(The exchange rate of USD1.00:RM4.20 is used throughout this announcement for illustration purpose)

Transcription

1 SUMATEC RESOURCES BERHAD ( SUMATEC OR THE COMPANY ) (I) HEADS OF AGREEMENT IN RELATION TO THE PROPOSED ACQUISITION OF 100% EQUITY INTEREST, COMPRISING 26,400,000 ORDINARY SHARES OF USD1.00 EACH IN MARKMORE ENERGY (LABUAN) LIMITED FROM MARKMORE SDN BHD (II) CORPORATE EXERCISES TO BE UNDERTAKEN FOR THE FOLLOWING:- (A) (B) (C) BALANCE SHEET RECONSTRUCTION; EQUITY FUND RAISING; AND DEBT SETTLEMENT (COLLECTIVELY, THE PROPOSALS ) (The exchange rate of USD1.00:RM4.20 is used throughout this announcement for illustration purpose) 1. INTRODUCTION On behalf of the Board of Sumatec ( Board ), M&A Securities Sdn Bhd wishes to announce that the Company ( Purchaser ), had on 26 October 2017 entered into a heads of agreement ( Heads of Agreement ) with Markmore Sdn Bhd ( Markmore or the Vendor ) for the purpose of recording their understanding and intention in respect of the proposed acquisition of 100% equity interest in Markmore Energy (Labuan) Limited ( MELL ) ( Sale ) from Markmore ( Proposed Acquisition ) for the indicative purchase consideration of USD370,000,000 (equivalent to RM1,554,000,000) and to take all such steps and do all acts and things so as to effect and implement the said Proposed Acquisition upon the terms and conditions contained in the Heads of Agreement. MELL through its wholly-owned subsidiary, Markmore Central Asia B.V. ( MCA ) holds the entire participatory interest in CaspiOilGas LLP ( COG ). COG in turn is the concession owner and operator of the Rakushechnoye Oil and Gas Field located in the Republic of Kazakhstan. Kindly refer to Section 2.7 below for further details of the Rakushechnoye Oil and Gas Field. Sumatec had on 8 March 2012 entered into a joint investment agreement ( JIA ) with MELL and COG for inter-alia, the appointment of Sumatec to carry out all operations relating to the production of oil from the Rakushechnoye Oil and Gas Field. Pursuant to the terms of the JIA, Sumatec shall be entitled to 100.0% of the Profits (as defined hereunder) for the first 2,000,000 barrels of oil produced and thereafter 50.0% of the Profits (1). Note:- (1) Profits is defined as the net profits from the sale of oil produced less operations cost incurred by Sumatec and COG (which includes Kazakhstan taxes and capital expenditures). In conjunction with the Proposed Acquisition and to comprehensively address all financial issues currently faced, the Board also proposes to undertake the following corporate exercises:- (c) A balance sheet reconstruction exercise to eliminate the accumulated losses and to consolidate the number of shares; Equity fund raising exercise to fund the cash portion of the consideration for the Proposed Acquisition and for the development of the Rakushechnoye Oil and Gas Field; and Comprehensive settlement of the Sumatec group s debt and financial obligations. Further details of the above corporate exercises are set out in the ensuing sections below. 1

2 2. PROPOSED ACQUISITION 2.1 Transaction Parameters The indicative purchase consideration of USD370,000,000 for the Proposed Acquisition ( Purchase Consideration ) shall be satisfied in the following manner:- by way of payment in cash of USD290,000,000 (equivalent to RM1,218,000,000); and issuance of up to 1,680,000,000 new ordinary shares in Sumatec ( Sumatec or ) amounting to USD80,000,000 (equivalent to RM336,000,000), at an issue price of RM0.20 per Consideration Share or based on the 5-day volume weighted average price of the Sumatec preceding the price fixing date, whichever is higher. For avoidance of doubt, the issue price shall be adjusted for the effects of the Proposed Share Consolidation (as defined hereunder). The settlement of the Purchase Consideration shall be made in RM computed at the USD/RM exchange rate of USD1.00 only equivalent to RM4.20 only. Sumatec shall continue its obligations under the JIA, pay oil royalty to the Vendor (or their nominated parties as notified in writing to the Purchaser) at the rate of USD5.00 per barrel of oil production upon the completion of the sale and purchase of the Sale. The royalty payment for the first 8,000,000 barrels of the oil production shall go into the repayment of the performance deposit of USD40,000, that was paid by Sumatec to MELL as per the terms of the JIA. In the event of any new discoveries beyond those that have been currently certified, Sumatec agrees to pay the Vendor a fee upon certification and production at the rate to be mutually agreed. 2.2 Definitive agreement The Heads of Agreement shall be taken and read as a platform towards execution of a formal share sale agreement ( SSA ) containing the detailed terms and conditions. In the event the SSA is not entered into between the Sumatec and Markmore within six (6) months from the date of the signing of Heads of Agreement or such extended time as shall be mutually agreed upon between Sumatec and Markmore, the agreement in principle set out in the Heads of Agreement shall lapse. The SSA is expected to contain the following conditions precedent the satisfactory completion by the Purchaser of a due diligence exercise including but not limited to legal, financial, technical and business due diligence conducted on the MELL and its subsidiaries ( MELL Group ); the Vendor shall obtain and deliver documentary evidence, in forms satisfactory to the Purchaser and/or Sumatec s Kazakhstan legal counsel in their sole and absolute discretion:- (i) (ii) (iii) the approval of the Board of Directors of the Vendor to sell the Sale to the Purchaser upon terms and conditions to be set out in the SSA; the approval of the shareholders of the Vendor at a General Meeting convened for the sale of the Sale to the Purchaser upon the terms and conditions contained in the SSA; the consent of all Governmental Authority in the Republic of Kazakhstan (and not withdrawn or revoked by Governmental Authority) for the transactions to be contemplated under the SSA including but not limited to the consent required for 2

3 (iv) (v) (vi) (vii) the transfer of all subsurface/subsoil use rights of the Rakuschechnoye Oil and Gas Field; the legality, validity and enforceability in the Republic of Kazakhstan of the pledge of revenue proceeds/project accounts and the pledge of subsurface/subsoil use rights of Rakushechnoye Oil and Gas Field; written confirmation from the relevant Governmental Authority that the Company, MCA and COG are not wound up or bankrupt as the case may be; the consent of the relevant Governmental Authority of the Republic of Kazakhstan (and not withdrawn or revoked by the relevant Governmental Authority) received for the effectiveness of the pledge of the subsurface/subsoil use right of Rakushechnoye Oil and Gas Field, and the pledge of subsurface/subsoil use rights of Rakushechnoye Oil and Gas Field being registered with the relevant Governmental Authority of the Republic of Kazakhstan in accordance with the effective legislation of the republic of Kazakhstan; and provide documentary evidence to the satisfaction of the Purchaser that all indebtedness and liabilities of all the companies within the MELL group (by way of borrowings, trade payables, taxation or otherwise) owing by the companies within the MELL group to any person or Governmental Authority have been fully settled or waived with no further claims, and that any security created in respect of such indebtedness have been fully discharged save and except of the Post JIA Liabilities. The Post JIA Liabilities shall means debts and borrowings including monies due to contractors and suppliers incurred by COG in the ordinary course of business subsequent to the Purchaser s effective appointment as the operator under JIA on 25 November (c) The Purchaser shall:- (i) obtain the approval of the Board of Directors of the Purchaser to purchase the Sale upon terms and conditions to be set out in the SSA; (ii) obtain the approval of the shareholders of the Purchaser at a general meeting to be convened for the Proposals (iii) obtain approval of Bursa Malaysia Securities Berhad ( Bursa Securities ) for the listing of and quotation for the applicable securities to be issued under the Proposals; (iv) obtain approval of Bank Negara Malaysia for the transaction to be contemplated under the SSA, if so required; (v) obtain the Order of the High Court of Malaya for the Proposed Capital Reduction (as defined hereunder); (vi) obtain an independent fair market valuation for the Purchase Consideration, the valuation of which is satisfactory to the Purchaser at its sole and absolute discretion; (vii) obtain the consent of the anti-monopoly agency of the Republic of Kazakhstan for economic concentration as a result of the indirect acquisition of the participating interest in COG; and (viii) obtain written confirmation from the Purchaser s advisers, M&A Securities Sdn Bhd, of the successful completion of the Proposed Rights Issue (as defined hereunder). 2.3 Background details of Markmore Markmore is principally an investment holding company. Markmore was incorporated in Malaysia on 5 September 2003 under the Companies Act, Presently, its issued and paid-up share share capital is RM3,000,000. The existing directors of Markmore are Tan Sri Halim bin Saad ( TSHS ) and Abu Talib bin Abdul Rahman ( Abu Talib ). The shareholders of Markmore are as follows:- 3

4 Names Number of shares held in Markmore % TSHS 2,999, Abu Talib 1 * Total 3,000, Note:- * Less than 0.1% 2.4 Background details of MELL MELL is principally an investment holding and petroleum exploration and production company. MELL was incorporated in the Federal Territory of Labuan on 4 March 2005 under the Offshore Companies Act, Presently, its issued share capital is USD23,000,000 comprising of ,000 ordinary shares. The existing directors of MELL are TSHS and Abu Talib. 2.5 Background details of MCA MCA is principally involved in investment holding and petroleum exploration and production. MCA was incorporated in the Netherlands on 1 December 1981 under the Chambers of Commerce for Besloten Vennootschap (Private Limited Liability Company). The existing director of MCA is Abu Talib. MCA in turn wholly-owns COG, which is a limited liability partnership incorporated and operating in Kazakhstan. 2.6 Background details of COG COG was established in 1998 and is principally involved in the exploration and production of hydrocarbons in Mangistau region of Kazakhstan. The entire ownership of COG was formally transferred to MCA in December The existing General Director of COG is Ruslan Keshubayev. COG is the holder of the subsurface use rights of the Rakushechnoye Oil and Gas Field under the subsoil use contract No. 526 dated 26 August 2000, for a period of twenty-five (25) years commencing on 26 August 2000 and expiring on 25 August 2025 awarded by the Ministry of Energy and Mineral Resources (now known as Ministry of Oil and Gas of Kazakhstan) ( Subsurface Use Rights ). The Rakushechnoye Oil and Gas Field is located within blocks XXXVIII 11 - F (partially), 12 - D (partially), XXXIX 11 C (partially), 12 A (partially) in the Karakiyan District of the Mangistau Oblast, Republic of Kazakhstan. The said field covers an area of approximately square kilometresand is located onshore next to Caspian Sea. The Subsurface Use Rights are renewable upon their expiry, subject to the terms and conditions to be negotiated with the relevant authorities in the Republic of Kazakhstan. 2.7 Background details of the Rakushechnoye Oil and Gas Field The Rakushechnoye Oil and Gas Field is located in Karakiyansky region of the Mangistau Oblast. The nearest township is Kuryk and is located 40 kilometres to the North, the capital city of Aktau of the Mangistau Oblast is 105 kilometres to the North. 4

5 The location of the Rakushechnoye Oil and Gas Field, Kazakhstan is illustrated in the map below:- Rakushechnoye Oil and Gas Field SRK Consulting (Australia) Pty Ltd ( SRK ) had in its report dated May 2014 certified that the proven and probable ( 2P ) oil reserves and gas reserves of the Rakushechnoye Oil and Gas Field are 43.0 million barrels of oil ( mmbo ) and 96.4 million barrels of oil equivalent ( mmboe ), respectively ( SRK Reserves Estimation ). Further details are as follows:- Reserves Crude oil reserves (mmbo) Gas (mmboe) Total oil and gas reserves (mmboe) Proven (1P) Proven + Probable (2P) Proven + Probable + Possible (3P) However, an updated study will be undertaken by SRK on the oil and gas reserves at the Rakushechnoye Oil and Gas Field to reconfirm the findings of the said report. The Rakushechnoye Oil and Gas Field produces light crude oil with density of around 0.8 g/cm 3 or American Petroleum Institute ( API ) gravity ranging between 45.4 to API gravity refers to the measure of the weight of petroleum liquid as compared to water. If the API gravity is greater than 10, it is lighter than water and floats on water; if the API gravity is less than 10, it is heavier than water and sinks. It is used to compare the relative densities of petroleum liquids. For example, if one petroleum liquid floats on another, it is therefore less dense and has a greater API gravity. 2.8 Basis of the Purchase Consideration The Purchase Consideration was determined based on the certified 2P oil and gas reserves of mmboe from the Rakushechnoye Oil and Gas Field (not effectively owned by Sumatec under the Profit sharing arrangement pursuant to the terms of the JIA) at average price of USD3.17 per barrel. For purposes of the Heads of Agreement, the 2P reserves of mmbo from the Rakushechnoye Oil and Gas Field after taking into consideration the Purchaser s entitlement of 22.5 mmbo from the Rakushechnoye Oil and Gas Field pursuant to the terms and conditions of the JIA. 5

6 A comparison of the average price per barrel under the Proposed Acquisition against the transaction value / 2P reserves multiple paid in the recent precedent acquisition of companies and assets in Kazakhstan, which comparable to the Rakushechnoye Oil and Gas Field, are as follows:- Date of transaction Companies/ Assets Acquirer/ Vendor Value of transaction (USD million) 2P reserves (mmboe) Percentage of equity interest acquired Price per barrel of oil equivalent USD July 2013 Kashagan Consortium Kazmunaigas JSC/ Conocophilips 5,400 18, % 3.55 April 2013 Kara-ana, Eastern Kokarna and Matin Geo-Jade/ JSC Maten Petroleum % 7.58 April 2014 Caspian Investment China Petroleum and Chemical Corporation/ Lukoil PJSC 1, % May 2014 Kozhan Oil field Geo-Jade/ International Mineral Resources II B.V % 3.07 January 2015 Buzachi Neft Oilfields Sumatec/Abu Talib and Dr Murat Safin % 3.86 October 2015 Kashagan Consortium National Welfare Fund Samruk- Kazyna/Kazmunaigas JSC 4,700 18, % 3.09 March 2016 Emir-Oil Concession Block Reach Energy Berhad/ MIE Holdings Ltd % 2.89 High Low 2.89 Average 5.90 Median October 2017 Rakushechnoye Oil and Gas Field Sumatec/ Markmore % 3.17 Note:- After adjusting for the Purchaser s entitlement of 22.5 mmbo from the Rakushechnoye Oil and Gas Field pursuant to the terms and conditions of the JIA. 6

7 3. OTHER CORPORATE EXERCISES In conjunction with the Proposed Acquisition and to comprehensively address all financial issues currently faced, the Board also proposes to undertake the corporate exercises as set out below. However, as the Proposed Acquisition forms the core component of the Proposals, the detailed terms of these corporate exercises can only be finalised upon the signing of the SSA which sets out the detailed terms and conditions of the Proposed Acquisition. As such, the broad parameters of the corporate exercises that the Board intends to implement based on the terms of the Heads of Agreement are as follows:- 3.1 Balance Sheet Reconstruction Exercise Based on the audited financial statements for the financial year ended ( FYE ) 31 December 2016, the Sumatec group has accumulated losses of RM226.1 million against a share capital of RM541.3 million. Sumatec proposes to set-off its accumulated losses through the reduction of the share capital ( Proposed Capital Reduction ). The Proposed Capital Reduction will not result in any adjustment to the share price of the Company or the number of Sumatec held by Sumatec s shareholders. The reduction of the share capital will result in an equal and proportionate reduction of the share capital attributable to each share, without affecting the cancellation of any shares. Upon completion of the Proposed Capital Reduction, Sumatec proposes to consolidate every four (4) existing into one (1) Share ( Proposed Share Consolidation ). Based on the number of in issue as at 25 October 2017 ( LPD ), being the latest practicable date for purposes of this announcement, of 4,058,504,400, the Proposed Share Consolidation will consolidate the number of issued to 1,014,626,100. The Proposed Share Consolidation will result in an adjustment to the share price. Based on the closing price as at the LPD of RM0.05 per Share, the Proposed Share Consolidation will result in the price being adjusted to RM Equity fund raising exercise The Board proposes to undertake an equity fund raising exercise in the form of a rights issue to raise a minimum proceeds of RM1,521.9 million. Entitled shareholders will be indicatively offered to subscribe for fifteen (15) new ( Rights ) for every two (2) existing held after the Proposed Share Consolidation. As a sweetener, the Board also proposes to offer six (6) free warrants ( Warrants-C ) and two (2) free ( Bonus ) for every fifteen (15) Rights subscribed. As such, based on the current capital structure of Sumatec as at the LPD (after adjusting for the Proposed Share Consolidation), the rights issue shall comprise issuance of 7,609,695,750 together with 3,043,878,300 Warrants-C and 1,014,626,100 Bonus on the basis of fifteen (15) Rights together with six (6) Warrants-C and two (2) Bonus for every two (2) existing at an indicative issue price of RM0.20 per Rights upon completion of the Proposed Share Consolidation ( Proposed Rights Issue ). The final issue price and exercise price of the Warrants shall be determined by the Board at a later date after the signing of the SSA. The Bonus shall be issued from the capitalisation of the share premium account. Based on the audited financial statements for the FYE 31 December 2016, the Company s share premium account stood at RM164.6 million. The Rights, Warrants-C and Bonus will be listed on Bursa Securities. 7

8 The Company will source the necessary irrevocable undertakings to subscribe from its shareholders and underwriting arrangement in order to achieve the minimum proceeds of RM1,521.9 million. An amount of RM1,218.0 million of the net proceeds from the Proposed Rights Issue will be utilised to settle the cash portion of the Purchase Consideration whilst balance will be utilised to fund the capital expenditure requirement for the pipeline works and working capital for the operations at the Rakushechnoye Oil and Gas Field. 3.3 Debt Settlement Exercise It is the intention of the Board to undertake a comprehensive settlement of all major debts/obligations owing to and by the Sumatec group in conjunction with the Proposed Acquisition. This is to allow the Company to fully concentrate its resources to develop the Rakushechnoye Oil and Gas Field without being burdened by the existing debt obligations. Currently, Sumatec may be exposed to the following financial obligations (c) Corporate guarantees and loans taken for its former subsidiaries, Semua International Sdn Bhd group of companies. These creditors include Malayan Banking Berhad, Bank Pembangunan Malaysia Berhad, NFC Labuan Ship Leasing I Limited and collatarised loan obligation bondholders with an estimated exposure of USD40 million; Amount owing to MELL under the JIA estimated at USD22.0 million; and Wells repairs, maintenance and new wells expenditure incurred by the Markmore group on behalf of Sumatec estimated at USD41.0 million. The above financial obligations will be subject to verification and acceptance by the Board. In addition, pursuant to the acquisition exercise of Borneo Energy Oil and Gas Limited which was approved by Sumatec s shareholders on 28 August 2014, Sumatec has paid a deposit of USD30.0 million to the vendors which has yet to be refunded. The Board proposes to comprehensively settle the above obligations through the following:- (c) issuance of up to 840,000,000 redeemable convertible preference shares ( RCPS ) at an indicative issue price of RM0.20 per RCPS (equivalent to USD40.0 million) to the creditors set out in above; issuance of up to 672,000,000 RCPS at an indicative issue price of RM0.20 per RCPS (equivalent to USD32.0 million) for the settlement of the amount owing to MELL set out in paragraph above and well repairs cost set out in (c) above; and the USD30 million deposit paid by Sumatec for the acquisition of Borneo Oil and Gas Limited shall be off-set against the well maintenance and new wells expenditures set out in (c) above. (collectively, the Proposed Debt Settlement ) It is envisaged that the detailed terms and conditions of the Proposed Debt Settlement shall be contained in settlement agreements to be executed between the relevant parties. Sumatec will also amend its Memorandum and Articles of Association to facilitate the issuance of the RCPS. 8

9 4. RATIONALE FOR THE PROPOSED ACQUISITION Currently, under the JIA, Sumatec is only entitled 50.0% of the profits from the oil produced at the Rakushechnoye Oil and Gas Field. The Proposed Acquisition is expected to enable Sumatec to effectively own the entire oil and gas reserves at the Rakushechnoye Oil and Gas Field. The Proposed Acquisition is also expected to enhance the effectiveness and efficiency of operations at the Rakushechnoye Oil and Gas Field as Sumatec will be able to take control and consolidate the operations of COG instead of having our subsidiary, Sumatec Oil and Gas LLP to manage the operations of the Rakushechnoye Oil and Gas Field, thereby eliminating duplication in human resources functions, office facilities and potential conflict of interest as well as streamlining the line of reporting and co-ordination of work activities, which is expected to result in operations efficiency and cost saving. In addition, Sumatec s profile will be enhanced and it will provide Sumatec with greater flexibility on future fund raising as well as strengthen its financial and cashflow position. The Proposed Acquisition is also a step in increasing the hydrocarbon reserves for Sumatec to arrest the natural production decline of the hydrocarbon production, thereby ensuring the continuous growth of Sumatec. The benefits of the Proposed Acquisition are as follows:- Full control and ownership of the Subsurface Use Rights and the related oil and gas assets will enhance Sumatec s credit profile, greater flexibility to raise funding, able to ensure proper use of the assets to benefit the field development activities. Under the current arrangement governed by the JIA, Sumatec is entitled to 100% of the Profits for the first 2,000,000 barrels of oil production at the Rakuschechnoye Oil and Gas Field, and 50% of the profits thereafter. However, the JIA did not give Sumatec ownership of or equity in MELL or COG. The Proposed Acquisition will result in Sumatec having 100% control in the equity, assets and operations of MELL and COG. This will enhance Sumatec s credit profile, and it will provide Sumatec with greater flexibility on raising funding for future development of the Rakuschechnoye Oil and Gas Field. Sumatec will have owner s right to offer the Subsurface Use Rights and other fixed assets as security for future funding. At the same time, Sumatec will be able to ensure that these assets are not being used for other purposes that neither benefit nor contribute to the field development activities. Increase synergy and efficiency in carrying out the upstream oil and gas activities in Kazakhstan The JIA arrangement has necessitated the setting up of our subsidiary, Sumatec Oil and Gas LLP, to act as the agent between Sumatec and COG. With the Proposed Acquisition, Sumatec will be able to consolidate its activities in Kazakhstan and create a more cohesive and synergistic operating structure that eliminates duplication in functions, office facilities and potential conflict of interest as well as streamlining the line of reporting and co-ordination of work activities, which is expected to result in greater operations efficiency and cost saving. With the Proposed Acquisition, Sumatec will be able to consolidate its activities in Kazakhstan and create more cohesive and synergistic operating. The Rakushechnoye Oil and Gas Field is considered a suitable candidate for acquisition by Sumatec since Sumatec is familiar with the asset and operating conditions via the JIA. The Proposed Acquisition will allow Sumatec to directly own the oil and gas resources as opposed to only a share in profit under the JIA arrangement. This will pave the way for Sumatec to emerge as an independent oil producer with ownership of assets. The Proposed Debt Settlement is intended to allow Sumatec of operate on a clean slate without being burdened by debts and litigations which impaired Sumatec s abiity to raise further funding to expand. 9

10 5. FINANCIAL EFFECTS The final effects of the Proposals on the share capital, net assets, dividend policy, earnings gearing and substantial shareholdings of the Company can only be determined upon the final terms of the Proposed Acquisition as contained in the SSA to be executed and consequently will allow for the finalisation of the terms of the remaining components of the Proposals. However, for illustrative purposes, the following sets out the effects of the Proposals based on the broad parameters of the Proposals as presented above and on the assumption that it is implemented based on the capital structure as at the LPD. 5.1 Share capital, Net Asset ( NA ) and Gearing Based on the audited consolidated financial statements of Sumatec as at 31 December 2016, the pro forma effects of the Proposals on the share capital, consolidated NA and gearing of Sumatec are shown below:- (I) (II) (III) (IV) (V) (VI) (VII) After Proposed Debt Assuming full Audited as at 31 December Subsequent After Proposed Capital After Proposed Share After Proposed Rights After Proposed Settlement (assume full conversion of exercise of Warrants-A, Warrants-B and 2016 Events Reduction Consolidation Issue Acquisition RCPS) Warrants-C RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 Share capital 541, , , ,295 1,989,282 2,325,282 2,627,682 3,388,925 Shareholders Funds/NA 637, , , ,906 2,093,748 2,658,148 2,658,148 3,419,391 Total Assets (RM 000) 832, , , ,481 2,288,323 2,624,323 2,666,323 3,427,566 Total Liabilities (RM 000) 194, , , , , ,574 8,175 8,175 ( 000) 3,866,114 4,058,504 4,058,504 1,014,626 9,638,948 11,318,948 12,830,948 16,636,850 NA per ordinary share (RM) Interest bearing borrowings (RM 000) 22,530 22,530 22,530 22,530 22,530 22, Gearing (times) Notes:- Increase in the share capital of Sumatec in conjunction with the listing of 192,390,000 on 12 October 2017 at an issue price of RM per Share pursuant to a private placement exercise. Assuming the Proposed Capital Reduction would involve the capital reduction of RM million, which shall be utilised to set-off the accumulated losses of the Company. 10

11 5.2 Substantial Shareholders Shareholdings The effects of the Proposals on the shareholdings of the substantial shareholders of Sumatec are shown below:- (I) (II) As at LPD After the Proposed Capital Reduction and Proposed Share Consolidation After (I) and Proposed Rights Issue <---Direct ---> <---Indirect ---> <---Direct ---> <---Indirect ---> <---Direct ---> <---Indirect ---> 000 % 000 % 000 % 000 % 000 % 000 % TSHS 681, , ,938, Markmore (III) (IV) (V) After (II) and Proposed Acquisition After (III) and assuming full conversion of RCPS Assuming full exercise of Warrants-A, Warrants-B and Warrants-C <---Direct ---> <---Indirect ---> <---Direct ---> <---Indirect ---> <---Direct ---> <---Indirect ---> 000 % 000 % 000 % 000 % 000 % 000 % TSHS 1,938, ,680, ,610, ,680, ,237, ,680, Markmore 1,680, ,680, ,680, Notes:- Assuming that TSHS provides his undertaking to subscribe for 1,277,585,250 Rights under his own entitlements and additional 282,414,750 Rights under excess application pursuant to the Proposed Rights Issue. Deemed interest via his shareholdings held in Markmore. 11

12 5.3 Earnings and EPS The Proposals are expected to be earnings accretive and will contribute positively to the longterm future earnings and cash flow of the Sumatec Group. 5.4 Convertible securities Any necessary adjustments to the Warrants-A and Warrants-B as a result of the Proposals will be made in accordance with the provisions of the deed poll for the Warrants-A and Warrants-B ( Rights Adjustments ). The Rights Adjustments will only be made on the implementation of the Proposals. 5.5 Dividend The dividend policy of the Company would be dependent on inter-alia, the future profitability and cash flow position of the enlarged Sumatec Group. 6. DIRECTORS AND MAJOR SHAREHOLDERS INTERESTS Save as disclosed below, none of the Directors or major shareholders of Sumatec and any persons connected with them have any interest, direct or indirect in the Proposals. The major shareholder of Sumatec namely, TSHS is deemed interested in the Proposals as he is the Director and 99.9% shareholder of Markmore. Abu Talib is a Non-Independent Non-Executive Director of Sumatec. He is also a Director of Markmore. Hence, Abu Talib is deemed interested in the Proposals pursuant to Chapter 10 of the Main Market Listing Requirements of Bursa Securities ( Main Market LR ). (collectively, the Interested Parties ) Premised on the above, the above interested director has abstained and will continue to abstain from deliberating and voting on and from making any opinion on the Proposals at the relevant meetings of the Board. Further, they will abstain from voting in respect of their direct and/or in direct shareholdings, if any, in Sumatec on the resolutions pertaining to the Proposals. In addition, they will also undertake to ensure that persons connected to them will abstain from voting in respect of their direct and/or indirect shareholdings in Sumatec on the resolutions pertaining to the Proposals to be tabled at the forthcoming extraordinary general meeting to be held. The Interested Parties will abstain and will procure persons connected to them (if any) from exercising his/their voting rights on the resolutions pertaining to the Proposals at the general meeting to be convened. 7. PRINCIPAL ADVISER AND INDEPENDENT ADVISER M&A Securities has been appointed as the Principal Adviser to Sumatec for the Proposals. In view of the interests of the Interested Parties as set out in Section 6 above, the Proposals are deemed as related party transaction pursuant to paragraph of the Main Market LR. In this respect, FHMH Corporate Advisory Sdn Bhd will be appointed to act as the Independent Adviser to advise the Board (save for Abu Talib) and non-interested shareholders of Sumatec as to whether the Proposals are fair and reasonable as far as the non-interested shareholders are concerned and whether the Proposals are to the detriment of the non-interested shareholders. 12

13 8. OTHER MATTERS An announcement in compliance with the relevant provisions of the Main Market LR in relation to the Proposals including the prospects, risk and further details on the Proposals will be made in due course upon the finalisation of the detailed terms of the Proposed Acquisition which is dependent on inter-alia, the results of the due diligence review and the execution of the SSA. Shareholders of Sumatec should note that there can be no assurance that the Proposed Acquisition will materialise and that the Proposed Acquisition will be implemented as envisaged in the Heads of Agreement as the detailed terms and conditions can only be finalised upon the availability of the reports relating to the due diligence review and finalisation of Sumatec s funding plans. Sumatec has the following corporate exercises which have been announced but pending implementation:- On 11 July 2014, the Company had announced that it is proposing to undertake the following proposals:- (i) (ii) proposed acquisition of 100% equity interest in Borneo Energy Oil and Gas Limited ( Borneo Energy ), comprising 100 ordinary shares in Borneo Energy from Abu Talib and Dr Murat Safin for a purchase price of USD290,000,000 (equivalent to RM1,015,000,000) to be satisfied by a combination of cash payment and issuance of new ordinary shares of RM0.14 each in Sumatec ( Proposed Acquisition of Borneo Energy ); and Proposed renounceable rights issue of up to 5,517,521,495 new ordinary shares of RM0.14 each in Sumatec together with up to 2,758,760,747 free detachable warrants at an indicative issue price of RM0.20 per rights shares on the basis of six (6) rights shares for every five (5) Sumatec shares held together with one (1) rights warrant for every two (2) rights shares subscribed; (iii) proposed increase in the authorised share capital of Sumatec from RM1,000,000,000 comprising 7,142,857,143 ordinary shares of RM0.14 each in Sumatec to RM5,000,000,000 comprising 35,714,285,714 ordinary shares of RM0.14 each in Sumatec; and (iv) proposed amendments to the Memorandum and Articles of Association of Sumatec to facilitate the proposed increase in authorised share capital of Sumatec. (collectively, the Borneo Energy Corporate Exercises ) On 25 August 2016, the Company had also announced that it is proposing to undertake the following proposals:- (i) proposed acquisition of 100% equity interest in MELL, comprising 26,400,000 ordinary shares of USD1.00 each in MELL for a total purchase consideration of USD250,000,000 (equivalent to RM1,000,000,000); (ii) Proposed reduction of the issued and paid-up share capital of Sumatec via the cancellation of RM0.04 from the par value of each existing ordinary share of RM0.14 each in Sumatec; (iii) Proposed renounceable rights issue of up to 7,509,052,989 new Sumatec together with up to 3,754,526,494 free detachable warrants at an indicative issue price of RM0.10 per rights share on the basis of thirty eight (38) rights shares for every twenty five (25) Sumatec held together with one (1) rights warrant for every two (2) Rights subscribed; (iv) Proposed increase in the authorised share capital of the Company from RM1,000,000,000 comprising 7,142,857,143 Sumatec to RM6,037,600,000 comprising 60,000,000,000 Sumatec and 3,760,000,000 RCPS of RM0.01 par value each; and 13

14 (v) Proposed amendments to the Memorandum and/or Articles of Association of the Company to facilitate the proposed par value reduction and proposed increase in the authorised share capital of the Company. (collectively, the MELL Corporate Exercises ) (c) On 25 August 2016, the Company had also announced that it is proposing to undertake the following proposals:- (i) (ii) (iii) (iv) proposed private placement of up to 1,000,000,000 Sumatec to independent third party investor(s) to be identified issuance of up to 800,000,000 new Sumatec renounceable right issue with warrants exercise to raise funds of up to RM million; and framework agreement with Ken Makmur Holdings Sdn Bhd ( Kenmakmur ) and MELL for the production of liquefied petroleum gas and condensate from the 100 million standard cubic feet per day of natural gas supplied from the Rakushechnoye Oil and Gas Field ( Proposed LPG Production ). In this respect, Sumatec is required to finance the following payment requirements under the Proposed LPG Production, as follows:- (aa) Issuance of new securities of USD205.0 million to Kenmakmur as required under the Proposed LPG Production for the production of LPG and condensate from the 100 million standard cubic feet per day of natural gas ( Gas ); (ba) shares issuance exercise amounting to USD42.0 million and the balance of USD51.0 million through bank borrowings to be secured to construct the plant facility and all cost associated with the production of LPG and condensate as well as extraction of Gas The Company will formally terminate the above exercises upon the signing of the SSA for the Proposed Acquisition. 9. DOCUMENTS AVAILABLE FOR INSPECTION The Heads of Agreement is available for inspection at the registered office of Sumatec at Level 15-2, Bangunan Faber Imperial Court, Jalan Sultan Ismail, Kuala Lumpur during normal business hours on Mondays to Fridays (except public holidays) for a period of three (3) months from the date of this announcement. This announcement is dated 26 October [ The rest of this page is intentionally left blank ] 14