February 25, Subject: Connected Transaction regarding on entering into Cash Pooling Management (Revised)

Transcription

1 February 25, 2016 Subject: Connected Transaction regarding on entering into Cash Pooling Management (Revised) Attn: President The Stock Exchange of Thailand Due to the resolution of POSCO-Thainox Public Company Limited s Board of Directors Meeting No. 1/2016 held on February 24, 2016 at a.m. at CRC Tower, All Season Place, 31 st Floor, Wireless Road, Lumpinee, Pathumwan, Bangkok to consider and approve the Cash Pooling Management by depositing its fund and receipt of loan through the Cash Pooling Management among POSCO Group ( Connected Transaction ). The Company would like to inform all shareholders with regard to the connected transaction with further details as follows: 1. Date of Transaction The transaction will start after shareholders approval within May 2016 (expected). 2. Details of the Transaction General characteristic of Cash Pooling Cash Pooling is the liquidity management of two or more companies; each company agrees to make a deposit or loan transaction between the parties (whether through a bank or an intermediary or not). The parties will determine the deposit and loan rates and the allocation of benefits received from the transaction. 1

2 Cash Pooling procedures (1) Companies that agree to participate in the Cash Pooling will make the agreement of deposit or loan from the net balance of all companies ( Pool ), which is similar to common funds of companies. The Pool will be managed and responsible by a company assigned by the Pool s members. (2) Initially, when any company makes a deposit, such company will receive interest income. On the other hand, when one company takes on loan, it is obliged to pay interest to the Pool. Both cases apply deposit rates or loan rates at the Child Account Rate. (3) After the deposit or loan transaction, if the Pool has a net amount, whether positive or negative, the procedure will be as follows: (3.1) If the net amount is positive, the remaining will be deposited with the bank. The bank will pay interest on deposit at the Parent Account Rate (3.2) If the net amount is negative, the Pool will loan from the bank and bring to companies that demands for loan. The bank will set the interest at the Parent Account Rate. (4) If the Pool benefits from the deposit or loan, whether from Child Account or Parent Account Pool, the benefits will be allocated to the companies in the Cash Pooling project. 2

3 Example of Cash Pooling Specifies the Interest rate on Deposit / Loan as follow: Parent Account Rate Deposit interest rate 3.00% Loan interest rate 4.00% Child Account Rate Deposit interest rate 3.00% Loan interest rate 4.00% Company A Company B Company C Loan (300) million baht Interest (12) million baht Deposit 500 million baht Interest 15 million baht Total Interest 6 million baht Net Notional Balance 300 million baht Interest for Net Notional Balance 9 million baht Deposit 100 million baht Interest 3 million baht Calculate using Child Account Rate Calculate using Parent Account Rate Pool Benefit* = 9 million baht 6 million baht = 3 million baht The Pool benefit will be further allocated to participated companies. 3

4 * Pool Benefit refers to the benefits from participating in the Cash Pooling Management calculated from interest for Net Notation Balance, minus separated account total interest. 70% of benefit will be allocate to companies, which have deposit status, 30% will be allocated to companies, which have loan status. In case there are more than one deposit or loan status companies, benefit will be allocate at the proportion of deposit or loan amount at the end of the day. In summary, participating companies will be entitled to receive benefits from deposits equal to the interest rate of Child Account combining with Pool Benefit (calculated in proportion to the deposit). The Effective Rate may be higher than the deposit rates of financial institution or investment in capital market or money market. In the case of loan, even loan companies are obliged to pay interest on loans at Child Account Rate, but the companies shall be entitled to Pool Benefit, which allocated from the Cash Pooling project. The Effective Rate may be lower than loan rates from financial institutions or other sources of fund. The Cash Pooling Procedure of the Company The Company will enter into the Cash Pooling Management with companies within POSCO group and other companies within POSCO group which will participate in the future and process through Bank of America Merrill Lynch (BAML) by (1) deposit its funds with BAML to be a loan limit for companies within the POSCO group at the amount not exceed 1,000 million baht and limit US Dollar not over 100 million baht. (2) loan from BAML The transaction will be process through Liquidity Management System Cash Pooling, which conducted by BAML in cooperation with established networks both currencies, Thai Baht and U.S. dollar. Details are as follows: 4

5 Deposit funds with BAML The Company may deposit its funds with BAML as loan limit to companies within POSCO group at an amount up to 1,000 million baht through Cash Pooling system, which conducted by BAML. The interest will be calculating at the end of each day and pay every month. The Company will be entitled to receive interest from such deposit at higher return rate than market rate of deposit with commercial banks. The deposit rates are calculated depend on deposit amount, plus an additional 70% benefits from participating Cash Pooling*. Details of deposit rates are as follows: Deposit interest rate (Thai baht currency) Outstanding net balance of all participating companies account (Parent Account) Deposit Amount Interest Rate Below 100 million baht 0.10% Above 100 million baht 0.50% Outstanding balance of each company participating in the project (Child Account) Deposit Amount Interest Rate No limit 1.00% Deposit interest rate (U.S. dollar currency) Outstanding net balance of all participating companies account (Parent Account) Deposit Amount Interest Rate No limit 1 M LIBOR 0.15% = 0.28% Outstanding balance of each company participating in the project (Child Account) Deposit Amount Interest Rate No limit 1 M LIBOR % = 0.68% As of approval date 1M LIBOR =0.43%* (1 M LIBOR = Average 1 Month London Interbank Offered Rate, Interest rate between Bank in London, UK) 5

6 Loan from BAML The Company will borrow from BAML at the amount not exceed 1,000 million baht through the Cash Pooling which conducted by BAML. Such loan from the Pool is similar to an overdraft loan from a bank and the Company shall be obliged to pay interest on the loan to Bank minus 30% of the benefits from participating the Cash Pooling. Details of loan rates are as follows: Loan interest rate (Thai baht currency) Outstanding net balance of all participating companies account (Parent Account) Loan Amount Interest Rate No limit O/N BIBOR % = 2.70% Outstanding balance of each company participating in the project (Child Account) Loan Amount Interest Rate No limit O/N BIBOR % = 2.25% As of approval date O/N BIBOR = 1.5%* (O/N BIBOR = Overnight Bangkok Interbank Offered Rate, Interest rate between Bank in Thailand) Loan interest rate (U.S. dollar currency) Outstanding net balance of all participating companies account (Parent Account) Loan Amount Interest Rate No limit 1 M LIBOR % = 0.68% Outstanding balance of each company participating in the project (Child Account) Loan Amount Interest Rate No limit 1 M LIBOR % + alpha* = 0.68% *alpha means additional interest rate in case of the Net Notional Balance is negative which will be calculated by weighted average between interest rate premium of Child Account (0.25%) weighted by the total deposit amount in Child Account and BAML s O/D interest rate weighted by the Net Negative Notional Balance in Parent Account minus total deposit amount in Child Account. The alpha will fluctuate by the amount of the Net Notional Balance in Parent Account. 6

7 Participation in the liquidity management, the Cash Pooling has no expiration of the contract until the Customer Liquidity Agreement was terminated by BAML or the Company gives not less than 30 days notice in advance to Bank desired to terminate the agreement. Due to a deposit or loan fund from the networks through the Cash Pooling is serves as an alternative option for the Company to manage its liquidity. After the meeting of shareholders of the Company approved the transaction, the Company will consider the transaction and compare to other alternatives with the Company are entitled to deposit/lender or borrowing its funds. It is the Company s right whether or not to participate in Cash Pooling. The criteria for determining the deposits or loan are as follows: (1) Considering on liquidity of the Company at that period of time and do not make a deposit or loan to be a burden or affect the liquidity of the Company for both Thai Baht and U.S. Dollars. (2) Study and compare the benefits between deposit or loan through Cash Pooling and deposit or loan with financial institution or other funding sources and consider alternative option that are useful for the Company the most. (3) Monitoring business and financial status of companies participating in the Cash Pooling closely (4) To reduce the risk to the Company, the Company will deposit Thai Baht in an amount not exceed 1,000 THB. For U.S. dollars, the Company will deposit at maximum of 100 million baht to limit risk. (5) POSCO Asia Ltd. agrees to indemnify any loss of deposit balance of the Company by issue Letter of Guarantee as a result of the occurrence of default incurred by participated in Cash Pooling for Thai baht and U.S. dollar. Summary of the Draft Agreement, Which Will Occur BAML has prepared a draft agreement, Customer Liquidity Agreement, that the Company and other companies in POSCO Group will participate in Cash Pooling are signed with BAML. The agreement specifies that POSCO S.A. represents all companies in Thai baht Pool and POSCO Asia Ltd. represents all companies in U.S. dollars Pool. Both Companies are responsible to manage and follow the interest payment, and to do the report and plan the money withdrawal or borrow the money 7

8 only. The Company has reserved the right to appoint the representative to conduct or perform any act on behalf of the company in special transaction that required the approval from the Board of Directors and/or the approval from the shareholders meeting including disclose the transaction. Furthermore, in case one company in the Pool is default, BAML has the right to seize only the deposit account of the defaulted company. BAML has no right to seize other companies deposit accounts. But the Company still has the liability for that default since the Company joins the program together with other companies. However, POSCO Asia Co., Ltd. agrees to indemnify any loss of deposit balance of the Company as a result of the occurrence of default incurred by participated in Cash Pooling for Thai baht and U.S. dollar but the Company may suffered indirectly from receiving higher borrowing rate or lower deposit rate as a result from defaulted company and decreasing pool benefit.. 3. Total Transaction Value Deposit of funds Transaction size = (Deposit amount + (1 year maximum interest rate that can be obtained)) / Net tangible assets The transaction size compared to net tangible assets of the Company based on the financial statements of the Company as of December 31, 2015 Transaction size = (1,000,000,000 + (1,000,000,000 x 1.88%*)) / 8,687,633,841 = 11.73% of the Company s net tangible assets Loan from BAML Transaction size = (1 year interest) / Net tangible assets The transaction size compared to net tangible assets of the Company based on the financial statements of the Company as of December 31, 2015 Transaction size = (1,000,000,000 x 2.70%*) / 8,687,633,841 = 0.31% of the Company s net tangible assets 8

9 The transaction regarding on entering into Cash Pooling Agreement by deposit and borrow funds from the POSCO s networks is considered as a connected transaction according to Notification of the Capital Market Supervisory board No. Tor. Jor. 21/2551 Re: Rules of Entering into Connected Transaction and the Notification of the board of Governors of the Stock Exchange of Thailand Re: Disclosure of Information and Other Acts of Listed Companies Concerning the Connected Transactions, ( Rules on Connected Transaction ) The transaction size is higher than 3 percent of the Company s net tangible assets; therefore, the Company is duty-bound to prepare a report and disclose the transaction to the SET and to seek approval of the transaction from the shareholders meeting with a required vote of at least three-fourths of the total number of votes of shareholders who attend the meeting and have the right to vote, excluding shareholders who have beneficial interest. * The maximum 1-year deposit rates calculated from the case that the amount of deposit and loan amount are equal. The maximum loan rates calculated from the case that there is no depositor. 4. The Parties Involved and Their Relationship with the Listed Company POSCO is the major shareholder in INOX amount of 6,620,532,219 shares, representing 84.92%. POSCO is the major shareholder in the companies above that will participate in the Cash Pooling and POSCO have sent 4 representatives as the Board of Directors from a total of 9 persons. Company Name Share Holding of POSCO Direct Indirect Total Posco Thainox Public Company Limited 84.92% % List of companies participating in Cash Pooling, U.S. dollars (2-17) and Thai baht (1-3) 1. POSCO Coated Steel (Thailand) Co., Ltd % % 2. POSCO (Thailand) Co., Ltd % 14.38% % 3. POSCO-South Asia Co., Ltd % % 4. POSCO Asia Ltd % % 5. POSCO Australia PTY LTD % % 6. POS-GC PTY LTD % % 7. POS-CD PTY LTD % % 8. POS-NP PTY LTD % % 9

10 Company Name Share Holding of POSCO Direct Indirect Total 9. POSCO Canada Limited % % 10. MOTTA Resources Indonesia, PT 65.00% % 11. POSCO Philippine Manila Processing Center % % 12. Daewoo International Singapore PTE LTD % % 13. POSCO America Corporation 99.45% 0.55% % 14. POSCO America Alabama Processing Center Co., Ltd % % 15. POSCO MAPC Co., Ltd % 20.00% % 16. POSCO MPPC Co., Ltd % 95.00% 17. POSCO MVWPC Co., Ltd % 10.00% 66.75% 5. Characteristics and Scope of Interests of Connected Persons POSCO is the major shareholder of participating companies consists of INOX by holding 84.92%, POSCO.TH and POSCO S.A. holding % of paid up capital. 6. Opinion of the Board of Directors Concerning a Decision to Enter into a Transaction The Board of Directors considered that such connected transaction is appropriate because entering the Liquidity Management System Cash Pooling will benefit the Company by improve the flexibility and efficiency in liquidity management. The Company will receive return on investment higher than market rate of deposit with commercial banks and loan rates lower than normal loan rates of commercial banks. Moreover such agreement is serving as an alternative for the Company to manage its liquidity; therefore, the Company can compare the optimal benefit, which the Company may receive from other alternatives as well. 7. Opinion of the Company s Audit Committee and/or Directors Which Are Different from the Opinion of the Board of Directors - None - 10

11 Mr. Kyung Hwa Song, Mr. Yeong-Hwan Han, and Mr. Chung Hwan Jeong are the directors that represent POSCO, considered having conflict of interest on the transaction. They did not attend and vote in the meeting. *Mrs. Ho Jin Chae, a director that represents POSCO, resigned from the Company effective on 23 February Sincerely Yours, (Mr.Yeong Hwan Han) Director 11