KENCANA AGRI LIMITED (Incorporated in the Republic of Singapore) (Company Registration Number: E)

Transcription

1 CIRCULAR DATED 10 APRIL 2012 THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. PLEASE READ IT CAREFULLY. If you are in any doubt about this Circular or the action you should take, you should consult your stockbroker, bank manager, solicitor, accountant, tax adviser or other professional adviser immediately. If you have sold or transferred all your shares in Kencana Agri Limited (the Company ) held through The Central Depository (Pte) Limited ( CDP ), you need not forward this Circular to the purchaser or transferee as arrangements will be made by CDP for a separate Circular to be sent to the purchaser or transferee. If you have sold or transferred all your shares represented by physical share certificate(s), you should at once hand this Circular to the purchaser or transferee or to the bank, stockbroker or agent through whom you effected the sale or transfer, for onward transmission to the purchaser or transferee. The Singapore Exchange Securities Trading Limited (the SGX-ST ) assumes no responsibility for the correctness of any of the statements made, reports contained or opinions expressed in this Circular. KENCANA AGRI LIMITED (Incorporated in the Republic of Singapore) (Company Registration Number: E) CIRCULAR TO SHAREHOLDERS In relation to THE PROPOSED INTERESTED PERSON TRANSACTIONS Independent Financial Adviser to the Independent Directors of the Company PROVENANCE CAPITAL PTE. LTD. (Incorporated in the Republic of Singapore) (Company Registration Number: E) IMPORTANT DATES AND TIMES:- Last date and time for lodgment of Proxy Form : 24 April 2012 at 4.00 p.m. Date and time of Extraordinary General Meeting : 26 April 2012 at 4.00 p.m. or immediately after the conclusion of the Annual General Meeting to be held at 3.00 p.m. on the same day and at the same place (or the adjournment thereof) Place of Extraordinary General Meeting : Coleman Room, Level 1 Grand Park City Hall 10 Coleman Street Singapore

2 TABLE OF CONTENTS DEFINITIONS INTRODUCTION INFORMATION ON THE CONTRACTING PARTIES INFORMATION ON ASP AND BWS INTERESTED PERSON TRANSACTIONS UNDER CHAPTER 9 OF THE LISTING MANUAL INFORMATION ON THE CONTRACTS REVIEW PROCEDURES INDEPENDENT FINANCIAL ADVISER S OPINION VIEWS OF THE AUDIT COMMITTEE AND DIRECTORS RECOMMENDATION INTEREST OF DIRECTORS AND CONTROLLING SHAREHOLDERS EXTRAORDINARY GENERAL MEETING ACTION TO BE TAKEN BY SHAREHOLDERS DIRECTORS RESPONSIBILITY STATEMENT CONSENT OF THE IFA DOCUMENTS AVAILABLE FOR INSPECTION APPENDIX A: LETTER FROM PROVENANCE CAPITAL PTE. LTD. TO THE INDEPENDENT DIRECTORS OF KENCANA AGRI LIMITED IN RESPECT OF THE INTERESTED PERSON TRANSACTIONS NOTICE OF EXTRAORDINARY GENERAL MEETING PROXY FORM DEFINITIONS

3 DEFINITIONS Except where the context otherwise requires, the following definitions apply throughout this Circular: DEFINITIONS General Agreement : Shall have the meaning ascribed to it in paragraph 1.1 of this Circular associate : Has the meaning given to it in Section of this Circular associated companies : Companies in which at least 20.0% but not more than 50.0% of its shares are held by the Company or the Group Audit Committee : The audit committee of the Board Board or Board of Directors : The board of directors of the Company Circular : This circular to Shareholders dated 10 April 2012 Companies Act : The Companies Act, Chapter 50 of Singapore, and any regulations made pursuant thereto Contracting Parties : PT Sawit Permai Lestari and PT Wira Palm Mandiri Contracts : The Land Clearing and Infrastructure Contracts, FFB Transportation Contracts and Oil Transportation Contracts collectively CPF : Central Provident Fund CPKO : Crude palm kernel oil CPO : Crude palm oil DBP : has the meaning given in Section of this Circular Director(s) : A director of the Company as at the date of this Circular EGM : Extraordinary general meeting to be convened and held on 26 April 2012 FFB : Fresh fruit bunch FFB Transportation Contracts : has the meaning given in Section of this Circular FFB Transportation Services : has the meaning given in Section 5.2 of this Circular Group : means the Company and its subsidiaries and associated companies FY : Financial year ended or ending 31 December, as the case may be 1

4 DEFINITIONS IFA Letter : Has the meaning given to it in Section 7 of this Circular immediate family : Has the meaning given to it in Section of this Circular Independent Directors : The Directors who are independent for the purposes of considering the Contracts, being Tengku Alwin Aziz, Mr Kent Surya, Mr Soh Yew Hock, Mr Leung Yew Kwong, Mr Teo Kim Yong, Mr Ang Kok Min and Mr Sim Idrus Munandar Independent Shareholders : Shareholders other than members of the Maknawi Family and their respective associates and Shareholders who are also interested in BWS Independent Financial Adviser : Provenance Capital Pte. Ltd. Interested Person(s) : ASP and BWS Land Clearing and Infrastructure Activities : has the meaning given in Section of this Circular Land Clearing and Infrastructure Contract : has the meaning given in Section of this Circular Latest Practicable Date : 2 April 2012 Listing Manual : The Listing Manual of the SGX-ST, as may be amended, varied or supplemented from time to time Maknawi Family : Mr Henry Maknawi and his immediate family Oil Transportation Contracts : has the meaning given in Section of this Circular Oil Transportation Services : has the meaning given in Section 5.3 of this Circular Service Providers : has the meaning given in Section 3.2 of this Circular Shareholder(s) : Registered holders of Shares, except that where the registered holder is CDP, the term Shareholders shall, in relation to such Shares, mean the Depositors whose Securities Account are credited with Shares Shares : Ordinary shares in the share capital of the Company subsidiary : Shall have the meaning ascribed to it in the Companies Act as amended from time to time 2

5 DEFINITIONS Substantial Shareholder : A person who holds directly or indirectly 5.0% or more of the total issued share capital of the Company Other Corporations or Agencies ASP : PT Alamindo Sejahtera Persada BWS : PT Berkat Wahana Sukses CDP : The Central Depository (Pte) Limited PT Pertamina : PT Pertamina (Persero) SGX-ST : Singapore Exchange Securities Trading Limited Currencies, Units and Others km : Kilometre MT : Metric tonnes Rp : Indonesian Rupiah, the legal currency of Indonesia S$ : Singapore dollars, the legal currency of the Republic of Singapore US$ : United States dollars, the legal currency of the United States of America % : Per centum or percentage The terms Depositor, Depository Agent and Depository Register shall have the meanings ascribed to them respectively in Section 130A of the Companies Act. Words importing the singular shall, where applicable, include the plural and vice versa, and words importing the masculine gender shall, where applicable, include the feminine and neuter genders. References to persons shall, where applicable, include corporations. Any reference in this Circular to any enactment is a reference to that enactment as for the time being amended or re-enacted. Any word defined in the Companies Act, the Listing Manual or any statutory modification thereof and used in this Circular shall, where applicable, have the meaning assigned to it under the Companies Act, the Listing Manual or such statutory modification, as the case may be, unless the context otherwise requires. Any reference to a time of day in this Circular shall be a reference to Singapore time, unless otherwise stated. The figures in Rp which are expressed in US$ (and vice-versa) are expressed based on the exchange rate of Rp 8,776: US$1.00, being the average exchange rate between Rp and US$ for the year ended 31 December Such conversions are provided solely for the purposes of presentation. 3

6 LETTER TO SHAREHOLDERS LETER TO SHAREHOLDERS KENCANA AGRI LIMITED (Incorporated in the Republic of Singapore) (Company Registration Number: E) Directors:- Mr Henry Maknawi, Chairman and Chief Executive Officer Tengku Alwin Aziz, Vice-Chairman and Non-Executive Director Ms Ratna Maknawi, Deputy Chief Executive Officer Mr Kent Surya, Finance Director Mr Soh Yew Hock, Lead Independent Director Mr Leung Yew Kwong, Independent Director Mr Teo Kim Yong, Non-Executive Director Mr Ang Kok Min, Alternate Director to Mr Teo Kim Yong Mr Sim Idrus Munandar, Independent Director Registered Office:- 36 Armenian Street #03-02 Singapore April 2012 To: Shareholders of Kencana Agri Limited Dear Sir / Madam PROPOSED INTERESTED PERSON TRANSACTIONS 1. INTRODUCTION 1.1. On 9 April 2012, the Company announced that PT Sawit Permai Lestari and PT Wira Palm Mandiri, both subsidiaries of the Company, have entered into separate conditional agreements with: ASP, pursuant to which ASP shall provide land clearing and infrastructure construction services to the Contracting Parties and their subsidiaries (the Land Clearing and Infrastructure Contracts ); and BWS, pursuant to which: (a) (b) BWS shall provide FFB transportation and logistics services to the Contracting Parties and their subsidiaries (the FFB Transportation Contracts ); and BWS shall provide CPO and CPKO transportation and logistics services to the Contracting Parties and their subsidiaries (the Oil Transportation Contracts ). The services to be provided by ASP and BWS under the Contracts are similar to the services that they currently provide to the Group on an ongoing basis The total value of the Group s transactions with ASP and BWS for the financial year ended 31 December 2011 did not exceed the thresholds set out in Rule 906 of the Listing Manual. However, as ASP and BWS are associates of Mr Henry Maknawi (the Chairman and Chief Executive Officer and a controlling shareholder of the Company) and the total value of the transactions to be carried out pursuant to the Contracts could exceed 5% of the Group s latest audited net tangible assets and constitute interested person transactions within the meaning of Chapter 9 of the Listing Manual, in the interests of transparency and good corporate governance, the Company is seeking the approval of Independent Shareholders in respect of the Contracts at an EGM to be convened. The purpose of this Circular is therefore to provide Shareholders with information relating to the Contracts and to seek approval for the same at the EGM. 4

7 LETTER TO SHAREHOLDERS 2. INFORMATION ON THE CONTRACTING PARTIES The Contracting Parties are both subsidiaries of the Company. They are principally investment holding companies that hold the Group s operating plantation subsidiaries. They are also engaged in the wholesale trading of plantation related products. 3. INFORMATION ON ASP AND BWS 3.1. About ASP ASP is a private company incorporated under the laws of Indonesia and domiciled in West Jakarta, with its registered address at Taman Harapan Indah Blok K No. 21A, Jelambar Baru, West Jakarta, Indonesia. ASP has been engaged in the business of providing land clearing services and construction of basic infrastructure such as roads and bridges, and is one of such contractors engaged by the Group on an ongoing basis since its incorporation in The Group started contracting the services of ASP in Upon the listing of the Company on the Official List of the SGX-ST, the Group embarked on a series of expansion plans. In order to expand its plantations and to increase its planting of new oil palm trees, the Group needed the services of reliable land clearing contractors to clear uncultivated land and to construct basic infrastructure such as roads and bridges. In the course of implementing its expansion plans, the Group encountered increasing difficulty in sourcing for suitable land clearing contractors who were reliable, financially sound, flexible and adaptable enough for the Group s operating environment. The shortage of suitable land clearing contractors would hinder the pace of the Group s expansion plans, especially in some of the Group s new estates in certain parts of Indonesia, such as Sulawesi. Thus, to address these concerns and to give the Group access to a wider pool of reliable contractors, ASP was established to readily support the expansion plans of the Group and to ensure that the Group will always have access to the services of a dedicated land clearing contractor. As at the Latest Practicable Date, the entire share capital of ASP is owned by PT Alam Semesta Permai (60%) and PT Geo Andalan Buana (40%). PT Alam Semesta Permai is in turn owned by Mr Johan Maknawi (25%), Mr Eddy Maknawi (25%), Ms Jeanny Maknawi (25%) and Mr Albert Maknawi (25%), members of Mr Henry Maknawi s immediate family. PT Geo Andalan Buana is a party unrelated to the Group or the Maknawi Family. ASP is managed by the management team from PT Geo Andalan Buana, which has extensive experience in the business of land clearing and construction of infrastructure. For the financial year ended 31 December 2011, the aggregate value of transactions entered into between the Group and ASP amounted to approximately US$4.0 million (excluding transactions below S$100,000) About BWS BWS is a private company incorporated under the laws of Indonesia and domiciled in West Jakarta, with its registered address at Taman Surya Blok CC/11 RT. 017/02, Kel. Wijaya Kusuma, Kec. Grogol Petamburan, Jakarta Barat, Indonesia. BWS provides land-based transportation and logistics services to the Group on an exclusive basis. As disclosed in the Company s prospectus dated 17 July 2008, prior to the listing of the Company, the Group had entered into an informal arrangement with Mr Henry Maknawi, Ms Ratna Maknawi and certain employees of the Group ( the Service Providers ) for the provision of transportation services to the Group. The arrangement was formalised when the Service Providers incorporated BWS to provide the transportation services to the Group. As the Group continues to expand, the Group intends to continue engaging the services of BWS 5

8 LETTER TO SHAREHOLDERS due to their competitiveness, reliability, flexibility and ability to adapt to the Group s operating environment. As at the Latest Practicable Date, the shareholders of BWS are Mr Henry Maknawi (28%), Ms Ratna Maknawi (29.5%), and certain former and existing employees of the Group who collectively own 42.5% of BWS. None of these employees are directors of the Company or any of its subsidiaries. The shareholders of BWS are not engaged in the management of BWS, which is managed by experienced third party employees independent of the Group. For the financial year ended 31 December 2011, the aggregate value of the transactions entered into between the Group and BWS amounted to approximately US$1.7 million (excluding transactions below S$100,000). 4. INTERESTED PERSON TRANSACTIONS UNDER CHAPTER 9 OF THE LISTING MANUAL 4.1. Chapter 9 of the Listing Manual Background Chapter 9 of the Listing Manual governs transactions in which a listed company or any of its subsidiaries or associated companies (known as an entity at risk ) enters into or proposes to enter into with a party who is an interested person of the listed company. The purpose is to guard against the risk that interested persons could influence the listed company, its subsidiaries or associated companies to enter into transactions with it that may adversely affect the interests of the listed company or its shareholders. For the purposes of Chapter 9 of the Listing Manual:- (a) an entity at risk means:- (i) (ii) (iii) the listed company; a subsidiary of the listed company that is not listed on the SGX-ST or an approved exchange; or an associated company of the listed company that is not listed on the SGX-ST or an approved exchange, provided that the listed company and/or its subsidiaries (the listed group ), or the listed group and its interested person(s), has control over the associated company; (b) (c) in the case of a company, an interested person means a director, chief executive officer or controlling shareholder of the listed company or an associate of such director, chief executive officer or controlling shareholder; in the case of a company, an associate :- (i) in relation to any director, chief executive officer, substantial shareholder or controlling shareholder (being an individual) includes an immediate family member (that is, the spouse, child, adoptedchild, step-child, sibling or parent) of such director, chief executive officer, substantial shareholder or controlling shareholder, the trustees of any trust of which the director/his immediate family, the chief executive officer/ his immediate family, the substantial shareholder/his immediate family or controlling shareholder/his immediate family is a beneficiary or, in the case of a discretionary trust, is a discretionary 6

9 LETTER TO SHAREHOLDERS object, and any company in which the director/his immediate family, the chief executive officer/his immediate family, the substantial shareholder/ his immediate family or controlling shareholder/his immediate family has or have an aggregate interest (directly or indirectly) of 30.0% or more; and (ii) in relation to a substantial shareholder or a controlling shareholder (being a company) means any other company which is its subsidiary or holding company or is a subsidiary of such holding company or one in the equity of which it and/or such other company or companies taken together (directly or indirectly) have an interest of 30.0% or more; (d) (e) an approved exchange means a stock exchange that has rules which safeguard the interests of shareholders against interested person transactions according to similar principles to Chapter 9 of the Listing Manual; and an interested person transaction means a transaction between an entity at risk and an interested person, and includes the provision or receipt of financial assistance, the acquisition, disposal or leasing of assets, the provision or receipt of services, the issuance or subscription of securities, the granting of or being granted options, and the establishment of joint ventures or joint investments, whether or not in the ordinary course of business, and whether or not entered into directly or indirectly Financial Thresholds An immediate announcement and/or shareholders approval would be required in respect of transactions with interested persons if the value of the transaction is equal to or exceeds certain financial thresholds. In particular, an immediate announcement is required where:- (a) (b) the value of a proposed transaction is equal to or exceeds 3.0% of the listed group s latest audited consolidated net tangible assets ( Threshold 1 ); or the aggregate value of all transactions entered into with the same interested person during the same financial year, is equal to or more than Threshold 1. In this instance, an announcement will have to be made immediately of the latest transaction and all future transactions entered into with that same interested person during the financial year. Shareholders approval is required where:- (a) (b) the value of a proposed transaction is equal to or exceeds 5.0% of the listed group s latest audited consolidated net tangible assets ( Threshold 2 ); or the aggregate value of all transactions entered into with the same interested person during the same financial year, is equal to or more than Threshold 2. The aggregation will exclude any transaction that has been approved by shareholders previously, or is the subject of aggregation with another transaction that has been previously approved by shareholders. Pursuant to Rule 909 of the Listing Manual, the value of a transaction is the amount at risk to the issuer. This is illustrated by the following examples:- 7

10 LETTER TO SHAREHOLDERS (a) (b) (c) in the case of a partly-owned subsidiary or associate company, the value of the transaction is the issuer s effective interest in that transaction; in the case of a joint venture, the value of the transaction includes the equity participation, shareholders loans and guarantees given by the entity at risk; and in the case of borrowing of funds from an interested person, the value of the transaction is the interest payable on the borrowing. In the case of lending of funds to an interested person, the value of the transaction is the interest payable on the loan and the value of the loan. 5. INFORMATION ON THE CONTRACTS 5.1. The Land Clearing and Infrastructure Contracts Under the Land Clearing and Infrastructure Contracts, the Contracting Parties and ASP agreed to a framework pursuant to which the Contracting Parties and/or any of their subsidiaries may contract the services of ASP for the purposes of clearing uncultivated land and constructing basic infrastructure in order to prepare the Group s unutilised land banks for cultivation of new oil palm estates at the agreed locations. Based on the terms of the Land Clearing and Infrastructure Contracts and the Group s present expansion and planting plans, the Group estimates that the aggregate value of the transactions with ASP at these locations pursuant to the Land Clearing and Infrastructure Contracts could be in the range of US$20 million to US$30 million over the five (5) year term of the contracts, barring the occurrence of unforeseen circumstances Scope of work The Contracting Parties and/or their subsidiaries may contract the services of ASP to undertake land clearing and construction works, including: (a) (b) (c) (d) (e) clearing of underbrush and felling of trees; terrace contouring; construction and maintenance of drains; construction of roads; and construction of bridges, at certain agreed locations (the Land Clearing and Infrastructure Activities ) Agreed locations The Land Clearing and Infrastructure Activities shall be undertaken at the following estates owned or controlled by the Contracting Parties or their subsidiaries: (a) (b) (c) (d) Bualemo, Banggai, Central Sulawesi, Indonesia; Batui, Banggai, Central Sulawesi, Indonesia; Pohuwato, Gorontalo, Indonesia; and Bulungan, East Kalimantan, Indonesia. 8

11 LETTER TO SHAREHOLDERS As at 31 December 2011, the Group has the right to cultivate approximately 66,461 ha (subject to final measurement by the relevant authorities) of land at these locations, of which the Group estimates that approximately 50% to 60% of the land banks may be available for land clearing and construction of necessary infrastructure. The Contracting Parties and their subsidiaries intend to engage the services of ASP as one of the contractors for the Land Clearing and Infrastructure Activities at parts of the land banks mentioned above Term of contract The Land Clearing and Infrastructure Contracts shall have a term of five (5) years Base prices The Land Clearing and Infrastructure Contracts set out an agreed list of base prices for each unit of the various services to be provided by ASP. The base prices were arrived at on a willing buyer willing seller basis, with reference to independent third party quotes obtained by the Group where available, and taking into account internal price analysis, past transactions with ASP and all relevant factors. The base prices applicable to the different locations may vary due to differences in factors which affect the cost of working at the different locations, such as the remoteness of the location, the nature of the terrain and the logistics costs. The base prices are also subject to certain adjustment mechanisms, which are described in Section below. Shareholders may refer to the Land Clearing and Infrastructure Contracts for the full list of base prices, which are available for inspection at the registered office of the Company Adjustment to base prices (a) Adjustment for fluctuation in DBP The base prices set out in the Land Clearing and Infrastructure Contracts also take into account the base price of diesel ( DBP ), which was initially fixed at Rp 9,500 per litre. Due to the volatility in the price of diesel and the fact that the cost of diesel represents an important factor in the operating cost of performing the Land Clearing and Infrastructure Activities, the parties have agreed to allow for agreed fixed adjustments to the base prices of the land clearing services for every fluctuation in the DBP of an amount of Rp 250 per litre (whether higher or lower than Rp 9,500 per litre). The value of DBP is benchmarked against the price of diesel as announced by PT Pertamina at the beginning of each month. The applicable DBP for each month shall be determined by the Contracting Parties with reference to the price of diesel as announced by PT Pertamina. The table of agreed adjustments to the base prices of the Land Clearing and Infrastructure Services is also set out in the Land Clearing and Infrastructure Contracts. (b) Annual base price review The Contracting Parties and ASP may request for a review of the base prices on an annual basis to take into account factors such as the effects of inflation, increase in wages and adjustments to market prices for similar work. Any 9

12 LETTER TO SHAREHOLDERS Contract Basis upward or downward price adjustment pursuant to the annual base price review shall not in any case exceed 10% of the base prices for the preceding year and shall be subject to the review and prior approval of the Audit Committee. For the avoidance of doubt, adjustments made due to fluctuations in DBP are separate from and do not count towards the 10% maximum permissible adjustment to the base prices. The Land Clearing and Infrastructure Contracts provide the framework under which the Contracting Parties or their subsidiaries may engage the services of ASP for specific Land Clearing and Infrastructure Activities at the various agreed locations. This arrangement was put in place to allow the Group to control the pace at which its uncultivated land banks are cleared to meet its needs for new estates. The Contracting Parties or any of their subsidiaries may engage the services of ASP under the Land Clearing and Infrastructure Contracts on a contract basis by signing a confirmation letter, which will set out the specific terms of each job order, such as the precise location to be cleared, the area involved (in hectares), the type of land clearing and infrastructure services required for the location, the timeline to completion of the job and other material information required to make an assessment of the scope of the work requested by the Group. Acceptance by ASP of the terms set out in the confirmation letter will formalise and confirm the job order Payment Terms Payment shall be made on a monthly basis, where 90% of the fees payable in respect of the work done each month shall be paid within four (4) weeks of receipt of a valid invoice supported by an job completion report prepared by ASP and agreed by the Group. The remaining 10% of the fees payable each month ( Monthly Retention Payments ) shall be retained by the Group and the monthly retention amounts shall be aggregated and paid in one lump sum 30 days after final payment is made for the specific job order Contractor s Reimbursement If the Group determines that any of the Land Clearing and Infrastructure Activities performed by ASP has been unsatisfactory, the Group may engage independent third party contractors to correct and/or complete the work done by ASP. ASP shall compensate the Group in full for the difference between the total amount incurred by the Group in respect of the services required under a particular job order (including the fees paid to ASP and the independent third party contractor) and the amount it would have paid to ASP under the Land Clearing and Infrastructure Contracts for those works Compensation In the event that ASP is unable to perform the Land Clearing and Infrastructure Activities under a specific job order made by the Contracting Parties due to the inaccessibility of land specified under that job order arising from social issues amongst the local inhabitants which prohibits the performance of the Land Clearing and Infrastructure Activities, the Group shall be liable to compensate ASP for the idle period, based on the opportunity cost to ASP for the idle equipment and manpower. Such compensation shall not in any event exceed the remaining contract value of that particular job order. The amount of compensation payable in each instance shall be subject to the review and prior approval of the Audit Committee. 10

13 LETTER TO SHAREHOLDERS Termination The Group may in its absolute discretion choose to terminate the Land Clearing and Infrastructure Contracts upon the occurrence of certain agreed events, such as a material change in economic conditions, breach of contract or negligence on the part of ASP. The Group shall be entitled to forfeit any Monthly Retention Payments accrued and unpaid up to the termination of the Land Clearing and Infrastructure Contract(s), save in the case of termination due to material changes in economic conditions. The Land Clearing and Infrastructure Contracts do not provide for termination at the discretion of ASP The FFB Transportation Contracts Under the FFB Transportation Contracts, the Contracting Parties and BWS agreed to a framework pursuant to which the Contracting Parties and/or any of their subsidiaries may contract the services of BWS for the purposes of transporting FFB within certain oil palm plantations owned and/or controlled by the Contracting Parties and their subsidiaries (the FFB Transportation Services ). As stated above, the Group has been contracting the FFB Transportation Services of BWS on a continuing basis for over 10 years Agreed Locations The FFB Transportation Services shall be undertaken at the following estates owned and/or controlled by the Contracting Parties or their subsidiaries: (a) (b) (c) (d) Bangka, Bangka Belitung, Indonesia; Kotabaru, South Kalimantan, Indonesia; Paser, East Kalimantan, Indonesia; and Kutai, East Kalimantan, Indonesia Term of contract Pricing The FFB Transportation Contracts shall have a term of five (5) years. The fees payable for the FFB Transportation Services shall be determined in accordance with the following formula: (base price + DBP adjustment (if any) + loading fees) x weight of FFB delivered (MT) (a) Base prices The FFB Transportation Contracts set out an agreed list of base prices for the transportation of FFB between designated blocks within the Group s oil palm plantations to its CPO mills. The base prices include the cost of diesel, and were arrived at on a willing buyer willing seller basis, with reference to independent third party quotes obtained by the Group, and taking into account internal cost analysis, past transactions with BWS and all relevant factors. 11

14 LETTER TO SHAREHOLDERS Distance of Designated Block from Mill Base Price (Rp/MT) 0-5 km 32,300 >5-10 km 37,100 >10-15 km 42,200 >15-20 km 50,700 >20-25 km 60,800 >25-30 km 76,100 >30-35 km 95,100 (b) DBP Adjustment The base prices were determined based on a DBP of Rp 9,500 per litre. Due to the volatility in the price of diesel and the fact that the cost of diesel represents an important factor in the operating cost of performing the FFB Transportation Services, the parties have agreed to allow for agreed fixed adjustments to the base prices of the FFB Transportation Services for every fluctuation in the DBP of Rp 250 per litre (whether higher or lower than Rp 9,500 per litre). The applicable DBP will be determined by the Contracting Parties or their subsidiaries at the beginning of each month with reference to the price of diesel as announced by PT Pertamina. The agreed adjustments are set out below: Distance of Designated Block from Mill Adjustment for every fluctuation of Rp 250 of DBP (Rp/MT) 0-5 km 128 >5-10 km 256 >10-15 km 385 >15-20 km 513 >20-25 km 641 >25-30 km 769 >30-35 km 897 (c) Loading fee Adjustment to prices BWS shall staff every truck with at least three (3) persons, comprising a truck driver and two (2) persons responsible for loading the truck with the FFB collected at the designated collection points. In addition to the applicable base price and DBP adjustment (if any), a loading fee of Rp 12,000 will be payable for every MT of FFB delivered by BWS. Annual base price and loading fee review: The Contracting Parties and BWS may request for a review of the (i) base prices; and (ii) loading fees, on an annual basis to take into account factors such as the effects of inflation, increase in wages and adjustments to market prices for similar work. Any upward or downward adjustment to the base price and/or loading fees pursuant to the annual base price review shall not in any case exceed 10% of the base prices and/or loading fees for the preceding year and shall be subject to the review and prior approval of the Audit Committee. 12

15 LETTER TO SHAREHOLDERS For the avoidance of doubt, adjustments made due to fluctuations in DBP are separate from and do not count towards the 10% maximum permissible adjustment to the base prices Contract Basis The FFB Transportation Contracts provide the framework under which the Contracting Parties or their subsidiaries may engage the services of BWS for the provision of the FFB Transportation Services at the Group s oil palm plantations. The Contracting Parties or any of their subsidiaries may engage the services of BWS under the FFB Transportation Contract on a contract basis by executing a confirmation letter, which will set out the specific terms of each job order, such as the precise locations of the plantations to be serviced, the estimated weight of FFB to be transported over the duration of each job order and other material information required to make an assessment of the scope of the work requested by the Group. Acceptance by BWS of the terms set out in the confirmation letter will formalise and confirm the job order Contractor s Reimbursement If the Group finds any of the FFB Transportation Services performed by BWS unsatisfactory, the Group may engage independent third party contractors to complete the work done by BWS. BWS shall compensate the Group in full for the difference between the total amount incurred by the Group in respect of the jobs required under a particular job order (including the fees paid to BWS and the independent third party contractor) and the amount it would have paid to BWS under the FFB Transportation Contracts for those works Termination The Group may in its absolute discretion choose to terminate the FFB Transportation Contracts upon the occurrence of certain agreed events, such as a material change in economic conditions, breach of contract or negligence on the part of BWS. The FFB Transportation Contracts do not provide for termination at the discretion of BWS The Oil Transportation Contracts Under the Oil Transportation Contracts, the Contracting Parties and BWS agreed to a framework pursuant to which the Contracting Parties and/or any of their subsidiaries may contract the services of BWS for the purpose of transporting CPO and/or CPKO from mills to storage facilities, ports or end customers (the Oil Transportation Services ). As stated above, the Group has been contracting the Oil Transportation Services of BWS on a continuing basis since Term of contract Pricing The Oil Transportation Contracts shall have a term of five (5) years. The fees payable for the Oil Transportation Services shall be determined in accordance with the following formula: (base price + diesel component + DBP adjustment (if any)) x weight of CPO/CPKO delivered (MT) 13

16 LETTER TO SHAREHOLDERS (a) Base prices The Oil Transportation Contracts set out an agreed list of base prices for the transportation of CPO and/or CPKO based on the distance travelled. The base prices excludes the cost of diesel, and were arrived at on a willing buyer willing seller basis, with reference to independent third party quotes obtained by the Group where available, and taking into account internal cost analysis, past transactions with BWS and all relevant factors. Distance Travelled between Collection and Delivery Points (two-way) Base Price (Rp/MT) 0-40 km 34,900 >40-80 km 38,500 > km 43,000 > km 48,600 > km 55,900 > km 65,800 > km 79,900 (b) Diesel component The diesel component for each delivery of CPO and/or CPKO shall be determined in accordance with the following formula: Diesel component = Distance travelled (km) x Diesel Factor (Rp per MT per km) The Diesel Factor of Rp 424 per MT per km travelled takes into account factors such as (i) DBP of Rp 9,500 per litre, (ii) usage of diesel per kilometre travelled, and (iii) weight of CPO or CPKO delivered per delivery. (c) DBP adjustment The base prices were determined based on a DBP of Rp 9,500 per litre. Due to the volatility in the price of diesel and the fact that the cost of diesel represents an important factor in the operating cost of performing the Oil Transportation Services, the parties have agreed to allow for agreed fixed upward or downward adjustments of Rp 9 per MT per km travelled to the fees payable for the Oil Transportation Services for every fluctuation in the DBP of Rp 250 per litre relative to the base DBP price of Rp 9,500 per litre). The applicable DBP for each month shall be determined by the Contracting Parties with reference to the price of diesel as announced by PT Pertamina. (d) Illustration BWS delivers one load of 1 MT of CPO. The distance between the collection and delivery points is 95km. The truck therefore travels 190km to deliver the CPO and return. The DBP prevailing at the time of delivery is Rp 10,000 per litre, resulting in two DBP adjustments. 14

17 LETTER TO SHAREHOLDERS Adjustment to prices The fees payable for the delivery above will be determined as follows: base price: Rp 55,900 per MT; diesel component: (190km) x Diesel Factor (Rp 424 per MT per km) = Rp 80,560 DBP Adjustment: (190km) x (Rp 9 per MT per km x 2) = Rp 3,420 The total fee payable for the delivery will be: (Rp 55,900 per MT + Rp 80,560 per MT + Rp 3,420 per MT) x 1 MT = Rp 139,880 Annual base price review: The Contracting Parties and BWS may request for a review of the base prices on an annual basis to take into account factors such as the effects of inflation, increase in wages and adjustments to market prices for similar work. Any upward or downward adjustment to the base price pursuant to the annual base price review shall not in any case exceed 10% of the base prices for the preceding year and shall be subject to the review and prior approval of the Audit Committee. For the avoidance of doubt, adjustments made due to fluctuations in DBP are separate from and do not count towards the 10% maximum permissible adjustment to the base prices Contract Basis The Oil Transportation Contracts provide the framework under which the Contracting Parties or their subsidiaries may engage the services of BWS for the provision of the Oil Transportation Services. The Contracting Parties or any of their subsidiaries may engage the services of BWS under the Oil Transportation Contracts on a contract basis by executing a confirmation letter, which will set out the specific terms of each job order, such as where the CPO and/or CPKO should be collected and delivered, the estimated weight of CPO and/or CPKO to be transported over the duration of each job order and other material information required to make an assessment of the scope of the work requested by the Group. Acceptance by BWS of the terms set out in the confirmation letter will formalise and confirm the job order Contractor s Reimbursement If the Group finds any of the Oil Transportation Services performed by BWS unsatisfactory, the Group may engage independent third party contractors to complete the work done by BWS. BWS shall compensate the Group in full for the difference between the total amount incurred by the Group in respect of the jobs required under a particular job order (including the fees paid to BWS and the independent third party contractor) and the amount it would have paid to BWS under the Oil Transportation Contracts for those works Termination The Group may in its absolute discretion choose to terminate the Oil Transportation Contracts upon the occurrence of certain agreed events, such as a material change in economic conditions, breach of contract or negligence on the part of BWS. The Oil Transportation Contracts do not provide for termination at the discretion of BWS. 15

18 LETTER TO SHAREHOLDERS 5.4. Rationale for entering into the Contracts The Group s strategy is to focus its resources on its core businesses, being the management and expansion of its oil palm plantation business, production of oil palm products, and improving its distribution of its products. In view of this strategy, the Group outsources certain non-core functions to third party contractors. The Group has entered into five (5) years fixed contracts with ASP and BWS in order to secure certainty of pricing for these services and to ensure the continuity of such services by reliable contractors. This in turn will allow the Group to better plan its expansion and other development costs and reduce the operational risks. The Group is of the view that the five (5) year fixed contracts are necessary and beneficial to the Group, as it expects to scale up its land clearing activities and CPO/CPKO production (which will increase its transportation requirements) over the next five (5) years and it is more efficient to manage these processes on a longer term basis. The Land Clearing and Infrastructure Contracts ASP is one of a few land clearing and infrastructure contractors appointed by the Group. ASP has been providing these services to the Group since 2011 and has proven to be a reliable service provider. In addition to the factors mentioned in Section 3.1 above, the Group believes that entering into the Land Clearing and Infrastructure Contracts with ASP will be beneficial to the Group, as ASP is a reliable land clearing contractor that can perform the land clearing services required by the Group in a timely fashion in accordance with the Group s development schedule. Being related to the Group, ASP is more familiar with the terrain of the Group s land banks, which will help in the performance of the Land Clearing and Infrastructure Activities. Furthermore, the relationship between the Group and ASP will allow ASP to better understand the needs of the Group in relation to the Group s need for new plantation land and infrastructure needs. Land clearing contractors entering new and remote areas, such as the Group s land banks in parts of Sulawesi and Kalimantan, will require heavy capital investment in order to purchase new heavy equipment. Third party contractors often do not have the ability or do not wish to make the investments required to do so. The Group believes that sourcing for a suitable third party contractor amongst the limited pool of contractors who are able to meet its requirements will be costly. By contracting the services of ASP on a long term contract, not only does the Group enjoy a greater degree of certainty in cost management, it is also assured of the services of a land clearing contractor with sufficient resources to meet the needs of the Group. The FFB Transportation Contracts and Oil Transportation Contracts BWS has provided dedicated transportation services to the Group for more than 10 years. Over this period, BWS has demonstrated its reliability and dedication in performing the services required by the Group at competitive prices. BWS does not service other customers, and all its resources are devoted to meeting the needs of the Group. The Group believes that entering into these contracts with BWS will be beneficial to the Group as a whole. The quality of the transportation of FFB is an important factor for the efficient production of one of the Group s primary products, CPO. FFB are perishable products; freshly picked FFB must be processed within 24 hours in order to maximise CPO yield. The Group s CPO and CPKO must similarly be delivered in a timely manner in order to meet the Group s sale orders. The tanks must also be kept clean to prevent contamination of the CPO and CPKO transported. Over the years, BWS has consistently met the needs of the Group and has proven to be a reliable provider of transportation services with a good track record. The Group thus believes that it will be in the interests of the Group to secure the services of BWS under a long term contract. BWS is also familiar with the operations of the Group, thus reducing operational 16

19 LETTER TO SHAREHOLDERS risks and ensuring integration between the Group s operations and BWS transportation services. 6. REVIEW PROCEDURES 6.1. Register of Interested Person Transactions The Group will maintain a register of all transactions carried out pursuant to the Contracts and shall include all information pertinent to these transactions such as, but not limited to the value of the transactions, the basis for determining the applicable DBP, the transaction prices and supporting evidence and quotations obtained to support such basis. The register shall be prepared, maintained and monitored by personnel of the Group (who shall not be interested in any of the Contracts) who are duly delegated to do so by the Audit Committee and reviewed by internal auditors on a quarterly basis and by external auditors on an annual basis Review by Audit Committee The Audit Committee shall review the quarterly internal audit reports on the transactions entered into under the Contracts to ascertain that the terms of the Contracts have been complied with. If any member of the Audit Committee has an interest in a transaction, he shall abstain from participating in the review and approval process in relation to that transaction Annual Price Review The Group shall review the base prices under the Contracts and the loading fees under the FFB Transportation Contracts on an annual basis. Following the annual review, the Group will propose adjustments in the prices to ASP and/or BWS (as the case may be), if required. In addition, as part of the Group s internal control procedures, the Audit Committee shall review and give its prior approval to any price adjustments made pursuant to the annual reviews. 7. INDEPENDENT FINANCIAL ADVISER S OPINION Provenance Capital Pte. Ltd. has been appointed as the IFA to advise the Independent Directors on whether the financial terms of the Contracts are on normal commercial terms and are not prejudicial to the interests of the Company and the Independent Shareholders. A copy of the letter dated 10 April 2012 from the IFA (the IFA Letter ), containing its opinion in full, is set out in Appendix A of this Circular. Shareholders are advised to read the letter in its entirety. Taking into consideration the factors set out in the IFA Letter and subject to the assumptions and qualifications contained therein and the information available to the IFA as at the Latest Practicable Date, the IFA is of the opinion that, on balance, the financial terms of the Contracts are on normal commercial terms and are not prejudicial to the interests of the Company and the Independent Shareholders. 8. VIEWS OF THE AUDIT COMMITTEE AND DIRECTORS RECOMMENDATION 8.1. Views of the Audit Committee Having reviewed, inter alia, the terms and rationale for and the benefits of the Contracts, as well as the opinion and advice of the IFA, the Audit Committee concurs with the opinion of the IFA and is of the view that the Contracts are on normal commercial terms and are not prejudicial to the interests of the Company and the Independent Shareholders. 17

20 LETTER TO SHAREHOLDERS 8.2. Directors Recommendation Having considered, inter alia, the terms, the rationale for and the benefits of the Contracts, as well as the opinion and advice of the IFA, the Independent Directors are of the view that the Contracts are in the interests of the Company and accordingly recommend that Shareholders vote in favour of the resolution approving the entry by the Group into the Contracts as set out in the notice of EGM. Mr Henry Maknawi and Ms. Ratna Maknawi, being interested in the Contracts, have abstained from making any recommendation on the Contracts. 9. INTEREST OF DIRECTORS AND CONTROLLING SHAREHOLDERS 9.1. Interest of Directors and Controlling Shareholders As at the Latest Practicable Date, none of the Directors or the Controlling Shareholders of the Company have any direct or indirect interests in the Contracts, save as disclosed below: members of Mr Henry Maknawi s immediate family are interested in 60% of the share capital of ASP; Mr Henry Maknawi and Ms. Ratna Maknawi, are interested in 57.5% of the share capital of BWS Abstention from Voting Mr Henry Maknawi and Ms Ratna Maknawi have undertaken to abstain, and ensure that their associates (including Kencana Holdings Pte Ltd) abstain, from voting in respect of the Contracts at the EGM. Edy Suroso and Wisely Antonius are employees and shareholders of the Company. As they also have an interest in BWS, they will abstain from voting in respect of the Contracts. Mr Henry Maknawi and Ms Ratna Maknawi will also abstain from making any recommendation to the Shareholders in respect of the Contracts Directors and Substantial Shareholders Interests in the Company As at the Latest Practicable Date, save as disclosed below, none of the Directors has any interest in the Shares of the Company. The interests of the Directors and Substantial Shareholders in the Shares as at the Latest Practicable Date are set out below: Direct Interest (No. of Shares) As at Latest Practicable Date % Deemed Interest (No. of Shares) % Directors Henry Maknawi (1) 7,099, ,220, Ratna Maknawi - - 5,666, Tengku Alwin Aziz 1,675, Kent Surya 837, Soh Yew Hock 200, Leung Yew Kwong 400, Teo Kim Yong Ang Kok Min Sim Idrus Munandar