MALAYSIAN RESOURCES CORPORATION BERHAD ( MRCB OR COMPANY ) - PROPOSED ACQUISITION BY MRCB LAND SDN BHD, A WHOLLY-OWNED SUBSIDIARY OF MRCB OF 1,000,000 ORDINARY SHARES OF RM1.00 EACH IN NILAITERA SDN BHD ( NILAITERA SHARES ), REPRESENTING 100% EQUITY INTEREST IN NILAITERA SDN BHD FROM NUSA GAPURNA DEVELOPMENT SDN BHD FOR A TOTAL CASH CONSIDERATION OF RM24,780,100 ( PROPOSED ACQUISITION ) 1. INTRODUCTION The Board of Directors of MRCB ( Board ) wishes to announce that MRCB Land Sdn Bhd ( MRCB Land ), a wholly-owned subsidiary of MRCB, has today, entered into a Share Sale Agreement ( SSA ) with Nusa Gapurna Development Sdn Bhd ( NGD ) for the proposed acquisition of 1,000,000 ordinary shares of RM1.00 each, representing 100% equity interest in Nilaitera Sdn Bhd ( Nilaitera ) for a total cash consideration of RM24,780,100 ( Purchase Consideration ). MRCB also entered into a Supplemental Agreement with NGD ( Supplemental Agreement ) to vary the terms of the Right of First Refusal and Call Option Agreement dated 8 February 2013 ( ROFR Call Option Agreement ), whereby NGD had agreed to remove all reference to Nilaitera as part of the Option Assets as defined in the ROFR Call Option Agreement, hence the rights granted and the conditions imposed under the ROFR Call Option Agreement shall exclude Nilaitera. 2. DETAILS OF THE PROPOSED ACQUISITION 2.1 Information on Nilaitera Nilaitera was incorporated in Malaysia under the Companies Act, 1965 ( Act ) on 4 May 2012 as a private limited company. Nilaitera has an authorised share capital of RM5,000,000 divided into 4,000,000 ordinary shares of RM1.00 each and 1,000,000 redeemable preference shares of RM1.00 each, of which 1,000,000 ordinary shares of RM1.00 each have been issued and fully paid-up. Nilaitera is principally engaged in the business of acquiring, dealing and trading in leases, landed immovable or real property of all descriptions and tenure, whether freehold, leasehold or howsoever, any rights and interest therein, applying for, accept and receive, purchase, sell, surrender and deal in any licenses for petrol stations, titles and grants to land. The directors of Nilaitera are Tan Sri Saw Choo Boon, Tan Sri Dato Kamaruzzaman Shariff and Nasleena Mohamad Sharrif. Nilaitera is a wholly-owned subsidiary of NGD. On 29 January 2016, Nilaitera entered into a Privatisation Agreement with the Government of Malaysia, through the Ministry of Communication and Multimedia ( GOM ) and Syarikat Tanah Dan Harta Sdn Bhd ( Hartanah ) ( Privatisation Agreement ) in relation to, inter alia, the privatisation of the construction of the new headquarters office for Perbadanan Kemajuan Filem Nasional Malaysia ( FINAS ) on a piece of land measuring approximately 32,392 square metres in Sungai Buloh ( Project Land ) in exchange for the transfer of the land measuring approximately 7.8 acres ( Project Land ) which is currently occupied by FINAS, together with a part cash consideration. 1
2.2 Information on NGD NGD was incorporated in Malaysia under the Act on 10 December 2001 as a private limited company. NGD has an authorised share capital of RM505,000,000 divided into 500,000,000 ordinary shares of RM1.00 each and 5,000,000 redeemable preference shares of RM1.00 each, of which 1,092,203 ordinary shares of RM1.00 each and 500,000 redeemable preference shares of RM1.00 each have been issued and fully paid-up. NGD is principally engaged in the business of property and investment holding. The directors of NGD are Tan Sri Saw Choo Boon,, Nasleena Mohamad Sharrif, Mohd Imran Tan Sri Mohamad Salim, Dato Ishak Hj Mohamed (alternate to Mohd Imran Tan Sri Mohamad Salim) and Tan Sri Dato Kamaruzzaman Shariff (alternate to Tan Sri Saw Choo Boon). The shareholders of NGD are Gapurna Sdn Bhd ( Gapurna ) and the Employees Provident Fund Board ( EPF ), holding 60% and 40% equity interest in NGD respectively. 2.3 Purchase Consideration The Purchase Consideration was arrived at based on the following: (b) (c) (d) adjusted net assets of Nilaitera based on the unaudited financial statements of Nilaitera as at 31 August 2016 of RM780,100; market value of the Project Land of RM194,000,000; less estimated cost to complete the project of RM170,000,000; the strategic location and development potential of the Project Land; and the earnings potential of the Project Land. MRCB Land had appointed Raine & Horne International Zaki + Partners Sdn. Bhd. ( R&H ) and IM Global Property Consultants Sdn Bhd ( IM Global ), as the independent registered valuers to appraise the market value of the Project Land. The details of the Project Land are set out below: Land Title PN 6483, Lot 2, Seksyen 27, Bandar Petaling Jaya, District of Petaling, State of Selangor Land area Approximately 7.8 acres Category of land use Building Location Fronting onto Jalan Utara, Petaling Jaya Existing use / Proposed use FINAS office (1) / Mixed development Express condition / Encumbrances / Nil Restriction in interest Registered owner FLC Tenure 99-year leasehold expiring 25 May 2070 Valuer R&H IM Global Valuation date 16 May 2016 26 May 2016 Valuation (1) RM194,000,000 RM197,000,000 Method of valuation Comparison method Comparison method Development potential Mixed development comprising commercial and residential properties Notes: (1) Located on the Project Land is the FINAS office which is not intended to form part of the development and was disregarded in arriving at the valuation of the land. 2
The Purchase Consideration shall be satisfied by MRCB Land in cash in the following manner: (b) a sum of RM2,478,010, equivalent to 10% of the Purchase Consideration shall be paid upon signing of the SSA; and a sum of RM22,302,090 ( Balance Consideration ), shall be paid by MRCB Land to NGD on or before the business day falling 6 months from the Completion Date (being the business day falling 14 days after the Unconditional Date (as defined herein)), or such other date as may be mutually agreed upon between the parties. The Purchase Consideration to be paid by MRCB Land to NGD shall be adjusted in accordance with the provisions for completion adjustment under the SSA. 2.4 Liabilities to be assumed Save for the liabilities incurred under the ordinary course of business of Nilaitera, there is no liability, including any contingent liability and guarantee, to be assumed by MRCB Land arising from the Proposed Acquisition. 2.5 Source of funding The Purchase Consideration will be funded via internally generated funds, bank borrowings and/or the issuance of debt, the manner and breakdown of which have not been determined at this juncture. 2.6 Salient terms of the SSA The Proposed Acquisition is conditional upon the following conditions precedent being fulfilled or waived within 14 days from the date of the SSA or such later date as may be agreed upon by MRCB Land and NGD ( Cut-Off Date ): (b) (c) (d) MRCB Land having received a confirmation letter from NGD confirming inter alia that as at the Unconditional Date (as defined below), there being no breach on the part of Nilaitera of the terms of the Privatisation Agreement and NGD having obtained at its own cost and expense the approval or consent of the Government of Malaysia (through the Public Private Partnership Unit of the Prime Minister s Department) for the sale and transfer of the Sale Shares in favour of MRCB Land; NGD having obtained at its own cost and expense the approval or consent of any other party which has entered into any subsisting arrangement, contract (including agency/distribution agreement) or undertaking or guarantee with or involving Nilaitera (if any), where required, in each case to the extent that at the Completion Date the same remain to be completed or performed or remain in force; MRCB Land confirming in writing its satisfaction with the results of the due diligence exercise conducted on Nilaitera and on the matters set out in NGD s disclosure letter in accordance with the provisions of the SSA; and the execution of the Supplemental Agreement. The SSA shall become unconditional on the date when all the abovementioned conditions precedent have been fulfilled or deemed fulfilled or waived, as the case may be ( Unconditional Date ). 3
3. RATIONALE FOR THE PROPOSED ACQUISITION AND PROSPECTS OF THE PROJECT LAND The Proposed Acquisition provides an opportunity for MRCB and its group of companies ( Group or MRCB Group ) to acquire prime land in the heart of Petaling Jaya vide the Privatisation Agreement. The Project Land is fronting Jalan Utara, Petaling Jaya and off the northern side of Federal Highway, an expressway linking Petaling Jaya with Kuala Lumpur city centre, Shah Alam and Klang. The Project Land is also located near to MRCB s current development in Petaling Jaya, i.e. PJ Sentral Development. The value of the future development at the Project Land may be further enhanced when the PJ Sentral Development is completed. The Proposed Acquisition is expected to contribute positively to the earnings and cash flows of the MRCB Group in the future. 4. RISK FACTORS The risk factors associated with the Proposed Acquisition are as follows: 4.1 Non-completion of the Proposed Acquisition There is a possibility that the SSA may not be completed due to the failure in fulfilling the conditions precedent as set out in the SSA within the stipulated timeframe. Nevertheless, the Board will take reasonable steps to ensure that every effort is made to complete the Proposed Acquisition in a timely manner. 4.2 Interest rate risk The Group will fund the Balance Consideration for the Proposed Acquisition via internally generated funds, bank borrowings and/or the issuance of debt instruments. In addition, the Group may also take up additional bank borrowings to fund the future development activities of the Project Land. In the event any bank borrowings is taken to finance the Balance Consideration and/or future development activities of the Project Land, the Group may be exposed to a fluctuation in interest rates which could affect the interest charges incurred on the borrowings and adversely affect the Group s future financial performance. In order to mitigate such risks, the Group has been and will continue to review its debt portfolio and interest servicing costs, as well as cash flows to ensure that it achieves an optimal capital structure and is not exposed to undue financial risk. 4.3 Risks inherent in property development As the Group is currently involved in property development activities, the Group is already exposed to risks inherent in the property development sector which include, amongst others:- Business risk The future development of the Project Land will expose our Group to the inherent risks in the property development sector which include, amongst others, timely commencement and/or completion of projects, availability of labour and building materials and fluctuations in the prices of building materials. Notwithstanding the above, the Board is confident that these business risks can be mitigated through efficient project management and close monitoring of work progress in order to ensure timely completion of the project. 4
(b) Competition risk The Group faces competition from various property developers. The local property industry has seen intense competition among property developers for strategically located and reasonably priced land banks, and for labour as well as building materials. There is also strong competition in respect of selling prices and types of properties. To mitigate this risk, the Group will continue to take measures such as undertaking market intelligence surveys and continuously assessing and innovating its development and marketing strategies. (c) Delay in commencement and completion of projects The property development projects are subject to various approvals from the district and state land offices, including the planning authorities and local councils. Any prolonged delay in the completion of the projects could materially and adversely affect its businesses, financial condition, results of operations and prospects. To mitigate this risk, the Group will continue to monitor the work schedules of the development projects closely and proactively liaise with the relevant authorities or parties. (d) Compulsory acquisition In the event of any compulsory acquisition of lands held by the Group, the Group will seek to minimise any potential losses from such situations by invoking the relevant provisions in the Land Acquisition Act, 1960 in relation to its rights to submit an objection in respect of the compensation, where necessary. 5 FINANCIAL EFFECTS The financial effects of the Proposed Acquisition are set out below: 5.1 Share capital and substantial shareholders shareholdings The Proposed Acquisition will not have any effect on the issued and paid-up share capital and the shareholding of the substantial shareholders of the Company as it does not involve the issuance of new ordinary shares of RM1.00 each in MRCB ( MRCB Shares or Shares ). 5.2 Net assets ( NA ) per Share and gearing The Proposed Acquisition will not have any material effect on the NA per share and gearing of MRCB Group for the financial year ending ( FYE ) 31 December 2016. 5.3 Earnings and Earnings per Share ( EPS ) The Proposed Acquisition is not expected to have any effect on the EPS of MRCB Group for the FYE 31 December 2016 as the Proposed Acquisition is only expected to be completed in December 2016. The actual effects of the Proposed Acquisition on the earnings and consequently EPS of the MRCB Group for the subsequent financial years will depend on, amongst others, the actual mode of financing for the Balance Consideration, the earnings contribution from the development of the Project Land and prevailing interest rates. 5
6. APPROVALS REQUIRED The Proposed Acquisition is not subject to the regulatory approval of any government authority or the approval of the shareholders of MRCB. The Proposed Acquisition is not conditional upon any other corporate proposals undertaken or to be undertaken by MRCB. 7. INTERESTS OF DIRECTORS, MAJOR SHAREHOLDERS AND PERSONS CONNECTED TO THEM Save as disclosed below, none of the directors and/or major shareholders of MRCB or any persons connected to them have any interest, direct or indirect, in the Proposed Acquisition. 7.1 Interested Major Shareholders Nilaitera is a wholly-owned subsidiary of NGD. The substantial shareholders of NGD are EPF and Gapurna with shareholdings of 40% and 60% respectively in NGD. Both Gapurna and EPF are also the major shareholders of MRCB ( Interested Major Shareholders ). 7.2 Interested Directors Tan Sri Azlan Zainol, Datuk Shahril Ridza Ridzuan and Rohaya Mohammad Yusof are representatives of EPF on MRCB s Board. Tan Sri Mohamad Salim is the Group Managing Director of MRCB and also a director and substantial shareholder of Gapurna. Mohd Imran Tan Sri Mohamad Salim, who is the son of Tan Sri Mohamad Salim, is the Executive Director of MRCB and a director of NGD. Accordingly, Tan Sri Azlan Zainol, Datuk Shahril Ridza Ridzuan, Rohaya Mohammad Yusof, Tan Sri Mohamad Salim and Mohd Imran Tan Sri Mohamad Salim (collectively, the Interested Directors ) have abstained and will continue to abstain from all deliberations and voting at the Board meetings of MRCB in relation to the Proposed Acquisition. The direct and indirect shareholdings of the Interested Major Shareholders and Interested Directors in the Company are as follows: Direct Indirect No. of MRCB Shares % No. of MRCB Shares % EPF 728,927,897 34.0 - - Gapurna 364,545,752 17.0 - - Tan Sri Azlan Zainol 120,000 * 30,000 (1) * Tan Sri Mohamad Salim - - 364,545,752 (2) 17.0 Datuk Shahril Ridza Ridzuan 500,000 * - - Rohaya Mohammad Yusof - - - - Mohd Imran Tan Sri Mohamad Salim - - - - Notes: * Negligible (1) Deemed interested by virtue of his interest in Edenview Projects Sdn Bhd pursuant to Section 6A of the Act. (2) Deemed interested by virtue of his substantial shareholding in Gapurna. 6
8. PERCENTAGE RATIO The highest percentage ratio for the Proposed Acquisition pursuant to paragraph 10.02(g) of the Main Market Listing Requirements of Bursa Malaysia Securities Berhad ( Bursa Securities ) is 1.1%, computed based on the consideration against the net asset of MRCB as at 31 December 2015. 9. TRANSACTIONS WITH RELATED PARTY FOR THE PRECEDING 12 MONTHS Save as disclosed below, there was no other transaction entered into with the same related party, and/or person connected to them for the preceding 12 months: (b) the proposed acquisition by Gapurna Land Sdn Bhd, a wholly-owned subsidiary of MRCB, of two (2) adjoining parcels of land from Kejora Kinta Sdn Bhd for a total consideration of RM6.9 million, announced to Bursa Securities on 28 April 2016; and Project Delivery Partner Agreement between MRCB Builders Sdn Bhd ( MRCB Builders ), a wholly-owned subsidiary of MRCB and Kwasa Land Sdn Bhd, a whollyowned subsidiary of EPF for the appointment of MRCB Builders as a PDP in connection with the construction and completion of common infrastructure for the Majlis Bandaraya Petaling Jaya area at the Proposed Kwasa Damansara Township for a provisional fee of RM112.28 million, announced to Bursa Securities on 26 May 2016 and approved by the shareholders of MRCB at the Extraordinary General Meeting held on 30 November 2016. 10. DIRECTORS STATEMENT Save for the Interested Directors, the Board, after having considered all aspects of the Proposed Acquisition and after careful deliberation, is of the opinion that the Proposed Acquisition is in the best interest of the MRCB Group. The view of the Board (save for the Interested Directors) was arrived at after having considered, inter-alia, the salient terms of the SSA, the basis and justification for the Purchase Consideration, the rationale for the Proposed Acquisition, prospects of the Project Land and the effects of the Proposed Acquisition on the MRCB Group. 11. AUDIT COMMITTEE S STATEMENT The Audit Committee (save for Rohaya Mohammad Yusof, being an Interested Director) is of the view that the Proposed Acquisition is in the best interest of the Company, is fair, reasonable and on normal commercial terms, and not detrimental to the interest of the noninterested shareholders of the Company. In forming its view, the Audit Committee has taken into consideration, amongst others, the salient terms of the SSA, the basis and justification for the Purchase Consideration, the rationale for the Proposed Acquisition, prospects of the Project Land and the effects of the Proposed Acquisition on MRCB Group. 12. ESTIMATED TIMEFRAME FOR COMPLETION Barring any unforeseen circumstances, the Proposed Acquisition is expected to be completed before 31 December 2016. 7
13. DOCUMENTS FOR INSPECTION The SSA, the Supplemental Agreement and valuation reports are available for inspection at the registered office of MRCB at Level 33A, Menara NU 2, No. 203, Jalan Tun Sambanthan, Kuala Lumpur Sentral, 50470 Kuala Lumpur during normal business hours from Mondays to Fridays (except public holidays) for a period of three (3) months from the date of this Announcement. This Announcement is dated 9 December 2016. 8