- 1 - MMC CORPORATION BERHAD ( MMC OR COMPANY )

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1 MMC CORPORATION BERHAD ( MMC OR COMPANY ) PROPOSED ACQUISITION OF 35,990,501 ORDINARY SHARES OF RM1.00 EACH IN PENANG PORT SDN BHD ( PPSB ) REPRESENTING APPROXIMATELY 49.0% ORDINARY EQUITY INTEREST IN PPSB BY MMC FROM SEAPORT TERMINAL (JOHORE) SDN BHD FOR A CASH CONSIDERATION OF RM200.0 MILLION ( PROPOSED 49% ACQUISITION ) 1. INTRODUCTION The Board of Directors of MMC ( Board ) wishes to announce that MMC had on 5 August 2016, entered into a conditional Share Sale and Purchase Agreement ( SPA ) with Seaport Terminal (Johore) Sdn Bhd ( STJSB or the Vendor ) to acquire 35,990,501 ordinary shares of RM1.00 each in PPSB ( PPSB Shares ) representing approximately 49.0% ordinary equity interest in PPSB for a cash consideration of RM200.0 million ( Purchase Consideration ) subject to the terms and conditions contained in the SPA. The Proposed 49% Acquisition is deemed as a related party transaction pursuant to Chapter 10 of the Main Market Listing Requirements of Bursa Malaysia Securities Berhad ( Bursa Malaysia ) ( Listing Requirements ). Please refer to Section 12 of this announcement for the details on the interests of the directors, major shareholders and/or persons connected with them. 2. DETAILS OF THE PROPOSED 49% ACQUISITION 2.1 Details of the Proposed 49% Acquisition The Proposed 49% Acquisition entails the acquisition by MMC of the PPSB Shares from STJSB at the Purchase Consideration to be satisfied entirely in cash. Under the SPA, MMC has the right to nominate a wholly-owned subsidiary to hold the PPSB Shares Basis and justification of the Purchase Consideration The Purchase Consideration was arrived at on a willing buyer-willing seller basis after taking into consideration the following: (i) Valuation of estimated range of fair market values of PPSB between RM348.1 million to RM445.1 million ( Valuation ), as appraised by Deloitte Corporate Advisory Services Sdn Bhd ( DCAS ) via its valuation letter dated 1 July 2016 ( Valuation Letter ). The Valuation was arrived at using the discounted cash flow method as the primary approach (income approach) and guideline public company method (market approach) as a sense check to the primary approach. In undertaking the valuation, DCAS had considered, inter alia, the following: (a) (b) The audited and management accounts of PPSB for the financial year ended ( FYE ) 31 December 2012, 31 December 2013, 31 December 2014 and 31 December 2015, projections and supporting information; Internal desktop research for the information required for application of the selected methodologies; - 1 -

2 (c) (d) (e) Where the discounted cash flow is applied, DCAS has considered the projections and discount rates; Where the guideline public company method is applied, DCAS has considered the selected guideline public companies, the selected pricing multiples and the estimation of future maintainable earnings; and Net debt and non-operating debt and/or surplus assets (if any). The Valuation was based on the assumption that the Ferry Business (as defined in Section 2.1.2(iii)(a) of this announcement) of PPSB will not be part of the business of PPSB on the completion of the Proposed 49% Acquisition i.e. the Valuation is solely based on the port services. In this respect, the Purchase Consideration is within the range of the Valuation. (ii) The future earnings potential as well as the potential synergistic benefits to MMC and its subsidiaries ( MMC Group or Group ) arising from the Proposed 49% Acquisition are outlined in Sections 6 and 9 of this announcement Salient terms of the SPA The salient terms and conditions of the SPA include, inter alia, those set out below. (i) Parties to the SPA The Parties to the SPA are STJSB as the Vendor and MMC as the Purchaser. Under the SPA, MMC shall have the right to nominate its wholly-owned subsidiary to hold the PPSB Shares ( MMC s Nominee ). (ii) Purchase Consideration The Purchase Consideration for the sale and purchase of the PPSB Shares is RM200.0 million. Within one (1) week from the execution of the SPA, a refundable deposit of RM20.0 million is to be paid to STJSB ( Deposit ). The Deposit shall form part of the Purchase Consideration and the balance sum of RM180.0 million is to be paid to STJSB ( Balance Purchase Consideration ) upon completion of the SPA ( Completion ). (iii) Conditions Precedent The SPA is subject to the fulfilment of the conditions precedent, among others, as follows: (a) the execution by PPSB of the agreement(s) to dispose of the ferry service business of PPSB comprising the assets including vessels, employees, costs and liabilities associated therewith ( Ferry Business ) to the buyer of the Ferry Business on terms acceptable to the Purchaser including the assumption by the buyer of the Ferry Business of, all costs and liabilities arising from the operations of the Ferry Business as from the completion date of the Proposed 49% Acquisition; - 2 -

3 (b) (c) (d) STJSB or PPSB obtaining the written approval and/or confirmation of no objection from the Government of Malaysia (as represented by the Ministry of Transport), through the Public Private Partnership Unit (commonly known as Unit Kerjasama Awam Swasta or UKAS) of the Prime Minister s Department, Malaysia, to the transfer of the PPSB Shares from STJSB to MMC or MMC s Nominee; STJSB or PPSB obtaining the written waiver from the Penang Port Commission ( PPC ) to the applicable covenants set out in the concession agreement for the business of Penang Port as supplemented ( Privatisation Agreement ) relating to the change in the shareholders and shareholding structure of PPSB as a result of the transfer of the PPSB Shares from STJSB to MMC or MMC s Nominee; and STJSB or PPSB obtaining the written approval from the lenders pursuant to the terms of the existing RM1,211,500,000 syndicated banking facilities granted to PPSB ( Existing Facilities ), to the change in the shareholders and shareholding structure of PPSB as a result of the transfer of the PPSB Shares from STJSB to MMC or MMC s Nominee ( Lenders Approval ). (iv) Conditions Precedent Fulfilment Period The conditions precedent under the SPA is to be fulfilled within a period of six (6) months from the date of the SPA. In the event that any of the conditions precedent is not obtained or fulfilled or waived within this period, the parties agree that the time for fulfilment of the conditions precedent shall be extended. The duration for the extension shall be mutually agreed between the parties. (v) Completion The completion of the SPA ( Completion Date ) shall take place within five (5) business days from the fulfilment of all conditions precedent and on the Completion Date, the Vendor is to deliver, amongst others, the original share certificate in respect of all of the PPSB Shares and the duly executed and valid share transfer form signed by the Vendor. Upon completion of the Proposed 49% Acquisition, STJSB, PPSB and MMC or MMC s Nominee (as the case may be), shall enter into a shareholders agreement to regulate the relationship between STJSB and MMC or MMC s Nominee (as the case may be) as ordinary shareholders of PPSB. (vi) Conditions Subsequent Post completion of the SPA, STJSB is to procure PPSB to perform certain conditions subsequent, among others, as follows: (a) STJSB to procure that: (i) the stamping of the Lease Agreement dated 21 November 2013 between PPSB and PPC ( 2013 Lease Agreement ); - 3 -

4 (ii) (iii) all leases in respect of the demised property that are registered under the Lease Agreement dated 31 December 1993 between PPSB and PPC be surrendered and re-registered under the 2013 Lease Agreement; and all leases in respect of the demised property that are unregistered under the Lease Agreement dated 31 December 1993, be registered under the 2013 Lease Agreement, as soon as possible after the Completion Date, and where applicable, STJSB to procure that PPSB secures all rights to occupy and use all other property on which the business of PPSB is located at PPSB s cost and expense; (b) (c) STJSB to procure the completion of PPSB s disposal of the Ferry Business within the agreed time period as stipulated under the SPA; and STJSB to procure that PPSB takes the necessary steps (including monitoring and commencement of legal proceedings) to recover, and claim on, all doubtful or bad debts of PPSB. (vii) Termination The SPA may be terminated if: (a) (b) (c) (d) the conditions precedent are not fulfilled or waived, as the case may be, within the agreed timeframe; MMC defaults by not paying the Purchase Consideration or fails to complete the purchase of the PPSB Shares; an event of default is committed by STJSB, such as: (i) failure to complete the sale of the PPSB Shares; (ii) any of warranties given by the Vendor becoming untrue and is not rectified; (iii) the Vendor breaching any material terms of the SPA and such material breach is not rectified; or the occurrence of a force majeure event for more than three (3) months. 2.2 Mode of settlement The Purchase Consideration will be satisfied entirely by cash in accordance with the SPA. 2.3 Liabilities to be assumed The PPSB Shares are presently charged to secure the repayment of the Existing Facilities. Unless a similar requirement is imposed as part of the terms and conditions of the Lenders Approval, there are no other liabilities, contingent liabilities or guarantees to be assumed by MMC pursuant to the Proposed 49% Acquisition. All existing liabilities of PPSB will be settled by PPSB in its ordinary course of business

5 2.4 Additional financial commitment Save for the Purchase Consideration, there are no additional financial commitments required by MMC in relation to the Proposed 49% Acquisition. PPSB is an on-going business entity. 2.5 Source of funding The Proposed 49% Acquisition will be fully funded via internally generated funds and/ or bank borrowings. 3. INFORMATION ON PPSB 3.1 Brief information about Penang Port Located in the state of Penang, in the north-west of Peninsular Malaysia, Penang Port is the oldest and longest established port in Malaysia. The port serves as the main gateway for shippers in the northern states of Malaysia and the southern provinces of Thailand. The port is strategically located along the Straits of Malacca, one of the busiest shipping routes in the world. Penang Port is equipped to handle all types of cargo such as containers, liquid bulk, dry bulk and break bulk; and provides a multitude of services to cater for their safe and efficient transit via the port s various terminals and facilities. In order to further improve the operational efficiency of the port and to further enhance its services offerings, Penang Port was corporatised in Background information on PPSB PPSB was incorporated on 7 December 1993 under the name of Penang Port Sdn Bhd as a private limited company under the Companies Act, The principal activities of PPSB are operating, maintaining, managing and provision of port facilities and other related services under a licence issued by the PPC. In addition, PPSB also maintains, develops, operates and administers a free commercial zone under the Free Zones Act, 1990 and carries out the activities of warehousing services. The authorised share capital of PPSB as at 2 August 2016 is RM200,000,001 comprising 200,000,000 ordinary shares of RM1.00 each and 1 preference share of RM1.00 of which RM73,450,003 comprising 73,450,002 ordinary shares of RM1.00 each and 1 special preference share of RM1.00 ( Special Share ) have been issued and are fully paid-up. Minister of Finance (Incorporated) is the holder of the Special Share. As at 2 August 2016, PPSB does not have any subsidiary or associate company. 3.3 Substantial shareholder As at 2 August 2016, PPSB is wholly-owned by STJSB

6 3.4 Directors The directors of PPSB and their respective shareholdings in PPSB as at 2 August 2016 are as follows: Name Nationality Direct No. of PPSB Shares % Indirect No. of PPSB Shares % Dato Syed Mohamad bin Syed Murtaza Dato' Sri Che Khalib bin Mohamad Noh Malaysia Malaysia Datuk Ooi Teik Huat Malaysia Ian Brian James Singapore Dr. Sharifah Adlina binti Syed Abdullah Malaysia Historical financial information A summary of the key financial data of PPSB based on its audited financial statements for the past five (5) financial years up to FYE 31 December 2015 are as follows: Audited FYE RM RM RM RM RM 000 Revenue 328, , , , ,480 Profit before taxation and zakat 183 (15,834) (9,122) ,328 Profit after taxation 15,634 12,725 (15,056) 311 2,217 Paid-up share capital 73,450 73,450 73,450 73,450 73,450 Shareholders fund/ Net Assets ( NA ) 472, , , , ,585 Earnings per share (sen) N/A NA per share (RM) Note: The key financial data of PPSB based on its financial statements for the past five (5) financial years up to FYE 31 December 2015 as stated above include the Ferry Business

7 4. INFORMATION ON STJSB 4.1 Background information on STJSB STJSB was incorporated on 22 July 1991 under the name of Seaport Terminal (Johore) Sdn Bhd as a private limited company under the Companies Act, STJSB is principally an investment holdings company and its principal activity is also the provisions of development and management of port facilities and other related services. The authorised share capital of STJSB as at 2 August 2016 is RM50,000,000 comprising of 50,000,000 ordinary shares of RM1.00 each of which RM10,000,000 comprising 10,000,000 ordinary shares of RM1.00 each ( STJSB Shares ) have been issued and are fully paid-up. 4.2 Substantial shareholder As at 2 August 2016, STJSB is a wholly-owned subsidiary of Indra Cita Sdn Bhd. STJSB is currently a major shareholder of MMC. 4.3 Directors The directors of STJSB and their respective shareholdings in STJSB as at 2 August 2016 are as follows: Direct Indirect No. of No. of Name Nationality STJSB Shares % STJSB Shares % Dato Mohd Taufik bin Abdullah Azman Hanafi bin Abdullah Malaysia Malaysia RATIONALE FOR THE PROPOSED ACQUISITION The Proposed 49% Acquisition is in line with the initiative of the MMC Group to make further strategic investments in one of MMC s core businesses i.e. Ports and Logistics division and to strengthen the MMC Group s financial performance and position. It is also expected that the Proposed 49% Acquisition would contribute positively to the future earnings of the MMC Group. In addition, the Proposed 49% Acquisition will bode well for the MMC Group in its effort to maintain its position as a key player in the ports industry in Malaysia as well as to provide a good opportunity for the MMC Group to establish its foothold in PPSB, a prominent port company located in the northern part of Peninsular Malaysia. 6. PROSPECTS OF PENANG PORT PPSB is currently undertaking a transformation program to turnaround the port to be more competitive and profitable. The transformation program includes reducing operation cost, increasing port efficiency, providing additional services for cargo handling activities as well as continuous port infrastructure development in line with industry demand. Key initiatives undertaken by PPSB include, amongst others, gaining further market share in cargo and transshipment segment, capturing untapped market potential, offering higher valueadded activities and developing general cargo business. With the above initiatives by the management of PPSB, it is expected that the Proposed 49% Acquisition would contribute positively to the future earnings of the MMC Group

8 7. INDUSTRY OVERVIEW AND OUTLOOK 7.1 Overview and outlook of the Malaysian economy The Malaysian economy expanded by 4.2% during the first quarter of 2016 (Q4 2015: 4.5%) supported mainly by domestic demand. On the supply side, all sectors of the economy recorded positive growth except the agriculture sector. The services sector grew by 5.1% (Q4 2015: 5%) spurred by higher activity in the food & beverage and accommodation, utilities and business services subsectors. The manufacturing sector grew moderately by 4.5% (Q4 2015: 5%), particularly due to the moderation in the electrical and electronics (E&E) and transport equipment segments. The construction sector expanded by 7.9% (Q4 2015: 7.4%) supported by higher civil engineering and specialized construction activities. Meanwhile, the mining and quarrying sector rebounded by 0.3% (Q4 2015: -1.3%) on account of improvement in natural gas production. The Malaysian economy is expected to remain on its growth trajectory in the second quarter of This is reflected by the leading index (as measured by the Department of Statistics, Malaysia) which declined marginally by 0.6% in the final quarter of On the demand side, private consumption is expected to record higher growth mainly driven by spending from the household sector, amid steady income growth from stable labour market conditions. On the supply side, growth will be supported by continued expansion in the services and construction sectors as well as some recovery in the manufacturing sector. (Source: Quarterly update on the Malaysian economy First Quarter 2016, Ministry of Finance Malaysia dated 26 May 2016) 7.2 Overview of the transportation and storage subsector in Malaysia The transport and storage subsector increased by 5.8% (Q4 2015: 6%) supported by higher land transport activity. The water transport segment grew by 1.6% (Q4 2015: 2.4%) with total volume of containers handled at seven major ports increasing by 6.8% (Q4 2015: 4.9%) to 6.1 million twenty-foot equivalent units ( TEUs ) (Q4 2015: 6.1 million TEUs). Port Klang and Tanjung Pelepas saw an increase in volumes handled to 3.2 million TEUs and 2.2 million TEUs, respectively (Q4 2015: 3.1 million TEUs; 2.3 million TEUs), contributing 52.3% and 36%, respectively to total container throughput (Q4 2015: 50.4%; 37.9%). (Source: Quarterly update on the Malaysian economy First Quarter 2016, Ministry of Finance Malaysia dated 26 May 2016) 8. RISK FACTORS 8.1 Investment risk The Proposed 49% Acquisition is expected to further enhance the MMC Group s involvement in the ports industry. However, it will also expose the MMC Group to risk, among others, on global economic, financial and political conditions, fluctuations in the shipping industry and customer demand. There is no assurance that the anticipated benefits of the Proposed 49% Acquisition will be realised or that MMC Group will be able to generate sufficient profits arising from the Proposed 49% Acquisition to offset the associated acquisition costs incurred

9 There is also no assurance that MMC s expectation of the financial performance of PPSB will be achieved after the completion of the Proposed 49% Acquisition. 8.2 Competitive landscape for the ports industry PPSB will face competition from other ports in the region. Other competitors in the industry may have a proven track record, greater resources and market presence as compared to PPSB and therefore, may in some instances, be better positioned than the company to compete and win contracts. There is no assurance that PPSB will be able to withstand competition from other competitors in the market and gain additional market share. 8.3 Non-completion of the Proposed 49% Acquisition The completion of the Proposed 49% Acquisition is conditional upon the fulfilment or waiver, as the case may be, of the conditions precedent in the SPA. In the event the conditions precedent are not fulfilled or waived, as the case may be, within the agreed timeframe under the SPA or there is material breach of any terms of the SPA, the SPA may be terminated and the Proposed 49% Acquisition will not be completed. MMC will monitor the status and progress of the Proposed 49% Acquisition and endeavour, to the extent possible, to meet and fulfil all the terms and conditions of the SPA. However, there is no assurance that the Proposed 49% Acquisition will be completed. 8.4 Non-completion of disposal of Ferry Business As stated in Section 2.1.2(vi)(b) of this announcement, STJSB is to procure the completion of PPSB s disposal of the Ferry Business within the agreed timeframe. If PPSB s disposal of the Ferry Business is however not completed, there is no assurance that MMC s expectation of the financial performance of PPSB will be achieved. 8.5 Right to occupy land on which PPSB s operations is located As stated in Section 2.1.2(vi)(a) of this announcement, it is a condition subsequent under the SPA that STJSB is to procure that PPSB secures all rights to occupy and use all other property on which the operations of PPSB is located. If PPSB does not secure such rights, there is no assurance that PPSB may be able to continue its operations in its present state. 8.6 Political, financial and economic risk The financial performance of PPSB is dependent on worldwide trade volumes as well as import and export trade volumes in the region the company is operating. The volumes are significantly affected by changes in political, financial and economic conditions that are beyond the PPSB s control, including interest rates, changes in political leadership, unfavourable changes in Government policies, sanctions, boycotts and other measures as a result of trade barriers, trade disputes and acts of war, hostilities, terrorism, riots, natural disasters or epidemic

10 These factors generally affect all players in the market. It is envisaged that MMC will monitor its investment in PPSB and advise the directors and management of PPSB on effective measures such as prudent management and efficient operating procedures to mitigate these factors, where required. However, there can be no assurance that adverse political, financial and economic changes will not materially affect PPSB s business in the future. 8.7 Expiration or termination of concession PPSB s operations are subject to the terms and conditions under the Privatisation Agreement. Under the Privatisation Agreement, the concession is for an approved period. Nonetheless, the risk of the Government terminating the port concession on the grounds of national interest, national security or public policy cannot be entirely eliminated as the possibility of such termination taking place may be due to circumstances which cannot be foreseen at this stage. Termination of the concession will result in PPSB losing their core businesses and thus affecting its shareholder value. Notwithstanding this, the probability of this risk crystallizing may be low as port operations is an integral part of the overall domestic economy and MMC is not aware of any risk that the Government intends to terminate the concession as long as PPSB complies with the terms and conditions of the concession. 9. EFFECTS OF THE PROPOSED 49% ACQUISITION 9.1 Share capital and substantial shareholders shareholdings The Proposed 49% Acquisition will not have any effect on the issued and paid-up share capital and the shareholdings of substantial shareholders of MMC. 9.2 NA, NA per share and gearing The Proposed 49% Acquisition is not expected to have any material effect on the audited consolidated NA, NA per share and gearing of MMC. 9.3 Earnings and earnings per share The Proposed 49% Acquisition is expected to contribute positively to the future earnings of the MMC Group and will be accounted using the equity method. 10. APPROVALS REQUIRED The Proposed 49% Acquisition is subject to and conditional upon, among others, approvals, consents and/or letters of no objection being obtained from the following parties: (i) (ii) (iii) (iv) Government of Malaysia (as represented by the Ministry of Transport) through the Public Private Partnership Unit (commonly known as Unit Kerjasama Awam Swasta or UKAS) of the Prime Minister s Department, Malaysia; PPC; Financiers of PPSB; and Any other relevant authorities, if required

11 The Proposed 49% Acquisition is not subject to the approval of MMC s shareholders. The Proposed 49% Acquisition is not conditional upon any other corporate transaction that is currently undertaken by MMC. 11. PERCENTAGE RATIO The highest percentage ratio applicable to the Proposed 49% Acquisition is 4.08% based on the audited consolidated financial statements of MMC for the FYE 31 December Hence, an immediate announcement to Bursa Malaysia is required pursuant to Paragraph of the Listing Requirements. 12. INTERESTS OF DIRECTORS, MAJOR SHAREHOLDERS AND/OR PERSONS CONNECTED WITH THEM Save for STJSB, a major shareholder of MMC and the Vendor for the Proposed 49% Acquisition, none of the Directors, other major shareholders of MMC and the persons connected with them have any interest, direct or indirect, in the Proposed 49% Acquisition. Dato Sri Che Khalib bin Mohamad Noh and Datuk Ooi Teik Huat, Directors of MMC, are also Directors of PPSB. Accordingly, by virtue of their directorships in PPSB, both Dato Sri Che Khalib bin Mohamad Noh and Datuk Ooi Teik Huat will abstain and have abstained from participating in any discussion pertaining to the Proposed 49% Acquisition and from deliberating / voting on the Proposed 49% Acquisition in the relevant Audit Committee and Board meetings ( Interested Directors ). 13. AUDIT COMMITTEE S STATEMENT The Audit Committee (except for Datuk Ooi Teik Huat), after careful deliberation and having considered all aspects of the Proposed 49% Acquisition (including but not limited to the rationale, future prospects, risks, effects and the Valuation Letter issued by DCAS) is of the view that the Proposed 49% Acquisition is: (i) (ii) (iii) in the best interest of the MMC Group; fair, reasonable and on normal commercial terms; and not detrimental to the interests of the non-interested shareholders of MMC. 14. DIRECTORS STATEMENT The Board (save for the Interested Directors), after having considered all aspects of the Proposed 49% Acquisition (including but not limited to the rationale, future prospects, risks, effects and the Valuation Letter issued by DCAS), is of the opinion that the Proposed 49% Acquisition is in the best interest of the Company. 15. TOTAL AMOUNT TRANSACTED WITH THE SAME RELATED PARTY FOR THE PAST TWELVE (12) MONTHS Save for the Proposed 49% Acquisition, there are no other related party transactions with STJSB for the twelve (12) months preceding the date of this announcement

12 16. ESTIMATED TIMEFRAME FOR COMPLETION Barring any unforeseen circumstances, the Proposed 49% Acquisition is expected to be completed in the first quarter of DOCUMENTS AVAILABLE FOR INSPECTION The following documents are available for inspection at the registered office of MMC at Ground Floor, Wisma Budiman, Persiaran Raja Chulan, Kuala Lumpur, Malaysia, during normal business hours (from 8.30 a.m. to 5.30 p.m.) from Mondays to Fridays (except public holidays) for a period of three (3) months from the date of this announcement: (i) (ii) the SPA; and the Valuation Letter dated 1 July 2016 issued by DCAS. This announcement is dated 5 August