PROPOSED DISPOSALS OF TCB S ENTIRE INVESTMENT IN THE PEOPLE S REPUBLIC OF CHINA COMPRISING:

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1 TALIWORKS CORPORATION BERHAD ( TCB OR THE COMPANY ) (I) PROPOSED DISPOSALS OF TCB S ENTIRE INVESTMENT IN THE PEOPLE S REPUBLIC OF CHINA COMPRISING: (A) (B) (C) (D) THE ENTIRE EQUITY INTEREST HELD IN TALIWORKS INTERNATIONAL LIMITED; 80% EQUITY INTEREST HELD IN TALIWORKS (SICHUAN) LIMITED; THE ENTIRE EQUITY INTEREST HELD IN SWM TECHNOLOGIES (MALAYSIA) SDN BHD; AND THE ASSIGNMENT FROM THE COMPANY TO LGB GROUP (HK) LIMITED OF ALL OUTSTANDING SHAREHOLDERS LOANS AND/OR SHAREHOLDERS ADVANCES OWING BY TALIWORKS INTERNATIONAL LIMITED AND TALIWORKS (SICHUAN) LIMITED TO THE COMPANY AS AT 25 FEBRUARY 2016, FOR AN AGGREGATE CASH CONSIDERATION OF UNITED STATES DOLLARS 54.6 MILLION (EQUIVALENT TO APPROXIMATELY RM230 MILLION) (II) PROPOSED ACQUISITION OF 35% OF THE ISSUED AND PAID-UP ORDINARY SHARES IN SWM ENVIRONMENT HOLDINGS SDN BHD FOR A CASH CONSIDERATION OF RM245 MILLION 1. INTRODUCTION On behalf of the Board of Directors of the Company ( Board ), CIMB Investment Bank Berhad ( CIMB ) and Hong Leong Investment Bank Berhad ( HLIB ) wish to announce that the Company had on 25 February 2016 entered into the following agreements: (i) a conditional share sale agreement with LGB Group (HK) Limited ( LGB HK ) ( Disposals SSA ) for the disposal of TCB s entire investment in the People s Republic of China ( PRC ) comprising: (a) (b) (c) (d) 100 ordinary shares at Hong Kong Dollar ( HKD ) 100 in aggregate in Taliworks International Limited ( TIL ), a wholly-owned subsidiary of the Company, representing 100% equity interest in TIL ( Proposed TIL Disposal ); 12,000,000 ordinary shares at HKD12,000,000 in aggregate in Taliworks (Sichuan) Limited ( TSL ), an 80%-owned subsidiary of the Company, representing 80% equity interest in TSL ( Proposed TSL Disposal ); 100 ordinary shares of RM1.00 each in SWM Technologies (Malaysia) Sdn Bhd ( SWMT ) and 19,000,000 redeemable non-cumulative preference shares ( RNCPS ) of RM0.01 each in SWMT, a wholly-owned subsidiary of the Company, representing 100% equity interest in SWMT ( Proposed SWMT Disposal ); and the assignment from the Company to LGB HK of all outstanding shareholders loans and/or shareholders advances owing by TIL and TSL to the Company as at 25 February 2016 ( Proposed Assignment ), for an aggregate cash consideration of United States Dollars ( USD ) 54.6 million (equivalent to approximately RM230 million); and 1

2 (ii) a conditional share purchase agreement with Conseec Gali Sdn Bhd ( CGSB ) and Esys Montenay (Malaysia) Sdn Bhd ( EMSB ) ( Acquisition SSA ) to acquire an aggregate of 3,501 ordinary shares of RM1.00 each in SWM Environment Holdings Sdn Bhd ( SWMH ), representing 35% of the total issued and paid-up ordinary shares in SWMH, for an aggregate cash consideration of RM245 million ( Proposed Acquisition ). The Proposed TIL Disposal, Proposed TSL Disposal, Proposed SWMT Disposal and Proposed Assignment are collectively referred to as the Proposed Disposals. The Proposed Disposals and Proposed Acquisition are collectively referred to as the Proposals. In view of the interests of certain director and major shareholders of the Company as disclosed in Section 9 of this announcement, the Proposals are deemed related party transactions pursuant to Chapter of the Main Market Listing Requirements of Bursa Malaysia Securities Berhad ( Bursa Securities ) ( Listing Requirements ). For the purpose of this announcement (unless otherwise indicated), the exchange rates of USD1.00:RM and Chinese Renminbi ( RMB ) 1.00:RM0.6446, respectively are used, being the middle rates for USD to RM and RMB to RM quoted by Bank Negara Malaysia ( BNM ) as at p.m. on 25 February 2016, being the date of this announcement. 2. THE PROPOSED DISPOSALS 2.1 Details of the Proposed Disposals The Proposed Disposals involve the disposals of TCB s entire investment in the PRC comprising: (i) (ii) (iii) (iv) 100 ordinary shares at HKD100 in aggregate in TIL, representing the entire equity interest in TIL by the Company to LGB HK; 12,000,000 ordinary shares at HKD12,000,000 in aggregate in TSL, representing 80% equity interest in TSL by the Company to LGB HK; 100 ordinary shares of RM1.00 each in SWMT and 19,000,000 RNCPS of RM0.01 each in SWMT, representing the entire equity interest in SWMT by the Company to LGB HK; and the assignment from the Company to LGB HK of all outstanding shareholders loans and/or shareholders advances owing by TIL and TSL to the Company as at 25 February 2016, for an aggregate cash consideration of USD54.6 million (equivalent to approximately RM230 million). THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK 2

3 TIL, TSL and SWMT are collectively referred to as the Disposal Companies. The existing corporate structure of the Disposal Companies (1) is as follows: TCB Incorporated in Malaysia 100% SWMT Incorporated in Malaysia 100% (2) TIL Incorporated in Hong Kong 80% TSL Incorporated in Hong Kong 90% 70% TIANJIN-SWM (M) ENVIRONMENT CO. LTD Incorporated in PRC 100% TALIWORKS ENVIRONMENT LIMITED Incorporated in Hong Kong PURESINO (GUANGHAN) WATER CO. LTD Incorporated in PRC 100% TALIWORKS (SHANGHAI) CO. LTD Incorporated in PRC 100% TALIWORKS (SHANGHAI) ENVIRONMENTAL TECHNOLOGIES CO. LTD Incorporated in PRC 70% TILGEA CONSORTIUM SDN BHD Incorporated in Malaysia 70% TALIWORKS ECO PTE LTD Incorporated in Singapore 100% NINGXIA ECO WASTEWATER TREATMENT CO. LTD Incorporated in PRC 100% TALIWORKS (YINCHUAN) WASTEWATER TREATMENT CO. LTD Incorporated in PRC Notes: (1) The corporate structure above does not include entities which are not part of the Proposed Disposals. (2) Sungai Harmoni Sdn Bhd, a wholly-owned subsidiary of TCB, holds 1 ordinary share in TIL. Pursuant to the Proposed Disposals, the 1 ordinary share in TIL will be transferred by Sungai Harmoni Sdn Bhd to LGB HK. 3

4 2.2 Information on the Disposal Companies TIL TIL was incorporated in Hong Kong on 27 September 2002 under the Hong Kong Companies Ordinance (Chapter 32 of the Laws of Hong Kong) as a private limited company. As at 24 February 2016, being the latest practicable date prior to the date of this announcement ( LPD ), the issued and paid-up capital of TIL is HKD100 comprising 100 ordinary shares at HKD100 in aggregate. As at the LPD, the principal activity of TIL is investment holding whilst the principal activities of its subsidiaries are as follows: Name of subsidiary Taliworks Environment Limited Taliworks (Shanghai) Co. Ltd Taliworks (Shanghai) Environmental Technologies Co. Ltd Tilgea Consortium Sdn Bhd Taliworks Eco Pte Ltd ( Taliworks Eco ) Taliworks (Yinchuan) Wastewater Treatment Co Ltd ( Taliworks Yinchuan ) Held under Taliworks Eco Ningxia Eco Wastewater Treatment Co Ltd ( Ningxia Eco ) Date and place of incorporation 16 December 2008, Hong Kong 24 July 2005, PRC 5 November 2008, PRC 4 June 2010, Malaysia 4 March 2008, Singapore 6 May 2011, PRC 17 June 2010, PRC Effective equity interest (%) Principal activities 100 Dormant 100 Dormant 100 Provision of management services 70 Dormant 70 Investment holding 100 Operation and maintenance of four municipal wastewater treatment plants with recycled facilities in Yinchuan, PRC for a concession period of 30 years expiring in September Construction and management of a wastewater treatment plant and a recycled water treatment plant in Ningdong Energy Chemical Base in Yinchuan, PRC for a concession period of 30 years expiring in June Ningxia Eco has ceased construction of the facility and negotiations are on-going for Yinchuan Ningdong Energy and Chemical Base Management Committee to take over the facilities Please refer to Appendix III of this announcement for further information on TIL. 4

5 2.2.2 TSL TSL was incorporated in Hong Kong on 10 January 2007 under the Hong Kong Companies Ordinance (Chapter 32 of the Laws of Hong Kong) as a private limited company. As at the LPD, the issued and paid-up capital of TSL is HKD15,000,000 comprising 15,000,000 ordinary shares at HKD15,000,000 in aggregate. As at the LPD, the principal activity of TSL is investment holding whilst the principal activities of its subsidiary is as follows: Name of subsidiary Puresino (Guanghan) Water Co Ltd ( Puresino Guanghan ) Date and place of incorporation 19 August 2003, PRC Effective equity interest (%) Principal activities 56 Management, operation and maintenance of wastewater treatment plant for a concession period of 30 years expiring in July SWMT Please refer to Appendix IV of this announcement for further information on TSL. SWMT was incorporated in Malaysia on 26 April 2004 under the Companies Act 1965 ( Act ) as a private limited company. As at the LPD, the authorised share capital of SWMT is RM500,000 comprising 250,000 ordinary shares of RM1.00 each and 25,000,000 RNCPS of RM0.01 each, of which 100 ordinary shares of RM1.00 each and 19,000,000 RNCPS of RM0.01 each have been issued and fully paid-up. As at the LPD, the principal activities of SWMT are investment holding and waste management business whilst the principal activities of its subsidiary is as follows: Name of subsidiary Tianjin-SWM (M) Environment Co Ltd ( Tianjin-SWM ) Date and place of incorporation 22 October 2004, PRC Effective equity interest (%) Principal activities 90 Provision of management, operation and maintenance of a waste transfer station and its related assets for a concession period of 21 years expiring in October 2025 Please refer to Appendix V of this announcement for further information on SWMT. THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK 5

6 2.3 Basis and justification of arriving at the disposals consideration The disposals consideration of USD54.6 million (equivalent to approximately RM230 million) was arrived at on a willing-buyer willing-seller basis, after taking the following into consideration: (i) the range of indicative value of between RMB350 million and RMB415 million (equivalent to approximately RM225.6 million and RM267.5 million) attributed to TCB s entire investment in the Disposal Companies (including equity interests and all outstanding shareholders loans and/or shareholders advances owing by TIL and TSL to TCB) as appraised by the independent valuer, KPMG Corporate Advisory Sdn Bhd ( KPMG ) in consultation with KPMG Hong Kong, using the sum of parts valuation approach, whereby the valuation of the Disposal Companies is derived based on the sum of the following components: (a) (b) (c) (d) fair market value of the equity interest of the operating subsidiaries; fair market value of the equity interest of the non-operating or dormant subsidiaries (if any); fair market value of the other assets and liabilities of the holding company in addition to its investment in subsidiaries; and carrying amount of the outstanding shareholders loans and/or shareholders advances owing by TIL and TSL to TCB as at 25 February In assessing the fair value of the Disposal Companies investment in their subsidiaries that are principally involved in concession assets and businesses, KPMG has applied the discounted cash flow ( DCF ) method in the evaluation of the valuation of the underlying concession assets and businesses; and (ii) the rationale for the Proposed Disposals in view of TCB and its subsidiaries ( TCB Group ) new business strategy to focus on its mature operational cash-generating utilities/infrastructure businesses to support the Company s dividend policy of distributing not less than 75% of its consolidated profit after tax ( PAT ) (excluding exceptional items) as announced by the Board on 25 September 2014 ( Dividend Policy ) as well as after taking into consideration the future prospects of the Disposal Companies in light of recent developments as detailed below in Section 4.1 of this announcement. 2.4 Salient terms of the Disposals SSA Pursuant to the Disposals SSA, subject to the completion of the Acquisition SSA: (i) TCB agrees to sell and transfer, and LGB HK agrees to purchase TCB s entire shareholding in the Disposal Companies, comprising: (a) (b) (c) 100 ordinary shares of RM1.00 each in SWMT and 19,000,000 RNCPS of RM0.01 each in SWMT; 12,000,000 ordinary shares at HKD12,000,000 in aggregate in TSL; and 100 ordinary shares at HKD100 in aggregate in TIL, free from all and any encumbrances and together with all rights, benefits, title to, interest in and entitlements attaching to them as at the Disposals Completion (as defined in Section of this announcement); and 6

7 (ii) TCB agrees to assign and transfer, and LGB HK agrees to accept the assignment and transfer of all TCB s rights, benefits, entitlements, claims and interests in the outstanding shareholders loans and/or shareholders advances owing by TSL and TIL to TCB as at 25 February 2016, as described in Appendix II of this announcement on the Disposals Completion by way of deeds of assignment Disposals consideration The consideration for the Proposed Disposals is USD54.6 million (equivalent to approximately RM230 million) Payment terms A deposit sum of USD5,460,000 (equivalent to approximately RM23 million), being 10% of the disposals consideration shall be paid in cash by LGB HK to TCB within 14 days from execution of the Disposals SSA ( Disposals Deposit ), and the balance purchase price of USD49,140,000 (equivalent to approximately RM207 million) shall be paid in cash by LGB HK to TCB on the Disposals Completion. LGB HK acknowledges that the construction of the Linhe Integrated Industrial Park Wastewater and Recycled Water Treatment Plant in Ningdong Energy Chemical Base in Yinchuan, PRC ( Ningxia Facility ) pursuant to the Ningxia Concession Agreement (as defined in Section of Appendix III of this announcement) has ceased and negotiations are on-going for Yinchuan Ningdong Energy and Chemical Base Management Committee to take over the ownership of the Ningxia Facility ( Take Over of the Ningxia Facility ). Within 12 months after the date of the Disposals Completion, LGB HK shall procure the relevant Disposal Companies and their subsidiaries ( Group Disposal Companies ) to use its best efforts to negotiate and obtain a transfer price for the Take Over of the Ningxia Facility ( Transfer Price ) exceeding RMB38.57 million. In the event that within 12 months after the date of the Disposals Completion, Yinchuan Ningdong Energy and Chemical Base Management Committee or the relevant authority in the PRC agrees to a Transfer Price exceeding RMB38.57 million, LGB HK or the relevant Group Disposal Companies undertakes to pay TCB an amount described as A provided that A is a positive figure ( Surplus ): A = 70% (Transfer Price RMB38.57 million C) Where C is the costs incurred by Ningxia Eco or LGB HK directly related to achieving an agreement with Yinchuan Ningdong Energy and Chemical Base Management Committee or the relevant authority in the PRC in respect of the Transfer Price (including the engineering consultant appointed by LGB HK or Ningxia Eco in assisting them to verify the bill of quantities items for the construction in respect of works done for the Ningxia Facility). LGB HK or the relevant Group Disposal Companies shall pay TCB the Surplus within 5 business days after receipt of the full payment by LGB HK or the relevant Group Disposal Companies of the Transfer Price. For the avoidance of doubt, in the event that A is a negative figure or the Transfer Price is less than RMB38.57 million, neither LGB HK or the relevant Group Disposal Companies, or the TCB is required to pay the other party. 7

8 2.4.3 Conditions precedent The Proposed Disposals are conditional upon satisfaction of the following conditions precedent ( Disposals Conditions Precedent ) within a period of 90 days from the date of the Disposals SSA or such other period as may be mutually agreed between the parties ( Disposals Conditions Precedent Period ): (i) (ii) TCB obtaining its shareholders approval at a general meeting for the Proposed Disposals pursuant to the terms of the Disposals SSA; and TCB obtaining its shareholders approval at a general meeting for the Proposed Acquisition pursuant to the terms of the Acquisition SSA Unconditionality The parties agree that the Disposals SSA shall immediately become unconditional when the Disposals Conditions Precedent and the Acquisition Conditions Precedent (as defined in Section of this announcement) are met Completion Subject to the satisfaction of Disposals Conditions Precedent within the Disposals Conditions Precedent Period, completion of the Proposed Disposals shall take place simultaneously with the completion of the Proposed Acquisition on a date which shall not be later than 5 business days from the date the Disposals Conditions Precedent and Acquisition Conditions Precedent are satisfied or such other date as may be mutually agreed between the parties ( Disposals Completion ) Termination The Disposals SSA may be terminated only in the following circumstances, though termination shall not extinguish any accrued rights and liabilities of the parties: (i) (ii) by mutual agreement of the parties in writing with effect from the date of such agreement and upon such termination TCB shall refund the Disposals Deposit (free of interest) to LGB HK; or by LGB HK: (a) if the Disposals Conditions Precedent are not satisfied by TCB within the Disposals Conditions Precedent Period, the Disposals SSA shall lapse, and upon such termination TCB shall immediately refund the Disposals Deposit (free of interest) to LGB HK within 3 business days from the expiry of the Disposals Conditions Precedent Period and thereafter, none of the parties will have any further rights or claims whatsoever against the other except for any antecedent breaches; or THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK 8

9 (b) if LGB HK has fulfilled all its closing obligations and LGB HK is ready willing and able to pay the disposals consideration, and TCB does not fulfil all its closing obligations, TCB agrees and undertakes that notwithstanding any other provision in the Disposals SSA, LGB HK shall be entitled at its discretion by a written notice to TCB giving TCB not less than 3 business days to remedy the breach and if TCB fails to remedy the breach complained of within 3 business days from the date of written notice by LGB HK to remedy the breach, and upon such termination TCB shall (i) refund the Disposals Deposit (free of interest); and (ii) pay the sum of USD4,368,000 (equivalent to approximately RM18.4 million), being 8% of the disposals consideration ( Disposals Termination Sum ), as agreed liquidated damages to LGB HK, and thereafter, neither party shall have any claim against the other, save for claims by one party against the other arising from antecedent breach of the Disposals SSA. (iii) by TCB: if TCB has fulfilled all its closing obligations and LGB HK does not pay the balance purchase price when due under the terms of the Disposals SSA, LGB HK agrees and undertakes that notwithstanding any other provision in the Disposals SSA, TCB shall be entitled at its discretion by a written notice to LGB HK giving LGB HK not less than 3 business days to remedy the breach and if LGB HK fails to remedy the breach complained of within 3 business days from the date of written notice by TCB to remedy the breach, and upon such termination (i) TCB shall refund to LGB HK the Disposals Deposit (free of interest); and (ii) LGB HK shall pay the Disposals Termination Sum to TCB as agreed liquidated damages and thereafter, neither party shall have any claim against the other, save for claims by one party against the other arising from antecedent breach of the Disposals SSA. 2.5 Original costs and dates of investment The original costs and dates of investment made by the Company for the equity interests in the Disposal Companies are as follows: Company Dates of investment Description Cost of investment ) TIL 2003 Ordinary shares Share option reserves charged to subsidiary pursuant to Malaysian Financial Reporting Standard 2: Share-based Payment ( MFRS 2 ) 27,000 Total 27,050 TSL 2007 Ordinary shares 5,430,000 SWMT 2004 Ordinary shares RNCPS 19,000, Share option reserves charged to subsidiary pursuant to MFRS 2 48,000 Total 19,048,100 9

10 The original amounts and dates of the shareholders loans and/or shareholders advances made by the Company to the Disposal Companies are as follows: Company Dates of investment Shareholders loans and/or shareholders advances (1) RM equivalent (USD) (SGD) (HKD) B) ) ) TIL , , , ,764,054-2,006,800 5,828, ,500,000-1,671, ,000 6,485, , , ,532, , , ,936 16,924, ,100, ,846, ,924, ,180, , , , ,225, , ,709, , , , ,129-2,399,448 8,356 2,101,726 Total 65,489, ,129 13,338,671 2,399,448 3,472, ,152,498 TSL ,447, ,908, ,436-18,136 Total - - 3,447,370 27,436-1,927,066 Note: (1) Based on the exchange rates prevailing as at the transaction dates. 2.6 Utilisation of proceeds The Company intends to utilise the proceeds from the Proposed Disposals as follows: Description Note USD 000 Equivalent to approximately RM 000 Expected timeframe for utilisation of proceeds from completion of the Proposed Disposals Part finance the Proposed Acquisition and/or future investments and/or working capital Estimated expenses for the Proposals (1) 53, ,975 Within 24 months (2) 1,187 5,000 Within 1 month Total 54, ,975 Notes: (1) Part of the net proceeds of approximately USD53.4 million arising from the Proposed Disposals may be utilised to finance the Proposed Acquisition as set out in Section 3.6 of this announcement. The amount to be utilised to part finance the Proposed Acquisition has not been fixed at this juncture and will be determined by the Board prior to the completion of the Proposed Acquisition after taking into consideration, amongst others, the gearing level, operational and working capital requirements as well as future expansion plans of the TCB Group. 10

11 Any remaining proceeds will be earmarked for future investments, which are yet to be determined at this juncture and will depend on the opportunity as and when arises. Such future investments may include acquisitions of strategic investments and/or strategic collaborations, joint ventures or alliances. In the event shareholders approval is required pursuant to the Listing Requirements for the strategic investments and/or strategic collaborations, joint ventures or alliances, such approval will be sought in accordance with the provisions of the Listing Requirements. In addition, part of the remaining proceeds may also be utilised for the working capital requirements of the TCB Group, which include the day-to-day operating expenses of the TCB Group, which include, amongst others, the payment of trade and other payables, overheads as well as other general administrative expenses. The breakdown of utilisation of proceeds to part finance the Proposed Acquisition and/or for future investments and/or working capital has not been determined at this juncture and will depend on, amongst others, the gearing level, operational and working capital requirements as well as future expansion plans of the TCB Group of the TCB Group at the time of utilisation. (2) The estimated expenses of approximately USD1.2 million relating to the Proposals comprise the professional fees, fees payable to the relevant authorities, stamp duties, expenses to convene the extraordinary general meeting ( EGM ) in relation to the Proposals, printing, advertisement and other ancillary expenses. In the event the actual expenses incurred are higher/lower than budgeted, the deficit/surplus will be funded from/contributed to the portion earmarked for future investments. 2.7 Liabilities to be assumed by LGB HK There are no liabilities, including contingent liabilities and guarantees to be assumed by LGB HK arising from the Proposed Disposals. All outstanding shareholders loans and/or shareholders advances owing by TIL and TSL to the Company is being purchased by LGB HK as part of the consideration for the Proposed Disposals. 2.8 Information on LGB HK LGB HK was incorporated in Hong Kong on 29 December 2015 under the Hong Kong Companies Ordinance (Chapter 622 of the Laws of Hong Kong) as a limited company. As at the LPD, the issued and paid-up capital of LGB HK is HKD10,000 comprising 10,000 ordinary shares at HKD10,000 in aggregate. The principal activity of LGB HK is investment holding. The director of LGB HK is Lim Ai Ling. She does not have any interest, whether direct or indirect, in LGB HK. The substantial shareholders of LGB HK and their respective shareholdings in LGB HK as at the LPD are as follows: Name Direct Indirect No. of ordinary shares % No. of ordinary shares % LGB (Malaysia) Sdn Bhd 10, Dato Lim Chee Meng ,000 (1) ( Dato Lim ) Lim Chin Sean ,000 (1) Note: (1) Deemed interest by virtue of his shareholding in LGB (Malaysia) Sdn Bhd. 11

12 3. THE PROPOSED ACQUISITION 3.1 Details of the Proposed Acquisition The Proposed Acquisition involves the acquisition of the following: (i) (ii) 1,986 ordinary shares of RM1.00 each in SWMH, representing 19.9% of the total issued and paid-up ordinary shares in SWMH by the Company from CGSB; and 1,515 ordinary shares of RM1.00 each in SWMH, representing 15.1% of the total issued and paid-up ordinary shares in SWMH by the Company from EMSB, for an aggregate cash consideration of RM245 million. The Company will enter into a deed of adherence with CGSB, EMSB, Kembangan Restu Sdn Bhd ( KRSB ), Pinggiran Ventures Sdn Bhd ( PVSB ), Employees Provident Fund Board ( EPF ) and SWMH, and a supplemental agreement in respect of the shareholders agreement to govern their rights, duties, liabilities and obligations to each other as shareholders of SWMH upon completion of the Acquisition SSA. Concurrent with the execution of the Acquisition SSA, TCB has entered into a letter agreement with LGB Holdings Sdn Bhd ( LGB Holdings ) ( Letter Agreement ), whereby it was agreed that: (i) (ii) (iii) TCB has entered into the Acquisition SSA on the basis that the aggregate consolidated cash balance of the SWMH Group as at 31 December 2015 ( Opening Cash Balance ) is RM320.0 million; at the date of the Acquisition Closing, if the Opening Cash Balance based on the audited consolidated accounts of SWMH for the 12 month period ended on 31 December 2015 ( 2015 Accounts ) is less than RM320.0 million, LGB Holdings will pay to TCB an amount equivalent to 35% of any shortfall of the Opening Cash Balance within 2 months from the Acquisition Closing; and at the date of the Acquisition Closing, if the Opening Cash Balance based on the 2015 Accounts is in excess of RM320.0 million, such surplus amount shall be paid by SWMH to KRSB by way of dividends ( KRSB Cash Surplus Dividends ) and the KRSB Cash Surplus Dividends may be made prior to the payment of dividends by SWMH to its ordinary shareholders in which case, TCB shall take all the necessary steps (including exercising its voting rights) to facilitate the declaration and payment of KRSB Cash Surplus Dividends to KRSB. For avoidance of doubt, the valuation by KPMG and the basis of determination of the purchase consideration for the Proposed Acquisition has been undertaken on the premise that the Opening Cash Balance is RM320.0 million, consistent with the provisions of the Letter Agreement above. 3.2 Information on SWMH SWMH was incorporated in Malaysia on 1 January 2011 under the Act as a private limited company. As at the LPD, the authorised share capital of SWMH is RM5,000,000 comprising 1,000,000 ordinary shares of RM1.00 each, 100,000,000 Class A redeemable cumulative preference shares of RM0.01 each and 300,000,000 Class B redeemable cumulative preference shares of RM0.01 each, of which 10,003 ordinary shares of RM1.00 each and 21,110,000 Class B redeemable cumulative preference shares of RM0.01 each have been issued and fully paid-up. 12

13 As at the LPD, the principal activity of SWMH is investment holding whilst the principal activities of its subsidiaries are follows: Name of subsidiary SWM Environment Sdn Bhd ( SWME ) Edaran SWM Sdn Bhd ( Edaran SWM ) Sumber SWM Sdn Bhd SWM Solutions Sdn Bhd Date and place of incorporation 18 March 1996, Malaysia 27 December 2001, Malaysia 27 December 2001, Malaysia 24 March 1999, Malaysia Effective equity interest (%) Principal activities 100 Managing and carrying on the business of solid waste collection and public cleansing management and other related activities 100 Sub-contracting business of solid waste collection and public cleansing management and other related activities for its related company 100 Managing and carrying on the business of manpower supply, employment agencies and other related activities 100 Carrying on and undertaking the business of providing services for information technology support, maintenance, technical and other related services SWME was awarded a 22-year concession pursuant to a tripartite agreement entered into between the Government of Malaysia ( Government ), the Solid Waste and Public Cleansing Management Corporation and SWME ( SWME Concession Agreement ) to provide solid waste collection services in the states of Negeri Sembilan, Melaka and Johor ( Southern Region ) and public cleansing management services within the specified cleansing zones as specified in the SWME Concession Agreement ( Concession ). Please refer to Appendix I of this announcement for further information on SWMH. 3.3 Basis and justification of arriving at the purchase consideration The purchase consideration was arrived at on a willing-buyer willing-seller basis after taking into consideration the following: (i) the range of indicative value of between RM220 million and RM270 million for 35% equity interest in SWMH (excluding landfill operations in Seelong and Sungai Udang and any other operation or business which do not form part of the SWME Concession Agreement ( NCA Operations )) as appraised by KPMG by applying the income approach using the DCF method; and (ii) the future prospects and earnings potential of SWMH and its subsidiaries ( SWMH Group ). 13

14 3.4 Salient terms of the Acquisition SSA Pursuant to the Acquisition SSA, subject to the completion of the Disposals SSA, CGSB and EMSB agree to sell and TCB agrees to purchase an aggregate of 3,501 ordinary shares of RM1.00 each in SWMH ( Acquisition Shares ), free from encumbrances and together with all rights and advantages attaching to them as at the Acquisition Closing (including the right to receive all dividends or distributions declared, made or paid on or after the Acquisition Closing). TCB agrees (i) that the NCA Operations does not form part of the basis of the purchase consideration and (ii) to purchase the Acquisition Shares without taking into account the valuation attached to the NCA Operations. In connection hereto, the parties agree that interim landfill tipping fees, old council debts, subsidies from the Government and other receivables which do not form part of the receivables arising from the Concession granted by the Government as represented by the Ministry of Housing and Local Government to SWME pursuant to the SWME Concession Agreement, shall for the purposes of the Acquisition SSA be treated as receivables under the NCA Operations (even if such receivables are not related to landfill operations and may be outstanding prior to the Concession or such receivables have been written off by SWME) Purchase consideration The consideration for the Proposed Acquisition is RM245 million Payment terms A deposit sum of RM24,500,000 ( Acquisition Deposit ), being 10% of the purchase consideration shall be paid in cash by TCB to each of CGSB and EMSB in accordance with the percentage of 56.73% and 43.27% respectively within 14 days from execution of the Acquisition SSA, and the balance purchase price of RM220,500,000 shall be paid in cash by TCB to each of CGSB and EMSB in accordance with the percentage of 56.73% and 43.27% respectively on the Acquisition Closing Conditions precedent The Proposed Acquisition is conditional upon satisfaction of the following conditions precedent or its satisfaction subject only to the Acquisition Closing ( Acquisition Conditions Precedent ), within a period of 90 days from the date of the Acquisition SSA or such other period as may be mutually agreed between the parties ( Acquisition Conditions Precedent Period ): (i) (ii) the passing at a general meeting of TCB of a resolution to approve the Proposed Acquisition, the delivery and the performance of all matters and transactions contemplated in the Acquisition SSA; and the passing at a general meeting of TCB of a resolution to approve the Proposed Disposals, the delivery and the performance of all matters and transactions contemplated in the Disposals SSA. THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK 14

15 3.4.4 Termination (i) Non-satisfaction of Acquisition Conditions Precedent If the Acquisition Conditions Precedent are not satisfied on or before the Acquisition Conditions Precedent Period, the Acquisition SSA shall lapse and CGSB and EMSB shall immediately and in any event no later than 3 business days from the Acquisition Conditions Precedent Period (or such extended period as agreed between the parties, if applicable), refund the Acquisition Deposit (free from interest) to TCB and thereafter, neither CGSB and EMSB nor TCB shall have any claim against the other under it, save for any claim arising from antecedent breaches of the Acquisition SSA. (ii) Breach of pre closing undertakings by CGSB or EMSB Without prejudice to TCB s rights or remedies in equity or at law, if prior to the Acquisition Closing, CGSB or EMSB is in material breach of any of its undertaking in relation to their obligations in respect of the conduct of business under the Acquisition SSA, TCB shall be entitled by notice in writing to CGSB and EMSB to terminate the Acquisition SSA and upon such termination the Acquisition Deposit shall be refunded to the TCB and CGSB and EMSB shall pay RM20,000,000 ( Acquisition Termination Sum ) as agreed liquidated damages to TCB and thereafter, neither party shall have any claim against the other, save for claims by one party against the other arising from antecedent breach of the Acquisition SSA. (iii) Breach of closing obligations by TCB If all of CGSB and EMSB s pre-closing and closing obligations are fulfilled and TCB does not pay the balance purchase consideration when due under the terms of the Acquisition SSA, CGSB and EMSB shall be entitled at their discretion (and in addition to and without prejudice to all other rights or remedies available to it under the Acquisition SSA and at law) by a written notice to TCB to require TCB to remedy the breach and if TCB fails to remedy the breach complained of within 3 business days from the date of the notice, CGSB and EMSB shall be entitled to elect to terminate the Acquisition SSA without liability on the part of CGSB and EMSB, and upon such termination (i) TCB shall pay the Acquisition Termination Sum as agreed liquidated damages to CGSB and EMSB and (ii) CGSB and EMSB shall refund the Acquisition Deposit (free of interest) to TCB and thereafter, neither party shall have any claim against the other, save for claims by one party against the other arising from antecedent breach of the Acquisition SSA. (iv) Breach of Acquisition Closing obligations by CGSB and EMSB If TCB is ready willing and able to fulfil all its closing obligations and to pay the balance purchase consideration, and CGSB and EMSB do not fulfil all their preclosing and closing obligations, TCB shall be entitled at its discretion (and in addition to and without prejudice to all other rights or remedies available to it under the Acquisition SSA and at law) by a written notice to CGSB and EMSB to require the them to remedy the breach and if CGSB and EMSB fail to remedy the breach complained of within 3 business days from the date of the notice, TCB shall be entitled to terminate the Acquisition SSA without liability on the part of TCB, and upon such termination CGSB and EMSB shall (i) refund the Acquisition Deposit (free of interest) to the Company, and (ii) pay the Acquisition Termination Sum to TCB, or where it is due to the non-fulfilment by either CGSB and EMSB, the defaulting seller shall pay the Acquisition Termination Sum to TCB, as agreed liquidated damages to TCB and thereafter, neither party shall have any claim against the other, save for claims by one party against the other arising from antecedent breach of the Acquisition SSA. 15

16 3.4.5 Closing The completion of the Proposed Acquisition shall take place simultaneously with the completion of the Proposed Disposals on a date which shall not be later than 5 business days from the date on which all the Acquisition Conditions Precedent and Disposals Conditions Precedent are satisfied ( Acquisition Closing ). 3.5 Original costs and dates of investment The original costs and dates of investment made by CGSB and EMSB for the ordinary shares in SWMH are as follows: Vendor Dates of investment Description Cost of investment ) CGSB 2011 Ordinary shares 2, Disposal of ordinary shares (772) Total 1,515 EMSB 2011 Ordinary shares 3, Disposal of ordinary shares (1,015) 3.6 Source of funding Total 1,986 The purchase consideration to be paid by the Company will be satisfied via a combination of the net proceeds raised from the private placement of 43,980,000 new ordinary shares of RM0.50 each in TCB at an issue price of RM3.20 each, which was completed on 23 October 2015, the net proceeds raised from the disposal of 50% equity interest in Pinggiran Muhibbah Sdn Bhd ( PMSB ) to PVSB which was completed on 11 December 2015 as well as internally generated funds and/or bank borrowings and/or the proceeds arising from the Proposed Disposals. The breakdown of the source of funding has not been fixed at this juncture and will be determined by the Board prior to the completion of the Proposed Acquisition after taking into consideration, amongst others, the gearing level as well as operational and working capital requirements of the TCB Group. 3.7 Liabilities to be assumed by TCB There are no liabilities to be assumed by TCB pursuant to the Proposed Acquisition. 3.8 Estimated additional financial commitment required As at the LPD, the Company does not expect to incur any additional financial commitment in respect of the operations of SWMH Group given that SWMH Group is a mature operational business entity with positive operating cash flows. THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK 16

17 3.9 Information on the vendors CGSB CGSB was incorporated in Malaysia on 10 May 1982 under the Act as a private limited company. As at the LPD, the authorised share capital of CGSB is RM1,000,000 comprising 200,000 ordinary shares of RM1.00 each and 80,000,000 preference shares of RM0.01 each, of which 1,000 ordinary shares of RM1.00 each have been issued and fully paid-up. The principal activity of CGSB is investment holding. The directors of CGSB and their respective shareholding in CGSB as at the LPD are as follows: Name Direct Indirect No. of ordinary shares % No. of ordinary shares % Dato Lim - - 1,000 (1) Lim Ai Ling Lim Chin Sean - - 1,000 (1) Note: (1) Deemed interest by virtue of his shareholding in LGB (Malaysia) Sdn Bhd. The substantial shareholders of CGSB and their respective shareholding in CGSB as at the LPD are as follows: Name Direct Indirect No. of ordinary shares % No. of ordinary shares % LGB (Malaysia) Sdn Bhd 1, Dato Lim - - 1,000 (1) Lim Chin Sean - - 1,000 (1) Note: EMSB (1) Deemed interest by virtue of his shareholding in LGB (Malaysia) Sdn Bhd. EMSB was incorporated in Malaysia on 1 August 1992 under the Act as a private limited company. As at the LPD, the authorised share capital of EMSB is RM10,000,000 comprising 9,500,000 ordinary shares of RM1.00 each and 50,000,000 redeemable cumulative preference shares of RM0.01 each, of which 2,824,740 ordinary shares of RM1.00 each have been issued and fully paid-up. The principal activity of EMSB is investment holding. The directors of EMSB and their respective shareholding in EMSB as at the LPD are as follows: Name Direct Indirect No. of ordinary shares % No. of ordinary shares % Koid Hang Chong Dato Lim 1,883,

18 The substantial shareholders of EMSB and their respective shareholding in EMSB as at the LPD are as follows: Name Direct Indirect No. of ordinary shares % No. of ordinary shares % Team Star International 941, Limited Dato Lim 1,883, RATIONALE FOR THE PROPOSALS 4.1 Proposed Disposals The Proposed Disposals are in line with the TCB Group s new business strategy to focus on mature operational cash-generating utilities/infrastructure businesses to support the Company s Dividend Policy. Notwithstanding that the management takes cognisance that the long-term prospects of the Disposal Companies remain viable, the relatively low return on capital employed coupled with the long gestation period of TCB s investments in the Disposal Companies are no longer consistent with the TCB Group s new business strategy to focus on mature operational cashgenerating utilities/infrastructure businesses to support the Company s Dividend Policy. In this respect, the Proposed Disposals provide TCB with an opportunity to realise its investments in the Disposal Companies and an avenue for immediate cash liquidity that can be redeployed in a manner that is consistent with the TCB Group s new business strategy. The Proposed Disposals are also timely in view of the following recent developments in the PRC: (i) Changes in regulatory conditions and environmental policies Pursuant to a directive issued by the Yinchuan Environment Protection Agency, on 31 May 2014, Taliworks Yinchuan had entered into a heads of agreement with the Yinchuan City Construction Bureau to expand its wastewater treatment capacity from 300 million litres per day ( MLD ) to 480 MLD and improve the effluent discharge standards from Standard 1B to Standard 1A by December 2017 in accordance with the Notice of State Environmental Protection Administration strict execute Discharge Standards of Pollutants for Municipal Wastewater Treatment Plant ( 国家环境保护总局关于严格执行 城镇污水处理厂污染物排放标准 的通知 ). While Taliworks Yinchuan has upgraded 1 of its 4 municipal wastewater treatment plants ( Yinchuan Wastewater Treatment Plants ), the management has estimated near-term capital expenditure requirements for the remaining 3 Yinchuan Wastewater Treatment Plants to be approximately RMB649.0 million in order to comply with the more stringent compliance standard imposed. 18

19 The Company had provided equity financing amounting to approximately 35% of the total capital expenditure incurred by Taliworks Yinchuan in respect of Yinchuan Wastewater Treatment Plant No. 3 and the remaining balance was financed via bank borrowings. It is expected that the remaining capital expenditure of RMB649.0 million will also be funded in the same proportion. Given the sharp depreciation of the RM against the RMB from RMB1.00:RM as at 31 May 2014 (being the middle rate quoted by BNM as at the close of business), being the date of the heads of agreement, to RMB1.00:RM as at 25 February 2016, the equity funding requirement for the additional capital expenditure has increased from RM116.8 million to RM146.4 million, representing an increase of RM29.6 million or 25.3%. Further, if the remaining capital expenditure was to be financed via borrowings drawn down in RM, the costs of funding will also be significantly higher due to the recent depreciation in RM. Moreover, Puresino Guanghan is also required to expand the plant capacity of its wastewater treatment facility and upgrade the effluent discharge standards to Standard 1A which is in line with the Notice of State Environmental Protection Administration strict execute Discharge Standards of Pollutants for Municipal Wastewater Treatment Plant. As such, the management expects that further capital expenditure will have to be committed in order for the Disposal Companies to fully comply with the relevant environmental laws. Such increase in capital expenditure will further increase the gearing level of the TCB Group. (ii) Increasing operating costs in the PRC The Disposal Companies have experienced increasing operating costs as a result of, amongst others, increasing labour costs and higher equipment maintenance and replacement costs due to inflationary pressures in the PRC as well as higher compliance costs associated with stringent regulatory and environmental policies. However, in contrast to the increasing operating costs, revisions to the tariff rates have not been as forthcoming and has historically lagged behind any increases in operating costs. This is in view that any revisions to the tariff rates will have to be supported by detailed cost schedules, which will be independently audited by the respective concession grantors. The management expects that the operating costs of the Disposal Companies will continue to increase in line with inflationary pressures and stringent regulatory and environmental policies in the PRC. These increasing costs, together with delays in revisions to tariff rates, may strain the TCB Group s cash flows, which may in turn impede the Company s ability to meet its Dividend Policy. (iii) Changes to the value-added tax ( VAT ) system Pursuant to a ruling issued by the PRC State Administration of Taxation, the wastewater treatment industry, which was previously exempted from VAT, is now required to pay a VAT amounting to 17% of the total revenue net of direct operating costs collected effective from 1 July 2015, but will also be entitled to apply for a 70% rebate on the VAT paid. As a consequence, Taliworks Yinchuan and Puresino Guanghan, both which are operating in the wastewater treatment industry in the PRC, are now required to pay the full amount of the VAT collected upfront and subsequently apply for the rebate of 70% of the VAT paid. This new policy has prompted the management to reassess the impact of the imposition of the VAT on the cash flows of the Disposal Companies. Uncertainties surrounding the VAT system in the PRC, especially in view of the frequent changes to the VAT system, are detrimental to the Company s cash flow planning especially in view of the Company s Dividend Policy, and the Proposed Disposals provide an opportunity for the Company to minimise risks to its cash flows. 19

20 Accordingly, the Dividend Policy adopted by the Company as well as the TCB Group s new business strategy to focus on mature operational cash-generating utilities/infrastructure businesses have spurred the management to re-evaluate its investments in the Disposal Companies. The Proposed Disposals will enable the Company to unlock the value of its investments in the Disposal Companies and strengthen its financial position by reducing the overall gearing level, thus providing the Company with greater financial flexibility to pursue investment opportunities in other mature operational cash-generating utilities/infrastructure businesses with immediate returns and lower risk elements, which is expected to enhance the Company s ability to meet its Dividend Policy. 4.2 Proposed Acquisition The Proposed Acquisition strategically fits into the TCB Group s new business strategy to focus on mature operational cash-generating utilities/infrastructure businesses with a view to generate new revenue stream and provide a recurring and stable source of cash flow to the TCB Group to support the Company s Dividend Policy. SWMH, through its wholly-owned subsidiaries, SWME and Edaran SWM, provides solid waste collection services and public cleansing management services in the Southern Region, and manages 4,500 metric tonnes to 5,000 metric tonnes of waste daily across a geographical region of 27,560 square kilometres. The SWMH Group, with its strong operating track record in terms of achieving the prescribed standard service level for areas under its coverage as well as solid financial performance as evidenced by its historical financial information (a summary of which is set out in Section 7 of Appendix I of this announcement), is envisaged to offer the level of returns and cash flows being sought by the TCB Group. Further, the Proposed Acquisition is expected to offer synergistic benefits to both the TCB Group and the SWMH Group such as shared expertise, services and resources as well as improved operational efficiency through the reduction in operating costs. The Proposed Acquisition is also expected to allow the Company to jointly develop the future prospects and potential of the SWMH Group s integrated waste management services with the other existing shareholders of the SWMH Group. Barring any unforeseen circumstances, the Proposed Acquisition is expected to contribute positively to the future earnings and cash flows of the TCB Group, which will in turn enhance the Company s ability to meet its Dividend Policy. 5. RISK FACTORS 5.1 Risk relating to the Proposals The completion of the Proposals is conditional upon the conditions precedent as set out in Sections and of this announcement being satisfied. The non-fulfilment of the conditions precedent may result in the Disposals SSA and Acquisition SSA being terminated. There is no assurance that the Proposals can be completed within the time period stipulated in the Disposals SSA and Acquisition SSA. Should a delay or non-completion occur, the TCB Group may lose the opportunity to dispose of the Disposal Companies and acquire the ordinary shares in SWMH. Nevertheless, the Board will take reasonable steps to ensure that the conditions precedent is met within the stipulated timeframe and that every effort is made to obtain all necessary approvals for the Proposals. 20