ASTRAL SUPREME BERHAD ( ASTRAL OR THE COMPANY )

Transcription

1 ASTRAL SUPREME BERHAD ( ASTRAL OR THE COMPANY ) - PROPOSED PAR VALUE REDUCTION; - PROPOSED CAPITAL RESERVE REDUCTION; - PROPOSED SHARE PREMIUM REDUCTION; - PROPOSED DIVERSIFICATION; - PROPOSED RIGHTS ISSUE WITH WARRANTS; AND - PROPOSED AMENDMENT TO THE MEMORANDUM OF ASSOCIATION 1. INTRODUCTION On behalf of the Board of Directors of Astral ( Board ), TA Securities Holdings Berhad ( TA Securities ) wishes to announce that the Company is proposing to undertake the following: (i) (ii) (iii) proposed reduction of the issued and paid-up share capital of Astral pursuant to Section 64 of the Companies Act, 1965 ( Act ) involving the cancellation of RM0.10 of the par value of each existing ordinary share of RM0.20 each in Astral ( Astral Share(s) or Share(s) ) ( Proposed Par Value Reduction ); proposed reduction of RM5,527,459 from the capital reserve account of Astral ( Proposed Capital Reserve Reduction ); proposed reduction of up to RM11,411,553 from the share premium account of Astral pursuant to Sections 60(2) and 64(1) of the Act ( Proposed Share Premium Reduction ); (the Proposed Par Value Reduction, Proposed Capital Reserve Reduction and Proposed Share Premium Reduction are collectively referred to as Proposed Capital Reduction ); (iv) (v) (vi) proposed diversification of the principal activities of Astral and its subsidiaries ( Astral Group or Group ) to include construction, property development and property investment activities ( Proposed Diversification ); proposed renounceable rights issue of up to 809,556,620 new Astral Shares ( Rights Shares ) on the basis of two (2) Rights Shares for every one (1) existing Astral Share held on an entitlement date to be determined later, together with up to 404,778,310 free detachable new warrants ( Warrants-C ) on the basis of one (1) Warrants-C for every two (2) Rights Shares subscribed by the entitled shareholders ( Proposed Rights Issue with Warrants ); and proposed amendment to the Memorandum of Association of the Company to facilitate the implementation of the Proposed Capital Reduction ( Proposed Amendment to the Memorandum of Association ). (hereinafter collectively referred to as the Proposals ) Further details of the Proposals are set out in ensuing sections of the announcement. 1

2 2. DETAILS OF THE PROPOSALS The details of the Proposals are set out in ensuing sections of this announcement Proposed Par Value Reduction The Proposed Par Value Reduction will involve a cancellation of RM0.10 of the existing par value of every existing Astral Share of RM0.20 each to RM0.10 each pursuant to Section 64 of the Act. The Proposed Par Value Reduction will result in a credit which will be utilised to set-off against the accumulated losses of Astral. As at 22 July 2014, the issued and paid-up share capital of Astral is RM57,908,950 comprising 289,544,750 Astral Shares of RM0.20 each. In the event any of the existing 38,727,400 outstanding warrants 2011/2016 of Astral ( Warrant-A ), 70,401,960 outstanding warrants 2013/2018 of Astral ( Warrant-B ) (collectively referred to as Existing Warrants ) and 6,104,200 outstanding irredeemable cumulative loan stock ( ICULS ) are exercised and converted into new Astral Shares of RM0.20 each and the corresponding new Astral Shares of RM0.20 each are credited into the securities account of the holders of the Existing Warrants and the ICULS on or prior to the effective date of the Proposed Par Value Reduction, the new Astral Shares of RM0.20 each arising therefrom shall be subjected to the Proposed Par Value Reduction Proposed Capital Reserve Reduction The Proposed Capital Reserve Reduction will involve a reduction of the entire capital reserve account of Astral of RM5,527,459 and the credit arising therefrom shall be utilised to offset the accumulated losses of the Company Proposed Share Premium Reduction The Proposed Share Premium Reduction will involve a reduction of up to RM11,411,553 from the Company s share premium account pursuant to Sections 60(2) and 64(1) of the Act after the Proposed Share Capital Reduction and Proposed Capital Reserve Reduction. Effects of the Proposed Capital Reduction on the accumulated losses of Astral are as follows: Audited 31 December 2013 Minimum Maximum scenario (1) scenario (2) RM 000 RM 000 Unaudited as at 31 March 2014 Minimum Maximum scenario (1) scenario (2) RM 000 RM 000 Company level Accumulated losses (47,580) (47,580) (49,556) (49,556) Adjusted for Subsequent Event up to 22 July Effects on assuming full exercise of ICULs in Maximum scenario - (36) - (36) 47,296 47,332 49,072 49,108 Less: Credit arising from the Proposed Par Value Reduction 28,954 40,478 28,954 40,478 Credit arising from the Proposed Capital Reserve Reduction 5,527 5,527 5,527 5,527 Credit arising from the Proposed Share Premium Reduction 6,994 1,327 6,994 1,327 Resultant accumulated losses (5,821) - (7,597) (1,776) 2

3 Notes: (1) Assuming none of the Existing Warrants and ICULS are exercised / converted into new Astral Shares prior to the effective date of the Proposed Par Value Reduction. (2) Assuming all of the Existing Warrants and ICULS are exercised / converted into new Astral Shares prior to the effective date of the Proposed Par Value Reduction. The summary of the financial information of the Group for the past three (3) audited 31 December ( FYE ) 2011 to FYE 2013 and the unaudited three (3)-month financial period ended 31 March ( FPE ) 2014 is stated in Section 5.7 of this announcement Proposed Diversification The Group, via its wholly owned subsidiary, Singatronics (Malaysia) Sdn Bhd ( Singatronics ) is principally involved in manufacturing, assembly and export of electronics and electrical consumer and industrial products. Based on the Group s audited financial statements for the past three (3) financial years ended 31 December ( FYE ) 2011 to 2013, the Group has been experiencing fluctuating revenue levels which was contributed mainly from its electronics contract manufacturing division. Arising from this, the Group recorded losses for two (2) out of three (3) FYEs i.e. FYE 2011 and FYE Further, the Board anticipates that the financial performance of the Group for the electronics contract manufacturing division remains challenging for the financial year ending 31 December 2014 (Source: Chairman s Statement, Astral s Annual Report for the FYE 2013). The Board takes cognisance of the lacklustre financial performance of the Group and has endeavoured to take necessary steps as well as considered various avenues to turnaround the financial position of the Group. On 11 March 2014, the Group announced that its wholly owned subsidiary, Astral Supreme Construction Sdn Bhd ( ASC or Subcontractor ) had received (two) 2 letters of award ( LOA ) from the following parties to undertake subcontract works for a total contract value of RM105.0 million ( PPR Projects ). Further details of the PPR Projects are set out below: (a) Program Perumahan Rakyat ( PPR ) Paya Rumput, Melaka Tengah, Melaka ( GBSB PPR Project) Date of LOA : 11 March 2014 Main contractor : Gemawan Bina Sdn Bhd ( GBSB ) Nature of sub-contract and scope of work : To supply labour and necessary tools and equipment to carry out design, build and deliver 600 units of flats and other related works. Contract sum : RM57.0 million ASC will undertake the main building works (except for piling work and earthwork) which includes structure, architecture and mechanical and electrical works complete with ancillary building, landscaping and infrastructural works. Types of properties : High rise building with ancillary building Status of the project : Development order approval was obtained on 5 June The piling work and earthwork have been completed by the main contractor. 3

4 Expected completion date : 1 st quarter of 2016 Owner of the project : Kementerian Kesejahteraan Bandar, Perumahan dan Kerajaan Tempatan ( KPKT ) (b) PPR Ayer Panas, Melaka ( PRSB PPR Project ) Date of LOA : 11 March 2014 Main contractor : Permata Rebana Sdn Bhd ( PRSB ) Nature of sub-contract and scope of work : To supply labour and necessary tools and equipment to carry out design, build and deliver 500 units of flats and other related works. Contract sum : RM48.0 million ASC will undertake the main building works (except for piling work and earthwork) which includes structure, architecture and mechanical and electrical works complete with ancillary building, landscaping and infrastructural works. Types of properties : High rise building with ancillary building Status of the project : Development order approval was obtained on 11 April The piling work and earthwork have been completed by the main contractor. Expected completion date : 1 st quarter of 2016 Owner of the project : KPKT The PPR Projects are expected to generate a profit margin of 8% to the Group. The profit contribution from the PPR Projects are expected to span over the next three (3) financial years i.e. FYE 2014 to FYE There is no major capital commitment on the PPR Projects, save for approximately RM2.0 million which is to be utilised to kick-start the PPR Projects and the amount is expected to be funded from internally generated funds Information on GBSB GBSB was incorporated in Malaysia on 22 February 1982 under the Act as a private limited company. GBSB is principally engaged in the construction of buildings and infrastructures. GBSB is a bumiputera contractor registered with Ministry of Finance ( MOF ), Class A Bumiputera Contractor with Pusat Khidmat Kontraktor ( PKK ) and Grade G7 contractor with Construction Industry Development Board ( CIDB ). As at the date of this announcement, GBSB s authorized share capital is RM5,000,000 comprising 5,000,000 ordinary shares of RM1.00 each ( GBSB Shares ) of which 1,250,000 GBSB Shares have been issued and fully paid-up. 4

5 The directors and shareholders of GBSB are Mohd Hazli bin Abdul Rahman and Fazlihisam bin Husin and their respective shareholdings in GBSB are set out below: Shareholders of GBSB No. of GBSB Shares held % Mohd Hazli bin Abdul Rahman 750, Fazlihisam bin Husin 500, Total 1,250, Information on PRSB PRSB was incorporated in Malaysia on 4 May 1998 under the Act as a private limited company. PRSB is principally engaged in building and civil engineering as well as construction. PRSB is a Class A Bumiputera Contractor with PKK and Grade G7 contractor with CIDB. As at the date of this announcement, PRSB s authorized share capital is RM1,000,000 comprising 1,000,000 ordinary shares of RM1.00 each ( PRSB Shares ) of which 750,000 PRSB Shares have been issued and fully paid-up. The directors and shareholders of PRSB are Siti Salasiah binti Mohd Yunus and Hafizi bin Che Hamzah and their respective shareholdings in PRSB are set out below: Shareholders of PRSB No. of PRSB Shares held % Siti Salasiah binti Mohd Yunus 412, Hafizi bin Che Hamzah 337, Total 750, Further information on the Proposed Diversification Based on the total contract value of the PPR Projects of RM105.0 million, the Board anticipates that the PPR Projects may contribute 25% or more of the net profit of the Group in the future and the Board also anticipates that the construction activities will be one of the major contributor to the Group as it will continue to seek and secure more construction projects in the future. Datuk Chai Woon Chet ( DCWC ), the Managing Director of Astral, has been involved in construction and property development since year DCWC has undertaken and completed several property development projects which include the 265-acre integrated township development known as Alamesra with gross development value ( GDV ) of RM1.3 billion, eight (8) units of three (3) to four (4)-storey shop cum offices, forty eight (48) units of semi-detached houses and twenty one (21) units of townhouses in Taman Permata Melawati, twenty one (21) units of detached houses at Laman Bayu, Segambut and the construction of Philea Resort & Spa in Ayer Keroh, Melaka. DCWC is also the director of LCL M&E Engineering Sdn Bhd, which specializes in mechanical and electrical engineering within the construction industry. 5

6 Wong Kwai Wah, the Executive Director of Astral, was the Senior General Manager of Larut Consolidated Berhad ( LCB ) from 1993 to LCB is principally involved in the provision of investment holding, property development and construction activities. LCB, which is now known as Kumpulan Europlus Berhad, was engaged in major development of township from 1993 to Among the major townships developed by LCB were Pandan Jaya, Pandan Indah, Pandan Perdana and the reclamation and development of Pulau Melaka. As the Senior General Manager of LCB, WKW was actively involved in the financial planning of the property development projects, sourcing of funds, construction, sales and cash flows management of the projects. WKW was a also a member of the management committee in the pre-operation stage of North South Highway project as well as the initial committee member of the West Coast Expressway. Yuan Toong Kui, a Project Director of Astral, was involved in the construction of condominium with carpark with infrastructure at Sunway South Quay, five (5)- storey PPR at Gua Musang, and construction of 101 units shop offices at Pusat Bandar 1, Kota Damansara. The above directors and key management have, through the abovementioned property development and construction projects, gained vast experience in planning, executing, managing, marketing and conducting risk assessments in construction. Accordingly, the experience of the directors and key management would provide valuable insights and advices to the Group. Moving forward, the Group also intends to employ an experienced team with the required skills and expertise to spearhead its property development, construction and property investment business. The Board believes that the Astral Group has the capacity, capabilities and resources to diversify into construction, property development and property investment after taking into consideration the following: (i) (ii) The Group has begun developing its credential as a construction project contractor via the PPR Projects. With this credential, the Astral Group intends to seek and secure other similar construction projects; and The competency and experience of the directors who have been involved in the property development and construction industry as mentioned above as well as the assistance from external consultants (namely, the architects, engineers, surveyors, subcontractors and other consultants). Pursuant to paragraph 10.13(1) of the Main Market Listing Requirements of Bursa Malaysia Securities Berhad ( Bursa Securities ) ( MMLR ), a listed issuer must obtain its shareholders approval in a general meeting for any transaction or business arrangement which might reasonably be expected to result in either: (a) (b) the diversion of 25% or more of the net assets ( NA ) of the listed issuer to an operation which differs widely from those operations previously carried on by the listed issuer; or the contribution from such an operation of 25% or more of the net profits of the listed issuer. 6

7 Accordingly, Astral will seek the approvals from its shareholders for the Proposed Diversification. Notwithstanding the Proposed Diversification, the Board intends to continue with the Group s current business in the same manner. Further details on the Board s plans for the Group moving forward are set out in Section 5.6 of this announcement Proposed Rights Issue with Warrants Details of the Proposed Rights Issue with Warrants The Proposed Rights Issue with Warrants will be implemented after the Proposed Capital Reduction. The Proposed Rights Issue with Warrants entails renounceable rights issue of two (2) Rights Shares for every one (1) Astral Share of RM0.10 held (after the completion of the Proposed Par Value Reduction) by the shareholders of Astral whose names appear in the Record of Depositors of the Company as at the close of business on the date to be determined by the Board and announced later by the Company ( Entitlement Date ) ( Entitled Shareholders ), together with one (1) Warrant-C for every two (2) Rights Shares subscribed by the shareholders. As at 22 July 2014, the issued and paid-up share capital of the Company was RM57,908,950 comprising 289,445,750 Astral Shares. Assuming all Existing Warrants and ICULS are exercised and converted into Astral Shares prior to the Entitlement Date, a maximum 809,556,620 Rights Shares may be issued. The actual number of Rights Shares to be issued will depend on the issued and paid-up share capital of Astral as at the Entitlement Date. As the Proposed Rights Issue with Warrants is on a renounceable basis, the Entitled Shareholders can subscribe for and/or renounce their entitlements for the Rights Shares with Warrants-C in full or in part. However, the Rights Shares and Warrants-C cannot be renounced separately. Should the Entitled Shareholders accept only part of their Rights Shares entitlements under the Proposed Rights Issue with Warrants, they shall be entitled to Warrants-C in proportion of their acceptances of the Rights Shares entitlements. In determining shareholders entitlements to the Rights Shares with Warrants-C under the Proposed Rights Issue with Warrants, fractional entitlements, if any, shall be disregarded and will be dealt with in such a manner as the Board deems fit or expedient or in the best interests of the Company so as to minimize the incidence of odd lots. The Warrants-C are attached to the Rights Shares without any cost and will be issued only to the Entitled Shareholders and/or their renouncees who successfully subscribe for the Rights Shares. The Warrants-C will be immediately detached from the Rights Shares upon issuance and separately traded on the Main Market of Bursa Securities. The Warrants-C will be issued in the registered form and constituted by a deed poll to be executed by the Company ( Deed Poll ). The indicative salient terms of Warrants-C are set out in Appendix I of this announcement. 7

8 Any unsubscribed Rights Shares with Warrants-C will be made available to the other Entitled Shareholders and/or their renouncees (if applicable) under the excess Rights Shares application. It is the intention of the Board to allocate the excess Rights Shares, if any, in a fair and equitable manner on a basis to be determined later by the Board and announced later by the Company Basis of determining the issue price of the Rights Shares and the exercise price for the Warrants-C (i) Rights Shares The issue price of the Rights Shares shall be determined and announced by the Board at a later date after obtaining all approvals for the Proposed Rights Issue with Warrants but before the Entitlement Date, after taking into consideration the following: (a) (b) (c) (d) the theoretical ex-rights price ( TERP ) of Astral Shares, based on the five (5)-day volume weighted average market price ( 5D- VWAMP ) of Astral Shares with a discount to the TERP if deemed appropriate by the Board prior to the price fixing date to be determined later by the Board. As at the date of this announcement, the Board has yet to determine the range of discount to be applied to the TERP of Astral Shares; the prevailing market sentiments at the point of price fixing; the par value of Astral Shares of RM0.10 (after the completion of the Proposed Par Value Reduction); and the funding requirements of the Group, details which are set out in Section of this announcement. In any event, the issue price of the Rights Shares shall not be lower than the par value of Astral Shares of RM0.10 each (after the completion of the Proposed Par Value Reduction). For illustrative purposes, the indicative issue price of the Rights Share is RM0.10 per Rights Share, representing a discount of approximately 13.64% from TERP of the Rights Shares of RM0.1158, based on 5D-VWAMP of Astral Shares up to and inclusive of 22 July The indicative issue price represents the par value of Astral Shares of RM0.10 each after the completion of the Proposed Par Value Reduction. 8

9 (ii) Warrants-C The Warrants-C are attached to the Rights Shares without any cost and will be issued only to the Entitled Shareholders who successfully subscribe for the Rights Shares, and are exercisable into new Astral Shares. The exercise price of Warrants-C shall be determined by the Board using market-based principles after obtaining all the approvals for the Proposed Rights Issue with Warrants but before the Entitlement Date. The exercise price shall take into consideration the following: (a) (b) (c) the 5D-VWAMP of Astral Shares preceding the price fixing date; the TERP of Astral Shares; and the par value of Astral Shares of RM0.10 each (after the completion of the Proposed Par Value Reduction). In any event, the exercise price of Warrants-C shall not be lower than the par value of Astral Shares of RM0.10 each (after the completion of the Proposed Par Value Reduction). The indicative salient terms of Warrants-C are set out in Appendix I Ranking of the Rights Shares and the new Astral Shares arising from the exercise of Warrants-C and/or new Warrants-A and Warrants-B to be issued pursuant to the adjustments in accordance to the provisions of the deed polls dated 30 June 2011 and 15 May 2013 for Warrants-A and Warrants-B, respectively as a result of the Proposed Rights Issue with Warrants ( Adjusted New Warrants ) The holders of Warrants-C and the Adjusted New Warrants will not be entitled to any voting rights or participation in any form of distribution and/or offer of further securities of the Company until and unless such holders of Warrants-C and Adjusted New Warrants exercise their Warrants-C and Adjusted New Warrants into new Astral Shares. The Rights Shares and the new Astral Shares to be issued arising from the exercise of Warrants-C and Adjusted New Warrants will, upon issuance and allotment, rank pari passu in all respects with the existing Astral Shares, save and except that the Rights Shares and the new Astral Shares shall not be entitled to any dividends, rights, allotments and/or any other forms of distribution, the entitlement date of which is prior to the date of issuance and allotment of the Rights Shares and the new Astral Shares arising from the exercise of Warrants-C and Adjusted New Warrants Listing and quotation An application will be made to Bursa Securities for the listing and quotation for the Rights Shares, Warrants-C and Adjusted New Warrants and the new Astral Shares to be issued pursuant to the exercise of the Warrants-C and Adjusted New Warrants on the Main Market of Bursa Securities. 9

10 Undertaking by shareholder and minimum subscription level The Board has determined to undertake the Proposed Rights Issue with Warrants on a minimum subscription level basis via the issuance of 100,000,000 Rights Shares together with up to 50,000,000 Warrants-C ( Minimum Subscription Level ), which will raise minimum gross proceeds of RM10.0 million based on the indicative issue price of RM0.10 per Rights Share. The minimum gross proceeds of RM10.0 million to be raised was determined by the Board after taking into consideration, amongst others, the funding requirements of the Group and the ability of the Group to raise financing. To meet the Minimum Subscription Level, the Company has obtained written unconditional and irrevocable undertakings from DCWC that he will not dispose any of his Astral Shares following this announcement up to the completion of the Proposed Rights Issue with Warrants and that he will subscribe in full for his entitlements to the Rights Shares with Warrants-C in respect of his direct shareholdings in Astral ( Undertaking ). In addition, DCWC has undertaken that he will subscribe for 99,400,000 Rights Shares with Warrants-C which are not subscribed for by the other shareholders of Astral pursuant to the Minimum Subscription Level ( Additional Undertaking ). A summary of the Undertakings and Additional Undertakings based on the Minimum Subscription Level is as follows: Shareholdings as at 22 July 2014 Rights Shares Entitlement Excess Rights Shares No. of Astral No. of Rights No. of Rights Shares % Shares % (1) Shares % DCWC 300, , ,400, Note: (1) Computed based on the Minimum Scenario where the maximum number of Rights Shares with Warrants-C available for subscription amounts to 809,556,620. As the Proposed Rights Issue with Warrants will be implemented based on the Minimum Subscription Level, no underwriting will be made for the Rights Shares with Warrants-C under the Proposed Rights Issue with Warrants. Notwithstanding the above, in the event that the Minimum Subscription Level is not achieved due to reasons beyond the control of the Company, the Proposed Rights Issue with Warrants will not be implemented. 10

11 Utilisation of proceeds Based on the indicative issue price of RM0.10 per Rights Share, the Proposed Rights Issue with Warrants is expected to raise gross proceeds of up to RM80,955,662 based on the scenario below, which will be utilised as follows: Minimum scenario: Maximum scenario: Assuming none of the Existing Warrants and ICULS are exercised and converted into new Astral Shares prior to the Entitlement Date and the Proposed Rights Issue with Warrants which is subscribed based on the Minimum Subscription Level. Assuming all the Existing Warrants and ICULS are exercised and converted into new Astral Shares prior to the Entitlement Date and all Entitled Shareholders fully subscribe for the entitlements of the Rights Shares with Warrants-C. Details of utilisation Note Minimum Scenario RM 000 Maximum Scenario RM 000 Expected timeframe for the utilisation of proceeds (from the date of listing of the Rights Shares) Funding for construction activities (1) 7,000 40,000 Within thirty six (36) months Funding for future property development and construction (2) - 32,644 Within thirty six (36) months activities to be identified Working capital (3) 1,800 7,112 Within thirty six (36) months Estimated expenses in relation to the Proposals (4) 1,200 1,200 Within one (1) month Total 10,000 80,956 Notes: (1) The Group expects to utilise up to RM40.0 million of the proceeds for its construction activities as follows: Minimum Scenario RM 000 Maximum Scenario RM 000 GBSB PPR Project (i) 4,000 4,000 PRSB PPR Project (i) 3,000 3,000 Kota Kinabalu, Sabah Project (ii) - 12,000 Jerlun, Kedah Project (ii) - 7,500 Cheras, Kuala Lumpur Project (ii) - 13,500 Total 7,000 40,000 (i) This relates to purchase of building materials for the PPR Projects. (ii) Barring unforeseen circumstances, ASC shall secure three (3) new projects by 31 December The new projects shall be completed within 36 months from the date of the execution of the contracts. (a) ASC had been invited to submit a proposal to the main contractor in order to assist the main contractor s submission of a tender to the state government of Sabah for the construction of 900 units of low cost housing in Kota Kinabalu, Sabah with a project value of RM125.0 million where the successfully tendered contractor for the project shall also acquire land for the project from the state government of Sabah at an indicative price of RM5.0 million. 11

12 (b) (c) ASC had been invited to submit a proposal to the main contractor in order to assist the main contractor s submission of a tender to the state government of Kedah for the construction of 700 units of low cost housing in Jerlun, Kedah with a project value of RM75.0 million where the successfully tendered contractor for the project shall also acquire land for the project from the state government of Kedah at an indicative price of RM4.0 million. ASC had been invited to submit a proposal to the main contractor for the construction of a 31-storey service apartment project in Cheras, Kuala Lumpur with a contract value of RM150.0 million where ASC s role is in the provision of steel, precast frame and aluminium formwork system. RM5.0 million from the proceeds will be used to purchase materials for the aluminium formwork system. Upon successful tender of the three (3) projects, the Group intends to allocate up to RM33.0 million from the proceeds as follows: Kota Kinabalu, Sabah Poject ) (RM 000) Jerlun, Kedah Project (RM 000) Cheras, Kuala Lumpur Project (RM 000) Total Acquisition of land 5,000 3,000-8,000 Building materials 4,500 3,000 5,500 13,000 Purchase and rental cost of machinery and equipment for the projects such as tower cranes, and mobile cranes, hydraulic excavators 2,500 1,500 3,000 7,000 Aluminium formwork system - - 5,000 5,000 12,000 7,500 13,500 33,000 (2) The proceeds and allocation have not been earmarked for specific projects or parcels of lands to be acquired at this juncture to provide flexibility in determining the ultimate use of the proceeds while providing comfort to shareholders that the proceeds will largely be used for the Group s major business segment (i.e. construction and property development as well as for future land banking activities). Such property development expenditure which include, but not limited to, contributions in respect of the intended developments of lands such as capital outlay and payment of landowners entitlements, mobilization fees, moving and temporary relocation costs, payments to contractors, suppliers and consultants and also contribution to the relevant authorities such as Tenaga Nasional Berhad, Syarikat Bekalan Air Selangor Darul Ehsan, Indah Water, Pejabat Tanah & Galian, Jabatan Kerja Raya as well as applications for permits in respect of the property development activities. (3) The proceeds have been earmarked to supplement the working capital requirements of the Group. The cash proceeds will be used to fund the day-to-day operations of the Group and is estimated to be utilised in the following manner: Minimum scenario (RM 000) Maximum scenario (RM000) Salaries to directors, management staff and 1,200 5,400 operational staff Rental of office Utilities Upkeep and maintenance Contingency expenses Total 1,800 7,112 The minimum scenario covers the period of 12 months whereas the maximum scenario covers the period of 36 months. 12

13 (4) The estimated expenses of approximately RM1.20 million consist of professional fees, fees payable to authorities, expenses to convene EGM, printing, advertising and any other ancillary expenses. In the event there is any excess/ deficit in the actual quantum of expenses in relation to the Proposals, such amount will be adjusted against the amount allocated for working capital purposes accordingly. The actual proceeds to be raised from the Proposed Rights Issue with Warrants is dependent on the final issue price for the Rights Shares and the subscription level of the Proposed Rights Issue with Warrants. Any variation in the actual proceeds raised will be adjusted against the amount allocated for the working capital purposes of the Group. Pending utilisation of the proceeds from the Rights Issue with Warrants for the abovementioned purposes, the proceeds will be placed in deposits with financial institution or short-term money market instruments as the Board may deem fit. The interest derived from the deposits with financial institution or any gain arising from short-term money market instruments will be used as the additional working capital of the Group. The exact quantum of gross proceeds to be raised from the exercise of the Warrants-C is dependent on the total number of Warrants-C exercised during the tenure of Warrants-C as well as the exercise price which will be determined at a later date. The proceeds to be raised from the exercise of Warrants-C shall be utilised for working capital and/or repayment of bank borrowings of the Astral Group of which the exact timeframe and the breakdown for utilization are not determinable at this juncture Proposed Amendment to the Memorandum of Association The Proposed Amendment to the Memorandum of Association entails the amendment to the Memorandum of Association of Astral to reflect the change in the par value of the ordinary shares of Astral from RM0.20 to RM0.10 as a result of the Proposed Par Value Reduction. Details of the Proposed Amendment to the Memorandum of Association are as follows: Memorandum of Association Clause no. Existing Provision Revised Provision 5 The capital of the Company is The capital of the Company is RM500,000, divided into RM500,000, divided into 2,500,000,000 ordinary shares of 5,000,000,000 ordinary shares of RM0.20 each. The shares in the original or any increased capital may be divided into several classes and there may be RM0.10 each. The shares in the original or any increased capital may be divided into several classes and attached thereto respectively any there may be attached thereto preferential, deferred or other special respectively any preferential, deferred rights, privileges, conditions or or other special rights, privileges, restrictions as to dividends, capital, conditions or restrictions as to voting or otherwise. dividends, capital, voting or otherwise. 13

14 3. RATIONALE FOR THE PROPOSALS (i) Proposed Capital Reduction The Proposed Capital Reduction would serve to rationalize the financial position of Astral by reducing the accumulated losses which would better reflect the value of the Group as represented by available assets. The Board is of the view that as part of the on-going effort to strengthen the Company s financial position, it is imperative that the accumulated losses be set-off. The set-off of the accumulated losses will enable the financial position of the Group to be more closely reflective of the value of the underlying assets of Group and to meet its objective of attaining a stronger financial position moving forward. (ii) Proposed Diversification In view of the requirements under Paragraph 10.13(1) of the MMLR, the Proposed Diversification becomes a necessary consequence of the Group s decision to carry out the PPR Projects. Furthermore, the Group s revenue derived from its existing electrical and electronics business has been fluctuating as described in Section 5.7 of this announcement. The Group continues to operate in a challenging environment due to uncertainty in the global economy and strong competition from other low cost producing countries such as China and other South East Asian countries. In view of the lackluster performance of the current business segment, the Group intends to diversify and expand its business activities to enhance its prospects through the Proposed Diversification. The Board believes that the Proposed Diversification would contribute positively to its future earnings and improve the financial position of the Group. The additional revenue contribution from construction, property development and property investment activities will provide the Group with an additional stream of earnings which is expected to enhance the Group s profitability and returns on shareholders fund. Notwithstanding that the Group does not have any immediate construction, property development or property investment projects in the pipeline other than the PPR Projects, the PPR Projects will provide a platform for the Group to establish its credentials in the construction business, and open up new construction project and property development opportunities for the Group. (iii) Proposed Rights Issue with Warrants The Board is of the opinion that the Proposed Rights Issue with Warrants is currently an appropriate avenue of fund raising for the Group after taking into consideration the following factors: (a) it will enable the Company to raise funds for the Group without incurring interest costs as compared to other means of financing such as bank borrowings or issuance of debt instruments. This will allow the Company to preserve cash flow for re-investment and/or operational purpose; 14

15 (b) (c) (d) (e) it reduces the gearing position and enhances the cash flow of the Group. With an improved gearing ratio, the Group would have the flexibility to further expand its operations by raising financing and/or acquisition of companies or businesses as and when attractive opportunities arise. A healthier cash flow will enable the Group to continue to fund its existing business; it will provide the shareholders of Astral with an opportunity to further increase their equity participation in the Company, via the issuance of new Astral Shares without diluting the existing shareholders shareholdings, assuming that all the Entitled Shareholders fully subscribe for their entitlements pursuant to the Proposed Rights Issue with Warrants. The Undertaking and Additional Undertaking allow DCWC to extend his support for the Proposed Rights Issue with Warrants which will facilitate the Group to raise the necessary funds; Warrants-C are intended to provide an incentive to the shareholders of Astral to subscribe for their entitlements and hence, providing them with the potential capital appreciation arising from the exercise of Warrants-C, depending on the future performance of the Astral Shares; and Warrants-C will enable Astral to raise further proceeds from the equity market for working capital purposes as and when the Warrants-C are exercised. (iv) Proposed Amendment to the Memorandum of Association The Proposed Amendment to the Memorandum of Association is intended to facilitate the change in the par value of the Company s ordinary shares from RM0.20 per Share to RM0.10 per Share to accommodate the Proposed Par Value Reduction. 4. RISK FACTORS The potential risk factors relating to the Proposals, which may not be exhaustive, are as follows: 4.1. Diversification risk Astral Group is principally engaged in the manufacturing of electronics and electrical products. The undertaking of the Proposed Diversification would expose the Group to new challenges and risks arising from construction, property development and property investment activities in which the Group has no prior experience. The new challenges and risks includes maximizing the plot ratios and space of the development projects, securing the services of competent professionals such as architects, surveyors, engineers, formulating effective marketing and sales strategies, forming an effective project team to oversee and manage the development and construction project. The Group seeks to mitigate this risk by leveraging on the competencies and experiences of the directors and key management who have been involved in the construction and property development industry as highlighted in Section of this announcement and to recruit professionals with relevant experience in construction, property development and property investment to complement these existing team members. 15

16 4.2. Competition risk Astral Group will face direct competition from both new entrants and existing players in construction, property development and property investment. The Group may also face further challenges as a new entrant in the construction, property development and property investment industries as it lacks the relevant track record and brand name as compared to existing players who enjoy the privilege of their established brand name and reputation in the abovementioned industries. The Group s competitiveness will largely depend on the ability of its management to secure strategically located land-bank for development and construction, supply of labour and building materials as well as to price its products competitively, to ensure the quality provided and timely delivery of development and to sell its properties. Failure by the Group to do so and to offer a property which meets or exceeds the expectations of its perspective customers (for a given price range) may have a bearing on its ability to sell such property. Nevertheless, the Group seeks to be competitive in construction, property development and property investment by being cost efficient through effective project management and cost control policies, providing quality products and competitive pricing and actively seeking new opportunity in those industries Risk of dependency on third party contractors/sub-contractors The Group s construction and property development businesses are dependent on the support of third party contractors/sub-contractors to ensure the continuous supply of services and construction materials. Although the Group will not be dependent on any single third party contractor, any substantial limitation of sub-standard performance of the third party contractors and their inability to supply sufficient labour, whether skilled or unskilled, and sufficient quality services and the increase in the cost of building materials will inevitably disrupt the progress and/or quality of the Group s operation and may cause an adverse effect on its profitability. The Group seeks to limit this risk by practicing prudence in its selection of third party contractors engaged for its projects as well as implementing control procedures such as careful planning, close monitoring of a project s progress and endeavoring prompt actions to ensure the overall positive progress of a project Political, economic and regulatory considerations Similar to other types of businesses, political and economic conditions as well as regulatory developments in Malaysia could have a material effect on the Group s foray into the construction, property development and property investment businesses and consequently the financial performance of the Group. Adverse political, economic and/or regulatory conditions or developments include but are not limited to risk of war, change in political leadership and environment, unfavourable changes in government policies, laws and legislation, nationalization, changes in interest rates, changes in methods of taxation and economic recession. For example, the construction and property development industries will be sensitive to, inter alia, interest rate movements, consumer sentiments, regulation and taxation changes or the gradual tightening of credit conditions. While the Group seek to limit the impact of such risks in its diversification by monitoring and adapting business strategies in response to major developments in the political, economic and regulatory environment, there is no assurance that any change to the above factors will not have a material adverse effect on the business and prospects of the Group s construction, property development and property investment businesses. 16

17 4.5. Dependency on key management personnel As in any other business, the Group s involvement in construction, property development and property investment depends largely on the abilities, skills, experience, competency and continued efforts of the directors and key management. The loss of any of the said directors and key management personnel without suitable and timely replacement, or the inability of the Group to attract and retain other qualified personnel, could adversely affect the PPR Projects and consequently, its revenue and profitability. Recognising the importance of the directors and key management, the Group will continuously adopt appropriate approaches to retain the key personnel. To avoid over dependence on any key personnel, the Company strives to attract qualified and experienced employees to complement the existing management team. This will in turn help to ensure continuity and competency of the management team Completion and delay in completion The timely completion of the projects to be undertaken by the Group is dependent on many external factors including, inter alia, the timely receipt of requisite licenses, permits or regulatory approvals, availability of construction materials, equipment, labour, financing and satisfactory performance of any sub-contractors appointed. Adverse development in respect of these factors can lead to interruptions or delays in completing a project, which can consequently result in cost overruns that affect the Group s profitability and cash flows. However, the Group will strive to complete the projects within the specified time through close project monitoring. Nonetheless, there is no assurance that any change to the abovementioned factors will not result in delay in the completion of the projects. DCWC and WKW, being Executive Directors of Astral, have been involved in the construction and property development business for years. With the experience of DCWC and WKW as well as the support of the Group s key management and consultants (namely, architects, engineers, surveyors, sub-contractors and other consultants), the Board is confident that the group has the required expertise to run the construction and property development business. In addition, the Group will seek to limit the business risk through, inter alia, effective human resources development strategies, market research and feasibility studies, product development, implement effect project management and cost control policies, undertaking prudent business strategies, monitoring consumers preference and lifestyle, reviewing operations and marketing strategies, no assurance can be given that any changes to these risks factors will not have a material adverse effect on the Group s business and earnings in the future. 17

18 5. INDUSTRY OVERVIEW AND FUTURE PROSPECTS 5.1. Overview of the Malaysian economy The Malaysian economy registered a strong growth of 6.2% in the first quarter of 2014 (4Q 2013: 5.1%), driven by a stronger expansion in domestic demand and a turnaround in net exports. On the supply side, the major economic sectors grew further, supported by both domestic and trade activities. Private sector activity remained the main driver of growth in the first quarter of 2014, with sustained strong growth in both consumption and investment activities. On a quarter-on-quarter seasonally adjusted basis, the economy recorded a growth of 0.8% (4Q 2013: 1.9%). The Overnight Policy Rate ( OPR ) was maintained at 3.00% during the first quarter of At the prevailing level of the OPR, monetary conditions remain supportive of economic activity. Going forward, recovery in the global economy is expected to continue. International trade will be supported by continued recovery in the advanced economies. In Asia, while domestic demand is expected to moderate, it will continue to underpin the overall performance of these economies, with additional support coming from the improving external conditions. Continued uncertainty over the monetary policy in key advanced economies, economic developments in both the advanced and emerging market economies, as well as geopolitical developments, are likely to generate continued volatility in the global financial markets. For the Malaysian economy, growth will remain anchored by domestic demand, with additional support from improvement in external environment. Exports will continue to benefit from the recovery in the advanced economies while private domestic demand is expected to remain the key driver of the overall growth. Going forward, the Malaysian economy is therefore expected to remain on a steady growth path and is expected to expand further by 5.0% - 5.5% in 2014 (2013: 4.5% - 5.0%). (Source: Economic and Financial Developments in Malaysia in the First Quarter of 2014, Bank Negara Malaysia and Economic Report 2013/2014, Ministry of Finance, Malaysia) 5.2. Overview of the Electronics and Electrical Industry in Malaysia Malaysia s manufacturing sector expanded by 3.4%, attributable to the continued strength in the domestic-oriented industries and better performance of the export-oriented industries in the second half of Production in the export-oriented industries was supported by stronger exports in both the electronics and electrical ( E&E ) and primary clusters, amid gradual recovery in the global economy. Domestic-oriented industries recorded sustained growth, mainly driven by robust private consumption and resilient construction activity. Demand for Malaysia s exports, particularly for E&E products, was affected by the slow growth in the US and weak economic activity in most of the European economies. The prolonged weak demand from the advanced economies had also affected several regional economies, which in turn led to slower demand for Malaysia s non-e&e products. The overall growth momentum in Asia is expected to be sustained, supported by the gradual improvement in external demand. However, the degree of improvement in exports could vary across the region. In some of the advanced Asian economies, export growth is projected to strengthen, benefitting from improved demand for consumer electronic products and industrial machineries, in line with the recovery in the advanced economies. 18

19 E&E exports will benefit from higher demand from the advanced economies while exports of non-e&e will be sustained by regional demand for resource-based products. The manufacturing sector further expanded by 6.8% in the first quarter of 2014 (4Q 2013: 5.2%), supported by stronger performance of the export-oriented industries and continued expansion of the domestic-oriented industries. The export-oriented industries advanced by 6.9% (4Q 2013: 3.8%), in line with better external trade performance during the quarter. Growth was driven primarily by the E&E cluster, particularly semiconductors. Domestic-oriented industries grew by 7.2% (4Q 2013: 8%), supported by the consumer-related cluster, particularly transport equipment. (Sources: Economic and Financial Developments in Malaysia in the First Quarter of 2014, Bank Negara Malaysia, and Bank Negara Malaysia, Annual Report 2013) 5.3. Overview of the property market in Malaysia Growth in the construction sector is projected to increase at a moderate pace of 9.6% in 2014 (2013: 10.6%) due to slower construction activity in the civil engineering subsector following the completion of several major infrastructure projects. However, the acceleration in implementation of transport and oil and gas related civil engineering projects will continue to support growth. Meanwhile, the residential subsector is expected to remain strong in view of the increased demand for housing, particularly from the middle-income group. The implementation of PR1MA housing project, is expected to accelerate to meet the target of providing 80,000 units of houses for the middleincome group by Activity in the non-residential subsector is expected to remain stable, albeit at a moderate pace, supported by buoyant business and industrial activities as well as improved consumer sentiment. From the supply perspective, the continued firm growth in domestic demand contributed to the expansion in the domestic-related activity in the services and manufacturing sectors during the year. The export-oriented industries in the manufacturing sector benefited from the improvement in external conditions in the second half of the year. The robust activity in the residential and civil engineering sub-sectors contributed to the continued strong growth of the construction sector. The construction sector is expected to continue recording high growth, albeit at a more moderate pace, as the completion of several large civil engineering projects will more than offset the progress in existing projects in the transport, utility, and oil and gas sectors. Growth remained strong in the construction sector (10.9%), owing to robust activity in the residential and civil engineering sub-sectors. Growth in the residential sub-sector was underpinned by the construction of high-end and high-rise properties in the Klang Valley, Penang and Johor. Investment in the transportation sub-sector was supported by the construction of the MY Rapid Transit (MRT) and further work on the Light Rapid Transit (LRT) extension. The strong performance of the equity market was primarily driven by the construction and property sectors amid expectations of the continuation of projects under the Economic Transformation Programme (ETP). 19