimated gross development value of RM million and an estimated gross development cost of approximately RM million, yielding an estimated gross development profit of approximately RM million. The development is expected to commence in the fourth quarter of 2015 and complete within 48 months from the commencement of the development. 2.1 Background information on BCM BCM was incorporated as a private company under the Companies Act, 1965 ( Act ) under its present name on 24 June The principal activity of BCM is sub-letting landed property. As at 31 May 2015, BCM has an authorised share capital of RM10,000,000 divided into 5,000,000 BCM Shares and 5,000,000 BCM RCPS of which 2,000,000 BCM Shares and 4,000,000 BCM RCPS have been issued and fully paid up. As at 31 May 2015, the Directors and shareholders of BCM and their respective shareholdings in BCM are set out as follows: Name of Directors and shareholders < Direct >- No. of BCM Shares held % < Indirect >- No. of BCM Shares held % Tan You Tiong 1,600, Yeoh Siok Choo 400, Total 2,000, Name of Directors and shareholders < Direct >- No. of BCM RCPS held % < Indirect >- No. of BCM RCPS held % Tan You Tiong 3,200, Yeoh Siok Choo 800, Total 4,000, A brief summary of BCM s historical financial information for the past 3 years up to the financial year ended ( FYE ) 30 June 2014 and 11-month financial period ended ( FPE ) 31 May 2015 are disclosed in Appendix I of this Announcement. 2

3 2.2 Mode of settlement of the Purchase Consideration The combination of the purchase consideration for the BCM Shares and BCM RCPS which forms the Purchase Consideration is as follows: (i) (ii) in respect of the 2,000,000 BCM Shares, the purchase consideration is agreed to be RM176 million; and in respect of the 4,000,000 BCM RCPS, the purchase consideration is agreed to be RM4 million. The Purchase Consideration, which is subject to adjustment as referred to in Section 3.2 of this announcement, is proposed to be satisfied by a combination of cash and issuance of new ordinary shares of RM0.50 each in Meda ( Meda Shares ) at an issue price of RM0.60 per Meda Share ( Consideration Shares ) in accordance with the terms of the SSA, as set out below: Cash Consideration (RM 000) Purchase Consideration Issuance of Consideration Total Shares Consideration No. of Meda Shares ('000) (RM 000) (RM 000) Tan You Tiong 111,840 53,600 32, ,000 Yeoh Siok Choo 27,960 13,400 8,040 36,000 Total 139,800 67,000 40, ,000 The Purchase Consideration of RM180 million, which is subject to adjustment as referred to in Section 3.2 of this announcement, shall be satisfied by Meda in the following manner: Breakdown of payment Terms of payment RM 000 Deposit and part payment in Upon execution of the SSA 3,600 cash ( Deposit ) Part payment via issuance of Consideration Shares On Completion Date (as defined in Section 3.4 of this Announcement) ie. within 60 days after the fulfilment of all conditions 40,200 Part payment in cash ( Completion Cash Amount ) Balance payment in cash ( Balance Payment ) precedent under the SSA) On Completion Date (as defined in Section 3.4 of this Announcement) Within 24 months from the Completion Date (as defined in Section 3.4 of this Announcement) 50,000 86,200 Total 180, Basis and justification for arriving at the Purchase Consideration The Purchase Consideration was arrived at following negotiations between the Parties on a willing-buyer willing-seller basis after taking into consideration the following: (i) The adjusted net assets ( Adjusted NA ) of BCM after as illustrated as follows: RM 000 Audited net assets ( NA ) of BCM as at the FPE 31 May ,515 Add: Assumption of advances (a) 59 Add: Settlement of BCM s debt by the Vendors (b) 18,629 Add: Net revaluation surplus (c) 135,885 Adjusted NA 157,088 Notes: (a) The assumption by Meda of the amounts owed by BCM to its directors for advances. 3

4 (b) (c) The BCM s debt which will be settled by the Vendors (as detailed in Section 3.6 of this Announcement) is the loan obtained by BCM to finance the initial purchase of the land. As part of the Proposed Acquisition, the Vendors will undertake to settle the said loan whereby the Properties will be acquired by Meda via BCM free from all charges. The revaluation surplus is calculated based on the audited net book value of the Properties as at 31 May 2015 of approximately RM21.20 million, the market value indication of RM200.0 million for the Properties as ascribed by Laurelcap Sdn Bhd ( Valuer ), an independent firm of registered valuers, after adopting the Comparison and Residual methods, and the estimated deferred taxation liabilities to be accrued arising from the revaluation of the Properties of RM42.91 million. In arriving at the deferred tax adjustments, the statutory Malaysian corporate tax rate of 24% for the year of assessment 2016, assuming that the Proposed Acquisition will be completed in the fourth quarter of 2015 and that any profits to be derived from the Properties will be recognised in (ii) Favourable deferred payment terms for the settlement of RM86.20 million out of the Purchase Consideration of up to 24 months from the Unconditional Date (as defined in Section 3.3(iii) below). Based on a discount rate of 8.35% per annum, being the Meda Group s average cost of borrowing, and the deferred payment terms, the present value of the Purchase Consideration is approximately RM million. Based on the Adjusted NA of BCM and the present value of the Purchase Consideration, the present value of the Purchase Consideration is a premium of 6.45% over the Adjusted NA. Nonetheless, the Board of Meda is of the opinion that the Proposed Acquisition will benefit the Meda Group due to the development potential and prospects of the Properties in view of its strategic location on the southern fringe of the Kuala Lumpur city center, connected by established road infrastructure such as Jalan Sungai Besi, Jalan Loke Yew, the SMART Tunnel and the Maju Expressway. In addition, the Properties are located in the proximity of various established developments, such as the Fraser Business Park and Southgate Commercial Center, as well as proposed developments such as the Tun Razak Exchange, KL118 (formerly known as Warisan Merdeka) and Velocity by Sunway Berhad. Please refer to Section 4 of this Announcement for further justification for the Proposed Acquisition. 2.4 Basis of determining the issue price of the Consideration Shares The issue price of RM0.60 per Consideration Share was arrived at, after taking into consideration: (i) (ii) the 5 market days volume weighted average market price ( 5D-VWAMP ) of Meda Shares of RM up to and including 24 June 2015, being the date immediately preceding the date of the SSA; and the par value of Meda Shares of RM0.50 each. For illustration purposes, the issue price of RM0.60 per Consideration Share represents a premium of RM or 1.01% to the 5D-VWAMP, up to and including 24 June 2015, of RM per Meda Share. 2.5 Liabilities to be assumed by Meda Save for the liabilities incurred under the ordinary course of business of BCM, there are no liabilities including contingent liabilities and guarantees, to be assumed by Meda arising from the Proposed Acquisition. 2.6 Additional financial commitment required Save for the approximate gross development cost of RM million to be incurred in connection with the development of the Properties, the manner of funding for which has not yet been determined at this juncture, the Board does not foresee any other additional material financial commitments required by Meda to put the assets and/or business of BCM onstream. 4

5 The actual gross development costs to be incurred by the Group will depend on, amongst others, time span of the development projects, the type of development to be undertaken, financing cost as well as cost of raw materials, construction cost and other miscellaneous cost. The development plans and details have not been finalised as at the date of this Announcement. 2.7 Source of funding Meda intends to fund the cash portion of the Purchase Consideration for the Proposed Acquisition and the development cost of the Properties through bank borrowings as well as internally generated funds. The exact mix of internally generated funds and bank borrowings will be decided by the management at a later stage after taking into consideration the gearing level of Meda and its subsidiaries (collectively, the Meda Group or Group ), interest costs as well as internal cash requirements for the business of the Meda Group. The Board is of the opinion that the manner of settlement of the Purchase Consideration, as set out in Section 2.2 of this Announcement, will enable the Meda Group to acquire land bank for development which have good development potential and prospects without any immediate substantial impact on the cashflow of Meda as opposed to being fully settled in cash, which is likely to be financed predominantly via new bank borrowings. The issuance of the Consideration Shares to partly satisfy the Purchase Consideration is also expected to conserve cash for other working capital purposes. 2.8 Ranking of the Consideration Shares The Consideration Shares to be issued in relation to the Proposed Acquisition shall, upon allotment and issue, rank pari passu in all respects with the then existing Meda Shares, except that they shall not be entitled to any dividends, rights, allotments and/or other distributions that may be declared, made or paid, the entitlement date of which precedes the date of allotment of the Consideration Shares. 2.9 Listing of and quotation for the Consideration Shares An application will be made to Bursa Malaysia Securities Berhad ( Bursa Securities ) for the listing of and quotation for the Consideration Shares on the Main Market of Bursa Securities. 3. SALIENT TERMS OF THE SSA 3.1 Sale and purchase of Sale Shares Subject to the provisions of the SSA, the Vendors, as registered and beneficial owners, shall sell, and Meda shall purchase the Sale Shares free from all encumbrances including any claim, charge, security, lien, option, equity, power of sale, hypothecation or other third party rights, retention of title, right of pre-emption, right of first refusal or security interest of any kind or adverse interests and with all rights attaching thereto together with all dividends and distributions declared in respect thereof as from the completion date of the sale and purchase transaction, for the Purchase Consideration which shall be paid in the payment manner as set out in the Section 2.2 of this Announcement. 3.2 Adjustment to Purchase Consideration (i) (ii) The parties agree and acknowledge that the Purchase Consideration is derived and based on the adjusted net assets value (after taking into consideration the settlement of amount owing to directors, revaluation of the Properties and loan/redemption sum for Properties assumed by the Vendors) of BCM which as at 31 May 2015 is RM157,088,785 ( Current RNAV ). The parties further agree that prior to the Completion Date, a completion audit shall be carried out by an accountant or professional appointed by both parties to confirm the adjusted net assets value of BCM as at the calendar month immediately preceding the Completion Date ( Completion RNAV ). 5

6 (iii) (iv) Where the Completion RNAV falls within the range or band of ninety eight percent (98%) or one hundred and two percent (102%) of the Current RNAV, the parties agree and acknowledge that there shall not be any adjustments to the Purchase Consideration. If: (a) the Completion RNAV is more than one hundred and two percent (102%) of the Current RNAV, the Purchase Consideration shall be adjusted and increased as follows: Revised Purchase Consideration = Purchase Consideration + X where X = the Completion RNAV less the Current RNAV, (b) the Completion RVAV is less than ninety eight per cent (98%) of the Current RNAV, the Purchase Consideration shall be adjusted and reduced as follows: Revised Purchase Consideration = Purchase Consideration Y where Y = the Current RNAV less the Completion RNAV (v) The parties agree and acknowledge that the revised Purchase Consideration in accordance with section 3.2(iv) above (if any) shall be made at the time of payment of the Balance Payment. 3.3 Conditions precedent to Completion (i) The sale and purchase of the Sale Shares as set out in the SSA is conditional upon the following conditions precedents being fulfilled on terms and conditions acceptable to the parties ( Conditions Precedent ) within a period of four (4) months from the date of the SSA or such extended period(s) as the parties may agree in writing ( Approval Period ): (a) (b) (c) (d) the approval-in-principle of Bursa Securities for the listing of and quotation for the Consideration Shares on the Main Market of Bursa Securities; the approval of the shareholders of Meda for the purchase of the Sale Shares with the market value of the Properties valued at not less than RM200,000,000, including the allotment and issuance of the Consideration Shares; the consent and/or approval of the Kuala Lumpur City Hall (Dewan Bandaraya Kuala Lumpur) for the conversion of the land use to commercial purposes and the development order (kebenaran merancang) for the development of the Properties with a plot ratio of 1:7 and the removal of any of the subsisting express condition and/or restriction in interest, if any, that would affect the development of the Properties; and if required, the consent and/or approval of EON Bank Berhad, being the chargee bank of the Properties ( Chargee Bank ). (ii) (iii) If any or all of the Conditions Precedent is not fulfilled within the Approval Period, the sale and purchase of the Sale Shares as set out in the SSA shall be deemed terminated and be null and void and of no effect and the Vendors shall refund the Deposit to Meda forthwith and thereafter no party shall have any claims of whatsoever nature against the others save and except in respect of any antecedent breach. The SSA shall cease to be conditional on the date all the Conditions Precedent are fulfilled or waived in accordance with provisions of the SSA and the parties are duly notified of the same, within the Approval Period ( Unconditional Date ). 6

7 3.4 Completion Completion of the sale and purchase of the Sale Shares as set out in the SSA shall take place on a date falling within sixty (60) days after the Unconditional Date to be determined by Meda, in consultation with the Vendors or such later date as the parties may agree in writing ( Completion Date ) on which Completion shall take place at the office of Meda or such other place the parties may agree in writing. 3.5 Parties covenants pending completion (i) (ii) As from the date of the SSA and up to and including the Completion Date, the Vendors warrant that BCM shall act in accordance with the ordinary course of business of BCM. The Vendors agree with Meda that as from the date of the SSA to and including the Completion Date, the Vendors shall obtain the written consent of Meda (the consent of which shall not be unreasonably withheld) if BCM seeks to do any of the following: (a) (b) (c) (d) (e) increase the existing discretionary powers granted to any employee of BCM; recruit any new staff; save and except for the increase in the remuneration of any of its employees of a sum equivalent of no more than 10% of the existing remuneration of such employee ( Agreed Limit ), change the terms and conditions of services of its employees or in the existing staff benefits; save and except for the increase in the remuneration of any of its employees that is within the Agreed Limit, increase the salary or bonus/ex-gratia payments in excess of the existing collective agreement or employment contract of staff both in terms of amounts and frequency of increase of payment; and purchase or commit to purchase any equipment or software of more than RM50,000 only in value. (iii) Meda undertakes that it will not, unless with the consent of the Vendors (which consent shall not be unreasonably withheld): (a) (b) issue or allot or agree to issue any shares or any obligations or securities convertible into shares or any debentures or loan capital or grant or agree or agree to grant any option over or the right to acquire or subscribe for any shares or loan capital to any person whatsoever other than those pursuant to its existing warrants and employees share option scheme, if any; and consolidate or subdivide any shares, create any new classes of shares, alter any of the rights attached to any of the issued shares, reduce any share capital or otherwise reorganise or grant any right in respect of the share capital in any way. 7

8 3.6 Vendors obligation to redeem the Properties The Vendors undertake, covenant and/or agree that it shall be their obligation to redeem the Properties from the Chargee Bank and discharge the charge entered by the Chargee Bank over the Properties, at their own cost and expense. Notwithstanding thereto, the Vendors agree that in the event that the charge is not discharged and/or the Vendors fail to provide documentary evidence that the charge will be discharged by the Completion Date, Meda shall be at liberty to use part of the Completion Cash Amount to redeem the Properties and discharge the charge on the account of the Vendors. Meda is authorised to retain such amount from the Completion Cash Amount as may be necessary for the purpose of redeeming the Properties from the Chargee Bank and pay the same to the Chargee Bank. The Vendors confirm and acknowledge that all such payments made to the Chargee Bank from the Completion Cash Amount shall be deemed to be payments made to and received by the Vendors towards the account of the Purchase Consideration. For the avoidance of doubt, Meda agrees and acknowledges that any failure or inability of the Vendors to redeem the Properties from the Chargee Bank and discharge the charge by the Completion Date shall not constitute a breach on the part of the Vendors with respect to their obligations or undertaking under the SSA and Meda shall not be entitled to elect to terminate and rescind the SSA. 3.7 Specific Performance and Parties Default (i) Meda shall be entitled to claim specific performance of the SSA against the Vendors upon fulfillment of all the Conditions Precedent. (ii) If any of the Vendors (a) (b) (c) defaults in completing the sale of the Sale Shares in accordance with the terms of the SSA; fails to perform any of its obligations under the terms of the SSA; or breaches any of its warranties, representations and undertakings in the SSA, and Meda lawfully elects to terminate and rescind the SSA, the Vendors shall then return the Deposit free of interest forthwith to Meda and the Vendors shall be liable to pay to Meda liquidated damages of an amount equivalent to the Deposit (without prejudice to any other rights and remedies available to the Meda in law) failing which late payment interest at the rate of 10% per annum shall be chargeable and calculated on daily basis from date it is due and payable till date of full payment. (iii) (iv) In the event that Meda fails to satisfy the part payment via issuance of Consideration Shares and part payment by cash in accordance with the provisions of the SSA and any of the Vendors elect to terminate the SSA, the Deposit shall forthwith be absolutely forfeited in favour of the Vendors. In the event Meda fails to pay the Balance Payment in cash when it is due and payable, the total outstanding balance of the Balance Payment shall become immediately due and payable and shall be recoverable as debt due and payable. 4. RATIONALE FOR THE PROPOSED ACQUISITION The Properties, situated in a prime area on the southern fringe of the Kuala Lumpur city center, is located along Jalan Satu which is within a matured industrial estate known as Chan Sow Lin. In addition, the Properties are also located in the proximity of various established developments, such as the Fraser Business Park and Southgate Commercial Center, as well as proposed developments such as the Tun Razak Exchange, KL118 (formerly known as Warisan Merdeka) and Velocity by Sunway Berhad. The Meda Group plans to undertake a mixed development comprising serviced apartments and commercial properties on the Properties in several phases with Phase 1 estimated to contain 294 units of serviced apartments and shop-office/shop-lots. 8

9 The Group s recent development projects include The Arc mixed development in Cyberjaya, Selangor, which has been completed, as well as the Scott Garden and Scott Towers residential developments in Johor Bahru, Johor, which have been launched. Presently, the Group is estimating the gross development value of the proposed development to be RM million and would yield a gross development profit of approximately RM million. Nonetheless, the proposed development is dependent on obtaining the necessary approvals from the relevant regulatory authorities. As such, the plans of the proposed development may be subject to further amendments to facilitate the securing of the said necessary approvals. The Proposed Acquisition represents a timely and unique opportunity for the Meda Group to acquire land bank in the Klang Valley as well as expand its operations and strengthen its presence as a developer in the Klang Valley. The Board is of the view that the Proposed Acquisition, as well as the premium of the Purchase Consideration, is justifiable and to the benefit to the stakeholders of the Meda Group as it represents an opportunity to acquire new land bank in a strategic location with strong growth potential to enhance the GDV of the Group s development projects and provide greater sustainability to future earnings. In addition, it is to be noted that the Proposed Acquisition is undertaken due to the attractiveness of the Properties. 5. INDUSTRY OVERVIEW AND OUTLOOK 5.1 Overview and outlook of the Malaysian and global economy The Malaysian economy registered a growth of 5.6% in the first quarter of 2015 (4Q 2014: 5.7%), underpinned mainly by the private sector demand. On the supply side, growth was supported by the major economic sectors. On a quarter-on-quarter seasonally-adjusted basis, the economy recorded a growth of 1.2% (4Q 2014: 1.8%). Private sector activity remained the key driver of growth during the quarter. Private consumption expanded at a stronger pace of 8.8% (4Q 2014: 7.6%), supported by stable labour market conditions and higher wage growth. The strong private consumption growth was also contributed by the flood relief efforts early in the year, and the frontloading of household spending prior to the implementation of Goods and Services Tax (GST). Private investment recorded a growth of 11.7% (4Q 2014: 11.1%), underpinned by capital expenditure in the manufacturing and services sectors. Growth in public consumption improved in the first quarter (4.1%; 4Q 2014: 2.5%), due to higher growth in supplies and services amid moderate growth in emoluments. Public investment turned around to register a positive growth of 0.5% (4Q 2014: -1.9%) following higher capital spending by the Federal Government. Moving forward, global economic growth is projected to improve at a moderate pace, but with diverging growth momentum across major economies. Although lower oil prices will have varying impact on economies, overall global growth is expected to benefit from this development. Downside risks to the growth outlook continue to persist, arising from the prolonged weakness in domestic demand and low inflation in a number of major economies, concern on the growth prospects of several net commodity-exporting emerging economies and the re-emergence of geopolitical tensions, which could heighten financial market volatility. The Malaysian economy is expected to remain on a steady growth path. Domestic demand will remain the key driver of growth amid the lower oil prices. Investment activity is projected to remain resilient, with continued capital spending by both the private and public sectors. While private consumption is expected to moderate as households adjust to the introduction of the GST, the steady rise in income and stable labour market conditions would support household spending. The recovery in global growth while remaining moderate, will provide support to manufactured exports, although lower commodity prices will likely weigh down on overall exports. (Source: Economic and Financial Developments in the Malaysian Economy in the First Quarter of 2015, Bank Negara Malaysia) 9

10 5.2 Overview and prospects of the property industry The real estate and business services subsector expanded 8% during the first six months of 2014 (January - June 2013: 6.7%). During the period, the business services segment recorded 8.9% growth (January - June 2013: 7.7%) mainly driven by higher demand for professional services, particularly engineering services in the construction sector as well as computer services. Meanwhile, the real estate segment grew 5.5% (January - June 2013: 4%) following higher real estate transactions which rebounded by 3.3% to 193,430 (January- June2013: -13.8%; 187,164) with transaction value recording a double-digit growth of 19% to RM82 billion (January June 2013: -0.3%; RM69 billion). Despite property prices hovering at a high level, the various cooling measures introduced to curb rising property prices and speculative activities have started to gain traction. This was reflected in the slower increase in residential property prices at 8.1% while transactions fell 2.7% during the first half of 2014 (January - June 2013: 11%; 5.1%). Growth of the real estate and business services subsector is projected to sustain at 7.5% in 2014 (2013: 7.5%). Growth in the non-residential subsector turned around sharply by 14% (January - June 2013: -1%) in line with healthy business activity during the first half of This was reflected by increased construction activities especially for commercial buildings with the incoming supply of shops increasing to 72,117 units (January - June 2013: 66,167 units). In the public sector, construction was mainly concentrated in building 33 new schools and upgrading facilities in universities and hospitals. Industrial building starts grew significantly by 81.6% to 1,580 units (January - June 2013: 73.7%; 870 units), particularly in Johor, Selangor and Pulau Pinang. Meanwhile, construction starts for purpose-built offices (PBO) decreased substantially to 2,965 square metre (sm) (January-June 2013: 263,284 sm), after experiencing strong growth of 61.2% in PBO starts in However, the national occupancy rate of office buildings remained stable at 83.4% (end-june 2013: 82%) despite an additional 194,798 sm space. Meanwhile, the incoming supply of shopping complexes declined 22%, while construction starts dropped 64.2% during the first half of However, the overall occupancy rate remained high at 81.3% (end-june 2013: 79.6%), reflecting strong retail activities supported by resilient private consumption. As at end-june 2014, the stock of shopping complexes and PBO stood at million sm and million sm, respectively (end-june 2013: million sm; million sm). During the second quarter of 2014, the Purpose-Built Office Rent Index Wilayah Persekutuan Kuala Lumpur (PBO-RI WPKL) showed that PBO rentals in Kuala Lumpur continued to remain stable despite announcement of large planned projects such as the Tun Razak Exchange. The PBO-RI WPKL recorded 117 points (Q2 2013: points), increasing 1.8% on account of higher growth Within the City Centre (WCC) area. Likewise, the average rental rate of PBO in WCC recorded an increase of 5.8% to RM4.41 per square foot (psf) (Q2 2013: 10%; RM4.10 psf). The average rental of investment-grade buildings in Kuala Lumpur, particularly Kuala Lumpur City Centre/Golden Triangle stood at RM6.18 psf (Q2 2013: RM6.17 psf), indicating stable rentals for offices in good locations. The residential subsector expanded strongly by 22.1% during the first half of 2014 (January - June 2013: 15.7%) supported by higher growth in incoming supply at 9.5% (January - June 2013: 15.3%). Meanwhile, new housing approvals increased significantly by 32.6% to 96,115 units (January - June 2013: 6.8%; 72,461 units). Despite the decline in housing starts at 5.3% to 70,346 units (January June 2013: 21.1%; 74,270 units), residential activity is expected to remain stable. The take-up rate for houses priced between RM500,001 and RM1,000,000, within six months after launch, was lower at 11.6% (January - June 2013: 34.2%) following several measures to cool the housing sector. Meanwhile, the highest take-up rate was recorded for houses priced between RM200,001 and RM250,000 at 49.3%. With regard to the provision of adequate houses for the low-income group, the Government continues to allocate funds to build affordable houses under various Government programmes, such as Rumah Mesra Rakyat (RMR), Rumah Mampu Milik (RMM) and Rumah Idaman Rakyat (RIR). In addition, in the 2013 Budget, the Government has introduced a new category under Rumah Mesra Rakyat 1Malaysia with sales price between RM45,000 and RM65,000 per unit. Under the new category, the Government will provide a subsidy between RM15,000 and RM20,000 per unit. The Government also allocated RM1 billion under IMalaysia Housing Programme (PRIMA) to build 80,000 housing units. 10

11 Meanwhile, the value of total property transactions increased to RM82 billion (January June 2013: RM68.8 billion), with volume expanding 3.3% to 193,405 transactions during the first six months of Residential property transactions formed the bulk with a share of 63.5%. However, following several cooling measures imposed to curb speculative activity in the property sector, the number of residential property transactions decreased 2.7% in the first half of 2014 (July - December 2013: 5.1%). During the same period, residential transactions declined in Kuala Lumpur (-4.8%) and Selangor (-2.1%), while Johor and Pulau Pinang registered positive growth of 17.5% and 2.7%, respectively. Meanwhile, the residential overhang declined 11.5% to 12,105 units during the first half of 2014 (January - June 2013: %; 13,673 units), with a total value of RM4.5 billion (January - June 2013: RM5 billion). House prices in Malaysia continue to rise, albeit at a slower pace, amid several measures to curb rising house prices since The increase in house prices was driven by strong demand following favourable labour market conditions and growing household income. The Malaysian House Price Index, which measures the change in prices paid for an average house, increased moderately by 6.6% in the second quarter of 2014, compared with 11.3% in the corresponding period in This was the lowest quarterly rate of increase since the third quarter of However, higher-than-average prices were recorded in Selangor (10.1%), Pulau Pinang (9.6%) and Kuala Lumpur (9.1%). The highest price increase was recorded for terrace houses, which grew 8.2% followed by high-rise units (7.9%), detached (2.5%) and semidetached (2.4%) houses. (Source: Economic Report 2014/2015, Ministry of Finance Malaysia) 6. RISK FACTORS The potential risk factors relating to the Proposed Acquisition are as follows: 6.1 Sensitivity to economic downturn and regulatory restrictions The demand for properties is dependent on the general economic, business and credit conditions, as well as the availability of supply in the market. Whilst the Board believes that it is possible to address any fluctuations in the demand for properties by meticulous planning, innovative design, timing of launch, right type of products/segment and pricing points relative to competitors, there can be no assurance that proposed development on the Properties will be shielded from any adverse downturn in the economy. In this respect, it is noted that the relevant authorities in Malaysia have introduced certain regulatory restrictions in an effort to promote a more stable and sustainable property market in Malaysia. Real property gains tax ( RPGT ) was reinstated by the government of Malaysia ( Government ) in 2010 to deter speculative activities in the secondary property market. Subsequently, the RPGT rates were revised higher by the Government as part of its efforts to further curb speculation in the property market. In 2010, Bank Negara Malaysia ( BNM ) introduced a maximum loan-to-value ratio of 70% with regards to third home purchases. Under the ruling, potential third home purchasers are only able to obtain loan-financing facility of up to 70% of the value of their proposed third home purchases. This ruling was introduced with the aim of discouraging speculation in the property market. In November 2013, BNM issued a ruling that banks are required to give out property loans based on the net selling price of properties, which excludes rebates and discounts as opposed to the gross selling price of the subject properties. In addition, banks are no longer providing financing for projects with developer interest bearing schemes ( DIBS ). DIBS is generally a form of promotional incentive offered to potential purchasers in a bid by property developers to attract property buyers. Under DIBS, interests of the loan undertaken by the buyers are borne by the property developers until the property has been completely constructed. 11

12 While we are of the view that such restrictions should not have a material impact on our Group s operations and financial performance, any further introduction of cooling measures by the Government or BNM to control price levels of the Malaysian property market may adversely impact our Group s property development business. Meda will leverage on its strength and experience in property development to assess and manage these risks accordingly. 6.2 Financing risk Based on the intended funding mix as set out in Section 2.7 of this Announcement, the cash portion of the Purchase Consideration is expected to be funded through external borrowings to be procured by the Group as well as internally generated funds. As such, the Group may incur interest expenses on the bank borrowings. Nonetheless, the exact mix of internally generated funds and bank borrowings will be decided by the management at a later stage. In view that the interest charged on bank borrowings is dependent on prevailing interest rates, future fluctuation of interest rates could have an effect on the Group s cash flows and profitability. The management of Meda believes however that prudent cash flow management will be able to address or mitigate financing risks. 6.3 Non-approval by regulatory authorities The Proposed Acquisition involves the acquisition of vacant land for development purposes and the proposed development of the Properties is subject to various planning and development approvals being obtained from the relevant authorities. Although it is a condition precedent to the completion of the SSA under the terms of the SSA that the consent and/or approval of the Kuala Lumpur City Hall (Dewan Bandaraya Kuala Lumpur) be obtained for the conversion of the land use of the Properties to commercial purposes and that the development order for the development of the Properties with the requisite plot ratio be obtained, there is a possibility that any changes subsequently sought in respect of the development order or plan may not be approved by the relevant authorities. Furthermore, various permits, licences, certificates and approvals from governmental authorities are required at various stages of development and there is no assurance that all necessary permits, licences, certificates and approvals will be successfully obtained within the scheduled timeframe for the proposed development. Failure or delays in obtaining such approvals may result in the Group not being in a position to bring to materialization its development plans or delays in the development schedules and/or cost overruns for the proposed development project, which may in turn affect the profitability of our Group. Nevertheless, with our experienced team, we will seek to limit these risks through, inter alia, careful planning and proactive and close monitoring of the progress of the proposed development project and endeavour, to the best of our ability, to obtain all the necessary permits, licences, certificates and approvals required for the development project. 6.4 Delays in commencement and completion There are many external factors which are beyond the control of the Group that could affect the timely completion of property development projects, such as getting the necessary approvals from relevant authorities, the availability of construction materials in adequate amounts and supply in a timely manner and satisfactory performance of the appointed building contractors. However, the Group will seek to mitigate such risks by closely monitoring the progress of its development project and endeavour to promptly come up with solutions to any setbacks in order to ensure the timely completion of the proposed development of the Properties. 6.5 Competition The Group s business faces competition from various property developers. The property development market is highly competitive and any oversupply of properties due to a mismatch in supply and demand will intensify the level of competition which may, amongst others, affect pricing. 12

13 Meda has an established track record. It will continue to take measures to address the competition risk such as conducting market intelligence surveys, monitoring and adjusting development and innovative marketing strategies in response to changing economic conditions and market demand. 6.6 Dependence on key personnel The success of the Group will depend to a significant extent upon the abilities and continued efforts of the Directors and senior management of the Group in attracting and retaining skilled personnel who have contributed to the growth of the Group. The loss of the services of the Directors and senior management of the Group without suitable and timely replacement, or the inability to attract and retain other qualified personnel, could adversely affect our business operations. As such, the Group has taken steps to ensure that the Group s employees are given recognition and are adequately rewarded in line with market practices for their contribution to the success of the Meda Group. 6.7 Other inherent risks pertaining to the property development industry The proposed development on the Properties is also subject to inherent risks in the property development industry, which includes insufficiency of labour supply, volatility in construction material prices and changes in government policy and regulatory framework of the construction and/or property development industries. Meda will leverage on its track record, strength and experience as a property developer to manage these risks in an appropriate manner. 6.8 Non-completion of the Proposed Acquisition Completion of Proposed Acquisition is conditional upon the fulfilment of all necessary conditions as set out in Section 3.3 of this Announcement, which include, among others, the approval from the shareholders of Meda and other parties and subject to the satisfactory performance of the obligations as set out in the SSA. In the event that such approvals, conditions and/or obligations are not obtained and/or satisfied, the Proposed Acquisition will not be completed and the Group will not be able to meet its objectives as stated in Section 4 of this Announcement. There is no assurance that the Proposed Acquisition can be completed within the time period prescribed under the SSA or completed at all. Nonetheless, the Board will take reasonable steps to obtain the fulfilment of the conditions precedent and approvals in the SSA required for the completion of the Proposed Acquisition. 7. EFFECTS OF THE PROPOSED ACQUISITION 7.1 Share Capital For illustrative purposes, the proforma effects of the Proposed Acquisition on the issued and paid-up share capital of the Company are shown below: No. of Meda Shares ( 000) RM 000 Issued and paid-up share capital as at 31 May 2015 (1) 483, ,278 To be issued pursuant to the Proposed Acquisition 67,000 33,500 Enlarged issued and paid-up share capital 550, ,778 Note: (1) Including treasury shares of 9,347,900 as at 31 May

14 7.2 NA per share and gearing For illustrative purposes, the proforma effects of the Proposed Acquisition on the consolidated NA, NA per share and gearing ratio of Meda based on the audited consolidated statement of financial position of Meda as at 31 December 2014 are set out below: Proforma I Proforma II Audited as at 31 December 2014 Adjusted as at 31 December 2014 (2) Upon completion of the Proposed Acquisition of Land (3) Upon completion of the Proposed Acquisition RM 000 RM 000 RM 000 Share capital 246, , ,278 Share premium 12,880 12,880 12,880 (4) 279,778 (4) 19,580 Treasury shares (6,518) (6,542) (6,542) (6,542) Warrants reserve 8,889 8,889 8,889 8,889 Revaluation reserve 6,011 6,011 6,011 6,011 Accumulated losses (54,718) (54,718) (55,288) (5) (56,604) Shareholders equity / NA 212, , , ,112 No. of Shares in issue ( 000) (1) 483, , , ,207 NA per Share (RM) Borrowings (RM 000) 67,972 67,972 90,155 (6) 226,355 Gearing ratio (times) Notes: (1) Excluding treasury shares of 9,307,900. (2) After taking into account the repurchase of the Company s 40,000 ordinary shares totaling RM24,100 from period 1 January 2015 to 31 May (3) After taking into the effects of the proposed acquisition by Meda Group of approximately 39, square metres of freehold land held under GM342, Lot 1022, Tempat Sungai Sekamat, Mukim Cheras, Daerah Hulu Langat, Negeri Selangor for a total considerations of RM31,689,900 (as announced by Meda on 20 October 2014) which assuming 70% of the purchase consideration totaling RM million will be financed by bank borrowing as well as the interest of 8% per annum amounting to RM0.57 million for the extension of the completion period for a period of three (3) months from 19 June 2015 to 18 September (4) After adjusting the issuance of Consideration Shares for the Proposed Acquisition. (5) After taking into account the estimated expenses incidental to the Proposed Acquisition of RM1.316 million. (6) Assuming the part payment in cash and balance payment in cash of RM50 million and RM86.2 million respectively are financed by bank borrowing. 7.3 Earnings and EPS The Proposed Acquisition is not expected to have material impact on the earnings of the Group for the FYE 31 December 2015 as the proposed development of the Properties is expected to commence only in the FYE 31 December The interest cost to be incurred pursuant to the additional borrowings to be obtained to fund the Proposed Acquisition will be capitalised in accordance with the Financial Reporting Standards in Malaysia. The development of the Properties is expected to contribute positively to the future earnings of the Group. 14

15 7.4 Substantial shareholders shareholdings For illustrative purposes, the proforma effects of the Proposed Acquisition on the shareholdings of the substantial shareholders of Meda are set out below: Shareholder No. of Meda Shares ('000) Proforma I As at 31 May 2015 Upon completion of the Proposed Acquisition Direct Indirect Direct Indirect (1) % No. of Meda Shares ('000) (1) % No. of Meda Shares ('000) (1) % No. of Meda Shares ('000) (1) % Dato (Dr.) Teoh Seng Foo 20, (2) 6, , (2) 6, Cheam Shaw Fin 6, (3) 20, , (3) 20, Teoh Seng Aun 70, , Dato Teoh Seng Kian 54, , Dato Tiong Kwing Hee 72, , One Sierra Sdn Bhd 47, , Tan You Tiong , (4) 13, Yeoh Siok Choo , (5) 53, Notes: (1) Excluding Treasury Shares. (2) Indirect interest held through his spouse, Cheam Shaw Fin. (3) Indirect interest held through her spouse, Dato (Dr.) Teoh Seng Foo. (4) Indirect interest held through his spouse, Yeoh Siok Choo. (5) Indirect interest held through her spouse, Tan You Tiong. THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK 15

16 7.5 Convertible securities As at 31 May 2015, save for the following, the Company does not have any outstanding convertible securities: (i) 51,949,500 outstanding warrants 2011/2021 ( Warrant A ) which were issued on 16 August 2011 and expiring on 15 August 2021 with an exercise price of RM0.50 per Warrant A; (ii) 96,457,766 outstanding warrants 2012/2022 ( Warrant B ) which were issued on 24 April 2012, listed on 3 May 2012 and expiring on 23 April 2022 with a step-up exercise price mechanism whereby the base exercise price of RM0.60 for each Warrant B is adjusted upwards by RM0.10 at the expiry of every 2 anniversary years from 24 April 2012 in accordance with the memorandum of the deed poll constituting the Warrants B; and (iii) 48,421,408 outstanding warrants 2014/2024 ( Warrant C ) which were issued on 25 August 2014 and expiring on 24 August 2024 with an exercise price of RM0.80 per Warrant C. 8. APPROVALS REQUIRED The Proposed Acquisition is subject to the following approvals being obtained: (i) (ii) (iii) Bursa Securities for the listing of and quotation for the Consideration Shares to be issued pursuant to the Proposed Acquisition on the Main Market of Bursa Securities; the shareholders of Meda at an extraordinary general meeting to be convened in relation to the Proposed Acquisition; and any other relevant regulatory authorities and/or parties, if required. The Proposed Acquisition is not conditional upon any other corporate proposals undertaken or to be undertaken by the Company. 9. HIGHEST PERCENTAGE RATIO The highest percentage ratio applicable to the Proposed Acquisition pursuant to Paragraph 10.02(g) of the Listing Requirements is 84.58% computed based on the audited financial statements of the Company for the financial year ended 31 December INTEREST OF DIRECTORS, MAJOR SHAREHOLDERS AND/OR PERSONS CONNECTED None of the Directors and/or major shareholders of Meda and/or any persons connected to them have any interests, direct or indirect in the Proposed Acquisition. 11. ADVISER The Board has appointed HLIB to act as the Principal Adviser to the Company for the Proposed Acquisition. 16