CHEMICAL COMPANY OF MALAYSIA BERHAD (Company No T) (Incorporated in Malaysia under the Companies Ordinance )

Transcription

1 THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt as to the course of action to be taken, please consult your stockbroker, bank manager, solicitor, accountant or other professional adviser immediately. Bursa Malaysia Securities Berhad takes no responsibility for the contents of this Circular, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this Circular. CHEMICAL COMPANY OF MALAYSIA BERHAD (Company No T) (Incorporated in Malaysia under the Companies Ordinance ) CIRCULAR TO SHAREHOLDERS IN RELATION TO THE (I) (II) (III) PROPOSED PLACEMENT OF UP TO 10% OF THE ISSUED AND PAID UP SHARE CAPITAL OF CHEMICAL COMPANY OF MALAYSIA BERHAD ( CCMB ) (EXCLUDING TREASURY SHARES) ( PROPOSED PLACEMENT ); PROPOSED DISTRIBUTION OF 204,665,784 ORDINARY SHARES OF CCM DUOPHARMA BIOTECH BERHAD ( CCMD ) ( CCMD SHARE(S) ) REPRESENTING THE ENTIRE SHAREHOLDING IN CCMD WHICH WILL BE HELD BY CCMB PURSUANT TO THE INTERNAL REORGANISATION (AS DEFINED HEREIN), TO THE SHAREHOLDERS OF CCMB ON THE BASIS OF APPROXIMATELY CCMD SHARE FOR EACH CCMB CONSOLIDATED SHARE (AS DEFINED HEREIN) (ASSUMING ISSUANCE OF MAXIMUM PLACEMENT SHARES AS DEFINED HEREIN) BY WAY OF A REDUCTION OF THE PAID UP CAPITAL OF CCMB PURSUANT TO SECTION 116 OF THE COMPANIES ACT 2016 ( PROPOSED DISTRIBUTION ); AND PROPOSED CONSOLIDATION OF EVERY 3 EXISTING ORDINARY SHARES IN CCMB ("CCMB SHARE(S)" OR "SHARE(S)") INTO 1 ORDINARY SHARE IN CCMB ("CCMB CONSOLIDATED SHARE(S)") ("PROPOSED SHARE CONSOLIDATION") AND NOTICE OF EXTRAORDINARY GENERAL MEETING Principal Adviser The Notice of Extraordinary General Meeting ( EGM ) of CCMB which will be held at Ballroom 1, Level 1, Sime Darby Convention Centre, 1A, Jalan Bukit Kiara 1, Kuala Lumpur on Tuesday, 3 October 2017 at a.m. or at any adjournment thereof, together with the Form of Proxy are enclosed in this Circular. Only a depositor whose name appears on the Record of Depositors of CCMB as at 27 September 2017 shall be entitled to attend the EGM and to speak and vote thereat. A member entitled to attend and vote at the EGM is entitled to appoint not more than two (2) proxies to attend and vote in his stead. In such event, the Form of Proxy should be completed and lodged with the Company s Registrar, Symphony Share Registrars Sdn. Bhd. at Level 6, Symphony House, Pusat Dagangan Dana 1, Jalan PJU 1A/46, Petaling Jaya, Selangor Darul Ehsan, not less than twenty-four (24) hours before the time appointed for taking of the poll, as per Section 334(3) of the Companies Act, 2016 or at any adjournment thereof. The lodging of the Form of Proxy will not preclude you from attending and voting in person at the EGM should you subsequently wish to do so. Last date and time for lodging of the Form of Proxy : Monday, 2 October 2017 at a.m. Date and time of EGM : Tuesday, 3 October 2017 at a.m. This Circular is dated 11 September 2017

2 DEFINITIONS For the purpose of this Circular, except where the context otherwise requires, the following words and abbreviations shall have the following meanings: Act : Companies Act, 2016 Affin : Affin Islamic Bank Berhad ART-ASB : AmanahRaya Trustee Berhad Amanah Saham Bumiputera ASB : Amanah Saham Bumiputera ASNB : Amanah Saham Nasional Berhad, a wholly-owned subsidiary of PNB Board : Board of Directors of the Company Bursa Securities : Bursa Malaysia Securities Berhad Bursa Depository : Bursa Malaysia Depository Sdn Bhd CCMB or Company : Chemical Company of Malaysia Berhad CCMB Share(s) Consolidated : CCMB Share(s) immediately after the Proposed Share Consolidation becoming effective CCMB Group : Collectively, CCMB and its subsidiaries CCMB Share(s) or Share(s) : Ordinary share(s) in CCMB CCMC : CCM Chemicals Sdn Bhd CCMD : CCM Duopharma Biotech Berhad, a 73.37% subsidiary of CCMB CCMD Group : Collectively, CCMD and its subsidiaries CCMD Share(s) : Ordinary share(s) in CCMD CCMM : CCM Marketing Sdn Bhd, a wholly-owned subsidiary of CCMB CCMM Debt : Has the meaning ascribed to it in Section 3.1. in this Circular Circular : This Circular to the shareholders of the Company in relation to the Proposals dated 11 September 2017 Closing Date : Has the meaning ascribed to it in Section 3.1. in this Circular Concert Group : Collectively, PNB, CCMB, CCMM, ASNB and other funds managed by PNB including ASB Consolidated Companies : Has the meaning ascribed to it in Section 5.2. in this Circular CMSA : Capital Markets and Services Act, 2007, as amended from time to time and any re-enactment thereof Debt Agreement Settlement : Debt settlement agreement dated 11 August 2017 between CCMB and CCMM pursuant to the Internal Reorganisation i

3 DEFINITIONS (Cont d) Distribution Ratio Entitlement : Has the meaning ascribed to it in Section 3.1. in this Circular Distribution Shares : 204,665,784 CCMD Shares, being all CCMD Shares which will be held by the Company pursuant to the Internal Reorganisation to be distributed to the Entitled Shareholder(s), pursuant to the Proposed Distribution after the implementation of the Proposed Share Consolidation EGM : Extraordinary General Meeting Entitled Shareholder(s) : Shareholders of the Company whose names appear in the Record of Depositors of the Company on the Entitlement Date Entitlement Date : A date to be determined and announced later by our Board on which the names of our shareholders must appear in the Record of Depositors of the Company as at 5.00 p.m. in order to be entitled to, (i) the CCMB Consolidated Shares in relation to the Proposed Share Consolidation; and (ii) the Distribution Shares in relation to the Proposed Distribution EPS : Earnings per share FYE : Financial year ended/ending, as the case may be FPE : Financial period ended/ending, as the case may be GBA Corp : GBA Corporation Sdn Bhd High Court : High Court of Malaya Internal Reorganisation : Has the meaning ascribed to it in Section 3.1. in this Circular Interested Directors : Dato Hajah Normala binti Abdul Samad, Dato Azmi bin Mohd Ali, Dato Seri Ir. Dr. Zaini bin Ujang and Datin Paduka Kartini binti Hj. Abdul Manaf Issue Price : The issue price for the Placement Shares LSSB : Lanjut Setia Sdn Bhd Listing Requirements : Main Market Listing Requirements of Bursa Securities including any amendments that may be made from time to time LPD : 30 August 2017, being the latest practicable date prior to the printing of this Circular Mandatory Offer 1 : The mandatory offer for all the remaining CCMD Shares not already owned by CCMB and the PACs with CCMB Mandatory Offer 2 : The mandatory offer for all the remaining CCMD Shares not already owned by PNB and the PACs with PNB Maximum Shares Placement : The maximum number of the Placement Shares that may be issued pursuant to the Proposed Placement of up to 45,762,985 CCMB Shares (assuming all treasury shares are sold) Maybank IB or Principal Adviser : Maybank Investment Bank Berhad ii

4 DEFINITIONS (Cont d) MOH : Ministry of Health, Malaysia MT : Metric tonne NA : Net asset OTC : Over-the-counter PACs with CCMB : Parties acting in concert with CCMB including CCMM, PNB, ASNB and other funds managed by PNB including ASB PACs with PNB : Parties acting in concert with PNB including CCMM, CCMB, ASNB and other funds managed by PNB including ASB Placement Assumption Pricing : Has the meaning ascribed to it in Section 2.2. in this Circular Placement Share(s) : Such number of new CCMB Shares representing up to 10% of the issued and paid-up share capital of CCMB (excluding the treasury shares) to be issued pursuant to the Proposed Placement PNB : Permodalan Nasional Berhad Proposed Disposal of Shah Alam Land : Proposed disposal of the Shah Alam Land to GBA Corp for a cash consideration of RM190.0 million pursuant to a letter of offer dated 2 August 2017 issued by GBA Corp to CCMB Price-Fixing Date : The date on which the issue price for the Placement Shares is fixed and announced by the Board following the receipt of all requisite approvals for the Proposed Placement Proposals : Collectively, the Proposed Placement, the Proposed Distribution and the Proposed Share Consolidation Proposed Acquisition 1 : Has the meaning ascribed to it in Section 2.5. in this Circular Proposed Acquisition 2 : Has the meaning ascribed to it in Section 2.5. in this Circular Proposed Acquisitions CCMC : Has the meaning ascribed to it in Section 2.5. in this Circular Proposed Distribution : Proposed distribution of the Distribution Shares to our shareholders by way of a reduction of the paid up share capital of CCMB pursuant to Section 116 of the Act Proposed Placement : Proposed placement of the Placement Shares to investor(s) to be identified by way of book-building exercise Proposed Placement to PNB : Proposed placement to PNB and/or persons connected with it of such number of Placement Shares Proposed Consolidation Share : Proposed share consolidation of every 3 existing CCMB Shares into 1 CCMB Consolidated Share Rationalisation Exercise : Has the meaning ascribed to it in Section 5.2. in this Circular Record of Depositors : A record consisting of names of depositors established by Bursa Depository under the Rules of Bursa Depository iii

5 DEFINITIONS (Cont d) Rules : Rules on Take-Overs, Mergers and Compulsory Acquisitions SC : Securities Commission Malaysia Shah Alam Land : Three (3) parcels of leasehold land measuring approximately acres in total as follows: (A) (B) (C) PN Lot 818 Seksyen 16, Bandar Shah Alam, Daerah Petaling, Negeri Selangor ( Lot 818 ) (excluding that portion of Lot 818 measuring approximately 11,655 square metres which has been taken over by Perbadanan Kemajuan Negeri Selangor and which is to be surrendered to the relevant authority(ies) pursuant to the terms and conditions of the Land Exchange Agreement dated 1 July 2004 as amended and supplemented by a Supplemental Agreement to the Land Exchange Agreement dated 4 April 2016); HS(D) , PT 757 Seksyen 16, Bandar Shah Alam, Daerah Petaling, Negeri Selangor ( PT 757 ); and HS(D) , PT 758 Seksyen 16, Bandar Shah Alam, Daerah Petaling, Negeri Selangor ( PT 758 ). SMBC : Sumitomo Mitsui Banking Corporation Specified Consolidation : As defined in paragraph of the Listing Requirements Take-over Code : Malaysian Code on Take-overs and Mergers, 2016 VWAP : The Volume Weighted Average market Price CURRENCIES RM and sen : Ringgit Malaysia and sen IDR : Indonesian Rupiah USD : United States Dollar All references to the Company in this Circular are to CCMB. References to the Group and/or CCMB Group are to CCMB and its subsidiaries and references to we, us, our and ourselves are to CCMB and where context requires, shall include CCMB s subsidiaries. All references to you in this Circular are to the shareholders of the Company. Words referring to the singular shall, where applicable, include the plural and vice versa and words referring to the masculine gender shall, where applicable, include feminine and neuter genders and vice versa. References to persons shall include corporations, unless otherwise specified. Any reference to any enactment in this Circular is a reference to that enactment as amended or reenacted from time to time. Any discrepancy in the tables between the amounts listed and the totals in this Circular are due to rounding. Any reference to time in this Circular shall reference Malaysian time, unless otherwise stated. iv

6 CONTENTS LETTER TO OUR SHAREHOLDERS IN RELATION TO THE PROPOSALS CONTAINING: Page 1. INTRODUCTION 1 2. DETAILS OF THE PROPOSED PLACEMENT 2 3. DETAILS OF THE PROPOSED DISTRIBUTION 4 4. DETAILS OF THE PROPOSED SHARE CONSOLIDATION 8 5. RATIONALE AND JUSTIFICATIONS FOR THE PROPOSALS RISK FACTORS EFFECTS OF THE PROPOSALS HISTORICAL SHARE PRICES APPROVALS REQUIRED AND INTER-CONDITIONALITY OF THE PROPOSALS 10. INTERESTS OF DIRECTORS, MAJOR SHAREHOLDERS AND/OR PERSONS CONNECTED TO THEM DIRECTORS RECOMMENDATION TENTATIVE TIMETABLE CORPORATE EXERCISE / SCHEME ANNOUNCED BUT PENDING COMPLETION EGM FURTHER INFORMATION 27 APPENDICES APPENDIX I INFORMATION ON CCMD 28 APPENDIX II APPENDIX III AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF CCMD FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2016 TOGETHER WITH THE AUDITORS REPORT THEREON FURTHER INFORMATION NOTICE OF EGM FORM OF PROXY ENCLOSED ENCLOSED v

7 CHEMICAL COMPANY OF MALAYSIA BERHAD (Company No T) (Incorporated in Malaysia under the Companies Ordinance ) Board of Directors Dato Hajah Normala binti Abdul Samad (Non-Independent Non-Executive Chairman) Leonard Ariff bin Abdul Shatar (Group Managing Director) Khalid bin Sufat (Senior Independent Non-Executive Director) Dato Azmi bin Mohd Ali (Non-Independent Non-Executive Director) Dr. Leong Chik Weng (Independent Non-Executive Director) Dato Seri Ir. Dr. Zaini bin Ujang (Non-Independent Non-Executive Director) Datin Paduka Kartini binti Hj. Abdul Manaf (Non-Independent Non-Executive Director) Tan Sri Siti Sa diah binti Sh. Bakir (Independent Non-Executive Director) Datuk Nik Moustpha bin Haji Nik Hassan (Independent Non-Executive Director) Registered Office 13th Floor, Menara PNB, 201-A, Jalan Tun Razak, Kuala Lumpur 11 September 2017 To: Shareholders of the Company Dear Sir / Madam, (I) (II) (III) PROPOSED PLACEMENT; PROPOSED DISTRIBUTION; AND PROPOSED SHARE CONSOLIDATION 1. INTRODUCTION On 2 August 2017, Maybank IB, on behalf of the Board, announced, among others, that the Company is proposing to undertake the following Proposals: (a) (b) (c) proposed placement of CCMB Shares representing up to 10% of CCMB s issued share capital (excluding treasury shares); proposed distribution of 204,665,784 CCMD Shares representing the entire shareholdings in CCMD, which will be held by CCMB pursuant to the Internal Reorganisation, to the Entitled Shareholders by way of a reduction of the paid up share capital of CCMB pursuant to Section 116 of the Act; and proposed consolidation of every 3 existing CCMB Shares into 1 CCMB Consolidated Share. 1

8 The approval of the Company s shareholders with regard to the Proposed Disposal of Shah Alam Land as announced on 2 August 2017 will be sought in a separate EGM to be convened at a later date. THE PURPOSE OF THIS CIRCULAR IS TO PROVIDE YOU WITH THE DETAILS OF THE PROPOSALS AND TO SEEK YOUR APPROVAL FOR THE RESOLUTIONS PERTAINING TO THE PROPOSALS TO BE TABLED AT OUR FORTHCOMING EGM. THE NOTICE OF EGM AND THE FORM OF PROXY ARE ENCLOSED IN THIS CIRCULAR. YOU ARE ADVISED TO READ AND CONSIDER CAREFULLY THE CONTENTS OF THIS CIRCULAR TOGETHER WITH THE APPENDICES BEFORE VOTING ON THE RESOLUTIONS PERTAINING TO THE PROPOSALS TO BE TABLED AT OUR FORTHCOMING EGM. 2. DETAILS OF THE PROPOSED PLACEMENT 2.1. Background information on the Proposed Placement The Proposed Placement entails the issuance and allotment of up to 10% of the issued share capital of CCMB (excluding treasury shares) to investor(s) to be identified by way of bookbuilding exercise. Based on the issued share capital of the Company, as at the LPD, of RM457,629,856 comprising 457,629,856 CCMB Shares and assuming the total treasury shares held by the Company, as at the LPD of 2,998,000 are sold prior to the implementation of the Proposed Placement, the maximum number of the Placement Shares that may be issued pursuant to the Proposed Placement is up to 45,762,985 CCMB Shares. CCMB s major shareholder and / or persons connected to the major shareholder, who fall within Schedule 6 or Schedule 7 of the CMSA, may participate in the book-building exercise. As at the LPD, CCMB s major shareholder is PNB which holds 70.25% of the total issued and paid-up share capital in the Company. As such, we are also seeking the approval of the shareholders of the Company at the forthcoming EGM for the Proposed Placement to PNB and persons connected with it, in accordance with Paragraph 6.06 of the Listing Requirements of Bursa Securities in respect of their potential participation in the Proposed Placement. The Proposed Placement is expected to be implemented in a single tranche and will be completed before the implementation of the Proposed Share Consolidation and the Proposed Distribution. Accordingly, the placees will be entitled to the Distribution Shares upon the completion of the Proposed Share Consolidation and the Proposed Distribution Basis and justification for the Issue Price The Issue Price for the Placement Shares will be fixed at the Price-Fixing Date. The Issue Price shall be determined by way of book-building exercise. Pursuant to Paragraph 6.04(a) of the Listing Requirements, should the Placement Shares be issued at a discount, such discount shall not exceed more than 10% of the VWAP of CCMB Shares for the five (5) market days immediately prior to the Price-Fixing Date. For illustrative purposes only, if the Placement Shares are issued at a discount not exceeding 10% on the five (5)-day VWAP of CCMB Shares up to and including the LPD of RM1.46, the indicative Issue Price would be RM1.31 per Placement Share ( Placement Pricing Assumption ). 2

9 2.3. Ranking for the Placement Shares The Placement Shares shall, upon allotment and issuance, rank equally in all respects with the then existing CCMB Shares, save and except that holders of the Placement Shares shall not be entitled to any dividends, rights, allotments and / or any other distributions that may be declared, made or paid to the shareholders of CCMB prior to the date of allotment and issuance of the said Placement Shares Listing and quotation for the Placement Shares Bursa Securities had, vide its letter dated 29 August 2017, approved the listing and quotation of up to 45,762,985 Placement Shares on the Main Market of Bursa Securities Utilisation of proceeds For illustration purposes, based on the Maximum Placement Shares and the Placement Pricing Assumption, the Company may raise up to approximately RM60.1 million which will be utilised in the following manner: Description of use of proceeds Estimated timeframe for use of proceeds from the date of listing the Placement Shares Amount RM million Partial repayment of bank borrowing(s) (1) Within 4 months 35.0 Partial payment for the acquisition by CCMB of the minority interests in CCMC and/or capital expenditure for the chemicals and polymers businesses (2) Within 12 months 21.5 Defray estimated expenses relating to the Proposals 3.6 Total 60.1 Notes: (1) (2) The partial repayment of RM35.0 million bank borrowings to SMBC and/or Affin from part of the proceeds of the Proposed Placement is expected to result in interest savings of approximately RM1.7 million per annum based on the average effective interest rate of 4.79% per annum.the total borrowings of the CCMB Group as at the LPD is RM616.1 million. On 25 August 2017, CCMB had announced that it is proposing to acquire 10% equity interest in CCMC from LSSB ( Proposed Acquisition 1 ) and 10% equity interest in CCMC from PNB ( Proposed Acquisition 2 ) (collectively, the Proposed CCMC Acquisitions ) for a total purchase consideration of RM40.0 million where the purchase consideration is intended to be funded by proceeds from the Proposed Placement and internally generated funds. Accordingly, CCMB has allocated RM21.5 million from the Proposed Placement to partially fund the Proposed CCMC Acquisitions. In the event of non-completion of the Proposed CCMC Acquisitions, the proceeds allocated of RM21.5 million shall be used for capital expenditure for the chemicals and polymers businesses. The chemicals business of CCMB Group is represented by CCMC and the polymers business of CCMB Group is represented by CCM Polymers Sdn Bhd. As an overview of the Company s financial position, based on the latest audited consolidated financial statements of the Company for the FYE 31 December 2016, CCMB s net assets stood at RM739.6 million and it recorded a loss for the year of RM83.8 million, which is mainly contributed by its loss from discontinued operations of its fertilizers business of RM102.9 million. 3

10 In view of the above, the Proposed Placement is expected to improve the earnings of CCMB and in turn enhance shareholders value as the partial repayment of RM35.0 million bank borrowings is expected to result in interest savings of approximately RM1.7 million per annum whilst the Proposed CCMC Acquisitions will result in CCMC being wholly-owned enabling the CCMB Group to realise, in full, the earnings of CCMC and any dividend payments by CCMC. In the event that the Proposed CCMC Acquisitions do not materialise, the amount allocated for the Proposed CCMC Acquisitions will be used as capital expenditure and other potential opportunities for various projects for the chemicals and polymers businesses, including, (a) the relocation and expansion of the calcium nitrate plant in Shah Alam for the chemicals business to fulfil the current supply gap for calcium nitrate in Malaysia, and (b) the debottlenecking of the Bangi plant for the polymers business in an effort to extend growth in line with the rubber glove industry. Further details on CCMC and the potential capital expenditure of the chemical and polymers businesses are set out in Section 5.1. below. For the avoidance of doubt, in the event the actual gross proceeds to be raised from the Proposed Placement is higher than the estimated gross proceeds as set out above, such variance shall be adjusted to the gross proceeds allocated for partial repayment of bank borrowing(s). In the event the actual gross proceeds to be raised from the Proposed Placement is lower than the estimated gross proceeds as set out above, such variance shall be adjusted from the gross proceeds allocated for partial payment for the Proposed CCMC Acquisitions or defrayment of estimated expenses relating to the Proposals. Pending utilisation of the proceeds for the purposes described above, the proceeds will be placed in interest / profit-bearing accounts with licensed financial institutions as the Board, in its absolute discretion, deems fit. The interest / profits derived from the deposits with licensed financial institutions will be used for working capital requirements. For clarification purposes, the Proposed Placement is not intended to address the Company s losses for the past years as this was addressed through CCMB Group s exit from the fertilizers business in As illustrated above, the Proposed Placement is intended to supplement the Company s plan to de-gear and to facilitate continuous growth. 3. DETAILS OF THE PROPOSED DISTRIBUTION 3.1. Background information on the Proposed Distribution The Proposed Distribution involves a capital reduction and repayment exercise of the Company by way of a special resolution and the order of the High Court pursuant to Section 116 of the Act. The Proposed Distribution shall be effected by way of a reduction in the Company s share capital by RM475.7 million (which represents the CCMM Debt as defined below) and a distribution by the Company of all the Distribution Shares to the Entitled Shareholders as at the Entitlement Date. The Company will implement the Proposed Share Consolidation prior to the distribution of all the Distribution Shares to the Entitled Shareholders as at the Entitlement Date. The CCMM Debt also represents the book value of investment in CCMD. As at the LPD, CCMM will, pursuant to the Debt Settlement Agreement, undertake the transfer of the Distribution Shares, representing 73.37% of the issued share capital of CCMD, to CCMB as settlement for the amount owing by CCMM to CCMB at the Closing Date (as defined below), where the direct shareholding of CCMB in CCMD will increase from zero to 73.37% ( Internal Reorganisation ). The salient terms of the Debt Settlement Agreement are as follows: (a) CCMM and CCMB agree that the settlement of all debts owing and payable by CCMM to CCMB (including interest) calculated as at the closing date ( CCMM Debt ), shall be satisfied by way of a transfer to CCMB of the Distribution Shares owned by CCMM pursuant to the terms therein; 4

11 (b) the settlement of the CCMM Debt shall be effected on the closing date, i.e. the date of completion, which is no later than 30 days from the unconditional date, being the date when the following conditions precedent have been fulfilled or otherwise waived (or any other date that may be mutually agreed between the parties in writing) ( Closing Date ): (i) (ii) where required under any contract, undertaking or instrument to which CCMB, CCMM or CCMD is a party, the consent, approval or waiver of any third party in respect of the settlement of the CCMM Debt or the transfer of the Distribution Shares by CCMM in favour of CCMB; and the approval of the SC exempting CCMB from the obligation to undertake the Mandatory Offer 1, which has been obtained vide SC s letter dated 29 August 2017; (c) (d) on the Closing Date, CCMM shall, among others, deliver the transfer form for the Distribution Shares executed by CCMM in favour of CCMB and do all things necessary to cause CCMB to be registered as the legal and beneficial owner of the Distribution Shares; and CCMB shall forthwith on completion, cause the transfer form duly executed by CCMM and CCMB, to be lodged with the share depository operated by Bursa Malaysia Depository Sdn Bhd. Subsequent to the Debt Settlement Agreement, CCMM has, vide its letter dated 5 September 2017 requested CCMB to waive the interest accruing or accrued on the CCMM Debt for the period commencing on 31 August 2017 until the Closing Date of the Debt Settlement Agreement and CCMB has, vide its letter dated 5 September 2017 agreed to such request. As such, the final CCMM Debt owing by CCMM to CCMB amounts to RM475.7 million and represents a transfer cost of approximately RM2.32 per CCMD Share. The Distribution Shares will be allocated to the Entitled Shareholders on a pro rata basis based on their respective shareholdings in CCMB on the Entitlement Date after the Proposed Share Consolidation and subsequently credited into the Entitled Shareholders respective CDS Accounts. Assuming the Proposed Placement is undertaken based on the Maximum Placement Shares assumption, the Proposed Distribution is expected to be undertaken on the basis of approximately CCMD Share for each CCMB Consolidated Share held by the Entitled Shareholders ( Distribution Entitlement Ratio ). Based on the Distribution Entitlement Ratio, an Entitled Shareholder holding 1,000 CCMB Consolidated Shares will be entitled to receive 1,219 CCMD Shares from the Proposed Distribution. Distribution Shares entitlements will be rounded down to the nearest share and fractional entitlements to the Distribution Shares, if any, will be disregarded and dealt with in such a manner as the Board shall in its absolute discretion deem fit and expedient, and to be in the best interest of the Company. Depending on the circumstances, the Board may consider selling any residual Distribution Shares arising from the fractional entitlements to the public or retaining such residual Distribution Shares under CCMB. (the remainder of this page is intentionally left blank} 5

12 For further illustrative purposes only, based on the Company s audited consolidated financial statements for the FYE 31 December 2016, the balance of the Company s share capital after the implementation of the Proposed Distribution will be as follows: Amount (RM 000) Audited share capital as at 31 December ,630 Inclusion of share premium account into the Company s share capital (1) 39,944 To be issued pursuant to the Proposed Placement (2) 60,133 To be reduced pursuant to the Proposed Distribution (3) (475,737) Balance of the Company s share capital after the implementation of the Proposed Share Consolidation and the Proposed Distribution 81,970 Notes: (1) Reclassified pursuant to Section 618 of the Act. (2) Assuming the Proposed Placement is undertaken based on the Maximum Placement Shares and the Placement Pricing Assumption. (3) This amount represents the book value of investment in CCMD taking into consideration the final CCMM Debt amount assuming the Internal Reorganisation is completed as at the LPD. Upon completion of the Proposed Distribution, CCMD shall cease to be a subsidiary of CCMB Ranking of Distribution Shares The Distribution Shares will be distributed free from all encumbrances and remains ranked equally in all respects with other CCMD Shares in issue with all rights and entitlements attached including dividends, rights, allotments and / or other distributions that may be declared, made or paid to the shareholders of the Company, on or after the date on which the Distribution Shares are credited into the Central Depository System accounts of the Entitled Shareholders Original cost of investment Over the years, since 2005, the average cost of investment by CCMB, via CCMM, in CCMD Shares is RM2.31 per share based on the cumulative costs incurred by CCMM on the acquisition of CCMD shares divided by the number of cumulative shares acquired Liabilities to be assumed There are no liabilities, including contingent liabilities and guarantees, to be assumed by the Entitled Shareholders pursuant to the Proposed Distribution. 6

13 3.5. Utilisation of proceeds There will be no proceeds to be raised by CCMB from the Proposed Distribution Obligations of CCMB and PNB pursuant to the Take-over Code and the Rules CCMB As the direct shareholding of CCMB in CCMD will increase from zero to 73.37% following the Internal Reorganisation, pursuant to Section 218(2) of the CMSA and Paragraph 4.01 of the Rules, CCMB will be obligated to undertake the Mandatory Offer 1. As the purpose of undertaking the Internal Reorganisation is to facilitate the Proposed Distribution, CCMB has obtained an exemption from the SC from the obligation to undertake the Mandatory Offer 1, in its letter dated 29 August PNB As at the LPD, the collective shareholding of the Concert Group in CCMD is approximately 76.63% and the details are as follows: Concert Group Percentage of direct shareholding in CCMD CCMB via CCMM 73.37% ART-ASB 3.26% PNB 0.00% Total 76.63% The shareholding of PNB in CCMB as at the LPD is 70.25%. Upon completion of the Proposed Placement (assuming the Proposed Placement is undertaken based on the Maximum Placement Shares assumption), the Proposed Share Consolidation and the Proposed Distribution: the collective shareholding of the Concert Group in CCMD will reduce to approximately 50.12% if PNB does not participate in the Proposed Placement ( Scenario 1 ); or the collective shareholding of the Concert Group in CCMD will reduce to approximately 56.79% if PNB is allocated all of the Placement Shares ( Scenario 2 ). In the event of Scenario 1 above, PNB s direct shareholding in CCMD will increase from zero to 46.86%, as PNB shall be entitled to such number of CCMD Shares amounting to 46.86% shareholding in CCMD pursuant to the Proposed Distribution based on its diluted shareholding in CCMB of 63.87% arising from the Proposed Placement. As a result, the collective shareholding of the Concert Group in CCMD will reduce to 50.12% i.e % to be held by PNB and 3.26% to be held by ART- ASB. 7

14 In the event of Scenario 2 above, PNB s direct shareholding in CCMD will increase from zero to 53.53%, as PNB shall be entitled to such number of CCMD Shares amounting to 53.53% shareholding in CCMD pursuant to the Proposed Distribution based on its increased shareholding in CCMB of 72.96%, if PNB is allocated all of the Placement Shares from the Proposed Placement. As a result, the collective shareholding of the Concert Group in CCMD will reduce to 56.79% i.e % to be held by PNB and 3.26% to be held by ART-ASB. Accordingly, pursuant to Section 218(2) of the CMSA and Paragraph 4.01 of the Rules, PNB will be obligated to undertake the Mandatory Offer 2. It is expected that PNB will, at all times, observe and ensure compliance with the applicable provisions of the Take-over Code and the Rules and seek the necessary exemption from the SC from the obligation to undertake the Mandatory Offer 2 on the basis that PNB s obligation for the Mandatory Offer 2 arises from PNB s respective entitlement to the Distribution Shares as a shareholder of CCMB and the Proposed Distribution is a mere elimination of an intermediate holding company i.e. CCMB. PNB is currently the ultimate controlling shareholder of CCMD through its controlling interests in CCMB and will remain the ultimate controlling shareholder of CCMD upon completion of the Proposed Distribution. The Proposed Distribution is not conditional on the exemption from the SC from PNB s obligation to undertake the Mandatory Offer 2. Accordingly, the Proposed Distribution may be carried out by CCMB regardless of the outcome of PNB s exemption application to the SC from the obligation to undertake the Mandatory Offer Background information on CCMD CCMD was incorporated in Malaysia under the Companies Act, 1965 as a public company limited by shares on 23 August 2000 under the name of Duopharma Biotech Berhad ( DBB ). It was listed on the Second Board of Bursa Securities on 18 July 2002 and was transferred to the Main Market (formerly known as Main Board) of Bursa Securities on 3 November It became a subsidiary of CCMB following the completion of the conditional general offer made by Tekan Maju Sdn Bhd (now known as CCMM) in October CCMM is a wholly-owned subsidiary of CCMB with 73.37% equity interest in CCMD. CCMD assumed its present name on 8 June CCMD is principally involved in investment holding whilst its subsidiaries are primarily involved in carrying on business as a manufacturer, distributor, importer and exporter of pharmaceutical products and medicines. As at the LPD, the share capital and total number of issued shares of CCMD comprise of RM139,479,500 and 278,959,000 CCMD Shares respectively. Further information on CCMD is set out in Appendix I of this Circular. 4. DETAILS OF THE PROPOSED SHARE CONSOLIDATION 4.1. Background information on the Proposed Share Consolidation The Proposed Share Consolidation entails the consolidation of every 3 existing CCMB Shares into 1 CCMB Consolidated Share held by the shareholders of CCMB, whose names appear in the Record of Depositors of the Company at the close of business on the Entitlement Date. The Company will implement the Proposed Share Consolidation prior to the distribution of all the Distribution Shares to the Entitled Shareholders as at the Entitlement Date pursuant to the Proposed Distribution. 8

15 The Proposed Share Consolidation is intended to be carried out once the Proposed Distribution becomes unconditional i.e. upon the approval of the shareholders and the order of the High Court for the capital reduction being obtained, to preserve CCMB s NA per share to a figure as close as possible to its NA per share prior to the capital reduction pursuant to the Proposed Distribution taking place. Upon completion of the Proposed Share Consolidation and the Proposed Distribution, assuming the Maximum Placement Shares are issued pursuant to the Proposed Placement, the resultant issued share capital of CCMB will be RM82.0 million comprising 167,797,613 CCMB Consolidated Shares. Fractional entitlements of the CCMB Consolidated Shares, if any, will be disregarded and dealt with in such a manner as the Board shall in its absolute discretion deem fit and expedient, and to be in the best interest of the Company. For illustrative purposes only, the theoretical adjusted market price of the CCMB Consolidated Share pursuant to the implementation of the Proposed Placement, the Proposed Share Consolidation and the Proposed Distribution is set out below: No. of ordinary shares (units) Closing market price/ Theoretical price per share (RM) Total Value (RM) As at the LPD 457,629, ,410,694 After the Proposed Placement 503,392, ,851,763 After the Proposed Share 167,797, ,851,763 Consolidation (1) After the Proposed Distribution (1) 167,797, ,386,380 Note: (1) The Proposed Share Consolidation and the Proposed Distribution will be implemented concurrently where the Entitlement Date for both the proposals above will be the same. As such, the closing market price/theoretical price per share after the Proposed Distribution of RM1.81 will be on the same day as the implementation of the Proposed Share Consolidation. The theoretical adjusted market prices for the Proposed Share Consolidation and Proposed Distribution are arrived at based on the following: After the Proposed Share Consolidation, (A) = Closing market price as at the LPD x Consolidation ratio (3 existing CCMB Shares into 1 CCMB Consolidated Share) After the Proposed Distribution = (A) (Value of CCMD Share as at LPD x Distribution Entitlement Ratio) Ranking of the CCMB Consolidated Share The CCMB Consolidated Shares will, upon allotment and issuance, rank equally in all respects with each other. 9

16 Listing and quotation for the CCMB Consolidated Shares Bursa Securities has, vide its letter dated 29 August 2017, approved the listing and quotation for the CCMB Consolidated Shares on the Main Market of Bursa Securities. No suspension will be imposed on the trading of CCMB Shares on the Main Market of Bursa Securities for the purposes of implementing the Proposed Share Consolidation as the Proposed Share Consolidation is prescribed as a Specified Consolidation pursuant to Paragraph 13.04(3) of the Listing Requirements. Paragraph 13.04(3)(b)(ii) of the Listing Requirements prescribes that a Specified Consolidation is a consolidation of shares which is conditional upon another corporate proposal but that other corporate proposal has been completed or become unconditional. In this case, the Proposed Share Consolidation is conditional upon the Proposed Distribution becoming unconditional. Hence, the Proposed Share Consolidation is prescribed as a Specified Consolidation. The CCMB Consolidated Shares shall be listed and quoted on the Main Market of Bursa Securities on the next market day following the Entitlement Date. 5. RATIONALE AND JUSTIFICATIONS FOR THE PROPOSALS 5.1. Proposed Placement As part of the Group s continuous de-gearing strategy and to spur the growth of the businesses, the Board is of the view that in order to raise funds expeditiously and in a costeffective manner, the Proposed Placement is the most appropriate avenue for raising funds to further pare down the Company s bank borrowings and to partially fund the Proposed CCMC Acquisitions. The Proposed Placement is expected to improve the earnings of CCMB and in turn enhance shareholders value as the partial repayment of RM35.0 million bank borrowings is expected to result in interest savings of approximately RM1.7 million per annum whilst the Proposed CCMC Acquisitions will result in CCMC becoming wholly-owned, enabling the CCMB Group to realise, in full, the earnings of CCMC and any dividend payments by CCMC. CCMC was incorporated in Malaysia under the Companies Act, 1965 as a private limited company on 12 February CCMC is principally involved in manufacturing and marketing of chlor-alkali and coagulant products as well as the marketing of industrial and speciality chemicals. Based on its latest audited financial statements for the FYE 31 December 2016, CCMC s NA stood at RM145.3 million and it recorded a profit of RM12.9 million. As at the LPD, the Company owns 80% equity interest in CCMC with CCMC representing the Group s chemicals business. In the event that the Proposed CCMC Acquisitions do not materialise, the proceeds of RM21.5 million will be utilised for various capital expenditure projects identified for the chemicals and polymers businesses including, (a) the relocation and expansion of the calcium nitrate plant in Shah Alam for the chemicals business to fulfil the current supply gap for calcium nitrate in Malaysia, and (b) the debottlenecking of the Bangi plant for the polymers business in an effort to extend growth in line with the rubber glove industry. The estimated capital expenditure for these projects would amount to approximately RM40.0 million, where any shortfall in the amount of funds required to carry out these projects, (including, in the event the proceeds of RM21.5 million is used for the Proposed CCMC Acquisitions), will be supplemented by internally generated funds and/or debt financing. As such, these projects would proceed regardless. 10

17 All of the chemicals and polymers facilities are currently operating at approximately 90% of its respective annual production capacity as follows: No. Plant Business Annual Capacity 1. Chlor-alkali Plant in Pasir Gudang Chemicals 40,000 Electro Chemical Units 2. Coagulant Plant in Pasir Gudang Chemicals 25,200 MT 3. Calcium Nitrate Plant in Shah Alam Chemicals 12,000 MT 4. Polymer Plant in Bangi Polymer 18,000 MT 5.2. Proposed Share Consolidation and Proposed Distribution In 2015, as part of the Company s strategy to review the Group s portfolio and to strengthen the Company s balance sheet, the Company had monetized and consolidated all its pharmaceutical assets i.e. CCM Pharmaceuticals Sdn Bhd, CCM Pharma Sdn Bhd, Upha Pharmaceutical Manufacturing (M) Sdn Bhd, Innovax Sdn Bhd, CCM International (Philippines) Inc and CCM Pharmaceuticals (S) Pte Ltd (collectively, the Consolidated Companies ) under a single entity i.e. CCMD ( Rationalisation Exercise ), save and except for the consolidation of its strategic interest in: (a) (b) PanGen Biotech Inc ( PanGen ), a company incorporated in Korea, which is principally engaged in the development of recombinant Chinese Hamster Ovary cell lines and Good Manufacturing Practice manufacturing as well as sales of biosimilar therapeutic proteins; and Synergy America Inc ( SynAm ), a company incorporated in Maryland, United States of America, which is a private research and development company set up by a group of scientists with the objective of research and development on a new and innovative vaccine which will be effective against pneumococcal diseases. The Rationalisation Exercise was undertaken as CCMD was operating at almost full capacity and had to expand its production facilities to cater for the increasing demand for its products from its customers. With the Rationalisation Exercise, it was anticipated that CCMD would have been able to immediately tap into and increase the utilisation rate of the under-utilised production facilities within the Consolidated Companies whilst simultaneously addressing the immediate need to increase its production capacity. PanGen and SynAm were not part of the Rationalisation Exercise as at the time of the exercise PanGen value had not reached its targeted potential valuation for CCMB to realise its investment and investment in SynAm has been impaired in PanGen has since been listed in KOSDAQ in March Subsequent to the exercise, the Company views the Proposed Distribution as a natural step in furthering the growth of each business, by ensuring that each business receives the focus and investment needed to support its growth. The Proposed Distribution is undertaken, instead of an outright disposal of CCMD to a third party, in order to preserve the rights of the Entitled Shareholders on the existing benefits arising from CCMD s contribution to the CCMB Group following the completion of the Proposed Distribution exercise. As a result, the Entitled Shareholders and other investors are able to separately assess and evaluate the individual financial performance, merits and prospects of both CCMB and CCMD. 11

18 Through the Proposed Distribution, the Entitled Shareholders will also be able to participate directly in the equity of CCMD at no cost. With direct ownership in chemicals and polymers businesses as well as a pharmaceutical company following the completion of the Proposed Distribution, the Entitled Shareholders can manage their investment exposure or rebalance their portfolio in each of these businesses independent of each other, according to their individual investment objectives. An overview of the segmental breakdown to showcase CCMB Group s pharmaceuticals, chemicals and polymers businesses ( Continuing Operations ) contribution towards the CCMB Group s revenue and profit after tax are set out below. FY = FYE (the remainder of this page is intentionally left blank} 12

19 Audited FYE 31 December Unaudited results for 6- month FPE 30 June REVENUE Continuing operations 2014 (RM 000) 2015 (RM 000) 2016 (RM 000) 2017 (RM 000) Pharmaceuticals 320, , , ,355 Chemicals 278, , , ,659 Polymers n/a (1) 80,809 81,206 40,238 Others and inter-segment transactions 1, ,462 Group result 600, , , ,714 Discontinued operations Fertilizers 488, , ,924-1,089, , , ,714 FY = FYE 13

20 Audited FYE 31 December Unaudited results for 6- month FPE 30 June PROFIT/LOSS AFTER TAX 2014 (RM 000) 2015 (RM 000) 2016 (RM 000) 2017 (RM 000) Continuing operations Pharmaceuticals 27,506 36,391 26,826 19,205 Chemicals 14,325 (636) 13,087 11,881 Polymers n/a (1) 19,188 13,605 7,430 Others and inter-segment transactions (13,908) (26,336) (34,483) (16,845) Group result 27,923 28,607 19,035 21,671 Discontinued operations Fertilizers (63,346) (101,863) (102,873) - (35,423) (73,256) (83,838) 21,671 NET PROFIT MARGIN month FPE 30 June 2017 Pharmaceuticals 8.6% 10.9% 8.6% 8.0% Chemicals (1.3%) (0.3%) 6.1% 9.2% Polymers 26.1% 23.7% 16.8% 18.5% RETURN ON ASSETS month FPE 30 June 2017 Pharmaceuticals 3.8% 5.7% 4.1% 2.7% Chemicals (1.0%) (0.2%) 4.7% 4.1% Polymers 9.9% 11.7% 8.1% 4.3% (Source: Based on CCMB s audited consolidated financial statements, save for the unaudited results for the 6-month FPE 30 June 2017) 14

21 Notes: (1) The revenue and profit figures for the chemicals business for FYE 31 December 2014 includes the revenue and profit figures for the polymers business. The polymers business was not reported as a separate business segment in the audited financial statements prior to FYE 31 December For clarity, the revenue and profit figures for the polymers business for FYE 31 December 2014 were RM65.4 million and RM17.1 million respectively, whereas the chemicals business recorded a revenue of RM213.5 million and a loss of RM2.7 million for FYE 31 December (2) Based on unaudited segmental results of CCMB for the 6-month FPE 30 June The performance of the chemicals and polymers businesses on their own remains relatively profitable for the past 3 years, save for the FYE 31 December 2014 and the FYE 31 December 2015 where the chemicals business suffered a loss of RM2.7 million and RM0.6 million, respectively. Further, the loss in the FYE 31 December 2014 for chemicals business is due to adverse foreign exchange market impact in its regional operations especially in Indonesia, whilst the loss in the FYE 31 December 2015 came as a result of the rationalisation and closure of its regional operations and unplanned shutdown in Although the pharmaceutical business contributes substantially to CCMB s revenue i.e. 51% of the total revenue from continuing operations for the FYE 31 December 2016 and profit after tax of RM26.8 million in comparison to a total RM19.0 million net profit after tax from continuing operations for CCMB for the FYE 31 December 2016, the aggregate revenue contribution by the polymers and chemicals businesses are almost equivalent to the contribution by the pharmaceutical business for the past 3 years i.e. 87%, 88% and 95% of the pharmaceutical business s revenue contribution for the FYE 31 December 2014, FYE 31 December 2015 and FYE 31 December 2016, respectively. In fact, the aggregate profit contribution by the polymers and chemicals businesses for the FYE 31 December 2016 amounts to RM26.7 million which is almost on par with the profit contribution by the pharmaceutical business of RM26.8 million. Therefore, the Company intends to undertake the demerging exercise via the Proposed Distribution as part of its portfolio review to enable focus and also grow its other business arms, namely the chemicals and polymers businesses. The demerging exercise is expected to allow the Company to have greater focus in growing and unleashing the value of its chemicals and polymers business. As detailed in Section 5.1 of this Circular, the Board has resolved to undertake the, (a) relocation and expansion of the calcium nitrate plant in respect of the chemicals business in an effort to fulfill the current supply, and (b) debottlenecking of the Bangi plant for the polymers business in an effort to extend its growth in line with the rubber glove industry as well as to create a base for future plant expansion. This shall ensure the further growth and sustainability of both the chemicals and polymers businesses post the demerging exercise via the Proposed Distribution. It is viewed that the business rationalisation and performance enhancement efforts taken by CCMB since 2015 i.e. Rationalisation Exercise have led to the creation of a profitable group that now has an almost equal contribution to profits by the pharmaceuticals and polymers and chemicals divisions combined. The proposed demerger and de-gearing proposals are expected to create entities which will be more focused and nimble in their respective industries. The Proposed Share Consolidation is undertaken to improve the Company s capital structure and is expected to increase the Company s consolidated NA per CCMB Consolidated Share without affecting shareholders percentage of shareholding in the Company. 15

22 Prospects and Industry Outlook for CCMD CCMD operates in the pharmaceutical industry which is dependent on the performance of the healthcare sector. In 2016, the local pharmaceutical industry recorded exports of RM million, preserving its momentum as the highest value Entry Point Project in the Healthcare National Key Economic Area ( NKEA ). In 2017, the Ministry of Health announced its plans to launch the Malaysian Health Transformation Initiatives which converges the public and private health systems with an aim to have a sustainable and resilient health system that provides equitable, affordable, and accessible high quality health service. (Source: National Transformation Programme Annual Report 2016, PEMANDU) The pharmaceutical industry is one of the new growth areas targeted for promotion and development by the Government. The products manufactured by the Malaysian pharmaceutical industry are broadly categorised into four categories, i.e prescription medicines, over-the-counter ( OTC ) products, traditional medicines and health/food supplements. (Source: Malaysian Investment Development Authority) It is also one of the twelve industries in the manufacturing sector which have been targeted for greater development and promotion under the Third Industrial Master Plan (Source: Ministry of International Trade and Industry) In light of the above industry outlook, CCMD and the Consolidated Companies operations in the pharmaceutical industry is expected to grow due to, amongst others, the government s focus to contain healthcare costs in Malaysia by having government owned hospitals increasingly using locally manufactured generic drugs. CCMD and the Consolidated Companies are the manufacturers of generic drugs with a combined dossier of approximately 600 registered with the Drug Control Authority of the MOH. With the Rationalisation Exercise, CCMD is able to offer more generic drugs to its current customers and be able to tap into the network established by the Consolidated Companies to distribute CCMD s products, which may lead to an increase in revenue generated by the CCMD Group. The Consolidated Companies are also producing OTC products under established brands such as Champs, Flavettes, Proviton, Naturalle, Uphamol, Eye Glo and Alucid and these products are sold locally and to various countries such as the ASEAN, Middle East and African countries. The facilities of the Consolidated Companies are able to cater to high speed and large-scale manufacturing of a wide variety of pharmaceutical products such as oral tablets, capsules, softgel capsules, granules, liquids & topical creams. In addition, the Consolidated Companies are involved in research and development of pharmaceutical products, providing scientific and technical knowledge and skills in the development of high quality, safe and efficacious pharmaceutical products. Following the Rationalisation Exercise, CCMD has been able to utilise the manufacturing capabilities of the Consolidated Companies, especially the manufacturing plant in Bangi, Selangor to meet market demand and explore new business opportunities. The immediate capacities of the Consolidated Companies had provided assistance and added flexibility to CCMD in managing and phasing the modernisation of its existing ageing facilities. (Source: Management of CCMD) 16