FAJARBARU BUILDER GROUP BHD ("FBG" OR THE "COMPANY") PROPOSED ACQUISITION BY FAJARBARU LAND SDN BHD, A WHOLLY-OWNED SUBSIDIARY OF FAJARBARU BUILDER GROUP BHD, OF A PIECE OF FREEHOLD LAND MEASURING 2.749 HECTARES (APPROXIMATELY 295,900 SQUARE FEET) HELD UNDER TITLE NO. GM 1408, LOT NO. 796, MUKIM OF PETALING, DISTRICT OF KUALA LUMPUR, STATE OF WILAYAH PERSEKUTUAN KUALA LUMPUR FROM PERWIRA BINTANG RESOURCES SDN BHD FOR A TOTAL CASH CONSIDERATION OF RM39,946,500 ("PROPOSED ACQUISITION") 1. INTRODUCTION On behalf of the Board of Directors of Fajarbaru Builder Group Bhd ("FBG" or the "Company") ("Board"), OSK Investment Bank Berhad ("OSK") is pleased to announce that Fajarbaru Land Sdn Bhd ("FLSB" or the "Purchaser"), a wholly-owned subsidiary of FBG, had on 5 August 2011 entered into an option to purchase agreement ("Agreement") with Perwira Bintang Resources Sdn Bhd ("PBR" or the "Vendor") for the proposed acquisition by FLSB of a piece of freehold land measuring 2.749 hectares (approximately 295,900 square feet) held under Title No. GM 1408, Lot No. 796, Mukim of Petaling, District of Kuala Lumpur, State of Wilayah Persekutuan Kuala Lumpur ("Land") for a total cash consideration of RM39,946,500 ("Purchase Consideration") ("Proposed Acquisition"). A formal sale and purchase agreement ("SPA") will be executed upon all the conditions precedent in the Agreement are fulfilled. 2. DETAILS OF THE PROPOSED ACQUISITION 2.1 Information on the Land FLSB and the Vendor has agreed with each other the sale and purchase of the Land, free from encumbrances on an "as is where is" basis and with vacant possession, (save and except for the Hindu Shrine which is situated on the Land) for the Purchase Consideration based upon the terms and conditions contained in the Agreement. The Land is a freehold interest property comprising a parcel of vacant land potential for residential development, measuring 2.749 hectares (approximately 295,900 square feet) held under Title No. GM 1408, Lot No. 796, Mukim of Petaling, District of Kuala Lumpur, State of Wilayah Persekutuan Kuala Lumpur. The Land is strategically located between Bandar Kinrara and Bukit Jalil, and sited off Jalan Kinrara 1. The Land is near trapezoidal in shape, flat in terrain and lies about the same level as the frontage road. The site boundaries of the Land were demarcated with metal cladding and chain-linked fencing. Presently, there is a Hindu Shrine located at the north-western part of the Land. The Land is presently designated for agriculture use but has the potential for residential development. The Land is currently used as temporary storage area. The Board is unable to procure the net book value of the Land as the Company is not privy to such information. Upon completion of the Proposed Acquisition, the Land will be developed into residential properties. As the proposed development is subject to approvals from the relevant authorities, it is too preliminary at this stage to ascertain the gross development costs and value. Barring any unforeseen circumstances and subject to the authorities' approvals, the proposed development is expected to commence in fourth quarter of 2012 and be completed by fourth quarter of 2015. 1
Further details of the Land are summarised in the table below:- Subject Property : Title No. GM 1408, Lot No. 796, Mukim of Petaling, District of Kuala Lumpur, State of Wilayah Persekutuan Kuala Lumpur Land area : 2.749 hectares or approximately 295,900 square feet Category of land use : Not stated Existing use/ Future use : Temporary storage area *1 / Future development Annual Rent : RM210 Express condition : Special condition: Nil Nature of Cultivation: General Cultivation Restriction-in-interest : Nil Tenure : Freehold Registered owner : Perwira Bintang Resources Sdn Bhd Encumbrances : Nil Other endorsements : Nil Valuation method : Comparison Method Market value *2 : RM41,200,000 Notes:- *1 *2 The Vendor shall deliver vacant possession of the Land (save and except for the Hindu Temple erected on the Land) upon full payment of the Purchase Consideration Based on the valuation report dated 14 July 2011 by PA International Property Consultants (KL) Sdn Bhd ("PAIPC"), a firm of independent registered valuer 2.2 Information on FLSB FLSB was incorporated in Malaysia on 26 May 1995 under the Companies Act, 1965 ("Act"). The principal activities of FLSB are project management, design and build consultancy and property development. As at 29 July 2011, the authorised share capital of FLSB is RM100,000 comprising 100,000 ordinary shares of RM1.00 each ("FLSB Shares"), of which RM2.00 comprising two (2) FLSB Shares have been issued and fully paid-up. FLSB is presently a wholly-owned subsidiary of FBG. The Directors of FLSB are Dato' Ir Kuan Peng Ching @ Kuan Peng Soon, Dato' Ir Low Keng Kok, Tan Sri Datuk Chai Kin Kong, Dato' Ismail bin Haji Omar and Ooi Leng Chooi. 2
2.3 Information on the Vendor PBR was incorporated in Malaysia on 5 April 2000 under the Act. The principal activities of PBR are property investment, property development and exclusive marketing agent. As at 29 July 2011, the authorised share capital of PBR is RM500,000 comprising 500,000 ordinary shares of RM1.00 each ("PBR Shares"), of which RM250,000 comprising 250,000 PBR Shares have been issued and fully paid-up. The Directors of PBR are Dato Tan Kar Meng, Selvanathan A/L Kathiraveloo. As at 29 July 2011, the substantial shareholders of PBR and their shareholdings are set out below:- Substantial shareholders No. of PBR shares % Dato Tan Kar Meng 225,000 90 Perwira Bintang Holdings Sdn Bhd 25,000 10 2.4 Basis and justification of arriving at the Purchase Consideration The Purchase Consideration of RM39,946,500 was arrived at on a willing-buyer willing-seller basis, after taking into consideration of the following:- i. the market value of the Land at RM41,200,000 as appraised by PAIPC using the comparison method in its valuation report dated 14 July 2011; ii. iii. the development potential of the Land based on the existing infrastructure; and the established location of Puchong which has good accessibility and wide range of amenities and facilities. The Purchase Consideration represents a discount of RM1,253,500 or 3.04% over the market value of the Land. 2.5 Mode of Settlement The total Purchase Consideration will be fully satisfied by way of cash payment in accordance to the following timeframe and manner:- Mode of Settlement Deposit comprising of:- Date of Settlement Purchase Consideration RM'000 (i) (ii) A refundable earnest deposit, constituting 2% of the Purchase Consideration Refundable remaining balance deposit, constituting 8% of the Purchase Consideration Upon execution of the Agreement 799 Upon execution of the Agreement 3,196 Balance of Purchase Consideration, constituting 90% of the Purchase Consideration Within a period of three (3) months plus one (1) month extension from the date of the SPA 35,952 Total 39,947 3
2.6 Source of funding FBG intends to fund the Proposed Acquisition through internally generated funds and/ or bank borrowings, the exact quantum of which has not been finalised at this juncture. The management of FBG will choose the most optimum mix taking into consideration, amongst others, the gearing level, interest expenses as well as internal cash requirements of FBG and its subsidiaries ("FBG Group"). 2.7 Liabilities to be assumed There are no liabilities, including contingent liabilities and guarantees, to be assumed by the Purchaser pursuant to the Proposed Acquisition. 2.8 Additional financial commitment required Save for the Purchase Consideration, there is no additional financial commitment required by FBG to put the Land on-stream. 2.9 Salient terms and conditions of the Agreement The salient terms and conditions of the Agreement include, amongst others, the following:- i. Upon execution of the Agreement, FLSB shall pay two percent (2%) refundable earnest deposit to the Vendor s Solicitor and eight percent (8%) refundable balance deposit to FLSB s solicitors as stakeholders; ii. iii. FLSB shall endeavour to procure the requisite shareholders approval and to sign the SPA on or before 15 October 2011; and The SPA is conditional and subject to approval from Economic Planning Unit under the Prime Minister s Department. 2.10 Salient features of the Valuation Report PAIPC had appraised the Land in its report dated 14 July 2011 using the comparison method, by comparing the Land with other comparable properties which have been sold and making adjustments for factors which affect the Land's value such as location, accessibility, size, shape, orientations, terrain of the Land, tenure, zoning, land use, title restriction, if any, and other relevant characteristics. PAIPC is of the opinion that the market value of the Land, in its existing condition, free from all encumbrances and with vacant possession is RM41,200,000, after accounting for a small compensation of RM200,000 for the Hindu Shrine. A summary of the details of the Land were set out in Section 2.1 of this announcement. 3. RATIONALE FOR THE PROPOSED ACQUISITION The Proposed Acquisition will enable FBG to broaden its business from construction into property development, which has favourable long-term growth and earnings enhancement potential. The Land has good future development potential in view of its prime location with good access. Further details of the prospects of the Land are set out in Section 4 of this announcement. 4
4. OUTLOOK AND PROSPECTS OF THE LAND The Land is located off Jalan Kinrara 1, within the locality of Bukit Jalil, Kuala Lumpur, and is situated in the fringe of Kuala Lumpur and Selangor boundary. Bukit Jalil is considered as one of the most vibrant areas and has since established itself as an up and coming residential address. The Land is easily accessible via major highways such as Lebuhraya Sungai Besi- Puchong, Kuala Lumpur-Seremban Highway, Lebuhraya Bukit Jalil, KESAS highway, Lebuhraya Damansara Puchong. These highways provide convenient connections to various part of the Klang Valley such as Kuala Lumpur, Putrajaya, Cyberjaya, Petaling Jaya and Puchong, to name a few. The developments surrounding the Land are predominantly residential comprising terraced houses and government quarters as well as industrial factories. Adjoining to the east of the Land is Kinrara Mas, a high rise condominium development whilst a Tamil school adjoins to the south and west. The Land is presently designated for agricultural use but has been zoned for residential development according to the Draft Kuala Lumpur City Plan 2010. With its strategic position between Bukit Jalil and Puchong, particularly with the latter being one of the fastest growing districts in Malaysia in terms of population, household income and commercialization growth and with the proposed Ampang LRT extension line, the Land is poised to become another successful residential project in the locality. (Source: Valuation Report of the Land dated 14 July 2011, PAIPC) 5. RISK FACTOR The following are risk factors that may arise from the Proposed Acquisition (which may not be exhaustive):- 5.1 Sensitivity to economic downturn and business risk in the property market The demand for properties is dependent on the general economic, business and credit conditions as well as the availability of supply in the market. The Board reckons that the effects of weaker demand could be mitigated in a slow economic environment by good planning in terms of design, timing of launch and pricing points as compared to competitors. The future development on the Land is also subject to inherent risks in the property development industry, which include labour supply, volatility in construction material prices and changes in regulatory framework of the construction and/ or property development industries. FBG will leverage on its strength and experience in the construction industry to manage these risks closely. 5.2 Competitive risks FBG faces competition from various property developers. Competitiveness of a property development company is dependent on its ability to acquire reasonably priced land banks at strategic locations, availability of labour supply and the market price of properties. FBG will continue to take measures to mitigate these risks such as conducting market intelligence surveys, monitoring and adjusting development and marketing strategies in response to changing economic conditions and market demand. 5
5.3 Non-completion of the Proposed Acquisition If the conditions precedent of the Agreement are not met, the Proposed Acquisition will not be completed. Hence, FBG will not be able to meet its objective as stated in Section 3 of this announcement. The Board will take reasonable steps to ensure that the conditions precedent are met in order to complete the Proposed Acquisition. In addition, the Proposed Acquisition is conditional upon the approvals from the relevant authorities and/ or parties, as disclosed in Section 7 of this announcement. There is no assurance that the Proposed Acquisition can be completed within the time period permitted under the Agreement. In the event that the approvals are not obtained within the permitted time period or in the event any of the approvals shall contain terms, which are not acceptable to PBR, the parties may either mutually extend the said period or failing which, terminate the Agreement. Any delay or non-completion of the Proposed Acquisition will delay and preclude the Company from receiving the proceeds from the Proposed Acquistion. Nevertheless, the Company shall ensure that every effort is made to obtain all the necessary approvals for the Proposed Acquistion, those of which are FBG's obligations to procure. 6. FINANCIAL EFFECTS OF THE PROPOSED ACQUISITION 6.1 Issued and paid-up share capital and substantial shareholders' shareholding The Proposed Acquisition will not have any effect on the issued and paid-up share capital and the substantial shareholders' shareholding structure of FBG as the Purchase Consideration is to be fully satisfied via cash and does not involve any issuance of new ordinary shares in FBG. 6.2 Net assets ("NA") per share and gearing The Proposed Acquisition will not have any material effect on the NA per share of FBG for the financial year ending 30 June 2012. However, in view of the potential future profit contribution arising from the development of the Land, the NA and NA per share of FBG Group are expected to be enhanced over time. Based on the audited financial statements of FBG Group as at 30 June 2010, FBG Group does not have any borrowings. As the exact quantum of the borrowing has yet to be finalised at this juncture, the proforma gearing level of the Group cannot be determined at this juncture. 6.3 Earnings and earnings per share ("EPS") The Proposed Acquisition is not expected to have any material impact on the earnings and EPS of FBG for the financial year ending 30 June 2012. However, the potential future profit contribution arising from the development of the Land may enhance the earnings and EPS in long term. 6
7. APPROVALS REQUIRED The Proposed Acquisition is subject to the following approvals being obtained:- i. The shareholders of FBG at an extraordinary general meeting to be convened; and ii. Any other relevant authorities and/ or approvals, if necessary. The Proposed Acquisition is not conditional upon any other corporate exercises undertaken or to be undertaken by the Company. 8. APPLICATION TO THE RELEVANT AUTHORITIES The applications to the relevant authorities for the Proposed Acquisition shall be submitted within one (1) month from the date of this announcement. 9. ESTIMATED TIMEFRAME FOR COMPLETION Barring any unforeseen circumstances and subject to fulfillment of all the conditions precedent as set out in the Agreement, the Proposed Acquisition is expected to be completed by the fourth quarter of 2011. 10. HIGHEST PERCENTAGE RATIO APPLICABLE The highest percentage ratio applicable to the Proposed Acquisition pursuant to Paragraph 10.02(g) of Bursa Malaysia Securities Berhad Main Market Listing Requirements is 29.83%, calculated based on the aggregate value of the Purchase Consideration for the Land compared with the NA of FBG at its group level for the financial year ended 30 June 2010. 11. INTERESTS OF DIRECTORS, MAJOR SHAREHOLDERS AND/OR PERSONS CONNECTED None of the Directors or major shareholders of FBG and/ or persons connected to them have any interest, whether direct or indirect, in the Proposed Acquisition. 12. ADVISER OSK has been appointed as the Adviser for the Proposed Acquisition. 13. DIRECTORS' RECOMMENDATION The Board after having considered all the relevant aspects, including the market value of the Land as appraised by PAIPC, the Purchase Consideration, terms of the Agreement and the rationale of the Proposed Acquisition, is of the opinion that the terms and conditions of the Proposed Acquisition are fair and reasonable and are in the best interest of the Company and none of the Directors have disagreed with this statement. 7
14. DOCUMENTS AVAILABLE FOR INSPECTION The following documents will be made available for inspection at the registered office of FBG at No. 1& 1A, 2nd Floor (Room 2), Jalan Ipoh Kecil, 50350 Kuala Lumpur during the normal business hours from Mondays to Fridays (except public holidays) for a period being not less than three (3) months from the date of this announcement:- i. The Agreement entered into between FLSB and PBR dated 5 August 2011 in respect of the Proposed Acquisition; and ii. the valuation report and valuation certificate dated 14 July 2011, prepared by PAIPC in respect of the valuation of the Land pursuant to the Proposed Acquisition. This announcement is dated 5 August 2011. 8