SELANGOR DREDGING BERHAD ( SDB OR COMPANY ) PROPOSED DISPOSAL OF WISMA SELANGOR DREDGING FOR A CASH CONSIDERATION OF RM480,000,000 1. INTRODUCTION On behalf of the Board of Directors of the Company ( Board ), Maybank Investment Bank Berhad ( Maybank IB ) wishes to announce that the Company has today entered into a conditional sale and purchase agreement with Golden Eagle Realty Sdn. Bhd. ( GERSB or Purchaser ) for the proposed disposal of a piece of freehold commercial land held under Geran 9362, Lot 131 Seksyen 44, Town and District of Kuala Lumpur, State of Wilayah Persekutuan Kuala Lumpur together with four blocks of commercial building and two levels of basement car parks erected thereon known as Wisma Selangor Dredging ( Subject Property ) for a cash consideration of RM480,000,000 ( Disposal Consideration ) ( SPA ) ( Proposed Disposal ). 2. DETAILS OF THE PROPOSED DISPOSAL The Proposed Disposal entails the disposal of the Subject Property for the Disposal Consideration to be satisfied entirely in cash. The Subject Property will be disposed free from all encumbrances, and other restraints, whether equitable or legal, but subject to all conditions express or implied in the land title and existing tenancies of the Subject Property ( Tenancies ) and shall further be on an as-is-where-is basis, together with all equipment and machineries attached and all consumables, stock and inventory, and on the terms and conditions in the SPA. 2.1 Background information on the Subject Property A summary of the information on the Subject Property are as follows: Description : Freehold land with four blocks of commercial building (office tower) atop two levels of basement car park Postal address : Wisma Selangor Dredging, Nos. 142-A, 142-B, 142-C & 142-D, Jalan Ampang, 50450 Kuala Lumpur Land title : Geran 9362, Lot 131 Seksyen 44, Town and District of Kuala Lumpur, State of Wilayah Persekutuan Kuala Lumpur Tenure : Freehold Registered and beneficial owner : SDB Category of land use : Nil Existing use : Currently tenanted by third parties and SDB for office use Approximate age of each block of commercial building as at 15 May 2017 : 30 years 1
Gross floor area : 592,196 square feet ( sqf ) / 55,017 square metres ( sqm ) Net lettable area ( NLA ) - including NLA occupied by SDB : 362,782 sqf / 33,704 sqm - excluding NLA occupied by SDB : 356,432 sqf / 33,114 sqm Land area : 103,882 sqf / 9,651 sqm No. of car park bays : 459 Date of certificate of fitness for occupation : 16 January 1987 Occupancy rate : - including NLA occupied by SDB : 86.33% (1) - excluding NLA occupied by SDB : 86.09% (1) Rental income per annum for the financial year ended ( FYE ) 31 March 2016 Audited net book value ( NBV ) of the Subject Property as at 31 March 2016 Market value of the Subject Property as at 15 May 2017 as appraised by Raine & Horne International Zaki & Partners Sdn Bhd ( Independent Valuer ) ( Market Value ) : RM22,922,000 : RM318,000,000 : RM372,100,000 Encumbrances : Encumbered by way of lienholder s caveat to Public Bank Berhad ( PBB ) Express conditions : Nil Restrictions-in-interest : Nil Note: (1) Based on the tenancy schedule as at 30 April 2017. The Subject Property is located within the Kuala Lumpur city centre. The Independent Valuer had, in its valuation letter on the Subject Property dated 19 May 2017 ( Valuation Letter ), adopted the comparison approach as the principal valuation methodology in arriving at the Market Value and had counter-checked against the investment approach. The comparison approach is a valuation method which seeks to determine the value of the property being valued by comparing and adopting recent transactions and sales evidences involving other similar properties in the vicinity as yardstick. Adjustments were made to, among others, differences in time, location, size (NLA), building s age and condition. The investment approach involves estimating the current rental income that can accrue to the property if it is made available for letting based on the usual tenancy term in the open market. From this gross income, a deduction is made for the landlord s outgoing in owning and managing the property as a form of investment. The remaining net income is then capitalised at a suitable net yield with provision for a sinking fund over the life of the investment of the remaining unexpired term. 2
2.2 Background information on GERSB GERSB was incorporated in Malaysia as a private limited company on 18 May 2017 under the Companies Act, 2016. It is principally involved in construction, property development and real estate activities. As at 31 May 2017, being the latest practicable date prior to this Announcement ( LPD ), the share capital of GERSB is RM2.00 comprising 2 ordinary shares. As at the LPD, the directors of GERSB are Tan Sri Dato Koo Yuen Kim and Koo Yoke Ying. GERSB is a wholly-owned subsidiary of Nation Venue Sdn Bhd. As at the LPD, Tan Sri Dato Koo Yuen Kim and Koo Yoke Ying hold 99% and 1% shareholdings in Nation Venue Sdn Bhd respectively. 2.3 Salient terms of the SPA 2.3.1 Basis of Proposed Disposal The Subject Property will be disposed free from all encumbrances, and other restraints, whether equitable or legal, but subject to all conditions express or implied in the land title and Tenancies and shall further be on an as-is-where-is basis, together with all equipment and machineries attached and all consumables, stock and inventory. 2.3.2 Conditions Precedent The Proposed Disposal shall be subject to the following conditions precedent (collectively, Conditions Precedent 1 ): (a) (b) the approval/confirmation of the Economic Planning Unit of the Prime Minister's Department of Malaysia ( EPU ), on terms acceptable to the Purchaser provided all terms and conditions imposed by the EPU other than the imposition of bumiputra equity condition shall be deemed to be acceptable to the Purchaser; and the approval/confirmation of the Royal Malaysian Customs that the disposal of the Subject Property subject to the Tenancies is a transfer of business as a going concern and that goods and services tax ( GST ) is not chargeable under the Goods and Services Tax Act, 2014. (iii) Conditions Precedent 1 are to be fulfilled within 3 months from the date of the SPA, or such extended period(s) as shall be agreed by the Company. The day on which the Conditions Precedent 1 are fulfilled shall be the CP 1 Confirmation Date. After the fulfillment of Conditions Precedent 1, the Proposed Disposal shall further be subject to the following conditions precedent (collectively, Conditions Precedent 2 ): 3
(a) (b) (if applicable), the approval of the governmental authority, body or agency empowered and having jurisdiction to grant the approvals required for the transfer of the Subject Property to the Purchaser pursuant to Section 433B of the National Land Code; and the approval of the shareholders of the Company at an extraordinary general meeting ( EGM ) to be convened. (iv) Conditions Precedent 2 are to be fulfilled within 6 months from the CP 1 Confirmation Date, or such extended period(s) as shall be agreed by the Purchaser and the Company (collectively Parties ). The day on which the Conditions Precedent 2 are fulfilled shall be the Unconditional Date. 2.3.3 Payment Terms Upon the execution of the SPA, the Purchaser shall pay the deposit of the sum of RM48,000,000, representing 10% of the Disposal Consideration ( Deposit ) and the balance sum of RM432,000,000, representing 90% of the Disposal Consideration ( Balance Sum ) shall be paid within 3 months after the Unconditional Date ( Completion Period ), with an automatic extension of one month thereafter ( Extended Completion Period ) subject to the Purchaser s payment of the late payment interest on the outstanding amount at the rate of 8% per annum. The date on which payment of the full Disposal Consideration is made (together with late payment interest, if any) shall be the Completion Date. 2.3.4 Management of Subject Property The Purchaser is to take over the management, maintenance, service, building or employment contract in relation to the Subject Property on the Completion Date. Without affecting the generality of the foregoing, the Company agrees to manage and maintain the Subject Property for the Purchaser for a period of one year from the Completion Date or such other period as may be mutually agreed by the Parties at an agreed yearly fee of RM400,000 (excluding GST) and the Purchaser shall bear the operating expenses and disbursements in relation to the management and maintenance of the Subject Property, upon the terms and conditions of a property management agreement to be signed on or before the Completion Date. 2.3.5 Non-completion Default by Purchaser In the event the Purchaser shall fail to pay the Balance Sum or any part thereof, the Company shall be entitled to terminate the SPA where the Deposit shall be forfeited to the Company. All other monies paid by the Purchaser shall be refunded by the Company to the Purchaser within 10 business days of such termination. Upon the payment of such refund with the Company s solicitors, the Purchaser shall: (a) redeliver legal and vacant possession of the Subject Property to the Company (if the same has already been delivered); 4
(b) (c) account and pay to the Company any income accrued on the Subject Property during the period of possession by the Purchaser; and cause the Purchaser s solicitors or the Purchaser s financier s solicitors to forthwith return to the Company all documents forwarded to them including the title documents, the transfer and the duly executed withdrawal of private caveat form by the Purchaser or the Purchaser s financier together with the necessary registration fees (if not already withdrawn), and until such documents and legal and vacant possession (if applicable) are so returned and income accrued so accounted for and paid, the Company s solicitors shall not be authorised to release any such amount refunded to the Purchaser. Thereafter, the SPA shall be terminated and become null and void and neither party shall have any further claims, action or proceedings against the other and the Company shall be entitled to dispose of or deal with the Subject Property at its absolute discretion. Default by Company (a) In the event: the Company refuses, fails or defaults to complete the sale of the Subject Property pursuant to the terms and conditions of the SPA; or the Company shall commit any material breach of representations, warranties, covenants and/or undertakings on the part of the Company or breach of the terms and conditions contained in the SPA and fails to rectify the said breach at the expiry of 10 business days notice in writing given by the Purchaser to remedy such breach; then the Purchaser shall be entitled to either: (aa) (bb) specific performance of the SPA against the Company; or terminate the SPA and upon such termination the Company shall refund to the Purchaser through the Purchaser s solicitors, all monies paid towards the Disposal Consideration and all other monies paid hereunder and further pay to the Purchaser a sum equivalent to 10% of the Disposal Consideration as agreed liquidated damages ( Damages ) within 30 business days failing which the Company shall be liable for interest at the rate of 8% per annum on a daily rest basis on any outstanding sum not refunded and/or repaid. 5
(b) Upon depositing of such refund and Damages with the Purchaser s solicitors, the Purchaser shall: (iii) redeliver legal and vacant possession of the Subject Property to the Company (if the same has already been delivered); account and pay to the Company any income accrued on the Subject Property during the period of possession by the Purchaser; and cause the Purchaser s solicitors or the Purchaser s financier s solicitors to forthwith return to the Company all documents forwarded to them including the title documents, the transfer and the duly executed withdrawal of private caveat form by the Purchaser or the Purchaser s financier together with the necessary registration fees (if not already withdrawn), and until such documents and legal and vacant possession (if applicable) are so returned and income accrued, so accounted for and paid, the Purchaser s solicitors shall not release such amount refunded to the Purchaser. Thereafter, the SPA shall be terminated and become null and void and neither party shall have any further claims, action or proceedings against the other and the Company shall be entitled to dispose of or deal with the Subject Property at its absolute discretion. 2.4 Basis and justification for the Disposal Consideration The Disposal Consideration was arrived at on a willing-buyer willing-seller basis after taking into consideration the Market Value of the Subject Property. In justifying the Disposal Consideration, the Board has taken into consideration the following: the attractive premium to the market value and audited NBV of the Subject Property as follows: (a) (b) premium of approximately 29.0% over the Market Value; and premium of approximately 50.9% over the audited NBV of the Subject Property as at 31 March 2016 of RM318,000,000. other rationale and benefits of the Proposed Disposal as set out in Section 3 of this Announcement. 2.5 Liabilities to be assumed There are no liabilities, including contingent liabilities and guarantees, to be assumed by GERSB pursuant to the Proposed Disposal. 6
2.6 Original cost and date of investment The construction of the Subject Property was completed on 16 January 1987. The total cost to develop the Subject Property (including land cost) is RM61.67 million. 2.7 Use of proceeds The gross proceeds from the Proposed Disposal will be used in the following manner: Description of use Estimated timeframe for use from receipt of proceeds Amount (RM 000) Distribution to shareholders (1) Within 2 months 80,964 Settlement of the Redemption Sum (2) Within the Completion Period or Extended Completion Period, as the case may be 248,750 Repayment of bank borrowings (3) Within 12 months 19,200 Working capital for the SDB group of companies ( SDB Group or Group ) (4) Estimated real property gains tax ( RPGT ) payable pursuant to the Proposed Disposal Defray estimated expenses relating to the Proposed Disposal (5) Within 12 months 103,068 Within the Completion Period or Extended Completion Period, as the case may be 20,590 Within 2 months 7,428 Total 480,000 Note: (1) The Company intends to distribute RM80.96 million of its proceeds to shareholders via a special cash dividend where the entitlement date will be determined and announced later by the Board. (2) The amount required to fully settle and discharge the outstanding indebtedness owing to PBB in order to obtain the discharge/release/withdrawal of the existing lien-holder s caveat and PBB s interest over the Subject Property ( Redemption Sum ) will be paid by the Purchaser to PBB simultaneously with the payment of the Balance Sum by the Purchaser to the Company (after deducting therefrom the Redemption Sum). Such settlement is expected to result in interest savings of approximately RM12.44 million per annum based on the average effective interest rate of 5.0% per annum. (3) As at the LPD, the total borrowings of the SDB Group is approximately RM563.76 million. The repayment of part of the Group s existing borrowings amounting to RM19.20 million is expected to result in interest savings of approximately RM0.96 million per annum based on an average effective interest rate of 5.0% per annum. 7
(4) To fund the SDB Group s day-to-day operations which include the payment of contractors, suppliers, consultants, contribution to authorities and property development expenses of joint venture project. The breakdown of proceeds to be utilised for each component of the working capital has not been determined at this juncture. The actual utilisation for each component of working capital may differ at the time of utilisation. (5) Comprising professional fees, fees payable to the relevant authorities, printing costs and expenses relating to the convening of the EGM including advertising cost and other expenses related or incidental to the Proposed Disposal. Any shortfall or excess in funds allocated for estimated expenses will be funded from or used for working capital purposes. Pending utilisation of the proceeds from the Proposed Disposal for the purposes as set out above, the proceeds will be placed in interest-bearing deposits with financial institutions and/or short-term money market instruments as the Board deems fit. The interest derived from the deposits with financial institutions and/or any gains arising from the short-term money market instruments will be used for working capital purposes. 3. RATIONALE AND BENEFITS OF THE PROPOSED DISPOSAL The Proposed Disposal provides an opportunity for the SDB Group to unlock its investment in the Subject Property and generate immediate cash flow for the SDB Group. The Proposed Disposal will enable the SDB Group to raise funds to repay part of the Group s bank borrowings as set out in Section 2.7 of this Announcement, which will reduce the gearing levels of the SDB Group. This will also result in interest savings and provide the SDB Group with financial flexibility to secure additional borrowings should new investment and development opportunities arise. The Proposed Disposal will provide additional funds for the working capital of the SDB Group. 4. RISK FACTOR The Proposed Disposal is subject to completion risk as the Proposed Disposal is conditional upon the fulfilment and/or waiver (as the case may be) of the conditions precedent or occurrence of any of the termination events as set out in Section 2.3 of this Announcement. There can be no assurance that the conditions precedent will be satisfied and/or waived (as the case may be) or that any of the termination events will not occur. Nevertheless, the Company shall use its best endeavour to fulfil all the conditions precedent within its control in a timely manner and mitigate the occurrence of any of the termination events that are within its control to ensure the completion of the Proposed Disposal. 5. EFFECTS OF THE PROPOSED DISPOSAL 5.1 Share capital and substantial shareholders shareholding The Proposed Disposal will not have any effect on the share capital and substantial shareholders shareholding in the Company as the Proposed Disposal does not involve the issuance of any new SDB Shares. 8
5.2 Net assets ( NA ) per SDB Share and gearing For illustrative purposes only, based on the latest audited consolidated statement of financial position of SDB as at 31 March 2016 and on the assumption that the Proposed Disposal had been effected on that date, the proforma effect of the Proposed Disposal on the NA per SDB Share and gearing of the Group are as follows: Audited as at 31 March 2016 Subsequent adjustments (1) After the Proposed Disposal RM 000 RM 000 RM 000 Share capital 213,064 213,064 213,064 Share premium 477 477 477 Revaluation reserve 50,433 50,433 50,433 Exchange translation reserve 23,376 23,376 23,376 Other reserve 7,861 7,861 7,861 Retained earnings 518,565 507,912 (2) 654,710 Total equity/na attributable to owners of the Company 813,776 803,123 949,921 No. of SDB Shares in issue ( 000) 426,128 426,128 426,128 NA per SDB Share (RM) 1.91 1.88 2.23 Total borrowings 563,761 563,761 295,811 Net gearing (times) (3) 0.33 0.34 0.05 Notes: (1) Subsequent events comprises of the first and final single tier dividend of 5% per SDB Share for the FYE 31 March 2016 amounting to RM10,653,190 paid on 9 September 2016. (2) After taking into consideration the estimated gain on disposal (net of the estimated expenses and additional provision of RPGT relating to the Proposed Disposal of approximately RM15.20 million) of approximately RM146.80 million arising from the Proposed Disposal. (3) Computed based on total borrowings less cash and cash equivalents ( Net Debt ) divided by total equity/na attributable to owners of the Company and Net Debt. 5.3 Earnings and earnings per SDB Share ( EPS ) For illustrative purposes only, based on the audited consolidated financial statements of SDB for the FYE 31 March 2016 and assuming that the Proposed Disposal had taken place on 31 March 2016, the Proposed Disposal is expected to give rise to a gain of RM146.80 million at the group level, net of estimated expenses and additional provision of RPGT relating to the Proposed Disposal of approximately RM15.20 million. The estimated gain will result in an improvement in the EPS by approximately RM0.32 based on 426.13 million SDB Shares in issue as at 31 March 2016. 9
For the FYE 31 March 2016, the rental income (net of expenses) from the Subject Property was RM14.56 million, representing 31.07% of the audited profit before tax of the SDB Group. After the completion of the Proposed Disposal, the Subject Property will cease to contribute any income to the SDB Group (save for the management fee referred to in Section 2.3.4 of this Announcement) resulting in a reduction in the future revenue and earnings of the SDB Group. The estimated interest savings of RM13.40 million will mitigate the effect of the cessation of rental income contribution from the Subject Property. 6. APPROVALS REQUIRED The Proposed Disposal is subject to the approvals/confirmations being obtained from the following: (iii) shareholders of the Company at an EGM to be convened; the relevant authorities as stated in Section 2.3.2 of this Announcement; and any other authorities and/or parties, if required. Save as disclosed above, the Proposed Disposal is not conditional upon any other corporate exercise/scheme announced by SDB but is pending completion. 7. INTERESTS OF THE DIRECTORS, MAJOR SHAREHOLDERS AND/OR PERSONS CONNECTED TO THEM None of the Directors and/or major shareholders of the Company as well as persons connected to them have any interest, direct or indirect, in the Proposed Disposal. 8. DIRECTORS STATEMENT The Board, having considered all aspects of the Proposed Disposal including the rationale and benefits of the Proposed Disposal, the salient terms of the SPA, the basis and justification for the Disposal Consideration as well as the effects of the Proposed Disposal, is of the opinion that the Proposed Disposal is in the best interest of the Company. 9. ESTIMATED TIMEFRAME FOR SUBMISSION TO THE AUTHORITIES AND COMPLETION The application to the relevant authorities in relation to the Proposed Disposal will be made within 2 months from the date of this Announcement. Barring any unforeseen circumstances, and subject to the required approvals being obtained, the Proposed Disposal is expected to be completed in the first quarter of 2018. 10. PERCENTAGE RATIO The highest percentage ratio applicable to the Proposed Disposal pursuant to Paragraph 10.02(g) of the Main Market Listing Requirements of Bursa Malaysia Securities Berhad is 58.98% based on the Disposal Consideration of RM480 million compared with the latest audited consolidated NA of SDB as at 31 March 2016 of RM813.8 million. 10
11. ADVISER Maybank IB has been appointed as Principal Adviser to SDB for the Proposed Disposal. 12. DOCUMENTS AVAILABLE FOR INSPECTION The following documents are available for inspection at the registered office of the Company at 18 th Floor, West Block, Wisma Selangor Dredging, 142-C Jalan Ampang, 50450 Kuala Lumpur during normal business hours from Mondays to Fridays (except public holidays) for a period of 3 months from the date of this Announcement: the SPA; and the Valuation Letter. This Announcement is dated 20 June 2017. 11