Upon completion of the Proposed Acquisition, CHRE will be a subsidiary company of GHSB.

Transcription

1 GUNUNG CAPITAL BERHAD ( GUNUNG OR COMPANY ) PROPOSED ACQUISITION BY 90%-OWNED SUBSIDIARY GUNUNG HYDROPOWER SDN BHD ( GHSB ) OF 1,500,000 ORDINARY SHARES OF RM1.00 EACH IN CONSO HYDRO RE SDN BHD ( CHRE ) REPRESENTING 50% EQUITY INTEREST IN CHRE FROM CONSO LIGHT SDN BHD ( PROPOSED ACQUISITION ) FOR A PURCHASE CONSIDERATION OF RM2.50 MILLION This announcement is dated 14 January INTRODUCTION The Board of Directors of GUNUNG ( Board ), wishes to announce that its 90% owned subsidiary, GHSB had on 13 January 2016 entered into a share sale and purchase agreement ( SSA ) with Conso Light Sdn Bhd ( CLSB or the Vendor ) for the proposed acquisition of 1,500,000 CHRE Shares representing 50% of the issued and paid-up share capital in CHRE ( Sale Shares ) for a purchase consideration of RM2,500,000. Upon completion of the Proposed Acquisition, CHRE will be a subsidiary company of GHSB. 2. INFORMATION ON CHRE AND VENDORS 2.1 Information on CHRE CHRE was incorporated in Malaysia under the Companies Act, 1965 on 2 March The authorised share capital of CHRE is RM5,000,000 comprising 5,000,000 ordinary shares of RM1.00 each, of which 3,000,000 CHRE Shares have been issued and fully paid-up. CHRE is principally involved in developing, maintaining and operating a 2 MW installed capacity small hydro plant at Sungai Geruntum, Kampar, Perak Darul Ridzuan. CHRE has secured Feed-in Tariff (FiT) approval from the Sustainable Energy Development Authority ( SEDA ) for its Sungai Geruntum site with a declared annual availability of 10,000 MWh. Under the FiT approval, the commencement date of the FiT is 3 June Subsequently CHRE signed a Renewable Energy Power Purchase Agreement ( RePPA ) with Tenaga Nasional Berhad ( TNB ) for a 21 year effective period at a rate of 24 sen per kwh. The Fit rate was subsequently revised upwards by SEDA to 26 sen per kwh for small hydro with an installed capacity up to 2MW in December 2015.This new rate will apply to CHRE. A Development Order Certificate ( DOC ), with conditions, was issued to CHRE by Jabatan Perancangan Bandar dan Desa ( JPBD ) on 21 January All conditions relating to the DOC have been satisfied, and other relevant Perak State Government approvals have been obtained. This has enabled the commencement of the small hydro development at CHRE s Sungai Geruntum site, as at the date of this announcement. The directors and shareholders of CHRE are as follows: Director/Shareholder Conso Light Sdn Bhd Perak Hydro Renewable Energy Corporation Sdn Bhd ( PHREC )* Beroz Nikmal Bin Mirdin Mazelan Bin Mansor Mohd Mazanni Bin Mazelan Nationality/ Incorporation Malaysia 1 No. of CHRE Shares (Direct) 2,850,000 Equity Interest (%) 95 Malaysia 150,000 5 # - ^ - Total 3,000,

2 * GUNUNG has an effective 2.55% indirect equity interest in CHRE via its 85% owned subsidiary Pusaka Hijau Sdn Bhd which in turn owns a 60% equity interest in PHREC. # Beroz Nikmal Bin Mirdin has an effective 0.45% indirect equity interest in CHRE via his 15% equity interest in Pusaka Hijau Sdn Bhd which in turn owns a 60% equity interest in PHREC. ^ Mazelan Bin Mansor has an effective 38% indirect equity interest in CHRE via his 40% equity interest in Mohd Mazanni Bin Mazelan has an effective 19% indirect equity interest in CHRE via his 20% equity interest in CLSB. Based on the audited financial statements for the financial year ended ( FYE ) 30 June 2015, the net after tax loss and net assets for CHRE are approximately RM106,877 and RM2,706,748 respectively. Please refer to Appendix I for a summary of the financial information of CHRE. (Source: audited financial statements of CHRE for the FYE 30 June 2015, and statutory documents of CHRE). 2.2 Information on CLSB CLSB was incorporated in Malaysia under the Companies Act, 1965 on 13 July The authorised share capital of CLSB is RM100,000 comprising 100,000 ordinary shares of RM1.00 each, of which 50,000 ordinary shares of RM1.00 each in CLSB have been issued and fully paidup. CLSB is principally an electrical service provider registered with Suruhanjaya Tenaga Malaysia. Current CLSB is carrying on the business of electrical power system design, installation, testing and commissioning. The Directors of CLSB are Mazelan Bin Mansor, Mohd Mazanni Bin Mazelan, and Mafuzah Binti Mazelan. The current shareholders of CLSB are as follows: Shareholder Nationality No. of Ordinary Shares Equity Interest (%) Mazelan Bin Mansor Mohd Mazanni Bin Mazelan Mafuzah Binti Mazelan 20,000 10,000 10, Majidah Binti Mazelan 10, Total 50, (Source: statutory documents of CLSB) 3. PROPOSED ACQUISITION 3.1 Details of the Proposed Acquisition GHSB proposes to acquire 2,500,000 CHRE shares representing 50% of the issued and paid-up share capital in CHRE for a purchase consideration of RM2,500,000 ( Purchase Consideration ). The Purchase Consideration shall be satisfied by cash consideration. 2

3 3.2 Other salient terms of the SSA (a) (b) (c) (d) The transfer of the Sale Shares shall occur on or after the Unconditional Date (when the last of the conditions precedent are fulfilled or waived) when all of the Sale Shares totaling 1,500,000 shares or 50% of the ordinary shares of RM1.00 par value each in CHRE are transferred from the Vendor to GHSB. The payment of the Consideration amounting to RM2,500,000 is to be paid within 14 days from the Unconditional Date and in accordance with the terms of the SSA. Further in consideration of GHSB purchasing the Sale Shares from the Vendor, the Vendor shall pledge Escrow Shares (comprising of 5% of the issued and paid up capital of CHRE) as a performance guarantee in relation to the declared annual energy yield from the small hydropower project of 10,995MWh, as declared by the Vendor to GHSB. In the instance the actual annual energy yield is less than the declared annual energy yield after the first full 12 months of operation by CHRE, the Vendor will forfeit the Escrow Shares in favour of GHSB. For the avoidance of doubt, a variance of less than 5% from the declared annual energy yield will not invoke the forfeiture of the Escrow Shares. The SSA is conditional upon the fulfillment of the following Conditions Precedent within a period of 60 days from the Execution Date, or such other period as may be determined by GHSB: (i) Approval of the Vendor s board of directors and shareholders for the transfer of the Sale Shares in accordance with the terms and conditions of this Agreement. (ii) CHRE having procured a resolution of the Board having been duly passed and dated to authorize and approve the following: (1) transfer of the Sale Shares; (2) insertion of the name of GHSB in the Register of Members of CHRE as the holder of the Sale Shares; (3) the change of signatories to CHRE s bank accounts and documents comprising of 2 representatives from GHSB and 2 representatives from the Vendor; and (4) appointing to the Board of CHRE, directors nominated by GHSB (iii) The Vendor, PHREC and GHSB entering into a new shareholders agreement, and the commencement shall be effective on the Unconditional Date. (iv) PHREC s approval for the waiver of their respective pre-emption right to such Sale Shares. (v) The Vendor having fulfilled or facilitated regulatory and third party approvals for changes in shareholding of CHRE (to the extent required), including but not limited to the following: (1) Malayan Banking Berhad (2) Credit Guarantee Corporation (3) Unit Peneraju Agenda Bumiputera (TERAJU) (4) Sustainable Energy Development Authority (SEDA). (vi) The Vendor having issued a written undertaking to GHSB to extend the FiT commencement date as stipulated by SEDA, from 3 June 2016 to 3 January 2017, if required by GHSB. 3

4 (vii) The Vendor to warrant to GHSB that contract price for each package of the development of the small hydro project in Sungai Geruntum shall not be exceeding the price as documented in the contract documents and the price matrix comparison as prepared by the CHRE s consultant. 3.3 Basis of and justification for the Purchase Consideration The Purchase Consideration was arrived at on a willing-buyer willing seller basis after taking into consideration of the following: (a) (b) (c) (d) (e) the audited net tangible assets of CHRE as at 30 June 2015 amounting to RM2,706,748. the potential future earnings contribution from CHRE in view of its FiT approval from the Sustainable Energy Development Authority ( SEDA ) for its Sungai Geruntum site with a declared annual availability of 10,000 MWh. the potential future earnings contribution from CHRE in view of its RePPA with TNB for a 21 year effective period and at a recently revised rate by SEDA (December 2015) from 24 sen per kwh to 26 sen per kwh. the commencement of potential earnings contributions in financial year 31 December 2017 from CHRE in view of its advanced stage of development of its 2 MW installed capacity small hydro plant at Sungai Geruntum, Kampar, Perak Darul Ridzuan. The relevant State regulatory approvals having already been obtained, has shortened the construction and commissioning period to approximately 9-12 months. the existing financial close for project financing from Malayan Banking Berhad and CHRE securing a facilitation fund (grant) from Unit Peneraju Agenda Bumiputera (TERAJU). (Please refer to part 3.6 for further details on project financing). 3.4 Source of funding The cash consideration of RM2,500,000 for the acquisition will be funded by internally generated funds. 3.5 Liabilities to be assumed GHSB will not assume any liabilities of CHRE pursuant to the Proposed Acquisition. Any existing liabilities of CHRE shall remain in its books and will be settled by CHRE in its normal course of business. As at the last audited accounts on 30 June 2015, CHRE does not have any material current or long term liabilities. 3.6 Additional financial commitment & corporate guarantee Based on the engineering design, detailed costing, and declared energy yield of the Sungai Geruntum small hydro plant, the total estimated project cost is RM20.48 million. Prior to the announcement date, CHRE has financed RM2.70 million of the total project cost via issuance of ordinary shares to existing shareholders. In addition, CHRE has secured a facilitation fund (grant) from Unit Peneraju Agenda Bumiputera ( TERAJU ) for up RM2.55 million, which is based upon the actual project cost. This is payable by TERAJU to CHRE in two stages, namely, upon completion of 50% of total project works, and completion of 100% of total project works. 4

5 Furthermore, CHRE has secured financial close for a project financing facility from Malayan Banking Berhad for up to RM12.46 million, which is currently un-utilised. As such, the balance of the estimated project cost amounting to RM2.77 million will be contributed by the shareholders of CHRE based their respective equity stakes, via shareholder advances. Project Financing Details RMmil Estimated Project Cost based on Detailed Design & Engineering Equity Financing by CHRE prior to this announcement Facilitation Fund (grant) from TERAJU (2.70) (2.55) Project Financing by Maybank (12.46) Balance of Funding Required from Shareholders of CHRE 2.77 With a proposed 50% equity stake in CHRE, GHSB will be required to provide shareholder advances to CHRE amounting to RM1.39 million during the development and construction phase. The development and construction phase will be between 9-12 months from the date the SSA is deemed unconditional. This additional financial commitment by GHSB will be funded by internally generated funds. Malayan Banking Berhad, in addition to existing security arrangements with CHRE, may require GUNUNG to provide a corporate guarantee of up to RM12.46 million to jointly guarantee the existing project financing facility. Currently, the existing directors of CHRE have provided a RM12.46 million joint and several guarantee to Malayan Banking Berhad. GUNUNG will make the appropriate timely announcements to Bursa Securities in the event that a corporate guarantee is required and issued to Malayan Banking Berhad for the CHRE project financing facility. 4. RATIONALE FOR THE PROPOSED ACQUISITION In view of the Government s push for the development of renewable energy as the fifth national fuel with the implementation of the FiT system, the Proposed Acquisition will allow GUNUNG to consolidate its position in the renewable energy sector. The FiT system supports the developers of renewable energy by fixing a premium tariff for electricity generated from non fossil fuel sources, such as small-hydro schemes, biomass, and solar. Furthermore, the introduction of the Renewable Energy Act 2011 provides a mandatory requirement for TNB to buy Renewable Energy power. In the case of small-hydro plants having an installed capacity of up to and including 2MW, the FiT rate payable by TNB is 26 sen per kilowatt hour for a mandatory period of twenty one (21) years. The Proposed Acquisition will allow GUNUNG s 90%-owned subsidiary, GHSB, to increase its estimated installed capacity from 20MW to 22MW. Currently GHSB is developing two (2) small hydro sites with a total estimated installed capacity of 20MW (as per the announcement to Bursa Securities on 17 September 2014). Both sites have secured FiT approval from SEDA and signed RePPA s with TNB, for a period of 21 years at a revised FiT rate of 25 sen per kwh (revised by SEDA in December 2015 from 24 sen per kwh). Currently, these sites are at the stage of completing the detailed engineering, costing, and land acquisition. Prior to this announcement CHRE has secured FiT approval from SEDA, signed a RePPA agreement with TNB, fulfilled the conditions in the Development Order Certificate ( DOC ) issued to CHRE by Jabatan Perancangan Bandar dan Desa ( JPBD ) on 21 January 2015, and obtained all other relevant approvals from State Authorities. In view of CHRE s advanced stage of development of its small hydro site, GUNUNG expects the commencement of earnings contributions from CHRE in financial year 31 December

6 The Proposed Acquisition is expected to contribute positively to GUNUNG s long term revenue and profits, and enhance GUNUNG s growth potential. In addition, the long term stable income stream derived from the CHRE small hydro projects will reduce GUNUNG s dependency on income derived solely from the chartering of land-based transportation assets and specialty vehicles. 5. RISK FACTORS (a) (b) (c) (d) (e) Market risk, competition risk and pricing fluctuation risks for the small hydro projects has been substantially mitigated by the FiT system that fixes a premium tariff for electricity generated from non fossil fuel sources, such as small-hydro schemes, and under the Renewable Energy Act 2011 which mandatory requires TNB to accept and buy Renewable Energy power. Inherent to the renewable energy power generation sector in Malaysia, are both political and short term foreign exchange risks. Changes in existing Government policies regarding renewable energy can greatly affect the commercial viability of renewable energy. The mechanical and electrical equipment for power generation are generally procured from overseas manufacturers, which poses a short term foreign exchange risk for CHRE. Business risks exist, which are mainly associated with the performance of the appointed contractors for civil works, the appointed suppliers and installers of the mechanical & electrical components of the small-hydro plant, and the appointed engineers and consultants. This is due to potential delays in the commissioning of the plant, and not meeting the agreed upon energy commitment with TNB. The efficiency of the plant design, will also affect the ability of CHRE to meet its annual energy commitment to TNB. The Board intends to mitigate these risks, by procuring performance guarantees from the main contractors and suppliers. Other business risks are associated with GHSB or the Vendor in not fulfilling their obligations under the SSA, and the risk of non-fulfilment of all the necessary conditions precedent set out in the SSA. GHSB will take all reasonable steps to ensure the satisfaction and/or waiver (as the case may be) of the conditions precedent to ensure the completion of the Proposed Acquisition. Financing risk must also be considered, in the form of project financing, contingent liabilities, and gearing levels of CHRE and the GUNUNG Group. Any breach of a debt financing instrument s covenants, and failure to meet the timely interest and principal payments may result in default. Nevertheless, the Board will exercise due care in considering the project financing model and the merits of the financing required. 6. PROSPECTS 6.1 Overview and Outlook of Economy The economy registered a growth of 4.7% in the third quarter of 2015 (2Q2015:4.9%). Private sector expenditure continued to be the key driver of growth (4.4%; 2Q2015:5.7%), and contributed towards the expansion in domestic demand. In addition, growth was supported by the improvement in public sector spending (2.8%; 2Q2015:0.9%) and the turnaround in net exports, which recorded a positive growth during the quarter (3.3%; 2Q2015:- 10.5%). On a quarter-on-quarter seasonally-adjusted basis, the economy grew by 0.7% (2Q2015:1.1%). 6

7 Domestic demand expanded by 4.0% in the third quarter of 2015 (2Q2015:4.6%). This was driven mainly by private sector activity, which grew by 4.4% (2Q2015:5.7%) following continued growth in investment and consumption activities. Private investment expanded by 5.5% (2Q2015:3.9%), supported by continued capital spending in the manufacturing and services sectors. Private consumption growth moderated to 4.1% (2Q2015:6.4%), as households continued to adjust to the implementation of the Goods and Services Tax. However, wage growth and stable labour market conditions remained supportive of overall consumer spending. On the supply side, all economic sectors continued to expand during the third quarter of Growth was led by the construction and manufacturing sectors. Construction sector growth improved due mainly to a faster expansion in the civil engineering and specialised construction activities sub-sectors. Similarly, the manufacturing sector registered higher growth, supported in particular by an improvement in the export-oriented industries. The services sector registered lower growth due to a moderation in household spending and slower capital market activity. The mining and agriculture sectors expanded at a slower pace due to a moderation in crude oil and palm oil production, respectively. The economy is expected to expand within the region of % in 2015 and % in 2016, notwithstanding that downside risks to global growth remain arising from the moderating growth momentum in a number of major economies, uncertainty surrounding energy and commodity prices and possible disorderly market conditions arising from policy shifts in major economies. As a result of structural adjustments that have been steadily undertaken over the years, the economy is now supported by diversified sources of growth. With the external sector performance expected to be modest, domestic demand will continue to be the main driver of growth, supported mainly by the private sector activity. In addition, the flexible exchange rate, deep and more mature financial markets and solid financial institutions will support this trend and ensure that shocks such as volatile capital flows are well intermediated, therefore minimizing spillovers to the real economy. (Source: Economic and Financial Developments in Malaysia in the Third Quarter of 2015, Bank Negara Malaysia) 6.2 Overview and Outlook of the Renewable Energy Sector & CHRE The outlook of the Renewable Energy Sector and CHRE is highly linked to the FiT system which was enacted under the Renewable Energy Act 2011 ( RE Act ). This has dramatically improved the commercial viability of the renewable energy industry in Malaysia. With greater worldwide awareness on carbon mitigation measures to combat green house gases (GHG) emissions, there are now more concerted efforts to promote and encourage the use of renewable sources for power generation. The Government of Malaysia has approved The National Renewable Energy Policy and Action Plan on 2nd April One of the main elements of this policy was the introduction of the Renewable Energy Act which entails the implementation of the FiT system. The FiT is a premium in which the Renewable Energy ( RE ) power is sold according to each RE source. The introduction of the RE Act also provides a mandatory requirement for the utility to accept and buy RE power. Both the RE Act and the FiT system was enforced on 1st December On 1st September 2011, the SEDA was officially established to undertake the role of a one stop centre to promote sustainable energy and to help facilitate the RE industry. (Source: YB Dato Sri Peter Chin Fah Kui, The Future of Energy in Malaysia, April 2012) The FiT system under the RE Act supports the developers of renewable energy by fixing a premium tariff for electricity generated from non fossil fuel sources, such as small-hydro schemes. 7

8 The introduction of the RE Act provides a mandatory requirement for the utility provider (TNB) to buy RE power. In the case of small-hydro plants having an installed capacity of up to and including 2MW, the FiT rate payable by the utility has be revised upwards by SEDA in December 2015 to 26 sen per kwh from the previous 24 sen per kwh, for a mandatory period of twenty one (21) years. In conclusion, given the Governments support in providing an economically viable platform for investments in the renewable energy sector, the overall prospects for the CHRE is positive. The prospects for CHRE has been further enhanced by an upward FiT rate revision by SEDA in December 2015 to 26 sen per kwh. 7. FINANCIAL EFFECTS 7.1 Share capital & substantial shareholders The Proposed Acquisition will not have any effect on the share capital and substantial shareholders of GUNUNG, as the Proposed Acquisition will be satisfied entirely by cash and does not involve any issuance of new ordinary shares in GUNUNG. 7.2 Earnings The Proposed Acquisition is not expected to have an immediate material effect on the earnings of GUNUNG and its subsidiaries ( GUNUNG Group ) for the financial year ending 31 December The Sungai Geruntum small hydro plant developed by CHRE is expected to be complete and commissioned at the end of financial year ending 31 December The Proposed Acquisition is expected to contribute positively to the earnings of the GUNUNG Group for the financial year ending 31 December 2017 and thereafter for 20 years based on the RePPA signed with TNB. 8. HIGHEST PERCENTAGE RATIO APPLICABLE Pursuant to Rule 10.02(g) of the Main Market Listing Requirements of Bursa Securities ( Listing Requirements ), the highest percentage ratio for the Proposed Acquisition is the total consideration of the Proposed Acquisition of RM2.5 million compared with the market capitalization of GUNUNG (five (5) day weighted average market price) of RM96.8 million, is approximately 2.58%, based on the audited financial statements of GUNUNG for the FYE 31 December APPROVALS REQUIRED AND CONDITIONALITY OF THE PROPOSED ACQUISITION The Proposed Acquisition is subject to approval(s) from relevant bodies, persons, authorities or regulatory bodies, as may be necessary and identified in the SSA. For information purposes, the Proposed Acquisition is not subject to the approval of the shareholders of GUNUNG. The Proposed Acquisition is not conditional upon any other proposals. 10. DIRECTORS AND MAJOR SHAREHOLDERS INTERESTS None of the Directors and major shareholders of the Company or persons connected with them have any interest, direct and/or indirect, in the Proposed Acquisition. 8

9 11. DIRECTORS STATEMENT After having considered all aspects including the terms and conditions of the SSA, the rationale and the financial effects of the Proposed Acquisition, the Board is of the opinion that the Proposed Acquisition is in the best interest of the Company. 12. ESTIMATED TIME FRAME FOR COMPLETION Barring any unforeseen circumstances, the Proposed Acquisition is expected to be completed by the first (1 st ) quarter of the calendar year DOCUMENTS AVAILABLE FOR INSPECTION The SSA is available for shareholders inspection at the registered office of the Company at No. 11B, 2 nd Floor, Persiaran Greentown 9, Greentown Business Centre, Ipoh, Perak Darul Ridzuan, during regular office hours from Mondays to Fridays (except public holidays) for a period of three (3) months from the date of this announcement. This announcement is made on 14 January

10 Appendix 1 SUMMARY FINANCIAL INFORMATION OF CHRE GROUP Audited FYE 30 June (RM 000) (RM 000) Revenue - - Cost of sales - - Gross Profit - - Administrative expenses (107) (98) Loss before taxation (107) (98) Taxation - - Net loss (107) (98) Attributable to:- Equity holder (107) (98) Non-controlling interests - - (107) (98) Share capital 3, Reserves (293) (186) NA / Shareholders funds 2, Non-controlling interests - - Total Equity 2, No. of shares 3, NA per share (RM) (a) Loss per share (RM) (b) (0.04) (0.20) Gross dividend rate (RM) - - Total borrowings - - Gearing (times) - - Notes: (a) (b) Calculation of NA per share is based on the net assets divided by the number of shares as at the end of the respective financial years as disclosed in the respective audited financial statements. Calculation of EPS is based on the profit after tax attributable to the shareholders divided by the number of shares as at the end of the respective financial years as disclosed in the respective audited financial statements. (Source: Audited consolidated financial statements of CHRE for the FYE 30 June 2014 to FYE 30 June 2015) 10