Document 6572576

SARAWAK CABLE BERHAD (“SCB” OR “COMPANY”)
PROPOSED ACQUISITION OF 100% EQUITY INTEREST IN UNIVERSAL CABLE (M) BERHAD
AND LEADER CABLE INDUSTRY BERHAD FROM HNG CAPITAL SDN. BHD. FOR A
PURCHASE CONSIDERATION OF RM210,000,000 (“PROPOSED ACQUISITIONS”)
1.
INTRODUCTION
On 16 June 2014, on behalf of the Board of Directors of Sarawak Cable Berhad (“SCB” or
“Company”) (“Board”), Kenanga Investment Bank Berhad (“Kenanga”) announced that the
Board has accepted a conditional offer ("Conditional Offer") from HNG Capital Sdn Bhd
(“HNG” or “Seller”) for the acquisition of 100% equity interest ("Sales Shares") in Universal
Cable (M) Bhd ("UCMB") and Leader Cable Industry Berhad ("LCIB") (collectively referred to
as the “Target Companies”) from HNG for an indicative purchase consideration of
RM210,000,000 to be settled via a combination of cash, assumption of liabilities and the
issuance of new ordinary shares of RM0.50 each in SCB (“Shares”).
On 12 September 2014, on behalf of SCB, Kenanga announced that SCB had paid an
earnest deposit of RM2.1 million ("Deposit") pursuant to the Conditional Offer with the
intention of finalising the terms and conditions of the Proposed Acquisitions and to enter into a
Share Purchase Agreement (“SPA” or "Agreement") on or before 13 October 2014.
Subsequently, on 13 October 2014, Kenanga had on behalf of SCB, announced that SCB had
requested for an extension until 20 October 2014 to finalise the SPA.
Kenanga is pleased to announce that SCB had on 20 October 2014 entered into the SPA with
HNG to effect the Proposed Acquisitions.
2.
THE PROPOSED ACQUISITIONS
2.1
Background
The Proposed Acquisitions will involve the acquisition by SCB of the entire and issued paidup share capital of the Target Companies, comprising 62,503,214 ordinary shares of RM1.00
each in UCMB ("UCMB Shares") and 27,799,707 ordinary shares of RM1.00 each in LCIB
("LCIB Shares") for an aggregate purchase consideration of RM210,000,000 (“Purchase
Consideration”) from HNG to be satisfied in the following manner:RM
(i)
Deposit (paid on 12 September 2014)
(ii)
Issuance of 37,600,000 new ordinary shares of RM0.50 each in SCB
(“SCB Shares”) (“Consideration Shares”) at an issue price of
RM1.3318 per Consideration Share (“Issue Price”), representing
11.86% of the enlarged paid up share capital of SCB
50,075,680
(ii)
Assumption of liabilities via set-off against advances made by the
Target Companies to HNG (“Assumption of Liabilities”)
49,600,000
(iv)
Balance payable by cash on completion (“Cash Consideration”)
Total
2,100,000
108,224,320
210,000,000
Upon completion of the Proposed Acquisitions, UCMB and LCIB will become wholly owned
subsidiaries of SCB.
The Proposed Acquisitions are subject to the terms and conditions of the SPA, the salient
terms of which are set out in Section 2.7 of this announcement.
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2.2
Background information on Target Companies
The Target Companies are two (2) major cable manufacturers in Malaysia and have been
involved in the manufacturing of power and telecommunication cables for more than thirty
(30) years, producing an extensive range of power and telecommunication cables.
Over the years, the Target Companies have also completed various turnkey projects for the
designing, manufacturing, supplying, laying, trunking and erecting of power and
telecommunication cables throughout Malaysia including the 132kV underground power
cables in Kulim Hi-Tech Industrial Park and Cyberjaya, as well as supplying to Malaysia's
Light Rail Transit's cable signalling system.
2.2.1
UCMB
UCMB was incorporated in Malaysia under the Companies Act, 1965 (“Act”) on 3
March 1967 as a public limited company. The authorised, issued and paid-up
ordinary share capital of UCMB comprise of 200,000,000 ordinary shares of RM1.00
each in UCMB of which 62,503,214 has been issued and fully paid-up.
UCMB is a wholly owned subsidiary of HNG. The directors of UCMB, all of whom are
Malaysians and their shareholdings in UCMB are as follows:Direct
Indirect
No. of UCMB
Shares
%
No. of UCMB
Shares
%
Tan Kok Hong
-
-
-
-
Azman Bin Yusoff @ Mukhlis
-
-
-
-
Directors
Datin H’ng Hsieh Ling
Note:
(1)
-
-
(1)
62,503,214
100.0
Deemed interested by virtue of Datin's interest in HNG pursuant to Section 6A of the
Act.
The principal activities of UCMB are the manufacture and sale of telecommunication
1
1
and power cables, including low voltage ("LV") , medium voltage ("MV") and high
1
2
3
4
5
voltage ("HV") cables, bare conductors , ACSR , pilot cables , XLPE ,
instrumentation and control cables as well as housing wires for domestic and export
markets.
1
LV, MV and HV are power cables and wires made of copper or aluminium and are capable of carrying power up to 1 kilo
Volt ("kV") for LV, over 1kV to 33kV for MV and in excess of 33kV for HV.
2
Bare Conductors are materials such as copper or aluminium, which allow electricity to flow through them. Good
conductors allow electricity to flow through them with minimum resistance. Conductors may consist of a solid core of
multiple strands of conducting materials, such as aluminium or copper wires, to form a core conductor.
3
ACSR stands for Aluminium Conductor Steel Reinforced is an aluminium bare conductor clad or bunched together in steel
wires to strengthen the whole cable. They are used as mass conductors and reinforcement of aluminium conductors for
overhead lines as well as the armouring of optical ground wires due to its good electrical conductivity and have high
tensile strength that is equivalent to steel.
4
Pilot Cable is cable which is usually applied to conductors that convey voltage or current signals from one point to another
for comparison with other voltage or current signals as part of a protection scheme. It may also be used to transfer
switching signals from one point to another.
5
XLPE is formed into tubing, and is used predominantly in building services pipework systems, hydronic radiant heating
and cooling systems, domestic water piping, and insulation for high tension (HV) electrical cables. It is also used for
natural gas and offshore oil applications, chemical transportation, and transportation of sewage and slurries.
-2-
UCMB operates four (4) plants located in Pandan, Tampoi, Plentong (all in Johor)
and Nilai (Negeri Sembilan).
A summary of the financial information on UCMB for the past three (3) years for the
financial year ended (“FYE”) 31 December 2013 is set out in Appendix I.
2.2.2
LCIB
LCIB was incorporated in Malaysia under the Act on 30 March 1976 as a public
limited company. The authorised, issued and paid-up ordinary share capital of LCIB
comprise of 50,000,000 ordinary shares of RM1.00 each in LCIB of which 27,799,707
has been issued and fully paid-up.
LCIB is a wholly owned subsidiary of HNG. The directors of LCIB, all of whom are
Malaysians and their shareholdings in LCIB are as follows:Direct
No. of LCIB
Shares
Directors
Indirect
%
No. of LCIB
Shares
(1)
%
Dato’ H’ng Chun Hsiang
-
-
Kon Ted Liuk
-
-
-
-
Azhar Bin Ariffin
-
-
-
-
Note:
(1)
27,799,707
100.0
Deemed interested by virtue of Dato' interest in HNG pursuant to Section 6A of the
Act.
The principal activities of LCIB are the manufacture and sale of telecommunications
6
cables, including LV / MV / HV, bare conductors, ACSR, XLPE and OPGW cables
for domestic and export markets. LCIB operate three (3) plants, of which two (2) are
located in Tikam Batu (Kedah) and one (1) in Meru (Selangor).
A summary of the financial information on LCIB for the past three (3) years for the
FYE 31 December 2013 is set out in Appendix II.
2.3
Background information on Seller
HNG was incorporated in Malaysia under the Act on 27 September 2011 as a private limited
company under the name of Vector Dimension Sdn Bhd and assumed its present name
since 17 October 2011. The principal activity of HNG is investment holding.
The authorised, issued and paid-up ordinary share capital of HNG comprise of 25,000,000
ordinary shares of RM1.00 each in HNG (“HNG Shares”) of which 25,000,000 has been
issued and fully paid-up.
[ The rest of this page is intentionally left blank ]
6
OPGW cable stands for OPtica-fiber composite overhead Ground Wire) is a type of cable that is used in the
construction of electric power transmission and distribution lines. Such cable combines the functions of
grounding and communications.
-3-
The substantial shareholders of HNG, all of whom are Malaysians and their shareholdings in
HNG are as follows:Direct
Indirect
No. of HNG
Shares
%
No. of HNG
Shares
%
Dato’ Seri H’ng Bok San (“Dato’ Seri
H’ng”)
7,500,000
30.0
-
-
Dato’ H’ng Chun Hsiang
10,000,000
40.0
-
-
Datin H’ng Hsieh Ling
7,500,000
30.0
-
-
Shareholders
The directors of HNG, all of whom are Malaysians and their shareholdings in HNG are as
follows:Direct
2.4
Indirect
Directors
No. of HNG
Shares
%
No. of HNG
Shares
%
Dato’ Seri H’ng
7,500,000
30.0
-
-
Dato’ H’ng Chun Hsiang
10,000,000
40.0
-
-
Datin H’ng Hsieh Ling
7,500,000
30.0
-
-
Basis at arriving at the Purchase Consideration
The Purchase Consideration was arrived at on a willing buyer-willing seller basis after taking
into consideration the following:(i)
The assets backing of the Target Companies
The Purchase Consideration is at a 33.5% discount to the aggregate audited net
assets of the Target Companies as at 31 December 2013 of RM316.01 million.
(ii)
The Profit Guarantee by HNG
HNG guarantees that the aggregate profit before taxation (“PBT”) of the Target
Companies for the financial year ending 31 December 2014 shall be not less than
RM21,000,000 (“Profit Guarantee”). The Purchase Consideration is at a Priceearnings multiple ("PER") of ten (10) times on the Profit Guarantee.
(iii)
2.5
The financial and operational track records of the Target Companies.
Justifications for the Purchase Consideration
In justifying the Purchase Consideration, the Board had taken into consideration the trading
parameters of other companies listed on stock exchanges in the South East Asia region and
whose manufacturing of cable and wires contributed more than 50% of their revenue
(“Comparable Companies”). There are no Comparable Companies listed on the Bursa
Malaysia Securities Berhad ("Bursa Securities").
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A brief description of their principal activities are set out below:Comparable
Companies
Country
Principal Activities
Tai Sin Electric
Limited (“Tai Sin”)
Singapore
Cable and wire manufacturer and dealer in such products. The
subsidiaries are principally involved in electrical switchboards
feeder pillars and components manufacturers and dealer in
such products and distributor of electrical products.
Charoong Thai Wire
and Cable Public
Limited Company
("Charoong")
Thailand
Manufactures aluminium electrical wire, copper electrical wire,
high voltage power cable, telephone cable, fiber optic cable and
enamelled wire. Its electrical wires, cables and fiber optic cable
are sold to the state enterprises in charge of public utilities and
infrastructures such as the Electricity Generating Authority of
Thailand, the Provincial Electricity Authority and Metropolitan
Electricity Authority.
KMI Wire and Cable
Tbk PT ("KMI")
Indonesia
Manufactures aluminium and copper cables and wires as well
as other raw materials, and all its components, spare parts,
related accessories and equipments, including engineering
techniques and cable installation. The Company is one of the
suppliers of power cord to Perusahaan Listrik Negara, the state
owned electricity company of Indonesia.
Supreme Cable
Manufacturing and
Commerce Tbk PT
("Sucaco")
Indonesia
Manufactures various kinds of cables, cable related products,
raw materials, and various kinds of melamine products. Its
products include telecommunication cables, electrical cables
and enamel wires.
Voksel Electric Tbk
(“Voksel Electric”)
Indonesia
Primarily engaged in the manufacture of bare copper conductor,
bare aluminium conductor, power cable, communication cable
and optical fiber cable.
(Source : Annual Reports of the Comparable Companies)
The trading parameters of the Comparable Companies are set out below:-
Comparable Companies
Price @
(a)
17.10.2014
(RM)
Market
Capitalisation
(RM'm)
Trailing
(b)
PER
(times)
(d)
PBR
(times)
EV/
EBITDA
(e)
(times)
Tai Sin
0.98
428.5
9.20
1.95
4.35
Charoong
1.13
450.9
16.96
1.01
8.20
KMI
0.04
149.3
9.86
0.51
4.12
Sucaco
1.05
216.5
8.65
0.92
5.71
Voksel Electric
0.20
168.3
* (12.42)
High
Simple average
0.84
7.42
16.96
1.95
8.20
6.45
1.05
5.96
(12.42)
0.51
4.12
High
16.96
1.95
8.20
Simple average
11.17
1.05
5.96
8.65
0.51
Low
Excluding outliners marked *
Low
(c)
Target Companies
210.0
13.33
(Sources : Bloomberg and Annual Reports of the Comparable Companies)
-5-
0.66
4.12
(f)
6.61
Notes:(a)
being the market day immediately preceding the signing of the SPA
(b)
Based on the cumulative profit after taxation ("PAT") for the latest four (4) financial quarters as
extracted from Bloomberg and adjusted for the differential in trading parameters in PER
between Malaysia and the respective countries in the following manner:Adjusted =
PER
PER of the foreign
x
Comparable Company
PER multiple of FTSE Bursa Malaysia KLCI Index
PER multiple of Foreign Stock Exchange Index
(c)
Computed based on the Purchase Consideration divided by the assumed PAT of RM15.75
million (being the Profit Guarantee adjusted for a corporate tax rate of 25%)
(d)
Based on latest audited net assets and adjusted for the differential in trading parameters in
Price to Book Ratio (“PBR”) between Malaysia and the respective countries in the following
manner:Adjusted =
PER
(e)
Adjusted =
EV/EBITDA
(f)
PBR of the foreign
x
Comparable Company
PBR multiple of FTSE Bursa Malaysia KLCI Index
PBR multiple of Foreign Stock Exchange Index
Based on the Earnings before income tax, depreciation and amortisation ("EBITDA") of the
latest available audited financial statements and adjusted for the differential in trading
parameters in Enterprise value ("EV")/ EBITDA multiple between Malaysia and the respective
countries in the following manner:EV/EBITDA of the foreign x
Comparable Company
EV/EBITDA multiple of FTSE Bursa Malaysia KLCI Index
EV/EBITDA multiple of Foreign Stock Exchange Index
Computed based on the Purchase Consideration divided by the EBITDA of the Target
Companies for the FYE 31 December 2013
Premised on the above,
(i)
On the PER multiples, the Purchase Consideration represents a PER of 13.33 times
based on the assumed PAT of the Target Companies of RM15.75 million (based on
the Profit Guarantee less corporate rate of 25%) for the financial year ending 31
December 2014 which falls within the range of the trailing 12-month PER ("Trailing
PER") of the Comparable Companies of 8.65 times to 16.96 times;
(ii)
On the PBR multiples, the Purchase Consideration represents a PBR of 0.66 times or
a discount of approximately 33.5% from the audited NA of the Target Companies as
at 31 December 2013 of RM316.01 million. The PBR is within the range of PBR of the
Comparable Companies of 0.51 times to 1.95 times and lower than the average of
1.05 times; and
(iii)
On the EV/ EBITDA multiples, the Purchase Consideration represents a EV/EBITDA
multiple of 6.61 times which is within the range of the EV/EBITDA multiples of the
Comparable Companies of between 4.12 times to 8.20 times.
Based on the above and taking into consideration the preliminary evaluation of the
Independent Adviser (as set out in Section 15 of this announcement), the Board is of the
view that the Purchase Consideration is fair and reasonable.
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-6-
2.6
Basis at arriving at and justification of the Issue Price
As part payment for the settlement of the Purchase Consideration, SCB will issue 37,600,000
new SCB Shares, representing 11.86% of its enlarged issued and paid-up share capital upon
completion of the Proposed Acquisitions, to conserve the cashflow of SCB and its
subsidiaries (collectively "SCB Group" or the "Group") as well as to minimise the quantum of
borrowings required to finance the Proposed Acquisitions.
The Issue Price of RM1.3318 is based on the five (5) days volume weighted average market
price ("VWAMP") of SCB Shares up to and including 17 October 2014, being the market day
immediately preceding the signing of the SPA.
In arriving at the Issue Price, the Board had taken into consideration the following and
deemed the Issue Price to be fair and reasonable:-
2.7
(i)
The Issue Price represents a Trailing PER of 161.9 times based on the cumulative
PAT of SCB Group for the latest four (4) financial quarters up to 30 June 2014 of
RM0.82 million, which is higher than the range of the Trailing PER of the Comparable
Companies (as set out in Section 2.5 of this announcement) of 8.65 times to 16.96
times; and
(ii)
The Issue Price represents a PBR of 1.6 times based on the audited NA per Share of
SCB Group of RM0.81 as at 31 December 2013, which is within the range of PBR of
the Comparable Companies (as set out in Section 2.5 of this announcement) of
between 0.51 times to 1.95 times.
Salient Terms of the SPA
The salient terms of the SPA are as follows:For purpose of this Section 2.7, "Companies" refer to the "Target Companies" and
"Purchaser" refers to "SCB".
2.7.1
Purchase Consideration
(a)
The Purchase Consideration shall be satisfied as follows:
(i)
the payment of Deposit (which was paid on 12 September 2014);
(ii)
the payment of Redemption Amount of RM108,224,300 (i.e. the
Cash Consideration);
(iii)
the assumption of Intercompany Advance by the Purchaser, which
will be set off against the Purchase Consideration (i.e. the
Assumption of Liabilities);
7
8
7
UCMB Shares and LCIB Shares are charged by HNG to its financiers. The Redemption Amount will be paid
to the security agent, being OCBC Bank (Malaysia) Berhad ("Security Agent") to procure the release of the
security interest created by the Seller on UCMB Shares and LCIB Shares in favour of SCB on the completion
of the SPA.
8
The intercompany advances amounting to Ringgit Malaysia Forty Nine Million and Six Hundred Thousand
(RM49,600,000) as owing to the Target Companies by HNG ("Intercompany Advances"). SCB shall at the
completion of the SPA procure the Target Companies to issue a written confirmation that HNG is finally and
fully released and discharged from the Intercompany Advance, which debt is assumed fully by SCB following
the novation agreement for the novation of the Intercompany Advances from the HNG to SCB at the
completion of the Proposed Acquisitions ("Novation Agreement").
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(iv)
(b)
2.7.2
the allotment and issuance to the Seller of the Consideration Shares,
credited as fully paid and valued for this purpose at RM1.3318 per
Consideration Share and quoted and listed on the Bursa Securities.
The Consideration Shares will rank pari passu in all respects with the
SCB Shares save that they will not rank for any dividend or other
distribution of the SCB declared by reference to a record date prior to
their date of issue.
9
In the event that the Purchaser undertakes an Adjustment Event at any time
from financial year 2014 onwards and the record date in respect of such
Adjustment Event falls on a date prior to the date on which the Seller
becomes the registered owner of the Consideration Shares, the Seller and
SCB (collectively the "Parties") agree that the Seller shall be entitled to all
the benefits of such an Adjustment Event as if the Seller is already a
shareholder of the Purchaser on the relevant record date, and the Parties
shall agree on an equitable mechanism by adjusting the number of
Consideration Shares, in a manner reasonably acceptable to both Parties, to
the intent that the Seller’s position after an Adjustment Event is no worse off
than the position it is in immediately before the occurrence of the Adjustment
Event.
Conditions Precedent
2.7.2.1 Conditional Completion
The completion of the Proposed Acquisitions shall be conditional upon the fulfilment
of the following conditions precedent on or before the date falling 120 days from the
date of the SPA or such other date as the Parties may mutually agree in writing:
(a)
the delivery by HNG to SCB of the written consents (on terms satisfactory to
the Purchaser, acting reasonably) of the financial institutions in relation to the
banking facilities affecting the Target Companies to which consent is required
for the Proposed Acquisitions, in accordance with the terms of the SPA;
(b)
the legal and beneficial ownership in the shares in New Malaysian
10
International Construction Sdn Bhd ("NMIC") having been transferred to the
Seller or a nominee of the Seller out from LCIB;
(c)
the Seller shall have delivered to the Purchaser the following in respect of the
11
Meru Land :
(i)
the withdrawal of the lien holder's caveat lodged by United Overseas
Bank (Malaysia) Bhd over the Meru Land and the delivery of the land
title for the Meru Land to LCIB and an instrument of transfer (Form
14A) duly executed in favour of LCIB as the transferee; or
9
Adjustment Event means (a) any share splits, share consolidation, share dividends, cash dividends, options
or warrants or other similar instruments convertible into new shares or capital distributions of the Purchaser;
and (b) any rights issuances of new shares or options or warrants or other similar instruments convertible
into new shares, any dividend reinvestment plan or any other issuances of new shares at a reference price
or price (as the case may be) per share of the Purchaser below (i) the VWAP of the shares of the Purchaser
for the 5 Market Days immediately prior to the price-fixing date for such issuance or (ii) the Issue Price.
10
LCIB currently owns 100,000 ordinary shares of RM1.00 each in NMIC.
11
LCIB and Leader Properties Sdn. Bhd. entered into a sale and purchase agreement in 2012 for the sale of
the piece of land held under GRN 68913, Lot 43816, Mukim Kapar, Daerah Klang, Selangor ("Meru Land")
by Leader Properties Sdn Bhd to LCIB. LCIB has yet to be registered as the owner of the Meru Land due to
an existing facilities take under the name of Leader Properties Sdn. Bhd.
-8-
(ii)
the original issue document of title with LCIB’s name endorsed
thereon as the registered proprietor;
(d)
the issuance and delivery of the Redemption Statement by the Chargee to
SCB confirming, amongst others, the Redemption Amount and that such
amount is not more than Ringgit Malaysia One Hundred and Eight Million
Two Hundred Twenty Four Thousand and Three Hundred Twenty
(RM108,224,320);
(e)
the notification by the Target Companies to Ministry of International Trade
and Industry and Malaysian Investment Development Authority of the
proposed changes in the shareholding structures of the Target Companies;
(f)
the passing at an extraordinary general meeting ("EGM") of SCB of:
(i)
an ordinary resolution approving the execution and performance of
the obligations of SCB under the SPA and the consummation of the
transactions contemplated thereunder; and
(ii)
an ordinary resolution approving the allotment and issuance of the
Consideration Shares to HNG;
(g)
the approval-in-principle for listing of and quotation for the Consideration
Shares being obtained from Bursa Securities subject to the terms of the SPA;
(h)
the execution of Novation Agreement between HNG, SCB and the Target
Companies for the novation of Intercompany Advance from HNG to SCB; and
(i)
the execution of a licensing agreement between SCB and HNG upon terms
mutually acceptable to the Parties for the use of the "Leader since 1957"
trademark by LCIB on a royalty-free basis, up to a period of twelve (12)
months only from the completion of Proposed Acquisitions.
(Sections 2.7.2.1 (a) to (i) of this announcement shall individually and collectively be
referred to as the "Conditions Precedent")
2.7.2.2 Waiver of Conditions Precedent
Save for the Conditions Precedent in (e) and (h) which may only be waived by
mutual agreement in writing of the Parties, SCB may in its absolute discretion waive
all or any of the Conditions Precedent at any time by notice in writing to HNG. The
Parties acknowledge that the Conditions Precedent (f)(i) and (ii) and (g) cannot be
waived even with mutual consent.
2.7.3
Profit Guarantees
(a)
HNG is providing a profit guarantee such that the PBT of the Target
Companies for the financial year ending 31 December 2014 ("FY 2014 PBT")
shall not in aggregate be less than RM21,000,000.
(b)
In the event that the FY2014 PBT is less than the Profit Guarantee, HNG
shall, upon written demand by SCB, pay to SCB an amount in cash equal to
such shortfall within ninety (90) days from the signing of the audited accounts
of the Target Companies by the respective auditors of the Target Companies
for the financial year ending 31 December 2014.
-9-
2.7.4
(c)
The Parties agree that the FY2014 PBT shall be based on the aggregated
profit before tax of the Target Companies less any inter-company
adjustments, particularly any unrealised profits between the Target
Companies and as determined by the respective auditors of the Target
Companies as soon as practicable after the end of the financial year ending
31 December 2014 and in any event no later than 31 March of the following
financial year, based on accounting principles, procedures and practices
adopted in the audited accounts of the Target Companies applied on a
consistent basis and in accordance with the Act and in accordance with the
relevant Accounting Standards.
(d)
If there is any dispute in relation to the FY2014 PBT, the disputing party may,
within seven (7) days from the signing of the audited accounts of the Target
Companies for the financial year ending 31 December 2014 refer the
determination of FY2014 PBT to an expert selected among
PriceWaterhouseCoopers, KPMG or Deloitte by agreement between the
Parties, or failing agreement, nominated of an expert by the President of the
time being of the Institute of Malaysian Accountants on the application of any
of the Parties.
(e)
The disputing party shall, at its own costs, procure the expert to determine
the FY2014 PBT in accordance with the relevant Accounting Standards
within 30 days from the date of instructing the expert (or such other date as
the Parties may mutually agree in writing).
(f)
The decision of the expert shall be final and binding on the parties hereto,
manifest errors excepted, and the expert shall be deemed to act as an expert
and not as an arbitrator.
Indemnity and Tax Covenants
2.7.4.1 Subject always to completion of the Proposed Acquisitions having occurred,
the Seller shall defend, indemnify and hold harmless SCB, for itself and as
agent and trustee for the Target Companies, from and against any losses,
which SCB or the Target Companies incurs, and resulting from or arising out
of:
(a)
LCIB's interest in NMIC;
(b)
LCIB and UCMB not having in its possession physical copies of the
approved building plans for factory and office building with the land
particulars as stated in the SPA; and
(c)
LCIB's lease of H.S. (D) 2/1977, Mukim Pekula, Daerah Kuala Muda,
Kedah, being a Malay-reserved land, from Perbadanan Kemajuan
Negeri Kedah.
2.7.4.2 Tax Covenants.
(a)
For purposes of construing the Tax Covenants section in the SPA,
the following definitions are used:
(i)
“Event” includes any omission, event, action or transaction,
which occurs on or before the completion of the Proposed
Acquisitions;
- 10 -
(b)
(ii)
“relief” includes any relief, allowance, credit, set off,
deduction or exemption for any Tax purpose;
(ii)
reference to income or profits or gains earned, accrued or
received shall include income or profits or gains deemed to
have been or treated as or regarded as earned, accrued or
received for the purposes of the relevant Tax legislation;
(iii)
reference to any “Tax liability” shall include any liability of the
Companies to make payment of Tax arising as a result of an
Event and any loss or reduction in the amount of a right to
repayment of Tax which has been treated as an asset of the
Companies in preparing the Accounts. In such instances the
amount of Tax found to be payable by the Companies
(calculated by reference to the rates of Tax in force at the
date of this Agreement) or the amount of repayment which
the Companies would otherwise have obtained, shall be
treated as the amount of the Tax liability but excludes any
such Tax liability arising as a result of, or such loss or
reduction suffered as a result of, changes to Tax laws
regulations directives or rulings or its interpretation thereof
after the completion of the Proposed Acquisitions with
retrospective effect; and
(iv)
reference to a payment in respect of Tax includes (without
limitation) a payment for the surrender of any relief or other
entitlement, a repayment of any such payment and a
payment by way of reimbursement, recharge, indemnity or
damages.
Subject to the terms in the SPA and completion of the Proposed
Acquisitions, HNG covenants with and undertakes to pay to SCB a
sum equal to the amount of, amongst others:
(i)
any Tax liability of the Target Companies resulting from or by
reference to any profits or gains earned accrued or received
on or before the completion of the Proposed Acquisitions or
any Event but excluding any Tax liability resulting from or by
reference to any income or as the result of the realisation by
the Company of trading stock or work in progress or
otherwise in the ordinary course of its business; and
(ii)
any Tax liability of the Target Companies that would not have
been payable had there been no breach of any Tax
Warranties and which is not the subject of the covenants in
paragraph (i) above; and; and
(iii)
all costs and expenses which are incurred by SCB or the
Target Companies as agreed by HNG in connection with any
of the matters referred to in the Tax Covenant clauses in the
SPA or in taking or defending any action under the
covenants contained in the Tax covenant clauses in the SPA
(including, without prejudice to the generality of the
foregoing, all legal and other professional fees and
disbursements) in relation to an Event.
- 11 -
2.7.5
SCB's Rights to Terminate
SCB may by written notice given to HNG any time prior to the completion of the
Proposed Acquisitions terminate the SPA if any fact, matter or event (whether
existing or occurring on or before the date of the SPA or arising or occurring
afterwards) comes to the notice of SCB at any time prior to completion of the
Proposed Acquisitions which constitutes:
2.7.6
(a)
a material breach by the Seller of this Agreement (including any material
breach of the covenants or other obligations of HNG contained or referred to
in the SPA), which has not been remedied by HNG fourteen (14) days after a
written notice of such breach has been given to HNG;
(b)
a material breach of any of the warranties given by HNG in the SSA; or
(c)
a material adverse event of any Target Companies.
HNG's Rights to Terminate
HNG may by written notice given to the SCB any time prior to completion of the
Proposed Acquisitions terminate the SPA if any fact, matter or event (whether
existing or occurring on or before the date of the SPA or arising or occurring
afterwards) comes to the notice of HNG at any time prior to completion of the SPA
which constitutes:-
2.8
(a)
a material breach by SCB of the Agreement (including any material breach of
the covenants or other obligations of SCB contained or referred to in the
SPA), which has not been remedied by SCB fourteen (14) days after a
written notice of such breach has been given to SCB;
(b)
a material breach of any of the warranties given by SCB; or
(c)
a material adverse event of SCB.
Ranking and Listing of the Consideration Shares
The Consideration Shares shall, upon allotment and issuance, rank pari passu in all respects
with each other, save and except that they shall not be entitled to any dividends, rights,
allotment and/or other distributions, which may be declared, made or paid to shareholders,
the entitlement date of which precedes the date of allotment of the Consideration Shares.
An application will be made to Bursa Securities for the listing of and quotation for the
Consideration Shares on the Main Market of Bursa Securities.
2.9
Liabilities to be assumed, Estimated Additional Financial Commitments
Save for the Assumption of Liabilities, there are no other liabilities, including contingent
liabilities and guarantees to be assumed by SCB Group pursuant to the Proposed
Acquisitions.
SCB does not expect to incur any additional financial commitment to put the businesses of
the Target Companies on-stream as the businesses of the Target Companies are currently
operational and profit making.
- 12 -
2.10
Source of Funding
The Cash Consideration to part satisfy the Purchase Consideration will be funded from
borrowings (90% of the Cash Consideration) and the balance from the internally generated
funds of SCB.
2.11
Original cost and date of investment
The original cost and date of investment in the Target Companies by HNG are as follows:-
Date of investment
UCMB
7 May 2012
123,621
LCIB
7 May 2012
55,250
Total
3.
Original Cost of Investment
(RM’000)
Target Companies
178,871
RATIONALE FOR THE PROPOSED ACQUISITIONS
The SCB Group is an integrated manufacturing and engineering solutions provider for the
power transmission industry in Malaysia. Its operations include the manufacturing and sale of
power cables and conductors, fabrication and galvanising of steel structures and transmission
towers, and the supply, construction, installation and commissioning of transmission line
projects. In addition, the Group has also ventured into Indonesia's power generation sector in
2012 via its subsidiary, PT Inpola Mitra Elektrindo's proposed mini hydro power plant in the
North Sumatra area.
The Board envisages that the Proposed Acquisitions will bring forth the following benefits to
the SCB Group:(i)
Minimise opportunity costs
The Proposed Acquisitions will give the SCB Group immediate access to the
manufacturing facilities, technology know-how, branding, customer base (including
foreign customers) and marketing network as well as human resource of the Target
Companies.
In comparison, if the Group were to set up manufacturing facilities of similar capacity
as the Target Companies', the management of SCB Group estimates that it would
cost the Group not less than RM250 million and require two (2) to three (3) years for
the construction of the factories and commissioning of the machineries. In addition,
the SCB Group may need a longer time frame to achieve the same level of
production and administrative efficiency and technical know-how as the Target
Companies, and to establish the level of customer base required to support the
current scale of operations of the Target Companies. More importantly, the SCB
Group will be in competition with the more established market players, including the
Target Companies, for the same business segment in Malaysia and abroad. Thus, it
is not compelling for the Group to embark on this route.
The Proposed Acquisitions will allow the Group to minimise the above mentioned
opportunity costs which would otherwise be incurred should the Group decide to
expand organically via the setting up of new manufacturing facilities.
- 13 -
(ii)
Enlarge its manufacturing capacity and geographical expansion
The Proposed Acquisitions will give SCB the opportunity to expand its power cables
manufacturing base to Peninsular Malaysia through the Target Companies'
manufacturing bases in the states of Selangor, Kedah, Johor and Negeri Sembilan.
Post completion of the Proposed Acquisitions, the SCB Group will expand its cable
manufacturing capacity by multi-fold and, by leveraging on the production facilities of
the Target Companies, the enlarged SCB Group will become one of the leading
manufacturers of cables and conductors in Malaysia and this will provide the SCB
Group with the manufacturing base to capture opportunities in the power transmission
industry in Malaysia and abroad.
(iii)
Enhance its manufacturing capability
Currently, the SCB Group manufactures two (2) types of power cables and wires,
namely LV power cables and wires and HV bare conductors. LV power cables and
wires such as single core power cables and wires and multi-core power cables and
wires are principally used in power distribution lines, as well as inside end-user
homes, offices and factories. HV bare conductors are typically used in overhead
power transmission lines and distribution lines.
At present, the SCB Group also purchases power cables from other manufacturers
(one (1) of its major suppliers being UCMB) for it to supply a comprehensive range of
cables as a one-stop supply centre of power cables and wires in Sarawak. These
external products are primarily MV and HV power cables which are not economical
for the SCB Group to manufacture in-house due to limitations in its production
capacity.
Following the Proposed Acquisitions, SCB Group will have the facilities and
technology know-how for the manufacturing of the higher margin MV and HV power
cables to broaden its product offerings to satisfy the requirements of its customers.
(iv)
Enhance market positioning
The Proposed Acquisitions will further enhance SCB Group’s position as an
integrated one-stop manufacturing base and solutions provider in the power
transmission industry and will benefit the SCB Group in the following manner:(a)
At present, the Target Companies supply their products to Tenaga National
Berhad (“TNB”) while the SCB Group only provide its engineering services
for the installation of transmission line projects to TNB. Following the
completion of the Proposed Acquisitions, the enlarged SCB Group will be in a
position to offer its full spectrum of products and services as turnkey
contractors to TNB;
(b)
The SCB Group will be able to tap on the Target Companies' existing
customer bases in Malaysia and overseas to expand the reach of the Group's
products and services and to venture into new markets in the region; and
(c)
Enhance SCB Group’s competitive edge and market position in the power
transmission industry as the Proposed Acquisitions complement SCB
Group’s ability to provide one-stop in-house products and services to
customers at competitive pricing as well as better logistical support to ensure
timely completion of projects.
- 14 -
The Board views the Proposed Acquisitions as a synergistic and strategic move by SCB to
strengthen its manufacturing base and market position within the power transmission industry
by immediately tapping on the Target Companies' proven track record as one of the leading
manufacturers of power and telecommunication cables in Malaysia with established
operations and customer base.
Post acquisition, the enlarged SCB Group with its enlarged capacity and capability as well as
enhanced efficiency and technical capability will be able to embark on projects of increasing
scale and complexity in Malaysia and abroad.
4.
RISK FACTORS IN RELATION TO THE PROPOSED ACQUISITIONS
The Proposed Acquisitions are not expected to materially affect the business and operational
risk profile of the SCB Group as the SCB Group is already exposed to similar business and
operational risks as those inherent in the Target Companies business' operations, such as
labour supply shortage, increase in labour, logistical and overhead costs, changes in general
economic, business and credit conditions, the entry of new players, changes in customers’
preference and technological advances, and changes in the legal and environmental
framework within which the Target Companies operate.
These risks include but not limited to the following:-
4.1
Business Risks
The business activities of the Target Companies are subject to the risks inherent in the cable
manufacturing business. These risks include, but not limited to, changes in the economic
condition and demand for power cables and wires in Malaysia and other markets where the
Target Companies' products are exported to. Factors that may affect demand for power
cables and wires include the performance of the power industry, property development
industry and building and construction industry, which are beyond the control of the SCB
Group.
The SCB Group's operations are primarily derived from Sarawak and the Board has always
been seeking to expand its manufacturing operations beyond Sarawak. The Proposed
Acquisitions allow SCB Group to establish its market reach to Peninsular Malaysia as well as
overseas market such as South East Asia, Hong Kong, Maldives, Pakistan, Australia and
New Zealand.
Upon completion of the Proposed Acquisitions, the Board believes that the Target
Companies' established market presence in Peninsular Malaysia and overseas will further
enhance the business operations of the enlarged SCB Group.
4.2
Dependence on Key Customers
The Target Companies are primarily involved in the sales of power cable and conductors, and
are thus dependent on TNB which is the sole entity responsible for the generation,
transmission, distribution and sale of electricity in Peninsular Malaysia and Sabah.
TNB has been the Target Companies' customers for more than thirty (30) years and have
contributed between 27% and 36% of the Target Companies' revenue for the past three (3)
financial years up to FYE 31 December 2013.
TNB has been the Target Companies' customer for more than 30 years and the Board is of
the opinion that, barring any unforeseen circumstances, the Target Companies will continue
to maintain this long-term and cordial business relationship with TNB in view of their proven
sales record with TNB, quality of their products and timely delivery. Save for risks inherent in
general political, economic and regulatory environment and foregoing factors, the Board is of
the opinion that there are no specific factors which could potentially have an adverse impact
on the relationship between the Target Companies and TNB post completion of the Proposed
Acquisitions.
- 15 -
4.3
Dependence on availability of raw materials at competitive prices
Cable manufacturing operations rely on a sustainable supply of raw materials such as copper
rods, aluminium rods, steel plates, steel coils, zinc blocks and optical ground wires. For the
FYE 31 December 2013, purchases of copper rods and aluminium rods comprise
approximately 50% of total purchases and these materials are mainly sourced from Leader
Universal Aluminium Sdn Bhd and Alpha Industries Bhd, both are companies related to the
Seller.
The Target Companies monitor the price and inventory level of their raw materials and take
measures such as increasing inventory levels or using hedging mechanism if a shortage of
supply or unfavourable price movement is anticipated through its purchasing department and
hedging desk. This is in line with SCB Group’s existing practice of closely monitoring the
prices and supply of the required raw materials and takes measures such as increasing
inventory levels if a shortage of supply or unfavourable price movement is anticipated.
The Board is of the opinion that the enlarged SCB Group will continue to get the support of
Leader Universal and Alpha Industries for the supply of copper rods and aluminium rods. In
addition, pursuant to the terms of the SPA, the Target Companies will enter into supply
agreements with Leader Universal Aluminium Sdn Bhd and Alpha Industries Bhd to secure
the supply of the copper rods and aluminium rods before the completion of the Proposed
Acquisitions.
Notwithstanding the above, the SCB Group maintains a diversified supplier base and do not
depend on any single supplier for the purchase of raw materials. As copper rods and
aluminium rods are commodities traded on the London Metal Exchange whereby their prices
are subjected to world supply and demand, all manufacturers that use these materials in their
production are equally affected. In most situations, SCB Group is able to pass on fluctuations
in the prices of raw materials to its customers resulting in minimal impact on its profit margins.
Upon completion of the Proposed Acquisitions, the enlarged SCB Group will be able to share
its supplier base for raw materials and also leverage on larger scale of operations for better
raw materials pricing when engaging with its suppliers.
Nevertheless, there can be no assurance that the Group's business operations and financial
performance will not be adversely affected if there is a prolonged shortage in the supply or
adverse long-term price movement in the abovementioned raw materials.
4.4
Dependence on key personnel
The knowledge and experience of the key existing personnel is crucial in maintaining the
continuing operations and success of the Target Companies. SCB Group intends to retain the
existing staffs of the Target Companies and ensure there is continuity in the management of
the Target Companies as the loss of such key personnel could adversely affect the operations
of the Target Companies.
SCB Group will also take appropriate measures to attract, retain and motivate talented
individuals to ensure, on a larger extent, a continuing succession plan for key management
positions in the enlarged SCB Group.
However, there can be no assurance the departure of any key personnel will not have an
adverse effect on the enlarged SCB Group.
- 16 -
4.5
Financial Risk
The Proposed Acquisitions will be partly funded by bank borrowings from a financial
institution. The total borrowing of SCB Group will increase from RM83.0 million as at 31
December 2013 to RM420.9 million upon completion of the Proposed Acquisitions.
Fluctuations in the overnight policy rate determined by Bank Negara Malaysia will impact
interest rates charged by financial institutions and result in changes the interest charges
incurred on new borrowings and existing borrowings of the SCB Group and the Target
Companies.
SCB Group will continuously ensure prudent financial management such as monitoring its
future cash flow and to take appropriate steps in the event any shortfall may be detected.
However, there can be no assurance that SCB Group’s ability to meet its financial obligations
will not be jeopardized in the event its operations and cash flows are affected in any manner
whatsoever due to internal or external shocks to its businesses.
4.6
Non-Completion Risk of the Proposed Acquisitions
The completion of the Proposed Acquisitions is subject to certain conditions such as the
approvals from the shareholders of SCB and from the relevant authorities. In the event any of
the conditions precedent as set out in the SPA is not fulfilled, the SPA will be terminated and
become null and void. Under the terms of the SPA, SCB will be able to recover the Earnest
Deposit paid to HNG in the event the termination of the SPA is through no fault of SCB.
SCB however will take all reasonable and necessary steps to ensure that all the conditions
precedent is met to ensure the completion of the Proposed Acquisitions to realise the benefits
to the SCB Group as envisaged in Section 3 of this announcement.
5.
INDUSTRY OVERVIEW AND PROSPECTS
5.1
Overview and Outlook of the Malaysian economy
The Malaysian economy is expected to expand further by 5% - 5.5% in 2014 (2013: 4.5% 5%), supported by favourable external environment. Growth will be private-led, supported by
strong private capital spending while private consumption continues to be resilient. Although
some degree of uncertainty exists in the global environment due to the volatility of capital
flows associated with the possibility of reduced global liquidity, Malaysia's external sector is
expected to improve. This is in tandem with the continued recovery of growth across
advanced economies as well as stronger regional trade activities which is evident in the
second half of 2013. The better outlook of Malaysia's external sector is premised upon
China's real Gross Domestic Product growth, which is expected to be sustained at around
7.5%, while global trade will continue to grow at a steady pace of 5% in 2014.
Domestic demand is expected to continue its strong growth momentum, driven mainly by the
private sector. Strong domestic fundamentals, including low unemployment, rising household
income and sustained consumer confidence, will support the continued expansion of private
consumption. Growth in private investment is expected to remain strong in line with improving
external demand and increasing domestic activity. Public expenditure will be largely
underpinned by increased spending on supplies and services.
- 17 -
Malaysia's macroeconomic fundamentals are expected to remain strong. Of significance,
labour market conditions are expected to be favourable with the unemployment rate at 3.1%.
The labour market is expected to be supported by increased employment, particularly in the
services-related industries and export-oriented manufacturing industries in tandem with strong
domestic consumption and improving external demand. Headline inflation is expected to
remain manageable at 2% - 3% in 2014. The increase in the consumer price index (CPI)
largely reflects fuel price adjustment in September 2013. Domestic demand-driven inflation is
expected to remain modest, amid increased capacity expansion and improved productivity.
On the supply side, major economic sectors are expected to record netter performance in
2014 supported by strong domestic fundamentals and improving external demand. The export
oriented manufacturing sector is expected to benefit from improving external demand with
higher manufacturing activity. Growth in the construction sector will be driven by acceleration
in the implementation of civil engineering projects in the transport, utility and oil and gas
segments.
The outlook for the manufacturing sector is expected to improve, given the continued
recovery in manufacturing activity, partiality the electrical and electronics ("E&E") subsector.
In line with the gradual pickup in the global economy and improving intra-regional trade,
export economy and improving intra-regional trade, export-oriented industries such as E&E,
chemicals and resource-based industries are likely to provide support to growth. Likewise,
domestic-oriented industries such as construction-related materials, transport equipment and
food subsectors are also expected to remain resilient. The manufacturing sector is projected
to grow 3.8% in 2014 (2013: 3.2%).
(Source: Economic Report 2013/2014)
5.2
Prospects and Outlook of the Power Cables and Wire Industry
The prospects and outlook of the business segment in which the Target Companies operate
in will depend on the growth and prospect of the power industry as well as the infrastructure
development sectors in Malaysia.
Notable key growth drivers for these industries include the following:
TNB incurred capital expenditure of RM8.5 billion for the FYE 31 August 2013, which
was an increase of 16.4% of the incurred capital expenditure of RM7.3 billion for the
FYE 31 August 2012. The authorised capital expenditures and other commitments of
TNB for the next five (5) years as at 31 August 2013 is RM22.41 billion. This
represents an increase of 26.3% based on its five (5) years capital and other
commitments of RM17.74 billion as at 31 August 2012 and this is in line with TNB’s
plan in enhancing its generating capacity potential, transmission efficiency and
distribution reach. (Source: TNB Annual Report dated 31 August 2013)

The Sarawak Corridor of Renewable Energy (“SCORE” of "Corridor") focuses on
developing the energy sector and targets ten (10) high impact priority industries that
will complement the development plan and also provide downstream opportunities for
small and medium enterprises and is in line with the State of Sarawak’s ninth
Malaysia plan to capitalize on the State of Sarawak’s energy resources (Source:
www.recoda.com.my)
Investments totalling RM334 billion will be required by the year 2030, in order to
realise the full potential of the SCORE initiative. It is estimated that RM267 billion
worth of private investments – representing roughly 80% of the total investments for
the Corridor – will be for the development of industries (RM200 billion) and the power
sector (RM67 billion), with RM67 billion or 20% of the total investments – from the
public sector – targeted for the development of vital infrastructure within SCORE
(Source: Annual Report 2013 of Regional Corridor Development Authority
("Recoda")).
- 18 -

In 2013, domestic investment activity was boosted by the launch of the Refinery and
Petrochemical Integrated Development (“RAPID”) project in Pengerang, Johor under
the Economic Transformation Plan. The RAPID project will enable Malaysia to
become a major global player in the oil and gas downstream industry as well as
create various economic opportunities for the local community. These would include
construction of new roads, installing a comprehensive network of power,
telecommunications and water supplies, upgrading roads to highways to facilitate
movements of goods and services and a centralised management of industrial waste
products from the complex. (Source: Ministry of Finance Malaysia, Economic Report
2013/2014
and
Malaysia
Petroleum
Resources
Corporation
website
www.mprc.gov.my/our-businesses/pengerang-integrated-petroleum-complex-pipc)
The capital investment by TNB, SCORE, RAPID and other infrastructure developments will
act as a catalyst to spur the growth in the demand for power cable, transmission line and
ancillary engineering services which could bring forth growth in the power cable and wire
industry.
5.3
Prospects of Target Companies
Over the years, the Target Companies have focused on improving its technical capability to
manufacture cables of increasing complexity to capture markets once dominated by imported
cables. At the same time, the Target Companies has also expanded its export markets
(export sales made up approximately 19% of sales for the FYE 31 December 2013) and its
products are currently sold to neighbouring countries including Australia and New Zealand.
Recently, UCMB successfully complete the testing for its 275kV cable, which once
commercialised, will give UCMB an opportunity to capture new markets locally and aboard
which are currently fulfilled by such cables imported from overseas.
The Target Companies, with its established track record associated with quality products and
technical capability is well position to benefit from the increased demand for power cables in
the future arising from the capital investment by TNB, SCORE, RAPID and other
infrastructure development in Malaysia in the future.
In addition, the Target Companies' manufacturing base will support the SCB Group's
aspiration of becoming a sizeable one-stop solutions provider in the power transmission
industry in Malaysia, with the capacity and capability to expand regionally where opportunities
arise.
With the intention to expand their business locally and internationally, the Target Companies
plan to increase efficiency in manufacturing capacity and enhancement in products quality.
The co-operation and support between the existing project management and technical team
of the Target Companies together with the current team in SCB Group will enable the Target
Companies to manufacture, supply and provide power cables and wires as an integrated
solution for infrastructure projects. This will build a strong platform for the SCB Group to
participate in future infrastructure projects in Malaysia and overseas.
Currently, SCB has not identified the financial resources required to execute the plans as the
financial resources required is dependent on the type and size of the projects awarded to
SCB.
(Source: Management of SCB)
- 19 -
6.
EFFECTS OF THE PROPOSALS
6.1
Share Capital
The proforma effects of the Proposed Acquisitions on the issued and paid-up share capital of
SCB are as follows:-
As at 17 October 2014
Consideration Shares to be issued
Enlarged issued and paid-up share capital
after the Proposed Acquisitions
6.2
No. of SCB
Shares
Share Capital
(RM'000)
279,450,000
139,725
37,600,000
18,800
317,050,000
158,525
Earnings and earnings per share (“EPS”)
The Proposed Acquisitions are expected to be completed in the fourth quarter of 2014 and
will have a dilutive impact on the EPS of SCB Group for the financial year ending 31
December 2014 as a result of an increase in the number of SCB Shares in issue as a result of
issue of Consideration Shares upon completion of the Proposed Acquisitions.
Notwithstanding this, barring unforeseen circumstances, the Proposed Acquisitions are
expected to contribute positively to the future earnings and EPS of the SCB Group.
6.3
NA and gearing
The effects of the Proposed Acquisitions on the NA and gearing of the SCB Group are set out
below:Audited
31 December 2013
RM'000
After Proposed
Acquisitions
Share Capital
139,725
158,525
Reverse acquisition reserve
(37,300)
(37,300)
Share premium
46,354
77,630
Foreign currency translation reserve
(1,196)
Revenue reserves
76,126
(1,196)
(a)
179,534
Shareholders’ Funds
223,709
377,193
No. of Shares (‘000)
279,450
317,050
0.80
1.19
83,302
420,905
0.37
1.12
NA per Share (RM)
Total borrowings
Gearing (times)
Note:(a)
After netting off estimated expenses in relation to the Proposed Acquisitions of approximately
RM2.6 million.
The illustration set out above is for illustrative purpose only and may not represent the true
financial position of the SCB Group after the completion of the Proposed Acquisitions. There
may be differences due to amongst others, the fair value of the assets and liabilities of the
Target Companies acquired and accounting adjustments which may be undertaken upon
completion of the Proposed Acquisitions in accordance with the Malaysian Financial
Reporting Standards issued by the Malaysian Accounting Standards Board.
- 20 -
6.4
Convertible securities
There are no options, warrants or convertible securities issued by SCB.
6.5
Substantial Shareholders’ Shareholdings
The effects of the Proposed Acquisitions on the substantial shareholders’ shareholdings of
SCB are set out below:Existing
Direct
After Proposed Acquisitions
Indirect
Substantial
Shareholders
No. of SCB
Shares
%
Dato Sri Mahmud Abu
Bekir Taib
57,825,000
20.69
Sarawak Energy
Berhad (“SEB”)
52,397,996
18.75
Toh Chee Ching
38,591,996
13.81
Central Paragon Sdn
Bhd (“CPSB”)
34,182,000
12.23
9,855,000
3.53
(3)
52,397,996
18.75
52,397,996
18.75
Yek Siew Liong
No. of SCB
Shares
Direct
(1)
No. of SCB
Shares
%
Indirect
No. of SCB
Shares
%
34,182,000
12.23
57,825,000
18.24
-
-
52,397,996
16.53
2,394,000
0.86
38,591,996
12.17
-
-
34,182,000
10.78
34,182,000
12.23
9,855,000
3.11
-
(2)
(1)
34,182,000
10.78
-
-
2,394,000
0.76
-
-
(3)
34,182,000
10.78
-
(4)
52,397,996
16.53
-
(4)
52,397,996
16.53
-
(1)
34,182,000
10.78
34,182,000
10.78
(2)
State Financial
Secretary Sarawak
-
-
(4)
Delegateam Sdn Bhd
-
-
(4)
-
(1)
34,182,000
12.23
-
-
(5)
UF Jaya Sdn Bhd
-
34,182,000
12.23
-
%
Baodi Development Sdn
Bhd
-
-
(5)
Yek Min Ek Sdn Bhd
-
-
(6)
34,182,000
12.23
-
-
(6)
34,182,000
10.78
Tan Sri Dato Sri Yit
Ming Yik @ Yek Min Ek
-
-
(3)
34,182,000
12.23
-
-
(3)
34,182,000
10.78
Puan Sri Datin Sri Ting
Phik Chai
-
-
(3)
34,182,000
12.23
-
-
(3)
34,182,000
10.78
HNG
-
-
-
-
37,600,000
11.86
-
-
Dato’ Seri H’ng
237,240
Dato’ H’ng Chun Hsiang
Datin H’ng Hsieh Ling
Notes:
(1)
(2)
(3)
(4)
(5)
(6)
(7)
-
0.08
-
-
-
-
-
-
237,240
-
0.07
(7)
37,600,000
11.86
-
(7)
37, 600,000
11.86
-
(7)
37, 600,000
11.86
Deemed interested by virtue of their interests in CPSB pursuant to Section 6A of the Act.
Deemed interested by virtue of his interest in Greatwall Tyre & Battery (Kuching) Sdn Bhd and
his spouse’s interest pursuant to Section 6A and Section 134(12)(C) of the Act.
Deemed interested by virtue of their interests in CPSB via Yek Min Ek Sdn Bhd pursuant to
Section 6A of the Act.
Deemed interested by virtue of their interests in SEB pursuant to Section 6A of the Act.
Deemed interested by virtue of its interest in CPSB via UF Jaya Sdn Bhd pursuant to Section
6A of the Act.
Deemed interested by virtue of its interest in CPSB via Baodi Development Sdn Bhd pursuant
to Section 6A of the Act.
Deemed interested by virtue of their interest in HNG pursuant to Section 6A of the Act.
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7.
APPROVALS REQUIRED
The Proposed Acquisitions are conditional upon the following approvals being obtained:(i)
shareholders of SCB at an EGM to be convened;
(ii)
Bursa Securities for the listing of and quotation for the Considerations Shares;
(iii)
any other relevant parties and/or authorities, if necessary.
The Proposed Acquisitions are not conditional upon any other corporate exercises
undertaken or to be undertaken by SCB.
8.
INTEREST OF DIRECTORS,
CONNECTED WITH THEM
MAJOR
SHAREHOLDERS
AND/OR
PERSONS
Dato’ Seri H’ng, who is an existing director of SCB is also a director and a controlling
shareholder via his and his family’s shareholdings in HNG and is deemed to be interested in
the Proposed Acquisitions.
Accordingly, Dato’ Seri H’ng have abstained and will continue to abstain from deliberation and
voting at the Board meetings of SCB in respect of the Proposed Acquisitions. Dato’ Seri H’ng
will also abstain and have also undertaken to ensure that persons connected to him will also
abstain from voting in respect of their respective direct and/or indirect shareholdings in SCB, if
any, on the resolution pertaining to the Proposed Acquisitions at the forthcoming EGM.
Other than disclosed above, none of the other directors, major shareholders of SCB and/or
persons connected to them have any interest, whether direct or indirect, in the Proposed
Acquisitions.
9.
DIRECTORS’ STATEMENT
The Board, save for Dato’ Seri H’ng, having considered all aspects of the Proposed
Acquisitions including the rationale for the Proposed Acquisitions and the immediate and
future prospects of the Target Companies, and the advice of the Independent Adviser, namely
TA Securities Holdings Berhad is of the opinion that the Proposed Acquisitions
10.
(i)
are fair, reasonable and on commercial terms;
(ii)
are in the best interest of SCB; and
(iii)
are not detrimental to the interests of the minority shareholders of SCB.
AUDIT COMMITTEE STATEMENT
The Audit Committee of SCB, after having considered all aspects of the Proposed
Acquisitions including the rationale for the Proposed Acquisitions, the immediate and future
prospects of the Target Companies, and the advice of the Independent Adviser, namely TA
Securities Holdings Berhad, is of the view that the Proposed Acquisitions:(i)
are fair, reasonable and on commercial terms;
(ii)
are in the best interest of SCB; and
(iii)
are not detrimental to the interests of the minority shareholders of SCB.
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11.
TRANSACTIONS WITH RELATED PARTY FOR PAST TWELVE (12) MONTHS
SCB Group has not entered into any other transactions outside the ordinary course of
business with HNG for the twelve (12) months preceding the date of this announcement.
12.
APPLICATION TO THE AUTHORITIES
The applications to the relevant authorities pertaining to the Proposed Acquisitions shall be
submitted to Bursa Securities within two (2) months from the date of this announcement.
13.
HIGHEST PERCENTAGE RATIO
The highest percentage ratio applicable to the Proposed Acquisitions pursuant to Paragraph
10.02 (g) of the Main Market Listing Requirements is 814.6%, based on the latest audited
financial statements of SCB for the FYE 31 December 2013.
Pursuant to Chapter 2 of the Securities Commission of Malaysia's Equity Guidelines, as the
highest percentage ratio for the Proposed Acquisitions exceeds 100%, the Proposed
Acquisitions might be deemed an acquisition resulting in a significant change in business
direction and policy of the SCB Group which would require the approval of the Securities
Commission of Malaysia.
The Securities Commission of Malaysia has vide its letter dated 20 October 2014 concurred
that the Proposed Acquisitions would not result in a significant change in the business
direction and policy of the SCB Group.
14.
ADVISERS
Kenanga has been appointed as the Principal Adviser for the Proposed Acquisitions.
TA Securities Holdings Bhd has been appointed as the Independent Adviser in view that the
Proposed Acquisitions are related party transactions pursuant to Paragraph 10.08 (2) of the
Main Market Listing Requirements of Bursa Securities to undertake the following in respect of
the Proposed Acquisitions:-
15.
(i)
Comment as to whether the Proposed Acquisitions are fair and reasonable so far as
the minority shareholders of SCB are concerned and also whether the Proposed
Acquisitions is to the detriment of the minority shareholders of SCB and such opinion
must set out the reasons for, the key assumptions made and the factors taken into
consideration in forming that opinion;
(ii)
Advise the minority shareholders of SCB whether they should vote in favour of the
Proposed Acquisitions; and
(iii)
Take all reasonable steps to satisfy itself that it has a reasonable basis to make the
comments and advice in paragraphs (i) and (ii) above.
PRELIMINARY EVALUATION BY INDEPENDENT ADVISER
TA Securities Holdings Bhd is of the opinion that the Proposed Acquisitions are fair and
reasonable and are not detrimental to the minority shareholders of SCB, based on its
preliminary evaluation of the Proposed Acquisitions.
The final recommendation from TA Securities Holdings Bhd will be set out in its Independent
Advice Letter to be despatched to the minority shareholders and directors of SCB in due
course.
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16.
ESTIMATED TIMEFRAME FOR COMPLETION
Barring any unforeseen circumstances and subject to all required approvals being obtained,
the Proposed Acquisitions are expected to be completed by the fourth quarter of 2014.
17.
DOCUMENTS FOR INSPECTION
The SPA will be made available for inspection during normal business hours at the
Registered Office of SCB at Lot 767, Block 8, Muara Tebas Land District, Demak Laut
Industrial Estate Phase III, Jalan Bako, 93050 Kuching, Sarawak from Mondays to Fridays
(except public holidays) from the date of this announcement up to and including the date of
the EGM of SCB to be convened in relation to the Proposed Acquisitions.
This announcement is dated 21 October 2014.
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APPENDIX I
-
FINANCIAL SUMMARY OF UCMB
FINANCIAL SUMMARY
The table below sets out the audited financial performance of UCMB from the FYE 31 December
2011 to 31 December 2013:(RM'000)
Revenue
FYE 31.12.2011
1,120,914
FYE 31.12.2012
FYE 31.12.2013
517,201
417,490
PBT
11,278
1,043
2,003
Profit after tax and minority interest
24,018
39,865
1,445
Paid-up capital
62,503
62,503
62,503
No. of shares in issue ('000)
Shareholders’ fund / NA
62,503
62,503
62,503
155,046
210,560
214,773
Current ratio (times)
Total Borrowings
1.10
210,168
Gearing (times)
1.36
1.28
1.31
163,936
121,725
0.78
0.57
Gross EPS (sen)
18.04
1.67
3.20
Net EPS (sen)
38.43
63.78
2.31
2.48
3.37
3.44
NA per share (RM)
Notes:(a)
there were no exceptional and / or extraordinary items reported in the financial statements of UCMB for
the period under review and the said financial statements were not subject to any audit qualification.
(b)
there are no accounting policies adopted by UCMB that are peculiar to the nature of the business or the
industry that it is involved in.
Commentaries on financial performance
FYE 31 December 2011
During the FYE 31 December 2011, the aluminium rod division of UCMB (which was subsequently
disposed in FYE 31 December 2012) contributed 52.0% of revenue while the cable division
contributed the remaining 48%. For the cable division, MV/HV power cables, LV power cables and
conductors contributed approximately 16.6%, 19.9% and 7.0% of total revenue respectively.
Revenue increased by approximately 53.1%, however PBT recorded a slight decrease of 9.4% during
the financial year as compared to the FYE 31 December 2010 due to the generally weak global
economic condition in 2010/2011 and cable manufacturers were offering lower margin to secure
contracts to cover fixed operating overheads.
UCMB recognised deferred tax assets amounting to RM13.05 million during the FYE 31 December
2011 due to tax exemptions granted on export allowances for achieving substantial increase in
exports sales.
FYE 31 December 2012
UCMB recorded significant decrease in revenue for the FYE 31 December 2012 mainly due to the
disposal during the year of its aluminium rod division, which had previously contributed approximately
RM583.0 million to revenue for FYE 31 December 2011 as compared to RM44.4 million during the
FYE 31 December 2012.
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APPENDIX I
-
FINANCIAL SUMMARY OF UCMB
Sales of MV/HV power cables, LV power cables and conductors contributed approximately 39.1%,
35.3% and 10.6% of total revenue respectively. Significant decrease for PBT for the FYE 31
December 2012 was mainly due to competitive pricing contracts secured during the second half of
FYE 31 December 2011, during the weak global economic environment which had significantly lower
margins as well as a manpower rationalisation exercise undertaken. These competitive pricing
contracts were all near completion in 2012. UCMB recognised additional deferred tax assets
amounting to RM39.28 million during the FYE 31 December 2012, which was underprovided in
relation to the tax exemptions granted on export allowances as part of incentive for winning the brand
excellence award for fiscal year 2011.
FYE 31 December 2013
Revenue for the FYE 31 December 2013 recorded a decrease of approximately 19.3% as compared
to FYE 31 December 2012 partly due to the slight decrease in volume and also decrease in base
metal prices which resulted in a corresponding drop in the selling prices of UCMB's products. Sales of
MV/HV power cables, LV power cables and conductors contributed approximately 38.7%, 47.9% and
9.8% of total revenue respectively for the FYE 31 December 2013. Although sales has decreased,
PBT has increased mainly due to the completion of the competitive pricing contracts and undertaking
of better margin contracts in the current year and also cost savings from the manpower rationalisation
exercise undertaken.
(Source : Financial statements of UCMB for the period under review and discussion with management)
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APPENDIX II
-
FINANCIAL SUMMARY OF LCIB
FINANCIAL SUMMARY
The table below sets out the audited financial performance of LCIB from the FYE 31 December 2011
to 31 December 2013:(RM'000)
Revenue
FYE 31.12.2011
462,671
Profit/(loss) before tax
No. of shares in issue ('000)
Shareholders’ fund / NA
379,113
FYE 31.12.2013
389,067
1,623
(14,842)
7,066
891
(10,660)
6,448
27,800
27,800
27,800
27,800
27,800
27,800
101,065
92,065
101,235
Profit/ (loss) after tax and minority interest
Paid-up capital
FYE 31.12.2012
Current ratio (times)
0.84
0.85
118,497
127,758
119,038
Gearing (times)
1.17
1.39
1.18
Gross EPS (sen)
5.83
(53.39)
25.42
Net EPS (sen)
3.20
(38.35)
23.19
NA per share (RM)
3.64
3.31
3.64
Total Borrowings
1.02
Notes:(a)
there were no exceptional and / or extraordinary items reported in the financial statements of LCIB for
the period under review and the said financial statements were not subject to any audit qualification.
(b)
there are no accounting policies adopted by LCIB that are peculiar to the nature of the business or the
industry that it is involved in.
Commentaries on financial performance
FYE 31 December 2011
During the FYE 31 December 2011, revenue increased by approximately 36.2%, however PBT
recorded a significant decrease of 88.4% as compared to FYE 31 December 2010. This was mainly in
line with the decrease recorded by UCMB mainly due to the generally weak global economic condition
in 2010/2011 where cable manufacturers were very cautious with pricing of contracts just to ensure
sufficient revenues to spread fixed operating overheads and these cables contracts were generally
secured at lower margins. Sales of MV/HV power cables, LV power cables, telephone cables and
conductors contributed approximately 52.3%, 23.6%, 10.9% and 8.5% of total revenue respectively.
FYE 31 December 2012
LCIB recorded an 18.1% decrease in revenue and also a loss before tax of RM14.8 million for the
FYE 31 December 2012. Gross profit margin had further decreased from 4.8% for FYE 31 December
2011 to 4.1% for FYE 31 December 2012. This was mainly competitive pricing contracts secured
during the second half of FYE 31 December 2011, during the weak global economic environment
which had significantly lower margins as well as a manpower rationalisation exercise undertaken.
These competitive pricing contracts were all near completion in 2012. Compounding to the losses
before tax were increase from RM8.8 million in FYE 31 December 2011 to RM14.4M in FYE 31
December 2012 for selling and distribution expenses and this is mainly relating to carriage expenses
for export sales due to increase in freight charges. In addition, retrenchment benefit, which was a oneoff scheme undertaken, amounting to approximately RM3.0 million was incurred. Sales of MV/HV
power cables, LV power cables, telephone cables and conductors contributed approximately 66.7%,
17.0%, 6.8% and 6.8% of total revenue respectively.
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APPENDIX II
-
FINANCIAL SUMMARY OF LCIB
FYE 31 December 2013
Revenue for the FYE 31 December 2013 was generally stable with a slight increase of 2.6% as
compared to FYE 31 December 2012. Sales of MV/HV power cables, LV power cables, telephone
cables and conductors contributed approximately 61.2%, 17.9%, 9.8% and 2.8% of total revenue
respectively for the FYE 31 December 2013. LCIB has recovered from its loss making position in the
previous financial year and recorded a PBT of RM7.1 million mainly due to general increase in the
gross profit margin from 4.1% in FYE 31 December 2012 to 6.1% for FYE 31 December 2013. Export
sales have also decreased from 20.1% of total revenue in FYE 31 December 2012 to 6.2% of total
revenue for FYE 31 December 2013. This in turn, had significantly reduced selling and distribution
expenses, from RM14.4 million for FYE 31 December 2012 to RM7.8 million for FYE 31 December
2013. The retrenchment exercise undertaken in 2012 has also contributed to a decrease in
administrative expenses (namely employee salaries), resulting in improved results of LCIB.
(Source : Financial statements of LCIB for the period under review and discussion with management)
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