PROPOSED PRIVATE PLACEMENT OF UP TO 10% OF THE TOTAL NUMBER OF ISSUED SHARES OF KGB (EXCLUDING TREASURY SHARES) ( PROPOSED PRIVATE PLACEMENT )

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1 KELINGTON GROUP BERHAD ( KGB OR THE COMPANY ) PROPOSED PRIVATE PLACEMENT OF UP TO 10 OF THE TOTAL NUMBER OF ISSUED SHARES OF KGB (EXCLUDING TREASURY SHARES) ( PROPOSED PRIVATE PLACEMENT ) 1. INTRODUCTION On behalf of the Board of Directors of KGB ( Board ), TA Securities Holdings Berhad ( TA Securities ) wishes to announce that the Company proposes to undertake a proposed private placement of up to ten percent (10) of the total number of issued shares of KGB (excluding treasury shares) to third party investors to be identified at an issue price to be determined later. Further details of the Proposed Private Placement are set out in the ensuing sections. 2. DETAILS OF THE PROPOSED PRIVATE PLACEMENT 2.1 Size of the Proposed Private Placement As at 26 January 2018, being the latest practicable date prior to this announcement ( LPD ), the total number of ordinary shares of KGB ( KGB Share(s) or Share(s) ) in issue is 228,714,266, excluding 1,119,900 treasury shares. As at the LPD, the Company has 53,937,631 outstanding warrants 2014/2019 constituted by a deed poll dated 30 May 2014 and expiring on 30 May 2019 ( Warrants 2014/2019 ) which are exercisable into one (1) KGB Share at an exercise price of RM0.50 each. In addition, the Company has in place an employee share grant scheme of up to seven percent (7) of the total number of issued shares of the Company (excluding treasury shares) for the eligible employees and directors of KGB and its subsidiaries ( KGB Group ) ( ESS ). As at the LPD, the Company has granted 16,000,000 KGB Shares ( ESS Shares ) to the eligible employees and directors of the KGB Group subject to certain vesting conditions and after fulfilment of certain performance target. However, only up to 1,600,000 ESS Shares are expected to be vested by June 2018 ( Expected Vesting of ESS Shares ). Assuming none of the Warrants 2014/2019 are exercised and none of ESS Shares are vested under the ESS, the size of the Proposed Private Placement entails the issuance of up to 22,871,426 new KGB Shares ( Placement Shares ), representing up to 10 of the total number of issued shares of KGB ( Minimum ). However, assuming full exercise of the Warrants 2014/2019 and the Expected Vesting of ESS Shares, the Proposed Private Placement will entail the issuance of up to 28,425,190 KGB Shares, representing 10 of the enlarged total number of issued shares of KGB ( Maximum ). The actual number of Placement Shares to be issued pursuant to the Proposed Private Placement will depend on the total number of KGB Shares on a date to be determined later, after the approval set out in Section 5 of this announcement has been obtained. [The rest of this page has been intentionally left blank] 1

2 2.2 Placement arrangement The Company intends to place out the Placement Shares to independent third party investors to be identified later other than the following: - (i) (ii) (iii) a director, major shareholder or chief executive of KGB or a holding company of KGB ( Interested Person ); a person connected with an Interested Person; and nominee corporation, unless the names of the ultimate beneficiaries are disclosed. In addition, the independent third party investors shall be persons who qualify under Schedules 6 or 7 of the Capital Markets and Services Act, Subject to market conditions and the timing of identification of placees, the Proposed Private Placement may be implemented in one (1) or more tranches within six (6) months from the date of approval from Bursa Malaysia Securities Berhad ( Bursa Securities ) for the Proposed Private Placement or any extended period as may be approved by Bursa Securities. The implementation of the placement arrangement in multiple tranches would provide flexibility to the Company to procure interested investors to subscribe for the Placement Shares within the approval period as approved by Bursa Securities. If issued in multiple tranches, the issue price for each tranche of the Placement Shares may be determined separately. 2.3 Ranking of the Placement Shares The Placement Shares shall, upon allotment and issue, rank pari passu in all respects with the existing KGB Shares, save and except that the Placement Shares will not be entitled to any dividends, rights, allotments and/or any other distributions, the entitlement date of which is prior to the date of allotment and issuance of the Placement Shares. 2.4 Listing of and quotation for the Placement Shares An application will be made to Bursa Securities for the listing of and quotation for the Placement Shares on the Main Market of Bursa Securities. 2.5 Basis of pricing The issue price of the Placement Shares shall be determined and fixed by the Board at a later date ( Price Fixing Date ), after the receipt of the relevant approvals for the Proposed Private Placement. The Placement Shares will not be priced at more than 10 discount to the five (5)-day volume weighted average market price ( 5D-VWAMP ) of KGB Shares immediately before the Price Fixing Date. For illustrative purposes, the 5D-VWAMP of KGB Shares before the date of this announcement is RM0.86 per KGB Share. Hence, for the purpose of this announcement, the assumed issue price of the Placement Shares will be RM0.82 per KGB Share, representing a discount of approximately RM0.04 or 4.65 to the 5D-VWAMP of KGB Shares before the date of this announcement. 2

3 2.6 Utilisation of proceeds Based on the assumed issue price of RM0.82 per Placement Share, the Proposed Private Placement is expected to raise gross proceeds of approximately RM million and RM million based on the Minimum and Maximum respectively and is expected to be utilised by the KGB in the following manner: - Utilisation purposes To part finance the acquiring of carbon dioxide gas purification plant To part finance the subsequent phase of the construction of carbon dioxide gas purification plant, gas manufacturing facilities and gas delivery systems To part finance the acquisition of assets for the operations of the industrial gas business division General Working Capital Estimated expenses relating to the Proposed Private Placement Notes Minimum (RM 000) Maximum (RM 000) Expected time frame for the utilisation of proceeds (from the date of listing of the Placement Shares) (1) 3,000 3,500 Within 24 months (1) 4,000 4,600 Within 24 months (2) 6,857 8,069 Within 24 months (3) 4,498 6,660 Within 24 months (4) Upon completion Total estimated expenses 18,755 23,309 (1) As announced by the Company on 20 November 2017, the Group will be constructing a carbon dioxide gas purification plant in Kerteh, Terengganu for an estimated cost of up to RM60.0 million, following a supply agreement which was entered between KGB s 94-owned subsidiary, Ace Gases Sdn Bhd ( AGSB ) and Petroliam Nasional Bhd ( Petronas ). Pursuant to the agreement, AGSB will be purchasing in excess of 50,000 tonnes of carbon dioxide waste gas per year from Petronas gas processing plant in Kerteh, Terengganu. The carbon dioxide waste gas would be purified to produce liquid carbon dioxide to be sold to end users. The construction of the gas plant is expected to commence in June 2018 and is expected to be completed within 12 months from the date of commencement of construction. The financing of the aforesaid plant will be through internal generated funds, funds raised from the Proposed Private Placement and external borrowings and/or debt issue. The exact breakdown between the use of internally generated funds, external borrowings and/or debt issue will only be determined at a later stage. 3

4 (2) Further details are as follows :- Minimum RM 000 Maximum RM 000 To part finance the acquisition of industrial gas 4,857 5,569 plants to support on-site gas supply orders To part finance the acquisition of four (4) units of 2,000 2,500 prime movers, four (4) units of tankers and eight (8) units of storage tanks Total 6,857 8,069 (3) The working capital is expected to be utilised in KGB s industrial gas business as follows:- Payment to future trade creditors for purchase of raw materials such as liquid nitrogen, oxygen, argon etc Salaries for engineers and technical personnel to be recruited Minimum RM 000 Maximum RM 000 1,586 3,410 2,200 2,500 Logistics Expenses General Expenses (such as utilities and office expenses) Other costs related to facilitate the maintenance and operations Total 4,498 6,660 The actual utilisation for working capital purposes may differ subject to the operational requirements and business dynamics at the time of utilisation. (4) Estimated expenses include professional fees, fees payable to authorities, placement commission, and other miscellaneous expenses. Any shortfall or excess in the funds allocated for estimated expenses will be funded from or used for working capital purposes. The actual proceeds to be raised from the Proposed Private Placement will depend on the final issue price of the Placement Shares and the number of Placement Shares issued. Any shortfall/surplus in proceeds from the expected amount will be adjusted against the amount allocated for working capital of the KGB Group. Pending utilisation of the proceeds from the Proposed Private Placement for the abovementioned purposes, the proceeds will be placed in deposits with financial institutions or short-term money market instruments, as the Board may deem fit. Any interest income earned from such deposits or instruments will be utilised for working capital of the Group. [The rest of this page has been intentionally left blank] 4

5 3. RATIONALE FOR THE PROPOSED PRIVATE PLACEMENT The Proposed Private Placement will enable KGB to raise funds for purposes as detailed in Section 2.6 of this announcement and is in line with the Group s strategy in growing its recurring income and expanding into the industrial gas business. The new venture into the industrial gases business complements with KGB s existing projectbased business model of providing engineering services and is expected to contribute positively to the future financial performance of the Group. After due consideration of the various methods of fund raising, the Board is of the opinion that the Proposed Private Placement is the most appropriate avenue of fund raising at this juncture as it would enable the Company to raise funds expeditiously without incurring interest costs as compared to bank borrowings. Upon completion of the Proposed Private Placement, the enlarged capital base is also expected to further strengthen the financial position of the Company. 4. EFFECTS OF THE PROPOSED PRIVATE PLACEMENT 4.1 Share capital The proforma effects of the Proposed Private Placement on the share capital of KGB as at the LPD are as follows: - Minimum Maximum ( 000) RM 000 ( 000) RM 000 Issued share capital as at LPD excluding treasury shares 228,714 24, ,714 24,140 Assuming full exercise of Warrants 2014/ ,938 26,969 (1) Assuming the Expected Vesting of the ESS Shares - - 1, ,714 24, ,252 51,109 Placement Shares 22,871 18,754 (2) 28,425 23,309 (2) Enlarged Issued Share Capital 251,585, 42, ,677 74,418 (1) Based on the conversion price of RM0.50 per Warrant 2014/2019. (2) Based on the indicative issue price of RM0.82 per Placement Shares, representing a discount of approximately RM0.04 or 4.65 to the 5D-VWAMP of KGB Shares of RM0.86 before the date of this announcement [The rest of this page has been intentionally left blank] 5

6 4.2 Net assets ( NA ) and gearing The proforma effects of the Proposed Private Placement on the NA and gearing of KGB Group are illustrated below: Minimum (Audited) (I) (II) As at 31 December 2016 Subsequent events up to LPD After (I) and the Proposed Private Placement (RM'000) (RM'000) (RM'000) Share capital 22,238 24,140 (1) 42,894 (2) Reserves 44,337 51,164 50,764 (3) Shareholders fund/na 66,575 75,304 93,658 No. of KGB Shares in issue ( 000) 222, ,714 (6) 251,585 NA per KGB Share (RM) Total borrowings (RM 000) (4) 24,561 26,507 26,507 Gearing (5) (times) (1) After taking into consideration the exercise of 7,458,835 options into KGB Shares pursuant to the Company s employee share option scheme which has been terminated on 1 November (2) Based on indicative issue price of RM0.82 per Placement Share, representing a discount of approximately RM0.04 or 4.65 to the 5D-VWAMP of KGB Shares of RM0.86 before the date of this announcement. (3) After deduction of estimated expenses of RM400,000 in relation to the Proposed Private Placement. (4) Comprising all interest-bearing borrowings. (5) Gearing is calculated as total borrowings divided by NA. (6) Excluding 1,119,900 treasury shares. [The rest of this page has been intentionally left blank] 6

7 Maximum (Audited) (I) (II) (III) As at 31 December 2016 Subsequent events up to LPD After (I) and assuming the full exercise of Warrants 2014/2019 and Expected Vesting of ESS Shares After (II) and the Proposed Private Placement (RM'000) (RM'000) (RM'000) (RM'000) Share capital 22,238 24,140 (1) 51,109 (2) 74,418 (3) Reserves 44,337 51,164 51,164 50,684 (4) Shareholders fund/na 66,575 75, , ,102 No. of KGB Shares in issue ( 000 ) NA per KGB Share (RM) Total borrowings (RM 000) (5) Gearing (6) (times) 222, ,714 (7) 284, , ,561 26,507 26,507 26, (1) After taking into consideration the exercise of 7,458,835 options into KGB Shares pursuant to the Company s employee share option scheme which has been terminated on 1 November (2) Assuming the full exercise of Warrants 2014/2019 based on an exercise price of RM0.50 per Warrant 2014/2019. (3) Based on indicative issue price of RM 0.82 per Placement Share, representing a discount of approximately RM0.04 or 4.65 to the 5D-VWAMP of KGB Shares of RM0.86 before the date of this announcement. (4) After deduction of estimated expenses of RM480,000 in relation to the Proposed Private Placement. (5) Comprising all interest-bearing borrowings. (6) Gearing is calculated as total borrowings divided by NA. (7) Excluding 1,119,900 treasury shares. 4.3 Earnings and earnings per KGB Share ( EPS ) The Proposed Private Placement is not expected to have any immediate material effect on the earnings of the Group for the financial year ending 31 December However, the EPS of the Group shall be diluted as a result of the increase in the number of KGB Shares in issue pursuant to the issuance of the Placement Shares. Nevertheless, the Proposed Private Placement is expected to contribute positively to the future earnings of the Group when the benefits of the utilisation of proceeds are realised. 7

8 4.4 Substantial shareholders shareholdings The proforma effects of the Proposed Private Placement on the substantial shareholders shareholdings are as follows:- Minimum As at the LPD After the Proposed Private Placement Direct Indirect Direct Indirect Palace Star Sdn. Bhd. 92,299, ,299, Sun Lead International Limited 19,817, ,817, Gan Hung Keng 1,946, ,299,290 (1) (1) 1,946, ,299,290 (1) (1) Ong Weng Leong 1,946, ,299,290 (1) (1) 1,946, ,299,290 (1) (1) Cham Teck Kuang ,299,290 (1) (1) ,299,290 (1) (1) Hu Ke Qin ,299,290 (1) (1) ,299,290 (1) (1) Fortune Dragon Holding Inc ,817,733 (2) 8.66 (2) ,817,733 (2) 7.88 (2) Lien Hwa Industrial Corp ,817,733 (3) 8.66 (3) ,817,733 (3) 7.88 (2) (1) Deemed interested under Section 8 of the Companies Act 2016 ( Act ) by virtue of their direct interests in Palace Star Sdn. Bhd. (2) Deemed interested under Section 8 of the Act by virtue of its direct interests in Sun Lead International Limited. (3) Deemed interested under Section 8 of the Act by virtue of its direct interest in Fortune Dragon Holding Inc. 8

9 Maximum As at the LPD (I) Assuming the full exercise of Warrants 2014/2019 and Expected Vesting of ESS Shares After (I) and the Proposed Private Placement Direct Indirect Direct Indirect Direct Indirect Palace Star Sdn. Bhd. 92,299, ,606,162 (4) ,606, Sun Lead International Limited 19,817, ,817, ,817, Gan Hung Keng 1,946, ,299,290 (1) (1) 2,106,699 (5) ,606,162 (1) (1) 2,106, ,606,162 (1) (1) Ong Weng Leong Cham Teck Kuang 1,946, ,299,290 (1) (1) 2,106,000 (6) ,606,162 (1) (1) 2,106, ,606,162 (1) (1) ,299,290 (1) (1) ,606,162 (1) (1) ,606,162 (1) (1) Hu Ke Qin ,299,290 (1) (1) ,606,162 (1) (1) ,606,162 (1) (1) Fortune Dragon Holding Inc Lien Hwa Industrial Corp ,817,733 (2) 8.66 (2) ,817,733 (2) 6.97 (2) ,817,733 (2) 6.34 (2) ,817,733 (3) 8.66 (3) ,817,733 (3) 6.97 (3) ,817,733 (3) 6.34 (3) (1) Deemed interested under Section 8 of the Act by virtue of their direct interests in Palace Star Sdn. Bhd. (2) Deemed interested under Section 8 of the Act by virtue of its direct interests in Sun Lead International Limited. (3) Deemed interested under Section 8 of the Act by virtue of its direct interest in Fortune Dragon Holding Inc. (4) Based on 18,306,872 Warrants 2014/2019 as at the LPD. (5) Based on 33 Warrants 2014/2019 as at the LPD and assuming the ESS Shares of 160,000 granted to him has been vested. (6) Assuming the ESS Shares of 160,000 granted to him has been vested. 9

10 4.5 Convertible securities As at the LPD, save for the outstanding Warrants 2014/2019, the Company does not have any other outstanding convertible securities. As at the LPD, the Company has granted 16,000,000 ESS Shares to the eligible employees and directors of the KGB Group subject to certain vesting conditions and after fulfilment of certain performance target, which have yet to be vested. 5. APPROVALS REQUIRED The Proposed Private Placement is subject to and conditional upon the approvals being obtained from Bursa Securities for the listing of and quotation for the Placement Shares on the Main Market of Bursa Securities. KGB has obtained the approvals of its shareholders at the Company s seventeenth (17 th ) annual general meeting ( AGM ) convened on 13 June 2017 and all the resolutions set out in the notice of AGM were duly passed, and pursuant to Section 75 and 76 of the Act (previously Section 132D of the Act and the approvals of the relevant governmental and/or regulatory authorities, the Directors are empowered to issue shares in the Company from time to time and upon such terms and conditions and for such purposes as the Directors may deem fit provided that the aggregate number of shares issued pursuant to the resolution in any one (1) financial year does not exceed 10 of the total number of issued shares of the Company for the time being and that the Directors are also empowered to obtain the approval for the listing of and quotation for the additional shares so issued on Bursa Securities and that such authority shall continue in force until the conclusion of the next AGM of the Company. The Proposed Private Placement is not inter-conditional upon any other corporate exercise being undertaken by the Company which has been announced but pending completion. 6. DIRECTORS AND MAJOR SHAREHOLDERS INTERESTS None of the Directors, major shareholders and/or persons connected with them has any interest, direct and indirect, in the Proposed Private Placement in view of the fact that the Placement Shares will not be placed to them as mentioned in Section 2.2 of this announcement. 7. DIRECTORS STATEMENT The Board, having considered all aspect of the Proposed Private Placement, are of the opinion that the Proposed Private Placement is in the best interest of the Group. 8. APPLICATION TO THE RELEVANT AUTHORITIES An application for the listing of and quotation for the Placement Shares shall be submitted to Bursa Securities within one (1) month from the date of this announcement. 9. ESTIMATED TIME FRAME FOR COMPLETION Barring any unforeseen circumstances and subject to the approval from Bursa Securities being obtained, the Proposed Private Placement is expected to be implemented by the second (2 nd ) quarter of

11 10. ADVISER AND PLACEMENT AGENT TA Securities has been appointed as the Principal Adviser and Placement Agent to the Proposed Private Placement. This announcement is dated 2 February [The rest of this page has been intentionally left blank] 11