ECO WORLD DEVELOPMENT GROUP BERHAD (“EW BERHAD”) PROPOSED ACQUISITIONS BY ECO HORIZON SDN BHD (FORMERLY KNOWN AS TERAJU PASIFIK SDN BHD) (“ECO HORIZON”), A WHOLLY-OWNED SUBSIDIARY OF EW BERHAD, OF THE FOLLOWING:(I)
A PIECE OF LEASEHOLD LAND HELD UNDER H.S.(D) 46040 FOR PT 5261 IN MUKIM 13, DAERAH SEBERANG PERAI SELATAN, NEGERI PULAU PINANG, MEASURING APPROXIMATELY 300.074 ACRES (“PARCEL A”) FROM BATU KAWAN DEVELOPMENT SDN BHD (“BKDSB”); AND
A PIECE OF LEASEHOLD LAND HELD UNDER PART OF H.S.(D) 45956 FOR PT 5258 IN MUKIM 13, DAERAH SEBERANG PERAI SELATAN, NEGERI PULAU PINANG, (“PARCEL 2B) MEASURING APPROXIMATELY 74.491 ACRES (“PARCEL B”) FROM PENAGA PESONA SDN BHD (“PPSB”)
(COLLECTIVELY REFERRED TO AS THE “PROPOSED ACQUISITIONS”) 1.
INTRODUCTION On behalf of the Board of Directors of EW Berhad (“Board”), RHB Investment Bank Berhad (“RHB Investment Bank”) wishes to announce that Eco Horizon, had on 28 June 2016, entered into the following agreements:(i)
a conditional sale and purchase agreement with BKDSB for the proposed acquisition of Parcel A for a cash consideration of RM681,988,877.76 (“Parcel A SPA”) (“Parcel A Price”). Pursuant to the terms of the Parcel A SPA, Eco Horizon had also on 28 June 2016, entered into a revocation and rescission agreement with BKDSB and Silver Setup Sdn Bhd (“SSSB”) for the revocation and rescission of a joint development agreement made between BKDSB and SSSB dated 10 October 2012 (“JDA”) in respect of Parcel A (“Revocation Agreement”). Pursuant to the Revocation Agreement, Eco Horizon had agreed to pay SSSB a revocation sum of RM50.0 million (“Revocation Sum”), subject to the completion of the Parcel A SPA. As such, the aggregate consideration to be paid by Eco Horizon for the acquisition of Parcel A shall be RM731,988,877.76, comprising the Parcel A Price and the Revocation Sum (“Parcel A Consideration”); and
a conditional sale and purchase agreement with BKDSB and PPSB (collectively referred to as “Vendors”) for the proposed acquisition of Parcel B for a cash consideration of RM143,253,376.20 (“Parcel B SPA”) (“Parcel B Consideration”).
(The Parcel A SPA and Parcel B SPA are collectively referred to as the “SPAs”). Further details of the Proposed Acquisitions are set out in the ensuing sections.
DETAILS OF THE PROPOSED ACQUISITIONS The Proposed Acquisitions entail the acquisitions by Eco Horizon of Parcel A and Parcel B (collectively, the “Lands”) from the Vendors via the respective SPAs (and the Revocation Agreement) for a total cash consideration of RM875,242,253.96 (including the Revocation Sum), subject to the terms and conditions of the SPAs and the Revocation Agreement. Eco Horizon shall purchase the Lands free from encumbrances, on an “as is where is” basis, subject to conditions of title and restrictions-in-interest relating to or affecting the Lands or to which the Lands are subject.
A summary of the Parcel A Consideration and Parcel B Consideration is set out below: Square feet Acres (“sq ft”) (’000)
Price per sq ft (RM)
Total Consideration (RM million)
BKDSB and PPSB
Based on the Parcel A Consideration.
The Parcel B Consideration is calculated based on 73.081 acres (3,183,408.36 sq ft) (being 74.491 acres less an excluded area measuring approximately 1.41 acres which is to be used for road reserve).
Further details of the Lands are set out in Section 4 of this Announcement. 2.1
Basis and justification of the Parcel A Consideration and Parcel B Consideration The Parcel A Consideration and Parcel B Consideration were arrived at on a “willing-buyer willingseller” basis after taking into consideration, amongst others, the following:(i)
the prospects of the Lands in view of its strategic location and close proximity to the Second Penang Bridge, which connects Bandar Cassia with Batu Maung on the Penang Island;
the development potential of the Lands into a mixed township development with a potential combined gross development value (“GDV”) to be generated of approximately RM7.76 billion based on preliminary management estimates;
EW Berhad’s knowledge of the market value of the properties surrounding the Lands; and
the indicative market valuation of Parcel A and the Parcel B of RM732,000,000 and RM146,500,000 respectively as appraised by Henry Butcher Malaysia Sdn Bhd (“Valuer”) via its valuation letters dated 10 May 2016 (“Valuation Letters”).
EW Berhad had appointed the Valuer to undertake an independent valuation of the Lands. The market valuation was arrived at using the Comparison Approach by comparing the Lands with similar properties that were transacted recently in other comparable localities. In comparing properties, due consideration is given to factors such as location, size, improvements and amenities, time element and other relevant factors to arrive at the opinion of value. The Valuer did not adopt any other method of valuation in arriving at their opinion of market value as the proposed development plans of the Lands have not been finalised and submitted to the local authority for approval. The Parcel A Consideration and Parcel B Consideration represent discounts of approximately RM11,122.24 or 0.002% to the market value of Parcel A and approximately RM3,246,623.80 or 2.22% to the market value of Parcel B, respectively. The Board deems the slight discount to be reasonable.
Mode of settlement of the Parcel A Price, the Revocation Sum and the Parcel B Consideration Eco Horizon will pay the Parcel A Price, the Revocation Sum and the Parcel B Consideration in the following manner:Mode of settlement
Date of settlement
Parcel A Price Deposit, being 10% of the Parcel A Price (“Parcel A Deposit”)
Within five (5) business days from the date of the Parcel A SPA
Remaining balance of the Parcel A Price, after deducting the Parcel A Deposit (“Parcel A Balance Price”)
Within three (3) months from Parcel A SPA’s Unconditional Date (as defined in Section 2.5.1 of this Announcement) or the extended period of two (2) months thereafter subject to payment of interest at the rate of eight percent (8%) per annum
681,988,877.76 Revocation Sum Deposit, being 10% of the Revocation Sum (“Revocation Deposit”)
Within five (5) business days from the date of the Revocation Agreement
Remaining balance of the Revocation Sum, after deducting the Revocation Deposit (“Balance Revocation Sum”)
On the completion of the Parcel A SPA
50,000,000.00 Parcel B Consideration Deposit, being 10% of the Parcel B Consideration (“Parcel B Deposit”)
Within five (5) business days from the date of the Parcel B SPA
Remaining balance of Parcel B Consideration, after deducting the Parcel B Deposit (“Parcel B Balance Price”)
Within three (3) months from Parcel B SPA’s Unconditional Date (as defined in Section 2.5.2) or the extended period of two (2) months thereafter subject to payment of interest at the rate of eight percent (8%) per annum
In exchange for payment of the Parcel A Deposit, BKDSB shall deliver a corporate guarantee issued by its major shareholder, Aneka Mayang Sdn Bhd in favour of Eco Horizon, to guarantee the repayment of the Parcel A Deposit in the event of non-fulfilment of the conditions precedent of Parcel A SPA (as set out in Section 2.5.1 of this Announcement) or if the Parcel A SPA is terminated as a result of BKDSB’s default (as the case may be) and without the fault of Eco Horizon pursuant to provisions set out in the Parcel A SPA.
In exchange for payment of the Revocation Deposit, SSSB shall deliver a corporate guarantee issued by its indirect holding company, Malton Berhad, in favour of Eco Horizon, to guarantee the repayment of the Revocation Deposit in the event of non-fulfilment of the conditions precedent of Parcel A SPA (as set out in Section 2.5.1 of this Announcement) or the termination of the Parcel A SPA as a result of BKDSB’s default. In the event of termination of the Parcel A SPA, the non-completion clauses as set out in Section 2.5.4 of this Announcement shall take effect.
In exchange for payment of Parcel B Deposit, the Vendors shall deliver a corporate guarantee issued by its major shareholder, Aneka Mayang Sdn Bhd, in favour of Eco Horizon, to guarantee the repayment of the Parcel B Deposit in the event of non-fulfilment of the conditions precedent of Parcel B SPA (as set out in Section 2.5.2 of this Announcement) or the Parcel B SPA is terminated as a result of the Vendors’ default (as the case may be) and without the fault of Eco Horizon pursuant to provisions set out in the Parcel B SPA.
In the event of termination of the Parcel B SPA, the non-completion clauses as set out in Section 2.5.4 of this Announcement shall take effect. (4)
Subject to a deduction of RM847,000, being the maximum sum agreed to be borne by PPSB for the removal of occupants, squatters and structures on Parcel B.
Source of funding The Parcel A Deposit, Revocation Deposit and Parcel B Deposit will be funded via internal funds. The Parcel A Balance Price and Parcel B Balance Price are expected to be funded through a combination of internal funds, bank borrowings and/ or equity funding whilst the Balance Revocation Sum is expected to be funded through a combination of internal funds and/ or bank borrowings. EW Berhad also proposes to raise equity funding at the project level through its partnership for growth business model (“Business Model”) which was similarly proposed for other recent development projects. The Business Model envisages the Proposed Acquisitions being first undertaken by Eco Horizon, presently a wholly owned subsidiary of EW Berhad with a subsequent entry of institutional/ corporate partner(s) to co-invest and fund the development. This approach will result in a dilution of EW Berhad’s stake in Eco Horizon with a corresponding reduction in its obligations to fund the Proposed Acquisitions and future development costs. Under the Business Model, EW Berhad intends to retain an equity stake of approximately 60% - 70% equity stake in Eco Horizon to ensure that EW Berhad and its subsidiaries (“Group”) will continue to enjoy a meaningful share of the development profits. A subsidiary of EW Berhad will be appointed as the development manager to manage the entire project (“Development Manager”). This will create a fee-based income stream for the Group and enable the rewards of value creation to be shared between the shareholders of Eco Horizon and the Development Manager.
Liabilities to be assumed by EW Berhad pursuant to the Proposed Acquisitions There is no liability, including any contingent liability and guarantee, to be assumed by EW Berhad pursuant to the Proposed Acquisitions.
Other salient terms of the SPAs 2.5.1
Conditions precedent of the Parcel A SPA The Parcel A SPA is conditional upon the fulfillment of the following conditions precedent within five (5) months from the date of the Parcel A SPA or such other further extended period(s) as shall be mutually agreed by Eco Horizon and BKDSB (“Approval Period”):(i)
the approval of Penang Development Corporation (“PDC”) having been obtained by BKDSB for the sale of Parcel A to Eco Horizon;
the approval of the State Authority of Penang having been obtained by BKDSB for the transfer of Parcel A to Eco Horizon;
the approval of the shareholders of EW Berhad at an extraordinary general meeting (“EGM”) to be convened for the Proposed Acquisitions;
the approval of the Economic Planning Unit of the Prime Minister's Department of Malaysia (“EPU”), having been obtained by Eco Horizon for the purchase of the Lands; and
the approval of any other relevant authorities as may be required to effect the transfer of the Lands in favour of Eco Horizon and/ or as shall be binding upon Eco Horizon and the Vendors to comply.
The Parcel A SPA shall become unconditional on the date on which the last of the conditions precedent of Parcel A SPA shall have been duly fulfilled or waived in accordance with the terms and conditions of the Parcel A SPA (“Parcel A SPA’s Unconditional Date”). 2.5.2
Conditions precedent of the Parcel B SPA The Parcel B SPA is conditional upon the fulfillment of the following conditions precedent within five (5) months from the date of the Parcel B SPA or such other further extended period(s) as shall be mutually agreed by Eco Horizon and the Vendors (being the Approval Period):(i)
the approval of PDC having been obtained by BKDSB for the sale of Parcel B to Eco Horizon;
the approval of the relevant authority being obtained by PPSB for the sub-division of Parcel 2B so as to obtain, inter-alia, the separate document of title to Parcel B ("Separate Title");
the approval of the State Authority of Penang having been obtained by PPSB for the transfer of Parcel B to Eco Horizon;
the approval of the shareholders of EW Berhad at an EGM to be convened for the Proposed Acquisitions;
the conditions precedent as set out in the Parcel A SPA being fulfilled or waived and the Parcel A SPA becoming unconditional; and
the approval of the EPU, having been obtained by Eco Horizon for the purchase of the Lands; and
the approval of any other relevant authorities as may be required to effect the transfer of the Lands in favour of Eco Horizon and/ or as shall be binding upon Eco Horizon and the Vendors to comply.
The Parcel B SPA shall become unconditional on the date on which the last of the conditions precedent of the Parcel B SPA shall have been duly fulfilled or waived in accordance with the terms and conditions of the Parcel B SPA (“Parcel B SPA’s Unconditional Date”). In the event that any of the conditions precedent are not fulfilled by the expiry of the Approval Period, Eco Horizon may, where legally possible, waive any of such conditions precedent and proceed with the purchase of the Lands. Otherwise, the SPAs shall, unless mutually extended by Eco Horizon and the Vendors, lapse and terminate and in such event, the Parcel A Deposit and Parcel B Deposit shall be refunded to Eco Horizon free from interest within five (5) business days of receipt of a written notice of such termination. 2.5.3
PDC SPA (as defined herein) Simultaneously with the SPAs, BKDSB and PPSB had also agreed to sell other pieces of land in the vicinity of the Lands to PDC upon terms and conditions as contained in a separate sale and purchase agreement entered into between BKDSB, PPSB and PDC (“PDC SPA”). The parties to the SPAs acknowledged that the SPAs and the PDC SPA shall be interconditional, that is, in the event the PDC SPA is not completed or is terminated pursuant to the provisions therein, the SPAs shall, unless otherwise agreed by the parties thereto, be automatically terminated whereupon the consequence of termination by reason of nonfulfilment of the conditions precedent under the SPAs shall apply mutatis mutandis. For the purpose of completion of the SPAs, BKDSB and PPSB have agreed to align the completion of the PDC SPA concurrently with the completion of the SPAs.
Non-completion Non-completion by the Vendors In the event that the relevant Vendors fail to complete the SPAs or is in breach of any of its covenants and/ or obligations under the SPAs and fails to rectify such breach within ten (10) business days from the receipt of Eco Horizon’s written notice requiring rectification of such breach, Eco Horizon shall be entitled to the following:(a)
the remedy of specific performance of the SPAs; or
terminate the SPAs by notice in writing, whereby the relevant Vendors shall, refund all monies paid to it by Eco Horizon towards the consideration for the Lands and pay in addition a sum equivalent to ten percent (10%) of the Parcel A Price or the Parcel B Consideration (as the case may be) as agreed liquidated damages (“Liquidated Damages”) to Eco Horizon, failing which the relevant Vendors shall pay to Eco Horizon interest on such monies remaining unpaid at the rate of eight percent (8%) per annum from the expiry of the aforesaid ten (10) business days period until the date of actual payment and refund.
Non completion by Eco Horizon In the event that Eco Horizon fails to complete the SPAs or is in breach of any of its covenants and/or obligations under the SPAs and fails to rectify such breach within ten (10) business days from the receipt of the relevant Vendors’ written notice requiring rectification of such breach, the relevant Vendors shall be entitled to the following:-
the remedy of specific performance of the SPAs;
terminate the SPAs by notice in writing, in which event an amount equivalent to the Liquidated Damages shall be forfeited to the relevant Vendors, and the relevant Vendors shall thereafter refund to Eco Horizon the balance of any part of the Parcel A Price or the Parcel B Consideration, as the case may be, that have been paid by Eco Horizon pursuant to the SPAs, failing which the relevant Vendors shall pay to Eco Horizon interest on the aforesaid monies remaining unpaid at the rate of eight percent (8%) per annum from the expiry of aforesaid ten (10) business days period until the date of payment to Eco Horizon.
Adjustment of Parcel B Consideration Eco Horizon and the Vendors agree that the area of the Parcel B as stated in the Separate Title shall be 74.491 acres and whereas for purpose of determining whether any adjustment should be made to the Parcel B Consideration, the area used shall be 73.081 acres. The parties shall only be entitled to an adjustment in the Parcel B Consideration at the rate of RM45.00 per sq ft in the event that the area of the Parcel B as stated in the Separate Title less the excluded area of 1.410 acres differs from 73.081 acres.
Other salient terms of the Revocation Agreement 2.6.1
Condition precedent of Revocation Agreement The Revocation Agreement is conditional upon the Parcel A SPA becoming unconditional.
Non-fulfilment of the condition precedent of Revocation Agreement In the event that the condition precedent of Revocation Agreement is not fulfilled, the Revocation Agreement shall terminate and be of no further effect. Upon termination, the Revocation Deposit shall be refunded free of interest to Eco Horizon.
Effective date The Revocation Agreement shall take effect on completion of the Parcel A SPA.
Termination Subject to Parcel A SPA becoming unconditional, in the event of non-completion of Parcel A SPA by reason other than BKDSB’s default, the Revocation Agreement will be terminated and SSSB shall be entitled to forfeit such part of the Revocation Sum paid by Eco Horizon as agreed liquidated damages and the JDA shall remain in effect.
Estimated financial commitment Save for the Parcel A Consideration, Parcel B Consideration and the future project development costs for the Lands to be financed by Eco Horizon (the exact quantum of which have yet to be determined at this juncture), the Board does not foresee any additional financial commitment arising from the Proposed Acquisitions.
INFORMATION ON THE VENDORS AND SSSB
Information on BKDSB BKDSB was incorporated in Malaysia under the Companies Act, 1965 (“Act”) on 9 October 1999 as a private limited company. BKDSB is principally involved in property development. As at 21 June 2016, being the latest practicable date prior to this Announcement (“LPD”), the authorised share capital of BKDSB is RM5,000,000.00 comprising 5,000,000 ordinary shares of RM1.00 each and the issued and paid-up share capital of BKDSB is RM519,867.00 comprising RM519,867 ordinary shares of RM1.00 each. As at LPD, the substantial shareholders of BKDSB and their respective shareholdings in BKDSB are as follows: No. of shares in BKDSB % Aneka Mayang Sdn Bhd Taman Equine (M) Sdn Bhd
No. of shares in BKDSB % -
As at LPD, the directors of BKDSB are Dato’ Sulaiman bin Kudus and Mohamed Fadzil bin Mohamed Ariffin. 3.2
Information on PPSB PPSB was incorporated in Malaysia under the Act on 12 June 2001 as a private limited company. PPSB is principally involved in property development. As at LPD, the authorised share capital of PPSB is RM5,000,000.00 comprising 5,000,000.00 ordinary shares of RM1.00 each and the issued and paid-up share capital of PPSB is RM2,600,000.00 comprising 2,600,000 ordinary shares of RM1.00 each.
As at LPD, the substantial shareholders of PPSB and their respective shareholdings in PPSB are as follows: No. of shares in PPSB % BKDSB Global Oriental Berhad
No. of shares in PPSB %
As at LPD, the directors of PPSB are Dato’ Sulaiman bin Kudus, Ranjeet Singh A/L Sarjit Singh and Shahrin bin Osman. 3.3
Information on SSSB SSSB was incorporated in Malaysia under the Act on 15 November 2000 as a private limited company. SSSB is principally involved in property development and investment holding. As at LPD, the authorised share capital of SSSB is RM5,000,000.00 comprising 5,000,000.00 ordinary shares of RM1.00 each and the issued and paid-up share capital of SSSB is RM2,600,000.00 comprising 2,600,000 ordinary shares of RM1.00 each. As at LPD, the substantial shareholder of SSSB and its shareholding in SSSB is as follows: No. of shares in SSSB % Khuan Choo Realty Sdn Bhd
No. of shares in SSSB %
As at LPD, the directors of SSSB are Chua Thian Teck and Hong Lay Chuan.
INFORMATION ON THE LANDS The Lands are located on the southern part of Batu Kawan, an island situated off the western coast of District of Seberang Perai Selatan in between Penang Island and the mainland and is situated in the locality of popularly known as Batu Kawan. The Lands are approachable from the Batu Kawan Interchange of the North-South Highway via expressway linking to the Second Penang Bridge and thence onto Lebuhraya Bandar Cassia. Alternatively, it is accessible from the Bukit Tambun Interchange of the North-South Highway via Jalan Bukit Tambun, Jalan Batu Kawan and thence onto Lebuhraya Bandar Cassia, all being wellmaintained metalled roads. The Lands are located in a mixed neighbourhood with prominent landmarks in the immediate vicinity such as Batu Kawan Stadium and Batu Kawan Industrial Park.
The location map of the Lands is as set out below:-
BUKIT TAMBUN INTERCHANGE
NORTH-SOUTH HIGHWAY LEBUHRAYA BANDAR CASSIA (40M) BANDAR CASSIA
The rest of this page has been intentionally left blank
BATU KAWAN INTERCHANGE
Further details of the Lands are as follow:Parcel A SPA
Parcel B SPA
Identification / Postal Address
H.S.(D) 46040, PT 5261, Mukim 13, Daerah Seberang Perai Selatan, Negeri Pulau Pinang
Forming part of Parcel 2B identified as H.S.(D) 45956 for PT 5258, Mukim 13, Daerah Seberang Perai Selatan, Negeri Pulau Pinang. Actual identification of Parcel B will be determined upon receipt of the Separate Title
300.07 acres or 13.07 million sq ft
74.49 acres or 3.24 million sq ft
99 years expiring on 1 December 2112
99 years expiring on 24 September 2112
Category of land use Existing use Proposed use/ Development potential
Mixed development consisting of different phases of development for residential and commercial properties
Relevant approvals obtained/ date obtained
Legal charge in favour of Alliance Bank Malaysia Berhad
Legal charges in favour of AmBank (M) Berhad
RATIONALE OF THE PROPOSED ACQUISITIONS AND PROSPECTS OF THE LANDS EW Berhad’s strategy for landbank acquisition is firstly to concentrate on the nation’s three (3) main economic regions being the Klang Valley, Iskandar Malaysia and Penang and secondly to ensure that the Group is strongly represented in the key growth corridors within each region. In the case of Penang, the Group’s focus is on the mainland, specifically the Batu Kawan growth corridor. Batu Kawan is set to become the third satellite town of Penang after Bayan Lepas and Seberang Jaya due to its strategic location and close proximity to the Second Penang Bridge, which connects Bandar Cassia with Batu Maung on the Penang Island. Through PDC, the State Government of Penang is strongly promoting a 1,500-acre comprehensively planned technology industrial park with well-equipped infrastructure and support services in Batu Kawan. This park will be the lynchpin for growth in the high-tech and high-value added manufacturing and services sectors for the next 15 years until 2030. Phase 1 of the Batu Kawan Industrial Park has reportedly garnered interest from 29 local small medium enterprises (“SME”) with total investments of around RM196 million that will create employment for approximately 2,000 people. The park has also attracted prominent industry players to set up their manufacturing plants there, including Bose Systems Malaysia Sdn Bhd (high-performance audio equipment), Penang Seagate Industries (M) Sdn Bhd (hard-drive electronics), Sandisk Storage Sdn Bhd (flash drive electronics), Boon Siew Honda (one-stop motorcycle manufacturing), IBIDEN (electronics) and VAT Manufacturing Malaysia (Swiss hi-tech company involved in high-precision valves).
Batu Kawan is also poised to draw a wide and varied pool of investments across various sectors through the development of a 150-acre SME village that offers ready-built factory units and a service centre for the development of local investors. Commercial developments planned within Batu Kawan include premium outlets, hotels, resort hotels, hospital resorts and Taman Aqua, a theme park with meeting, incentive, conferencing & exhibition facilities. Notable developments in Bandar Cassia include the first IKEA store outside the Klang Valley, the Penang Designer Village, University of Hull, KDU University College and Penang International Technology Park. Following the rescission of the Letter of Award for the Group’s proposed Eco Marina development in Batu Kawan, the EcoWorld brand is under-represented in Penang. The Proposed Acquisitions therefore provide EW Berhad with a replacement opportunity in the form of prime lands of a similar size in this fast-growing industrial/ commercial and residential hotspot. The Proposed Acquisitions also enable the Group as a whole to achieve an optimal geographic spread of its total landbank by acreage and GDV in a manner which reflects the demographic structure of the country’s population by size and relative income levels as follows:Location Klang Valley Iskandar Malaysia Penang Total
Acres 4,661.7 2,926.1 465.0 8,052.8
% 57.9% 36.3% 5.8% 100%
GDV (RM billion) 56.335 21.873 9.302 87.51
% 64.4% 25.0% 10.6% 100%
The Lands are strategically located within Batu Kawan. Parcel A is situated just off the primary interchange linking the Second Penang Bridge to the North-South Highway right opposite IKEA. Parcel B is located along Lebuhraya Bandar Cassia close to the Penang State Stadium. This will enable EW Berhad to create two (2) proposed complementary mixed township developments to be known as “Eco Horizon” and “Eco Sun” to complement the Group’s successful Eco Meadows township which has achieved near-sold out sales of its first phase of terrace homes since its first launch in September 2015. At approximately 374.565 acres in total, the Lands will enable EW Berhad to showcase the full spectrum of its master planning and township development capabilities in Penang. Based on the preliminary master plan, the proposed developments, which will feature landed homes within Signature EcoWorld gated & guarded strata townships as well as integrated commercial components, are expected to generate a potential combined GDV of RM7.76 billion. The Group proposes to develop Eco Horizon over a period of ten (10) years and Eco Sun over a period of seven (7) pursuant to the development terms agreed with PDC. Township development is EW Berhad’s forte as evidenced by the many successful townships the Group has developed not just in Penang but also in the Klang Valley and Iskandar Malaysia. It is also the most resilient segment of the Malaysian property market and provides significant opportunity for long-term value creation as the townships mature. Following the Proposed Acquisitions, the breakdown of the Group’s GDV based on market segmentation is as follows:Market Segment Mass/ Upgrader townships Aspirational/ Luxury townships Integrated Commercial/ High-rise residential Business Parks Total
GDV (RM billion) 45.108 20.468 10.377 11.556 87.509
% 51.5% 23.4% 11.9% 13.2% 100%
The Group’s strong market share in the township segment will enable it to offer a wide variety of products to its customers which can be adjusted as required to suit changes in market conditions and lifestyle preferences. This establishes a solid foundation which positions EW Berhad well to achieve sustained and exciting growth in the years ahead for the benefit of all its stakeholders. The Proposed Acquisitions therefore augur well for the Group’s future growth prospects for the reasons mentioned above and the Board is confident that the Proposed Acquisitions will contribute positively to the future earnings of the Group. (Source: Management of EW Berhad)
RISK FACTORS The Proposed Acquisitions will expose EW Berhad to certain risks, including but not limited to the following:-
Non-completion risk Completion of the Proposed Acquisitions is subject to among others, the fulfilment of the conditions precedent of the SPAs by the relevant parties of their respective obligations as set out in the SPAs and the completion of the PDC SPA. Nevertheless, the Board will take all reasonable steps to ensure that all the conditions precedent of the SPAs are met within the stipulated timeframe and that every effort is taken to obtain the necessary approvals to complete the Proposed Acquisitions in a timely manner.
Business risk The Proposed Acquisitions are subject to risks inherent in the property development industry of which the Group is already involved in. Such risks may include, adverse changes in real estate market prices, changes in demand for types of residential, commercial and industrial properties, competition from other property developers, changes in economic, social and political conditions, delay in completion of property development projects against the scheduled completion, performance of third-party subcontractors, labour and material supply shortages, fluctuations in the prices of building materials and costs of labour charges, increase in real property gains tax and implementation of goods and services tax and adverse changes in property tax assessments and other statutory charges. Any adverse change in such conditions may have an adverse material effect on the Group.
Funding and interest rate risk The Group may seek external financing to fund the Proposed Acquisitions as well as the future development cost for the Lands. The Group’s ability to arrange for external financing and the cost of such financing are dependent on numerous factors, including general economic and capital market conditions, interest rates, credit availability from banks or other lenders, investors’ confidence in the Group or any restrictions imposed by the Government of Malaysia and political, social and economic conditions in Malaysia. There can be no assurance that the necessary financing will be available in amounts or on terms acceptable to the Group. In addition, the Group could potentially be exposed to fluctuations in interest rates on such external financing obtained, leading to higher borrowing costs which may adversely affect the Group’s future results of operations and financial performance as well as its ability to service future loan repayment obligations. Nevertheless, the Group shall continuously monitor and review its debt portfolio, which includes taking into consideration its gearing level, interest costs as well as cash flows in achieving an overall optimal capital structure. In this regard, EW Berhad had recently announced a 25% private placement of shares, a significant portion of which is proposed to be subscribed by its major shareholders. This will further strengthen its balance sheet and provide additional funding for its expansion plans.
FINANCIAL EFFECTS OF THE PROPOSED ACQUISITIONS The proforma financial effects of the Proposed Acquisitions are set out below:-
Share capital and substantial shareholders’ shareholding The Proposed Acquisitions are not expected to have any effect on the issued and paid-up share capital and the shareholding of the substantial shareholders of EW Berhad as it does not involve the issuance of ordinary shares in EW Berhad.
Net assets (“NA”) per share and gearing The proforma effects of the Proposed Acquisitions on the consolidated NA and gearing of EW Berhad based on the latest audited consolidated statement of financial position of EW Berhad as at 31 October 2015 and on the assumption that the Proposed Acquisitions were completed on 31 October 2015, are as follows:Audited as at 31 October 2015 RM’000
After (I) and the Proposed Acquisitions RM’000
Share capital Share premium Warrants reserve Foreign currency translation reserve Retained earnings NA/Shareholders’ funds
1,182,132 1,662,972 194,395 992 116,384 3,156,875
1,182,132 1,662,972 194,395 992 116,184 (3) 3,156,675
Number ordinary shares of RM0.50 each in EW Berhad (“EW Shares”) (’000) NA per EW Share (RM) (1) Interest-bearing borrowings (RM’000) Gearing (times) (2)
1.34 1,700,345 0.54
1.34 2,313,015 (4) 0.73
Calculated based on NA over number of EW Shares.
Calculated based on total interest-bearing borrowings over NA.
The total estimated expenses in relation to the Proposed Acquisitions amount to approximately RM25.81 million. These expenses include stamp duties relating to the memorandum of transfer of the Lands of approximately RM24.76 million and other costs, such as professional fees, regulatory fees, printing and advertising costs of approximately RM1.05 million. Approximately RM25.61 million will be capitalised as land held for property development account as such expenses are directly attributable to the Proposed Acquisitions, whilst the remaining estimated expenses of RM0.2 million will be charged to retained earnings.
The Parcel A Consideration and Parcel B Consideration is expected to be funded via a combination of internal funds, bank borrowings and/ or equity funding, the exact quantum of which has not been determined at this juncture. For illustration purposes, it is assumed that 70% of the Parcel A Consideration and Parcel B Consideration will be funded via bank borrowings. In the event EW Berhad’s stake in Eco Horizon is reduced following the implementation of the Business Model mentioned in Section 2.3 of this Announcement, the interest-bearing borrowings required to be raised and consequentially, the Group’s gearing will reduce accordingly.
Earnings and earnings per share (“EPS”) As the Proposed Acquisitions are expected to be completed in the 1st quarter of 2017, the Proposed Acquisitions will not have any material effect on the earnings and EPS of the Group for the financial year ending 31 October 2016. Nevertheless, the Proposed Acquisitions are expected to contribute positively to the future earnings and EPS of the Group.
APPROVALS REQUIRED FOR THE PROPOSED ACQUISITIONS The Proposed Acquisitions are subject to and conditional upon approvals/ consents being obtained from the following:(i)
the approval of the shareholders of EW Berhad at an EGM to be convened in respect of the Proposed Acquisitions;
the consent of the PDC;
the approval of the State Authority of Penang for the transfer of the Lands;
the approval of the EPU for the Proposed Acquisitions;
the sub-division approval for Parcel 2B and the Separate Title to Parcel B (only applicable to the Parcel B SPA); and
any other relevant authorities/ parties, if required.
Save for the above, the Proposed Acquisitions are not conditional upon any other corporate proposal of EW Berhad.
PERCENTAGE RATIO FOR THE PROPOSED ACQUISITIONS Based on the latest audited consolidated financial statements of EW Berhad for the financial year ended 31 October 2015, the highest percentage ratio applicable to the Proposed Acquisitions under Paragraph 10.02(g) of the Main Market Listing Requirements of Bursa Malaysia Securities Berhad is 27.72%.
INTERESTS OF DIRECTORS, CONNECTED WITH THEM
None of the directors or major shareholders of EW Berhad, or persons connected with them, have any interest, direct or indirect, in the Proposed Acquisitions.
DIRECTORS’ STATEMENT The Board, after having considered all aspects of the Proposed Acquisitions, including but not limited to the terms and conditions of the SPAs and the Revocation Agreement, the market value of the Lands as appraised by the Valuer, the rationale for the Proposed Acquisitions and the prospects of the Lands, and after careful deliberation, is of the opinion that the Proposed Acquisitions are in the best interest of EW Berhad.
ADVISERS RHB Investment Bank has been appointed as the Principal Adviser for the Proposed Acquisitions. Henry Butcher has been appointed to conduct an independent valuation on the Lands.
ESTIMATED TIMEFRAME FOR COMPLETION Barring unforeseen circumstances, the Proposed Acquisitions are expected to be completed by the 1st quarter of 2017.
APPLICATIONS TO THE AUTHORITIES Barring unforeseen circumstances and subject to all relevant approvals being obtained, the applications to the relevant authorities in relation to the Proposed Acquisitions will be made within two (2) months from the date of this Announcement.
DOCUMENTS FOR INSPECTION The SPAs, the Revocation Agreement and the Valuation Letters are available for inspection at the registered office of EW Berhad at Level 7, Menara Milenium, Jalan Damanlela, Pusat Bandar Damansara, Damansara Heights, 50490 Kuala Lumpur, Malaysia 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 28 June 2016.