Further details of the Proposed Acquisition are set out in the ensuing sections. The Power Plant shall consist of the following key components:

Transcription

1 HENG HUAT RESOURCES GROUP BERHAD ( HENG HUAT ) (Company No D) (Incorporated in Malaysia under the Companies Act, 1965) GENERAL ANNOUNCEMENT SUBJECT: TRANSACTIONS (CHAPTER 10 OF THE LISTING REQUIREMENTS): NON- RELATED PARTY TRANSACTIONS - PROPOSED ACQUISITION OF BIOSMASS CO-GENERATION POWER PLANT 1. BACKGROUND INFORMATION The Board of Directors of Heng Huat ( Board ) wish to announce that, HK Power Sdn Bhd ( HKPSB or the Purchaser ), a wholly-owned subsidiary of Heng Huat had on 22 June 2015 entered into a contract ( Contract ) with Advance Boilers Sdn Bhd ( ABSB or the Vendor ) for the design, supply, delivery to site, installation and commissioning of one (1) unit of 1,077 electrical kilowatts (ekw) biomass co-generation power plant ( Power Plant ) for a cash consideration of RM8,810,000 ( Purchase Consideration ) ( Proposed Acquisition ). Further details of the Proposed Acquisition are set out in the ensuing sections. 2. DETAILS OF THE PROPOSED ACQUISITION 2.1 Information on the Power Plant The Power Plant shall consist of the following key components: (iii) (iv) (v) (vi) (vii) One (1) unit of EMPIRE Membrane Wall Biomass Water Tube Boiler; One (1) unit of Thermal Deaerator; One (1) unit of DRESSER-RAND Steam Turbine Generator System; One (1) unit of mild steel 35m3 boiler feed water storage tank with condensate return from process; One (1) unit of CEMS (Continuous Emission Monitoring System); One (1) unit of air preheater with sonic soot blowers; and One (1) unit of Second Stage Dust Collector System.

2 The Power Plant is intended to be installed at the new production factory to be constructed by Heng Huat ( New Factory ) on the leasehold vacant land known as Lot No. 551 held under PN 1828, Bandar Gua Musang, Jajahan Gua Musang, Negeri Kelantan ( Gua Musang Land ), which was acquired by HK Gua Musang Sdn Bhd pursuant to the conditional sale and purchase agreement entered into with Eleplas Wood Technology Sdn Bhd on 13 October 2014 ( Gua Musang Land Acquisition ). In the event the proposed construction of the New Factory is delayed or discontinued for reason(s) deem fit by the Board, the Power Plant will be installed at Heng Huat s existing factory situated at Lot 2945 (Plot A2), Jalan Sungai Baong, Kawasan Perindustrian Perabut, Sungai Baong, Mukim 5, Seberang Perai Selatan, Penang. 2.2 Information on ABSB ABSB is a private limited liability company incorporated in Malaysia on 1 August 1989 under the Companies Act, 1965 with an authorised and paid-up share capital of RM1,000,000 comprising 1,000,000 ordinary shares of RM1.00 each. ABSB is a wholly-owned subsidiary of CB Industrial Product Holding Berhad, a public company listed on the Main Market of Bursa Malaysia Securities Berhad ( Bursa Securities ). The principal activity of ABSB is the provision of mechanical engineering services. 2.3 Mode of Settlement The Purchase Consideration for the Proposed Acquisition shall be satisfied in cash in the following manner: (iii) (iv) Payment Terms 5% of contract value as non-refundable down payment payable upon signing of the Contract 15% of contract value as balance non-refundable down payment payable within 21 days from the date of signing of the Contract and upon presentation of the Vendor s unpriced purchase order for the multi stage turbine 10% of contract value upon finalisation of engineering drawing on overall plant layout and piping and instrumentation diagram ( P&ID ) design 20% of contract value upon successful heat transfer ( H.T. ) of boiler drums and headers at ABSB s workshop Consideration RM 440,500 1,321, ,000 1,762,000

3 (v) (vi) (vii) (viii) (ix) (x) Payment Terms 15% of contract value upon readiness of steam turbine ex-dresser-rand factory prior to shipment 15% of contract value upon delivery of boiler to site or within one (1) month after written advice of readiness for delivery, whichever is earlier 10% of contract value upon delivery of steam turbine to site or within one (1) month after written advice of readiness for delivery, whichever is earlier 5% of contract value upon completion of boiler/ steam turbine installation at site or within four (4) months after written advice of readiness for delivery, whichever is earlier 2.5% of contract value upon successful steam test witnessed by Jabatan Keselamatan dan Kesihatan Pekerjaan ( JKKP ) or within six (6) months after written advice of readiness for delivery, whichever is earlier 2.5% of contract value shall be retained as retention sum over a period of twelve (12) months from the date of successful steam test witnessed by JKKP Consideration RM 1,321,500 1,321, , , , ,250 Total 8,810, Salient terms of the Contract The salient terms of the Contract are set out below: Schedule of Delivery The Power Plant is expected to be delivered and completed based on the following schedule of delivery: Ready Ex-Work For boiler For steam turbine : 8 months from the date of order and receipt of down payment : 12 to 13 months from the date of order and receipt of down payment

4 Site Erection and Installation For boiler : 5 months from the date of boiler material arrived at site For steam turbine : 2 months from the date of turbine and ancillary items arrived at site Testing and Commissioning For boiler and : Within 4 weeks from the date of completion of site steam turbine installation Additional days of commissioning to be charged at RM650 per day. Breach of Obligation By the Purchaser In the event the Purchaser fails to comply with any of its obligations as stated in the Contract, the Vendor is released of its obligations and any sum paid by the Purchaser may be forfeited and/or the Vendor may at its absolute discretion dispose of the Power Plant as it deems fit. (iii) Warranty The Vendor will provide warranty of both boiler and turbine against defective material and workmanship in manufacture and construction for a period of twelve (12) months after commissioning of boiler or fifteen (15) months from the date of written advice of readiness of boiler and turbine delivery, whichever comes first ( Warranty ). The Warranty is subject to proper operation of boiler, turbine and associated equipment in accordance to recommended operating procedures and does not cover any normal wear and tear of the equipment nor does it cover any malfunction due to misuse of the equipment. The Warranty is also subject to the maintenance of the proper water quality in the boiler. Should any material or workmanship be found defective, the Vendor s liability is limited only to the supply of material and labour to replace the defective parts and does not include any losses due to interruption in production or other losses. 2.5 Basis and justification of arriving at the Purchase Consideration The Purchase Consideration was arrived at on a willing buyer-willing seller basis, based on negotiated commercial terms with the Vendor after making comparison with the price quotation obtained from two (2) other suppliers. 2.6 Source of Funding The Purchase Consideration is intended to be funded in the following manner: (a) (b) 20% by internally generated funds; and 80% by external borrowings.

5 The above breakdown is, however, subject to further negotiations and finalisation with the financial institutions. In the event a lower amount of external borrowings is secured, the shortfall will be funded by internally generated funds. 2.7 Liabilities to be Assumed Save for the obligations and liabilities in and arising from, pursuant to or in connection with the Contract, there are no other liabilities, including contingent liabilities and guarantees to be assumed by Heng Huat and its subsidiary companies ( Heng Huat Group ) pursuant to the Proposed Acquisition. 3. RATIONALE FOR THE PROPOSED ACQUISITION As disclosed in Heng Huat s Prospectus dated 30 June 2014, the Proposed Acquisition will enable Heng Huat Group to move towards zero waste production whereby the wastes produced as by-product of its operation will be utilised to power its production process. As compared to existing boiler which produces steam, the proposed Power Plant will generate electricity from the incineration of short fibre and is estimated to enable the Heng Huat Group to achieve further cost savings of up to approximately RM3.00 million per annum in woodchips, electricity and maintenance and operation costs. Further, the Proposed Acquisition is also part of the Heng Huat Group s corporate social responsibility ( CSR ) efforts to optimise the use of green energy and minimise its production wastes. The Power Plant is intended to be installed at the New Factory, as it is more cost-effective to coordinate the installation in conjunction with the construction of the New Factory. Heng Huat has received the consent from the State Authority of Kelantan vide its letter dated 15 April 2015 for the transfer of the land title in respect of the Gua Musang Land. Barring any unforeseen circumstances, the Gua Musang Land Acquisition is expected to be completed in the third quarter of The proposed layout plan for the New Factory has been submitted to Majlis Daerah Gua Musang ( MDGM ) for approval and barring any unforeseen circumstances, the approval is expected to be obtained by the fourth quarter of Upon obtaining the approval for the layout plan, Heng Huat will proceed to finalise the construction cost of the New Factory and relevant announcement(s) will be made in the future, where applicable. In view that the delivery of the Power Plant by the Vendor will take up to twelve (12) months from the date of order, the Board is of the opinion that it is timely for the Proposed Acquisition to be made at this juncture.

6 4. EFFECTS OF THE PROPOSED ACQUISITION 4.1 Share Capital and Substantial Shareholders Shareholdings The Proposed Acquisition will not have any effect on the issued and paid-up share capital and substantial shareholders shareholdings of Heng Huat as the Proposed Acquisition will be fully satisfied in cash. 4.2 Net Assets ( NA ) and Gearing Based on the latest consolidated statements of financial position of Heng Huat as at 31 December 2014, the pro forma effects of the Proposed Acquisition on the consolidated NA and gearing of Heng Huat after incorporating the following subsequent adjustments are as set out below: The Gua Musang Land Acquisition; and The proposed bonus issue of 102,900,015 new ordinary shares of RM0.10 each in Heng Huat ( Shares ) to be fully credited as fully paid-up on the basis of one (1) new Share for every two (2) existing Shares held on an entitlement date to be determined later ( Proposed Bonus Issue ). Audited I II III as at 31 December 2014 After the Gua Musang Land Acquisition After I and the Proposed Bonus Issue After II and the Proposed Acquisition (RM 000) (RM 000) (RM 000) (RM 000) Share capital 20,580 20,580 30,870 30,870 Share premium 15,863 15,863 (iii) 5,448 5,448 Reorganisation reserve (5,185) (5,185) (5,185) (5,185) Retained earnings 36,880 36,730 36,730 36,730 Shareholders equity/ NA 68,138 67,988 67,863 67,863 Number of Shares assumed to be in issue ( 000) 205, , , ,700 NA per Share (RM) Borrowings 24,928 28,231 28,231 (iv) 35,279 Gearing

7 Notes: (iii) (iv) After deducting estimated expenses of RM150,000 in relation to the Gua Musang Land Acquisition. For illustrative purposes only, assuming the balance purchase consideration of RM3,303,000 for the Gua Musang Land Acquisition is financed by bank borrowings. After capitalising RM10,290,002 for the new Shares to be issued pursuant to the Proposed Bonus Issue and deducting estimated expenses of RM125,000 for the Proposed Bonus Issue For illustrative purposes only, assuming 80% of the Purchase Consideration of RM7,048,000 is financed by bank borrowings. 4.3 Earnings The Proposed Acquisition is expected to be completed in the third quarter of As such, the Proposed Acquisition is not expected to have any effect on the earnings and earnings per share of the Heng Huat Group for the financial year ending 31 December Nevertheless, the Proposed Acquisition may contribute positively to the earnings of the Heng Huat Group in the future financial years upon commencement of use of the Power Plant. 5. RISK FACTORS Save as disclosed below, the Board is of the opinion that the Proposed Acquisition is not expected to expose the Heng Huat Group to any additional risks that could materially and adversely impact the financial and operating conditions of the Heng Huat Group: 5.1 Non-completion of the Proposed Acquisition The construction of the Power Plant is subject to the approvals of MDGM and other competent authorities. There can be no assurance that all the approvals from the relevant authorities can be obtained and/or the Heng Huat Group is able to comply with the conditions imposed by the relevant authorities (if any) on a timely manner or at all. Should a delay or non-completion of the Proposed Acquisition occurs, the Heng Huat Group may not be able to realise the benefits that may accrue to it from the Proposed Acquisition as disclosed in Section 3 of this announcement. Notwithstanding the above, the Board will take reasonable steps that are within its control to ensure that the Proposed Acquisition can be completed in a timely manner, which include engaging competent professionals to assist the Heng Huat Group in the application to the authorities to obtain the relevant approvals. 5.2 Financing Risk The Heng Huat Group intends to finance the Proposed Acquisition though a mixture of internally generated funds and bank borrowings. Taking up additional bank borrowings would expose the Group to interest rate and debt servicing risks while any utilisation of internal funds is expected to result in a reduction of funds available for working capital purposes, which may have an adverse effect on the Group s cash flow position. To address the above risk, the Board will endeavour to manage its cash flow position and funding requirements prudently.

8 5.3 Operational Risk Although the Proposed Acquisition is estimated to enable the Heng Huat Group to achieve cost savings of up to approximately RM3.00 million per annum in woodchips, electricity and maintenance and operation costs, the actual results could deviate depending on the actual operational efficiency of the Power Plant. To address the above risk, the Board will ensure proper training is provided to the workers to minimise disruption to the Power Plant due to mishandling, as well as proper internal control and maintenance system is in place. 6. PROSPECTS OF THE PROPOSED ACQUISITION As disclosed in Section 3 of this announcement, the Power Plant upon commencement of use will enable the Heng Huat Group to utilise the biomass wastes produced as by-product of its operation to power its production process, which is expected to enable the Heng Huat Group to achieve further cost savings of up to approximately RM3.00 million per annum in woodchips, electricity and maintenance and operation costs. 7. ESTIMATED TIME FRAME FOR COMPLETION Barring any unforeseen circumstances and subject to obtaining of the requisite approvals from the relevant authorities, the Proposed Acquisition and the construction of the Power Plant is expected to be completed by the third quarter of APPROVALS REQUIRED The construction of the Power Plant is subject to the approval of MDGM, as well as the clearance from other competent authorities including Suruhanjaya Tenaga, Jabatan Bomba, Jabatan Alam Sekitar and JKKP. The Proposed Acquisition is not conditional upon any other proposals undertaken or to be undertaken by the Company. 9. APPLICATION TO THE AUTHORITIES Barring unforeseen circumstances, the Board intends to submit the applications to the other relevant authorities for the construction of the Power Plant by the fourth quarter of INTERESTS OF DIRECTORS, MAJOR SHAREHOLDERS AND PERSONS CONNECTED WITH THEM None of the Directors and/or major shareholders of Heng Huat and/or persons connected with them, has any interest, direct or indirect, in the Proposed Acquisition.

9 11. HIGHEST PERCENTAGE RATIO APPLICABLE The highest percentage ratio applicable to the Proposed Acquisition pursuant to Paragraph 10.02(g) of the ACE Market Listing Requirements of Bursa Securities based on the latest audited consolidated financial statements of Heng Huat for the financial year ended 31 December 2014 is 12.93%. As such, no shareholders approval is required for the Proposed Acquisition. 12. STATEMENT BY THE DIRECTORS The Board, after having considered all the relevant aspects in respect of the Proposed Acquisition, is of the opinion that the Proposed Acquisition is in the best interests of the Heng Huat Group. 13. DOCUMENTS AVAILABLE FOR INSPECTION The Contract is available for inspection at the registered office of Heng Huat at 39 Salween Road, Penang, during normal office hours from Monday to Friday (except public holidays) for a period of three (3) months from the date of this announcement: This announcement is dated 22 June 2015.