Kiatnakin Bank Public Company Limited

Transcription

1 Attachment 9 (Translation) Opinion of the Independent Financial Advisor on Connected Transaction (The Merger with Phatra Capital Public Company Limited) of Kiatnakin Bank Public Company Limited Prepared by Advisory Plus Company Limited March 23, 2012

2 Contents Page Executive Summary 4 1. Nature and details of the Transaction Type and size of the Transaction Total values of consideration and rules on specifying value of consideration Connected parties and nature of relationship Summary of the Merger Plan Objective and reason for shareholding and management restructuring Merger Plan Governance and management Merger Plan implementation procedure Material conditions precedent Details of assets acquired or disposed Summary information of Phatra Capital Public Company Limited Summary information of Kiatnakin Securities Company Limited Summary information of Kiatnakin Fund Management Company Limited Summary information of Kiatnakin Bank Public Company Limited Reasonableness of the Transaction Reasonableness and benefit of the Transaction Advantages and disadvantages of entering and not Entering into the Transaction Advantages and disadvantages between entering into the Transaction with a connected party and that with a third party, necessity for making the Transaction with a connected 81 party and reasons for not making the Transaction with a third party 4. Fairness of price and conditions for the Transaction Price appraisal of acquired assets and consideration value 82 (a) Price appraisal of share in Phatra Capital Public Company Limited 82 (b) Value appraisal of consideration - share in Kiatnakin Bank Public Company Limited 108 (c) Summary of price appraisal of assets to acquire, price appraisal of consideration, and appropriateness of the swap ratio Price appraisal of disposed assets (a) Price appraisal of share in Kiatnakin Securities Company Limited (b) Price appraisal of share in Kiatnakin Fund Management Company Limited Appropriateness of condition for entering into the Transaction Summary of opinion of the Independent Financial Advisor 179

3 AP 027/2012 March 23, 2012 Subject: To: Opinion of the Independent Financial Advisor on the Connected Transaction of Kiatnakin Bank Public Company Limited under the Merger with Phatra Capital Public Company Limited Audit Committee and Shareholders Kiatnakin Bank Public Company Limited The Board of Directors Meeting No. 2/2012 of Kiatnakin Bank Public Company Limited ( the Bank or KK ), held on February 27, 2012, passed a significant resolution on a business merger between the Bank and Phatra Capital Public Company Limited ( Phatra ) with details as follows: 1. Agreed to propose that the Annual General Meeting of Shareholders approve the merger with Phatra pursuant to the merger plan between the Bank and Phatra ( Merger Plan ), by making a tender offer to purchase all securities from all of Phatra s shareholders ( Tender Offer ) in order to delist Phatra securities from the Stock Exchange of Thailand ( SET ) under the condition that, at the end of the tender offer period, Phatra shareholders accepting the tender offer shall represent not less than 75% of the total number of shares sold of Phatra. The Bank will pay a consideration to Phatra shareholders who accept the tender offer, by issuing new ordinary shares of the Bank as a share swap at the swap ratio of 1 share of Phatra for share of the Bank. Nevertheless, the swap ratio is subject to changes under the incidents specified in the share sale and purchase agreements between the Bank s major shareholders and the Bank and between Phatra s major shareholders and Phatra ( Share Purchase Agreement ). 1 In this connection, the Meeting also agreed to propose that the Annual General Meeting of Shareholders approve the increase of the Bank s registered capital from Bt. 6,602,188,640 2, divided into 660,218,864 shares, to Bt. 8,523,327,680, divided into 852,337,268 shares by issuing up to 192,118,404 newly issued ordinary shares of the Bank at a par value of Bt. 10 per share to accommodate the share swap, as well as the allocation of newly issued ordinary shares of the Bank to 1 In the Share Purchase Agreement, there is an indication of the incidents bringing about changes of the swap ratio: 1) agreement by the seller and the buyer in writing on the different share trading price or the different swap ratio from originally specified; and 2) existence of incidents that may adversely affect the financial position, assets, and business operation or business operation potential of Phatra, the Bank, and/or companies under the Bank s supervision materially. 2 As of February 24, 2012, the Bank has a registered capital of Bt. 6,603,288,640. The Board of Directors Meeting agreed in the previous business agenda to propose that the Annual General Meeting of Shareholders approve the decrease of the registered capital from the said amount to Bt. 6,602,188,640, divided into 660,218,864 shares, at a par value of Bt. 10 per share. In this regard, 110,000 unissued capital shares, which are the ordinary shares left from those issued and offered for sale to directors and/or staff of the Bank and/or its subsidiaries pursuant to the resolution of the 2010 Annual General Meeting of Shareholders, will be discarded.

4 the PO placement who are shareholders of Phatra, in consideration for them accepting the tender offer to purchase all securities of Phatra, with the swap ratio of 1 share of Phatra for share of the Bank, at the offering price of Bt per share, which is the weighted average of the Bank s share price trading on the Stock Exchange of Thailand for 15 consecutive trading days prior to the date on which the Board of Directors resolves to propose the agenda to the Annual General Meeting of Shareholders for approval. (Calculation of the weighted average of the Bank s share price is for the period during February 6, February 24, 2012.) 2. Agreed to propose that the Annual General Meeting of Shareholders approve the transfer of all shares in Kiatnakin Securities Company Limited ( KKS ) and Kiatnakin Fund Management Company Limited ( KKF ) held by the Bank to Phatra. In this connection, according to the Merger Plan, the sale of shares in KKS and KKF will occur if the shareholders meeting of Phatra approves the delisting of the Phatra s securities from the SET and the delisting tender offer results in the Bank holding not less than 90% of Phatra s total shares sold. The tender offer to purchase all securities of Phatra by the Bank is regarded as the purchase or acceptance of a transfer of the business of another company under Section 107 of the Public Limited Company Act B.E (as amended), and the acquisition of assets under the Notification of the Capital Market Supervisory Board No. ThorChor. 20/2551 Re: Rules on Entering into Material Transactions Deemed as an Acquisition or Disposal of Assets ( Acquisition and Disposal Notification ). As the value of the transaction, evaluated by the value of securities issued as the consideration method, is 30.3% which is the highest value among the evaluation methods specified in the Acquisition and Disposal Notification, and is more than 15% but lower than 50%, the Bank is required to disclose the information in respect of this transaction to the SET and its shareholders but not required to request for approval from the shareholders meeting. However, in order to comply with the provision of Section 107 above, for entering into this transaction, the Bank shall request for an approval from the shareholders meeting to be resolved by a vote of not less than three quarters of the total number of votes of the shareholders who attend the meeting and are entitled to vote. In addition, the acquisition of the shares in Phatra from the major shareholders of Phatra, who will become the management of the Bank, is regarded as a connected transaction under the Notification of the Capital Market Supervisory Board No. ThorChor. 21/2551 Re: Rules on Connected Transactions ( Connected Transactions Notification ), the value of which is 27.1% of the net tangible assets of the Bank and its subsidiaries, calculated based on the consolidated financial statement of the Bank as of December 31, 2011, which is higher than 3% of the net tangible assets of the Bank and its subsidiaries. The Bank, therefore, shall request for approval from the shareholders meeting to be resolved by a vote of not less than three quarters of the total number of votes of the shareholders who attend the meeting and are entitled to vote for this transaction. The sale of shares in KKS and KKF is regarded as a sale or transfer of business of the Bank to another company under Section 107 of the Public Limited Company Act B.E (as amended), and a disposal of assets under the Acquisition and Disposal Notification, the value of which, evaluated by the value of the disposed assets method, is 4.4% which is the highest value among the evaluation methods specified in the Acquisition and Disposal Notification, when calculated based on the consolidated financial statement of the Bank as of December 31, In addition, when combining the value of this transaction with the value of the tender offer to purchase all securities of Phatra aforementioned, the total value will be 34.7% which is the highest value among the evaluation methods specified in the Acquisition and Disposal Notification, when calculated based on the consolidated financial statement of the Bank as of December 31, As the value of the transaction is more than 15% but lower than 50%, the Bank is required to disclose the information in respect of this transaction to the SET and its shareholders but not required to request for approval Page 2/ 180

5 from the shareholders meeting. However, in order to comply with the provision of Section 107 above, for entering into this transaction, the Bank shall request for an approval from the shareholders meeting to be resolved by a vote of not less than three quarters of the total number of votes of shareholders who attend the meeting and are entitled to vote. Moreover, as the major shareholders of Phatra will become the management of the Bank, the sale of shares in KKS and KKF to Phatra is regarded as a connected transaction under the Connected Transaction Notification, the value of which is 5.3% of the net tangible assets of the Bank and its subsidiaries, calculated based on the consolidated financial statement of the Bank as of December 31, 2011, which is higher than 3% of the net tangible assets of the Bank and its subsidiaries. The Bank, therefore, shall request for approval from the shareholders meeting to be resolved by a vote of not less than three quarters of the total number of votes of shareholders who attend the meeting and are entitled to vote for this transaction. In divesting the shares held in KKS and KKF, the Bank may consider providing a loan to Phatra to be used as a payment for share sale by the Bank. Such lending will not be considered a connected transaction under the Connected Transaction Notification because the interest rate as well as the terms and conditions of the loan will be the same as those that a reasonable person would be expected to agree upon with an unrelated counterparty under similar circumstances on an arm s length basis, which is in accordance with the Board of Directors approval. Therefore, the Bank is not required to seek approval from the shareholders meeting in order to provide this loan to Phatra. The Bank will propose the entering into the transaction above to the 2012 Annual General Meeting of Shareholders to be held on April 26, 2012 for further consideration and approval. It is required that the meeting invitation letter to be sent to the shareholders must be accompanied by the opinion of an independent financial advisor on (1) reasonableness and benefit of the transactions to the listed company, (2) fairness of price and conditions of the transactions, and (3) recommendation as to whether the shareholders should vote for or against the transactions together with the rationales. In this respect, the Bank has appointed Advisory Plus Co., Ltd. as the independent financial advisor ( IFA ) to provide such opinion for the Bank s shareholders. In providing our opinion, we have studied the information and documents available from the Bank, its subsidiaries, and Phatra and the publicly disclosed information such as board resolution and information relevant to the transactions, the Merger Plan, the annual registration statement (Form 56-1), the auditor report, the financial statements, the share purchase agreement, the assumptions for financial projection, and other documents obtained from the Bank and Phatra, the SET s statistical data on listed companies in the Financials Industry: Banking Sector and Finance and Securities Sector, as well as the information derived from interviews with the management of the Bank, its subsidiaries, and Phatra, and analysis of the industry situation and economic factors that will be used as data for our analysis and provision of opinion. The opinion given is based on the assumption that the information and documents available from the Bank, its subsidiaries, and Phatra and the information derived from the interviews with the management of the Bank, its subsidiaries, and Phatra are reliable, complete and accurate without any material change therein. We have considered such information thoroughly and reasonably according to the professional standards. Moreover, our consideration has been made based solely on the economic environment and the information prevailing at the time of this study. As such, if there is any significant change in these factors, it will likely pose a material impact on the business operation, the financial projection, the share price appraisal and the share swap ratio between the Bank and Phatra, as well as the Independent Financial Advisor s opinion and the shareholders decision. Therefore, we cannot affirm as to whether there will be any material impact that will likely be posed on the Bank in the future. Our opinion can be summed up as follows: Page 3/ 180

6 Executive Summary The Board of Directors Meeting No. 2/2012 of KK, held on February 27, 2012, passed the following crucial resolutions on the business merger between the Bank and Phatra: 1) Agreed to propose that the Annual General Meeting of Shareholders approve the merger with Phatra pursuant to the merger plan between the Bank and Phatra, by making a tender offer to purchase all securities from all of Phatra s shareholders to delist securities in Phatra from the SET under the condition that, at the end of the tender offer period, Phatra shareholders accepting the tender offer shall represent not less than 75% of the total number of shares sold of Phatra. The Bank will pay a consideration to Phatra shareholders who accept the tender offer, by issuing new ordinary shares of the Bank as a share swap at the swap ratio of 1 share of Phatra for share of the Bank. 2) Agreed to propose that the Annual General Meeting of Shareholders approve the transfer of all shares in KKS and KKF held by the Bank to Phatra. The sale of shares in KKS and KKF will occur if the shareholders meeting of Phatra approves the delisting of the Phatra s securities from the SET and the delisting tender offer results in the Bank holding not less than 90% of Phatra s total shares sold. In this regard, the selling price of shares held by KK in KKS will be equal to the book value of KKS. Based on the latest financial statement, provided in this case, it should be the financial statement as of June 30, 2012, the book value of KKS, as of December 31, 2011, is Bt million, and the selling price of shares held in KKF will be equal to the acquisition cost of shares paid by the Bank at Bt. 234 million. As the tender offer to purchase all securities of Phatra by the Bank is regarded as the purchase or acceptance of a transfer of the business of another company under Section 107 of the Public Limited Company Act B.E (as amended), and an acquisition of assets under the Acquisition and Disposal Notification, the value of which, evaluated by the value of securities issued as consideration method, is 30.3% which is the highest value among the evaluation methods specified in the Acquisition and Disposal Notification, and is more than 15% but lower than 50%, the Bank is required to disclose the information in respect of this transaction to the SET and its shareholders but not required to request for approval from the shareholders meeting. However, in order to comply with the provision of Section 107 above, for entering into this transaction, the Bank shall request for an approval from the shareholders meeting to be resolved by a vote of not less than three quarters of the total number of votes of the shareholders who attend the meeting and are entitled to vote. In addition, the acquisition of the shares in Phatra from the major shareholders of Phatra, who will become the management of the Bank namely Mr. Banyong Pongpanich Mr. Krittiya Veeraburus and Mrs. Patraporn Milindasuta, is regarded as a connected transaction under the Connected Transaction Notification, the value of which is 27.1% of the net tangible assets of the Bank and its subsidiaries, calculated based on the consolidated financial statement of the Bank as of December 31, 2011, which is higher than 3% of the net tangible assets of the Bank and its subsidiaries. The Bank, therefore, shall request for approval from the shareholders meeting to be resolved by a vote of not less than three quarters of the total number of votes of shareholders who attend the meeting and are entitled to vote for this transaction. With the inclusion of Phatra s financial status and operational result into the Bank s consolidated financial statement in proportion to the amount of equity shares it can acquire, the Bank will benefit from the growth in business size, including assets, liabilities, income, and net profit. The Bank will have stronger capital base after the capital increase to accommodate the share swap, which will enable the Bank to better absorb risk and create greater business opportunities. The Bank will diversify its source of revenues to the securities and capital market businesses that will help mitigate risk from depending on one particular business. In this connection, by entering into the transaction, the Bank will hold at least 75% of the total shares sold of Phatra and will have the almost full control Executive Summary Page 4/ 180

7 over the business of Phatra. This will ensure that the implementation under the Merger Plan will come out as planned. In addition, after the recapitalization, the Bank will have higher market capitalization by about Bt. 6,000 million, and a larger market share in the securities brokerage market, from 1.41% to 6.17%, after combining 4.76% market share of Phatra Securities with that of 1.41% of KKS, immediately pushing it up to ranking 2nd in term of market share (referring to market share data in 2011). However, the entering into the transaction will impact the existing shareholders of the Bank as regards the dilution of profit sharing and voting rights (control dilution) as resulted from the issuance of new ordinary shares as consideration to Phatra s existing shareholders in the share swap. Apart from this, the investment in Phatra shares will bring about higher risks to the Bank from having additional securities business operation and from a decline in goodwill value that may adversely affect its future performance. Moreover, the Bank may have to bear tax from gains on the KKS share sale if the book value of KKS based on the latest financial statement prior to the transaction (the share selling price) is higher than the Bank s acquisition cost of KKS. In addition, the differences in organization culture, nature of business operation, work process, procedure and standard, as well as management style between the two organizations may lead to conflicts or delay in the implementation of the Merger Plan and lower benefits from the Merger Plan than originally anticipated. The share swap ratio under the Merger Plan at 1 Phatra share for KK share, representing the offering price of Bt per share, is considered appropriate and fair. The share swap ratio under the Merger Plan is lower than that figured out by the IFA under the share valuation by the market value approach, from which valuated price of Phatra share is Bt Bt per share, and KK share is Bt Bt per share, and hence 1 Phatra share is eligible for KK share. In addition, the selling price of KKS set to be equal to book value of KKS according to the latest financial statement before the transaction, and the selling price of KKF set to be equal to acquisition price of KKF by KK, are considered appropriate and fair to the shareholders in line with the intra-group shareholding restructure under the Merger Plan and without the intention of profit making from share sale/purchase as in the case of general divestment of investment. We are of the view that all conditions pertaining to the transactions are appropriate. The Bank will take up at least 75% of total shares sold of Phatra to ensure nearly entire power of control over Phatra business, and hence achievement of the Merger Plan in a way that will benefit the Bank and meet the objectives set forth. The condition set on the sale of KKS shares and KKF shares held by the Bank to Phatra to be subject to the Bank s shareholding of at least 90% in Phatra will ascertain that the Bank s level of control over such subsidiaries via Phatra will not decrease in material respect. Significant conditions and conditions precedent set forth are procedures required by relevant laws and regulations. They are conditions prescribed in sale/purchase or merger transactions in general to ensure compliance with relevant laws, rules and regulations, and to attain the objectives of the Merger Plan, as well as to be fair to all the parties concerned. For all the above reasons, we are of the opinion that the shareholders will benefit from the transactions entered into by KK according to the Merger Plan, and recommend that the shareholders pass resolutions approving the Bank s business merger with Phatra according to the Merger Plan and other related transactions, comprising KK s tender offer for all securities of Phatra, its offering of newly issued ordinary shares, and its divestments of KKS shares and KKF shares to Phatra. Executive Summary Page 5/ 180

8 1. Nature and Details of the Transaction The Bank will make a tender offer to purchase all securities from all shareholders of Phatra and will offer its newly issued ordinary shares, as well as sell the shares held by the Bank in KKS and KKF to Phatra after obtaining the approval from its 2012 Annual General Meeting of Shareholders to be held on April 26, 2012, and completing all proceedings under the conditions precedent. The Bank will make a tender offer to purchase all Phatra from Phatra shareholders under the condition that, at the end of the tender offer period, Shareholders s Phatra accepting the tender offer shall represent not less than 75% of the total number of shares sold of Phatra. The Bank will pay a consideration to Phatra shareholders who accept the tender offer, by issuing new ordinary shares of the Bank for a share swap at the ratio of 1 Phatra share for KK share. In this connection, under the Share Purchase Agreement, Phatra will hold a meeting of shareholders to request an approval of the delisting of Phatra from the SET. The Bank will issue up to 192,118,404 new ordinary shares, with a par value of Bt. 10 per share, to accommodate the share swap, and will allocate such new shares for PO placement to Phatra shareholders as consideration for their acceptance of the tender offer at the above swap ratio. According to the Merger Plan, the Bank divestment shares held in KKS and KKF to Phatra will take place on condition that the shareholders meeting of Phatra has duly approved the delisting of Phatra from the SET and the delisting tender offer for all securities of Phatra has resulted in the Bank holding at least 90% of total shares sold of Phatra. Such tender offer is expected to be completed by the third quarter of After that, the Bank will transfer to Phatra all of its 64,999,993 shares in KKS, representing 99.99% of the total KKS shares, and 18,000,000 shares of KKF, representing 60% of the total KKF shares. In this connection, the KKS shares will be transferred to Phatra at book value based on the latest financial statement prior to the transaction, provided in this case, it should be the financial statement as of June 30, 2012, thereby the book value as of December 31, 2011 is Bt million or Bt per share. When calculated using the 64,999,993 shares that Phatra will buy from the Bank, the selling price of KKS shares will be Bt million. However, such value may change subject to KKS s operating results and dividend payment in the period from December 31, 2011 and the date of the latest financial statement before the transaction. The transfer of KKF shares will be at the price equal to the Bank s acquisition cost of KKF shares of Bt million. However, the Bank s transfer of KKF shares to Phatra will be subject to prior consent from the Government Pension Fund ( GPF ), which is KKF s shareholder holding 40.0% stake. The Bank is now in the process of negotiating with GPF. Nature and Details of the Transaction Page 6/ 180

9 1.1 Type and size of the transaction (1) Tender offer to purchase all securities of Phatra and offering of new ordinary shares of KK The tender offer to purchase all securities of Phatra by share swap with KK s new ordinary shares is regarded as the purchase or acceptance of a transfer of the business of another company under Section 107 of the Public Limited Company Act B.E (as amended), and an acquisition of assets under the Acquisition and Disposal Notification, the value of which is 30.3% which is the highest value among the evaluation methods of securities issued as consideration. Details are as follows: Number of the Bank s ordinary shares newly issued and offered to Phatra s shareholders 192,118,404 shares Number of the Bank s issued and paid-up shares as of February 24, ,648,264 shares Market price of the Bank s shares 32.20* Bt./share Value of securities issued as consideration 6, Bt. million Value of the Bank s issued and paid-up securities 20, Bt. million Value of the asset acquisition transaction 30.3 % Note: * Market price of KK shares refers to the weighted average price of its shares trading on the SET during 15 consecutive business days prior to the date on which the Board of Directors passed a resolution to propose the matter to the shareholders meeting, which equals Bt per share. (Calculation of weighted average of KK s share price during February 6, February 24, 2012.) Because the value of the asset acquisition transaction is higher than 15% but lowers than 50%, the Bank is duty-bound to disclose the information in respect of this transaction to the SET and its shareholders but it is not required to request an approval from the shareholders meeting. However, in order to comply with the provision of Section 107 of the Public Limited Company Act B.E (as amended), to enter into this transaction, the Bank shall request an approval from the shareholders meeting to be resolved by a vote of not less than three quarters of the total number of votes of the shareholders who attend the meeting and are entitled to vote. In addition, the make the tender offer for all Phatra shares by way of a share swap with KK s new ordinary is regarded as a connected transaction, the value of which is 27.1% of the net tangible assets of the Bank and its subsidiaries, calculated based on the consolidated financial statement of the Bank as of December 31, Details are as follows: Total value of consideration Number of the Bank s ordinary shares newly issued and offered to Phatra s shareholders Market price of the Bank s shares Total value of consideration 192,118,404 shares * Bt./share 6, Bt. million Remark: * Market price of KK shares refers to the weighted average price of its shares trading on the SET during 15 consecutive business days prior to the date on which the Board of Directors passed a resolution to propose the matter to the shareholders meeting, which equals Bt per share. (Calculation of weighted average of KK s share price during February 6, February 24, 2012.) Nature and Details of the Transaction Page 7/ 180

10 Financial information of the Bank as of December 31, 2011 (Unit: Bt. million) Total assets 189,326.7 Less Intangible assets Total liabilities 165,731.4 Minority interest Net tangible assets of the Bank (NTA) 22,867.7 Value of the connected transaction 27.1 % As the value of the connected transaction is higher than 3% of the net tangible assets of the Bank and its subsidiaries, the Bank shall request an approval from the shareholders meeting to be resolved by a vote of not less than three quarters of the total number of votes of the shareholders who attend the meeting and are entitled to vote for this transaction. (2) Sale of KKS shares and KKF shares to Phatra The sale of KKS shares and KKF shares to Phatra is regarded as a sale or transfer of business of the Bank to another company under Section 107 of the Public Limited Company Act B.E (as amended), and a disposal of assets under the Acquisition and Disposal Notification, the value of which is 4.4% which is the highest value among the evaluation methods of disposed assets. Details are as follows: Financial information of KKS as of December 31, 2011 (Unit: Bt. million) Total assets 1,357.7 Less Intangible assets 9.8 Total liabilities Minority interest - Net tangible assets of KKS (NTA) Disposal proportion 100.0% Net tangible assets of KKS (NTA) Financial information of KKF as of December 31, 2011 (Unit: Bt. million) Total assets Less Intangible assets 14.0 Total liabilities 9.2 Minority interest - Net tangible assets of KKF (NTA) Disposal proportion 60.0% Net tangible assets of KKF (NTA) Nature and Details of the Transaction Page 8/ 180

11 Total net tangible assets (Unit: Bt. million) KKS KKF Total net tangible assets disposed by the Bank 1,006.3 Net tangible assets of the Bank (NTA) 22,867.7 Value of the asset disposal transaction 4.4% In this connection, if calculating the value of the transaction based on (1) the tender offer to purchase all securities of Phatra and the offering of KK s newly issued ordinary shares, and (2) the sale of KKS shares and KKF shares to Phatra, the total value of the asset acquisition and disposal transactions will be 34.7% (the value of the Phatra asset acquisition transaction is 30.3%, and the value of the KKS and KKF disposal transaction is 4.4%), which is the highest value among the evaluation methods specified in the Acquisition and Disposal Notification, when calculated based on the consolidated financial statement of the Bank as of December 31, As the value of the transactions is more than 15% but less than 50%, the Bank is required to disclose the information in respect of the transaction to the SET and its shareholders, but not required to request an approval from the shareholders meeting. However, in order to comply with the provision of Section 107 above, to enter into this transaction, the Bank shall request an approval from the shareholders meeting to be resolved by a vote of not less than three quarters of the total number of votes of the shareholders who attend the meeting and are entitled to vote. The sale of KKS and KKF shares to Phatra is regarded as a connected transaction, the value of which is 5.3% of the net tangible assets of the Bank and its subsidiaries, calculated based on the consolidated financial statement of the Bank as of December 31, Total value of consideration (Unit: Bt. million) KKS - Selling price ** - Loan from the Bank as of December 31, KKF Total value of consideration 1,220.1 Net tangible assets of the Bank (NTA) 22,867.7 Value of the connected transaction 5.3% Remark: ** The selling price of KKS shares is calculated by using the book value of shareholders equity of KKS as of December 31, As the value of the connected transaction is higher than 3% of the net tangible assets of the Bank and its subsidiaries, the Bank shall request an approval from the shareholders meeting to be resolved by a vote of not less than three quarters of the total number of votes of the shareholders who attend the meeting and are entitled to vote on this transaction. In this connection, the tender offer to purchase all securities of Phatra, the offering of KK s new ordinary shares, and the sale of KKS and KKF shares to Phatra are subject to an approval from the shareholders meeting to be resolved by a vote of not less than three quarters of the total number of votes of the shareholders who attend the meeting and are entitled to vote and the fulfillment of all the material conditions precedent described in the Share Purchase Agreement (details of the material Nature and Details of the Transaction Page 9/ 180

12 conditions precedent are presented in Item Material conditions precedent). 1.2 Total value of consideration and rules on specifying value of consideration (1) Tender offer to purchase all securities of Phatra and offering of KK s new ordinary shares Total value of consideration Value of consideration for Phatra s shareholders who accept the tender offer to purchase all securities of Phatra is in form of KK ordinary shares newly issued and allocated by PO placement to Phatra shareholders who accept the tender offer, with the share swap ratio of 1 Phatra share for KK share, representing the offering price of Bt per share, which is the weighted average price of the Bank s shares traded on the SET for 15 consecutive trading days prior to the date on which the Board of Directors resolves to propose this agenda item to the Annual General Meeting of Shareholders for approval. Rules on specifying value of consideration The basis used for determining the consideration and calculating the share swap ratio is subject to the mutual intention and negotiation of the Bank and Phatra, taking into account the market prices of the Bank s and Phatra s shares, as well as the net asset value per share of the Bank and Phatra. (2) Sale of KKS shares and KKF shares held by the Bank Total value of consideration KK will receive payment for KKS shares and KKF shares in cash. KKS shares: The share price is equal to the book value of KKS based on the latest financial statement prior to the transaction, provided in this case, it should be the financial statement as of June 30, The book value of the shareholders equity of KKS as of December 31, 2011 is Bt million in total or Bt per share. When calculated using the 64,999,993 KKS shares that Phatra will acquire from the Bank, the selling price will be Bt million in total. However, such value may change subject to operating results and dividend payment during the period from December 31, 2011 to the date of the latest financial statement before the transaction. KKF shares: The share price is equal to the acquisition cost of the shares paid by the Bank in July 2011, which is Bt million. 1.3 Connected persons and nature of relationship (1) Tender offer to purchase all securities of Phatra and offering of the Bank s newly issued shares Buyer: Seller and relationship with the Bank: The Bank All shareholders of Phatra, including a group of major shareholders who will become the management of the Bank namely Mr. Banyong Pongpanich Mr. Krittiya Veeraburus and Mrs. Patraporn Milindasuta, as connected persons of the Bank Nature and Details of the Transaction Page 10/ 180

13 (2) Sale of KKS shares and KKF shares Seller: Buyer and relationship with the Bank: The Bank Phatra, who is considered as a connected person of the Bank as its major shareholders will become the management of the Bank namely Mr. Banyong Pongpanich Mr. Krittiya Veeraburus and Mrs. Patraporn Milindasuta. In this connection, according to the conditions pertaining to the sale of KKS shares and KKF shares held by KK, the share sale shall take place only in case Phatra s shareholder meeting resolves to approve the delisting of Phatra from the SET and the delisting tender offer results in the Bank holding at least 90% of total shares sold of Phatra. 1.4 Summary of the Merger Plan Objectives and rationale of shareholding and management restructure KK and Phatra foresee increasing business opportunities from their business merger that would combine their business operation potential and strengths in order to increase their business competitiveness and accommodate continued growth in all sectors of Thailand s macro economy. The merger is also a response to the continuous development of the capital market, and it will enhance competitiveness under changed business operation conditions, increased competition, and changes in rules and supervision in relation to relevant industries. As such, the Bank and Phatra have proposed a business plan in form of a merger with Phatra to establish a Kiatnakin-Phatra financial group by a share swap. the Bank will make the delisting tender offer and provide consideration in form of newly issued ordinary shares of KK at a swap ratio of 1 Phatra share for KK share, provided that, upon the end of the tender offer period, the number of shareholders accepting the tender offer must represent not less than 75% of the total shares sold of Phatra. After the tender offer, the Bank and Phatra will manage the Kiatnakin-Phatra financial group together by using their expertise in the commercial banking business and securities & capital markets business to enhance the overall value of the organization. In addition, part of the Merger Plan includes an acceptance of the transfer of shares in KKS and KKF currently held by KK to be under Phatra to increase efficiency in the business management in relation to the securities & capital markets business, on condition that the shareholders meeting of Phatra approves the delisting of Phatra shares from the SET and the delisting tender offer results in the Bank holding 90% or more of the total shares sold of Phatra. After the merger, both KK and Phatra will use their former names in operating their businesses to utilize the brand equity and image of both companies, which cover different customer bases. However, both KK and Phatra will be under the Kiatnakin-Phatra financial group, which will be the overall image of the organization, showing the close cooperation between KK and Phatra. Nature and Details of the Transaction Page 11/ 180

14 1.4.2 Merger Plan Shareholding structures of KK and Phatra before the merger Kiatnakin Bank Public Company Limited Phatra Capital Public Company Limited Shareholders of Kiatnakin Bank Shareholders of Phatra Capital 100% 100% Kiatnakin Bank Phatra Capital 99.93% 99.99% 60.00% 99.74% Erawan Law Office Kiatnakin Securities Kiatnakin Asset Management Phatra Securities Note: 1. The shareholding structure of KK shown above does not include the shareholding in the subsidiaries that are funds, altogether eight, in which KK has investment units. The funds were established to solve the financial institution system problems. 2. The other shareholders of KKF is the Government Pension Fund (GPF) held KKF s share 40% of total paid-up share of KKF Nature and Details of the Transaction Page 12/ 180

15 Transaction structure 1) Tender offer to purchase all securities of Phatra and offering of KK s new ordinary shares Shareholders of Kiatnakin Bank The Bank issues new shares Shareholders of Phatra Capital 100% 100% Phatra s shareholders sell shares by accepting Phatra Kiatnakin Bank the tender offer. Capital 99.93% 99.99% 60.0% 99.74% Erawan Law Office Kiatnakin Securities Kiatnakin Asset Management Phatra Securities Tender offer: Tender offer condition: Consideration payment: Approval by the The Bank will make a delisting tender offer for all securities of Phatra. At the end of the tender offer period, Phatra shareholders accepting the tender offer shall represent not less than 75% of the total number of shares sold of Phatra. The Bank will pay consideration to Phatra shareholders who accept the tender offer, by issuing new ordinary shares of the Bank, to effect a share swap at the ratio of 1 Phatra share for KK share. There will be no consideration payment in form of cash (as per the relaxation granted by the Takeover Panel on November 4, 2011). The Merger Plan is subject to an approval by the shareholders shareholders meeting: meeting to be resolved by a vote of not less than three quarters of the total number of votes of the shareholders who attend the meeting and are entitled to vote. The delisting of shares of Phatra from the SET must be approved by the shareholders meeting with a vote of not less than three-fourths of the total shares sold of Phatra, and there is no objection from more than 10% of the total shares sold of Phatra. Shareholding structure : After entering into the transaction, all shareholders of Phatra who accept the tender offer and consideration in form of newly issued ordinary shares of the Bank will become shareholders of the Bank, and the Bank will hold shares in Phatra, in accordance with the proportion of the shares whose holders have accepted the tender offer. Nature and Details of the Transaction Page 13/ 180

16 In this regard, RPIC Pte Ltd. ( RPIC ), which is a major shareholder of Phatra, and some of the executives of Phatra, collectively holding shares in the amount of 44.6% of Phatra s total shares sold, have agreed to sell all the Phatra shares held by them to the Bank via a tender offer under a Share Purchase Agreement with conditions precedent among the major shareholders of the Bank, the Bank, group of major shareholders of Phatra (RPIC and some of the executives of Phatra), and Phatra on February 27, Shareholding structures of KK and Phatra after the merger Shareholders of Kiatnakin Bank Shareholders of Phatra Capital 76.76% 2/ % 1/ * 18.50% 1/ % 2/ * Kiatnakin Bank 99.93% 99.99% 60.0% 75%-100%* Erawan Law Office Kiatnakin Securities Kiatnakin Asset Management Phatra Capital 99.74% Phatra Securities * Shareholding proportion is subject to numbers of Phatra shares of the shareholders who accept the tender offer. Under the Merger Plan, the shareholders accepting the tender offer must represent not less than 75% of the total shares sold of Phatra. 1/ In case shareholders of Phatra Capital accept the tender offer at 75% of total shares sold in Phatra 2/ In case shareholders of Phatra Capital accept the tender offer at 100% of total shares sold in Phatra. Nature and Details of the Transaction Page 14/ 180

17 2) Sale of KKS shares and KKF shares to Phatra KK will transfer all the shares held in KKS and KKF to Phatra to be aligned with the purpose of the Merger Plan to have Phatra to serve as the core in the operation of the securities and capital market-related businesses, and KK as the core in the commercial banking business. Shareholders of Kiatnakin Bank Shareholders of Phatra Capital / % 1/ * / % 2/ * Kiatnakin Bank Erawan Law Office 99.93% 99.99% 60.0% Kiatnakin Securities Kiatnakin Asset Management Business transfer Phatra Capital 99.74% Phatra Securities 90%-100%* * Shareholding proportion is subject to numbers of Phatra shares of the shareholders who accept the tender offer. Under the Merger Plan, the sale of shares in KKS and KKF will occur in case the tender offer results in the Bank holding at least 90% of the total shares sold of Phatra 1/ In case shareholders of Phatra Capital accept the tender offer at 90% of total shares sold in Phatral. 2/ In case shareholders of Phatra Capital accept the tender offer at 100% of total shares sold in Phatra. Share sale conditions : 1) Shareholders of Phatra approve the delisting of Phatra from the SET; and Share selling price and amount 2) After the completion of the tender offer, the Bank takes up at least 90% of the total shares sold of Phatra. KKS : KKF : Source of fund: 64,999,993 KKS shares, representing 99.99% of its total shares, at the selling price equal to the book value of KKS based on the latest financial statement prior to the transaction, provided in this case, it should be the financial statement as of June 30, ,000,000 KKF shares, representing 60.0% of its total shares, at the selling price of Bt. 234 million. Phatra s acquisition of KKS and KKF shares will either be selffinanced from its cash available as of the transaction date, or come from borrowings which may include a loan from KK, or the combination thereof for the share payment, depending on the cash status, liquidity, investment plan, and cash flow utilization plan as of the transaction date. Such loans will carry interest Nature and Details of the Transaction Page 15/ 180

18 Shareholding structure after the transaction rates and be under conditions to be agreed upon on an arm s length basis as if Phatra borrows from a non-connected party and in accordance with the principle approved by the Board of Directors. If KK is able to hold shares in Phatra amounting to 90% or more of the total shares sold after the completion of the tender offer, and Phatra s securities have been delisted from the SET, the shareholding structure after the transaction will be as follows: Shareholders of Kiatnakin Bank Shareholders of Phatra Capital / % / %* 21.41% 1/ % 2/ * Kiatnakin Bank 99.93% Erawan Law Office Phatra Capital 90% - 100%* 99.99% 60.0% 99.74% Kiatnakin Securities Kiatnakin Asset Management Phatra Securities * Shareholding proportion is subject to numbers of Phatra shares of the shareholders who accept the tender offer. Under the Merger Plan, the sale of shares in KKS and KKF will occur in case the tender offer results in the Bank holding at least 90% of the total shares sold of Phatra. 1/ In case shareholders of Phatra Capital accept the tender offer at 90% of total shares sold in Phatra. 2/ In case shareholders of Phatra Capital accept the tender offer at 100% of total shares sold in Phatra Governance and management After the merger, the management and business administration of KK and Phatra will be in a way that focuses on joint business undertakings, whether with regard to the financial institution business or the securities & capital markets business, and whether in the existing business areas or new business opportunities, leveraging on the positive potentials of both parties to create economic value added for the maximum benefits of the overall organization, regardless of which company by whom such business is undertaken. To ensure the management of the Group is carried out on a comprehensive and integrated basis, Phatra s and KK s executives have discussed and determined preliminary management guidelines as follows: Nature and Details of the Transaction Page 16/ 180

19 Post-merger Group management structure KK s Board of Directors Group Executive Committee Group CEO Commercial Banking Group Securites & Capital Market Group CEO CEO Management Committee Management Committee The preliminary guidelines for the governance and management structure will be in the nature of joint management by the executives of KK and Phatra. The Board of Directors of KK will determine the business operation policy and strategic plans of KK and companies under its supervision. The Group Executive Committee, composed of representatives from KK and Phatra, will be responsible for determining the policy, strategic plan, and operational targets of KK and companies under its supervision, and mapping business plan and annual budget of KK and companies under its supervision to be proposed to the Board of Directors of KK. The management of the Kiatnakin-Phatra financial group will consist of Group CEO, as appointed by the Group Executive Committee, whose power and responsibilities will include working out the detailed business plan. The management of KK will be in accordance with the consolidated supervision policy and guidelines, as well as guidelines regarding corporate governance of financial institutions and other relevant rules and regulations of the Bank of Thailand. This will allow for wider ranging joint business opportunities of both the commercial banking group and the securities & capital markets group. Preliminary details of the Board of Directors and committees are as follows: Board of Directors Group Executive Committee To consist of not more than 15 directors, whereby the major shareholders of KK will propose the names of not more than 5 persons to be appointed as directors, RPIC will propose the names of not more than 2 persons to be appointed as directors, 6 persons will be independent directors, the CEO of commercial bank group, and the CEO of securities & capital markets group. The directors of KK are subject to approval by the Bank of Thailand. To consist of 6 members, 3 of whom are representatives from major shareholders of KK and 3 are from RPIC, responsible for implementation of the policies and strategies of the Group. Nature and Details of the Transaction Page 17/ 180

20 Board of Directors of Phatra To consist of not more than 13 directors, of whom 3 are representatives from the major shareholders of KK whose names will be proposed for appointment, 4 are representatives from RPIC whose names will be proposed for appointment, 4 independent directors, the CEO of commercial bank group, and the CEO of securities & capital markets group. The directors of KK are subject to approval by the Office of the SEC. The management team of KK (subject to approval by the Bank of Thailand), Phatra and other companies under the Kiatnakin-Phatra financial group will be as follows: Group CEO CEO of Commercial Bank Group CEO of Securities & Capital Markets Group Mr. Banyong Pongpanich Mr. Tawatchai Sudtikitpisan Mr. Aphinant Klewpatinond Merger Plan implementation procedure Implementation period February 27, 2012 March 15, 2012 March 16, 2012 April 10, 2012 (Not less than 7 days prior to the Annual General Meeting of Shareholders) At least 14 days prior to the Annual General Meeting of Shareholders April 25, 2012 April 25, 2012 Major shareholders of KK and KK The Board of Directors approves the matters related to the merger Merger Plan implementation procedures Major shareholders of Phatra and Phatra The Board of Directors approves the matters related to the merger Sign all relevant agreements, including other documents and agreements necessary for the accomplishment of the merger The record date for determining the shareholders who have the right to attend the 2012 Annual General Meeting of Shareholders The book-closing date for shareholders who have the right to attend the Annual General Meeting of Shareholders KK sends its shareholders the invitation notice which includes the opinions of the independent financial advisor. The record date for determining the shareholders who have the right to attend the 2012 Annual General Meeting of Shareholders The book-closing date for shareholders who have the right to attend the Annual General Meeting of Shareholders The meeting to give presentation and brief the investors on the merger plan and the delisting of Phatra s securities from the SET Phatra sends its shareholders the invitation notice which includes the opinions of the independent financial advisor Annual General Meeting of Shareholders to consider and approve the matters related to the merger 2012 Annual General Meeting of Shareholders to consider and approve the matters related to the merger Nature and Details of the Transaction Page 18/ 180

21 Implementation period April 26, 2012 May 16, 2012 May 17, 2012 After the Annual General Meeting of Shareholders of KK and Phatra By the 3rd quarter of 2012 After the tender offer Major shareholders of KK and KK 2012Annual General Meeting of Shareholders to consider and approve the matters related to the merger The record date for determining the shareholders who have the right to receive dividends The book-closing date for shareholders who have the right to receive dividends of KK Request permission and approval from the relevant regulatory authorities, including: 1. Permission from the Bank of Thailand with regard to related matters 2. Filing to the Office of the SEC for offering of newly issued ordinary shares to the shareholders of Phatra as consideration for the tender offer 3. Approval of the restructuring plan from the Office of the SEC and the SET 4. Permission from the Office of the SEC to change the major shareholders, Board of Directors and executives of KKS and KKF 5. Permission to amend the conditions or restrictions that will affect the parties with regard to the merger from trade partners or other contractual parties, as mutually agreed upon Commence the tender offer after KK has obtained permission from the relevant regulatory authorities and all conditions precedent under the share purchase agreement have been fulfilled or waived Transfer the shares in KKS and KKF in accordance with the conditions to be agreed upon in the related agreements Merger Plan implementation procedures Major shareholders of Phatra and Phatra The record date for determining the shareholders who have the right to receive dividends The book-closing date for shareholders who have the right to receive dividends of Phatra Request permission from the Office of the SEC to change the major shareholder, Board of Directors and executives of Phatra Securities Provide reasonable support to KK in requesting permission and approval from the relevant regulatory authorities Permission to amend the conditions or restrictions that will affect the parties with regard to the merger from trade partners or other contractual parties as mutually agreed upon Accept the transfer of the shares of KKS and KKF in accordance with the conditions to be agreed upon in the related agreements Nature and Details of the Transaction Page 19/ 180

22 1.4.5 Material conditions precedent (1) Tender offer to purchase all securities of Phatra and the offering of the Bank s newly issued ordinary shares KK obtains the Bank of Thailand s approval to enter into the merger according to the plan mutually agreed upon by all parties; and the consolidated supervision plan of KK as agreed by all parties is approved by the Bank of Thailand; RPIC, who is the major shareholder of Phatra, is granted approval by the Board of Directors and the shareholders meeting, with regard to the sale and purchase of shares, the merger and relevant acts as necessary under the relevant laws and regulations; KK obtains the approval from the Office of the SEC to issue and offer for sale newly issued ordinary shares to the public and to become a major shareholder of Phatra Securities; Representatives of the major shareholders of KK obtain the approval from the Office of the SEC to become a major shareholder, director or manager of Phatra Securities; Representatives of the group of major shareholders of Phatra obtain the approval from the Bank of Thailand to become a major shareholder, director, manager or person with the management power of KK; Representatives of the group of major shareholders of Phatra obtain the approval or approval in principal (as the case may be) from the Office of the SEC to become a director or a manager of KKS and KKF; Phatra obtains the approval or approval in principal (as the case may be) from the Office of the SEC to become a major shareholder of KKS and KKF; KK and Phatra are granted approval by the Board of Directors meeting or the shareholders meeting to enter into the merger and the relevant acts necessary in implementing the merger; KK and/or Phatra obtain approvals, consents or waivers from the contract parties or third parties under any documents or agreements to which KK and the companies under its supervision and Phatra and Phatra Securities are parties or which relate to them, including Phatra Securities obtaining approval under the Business Cooperation Agreement from Merrill Lynch International Incorporated with regard to the change of shareholding structure of Phatra Securities; KK is granted approval by the annual general meeting in 2012 to appoint the 5 new directors nominated by the group of major shareholders of Phatra; There are no circumstances having a material adverse effect on the financial condition, assets or business operations of KK and the companies under its supervision or Phatra and Phatra Securities (as the case may be); Nature and Details of the Transaction Page 20/ 180

23 There are no circumstances or changes in any relevant laws, regulations or rules that would make it impractical to lawfully consummate the merger; no changes in any relevant laws, regulations or rules that could materially and adversely effect the operations or condition of KK and/or the companies under its supervision or Phatra and/or Phatra Securities; and no circumstances or changes in any relevant laws, regulations or rules that could materially and adversely effect the merger or cause substantial burdens in the performance of duties under the Share Purchase Agreement; and There is no material breach of contact in the form of an act or omission by any party as specified in the Share Purchase Agreement. (2) Sale of shares in KKS and KKF to Phatra The material conditions pertaining to the share sale transaction are set in that the shareholders meeting of Phatra approves the delisting of Phatra s securities from the SET and the delisting tender offer to purchase all securities of Phatra results in the Bank holding not less than 90% of Phatra s total shares sold. However, in order for KK to be able to transfer the shares in KKF to Phatra, KK must have obtained a consent from the Government Pension Fund, which is also a shareholder in KKF, holding 40% of all the shares, for which KK is in the process of obtaining such consent from the Government Pension Fund. Other material conditions Phatra and KK agree to omit some actions that may cause the change in the enterprise value or the type of business operation that is not in the normal course of business, including dividend payment or declaration to pay the dividend, except in the event that KK and Phatra pay or declare to pay the annual dividend in the amount consistent with the swap ratio at KK share to 1 Phatra share. The parties under SPA provide representations and warranties thereby a clause on indemnity is in place to take effect in case of a breach of the representation and warranty, which is normal for this type of transaction. After the settlement of the delisting tender offer and the transfer of the shares, KK agrees to sell to KKS shares at the price equivalent to book value of KKS and KKF shares at the price equivalent to the acquisition cost of KK, upon the end of the delisting tender offer period, KK holds shares in Phatra at 90% or more of the total shares sold of Phatra and the shareholders meeting of Phatra approves the delisting of securities of Phatra from the SET. Nature and Details of the Transaction Page 21/ 180

24 1.5 Details of assets acquired or disposed Executive summary of Phatra Capital Public Company Limited (1) Overview of the business Phatra Capital Public Company Limited ( Phatra ) was registered and established as a holding company on 1 April 2010 under the business restructuring plan of Phatra Securities Public Company Limited ( Phatra Securities ), which was approved by Phatra Securities Annual General Meeting of Shareholders, held on April 22, 2010 ( Restructuring Plan ). On October 19, 2010, Phatra was granted an approval from the Office of the SEC to issue and offer its newly issued securities to the public, which aimed to offer for sale to the shareholders of Phatra Securities as consideration for a share swap at a rate of 1 share in Phatra to 1 share in Phatra Securities under the tender offer to purchase all securities of Phatra Securities pursuant to the Restructuring Plan. At the end of the tender offer period 3, Phatra acquired 98.51% of the total ordinary shares sold of Phatra Securities, making Phatra Securities become a subsidiary of Phatra since then. On December 29, 2010, Phatra Securities sold and transferred the securities under its Investment Group s investment portfolio to Phatra in accordance with the Restructuring Plan. Thus, at the end of 2010, Phatra had the investments of Bt. 1,422.8 million, which were transferred from Phatra Securities at the market price as at the date of share transfer and were entirely a equity shares listed on the SET. In addition, in complying with the Restructuring Plan, Phatra accepted the transfer of personnel from Investment Group and managerial personnel from Phatra Securities to run the investment business at Phatra. And Phatra would operate its securities business via Phatra Securities. On January 5, 2011, Phatra s ordinary shares were listed on the SET, replacing those of Phatra Securities, which were delisted from the SET on the same day in accordance with the Restructuring Plan. During 2010, Phatra had purchased 2,637,038 ordinary shares of Phatra Securities (1.24%) remained from the minority shareholders at the price of Bt per share, or in a total amount of Bt million. Therefore, as at 31 December 2011 Phatra s shareholding portion in Phatra Securities increased to 99.74% of the total ordinary shares sold of Phatra Securities. At the end of 2011, Phatra had a registered capital of Bt. 1,067,510,000, paid up of Bt. 1,051,551,200, divided into 210,310,240 ordinary shares with a par value of Bt. 5 per share. Phatra had one subsidiary, namely Phatra Securities, which had a registered capital of Bt. 1,100,000,000, of which Bt. 1,067,500,000 was paid, and in which Phatra holds a 99.74% stake. Nature of business Phatra operates as a holding company and engages in an investment business. It has Phatra Securities as a subsidiary through which it operates the securities business. With respect to the investment business, Phatra makes investments under an approval framework of its Board of Directors and Executive Committee. Also, it had the Investment Committee, which was appointed by the Executive Committee to consider and approve the entering into investment each time and to determine a proper return rate and risk level. The investment, a tenor of which is 1-5 years in average, was heavily made in equity or equity-link securities both onand off- stock exchange market. Phatra has periodically conducted an assessment of risk from a 3 The tender offer period started on October 20, 2010 and ended on December 24, Summary information of Phatra Page 22/ 180

25 change of securities price (market risk), and had always kept track of the performances of the companies in which it has invested for monitoring and assessment purposes. Business of the subsidiary (Phatra Securities) After the business restructuring, Phatra has Phatra Securities as its subsidiary, engaging in the securities business. Phatra Securities owns the permit issued by the Ministry of Finance to operate 8 types of securities business, comprising securities brokerage, securities trading, securities underwriting, investment advisory service, mutual fund management, private fund management, securities borrowing and lending, and venture capital management. To date, Phatra Securities has not commenced the last 3 businesses. In addition, Phatra Securities is licensed by the Office of the SEC to conduct 4 types of derivatives businesses, i.e. derivatives agency, derivatives dealing, derivatives advisor and derivatives fund management, although Phatra Securities has not yet commenced the last 2 businesses. Phatra Securities became a member of the Thailand Future Exchange ( TFEX ) in 2005, and was registered as a derivatives dealer with the Office of the SEC in In addition to the above, Phatra Securities is registered as a Type A advisor, providing financial advisory services to the Ministry of Finance, and it has obtained approval from the Office of the SEC to act as a financial advisor and unit selling and redemption agent. As of December 31, 2011, Phatra Securities operates the following 4 main businesses: (1) Securities brokerage Phatra Securities provides securities brokerage services to domestic and foreign institutional customers and high net worth individuals. It is SET Member No. 6. In 2011, Phatra Securities gains the securities brokerage s market share of 4.76% of the combined trading volume on the SET and the Market for Alternative Investment (MAI), ranking no. 8 among altogether 33 stock exchange member companies. (2) Investment banking Phatra Securities conducts an investment banking business, providing financial advisory services and securities underwriting services to domestic corporate banking customers in public and private sectors. Its past achievements include the securities underwriting services provided to PTT Public Company Limited, Kasikorn Thai Bank Public Company Limited, Thai Airways International Public Company Limited, Thaioil Public Company Limited, Glow Energy Public Company Limited, Airports of Thailand Public Company Limited, Rayong Refinery Public Company Limited, Thai Beverage Public Company Limited, ESSO (Thailand) Public Company Limited, the companies under the Charoen Pokphand Group, etc. (3) Investment services Phatra Securities manages proprietary portfolio for Phatra Securities via the Equity & Derivatives Trading Group, which would invest in equity and equity-link securities in stock exchange and derivatives market in a short term of not over one year. (4) Derivatives agency business Phatra Securities starts its derivative agency business on April 28, 2006 when the derivatives market was open for services. Summary information of Phatra Page 23/ 180

26 In 2011, Phatra Securities captured a 3.38% derivatives agency market share, ranking no. 13 among altogether 42 member companies. Revenue structure of Phatra and its subsidiary during As Phatra was established in accordance with Phatra Securities s Restructuring Plan and the business merger was purposed to integrate as businesses combination under common control, the 2010 revenue structure included the subsidiary s performance as if the merger had duly taken place since the beginning of the year, while the 2009 revenue structure used for comparative purpose was solely of Phatra Securities. 1. Brokerage fee income 1.1 Securities brokerage fees Brokerage fees - institutional customers Bt. million % Bt. million % Bt. million % - Foreign Local Brokerage fees - individual customers Total brokerage fee income Derivatives brokerage fees Brokerage fees - institutional customers - Local Foreign Brokerage fees - individual customers Total derivatives brokerage fees income Selling agent brokerage fees Total brokerage fees income , Fee and service income Income from securities underwriting Income from financial advisory services Income from securities borrowing and lending Income from other fees Total fees and services income Gains (losses) from investments Unrealized gains (loss) from trading securities (17) (1.19) (7) (0.27) (16) (0.68) Gains (losses) from a sale of trading securities (165) (11.94) (55) (2.25) (535) (23.04) Gains (losses) from a sale of available-for-sale securities Total gains (losses) on securities (12) (0.85) Gains on derivatives Summary information of Phatra Page 24/ 180

27 5. Interest and dividend Bt. million % Bt. million % Bt. million % Interest Dividends Total interest and dividend Reversal of losses from impairment of investments Other income Total revenues 1, , , (2) Board of directors and shareholders Board of Directors of Phatra, according to its affidavit as of 5 January 2012, consists of 12 persons. No. Name Position 1. Mr. Banyong Pongpanich Chairman 2. Mr. Suvit Mapaisansin Director 3. Mr. Veravat Chutichetpong Director 4. Mr. Supavud Saicheua Director 5. Mrs. Patchanee Limapichat Director 6. Mr. Norachet Sangruji Director 7. Mr. Anya Khanthavit Director 8. Mr. Aphinant Klewpatinond Director 9. Mr. Anumongkol Sirivedhin Independent Director and Audit Committee Chairman 10. Mr. Varakorn Samakoses Independent Director and member of the Audit Committee 11. Mrs. Uthai Tanlamai Independent Director and member of the Audit Committee 12. Mr. Pongtep Polanun Independent Director and member of the Audit Committee The authorized directors include Mr. Suvit Mapaisansin, Mr. Supavud Saicheua, Mrs. Patchanee Limapichat, Mr. Norachet Sangruji, and Mr. Aphinant Klewpatinond. Any two of the above directors are authorized to jointly sign on behalf of Phatra with company seal affixed. In this connection, after the business merger, there may be changes in the name list and the number of Phatra s directors. According to the Merger Plan, the Board of Directors of Phatra must consist of not more than 13 directors, with 3 representatives from the major shareholders of KK whose names will be proposed to be appointed, 4 representatives from RPIC whose names will be proposed to be appointed, and 4 independent directors. The directors of Phatra must have obtained approval from the Office of the SEC. Summary information of Phatra Page 25/ 180

28 Shareholders As of 16 March 2012 (most recent closing date of shareholder register book to determine the list of shareholders entitled to attend the Annual General Meeting of the shareholder for 2012), Phatra has a registered capital of Bt. 1,067,510,000, of which Bt. 1,051,551,200 is paid up, divided into 210,310,240 shares at Bt. 5 per share. Details of shareholders were demonstrated in the table below. Name of shareholders Number of Shares % Of the Phatra s paidup shares 1. Credit Suisse, Hong Kong Branch* 78,399, Ramkhamhaeng Hospital Public Company Limited 20,818, Thai NVDR Company Limited 7,745, Nortrust Nominees Limited-NT0 Sec Lending Thailand 6,187, Miss Rirkkajee Karnchanapitak 5,735, Mr. Suvit Mapaisansin 5,505, Mr. Supachai Suthipongchai 3,249, Aberdeen Long Term Equity Fund 3,138, Mr. Banyong Pongpanich 2,557, Mr. Veravat Chutichetpong 2,550, Total - Top 10 major shareholders 135,887, Others 74,422, Total 210,310, Source: Thailand Securities Depository Company Limited Note: * Credit Suisse, Hong Kong Branch holds shares on behalf RPIC Pte. Ltd., which as of December 30, 2011 has the following persons as beneficial shareholders No. Name Number of Shares Shareholding Portion (Percentage) 1. Mr. Banyong Pongpanich 1, Mr. Suvit Mapaisansin 1, Mr. Supavud Saicheua 1, Mrs. Patchanee Limapichat 1, Mr. Aphinant Klewpatinond 1, Mr. Veravat Chutichetpong Mr. Norachet Sangruji Mrs. Patraporn Milindasuta Mr. Krittiya Veeraburus Summary information of Phatra Page 26/ 180

29 No. Name Number of Shares Shareholding Portion (Percentage) 10. Mr. Trairak Tengtrirat Mr. Therapong Vachirapong Others 6, Total 18, Expected shareholding structure after the tender offer to purchase all securities of Phatra Pursuant to the Merger Plan, KK would make a tender offer to purchase all securities of Phatra s shareholders in order to delist Phatra s securities from the SET, under the condition that, at the end of the tender offer period, Phatra shareholders accepting the tender offer shall represent not less than 75% of the total number of shares sold of Phatra. In event that all shareholders of Phatra accept the tender offer, KK will hold 100% of the total shares sold of Phatra. After the Tender Offer No. Shareholders KK s tender offer results in acceptance of 75% of the shares in Phatra 2/3/ KK s tender offer results in acceptance of 100% of the shares in Phatra Number of Shares Percentage Number of Shares Percentage 1. Wattanavekin Group 195,677, ,677, CREDIT SUISSE AG, HONG KONG BRANCH 1/ 71,618, ,618, Thai NVDR Company Limited 52,077, ,077, CHASE NOMINEES LIMITED 42 31,332, ,332, Ramkhamhaeng Hospital Public Company Limited 29,655, ,655, CHASE NOMINEES LIMITED 30 22,466, ,466, HSBC BANK PLC-CLIENTS GENERAL A/C 20,370, ,370, STATE STREET BANK EUROPE LIMITED 19,284, ,284, THE BANK OF NEW YORK (NOMINEES) LIMITED 16,918, ,918, NORTRUST NOMINEES LIMITED-NTGS 16,543, ,543, Total - Top 10 major shareholders 475,944, ,944, Others 302,792, ,822, Note: Total 778,737, ,766, / 2/ 3/ The share held by CREDIT SUISSE AG, HONG KONG BRANCH is shares held on behalf of RPIC Pte Ltd Assuming that the major shareholders of Phatra, including the Thai NVDR Company Limited, CREDIT SUISSE AG, HONG KONG BRANCH and Ramkhamhaeng Hospital Public Company Limited, have accepted the tender offer for all the share held. List of shareholders of Phatra as of March 16, 2012 Summary information of Phatra Page 27/ 180

30 (3) Summary of operating results and financial position Summary of financial positions and operational results of Phatra and its subsidiary during Since Phatra is a holding company newly established on 1 April 2010, the 2009 financial statements demonstrated are those of Phatra Securities before the business restructuring. And the 2010 financial statements had figures which included the financial statements and operational results of Phatra Securities and the items in the section of shareholders equity were demonstrated as if the businesses merger had been conducted since the beginning of Statements of financial positions Assets (Before the restructuring) Phatra Securities s financial statements (After the restructuring) Phatra s consolidated financial statements Bt. million % Bt. million % Bt. Million % Cash and cash equivalents , Current investment - net 1, , , Receivables from Clearing House Securities and derivatives business receivables 1, , , Derivatives assets Other current assets Total current assets 4, , , Available-for-sale investments - net 1, , , Other long-term investments - net Property, premises and equipment - net Intangible assets - net Accrued income tax receivable Other non-current assets Total non-current assets 1, , , Total assets 5, , , Liabilities and shareholders equity Payables to Clearing House Securities and derivatives business payables 1, , , Derivatives debentures Derivatives liabilities Accrued corporate income tax Deferred income taxes liabilities Summary information of Phatra Page 28/ 180

31 (Before the restructuring) Phatra Securities s financial statements (After the restructuring) Phatra s consolidated financial statements Bt. million % Bt. million % Bt. Million % Other liabilities Total current liabilities 2, , , Employee benefit commitment Other non-current liabilities Total non-current liabilities Total liabilities 2, , , Shareholders equity Registered capital 1, , , Paid-up capital 1, , , Premium on shares 1, Retained earnings - statutory reserve Retained earnings - unappropriated Other components of shareholders equity Gain on changes in value of available-for-sale investments Adjusted entries from the business merger pursuant to the Restructuring Plan under common control , , Total other components of shareholders equity , , Total shareholders equity - parent company 3, , , Non-controlling stakeholders portions - subsidiary Total shareholders equity 3, , , Total liabilities and shareholders equity 5, , , Revenues Brokerage fees , Brokerage fees from securities business Brokerage fees from derivatives business Other brokerage fees Fees and services income Gains (losses) on investments (12) (0.85) Gains on derivatives Interest and dividend Reversal of losses on impairment Other incomes Summary information of Phatra Page 29/ 180

32 (Before the restructuring) Phatra Securities s financial statements (After the restructuring) Phatra s consolidated financial statements Bt. million % Bt. million % Bt. Million % Total revenues 1, , , Expenses Personnel expenses Premises and equipment expenses Fee and service expenses Other expenses Total expenses , , Income (loss) before financial cost and corporate income tax , , Financial costs (6) (0.42) (8) (0.32) (34) (1.46) Income before corporate income tax , , Corporate income tax (124) (8.97) (324) (13.21) (333) (14.32) Profit for the period , Gain (loss) on changes in value of available-forsale investments (236) (10.16) Total comprehensive income , Net profits attributable Shareholders equity - parent company 426 1, Non-controlling stakeholders portions - subsidiary Remark: The financial statements for and those for 2011 were audited by Mr. Sophon Permsiriwilop, CPA (Thailand) No. 3182, and Miss Rungnapa Lertsuwankul, CPA (Thailand) No respectively, both of whom are from Ernst & Young Office Limited, the auditor approved by the Office of the SEC. Cash flow statements (Before the restructuring) Phatra Securities s financial statements (After the restructuring) Phatra s consolidated financial statements Net cash provided (used in) operating activities (567.07) (456.59) Net cash provided (used in) investing activities Net cash provided (used in) financing activities (341.60) (333.87) (939.54) Net increase (decrease) in cash and cash equivalents (333.21) (1,004.22) Cash and cash equivalents at beginning of period 1, , Cash and cash equivalents at end of period , Summary information of Phatra Page 30/ 180

33 Key financial ratios Profitability ratios Gross profit margins (%) Net profit margins (%) Return on equity ratios (%) Return on investments ratios (%) Efficiency ratios Return on assets (%) Assets turnover (times) Financial ratios Liquid assets to total assets (%) Earning assets to total assets (%) Debt to equity (times) Dividend payout (%) Other ratios Securities investment to total assets (%) Net capital ratio (%) Per share Book value to weighted average number of ordinary shares (Bt.) Net profit to weighted average number of ordinary shares (Bt.) Dividend to weighted average number of ordinary shares (Bt.) Weighted average number of ordinary shares (shares) 213,500, ,310, ,310,240 Analysis on operational results and financial positions Phatra is a holding company newly incorporated on 1 April 2010 pursuant to the Restructuring Plan. During 20 October December 2010, Phatra had made a tender offer to purchase all common shares of Phatra Securities and issued the new ordinary shares in Phatra as consideration for Phatra Securities shareholders who agree to sell their shares at a swap ratio of 1:1. This tender offer enabled Phatra to acquire altogether 210,308,240 shares of Phatra Securities, or 98.51% of the total number of shares sold of Phatra Securities and fulfill the Restructuring Plan. In this connection, Phatra recorded the investments in Phatra Securities of Bt. 5,131 million in its separate financial statements, and prepared the consolidated financial statements with those of Phatra Securities included since 2010, under a regard that the swap of common shares was part of the Restructuring Plan and the business merger was of the entities under common control. It was, then, treated as if Phatra is a parent company of Phatra Securities since Summary information of Phatra Page 31/ 180

34 The description of the analysis of the financial positions and operational results thus covered comparison of the operational results of the subsidiary (Phatra Securities) in 2009, i.e. the period before the business restructuring, and those of Phatra and the subsidiary (Phatra Securities) during which was the period after the restructuring. Details are as follows: Operating results during Revenues Phatra and its subsidiary generated total revenues during amounting to Bt. 1,386 million, Bt. 2,450 million, and Bt. 2,323 million respectively, with a year-on-year increase of 76.8% in 2010 and decrease of 5.2% in Its source of income was from two main businesses: agency business and investment business. In this regard, the revenue surge in 2010 was contributed by the hike in the revenues from agency business, from Bt. 934 million in 2009 to Bt. 1,360 million, up by 45.6%, and revenues from investment business that surged from Bt. 449 million in 2009 to Bt. 1,086 million in 2010, posting a 141.9% increase. Meanwhile, the decline in the total revenues of 2011 was a result of the decline in revenues from investment business, recorded at Bt. 922 million, which was 15.1% down from the year earlier. The revenue structure has the details as follows: Revenue structure Revenues from agency business Income from brokerage fees from securities business Income from brokerage fees from derivatives business Bt. million % Bt. million % Bt. million Other brokerage fees Fees and services income Total revenues from agency business , , Revenues from investment business Gains (losses) on securities (12) (0.85) Gains on derivatives Interest and dividend Reversal of losses on impairment Total revenues from investment business , Other revenues Total revenues 1, , , Revenues from agency business Revenues from the agency business comprise income from brokerage fees from securities business, income from brokerage fees from derivatives business, other brokerage fees, and fees and services income. During , Phatra and the subsidiary recorded combined revenues from the agency business amounting to Bt. 934 million, Bt. 1,360 million and Bt. 1,397 million, representing 67.4%, 55.5% and 60.2% of total revenues respectively. % Summary information of Phatra Page 32/ 180

35 1) Income from brokerage fees from securities business Income from brokerage fees from securities business during was posted at Bt. 670 million, Bt. 861 million and Bt. 955 million respectively, representing y-o-y increases of 28.5% in 2010 and 10.9% in The revenues had continually increased in line with the increased average trading value per day on the SET and MAI during of Bt. 18,226 million, Bt. 29,066 million and Bt. 29,473 million respectively, up by 59.5% in 2010 and 1.4% in The huge increase of the income from brokerage fees from that in 2010 was mainly contributed by the surge in a average trading volume per day on the stock market, from Bt. 18,226 million in 2009 to Bt. 29,066 million in 2010, despite Phatra Securities encountering a drop of its market share (excluding proprietary trading) from 4.42% in 2009 to 4.20% in Meanwhile, the rise in such income in 2011 was due mainly to the increase of Phatra Securities market share (excluding proprietary trading) from 4.20% in 2010 to 4.76% in The combined securities trading volumes of the stock exchange in the said year were similar to Phatra Securities enjoyed a continued increase in the average trading volume per day during , recorded at Bt. 1,921 million, Bt. 2,494 million and Bt. 2,825 million respectively, divided into that of proprietary trading amounting to Bt. 518 million, Bt. 347 million and Bt. 390 million and that of individual customers trading Bt. 1,403 million, 2,147 million and Bt. 2,435 million respectively in the said years. During , income from brokerage fees from securities business came from foreign institutional investors in proportion of 37.6%, 30.3% and 31.2%; from local institutional investors 22.9%, 27.2% and 30.3%; and from high net worth individuals 39.6%, 42.6% and 38.5%, respectively. Phatra Securities gained the securities brokerage s market share (excluding proprietary trading) of 4.42%, 4.20% and 4.76% during respectively, with the 6 th, the 10 th and the 8 th ranking among the total 38, 35 and 33 companies respectively. 2) Income from brokerage fees from derivatives business Income from brokerage fees from derivatives business was Bt. 30 million, Bt. 43 million and Bt. 69 million during respectively, representing a growth of 43.3% in 2010 and 60.5% in During , income from brokerage fees from derivatives business came from foreign institutional investors in proportion of 56.8%, 59.9% and 48.7% respectively; 5.0%, 13.5% and 37.6% from local institutional investors respectively; and 38.2%, 26.6% and 13.8% from high net worth individuals respectively. Phatra Securities gained the derivatives market share (based on the sale contract) of 4.48 %, 4.84 % and 3.38% during respectively, with the 6th, the 6th and the 13th ranking among the total 42, 41 and 38 companies. 3) Other brokerage fees Other brokerage fees were Bt. 39 million, Bt. 48 million and Bt. 56 million during respectively, representing a growth of 23.1% in 2010 and 16.7% in Summary information of Phatra Page 33/ 180

36 4) Fees and services income Fees and services income was Bt. 195 million, Bt. 407 million and Bt. 318 million during respectively, up by 109.8% in 2010 and down by 21.9% in Fees and services income in 2010 came from securities underwriting in an amount of Bt. 201 million; financial advisory services of Bt. 197 million; securities borrowing and lending of Bt. 2 million; and other fees of Bt. 8 million. Meanwhile, the 2011 fees and services income comprised Bt. 288 million from financial advisory services; Bt. 20 million from securities underwriting; and Bt. 10 million from securities borrowing and lending. Revenues from investment business After the business restructuring, Phatra has engaged in direct investment business, focusing on medium- and long-term investments, while Phatra Securities has engaged in equity and derivatives trading business, which focuses on short-term investments. Meanwhile, the Treasury Group has taken charge of cash available of Phatra Securities. Revenues from investment business recorded in the financial statements are classified into two parts: 1) gains (losses) from equity and derivatives trading and interest and dividend income are recorded on the statements of comprehensive income; and 2) item arising from the change in gains (loss) on securities revaluation is recorded in the statements of financial position and demonstrated under other comprehensive income in the statements of comprehensive income. Revenues from investment business are recorded in the profit and loss statements at Bt. 449 million, Bt. 1,086 million and Bt. 922 million during respectively, or an increase of 141.9% in 2010 and a decline of15.1% in Such revenues represented 32.4%, 44.3% and 39.7% of total revenues respectively. The increase of the investment business revenues in 2010 was due mainly to the increased gains on securities trading by Bt. 703 million and the reversal of losses on impairment of Bt. 128 million. Such item was allowance for devaluation of available-for-sale securities listed on the stock market. The reversal was made based on Phatra Securities consideration that securitiesrelated fundamental factors had recovered successively following the global economic recovery, along with the robust fundamental factors of securities-issuing companies that positively pushed up the share prices to be higher than the original costs. The reversal of the entire allowance for impairment set aside in 2008 was thus made. However, gains on derivatives trading dropped by Bt. 135 million. And the interest and dividend income went down by Bt. 9 million due to the decreased dividend income after Phatra Securities sold investments in available-for-sale securities in 2010, coupled with the decline in dividend on securities in which Phatra Securities invested. Interest income was yet posted with an increase of Bt. 4 million thanks to the rise in financial institution deposits and the increase in average deposit interest rates in 2010 when compared with the previous year. The drop in 2011 revenues from investment business was attributed mainly to the decline in gains on securities trading by Bt. 679 million, from Bt. 691 million in 2010 to only Bt. 12 million in 2011, due the losses on securities trading of Bt. 553 million recorded at the Equity and Derivatives Trading Department, against the gains on securities trading of Bt. 563 million and Bt. 2 million at the Treasury Department and others respectively. However, in 2011, gains on derivatives trading that jumped up by Bt. 582 million, together with the Bt. 61-million increase in interest and dividend income. Summary information of Phatra Page 34/ 180

37 Structure of revenues from investment business is as follows: Revenue structure Revenues from investment business Bt. million % Bt. million % Bt. million Gains (losses) on equity trading (12) (0.85) Gains (losses) on derivatives trading Interest and dividend Reversal of losses on impairment Total revenues from investment business based on the statements of income , Total revenues 1, , , Gain on changes in value of investments stated in the statements of financial positions (326) Less Reversal of losses on impairment (50) (128) - Gain on changes in value of investments stated in the statements of financial positions - net (326) Total revenues from investment business 1,116 1, Expenses Phatra and the subsidiary recorded total expenses (including financial expenses) of Bt. 835 million, Bt. 1,094 million and Bt. 1,152 million during , up year on year by 31.0% in 2010 and by 5.3% in 2011 respectively. The main items were employee-related expenses, recorded at Bt. 585 million, Bt. 784 million and Bt. 778 million during respectively, or 70.5%, 71.7% and 67.5% of total expenses of the said years, followed by premises and equipment expenses, fees and services expenses, other expenses and financial expenses. The increase in 2010 total expenses was because of increased personnel expenses by Bt. 199 million and higher fees and service expense by Bt. 37 million in line with the mounted expenses related to trading volume. And the 2011 total expenses increased due mainly to higher financial expenses. Net profit Phatra and the subsidiary recorded net profit of Bt. 426 million, Bt. 1,032 million and Bt. 838 million during respectively, rising year on year by 142.2% in 2010 and 18.8% in 2011, with net profit margin of 30.74%, 42.11% and 36.08% respectively. If taking into account other comprehensive income arising from net loss on changes in value of available-for-sale securities investments amounting to Bt million, Phatra and the subsidiary would have total comprehensive income of Bt. 602 million in 2011, down from 2010 which recorded gains on changes in value of available-for-sale securities investments of Bt. 112 million and total comprehensive income of Bt. 1,143 million. % Summary information of Phatra Page 35/ 180

38 Financial position as of year-end Assets As of the end of , Phatra and the subsidiary had total assets of Bt. 5,823 million, Bt. 7,567 million and Bt. 6,356 million respectively, growing 30.0% in 2010 and decreasing 16.0% in Assets mostly comprised securities and derivatives business receivables, current investments (including securities investments by Equity and Derivatives Trading Group and the investments in government bonds and other debt instruments, etc.), and available-for-sale investments (securities investments by Investment Group), the proportions of which were 33.8%, 26.0% and 19.1% of total assets in 2011 respectively. The growth of total assets in 2010 came largely from Bt. 936 million or 53.9% increase in securities and derivatives business receivables in line with the nature of securities trading which had the outstanding items shown in line with settlement period, which is within 3 business days for securities trading and 1 business day for futures trading. The asset growth also came from the increase in cash and cash equivalents by Bt. 757 million or 95.2% due mainly to Phatra Securities issue and offer of derivatives debentures during Total assets in 2011 dropped due principally to the decrease in cash and cash equivalents by Bt. 1,004 million or 64.7%, followed by the decline in securities and derivatives business receivables by Bt. 527 million or 19.7% in line with the nature of securities trading which had the outstanding items shown in line with settlement period, which is within 3 business days for securities trading and 1 business day for futures trading. Liabilities Total liabilities of Phatra and the subsidiary as of year-end were Bt. 2,424 million, Bt. 3,602 million and Bt. 2,745 million respectively, which was an increase (decrease) of 48.6% in 2010 and (23.8)% in The main factor to the liabilities increase in 2010 was the rise in securities and derivatives business payables by Bt. 642 million, or 47.4%, followed by the rise in accrued corporate income tax by Bt. 347 million due to the increased profit before corporate income tax of the subsidiary, and the rise in derivatives debentures by Bt. 256 million after the issue of such debenture for sale by the subsidiary. Meanwhile, the drop of total liabilities in 2011 was caused by the accrued corporate income tax decrease by Bt. 326 million from Bt. 414 million in 2010 to Bt. 88 million in 2011 following the decrease of such item of the subsidiary. The drop was also attributable to the decline in payables to clearing house by Bt. 247 million and securities and derivatives business payables by Bt. 150 million in line with the decrease in securities and derivatives business receivables. Shareholders equity Shareholders equity of Phatra and the subsidiary at year-end totaled Bt. 3,398 million, Bt. 3,965 million and Bt. 3,611 million respectively, representing an increase (decrease) by 16.7% in 2010 and (8.9)% in The shareholders equity increase in 2010 was owing mainly to the unappropriated retained earning growth of Bt. 430 million from Bt. 525 million in 2009 to Bt. 955 million in 2010, and the increase in gains on changes in value of available-for-sale securities investments by Bt. 111 million, from Bt. 446 million in 2009 to Bt. 557 million in Meanwhile, the shareholders equity drop in 2011 stemmed from the decline in gains on changes in value of available-for-sale securities investments by Bt. 236 million to Bt. 321 million in 2011, as well as the decrease in unappropriated profits by Bt. 120 million. In this connection, during , debt to equity ratio was 0.71 times, 0.91 times and 0.76 times respectively. Summary information of Phatra Page 36/ 180

39 In addition, the subsidiary maintained net capital ratio as of the end of 2011 at 85.67%, which was higher than minimum requirement set by Office of the SEC at 7.0%. Summary information of Phatra Page 37/ 180

40 1.5.2 Executive summary of Kiatnakin Securities Company Limited (1) Overview of the business Kiatnakin Securities Company Limited ( KKS ) was incorporated on 27 October 1998 to operate the securities business as permitted by the Ministry of Finance. Presently, KKS operates the securities and derivatives brokerage as the main business. It is licensed to conduct eight types of securities business, i.e. securities brokerage, securities dealing, securities underwriting, investment advisory service, derivatives trading, mutual fund management, private fund management, and stock borrowing and lending. KKS has its head office located on the 7 th Floor, Amarin Tower Building, 500 Ploenjit Road, Pathumwan District, Bangkok 10330, and has 12 branches in total. Its major shareholder is Kiatnakin Bank Public Company Limited, holding 99.99% of the total paid-up shares of KKS. The main businesses of KKS are as follows: - Securities brokerage business : KKS is member No. 19 (broker No. 19) of the SET and provides securities brokerage service for both Thais and foreigners, whether retail clients or institutional clients. KKS provides securities trading services both through marketing officers (orders placed in securities trading room) for cash accounts and margin accounts (Credit Balance System) and through the internet (Internet Trading Account). - Derivatives brokerage business : KKS has been approved to operate a derivatives brokerage business by the Office of the SEC and has been a member of the Thailand Futures Exchange ( TFEX ) and Thailand Clearing House Company Limited, providing trading services on the TFEX, since Moreover, KKS also operates business related to fixed income securities trading issued by government entities, state enterprises and private sector, and equity, both short term and long term. It also provides securities investment advisory and securities underwriting services. Total securities trading volumes and market shares of KKS have details as follows: Details of securities trading (Unit : Bt. million) Total trading volume of securities on the SET and MAI* 3,856,510 6,188,253 6,243,180 Total trading volume of securities of KKS* 135, , ,289 Market share (%) Rank of market share Securities brokerage fee income Remark: * Excluding the trading volumes of a proprietor trading Summary information of KKS Page 38/ 180

41 Revenue structure of KKS for is demonstrated as follows: Brokerage fees Revenues Bt. million % Bt. million % Bt. million % - Brokerage fees from securities business Brokerage fees from derivatives business Supervision fees incomes Fees and services income Gains (losses) on investments (11) (2.24) Gains on derivatives trading Interest and dividend income Interest on margin loans Other incomes Total revenues (2) Board of Directors and shareholders Board of Directors of KKS, according to its affidavit as of 24 November 2011, consisting of 5 persons as listed below: No. Name Position 1. Mr. Tawatchai Sudtikitpisan Director 2. Miss Thitinan Wattanavekin Director 3. Mr. Chavalit Chindavanig Director 4. Mr. Patom Amorndechawat Director 5. Mr. Charnsak Thanataecha Director The binding signatory power comes from the co-signatories by the two directors, with KKS s company seal affixed. Shareholders As of 18 May 2011, KKS has a registered, paid-up capital of Bt. 650,000,000, divided into 65,000,000 shares at a par value of Bt. 10 per share. Details of shareholders were demonstrated in the table below. No. Shareholders Number of shares Shareholding percentage 1. Kiatnakin Bank Public Company Limited 64,999, Mr. Suraphol Kulsiri 2 < Mr. Supol Wattanavekin 1 < Mr. Chukiat Thongwitukomal 1 < 0.01 Summary information of KKS Page 39/ 180

42 No. Shareholders Number of shares Shareholding percentage 5. Miss Thitinan Wattanavekin 1 < Mr. Pracha Chumnarkitkosol 1 < Mr. Vichien Jiakjerm 1 < 0.01 Total 65,000, (3) Summary of the financial position and operating results Summary of the financial position and operating results of KKS for Statements of financial positions Assets Bt. million % Bt. million % Bt. million % Cash and cash equivalents Deposits at financial institutions Receivables to Clearing House Securities and derivatives business receivables - net Investments - net Premises and equipment - net Intangible assets - net Other assets - net Total assets 1, , , Liabilities and shareholders equity Liabilities Borrowings from financial institutions Payables to Clearing House Securities and derivatives business payables Accrued bonus expenses Provisions Other liabilities Total liabilities Shareholders equity Paid-up capital Retained earnings Appropriated - statutory reserve Unappropriated Total shareholders equity Summary information of KKS Page 40/ 180

43 Bt. million % Bt. million % Bt. million % Total liabilities and shareholders equity 1, , , Statements of comprehensive income Revenues Brokerage fees income Fees and services income Gains (losses) on investments (11) (2.24) Gains on derivatives Interest and dividend income Interest on margin loans Other incomes Total revenues Expenses Financial costs Fees and services expenses Losses from the payment for contingent liabilities related to securities business receivables Operating expenses Personnel expenses Premises and equipment expenses Directors remunerations Information and technology Other expenses Bad debts and doubtful accounts (reversal) (3) (0.73) Total expenses Profits before corporate income taxes Corporate income taxes (1) (0.24) (59) (10.16) (24) (4.89) Net Profits Other comprehensive income Actuarial losses arising from postemployment benefits (6) (1.22) Total other comprehensive income (loss) (6) (1.22) Total comprehensive income Summary information of KKS Page 41/ 180

44 Cash flow statements Unit : Bt. million Net cash provided (used in) operating activities (342.72) (20.70) Net cash provided (used in) investing activities (20.38) (17.89) (15.00) Net cash provided (used in) financing activities (19.89) Net increase (decrease) in cash and cash equivalents (301.09) Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Remark : The financial statements for were audited by Suphamitr Techamontrikul, Ph.D., the Certified Public Account (Thailand) No from Deloitte Touche Tohmatsu Jaiyos Audit Co., Ltd, the auditor approved by the Office of the SEC. Key financial ratios Profitability ratios Gross profit margin (%) Net profit margin (%) Return on equity (%) Return on investment (%) Efficiency ratios Return on assets (%) Assets turnover (times) Financial ratios Liquid assets to loans (times) Earning assets to loans (times) Liquid assets to total assets (%) Earning assets to total assets (%) Debt to equity (times) Other ratios Investment in securities to assets (%) Net capital ratios (%) Analysis on operating results and financial position of KKS Operating results during Revenues Total revenues of KKS during were Bt. 409 million, Bt. 581 million and Bt. 491 million respectively, an increase (decrease) year on year by Bt. 172 million or 42.1% in 2010 and Bt. (90) million or (15.5)% in 2011, details of which are as follows: Summary information of KKS Page 42/ 180

45 Brokerage fees income was recorded at Bt. 326 million, Bt. 423 million and Bt. 420 million during respectively, representing 79.7%, 72.8% and 85.5% of total revenues respectively. The increase of Bt. 97 million or 29.8% in securities brokerage fees income in 2010 was due mainly to the hike in the stock exchange s trading volume and the increase in securities trading volume of KKS, against the slightly declining market share. The slipping brokerage fees income by Bt. 3 million or 0.7% in 2011 was a result of the fiercer competition environment in the stock exchange and KKS s declining market share. Fees and services income was Bt. 3 million, Bt. 0.1 million and Bt. 0.2 million during respectively, accounting for 0.7%, 0.02% and 0.04% of total revenues respectively. The decrease in 2010 was caused largely by the drop in revenues from investment business and securities underwriting services. The 2011 fees and services income came mostly from other fees. Gains (losses) on investments were recorded at Bt. 55 million, Bt. 103 million, and Bt. (11) million during respectively, representing 13.5%, 17.7% and (2.2) % of the total revenues respectively. Net gains in 2009 and 2010 were contributed mainly by actual gains on securities trading and gains on changes in value of investments. Net loss on securities trading in 2011 was caused largely by loss from errors of transaction from securities brokerage business. Gains on derivatives had net amount of Bt. 4 million, Bt. 12 million and Bt. 29 million during respectively, representing 1.0%, 2.1% and 5.9% of total revenues respectively due mainly to actual gains on derivatives trading, volume of which had continuously increased each year. Interest and dividend income was recorded at Bt. 10 million, Bt. 23 million and Bt. 24 million during respectively, accounting for 2.4%, 4.0% and 4.7% of total revenues respectively. The increase in 2010 was largely contributed by the rising average volume of customers cash balance deposits, and upward adjustments of interest rates, as well as increase in dividends receivable from securities investments. Interest income on margin loans was Bt. 6 million, Bt. 13 million and Bt. 24 million during respectively, accounting for 1.5%, 2.2% and 4.9% of total revenues respectively, moving up by Bt. 7 million in 2010 and by Bt. 11 million in 2011 owing to the increased average margin loans. Expenses KKS recorded total expenses of Bt. 329 million, Bt. 393 million and Bt. 411 million during respectively, up year on year by Bt. 64 million or 19.5% in 2010 and by Bt. 18 million or 4.6% in The increase in 2010 and 2011 was due mainly to the rise in financial costs and operating expenses largely as a result of rising personnel expenses. Financial costs were Bt. 5 million, Bt. 15 million and Bt. 28 million during respectively, accounting for 1.2%, 2.6% and 5.7% of total revenues respectively. The huge increase of Bt. 10 million in 2010 and Bt. 13 million in 2011 was mainly caused by the increase in borrowings from financial institutions and the customers cash balance deposit, as well as the changing market interest rates. Operating expenses were Bt. 298 million, Bt. 321 million and Bt. 339 million during respectively. The rise in 2010 by Bt. 23 million or 7.7% was due mainly to the increased personnel expenses in line with the growing revenues and gross profit against the decline in premises and equipment expenses. The increase of operating expenses in 2011 by Bt. 18 million or 5.6% came from the rise in personnel expenses and other expenses. Significant items with high proportion included personnel expenses, amounting to Bt. 174 million, Bt. 208 million and Bt. 219 million during respectively, followed by premises and equipment expenses of Bt. Summary information of KKS Page 43/ 180

46 78 million, Bt. 63 million and Bt. 66 million during respectively. Fees and services expenses were recorded at Bt. 29 million, Bt. 35 million and Bt. 44 million during respectively, accounting for 7.1%, 6.0% and 9.0% of total revenues respectively. The increase was due largely to the mounting expenses related to securities trading, which were varied in accordance with the securities trading volume. Loss from settlement of contingent liabilities related to securities business receivables was Bt. 22 million in 2010, accounting for 3.8% of the total revenues. This item arose from contingent liabilities under the agreement to accept the last burdens of securities business receivables incurred to KK. Bad debts and doubtful accounts (reversal) amounted to Bt. (3) million in 2009 as KKS had not set aside allowance for large doubtful accounts of securities business receivables, and there was reversal of reserve for bad debts and doubtful accounts earlier provided. Net profit KKS recorded net profit of Bt. 79 million, Bt. 129 million and Bt. 56 million during respectively, an increase (decrease) year on year by Bt. 50 million or 63.3% in 2010 and by Bt. (73) million or (56.6) % in Gross profit margin was 92.33%, 91.29% and 85.19%, and the net profit margin 19.32%, 22.20% and 11.41% during respectively. Financial position as of year-end Assets As of year-end , KKS had total assets in the amount of Bt. 1,253 million, Bt. 1,585 million and Bt. 1,358 million respectively, an increase (decrease) by Bt. 332 million or 26.5% in 2010 and Bt. (227) million or (14.3)% in The increase in total assets at 2010 year-end was due mainly to the increased net securities and derivatives business receivables by Bt. 205 million, from Bt. 544 million as at 2009 year-end to Bt. 749 million as at 2010 year-end, amount of which was varied in accordance with the securities trading volume at the closing period which was considered a normal nature of securities business. Also, net investments went up by Bt. 109 million, from Bt. 225 million as at 2009 year-end to Bt. 334 million as at 2010 year-end due to additional investment in held-for-trading securities and the rise in general investments compared with a year earlier. In addition, cash and cash equivalents increased by Bt. 55 million, from Bt. 82 million as at 2009 year-end to Bt. 137 million as at 2010 year-end, which was due partially to the funds acquired via borrowings for financial management purpose. The decrease in total assets as of year-end 2010 was mainly caused by the decline in deposit at financial institutions which was Bt. 20 million as at the end of 2011, down by Bt. 96 million from Bt. 116 million as at the end of 2010 due to loan repayments to financial institutions. Also, it was caused by the decrease in net receivables to clearing house and securities and derivatives business receivables by Bt. 114 million to Bt. 754 million as at the end of 2011, from Bt. 898 million as at the end of 2010, amount of which was varied in accordance with the securities trading volume at the ending period which was considered a normal nature of securities business. KKS had liquid assets to total assets ratio during at 30.73%, 37.03% and 35.35% respectively. Liabilities As of year-end , total liabilities of KKS were posted at Bt. 581 million, Bt. 784 Summary information of KKS Page 44/ 180

47 million and Bt. 507 million respectively, which was an increase (decrease) by Bt. 203 million or 34.9% in 2010 and by Bt. (277) million or by (35.3)% in The increase in 2010 was attributable mainly to the increase in borrowings from financial institutions by Bt. 93 million, from Bt. 62 million as at the end of 2009 to Bt. 155 million as at the end of 2010, to accommodate KKS s financial management, and the rise in net securities and derivatives business payables by Bt. 54 million, from Bt. 431 million as of the end of 2009 to Bt. 485 million as of the end of 2010, amount of which would be varied in accordance with the securities trading volume as at the ending period which was considered a normal nature of securities business. Accrued incentives and bonuses went up by Bt. 10 million as a result of increased accrued remuneration to marketing personnel in line with the growing revenues and provision for employee benefits expenses that moved up by Bt. 16 million. The said provision was set aside for estimated liabilities from employee benefit expenses in accordance with the accounting standard applicable at present. Also, other liabilities went up by Bt. 49 million, from Bt. 21 million as at the end of 2009 to Bt. 70 million as at the end of Total liabilities as at the end of 2011 dropped due largely to net securities and derivatives business payables that declined by Bt. 314 million, from Bt. 485 million as at the end of 2010 to Bt. 171 million as at the end of 2011, while payables to clearing house increased by Bt. 74 million, from Bt. 16 million as at the end of 2010 to Bt. 90 million as at the end of 2011, amount of which was varied in accordance with the securities trading volume as at the ending period amid the volatile circumstances, which was considered a normal nature of securities business. In addition, borrowings from financial institutions went down by Bt. 20 million, from a total of Bt. 155 million as at the end of 2010 to Bt. 135 million as at the end of Other liabilities fell by Bt. 25 million, from Bt. 70 million in the end of 2010 to Bt. 45 million in the end of 2011 mainly caused by the decrease in accrued corporate income tax by Bt. 34 million, from Bt. 45 million as at the end of 2010 to Bt. 11 million as at the end of The provision for employee benefits expenses, which was a reserve for estimated liabilities from employee benefit expenses in accordance with the accounting standard presently in effect, increased by Bt. 11 million In this connection, as at year-end , KKS had total liabilities to equity ratio of 0.86 times, 0.98 times and 0.60 times respectively. Shareholders equity As at year-end , KKS had shareholders equity of Bt. 672 million, Bt. 801 million and Bt. 851 million respectively, up year on year by Bt. 129 million or 19.2% in 2010 and by Bt. 50 million or 6.2% in 2011, as a result of growing retained earnings. Net capital ratio As at year-end , KKS had net capital ratio of 95.6%, 96.4% and 125.4% respectively, which exceeded minimum requirement at 7% set by the Office of the SEC. Summary information of KKS Page 45/ 180

48 1.5.3 Brief information of Kiatnakin Fund Management Co., Ltd. (1) Business overview Kiatnakin Fund Management Co., Ltd. ( KKF ) (formerly named Siam City Asset Management Co., Ltd.) was incorporated on January 23, 2003 to engage in the management of personal and mutual funds and others businesses licensed by the Securities and Exchange Commission ( SEC ). As of December 31, 2010, Siam City Bank Plc. ( SCIB ) and the Government Pension Fund ( GPF ) had shareholding in KKF representing 60% and 40% of its paid-up and registered capital respectively. On May 30, 2011, there was a change of the shareholding structure. SCIB sold its 60% shareholding to GPF, leading have a 100% shareholding in KKF by GPF. On July 12, 2011, Kiatnakin Bank Plc. ( KK or the Bank ) purchased 60% shares of KKF from GPF. The extra ordinary shareholders meeting approved the change of name from Siam City Asset Management Co., Ltd. to Kiatnakin Management Fund Co., Ltd. KKF is located at No. 942/135 Charn Issara Tower, 4th Fl., Rama IV Road, Suriyawong, Bangrak, Bangkok. At present, KKF has a paid-up registered capital of Bt. 300 million of which 60% is held by the Bank and 40% by GPF. As of December 31, 2011, KKF owns assets under management in the amount of Bt. 19,887 million and manages 32 funds, which comprise of property funds, real estate investment trust, money market funds, fixed income funds, equity funds, provident funds, long term equity funds, balance funds and foreign investment funds (FIF). (2) Board of Directors and shareholders The Board of Directors as of October 13, 2011 was composed of seven members namely: No. Name Position 1. Mr. Pichit Akrathit Director 2. Mr. Tawatchai Sudtikitpisan Director 3. Mr. Chavalit Chindavanig Director 4. Mr. Charnsak Thanataecha Director 5. Mr. Yingyong Nilasena Director 6. Mr. Supakorn Soontornkit Director 7. Mr. Teerapong Ninvoraskul Director The authorized signatories are Mr. Pichit Akrathit, Mr. Supakorn Soontornkit, Mr. Tawatchai Sudtikitpisan, Mr. Chavalit Chindavanig and Mr. Charnsak Thanataecha. Any two of these five directors to co-sign with company s seal affixed. Summary information of KKF Page 46/ 180

49 Shareholders As of July 12, 2011, KKF had a paid-up registered capital of Bt. 300,000,000, divided into 30,000,000 ordinary shares with a par value of Bt. 10. Here are the details of its shareholders: No. Name of Shareholders No. of shares % of total shares 1. Kiatnakin Bank Public Co., Ltd. 18,000, The Government Pension Fund 11,999, Mr. Teerapong Ninvoraskul 1 < 0.01 Total 30,000, (3) Summary of financial position and operating results Summary of financial position and operating results of KKF over Financial Position Assets Bt. million % Bt. million. % Bt. million. Cash and cash equivalent Accrued brokerage fee Investment - net Equipment - net Intangible assets - net Other assets Total assets Liabilities and shareholders equity Liabilities Accrued expense Other account payables Commitment on employee benefit Withholding tax Other liabilities Total liabilities Equity Issued and paid-up capital Other component of equity (4) (1.24) (1) (0.33) (1) (0.34) Retained earnings % Summary information of KKF Page 47/ 180

50 Bt. million % Bt. million. % Bt. million. Allocated - legal reserve Unallocated (retained earnings) (4) (1.30) (10) (3.35) Total equity Total liabilities and shareholders equity Statement of Comprehensive Income Revenue Fee and service Gain on investment Interest Other income Total revenues Expense Fee and service payable Operating expenses Staff expense Plant, property and equipment expense Remuneration for directors Advertising and sale promotion expense Consultant expense Other expenses Total expenses Profit (loss) on corporate income tax (4) (3.74) (5) (6.58) Corporate income tax (4) (2.61) Net profit (loss) (4) (3.74) (5) (6.58) Other comprehensive income Profit from evaluation of investment for sale Total comprehensive gains/losses (1) (0.94) (5) (6.58) % Summary information of KKF Page 48/ 180

51 Statement of cash flow Unit: Bt. million Cash flows from (used in) operating activities (19.20) Cash flows from (used in) investing activities (20.57) 4.19 Cash flows from (used in) financing activities - (8.40) - Increase (decrease) in cash and cash equivalent - net 5.49 (15.19) Cash and cash equivalent - beginning balance Cash and cash equivalent - ending balance Note: The financial statements for were audited by Miss Ratana Jala, an SECapproved auditor with CPA License No of Ernst & Young Office Limited. The financial statements for the year 2011 were audited by Dr. Suphamitr Techamontrikul, a SEC-approved auditor with CPA License No of Deloitte Touche Tohmatsu Jaiyos Auditing Co., Ltd. Key financial ratios Profitability Ratio Gross profit margin (%) Net margin (%) 4.58 (3.74) (6.58) Return on equity (%) 2.26 (1.33) (1.71) Return on investment (%) Efficiency Ratio Return on assets (%) 2.17 (1.27) (1.65) Asset turnover (time) Financial Ratio Liquid assets to total asset ratio (%) Earning assets to total asset ratio (%) Debt to equity (time) Dividend payout (%) Other ratios Securities investment to total assets (%) Analysis of operating results and financial position Operating results in Total revenues of KKF in was posted at Bt. 153 million, Bt. 107 million and Bt. 76 million respectively, drop by 30.1% in 2010 and 29.0% in 2011 as many mutual funds with high management cost were due during the year. Meanwhile, no new funds were introduced to replace the due funds. From 2010 to the middle of 2011, the change of shareholding structure slowed down the operation, hence a huge decline in total revenues. Most of the total revenues are Summary information of KKF Page 49/ 180

52 fee and service revenue and registrar fee revenue. In , revenue from fund management amounted to Bt. 136 million, Bt. 98 million and Bt. 69 million respectively. Revenue from mutual fund management ranked the highest, representing Bt. 116 million, Bt. 80 million and Bt. 58 million or 85.3%, 81.6% and 84.1% of service and fee revenue in respectively, followed by registrar fee revenue which accounted for Bt. 17 million, Bt. 12 million and Bt. 8 million or 12.5%, 12.2% and 11.6% of service and fee revenue in respectively. Total expenses over accounted for Bt. 142 million, Bt. 111 million and Bt. 81 million respectively, decreasing by 21.8% in 2010 and 27.0% in Total expenses comprised fee and service payables such as selling agent fee and incentive which was Bt. 37 million, Bt. 26 million and Bt. 16 million, representing 24.2%, 24.3% and 21.1% in respectively. Operating expenses such as staff expense, property, plant and equipment expense amounted to Bt. 105 million, Bt. 85 million and Bt. 65 million in respectively, of which staff expense represented the highest operating expense of 55-64%. In , KKF brought in a net profit (loss) of Bt. 7 million, Bt. (4) million and Bt. (5) million or 4.6%, (3.7)% and (6.6)% respectively. The gross profit margin stood at 75.66%, 75.70% and 78.95% respectively. Financial position at the end of Total assets of KKF at the end of were posted at Bt. 321 million, Bt. 307 million and Bt. 298 million respectively, dropping by 4.4% in 2010 and 2.9% in Net investment represented 64.5%, 77.2% and 78.2% of total assets in respectively while the remaining was accrued fee revenue, cash and cash equivalent, and other assets (i.e. withholding income tax, advance expense and accrued interest, etc.). The decrease of total assets in 2010 by approximately Bt. 14 million was ascribed primarily to the decline in accrued fee revenue by Bt. 25 million and cash and cash equivalent by Bt. 15 million while the net investment grew by Bt. 30 million. In 2011, total assets moved down by Bt. 9 million from 2010 due to a drop of accrued fee revenue by Bt. 16 million despite growth of cash and cash equivalent. Total liabilities at the end of amounted to Bt. 16 million, Bt. 12 million and Bt. 9 million respectively, most of which was accrued expense and other account payables representing 0.05 time, 0.04 time and 0.03 time respectively. In this period, shareholders equity totaled Bt. 305 million, Bt. 295 million and Bt. 289 million respectively. The decrease in 2010 and 2011 resulted from loss in the amount of Bt. 4 million in 2010 and Bt. 5 million in Summary information of KKF Page 50/ 180

53 2. Summary Information of Kiatnakin Bank Plc. 2.1 Business overview Kiatnakin Bank Plc. was formerly known as Kiatnakin Finance and Securities Co., Ltd. in 1971 and awarded license to operate in finance and securities in In 1982, it became broker No. 19 on the Stock Exchange of Thailand and was listed on the SET in It became a public limited company in 1993 under the name Kiatnakin Finance and Securities Plc. Kiatnakin Finance and Securities Plc. were forced to temporarily suspend operations together with other 58 financial institutions during the financial crisis in In 1998, it was one of the two companies approved by the Ministry of Finance to resume the business and was licensed to separate its finance and securities business in Kiatnakin Securities Co., Ltd. was established in the same year to engage in securities business with 99.99% shareholding by the Bank. On October 3, 2005, the Bank was upgraded to officially operate as a commercial bank. On December 4, 2006, the Bank was licensed to set up financial group under the consolidated supervision rules of the Bank of Thailand with the Bank acting as the group leader. On January 5, 2009, the Bank established Erawan Law Office Co., Ltd. holding 99.93% of all shares. Erawan Law Office Co., Ltd. provides legal services only to companies in Kiatnakin group, including claim management and legal actions related to debt demand, collection and enforcement of payment in order to ensure compliance with the law, leading to transparency, efficiency and effectiveness in the business operation of the Bank. On July 12, 2011, the Bank acquired 60% of shares in Siam City Asset Management Co., Ltd. ( SCI-ASSET ) from the Government Pension Fund ( GPF ) which is not a related party of the Bank while GPF owned 40% of SCI-ASSET shares. After such share acquisition, SCI-ASSET changed its name to Kiatnakin Fund Management Co., Ltd. As of December 31, 2011, the Bank had a registered capital of Bt. 6,603,288,640 and paid-up capital of Bt. 6,343,288,640, divided into 634,328,864 ordinary shares with a par value of Bt. 10 per share. The subsidiary companies are listed below: Name of subsidiary company Business Paid-up/ outstanding capital as of Dec.31,2011 (Bt. million) Shareholding by the Bank (%) 1. Kiatnakin Securities Co., Ltd. Securities Kiatnakin Fund Management Co., Ltd. Fund management 3. Erawan Law Office Co., Ltd. Law office Asia Recover 1 Fund Investment* Asia Recover 2 Fund Investment* 1, Asia Recover 3 Fund Investment * 1, Thai Restructuring Fund Investment* Asia Recover Property 1 Fund Investment** Asia Recover Property 3 Fund Investment*** Summary information of KK Page 51/ 180

54 Name of subsidiary company Business Paid-up/ outstanding capital as of Dec.31,2011 (Bt. million) Shareholding by the Bank (%) 10. Bangkok Capital Fund Investment* Gamma Capital Fund Investment* * Investments in commercial loans auctioned from Financial Restructuring Authority (FRA). ** Investments in receivables, which have properties as collateral or properties *** Investments in receivables or properties **** Dividend received for the year ended December 31, 2011 At present, the Bank operates commercial banking business including acceptance of deposit, lending, trading of bill of exchange or negotiable instruments, foreign currency trade, aval, acceptance, letter of credit or guarantee, leasing and hire-purchase lending services. The Bank and its subsidiaries also offer debt management service for the funds invested by the Bank. The Bank also has various forms of property foreclosed such as housing, investment, commercial and development assets. As of December 31, 2011, the Bank has a total of 72 branches (including head office) in 53 provinces across the country. Its head office is located at Amarin Tower. In addition, the Bank engages in securities and fund management businesses through its subsidiaries as detailed below: - Kiatnakin Securities Co., Ltd., broker No. 19 on the SET, provides brokerage, trading, investment advisory underwriting and derivative agency services. KKS was granted a derivatives agent license by the Office of the SEC to conduct futures brokerage business and became a member of Thailand Futures Exchange Plc. and Thailand Clearing House Co., Ltd. It started derivative agency service via TFEX in In 2011, KKS recorded a broker market share of 1.41% of total trading value on the SET and MAI, ranking at No. 24 of total 33 members, and 1.41% share in futures contract market, ranking at No. 22 of total 42 members. As of December 31, 2011, KKS had a total of 11 branches in Bangkok and the provinces. - Kiatnakin Fund Management Co., Ltd. offers fully-integrated fund management services, e.g. mutual fund management, private fund management, provident fund management and investment consultant services. It was licensed to manage 3 types of funds namely 1) mutual fund management under License No. 0004/2547 issued by the Ministry of Finance ( MOF ) on April 23, 2004, 2) provident fund management and 3) private fund management under License No. 0010/2547 on October 22, As of December 31, 2011, KKF managed a total of 32 funds with total value of asset under management of Bt. 19,887 million. Summary information of KK Page 52/ 180

55 Table illustrating the Bank and its subsidiaries operating results and financial position over Consolidated Financial Statements Bt. million % Bt. million % Bt. million % Interest income 8, , , Interest expense 3, , , Net interest income 5, , , Fee and service income , , Fee and service expenses Net fee and service income , , Net gains on trading and foreign exchange transactions Foreign currency (12) (0.12) Net gains on investment (4) (0.06) Gains on disposal of properties foreclosed , , Dividend income Other operating income Total operating income 6, , , Board of Directors and shareholders Board of Directors as of March 15, 2012 was composed of ten members as follows: No. Name Position 1. Mr. Suphol Wattanavekin Chairman 2. Mr.Pichai Dachanapirom Independent Director and Chairman of the Audit Committee 3. Asst. Prof. Manop Bongsadadt Independent Director and Member of the Audit Committee 4. Mr. Chet Pattrakornkul Independent Director and Member of the Audit Committee 5. Mr.Pravit Varutbangkul Independent Director and Member of the Audit Committee 6. Mr.Tarnin Chirasoonton Director 7. Mr. Suraphol Kulsiri Director 8. Mr.Tawatchai Sudtikitpisan Director 9. Mr. Pracha Chamnankijkosol Director 10. Ms.Thitinan Wattanavekin Director Summary information of KK Page 53/ 180

56 The authorized signatories are Mr.Tawatchai Sudtikitpisan, Mr.Tarnin Chirasoonton, Mr. Suraphol Kulsiri, Mr. Pracha Chamnankijkosol and Ms.Thitinan Wattanavekin. Any two of these five directors are to co-sign with company s seal affixed. The merger will lead to change of the Board of Directors of the Bank. According to the Merger Plan, the Board of Directors of KK will consist of not more than 15 directors, whereby the major shareholders of the Bank will propose the names of not more than 5 persons to be appointed as directors. RPIC will propose the names of not more than 2 persons to be appointed as directors, 6 persons will be independent directors, the CEO of commercial bank group, the CEO of securities & capital markets group. The directors of KK must have obtained approval from the Bank of Thailand. Shareholders As of March 16, 2012 (most recent closing date of shareholder register book to determine the list of shareholders entitled to attend the Annual General Meeting of the shareholder for 2012), KK had a registered capital of Bt. 6,603,288,640. The issued and paid-up capital was recorded at Bt. 6,346,482,640, divided into 634,648,264 ordinary shares with a par value of Bt. 10 per share. Details of its shareholders are tabulated below. Name of shareholders No. of shares % of the Bank s paid-up shares 1. Wattanavekin Group* 195,677, Thai NVDR Company Limited 45,002, Chase Nominees Limited 42 31,332, Chase Nominees Limited 30 22,466, HSBC Bank PLC-Clients General A/C 20,370, State Street Bank Europe Limited 19,284, The Bank of New York (Nominees) Limited 16,918, Nortrust Nominees Limited-NTGS 16,543, Ramkhamhaeng Hospital Public Company Limited 10,638, Mr. Colin Petroulas 9,500, Total of top 10 shareholders 387,733, Other shareholders 246,914, Total 634,648, Note: *Wattanavekin Group consists of: No. Name No. of shares % of the Bank s paid-up shares 1. Miss Thitinan Wattanavekin 34,782, Eastern Sugar Company Limited 34,750, Mrs. Wansamorn Wannamethee 31,785, Chodthanawat Company limited 20,693, Summary information of KK Page 54/ 180

57 No. Name No. of shares % of the Bank s paid-up shares 5. Miss Yapha Thepkarnjana 17,199, Mrs. Panida Thepkarnjana 15,742, Mr. Sukkan Wattanavekin 15,694, Mr. Supol Wattanavekin 11,355, Mrs. Junsamorn Wattanavekin 6,885, Khunying Natika Wattanavekin 2,465, Mrs. Patchanee Wattanavekin 1,071, Miss Suwapan Wattanavekin 1,071, Mr. Supachara Wattanavekin 1,071, Ms. Piriya Thepkarnjana 600, Mr. Pongthep Thepkarnjana 280, Kataphol Company Limited 223, Mr. Tee Wannamethee 5, Mr. Kiat Wattanavekin Total 195,677, Expected shareholding structure after the tender offer to purchase all securities of Phatra Pursuant to the Merger Plan, the Bank will make a delisting tender offer to purchase all securities from all of Phatra s shareholders under the condition that, at the end of the tender offer period, Phatra shareholders accepting the tender offer shall represent not less than 75% of the total number of shares sold of Phatra. The Bank will provide Phatra s shareholders who accept the offer consideration in the form of newly-issued ordinary shares of KK, at a swap ratio of 1 share of Phatra to shares of KK. In case the offer is accepted by all Phatra s shareholders, the Bank will have to issue new ordinary shares of up to million shares representing 23.25% of total paid-up shares after the capital increase as consideration for Phatra s shareholders whose shareholding in the Bank will equal the number of newly-issued ordinary shares of the Bank. Warrants As of February 29, 2012, the Bank s unexercised warrants (ESOP-W2) totaled 25,570,600 units. The first exercise date falls on the 30 th day of each quarter. The fist exercise date that warrant holders can exercise their rights was on September 30, 2011 and the last exercise date was on June 30, The exercise ratio (warrant: ordinary share) is 1 : 1 and the exercise price is Bt per unit. Debentures As of December 31, 2011, the Bank had a balance of long- and short-term loans totaling Bt. 17,707 million as follows: Summary information of KK Page 55/ 180

58 Short-term unsecured and unsubordinated debentures with period of not over 270 days Name Issue size (Bt. million) Issue date Issue term (year) Maturity date Balance (Bt. million) KK12109A /06/ /01/ KK12109B /07/ /01/ KK12109C /07/ /01/ KK12113A /07/ /01/ KK12112A /07/ /01/ KK12202A /07/ /02/ KK12209A /08/ /02/ KK12223A /08/ /02/ KK12309A /09/ /03/ KK12315A /09/ /03/ KK12322A /09/ /03/ Total 1, Long-term unsecured and unsubordinated debentures Name Issue size (Bt. million) Issue date Issue term (year) Maturity date Balance (Bt. million) KK122A 1, /02/ /02/2012 1, KK123A /03/ /03/ KK123B 1, /03/ /03/2012 1, KK135A 1, /03/ /05/2013 1, KK123C /03/ /03/ KK127A 2, /07/ /07/2012 2, KK128A /08/ /08/ KK129A 1, /09/ /09/2012 1, KK12OA 2, /10/ /10/2012 2, KK12NA 1, /11/ /11/2012 1, KK132A 2, /02/ /02/2012 2, KK186A /06/ /06/ KK187A /07/ /07/ KK188A /08/ /08/ KK18DA /12/ /12/ KK16DA /12/ /12/ Summary information of KK Page 56/ 180

59 Name Issue size (Bt. million) Issue date Issue term (year) Maturity date Balance (Bt. million) KK18DB /12/ /12/ Total 16, Total debenture balance 17, Summary of operating results and financial position Table illustrating the Bank and its subsidiaries operating results and financial position over Consolidated financial statements 2009 * Bt. million % Bt. million % Bt. million % Assets Cash Interbank and money market items - net 11, , , Derivatives assets Investments in securities - net 18, , , Investments in receivables - net 4, , , Investments in properties - net Loans and accrued interest receivables - net Loans 96, , , Securities business receivables Accrued interest receivables Total loans and accrued interest receivables 97, , , Less Deferred revenue (10,301) (8.08) (12,212) (8.61) (16,620) (8.78) Allowance for doubtful accounts (3,770) (2.96) (4,233) (2.98) (5,119) (2.70) Allowance for troubled debt restructuring (26) (0.02) (2) (0.00) (1) (0.00) Net loans and accrued interest receivables 83, , , Properties foreclosed - net 7, , , Land, premises and equipment - net Goodwill and other intangible assets - net Securities and derivative business receivables Accounts receivable from Clearing House Other assets 1, , , Total assets 127, , , Liabilities and Equity Deposits 76, , , Interbank and money market items, net 3, , , Liabilities payable on demand Summary information of KK Page 57/ 180

60 Consolidated financial statements 2009 * Bt. million % Bt. million % Bt. million % Derivatives liabilities Debt issued and borrowings 26, , , Provisions Accounts payable to clearing house Securities and derivative business payables Accrued interest expenses Other accounts payable , , Legal Execution Department payable Income tax payable and specific business tax payable 638 Other liabilities , , Total liabilities 109, , , Equity Authorized share capital 7,228 6,961 6,603 Issued and paid-up share capital 5, , , Premium on share capital 2, , , Other reserves , , Retained earnings Appropriated Legal reserve Others 8, , , Total equity of the Bank 17, , , Non-controlling interest Total equity 17, , , Total liabilities and equity 127, , , Statement of Comprehensive Income Interest income 8, , , Interest expenses 3, , , Net interest income 5, , , Fees and services income , , Fee and service expense Net fees and services income , , Gain (loss) on trading and foreign exchange transactions (12) (0.12) Gain (loss) on investments (4) (0.06) Gain from sale of foreclosed assets , , Dividend income Summary information of KK Page 58/ 180

61 Consolidated financial statements 2009 * Bt. million % Bt. million % Bt. million % Other operating income Total operating income 6, , , Other operating expenses Employee's expenses 1, , , Directors remuneration Premises and equipment expenses Taxes and duties Loss incurred from breach of bidding contract Loss from revaluation of foreclosed assets (reversal) (111) (1.16) Other expenses , , Total other operating expenses 2, , , Impairment loss of loans and debt securities , Profit from operating before income tax expenses 3, , , Less Income tax expenses , Net profit 2, , , Other comprehensive income Gain (loss) on fair value reserves on investments in receivables (399) (5.87) (87) (0.96) (68) (0.71) Gain (loss) on fair value reserves on availablefor-sale securities (267) (3.93) (17) (0.18) Actuarial gain (loss) on defined benefit plan (39) (0.41) Total comprehensive income 1, , , Net profit attributable to: Equity holders of the Bank 2,229 2,840 2,859 Non-controlling interest Note: * Presentation of the financial statements for 2011 was reclassified in accordance with the financial statements for for comparison. The financial statements for were audited by Dr. Suphamit Techamontrikul, a SECapproved auditor with CPA License No of Deloitte Touche Tohmatsu Jaiyos Auditing Co., Ltd. Cash flow statements (Unit : Bt. million) Net cash flow provided from (used in) operating activities 16,266 (5,159) (4,799) Net Cash flow provided from (used in) investing activities (11,689) (2,733) 1,596 Net cash flow provided from (used in) financing activities (4,340) 7,990 3,249 Summary information of KK Page 59/ 180

62 (Unit : Bt. million) Increase (Decrease) in cash and cash equivalent-net Cash and cash equivalent - beginning balance Cash and cash equivalent - ending balance Key financial ratios Profitability Ratio Gross profit margin (%) Net profit margin (%) Return on equity (%) Interest income (%) Interest expenses (%) Interest spread (%) Return on investment (%) Efficiency Ratio Net interest margin to asset (%) Return on assets (%) Financial Ratio Debt to Equity (Times) Loan to borrowing (%) Loan to deposit (%) Loan to deposit and borrowing (%) Deposit to total liabilities (%) Dividend payout (%) Capital Adequacy Ratio (company-only financial statements) Asset Quality Ratio Loan loss reserve to total loans (%) Loan loss to total loans (%) Stop accrued loans to total loans (%) Accrued interest receivable to total loans and accrued interest receivable Other Ratio (%) Net capital ratio (according to the SEC s criteria) (%) Note: * Net profit margin = profit of the majority interest / total income from operation 1/ Dividend payout for the operation in the first half of 2011 Summary information of KK Page 60/ 180

63 Analysis of financial position and operating results Operating results in Over , the Bank and its subsidiaries recorded a net profit (Equity holders of the Bank) of Bt. 2,229 million, Bt. 2,840 million and Bt. 2,859 million, growing by 27.4% in 2010 and 0.7% in This was attributable to increase of net interest income from Bt. 5,051 million in 2009 by 15.3% to Bt. 5,826 million in 2010 and by 11.2% to Bt. 6,476 million in 2011 in accordance with expansion of loans (net of deferred revenue) by 23.6% from Bt. 86,838 million in 2009 to Bt. 107,313 million in 2010 and by 26.5% to Bt. 135,749 million in The success in asset quality control and management also led to a decrease in non-performing loans (NPL). At the end of , NPLs of the Bank and its subsidiaries totaled Bt. 5,449 million, Bt. 4,974 million and Bt. 4,840 million, representing 6.3%, 4.6% and 3.6% of total loans (net of deferred revenue) respectively. The loan loss reserve to NPL ratio stood at 69.7%, 85.1% and 108.1% respectively. Interest income In , interest income of the Bank and its subsidiaries was Bt. 8,360 million, Bt. 8,767 million and Bt. 11,296 million respectively, up by 4.9% in 2010 and 28.9% in This was ascribed primarily to growth of interest income from hire purchase and financial lease by 15.2% in 2010 and 26.2% in 2011, totaling Bt. 4,517 million, Bt. 5,204 million, Bt. 6,565 million in respectively in line with the expansion of hire purchase loan and financial lease contracts by 28.1% in 2010 and 31.2% in 2011, followed by growth of interest income on loans which was posted at Bt. 2,112 million, Bt. 2,331 million and Bt. 2,876 million respectively, growing by 10.4% in 2010 and 23.4% in 2011, according to growth of all loans. Interest income from interbank and money market items in amounted to Bt. 170 million, Bt. 92 million and Bt. 717 million, increasing (decreasing) by (46.1)% in 2010 and 681.7% in A huge growth of interest income from interbank items in 2011 was in accordance with the upward movement of interest rate in the first nine months of Income from investments in receivables totaled Bt. 1,195 million, Bt. 670 million and Bt. 740 million in respectively, up (down) by (43.9)% in 2010 and 10.5% in Such income depended on the success of debt restructuring and litigation process. Income from investments was recorded at Bt. 367 million, Bt. 471 million and Bt. 398 million respectively, up (down) by 28.3% in 2010 and (15.5)% in 2011, most of which was investments in debt securities. Table illustrating interest income of the Bank and its subsidiaries in (Unit : Bt. million) Interest income Loans 2,112 2,331 2,876 Interbank and money market items Hire purchase and financial lease 4,517 5,204 6,565 Investments in securities Investments in receivables 1, Total interest income 8,360 8,767 11,296 Summary information of KK Page 61/ 180

64 Interest expense Table illustrating interest expense of the Bank and its subsidiaries in (Unit : Bt. million) Interest expenses Deposits 2,234 1,742 2,084 Interbank and money market items Contributions to the Deposit Protection Agency Borrowings ,276 Fees and charges on borrowings Total interest expenses 3,309 2,942 4,821 In , the Bank and its subsidiaries recorded interest expenses of Bt. 3,309 million, Bt. 2,942 million and Bt. 4,821 million, up (down) by (11.1)% in 2010 and 63.9% in The decline of interest expenses in 2010 was due to the benefit from repricing because of long average days to maturity of deposits and borrowings. Meanwhile, the Bank was still focus on deposit base expansion to support business growth and strong liquidity by launching attractive promotions. The increase of interest expenses in 2011 was in line with the rising interest rates. The Bank s deposits and borrowings also expanded continuously due to increase of fund mobilization through issuance of bills of exchange to accommodate the deposit protection which was reduced to Bt. 50 million effective since August 2011 and to maintain liquidity for business expansion. As a result, interest expense from deposits from debt issued and borrowings surged by 174.0% from Bt. 830 million in 2010 to Bt. 2,276 million in Moreover, interest expense from interbank and money market items rose by 161.3% in line with the upward trend of interest rates. Interest expense from deposits went up by 19.6% and from contributions to the Deposit Protection Agency dropped by 1.6% according to the decline of deposits by 9.1%. Net interest income In , net interest income of the Bank and its subsidiaries totaled Bt. 5,051 million, Bt. 5,826 million and Bt. 6,476 million, up by 15.3% in 2010 and 11.2% in Interest spread in 2011 shrank from 5.2% in 2010 to 4.3% in 2011 as yield on loans rose at a higher rate than cost of fund which moved in line with the market interest rates. However, the Bank still benefited from the maturity of interest repricing. Table illustrating interest spread of the Bank in (Unit : %) 2009 Q1/2010 Q2/2010 Q3/2010 Q4/ Q1/2011 Q2/2011 Q3/2011 Q3/ Yield on loans Cost of fund Interest spread Summary information of KK Page 62/ 180

65 Fee and services income In , the Bank and its subsidiaries had fee and services income in the amount of Bt. 959 million, Bt. 1,256 million and Bt. 1,573 million, growing by 30.9% in 2010 and 25.3% in Fee and services income from banking business totaled Bt. 611 million, Bt. 784 million and Bt. 1,071 million in respectively, most of which was bancassurance fee which amounted to Bt. 294 million, Bt. 435 million and Bt. 666 million respectively. In 2011, the Bank also earned fee income of Bt. 30 million from mutual fund management of KKF which was recognized as income in Q3 of 2011 after the investment on July 12, Brokerage fee income from KKS was posted at Bt. 327 million, Bt. 421 million and Bt. 420 million in respectively. Total operating income Over , total operating income of the Bank and its subsidiaries totaled Bt. 6,805 million, Bt. 9,075 million and Bt. 9,530 million, up by 33.4% and 5.0% from growth of net interest income and fee and services income above mentioned. In addition, other operating income of the Bank rose by % from Bt. 900 million in 2009 to Bt. 2,097 million in 2010 due to gains on sale of foreclosed assets (non-performing assets (NPA)) in the amount of Bt. 1,483 million which grew by Bt. 791 million or 114.2% from Bt. 692 million in 2009 as a results of the Bank s promotion and campaign to stimulate NPA sales this year. Net profit from investment increased by Bt. 262 million as a result of favorable market condition. Meanwhile, other operating income of the Bank declined by 22.0% to Bt. 1,635 million in 2011 due mainly to decrease of gains on sale of foreclosed assets by 16.0% to Bt. 1,245 million in 2010 as competition in sale of foreclosed assets before the business liquidation in June 2011 was intensified by asset management entities established by the government such as Thai Asset Management Corporation, etc. As a result, the Bank failed to meet the target of its foreclosed assets sales while impacts of the flood at the end of the year also slowed down the sale. Profit from investments dropped from 2010 by 30.5% to Bt. 180 million, most of which was investment in equity securities with declining value. The SET index in 2011 also moved down by 0.7% compared to the 40.6% increase in In addition, dividend income and gains on trading and foreign exchange transactions decreased by 16.0% and 110.7% respectively. Other operating expenses In , the Bank and its subsidiaries recorded other operating expenses of Bt. 2,968 million, Bt. 4,525 million and Bt. 4,831 million, growing by 52.5% in 2010 and 6.8% in Most of other operating expenses were personnel expenses and premises and equipment expenses. Personnel expenses which represented about 40-49% of other operating expenses stood at Bt. 1,467 million, Bt. 1,817 million and Bt. 2,340 million respectively, up by 23.9% in 2010 and 28.8% in Premises and equipment expenses represented 16-19% of other operating expenses were recorded at Bt. 562 million, Bt. 704 million and Bt. 859 million, increasing by 25.2% in 2010 and 22.1% in Increase of personnel expenses and premises and equipment expenses were a result of branch expansion, increasing number of employees, and advertising and promotion expenses to enhance competitiveness and client awareness through various media. In Q4/2010, the Bank recorded the Legal Execution Department payables amounting to Bt. 575 million with the loss amounting to Bt. 583 million, which incurred from the breach of foreclosed assets bidding contract from the foreclosed assets between the first and the final bidding. Meanwhile the Bank recorded the portion received from the collateral pool of such foreclosed assets by reversing impairment of investment in loan amounting to Bt. 278 million. The Supreme Court rejected the appeal against the Legal Execution Department s demand for the payment of Bt. 575 million. However, the case has not been finalized as some legal issues need to be concluded in due course. Summary information of KK Page 63/ 180

66 Bad debt and doubtful accounts and impairment loss In , the Bank and its subsidiaries incurred bad debt, doubtful accounts and impairment loss of Bt. 740 million, Bt. 470 million and Bt. 1,278 million, up (down) by (36.5)% and 171.9% respectively. Bad debt and doubtful accounts during this period amounted to Bt. 903 million, Bt. 963 million and Bt. 1,550 million respectively. Due to the flood crisis in Thailand at the end of 2011, the Bank evaluated the direct and indirect impacts of the flood on its debtors that were granted assistance on debt payment and debt restructuring. To accommodate for such impacts, the Bank increased specific provision for doubtful accounts as well as adjusted the general provision to specific provision, leading to a decrease in general provision from Bt. 1,124 million at year-end of 2010 to Bt. 423 million in Income tax In , the Bank and its subsidiaries recorded income tax of Bt. 866 million, Bt. 1,213 million and Bt. 535 million, equivalent to the effective tax rate of 28.0%, 29.7% and 15.6% of profit before tax. The rate increase in 2010 resulted from the loss on foreclosed assets bidding contract in the amount of Bt. 583 million which was not considered as tax expense, while the decrease in 2011 was because some revenues were not considered as taxable income. Financial position at the end of Total assets of the Bank and its subsidiaries at the end of stood at Bt. 127,414 million, Bt. 141,900 million and Bt. 189,327 million respectively, increasing by Bt. 14,486 million or 11.4% in 2010 and by Bt. 47,427 million or 33.4% in The growth of total assets in 2010 was due to increase of loans (less deferred revenue) by Bt. 20,475 million or 23.6% from Bt. 86,838 million in 2009 to Bt. 107,313 million in 2010, mainly from expansion of hire purchase loans by 28.1%. Additionally, investment in loans increased by Bt. 2,176 million or 48.1% from the purchase of investment units of Gamma Capital Fund and Bangkok Capital Fund in 1Q/2010 causing an increase in investment in loans and foreclosed assets. Increase of total assets in 2011 was primarily ascribed to growth of loans by Bt. 28,436 million or 26.5% from Bt. 107,313 million in 2010 to Bt. 135,749 million resulting from growth of hire purchase loans by 31.2% and net investments in securities by Bt. 14,461 million or 117.6% mainly from investments in government and state enterprise securities which were available-for-sale securities. Interbank and money market items rose by Bt. 8,169 million or 103.3% while investments in loans decreased by Bt. 1,408 million or 21.0% in line with the continuous debt restructuring management. Properties foreclosed went down by Bt. 1,193 million or 15.4%. Non-performing loans (NPLs) according to the consolidated financial statements at year-end of were posted at Bt. 5,449 million, Bt. 4,974 million and Bt. 4,742 million respectively, representing 6.3%, 4.6% and 3.6% of total loans (net of deferred revenue) respectively. Provision for NPLs totaled Bt. 3,796 million, Bt. 4,235 million and Bt. 5,120 million in respectively and the coverage ratio was 69.7%, 85.1% and 108.0% in respectively. Summary information of KK Page 64/ 180

67 Loans classification and allowance Loan classification and allowance as at December Bt. million % Bt. million % Bt. million % Normal 77, , , Special mentioned 8, , , Substandard 1, , , Doubtful , Doubtful loss 3, , , Total loans and accrued interest receivables 91, , , Allowance for doubtful accounts and allowance for troubled debt restructuring Total loans and accrued interest receivables 87, , ,427 Non-performing loans (NPLs) 5,449 4,974 4,742 Coverage ratio 69.66% 85.14% % Total liabilities of the Bank and its subsidiaries at year-end of were Bt. 109,469 million, Bt. 120,989 million and Bt. 165,731 million respectively, increasing by Bt. 11,520 million or 10.5% in 2010 and by Bt. 44,472 million or 37.0% in In 2010, the rise of total liabilities was due to increase of debt issued and borrowings by Bt. 9,244 million or 35.5% from Bt. 26,064 million in 2009 to Bt. 35,308 million coming from mobilize deposits through bills of exchange and long-term debentures totaling Bt. 13,469 million. Outstanding debts from bills of exchange and debentures totaled Bt. 21,046 million and Bt. 14,262 million respectively while deposits dropped by 0.2% to Bt. 75,931 million at year-end of In 2011, total liabilities grew from a surge of debt issued and borrowings by Bt. 50,705 million or 143.6% from Bt. 35,308 million in 2010 to Bt. 86,013 million in accordance with the Bank s operation policy focusing on expansion of retail depository customer base to prepare for its business expansion and decrease of deposit protection. In 2011, the Bank issued short-term bills of exchange totaling Bt. 11,142 million and long-term debentures totaling Bt. 5,000 million. At the end of the year 2011, the outstanding debt from bills of exchange, debentures and others totaled Bt. 67,652 million, Bt. 17,707 million and Bt. 654 million respectively. Deposits declined from 2010 by Bt. 6,892 million or 9.1% to Bt. 69,040 million with current and saving accounts accounting for 7.6%, 6.3% and 17.3% of total deposits in respectively. The sharp growth in 2011 came from the deposit product KK Smart Savings which yielded high interest rates to meet demands of private clients. Loan to deposits and borrowings ratio was 85.0%, 96.5% and 87.6% in respectively. Equity of the Bank and its subsidiaries at the end of was Bt. 17,946 million, Bt. 20,911 million and Bt. 23,595 million respectively, up by Bt. 2,965 million or 16.5% in 2010 and Bt. 2,684 million or 12.8% in Unappropriated retained earnings was recorded at Bt. 8,319 million, Bt. 9,927 million and Bt. 11,224 million in respectively, rising by Bt. 1,607 million or 19.3% in 2010 and Bt. 1,297 million or 13.1% in The Bank paid dividend for the year at the rate of Bt. 2.0 and Bt. 2.4 per ordinary share, representing total dividend of Bt. 1,071 million and Bt. 1,442 million respectively. In 2011, the Bank paid interim dividend for the first half of the year at the rate of Bt per ordinary share, totaling Bt. 634 million. Summary information of KK Page 65/ 180

68 The Bank s capital adequacy ratio at year-end of stood at Bt %, 15.18% and 15.04% respectively, higher than 8.50% as per the BOT s regulation. Tier 1 capital to risk weighted assets was 15.69%, 14.55% and 15.38% in respectively which was higher than 4.25% according to the BOT s regulation. 2.2 Overview of businesses relating to the operations of the Bank and its subsidiaries According to the report on the Thai Economic Performance for 2011 and Outlook for 2012 of the Ministry of Industry, the International Monetary Fund ( IMF ) projected that the global economy will expand at the rate of 4.0%. Countries will face problems such as the USA which will start to recover from the financial crisis but its public debt will remain high. The public debt crisis in Europe will cause economic slowdown in countries like China, India, Russia, Brazil and ASEAN countries. Japan has been suffering from the impacts of the earthquake disaster. Thailand s flood crisis has affected industries in many countries such as Japan and the USA particularly automobile and electronic parts which have major production base in Thailand. The report of the Office of the National Economic and Social Development Board dated February 20, 2012 states that the Thai economy in 2011 will expand at a considerably low rate of 0.1%, compared to 7.8% in 2010 due mainly to the flood crisis from July to the end of 2011 which caused the economy in Q4/2011 to shrink by 9%. Flood damages had greatly deteriorated the economy and properties of people, causing a slowdown of production. Only the agricultural sector grew slightly as a result of plantation expansion. Domestic consumption and private investment rose by 1.3% and 7.2% respectively, down from 5.1% and 9.4% respectively in Export value growth at 16.4%, lower from 28.4% in Headline inflation was 3.8%, up from 3.3% in 2010 due to increase of food price. The Thai economy in 2012 is projected to expand at a range of % due to recovery of industrial production, government investment in water management system including post-flood rehabilitation and additional construction, and financial and tax schemes for agricultural, industrial and service sectors. The government s implementation of income restructuring policy will also bring money into the system, leading to a continuous expansion in domestic demand. Moreover, private investment will continue to expand due to rapid recovery of the production sector. Foreign demand is expected to grow at good pace due primarily to economic expansion in Asian countries. Overview and outlook of banking business Overview of banking business Assets At the end of 2011, a total number of Thai commercial banks stood at 14 (11 of which are listed banks). The combined total assets increased by 12.4% from Bt trillion in 2010 to Bt trillion, of which Bt. 7.4 trillion or 65.9% came from total assets of 4 large scale banks whose assets accounted for over 10% of the commercial bank s grand. Total assets of large scale banks expanded by 11.7% from Bt. 6.6 trillion in The 3 medium scale banks (with a total assets ratio over 3% and under 10% of total grand) had combined total assets of Bt. 2.5 trillion or 22.2% of the total grand with 7.9% growth from Bt. 2.3 trillion in The remaining 7 small scale banks (with total Assets ratio less than 3% of total grand) had a combined total asset of Bt. 1.3 trillion or 11.9% of the grand total with a 26.5% growth from Bt. 1.0 trillion in Summary information of KK Page 66/ 180

69 At the end of 2011, the Bank was small scale group which had total assets of Bt. 192,009 million increases of 33.4%. The ranking assets size of the Bank was 11 th and proportion equal to 1.72% of banking system. Proportion of assets of large, medium and small scale banks 12% 22% 66% 4 large scale banks 3 medium scale banks 7 small scale banks Deposits As of 2011, the total deposit of the Thai commercial banks was Bt. 7.2 trillion or an increase of 6.0% from Bt. 6.8 trillion in the previous year. The large scale banks had a combine deposit of Bt. 5.2 trillion, an increase of 8.8% from Bt. 4.8 trillion which accounted for 72.3% of the grand total. The medium scale banks had a combined deposit of Bt trillion, a slight decrease of 2.6% from Bt trillion in 2010, which accounted for 20.6% of the grand total. Meanwhile, the small scale had a combined deposit of Bt. 0.5 trillion, a slight increase of 0.08% from Bt trillion in 2010 and accounted for 7.1% of the grand total. At the end of 2011, the Bank had deposits of Bt. 69,531 million, decrease by 8.43% from the Bank rising fund on previous year due to fund mobilization through bills of exchange and debentures. Proportion of deposits of large, medium and small scale banks 21% 7% 72% 4 large scale banks 3 medium scale banks 7 small scale banks Loans At the end of 2011, the total outstanding loans of the Thai commercial banks (after allowance for doubtful debts) stood at Bt. 7.5 trillion, increasing by 15.8% from Bt. 6.5 trillion in 2010 due to a favorable growth of the overall economy despite several factors affecting the production sector including the disastrous earthquake in Japan and flood crisis in Thailand. The large scale banks had total outstanding loan amount of Bt. 5.2 trillion, an increase of 16.8% from Bt. 4.4 trillion in 2010, which accounted for 68.0% of the total loans. The medium scale banks had total outstanding loan amount of Bt. 1.6 trillion, an increase of 7.5% from Bt. 1.5 trillion in 2010, which accounted for 21.3% of the total loans. Meanwhile, the small scale banks had total outstanding loan amount of Bt. 0.8 trillion, an increase of 28.4% from Bt. 0.6 trillion in 2010, which accounted for 10.8% of the total loans. Summary information of KK Page 67/ 180

70 At the end of 2011, the Bank recorded outstanding loans of Bt. 130,189 million, increase of 26.7% from the previous year due mainly to expansion of hire purchase loans. Proportion of outstanding loans of large, medium and small scale banks 11% 21% 68% 4 large scale banks 3 medium scale banks 7 small scale banks Table illustrating assets, deposits and loans after allowance for doubtful accounts at the end of 2011 of Thai commercial banks. Assets Deposits Loans after provision for doubtful debts No. Name Value (Bt. mil.) Market share (%) Value (Bt. mil.) Market share (%) Value (Bt. mil.) Market share (%) 1 Bangkok Bank PLC. 2,034, ,524, ,345, Krung Thai Bank PLC. 1,959, ,285, ,383, Siam Commercial Bank PLC. 1,767, ,179, ,228, Kasikornbank PLC. 1,604, ,243, ,162, Bank of Ayudhya PLC. 886, , , Thanachart Bank PLC. 877, , , Thai Military Bank PLC. 718, , , UOB Bank PLC. 298, , , Standard Chartered Bank (Thai) PLC. 284, , , TISCO Bank PLC. 211, , , Kiatnakin Bank PLC. 192, , , CIMB Thai Bank PLC. 166, , , ICBC (Thai) Bank PLC. 89, , , Land and Houses Bank PLC. 81, , , Total 11,172, ,238, ,533, Total of 4 large scale banks 7,365, ,233, ,119, Total of 3 medium scale banks 2,482, ,488, ,600, Total of 7 small scale banks 1,323, , , Source: Summary of assets and liabilities (Tor.Por. 11) of the Bank of Thailand Note: Land and Houses Bank PLC. was upgraded by the Ministry of Finance to operate as a commercial bank on December 16, Summary information of KK Page 68/ 180