HONG LEONG FINANCIAL GROUP BERHAD ("HLFG" OR THE "COMPANY") PROPOSED ACQUISITION BY HONG LEONG ASSURANCE BERHAD ( HLA ), AN INDIRECT 70% SUBSIDIARY OF HLFG, OF A PARCEL OF LAND (THE "LAND") TOGETHER WITH A COMMERCIAL OFFICE BUILDING KNOWN AS MENARA RAJA LAUT (THE "BUILDING") ERECTED ON THE LAND (COLLECTIVELY THE "PROPERTY") FROM HONG LEONG BANK BERHAD ("HLB") FOR A CASH CONSIDERATION OF RM220,000,000 ("PROPOSED ACQUISITION") 1. INTRODUCTION HLFG writes to inform that HLA had on 6 April 2015 entered into a sale and purchase agreement ("SPA") with HLB in respect of the Proposed Acquisition. 2. DETAILS OF THE PROPOSED ACQUISITION 2.1 Information on the Property Postal address : No. 288 Jalan Raja Laut, 50350 Kuala Lumpur Description of the Building : 27-storey office building (inclusive of a 6-level elevated car park) and a lower ground floor Property use : Commercial building Age of the Building : Approximately 22 years Tenure : Freehold Land area : 60,988 sq. ft. Total net lettable area of the Building : 397,939 sq. ft. Occupancy rate of the Building as at 18 March 2015 Amount of lettable space available for letting as at 18 March 2015 Original cost of investment in the Property by HLB Net book value based on latest audited financial statements of HLB : 41%, of which approximately 36% are occupied by HLB and its subsidiaries ( HLB Group ) : 235,833 sq. ft. : RM180,000,000 made on 1 July 2011 : RM170,038,829 as at 30 June 2014 Part of the Land is leased to Tenaga Nasional Berhad ( Lease ) and portions of the Building are currently occupied by tenants ( Tenancies ). The Property is subject to the Lease and Tenancies but otherwise free from encumbrances. Rental income received by HLB from tenants of the Building during the year 2014 amounted to RM1.69 million. The offices of HLB Group within the Building are occupied without any rental charges currently. HLB is expected to lease the required office space in Menara Raja Laut from HLA when the Proposed Acquisition is completed, and assuming that HLB Group continues to occupy the same amount of space as currently occupied by it, HLB Group is expected to contribute rental income of approximately RM5.14 million per annum. 2.2 Basis and justification in arriving at the purchase consideration The Proposed Acquisition involves a cash consideration of RM220,000,000 ( Consideration ). 1
The Consideration was arrived at on a willing buyer-willing seller basis taking into consideration the market value of the Property appraised by the following independent valuers: RM218,000,000 as appraised by Knight Frank Malaysia Sdn Bhd in its valuation report dated 21 October 2014. The valuation for the Property had been carried out using the investment method and the comparison method of valuation; and RM225,000,000 as appraised by Henry Butcher Malaysia Sdn Bhd in its valuation report dated 15 August 2014. The valuation method for the Property had been carried out using the modified investment method and the comparison approach of valuation. The investment method or modified investment method involves deriving the capital value of the property from an estimate of a yearly stream of gross rental income which the property can reasonably be let for. Outgoings, such as property taxes, repairs and maintenance, insurance and management are then deducted from the annual rental income stream. The net annual income is then capitalised at an appropriate market yield to arrive at its indicative capital value. The comparison approach involves comparing the subject property with similar properties that were either transacted recently or listed for sale within the same location or other comparable localities. In comparing properties, due consideration is given to factors such as location, size, tenure and age. 2.3 Source of funding The Consideration will be funded wholly from the shareholders funds of HLA. 2.4 Salient terms of the SPA HLB agrees to sell and HLA agrees to purchase the Property, on an as-is-where-is basis as at the date of the SPA, free from all encumbrances but subject to the Lease and Tenancies, and all restrictions in interest and the conditions and category of use expressed in the document of title, and upon the terms and conditions of the SPA. (a) Payment of Consideration A deposit of RM22,000,000 ( Deposit ) equivalent to 10% of the Consideration had been paid upon the execution of the SPA. The balance RM198,000,000 ( Balance Consideration ) equivalent to 90% of the Consideration shall be paid within 90 days of the date on which the last of the conditions precedent is fulfilled or waived (as the case may be) ( Initial Period ). In the event HLA is unable to pay the Balance Consideration within the Initial Period, HLB shall automatically grant to HLA an extension of time of 90 days from the expiry of the Initial Period ( Extended Period ) to pay the Balance Consideration or any part remaining unpaid, subject to interest at the rate of 8% per annum on the outstanding balance calculated on a daily basis. (b) Conditions precedent The SPA is conditional upon conditions precedent being fulfilled within 90 days from the date of the SPA ( Conditional Period ), failing which the parties agree that the Conditional Period shall be extended automatically for another 60 days from the expiry of the Conditional Period ( Extended Conditional Period ). The last day of the Conditional Period or the Extended Conditional Period (where applicable) shall be referred to as the Cut-Off Date. 2
The conditions precedent to be fulfilled on or before the Cut-Off Date are as follows: the approval of the shareholders of HLFG, HLA s holding company for the acquisition of the Property; and a letter from Tenaga Nasional Berhad addressed to the relevant Land Office consenting to the transfer of the Property to HLA, subject to the Lease being obtained by HLB and delivered to HLA. (c) Cut-Off Date In the event the conditions precedent are not fulfilled and/or waived, as the case may be, on or before the Cut-Off Date, HLA shall be entitled to issue a notice to HLB notifying that the SPA shall lapse and be of no further effect. In such event, HLB shall refund to HLA, free of interest, the Deposit and any other monies that have been paid by HLA pursuant to the SPA within 14 days from HLB's receipt of such notice, failing which HLB shall pay interest at the rate of 8% per annum on the amount owing calculated on a daily basis. (d) Completion Completion of the SPA shall take place on a business day falling within the Initial Period or, as the case may be, the Extended Period ( Completion Date ). On the Completion Date, amongst others: (iii) HLA shall pay or procure the payment of the Balance Consideration; HLB and HLA shall execute a novation in respect of the Tenancies and HLB shall procure the execution of the novation by the relevant tenants; and in the event HLB is unable to procure the execution of the novation by the tenants, HLB and HLA shall execute an assignment in respect of the tenancies of such tenants. (e) Possession HLB shall deliver possession of the Property to HLA on an "as-is-where-is" basis as at the date of the SPA (fair wear and tear excepted) on the Completion Date. 2.5 Liabilities to be assumed Save for liabilities under the Tenancies which HLA shall assume with effect from the Completion Date upon execution of the relevant novation agreements, there are no liabilities, which include contingent liabilities or guarantees, to be assumed by HLA arising from its acquisition of the Property. 2.6 Background information on HLB HLB was incorporated as Kwong Lee Bank Limited in Malaysia on 26 October 1934 and changed its name to Kwong Lee Bank Berhad on 15 April 1966. In 1982, Kwong Lee Bank Berhad was acquired by MUI Group and on 2 February 1983, HLB changed its name to Malayan United Bank Berhad. Subsequently on 26 June 1989, HLB changed its name to MUI Bank Berhad. In January 1994, Hong Leong Group Malaysia acquired MUI Bank Berhad and HLB assumed its present name on 10 January 1994. In January 2001, HLB merged with Wah Tat Bank Berhad and HLB s wholly-owned subsidiary, Hong Leong Finance Berhad merged with Credit Corporation (Malaysia) Berhad. HLB completed the merger of the finance company business of its subsidiary, Hong Leong Finance Berhad, with the commercial banking business of HLB in August 2004. 3
On 6 May 2011, HLB completed the acquisition of the entire assets and liabilities of EON Capital Berhad. On 1 July 2011, the entire business of the former EON Bank Berhad, including all its assets and liabilities, was transferred to HLB in accordance with the Vesting Order granted by the High Court of Malaya. HLB is a public company listed on the Main Market of Bursa Malaysia Securities Berhad. The principal activities of the HLB Group include commercial banking business, Islamic banking business, real property investment, investment holding and nominee services. 3. RATIONALE AND PROSPECTS OF THE PROPOSED ACQUISITION The Property is strategically located in an established commercial hub along Jalan Raja Laut in the Kuala Lumpur city centre, at the fringe of the Golden Triangle of Kuala Lumpur. Its close surroundings are mixed in nature comprising commercial buildings, shoplots, shopping complexes and residential uses. Prominent office buildings and retail complexes in the vicinity include Wisma Sime Darby, Menara Bumiputera Commerce, Bangunan KWSP, Maju Junction, SOGO and the newly opened Quill City Mall, to name a few. The acquisition of a commercial building as an asset class with long term yield and/or capital appreciation potential will fit in with HLA s strategic asset allocation. Post acquisition, as a longer term plan, HLA may consider proposals to refurbish and redevelop the Building including collaborations with a property developer to do so. The Proposed Acquisition will enable HLA to enhance its investment income in the long run with capital appreciation potential. 4. RISK FACTOR Following the Proposed Acquisition, HLFG Group will be exposed to risks inherent to property investment such as non-renewal of tenancies especially by major tenants, competition from supply of office space in other commercial buildings developed within the Klang Valley, pressure on rental rates and ability to secure tenants. However, such risks may be mitigated through prudent asset management and regular maintenance of the Building to ensure it is in good condition to remain competitive. The local and global economic climate, as well as material changes in regulations or government policies may affect the value of the Property. As such, no assurance can be given that HLA will be able to meet its investment objective in the future. 5. EFFECTS OF THE PROPOSED ACQUISITION 5.1 Share capital and substantial shareholders shareholdings The Proposed Acquisition will not have any effect on the share capital and substantial shareholders shareholdings of the Company as the Consideration will be satisfied wholly in cash. 5.2 Net assets The Proposed Acquisition is not expected to have any material effect on the NA per share of the Company. 5.3 Earnings The Proposed Acquisition will not have any immediate material effect on the earnings per share of HLFG Group for the financial year ending 30 June 2015 but is expected to contribute positively to the future earnings of HLFG Group. 4
5.4 Gearing The Proposed Acquisition will not have any effect on the gearing of the HLFG Group. 6. APPROVALS REQUIRED The approval of Bank Negara Malaysia ( BNM ) for the Proposed Acquisition was obtained vide BNM's letter dated 4 March 2015. The Proposed Acquisition is subject to the approval of the shareholders of HLFG pursuant to Section 132E of the Companies Act, 1965. 7. INTERESTS OF DIRECTORS AND MAJOR SHAREHOLDERS Hong Leong Company (Malaysia) Berhad ( HLCM ) is a major shareholder of HLFG. YBhg Tan Sri Quek Leng Chan is a Director of HLFG, HLA, HLB and HLCM, and a major shareholder of HLFG, HLB and HLCM. Mr Choong Yee How is a Director and shareholder of HLFG, and a Director of HLB and HLA. Mr Quek Kon Sean is a Director and shareholder of HLFG, a Director of HLB and HLA, and a son of YBhg Tan Sri Quek Leng Chan. Mr Kwek Leng Beng is a major shareholder of HLB and HLFG, and a Director and major shareholder of HLCM. Mr Quek Leng Chye and Mr Kwek Leng Kee are major shareholders of HLB, HLFG and HLCM. YBhg Tan Sri Quek Leng Chan and Mr Quek Leng Chye are brothers. The shareholdings of HLCM, YBhg Tan Sri Quek Leng Chan, Mr Choong Yee How, Mr Quek Kon Sean, Mr Kwek Leng Beng, Mr Quek Leng Chye and Mr Kwek Leng Kee in HLFG as at 18 March 2015 are as follows: No. of ordinary shares held in HLFG Name Direct % Indirect % HLCM 546,773,354 51.94 267,083,546 (1) 25.37 Tan Sri Quek Leng Chan 4,989,600 0.47 824,437,300 (2) 78.31 Mr Choong Yee How 3,100,000 0.29 - - Mr Quek Kon Sean 1,440,000 0.14 - - Mr Kwek Leng Beng 1,241,321 0.12 818,380,300 (2) 77.74 Mr Quek Leng Chye 1,925,100 0.18 818,380,300 (2) 77.74 Mr Kwek Leng Kee - - 818,380,300 (2) 77.74 Notes: (1) Held through subsidiaries (2) Held through HLCM and company(ies) in which the substantial shareholder has interest YBhg Tan Sri Quek Leng Chan, Mr Choong Yee How and Mr Quek Kon Sean had abstained and will continue to abstain from deliberating and voting in respect of the Proposed Acquisition at the Board level. HLCM, YBhg Tan Sri Quek Leng Chan, Mr Quek Kon Sean, Mr Kwek Leng Beng, Mr Quek Leng Chye and Mr Kwek Leng Kee will abstain from voting and will ensure that persons connected with them will also abstain from voting, in respect of their direct and/or indirect interests, if any, on the proposed ordinary resolution pertaining to the Proposed Acquisition at the general meeting to be convened. Save as disclosed above, none of the Directors and major shareholders of the Company and/or any persons connected with them has any interest, direct or indirect, in the Proposed Acquisition. 5
8. STATEMENT BY THE BOARD AUDIT & RISK MANAGEMENT COMMITTEE ( BARMC ) The BARMC of the Company, having considered all aspects of the Proposed Acquisition (including, but not limited to the terms and rationale for the Proposed Acquisition), is of the opinion that the Proposed Acquisition is: (iii) in the best interest of HLFG; fair, reasonable and on normal commercial terms; and not detrimental to the interests of the non-interested shareholders of HLFG. 9. DIRECTORS STATEMENT The Board of Directors of HLFG (save for YBhg Tan Sri Quek Leng Chan, Mr Choong Yee How and Mr Quek Kon Sean who have abstained from deliberation and voting), having taken into consideration all aspects of the Proposed Acquisition (including, but not limited to the terms and rationale for the Proposed Acquisition), is of the opinion that the Proposed Acquisition is in the best interest of the HLFG Group. 10. PERCENTAGE RATIO APPLICABLE TO THE PROPOSED ACQUISITION Based on the audited consolidated financial statements of HLFG for the financial year ended 30 June 2014, the highest percentage ratio applicable to the Proposed Acquisition pursuant to Paragraph 10.02(g) of the Main Market Listing Requirements of Bursa Malaysia Securities Berhad is 1.92%. 11. RELATED PARTY TRANSACTIONS Save for recurrent related party transactions that are disclosed in HLFG s circular to shareholders dated 8 October 2014 and had been approved by shareholders of HLFG on 30 October 2014, there were no other related party transactions entered into with the interested Directors and interested major shareholders (including persons connected with them) for the 12 months preceding the date of this announcement. 12. EXPECTED TIMEFRAME FOR COMPLETION Barring any unforeseen circumstances, the Proposed Acquisition is expected to be completed by the first half of the year 2015. 13. DOCUMENTS AVAILABLE FOR INSPECTION The SPA is available for inspection at the registered office of HLFG during office hours from Mondays to Fridays (except for public holidays) at Level 8, Wisma Hong Leong, 18 Jalan Perak, 50450 Kuala Lumpur for a period of 3 months from the date of this announcement. This announcement is dated 6 April 2015. 6