MKH BERHAD (50948-T) ANNOUNCEMENT

MKH BERHAD (50948-T) ANNOUNCEMENT ACQUISITION OF 75% EQUITY INTEREST IN PT. SAWIT PRIMA SAKTI BY MKH PLANTATION SDN. BHD. (FORMERLY KNOWN AS GLOBAL RETREAT (MM2H) SDN. BHD.) 1.0 INTRODUCTION The Board of Directors of MKH Berhad ( MKH or the Company or the Group ) wishes to announce that its wholly owned subsidiary company, MKH Plantation Sdn. Bhd. (formerly known as Global Retreat (MM2H) Sdn. Bhd.) (Company No. 737756-U) ( MKH Plantation or the Purchaser ) has on 10 June 2016 entered into a Sale and Purchase Agreement ( the Agreement ) with Ivakijaya Sdn. Bhd. (Company No. 692601-P) ( Ivakijaya or the Vendor ) to acquire 6,975 ordinary shares of Rp1,000,000/- each equivalent to 75% equity interest ( Sale Shares ) in PT. Sawit Prima Sakti ( PTSPS ) from the Vendor for a total cash consideration of Ringgit Malaysia Fifteen Million (RM15,000,000/-) only ( the Proposed Acquisition ). PTSPS owns approximately 2,445.49 hectares of land for oil palm plantation in East Kalimantan, Indonesia. 2.0 DETAIL OF THE PROPOSED ACQUISITION 2.1 Information on MKH Plantation MKH Plantation is a company incorporated in Malaysia on 15 June 2006 and having its registered office at Suite 1, 5 th Floor, Wisma MKH, Jalan Semenyih, 43000 Kajang, Selangor Darul Ehsan. MKH Plantation has an authorised and paid-up share capital of RM500,000/- and RM101,000/- respectively. The principal activity of MKH Plantation is investment holding. 2.2 Information on Ivakijaya Ivakijaya is a company incorporated in Malaysia on 25 May 2005 and having its registered office at 2-5-8, 5 th Floor, KLH Business Centre, No. 2, Jalan Kasipillay, 51200 Kuala Lumpur. Ivakijaya has an authorised and paid-up share capital of RM500,000/-. Its principal activity is investment holding. Ivakijaya is the legal and beneficial owner of 8,835 ordinary shares of Rp1,000,000/- each in PTSPS representing 95% of the paid-up capital of PTSPS. The said 8,835 ordinary shares in PTSPS has been pledged to Hong Leong Bank Berhad for banking facilities totalling USD9.5 million (hereinafter referred to as the Banking Facilities ) granted to PTSPS to part finance the development of oil palm plantation on the land as described below. The original cost of investment by Ivakijaya in PTSPS was approximately RM6,618,196* (Ringgit Malaysia : Six Million Six Hundred Eighteen Thousand One Hundred And Ninety Six Only) equivalent to Rp21,277,500,140 (Indonesian Rupiah : Twenty One Billion Two Hundred Seventy Seven Million Five Hundred Thousand And One Hundred Forty Only) as at 31 December 2015. 2.3 Information on PTSPS PTSPS is a company established under and by virtue of the laws of the Republic of Indonesia as set forth in Deed of Establishment No. 205 dated 20 th day of October 2004, made before Achmad Dahlan, S.H, Notary in Samarinda ratified by the Minister of Law and Human Rights of the Republic of Indonesia as set forth in his Decree No. C-08391 HT.01.01.TH.2005 dated 30 th day of March 2005. 1

PTSPS has an authorised share capital of Rp37,200,000,000/- only divided into 37,200 ordinary shares of Rp1,000,000/- each. Its present issued and paid-up capital is Rp9,300,000,000/- comprising 9,300 ordinary of Rp1,000,000/- each as follow:- Name of Shareholder No. of Ordinary Shares Nominal Amount Percentage of Shareholding Ivakijaya 8,835 Rp8,835,000,000 95% PT. Mirza Multi Jasa 465 Rp465,000,000 5% Total: 9,300 Rp9,300,000,000 100% PTSPS has been granted Hak Guna Usaha by the Badan Pertanahan Nasional Republic of Indonesia two pieces of adjoining land in Kalimantan, measuring in total area of approximately 2,445.49 hectares at Kabupaten Kutai Kartanegara, Kalimantan Timur, Republic of Indonesia for oil palm plantation on 6 April 2010 for a period of 35 years and generally can be renewed for a further period of another 25 years ( the Land ):- (i) Title No. 19/HGU/BPN.RI/2010 (Hak Guna Usaha No. 16.03.00.00.2.00138) Province Desa (Sub-district) Puan Cepak, Kecamatan (District) Muara Kaman, Kabupaten (Country) Kutai Kartanegara, Propinsi Kalimantan Timur (East Kalimantan Province), Indonesia. Area 1,699.76 hectares (ii) Title No. 19/HGU/BPN.RI/2010 (Hak Guna Usaha No. 16.03.00.00.2.00139) Province Desa (Sub-district) Sedulang, Kecamatan (District) Muara Kaman, Kabupaten (Country) Kutai Kartanegara, Propinsi Kalimantan Timur (East Kalimantan Province), Indonesia. Area 745.73 hectares The Land is located approximately 50km north-east of Samarinda, Propinsi Kalimantan Timur and 133km north of Balikpapan. The Land is adjoining and contiguous to the Group s existing oil palm plantation land held under PT. Maju Kalimantan Hadapan (formerly known as PT. Khaleda Agroprima Malindo) ( PTMKH ). The terrain is generally flat and the soil and climate conditions are suited for oil palm cultivation. The Land has been cleared and is 79% planted with oil palm trees together with staff quarters, stores and security posts:- Year of Planting Hectarage 2008 24.48 2011 288.86 2012 294.57 Total Mature Oil Palms: 607.91 2013 316.52 2014 570.04 2016 301.64 Total Immature Oil Palms: 1,188.20 Total Planted Area 1,796.11 Planting Reserved 388.73 Unplantable Area 77.67 Road, Drains & Housing Site 182.98 Titled Area: 2,445.49 The total production of fresh fruit bunches for the last 3 years of PTSPS in metric tonnes ( MT ) are tabulated below: 2

Year Planted Area (hectares) Mature 3 Actual Production (Fresh Fruit Bunches) Year 2013 Year 2014 Year 2015 MT MT MT 2008 24.48 228.79 371.22 428.20 2011 288.86 315.95 3,205.71 4,961.43 2012 294.57-369.11 1,969.80 2013 20.50 - - 25.90 Total 628.41 544.74 3,946.04 7,385.33 Based on the valuation report ( Valuation Report ) prepared by Messrs CH Williams Talhar & Wong (Sabah) Sdn. Bhd. dated 15 April 2016, the market value of the Land is RM73,530,000^ (Ringgit Malaysia : Seventy Three Million Five Hundred And Thirty Thousand Only) equivalent to Rp239,730,000,000 (Indonesia Rupiah: Two Hundred and Thirty Nine Billion Seven Hundred And Thirty Million Only). 3.0 SALIENT FEATURES 3.1 Purchase Consideration of the Sale Shares The Vendor shall sell the Sale Shares and the Purchaser shall acquire the Sale Shares with all the titles, interest, benefits and rights attaching thereto at the total purchase consideration of Ringgit Malaysia Fifteen Million (RM15,000,000/-) only (hereinafter referred to as the Purchase Consideration ) which shall be paid by the Purchaser to the Vendor by the manner and time provided herein below:- (i) Ringgit Malaysia Three Hundred Thousand (RM300,000-00) only (hereinafter referred to as the Earnest Deposit ) has been paid by the Purchaser to the Vendor and acknowledged by the Vendor; (ii) Ringgit Malaysia One Million Two Hundred Thousand (RM1,200,000-00) only (hereinafter referred to as the Deposit ) upon signing of this Agreement; (iii) The Purchase Consideration less the Earnest Deposit and the Deposit (hereinafter called the Balance Purchase Consideration ) of Ringgit Malaysia Thirteen Million Five Hundred Thousand (RM13,500,000-00) only shall be paid by the Purchaser to the Vendor within Six (6) months from the Unconditional Date (hereinafter referred to as the Completion Date ). 3.2 Basis and Justification of Arriving at the Purchase Consideration The Purchase Consideration of the Sale Shares was arrived at based on the Valuation Report and with a discount of approximately RM2,478,165 (Ringgit Malaysia : Two Million Four Hundred Seventy Eight Thousand One Hundred And Sixty Five Only) based on 75% of the revalued net assets of PTSPS as at 31 December 2015 of approximately RM17,478,165* (Ringgit Malaysia : Seventeen Million Four Hundred Seventy Eight Thousand One Hundred And Sixty Five Only) equivalent to IDR56,192,300,475 (Indonesia Rupiah : Fifty Six Billion One Hundred Ninety Two Million Three Hundred Thousand Four Hundred And Seventy Five Only). 3.3 Source of Funding and Mode of Satisfaction The Purchase Consideration was funded through internally generated funds and/or bank borrowings. 3.4 Assumption of Liabilities The Proposed Acquisition of the 75% effective equity interest in PTSPS, the Purchaser will also be undertaking to acquire 75% of PTSPS book debts including 75% of PTSPS s USD9.5 million loan (i.e. USD7.125 million) with Hong Leong Bank Berhad.

3.5 Completion of the Proposed Acquisition The Completion Date of the Sale Shares is upon the terms and conditions contained in this Agreement and is conditional upon the following being obtained within six (6) months from the date of this Agreement ( Unconditional Date ), or such extension that is mutually agreed:- (i) the Investment Coordinating Board (Badan Koordinasi Penanaman Modal or BKPM ), Public Authorities and other competent authorities (if applicable) consenting to the sale of the Sale Shares. Consent from Hong Leong Bank Berhad, shareholders of PTSPS and shareholders of MKH Plantation for the Sale Shares have been obtained. In the event the conditions precedent contained in this Agreement cannot be fulfilled within six (6) months from the date of this Agreement or such extension that is mutually agreed upon for whatsoever reasons not due to be the fault or default of the Purchaser, the Vendor shall refund or cause to refund of the Earnest Deposit and the Deposit free of interest to the Purchaser within fourteen (14) days from the date of receipt of the Purchaser s written notice to the Vendor that any of the conditions precedent cannot be fulfilled and thereafter this Agreement shall become null and void and neither party shall have any claims against each other. 4.0 RATIONALE FOR THE PROPOSED ACQUISITION The rational for the Proposed Acquisition is as follows:- (a) to increase the size of the Group s oil palm plantation as the Land is strategically located just beside the Group s existing 15,942.6 hectares of oil palm plantation under PT. Maju Kalimantan Hadapan (formerly known as PT Khaleda Agroprima Malindo); (b) is in line with the Group s strategy to expand its existing oil palm plantation for potential future public listing purposes; (c) the oil palm plantation business will provide long-term stable income for the Group; and (d) the purchase of the Sale Shares is at a discount of approximately RM2,478,165 (Ringgit Malaysia : Two Million Four Hundred Seventy Eight Thousand One Hundred And Sixty Five Only) based on the adjusted market value of the plantation (i.e. 75% of the valuation report value). 5.0 RISK IN RELATION TO THE PROPOSED ACQUISITION The Proposed Acquisition is subject to business and operating risks inherent to the oil palm plantation sector that include, among others, approval from BKPM and relevant competent authorities, fluctuation in commodity prices, changes in the Indonesian export policies on crude palm oil ( CPO ), changes in weather conditions, fluctuation in oil palm prices correlates with the demand and supply of the vegetables oils and fats market thereby giving rise to price movement. Additionally, the process of CPO and palm kernel is also exposed to fluctuations in exchange rate as the exports of the CPO and processed palm oil products are carried our primarily in USD. The Board of Directors of MKH will monitor these risks and take appropriate measures to mitigate the various business and operating risks identified. 4

6.0 EFFECTS OF THE PROPOSED ACQUISITION 6.1 Share Capital and Substantial Shareholdings The Proposed Acquisition does not have any effect on the share capital and substantial shareholders shareholdings of the Company for the financial year ending ( FYE ) 30 September 2016. 6.2 Net Assets and Gearing The Proposed Acquisition does not have any material impact on the consolidated net assets and gearing of the Company for the FYE 30 September 2016. 6.3 Earnings and Earnings per Share ( EPS ) The Proposed Acquisition does not have any material impact on the EPS of MKH Group for the FYE 30 September 2016. 7.0 INTERESTS OF DIRECTORS, MAJOR SHAREHOLDERS AND/OR PERSONS CONNECTED TO THEM Save as disclosed below, none of the directors and/or major shareholders and persons connected with such directors or major shareholders have any interest, direct or indirect in the Proposed Acquisition except for the following Directors (the Deemed Interested Directors ):- Tan Sri Dato Chen Kooi Chiew @ Cheng Ngi Chong ( TSA ), the Executive Chairman of MKH with 0.42% direct shareholding and 43.73% indirect shareholding, held through Chen Choy & Sons Realty Sdn Bhd, Lotus Way Sdn Bhd and a nominee company. TSA is the brother of Tan Sri Datuk Chen Lok Loi ( TSE ) and Datuk Chen Fook Wah ( DB ) and TSA is a guarantor to Hong Leong Bank Berhad in relation to the bank loan facilities of USD9.5 million granted to PTSPS. In consideration of TSA being a guarantor to the above loan, PTSPS s shareholder, Ivakijaya Sdn. Bhd. has given a first right of refusal option to purchase PT SPS s shares to Detik Merdu Sdn. Bhd. (a subsidiary of MKH) or its nominee and to TSA in the event Detik Merdu Sdn. Bhd. or its nominee does not exercise the option. Detik Merdu Sdn. Bhd s nominee, MKH Plantation Sdn. Bhd. (a wholly owned subsidiary of MKH Berhad) has now exercised the option. The Proposed Acquisition is deemed related party transaction to TSA by virtue of him being a guarantor and therefore, TSA, TSE and DB have abstained and will continue to abstain from deliberations and voting pertaining to this Proposed Acquisition. 8.0 AUDIT COMMITTEE S STATEMENT The Audit Committee of the Company, having reviewed and considered the rationale for the Proposed Acquisition is of the view that the Proposed Acquisition is in the best interest of MKH Group and the terms are fair, reasonable and on normal commercial terms and not detrimental to the interest of the minority shareholders of the Company. In forming its view, the Audit Committee has taken into consideration, among others the Valuation Report, the rationale and benefits of the Proposed Acquisition, the salient terms of the Agreement, the basis and justification for the Purchase Consideration, the effects of the Proposed Acquisition and the prospects of the Land. The Audit Committee did not seek an independent advice in forming its view in respect of the Proposed Acquisition. 5

9.0 DIRECTORS STATEMENT The Board of Directors (save for Deemed Interested Directors) of MKH, having considered all aspect of the Proposed Acquisition is of the opinion that the Proposed Acquisition is in the best interest of the Group and the terms are fair, reasonable and on normal commercial terms and not detrimental to the interest of the minority shareholders of MKH. The Board of Directors did not seek an independent advice in forming its view in respect of the Proposed Acquisition. TSA, TSE and DB had abstained from all the discussions and deliberations in relation to the Proposed Acquisition. 10.0 PERCENTAGE RATIO APPLICABLE TO THE PROPOSED ACQUISITION The highest percentage ratio pursuant to Paragraph 10.02(g) of the Main Market Listing Requirements of Bursa Malaysia Securities Berhad is 4.99% based on the latest audited financial statements of the Company as at 30 September 2015. 11.0 APPROVALS REQUIRED Other than as disclosed in Clause 3.5 above, the Proposed Acquisition is not subject to the approvals of the shareholders of the Company or other relevant authorities. 12.0 TRANSACTIONS WITH RELATED PARTY(IES) FOR THE PRECEDING 12 MONTHS Save for the related party transactions disclosed in MKH Group s audited financial statements for the financial year ended 30 September 2015, there were no transactions entered into between MKH Group and the Interested Directors and/or persons connected with them for the preceding 12 months. 13.0 DEPARTURE FROM THE SECURITIES COMMISSION S GUIDELINES ON THE OFFERING OF EQUITY AND EQUITY-LINKED SECURITIES ( SC GUIDELINES ) The Proposed Acquisition is not subject to the Securities Commission s approval and hence, it does not fall under the SC Guidelines. 14.0 ESTIMATED TIMEFRAME FOR COMPLETION Barring unforeseen circumstances, the Proposed Acquisition is expected to be completed in the fourth quarter of 2016. 15.0 DOCUMENTS FOR INSPECTION The Agreement, audited financial statements of PTSPS and Valuation Report are available for inspection at the Registered Office of the Company at Suite 1, 5th Floor, Wisma MKH, Jalan Semenyih, 43000 Kajang, Selangor Darul Ehsan during the normal working hours from Monday to Friday (except public holidays) for a period of three (3) months from the date of this announcement. Notes: * exchange rate of RM1.00 = Rp3,215 the average of the middle rates as at 31 December 2015 in the interbank Foreign Exchange Rates of Bank Negara Malaysia ^ exchange rate of RM1.00 = Rp3,260 the average of the middle rates from July 2015 to January 2016 in the Interbank Foreign Exchange Rates of Bank Negara Malaysia 6