Boustead Heavy Industries Corporation Berhad (Company No V) (Incorporated in Malaysia under the Companies Act, 1965)

Transcription

1 THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION If you are in any doubt as to the course of action you should take, you should consult your stockbroker, bank manager, solicitor, accountant or other professional adviser immediately. Bursa Malaysia Securities Berhad takes no responsibility for the contents of this Circular, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this Circular. Boustead Heavy Industries Corporation Berhad (Company No V) (Incorporated in Malaysia under the Companies Act, 1965) CIRCULAR TO SHAREHOLDERS IN RELATION TO THE PART A PROPOSED RENEWAL OF THE 2011 SHAREHOLDERS MANDATE AND PROPOSED ADDITIONAL SHAREHOLDERS MANDATE FOR RECURRENT RELATED PARTY TRANSACTIONS OF A REVENUE OR TRADING NATURE PART B PROPOSED PROVISION OF FINANCIAL ASSISTANCE BY BOUSTEAD HEAVY INDUSTRIES CORPORATION BERHAD GROUP TO PYROTECHNICAL ORDNANCE MALAYSIA SDN BHD, A NEWLY INCORPORATED ASSOCIATE COMPANY THAT WILL BE 49% OWNED BY BHIC DEFENCE TECHNOLOGIES SDN BHD The resolutions pertaining to the above proposals are set out in the Notice of the Company s Fortieth Annual General Meeting which is attached in the enclosed Annual Report. The Fortieth Annual General Meeting is to be held at 4 th Floor, Menara Boustead, 69 Jalan Raja Chulan, Kuala Lumpur on Thursday, 5 April 2012 at a.m. A Form of Proxy is set out in the Annual Report of Boustead Heavy Industries Corporation Berhad for the financial year ended 31 December You are urged to complete and deposit the Form of Proxy at the Company s Registered Office at 17 th Floor, Menara Boustead, 69 Jalan Raja Chulan, Kuala Lumpur, not later than 48 hours before the time of the meeting. The return of the completed Form of Proxy will not preclude you from attending and voting in person at the meeting should you subsequently wish to do so. Last date and time for lodging the Form of Proxy : 3 April 2012 at a.m. Date and Time of the Fortieth Annual General Meeting : 5 April 2012 at a.m. This Circular is dated 12 March 2012

2 DEFINITIONS: Except where the context otherwise requires, the following definitions shall apply throughout this Circular: (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 and vice versa. Reference to persons shall include corporations.) The Act : Companies Act, 1965 as amended from time to time and any reenactment thereof. AGM : Annual General Meeting. BDT : BHIC Defence Techservices Sdn Bhd (456291H), a whollyowned subsidiary of BHICDT, involved in maintenance and services for arsenal, missiles and other defence related products. BEAT : BHIC Electronics and Technologies Sdn Bhd (623530W), a wholly owned subsidiary of BHICDT, involved in maintenance and services for defence weapons and related products. BHB or Boustead : Boustead Holdings Berhad (3871H). BHIC or the Company : Boustead Heavy Industries Corporation Berhad (11106V) BHICDT : BHIC Defence Technologies Sdn Bhd (392096U), a whollyowned subsidiary of BP Shipyard, which is an investment holding company. BHIC Group or Group : BHIC and its subsidiaries and associate companies. BHIC Navaltech : BHIC Navaltech Sdn Bhd (424968A), a wholly owned subsidiary of BP Shipyard, involved in the inservice support of vessels including maintenance, services and supply of spare parts. BHIC Petroleum : BHIC Petroleum Sdn Bhd (641207V), a whollyowned subsidiary of BHIC, involved in engineering services for the oil and gas industry and ship chartering. Board : The Board of Directors of BHIC. BP Shipyard : Boustead Penang Shipyard Sdn Bhd (11795W), a whollyowned subsidiary of BHIC, involved in heavy engineering, ship repair and shipbuilding, fabrication of steel structures and platforms, marine engineering, oil and gas fabrication, hook up and commissioning. Bursa Securities : Bursa Malaysia Securities Berhad. CCM : Companies Commission of Malaysia. DDI : Dominion Defence & Industries Sdn Bhd (192736W), a whollyowned subsidiary of BP Shipyard, involved in supply and services of marine and naval defence related products. i

3 DEFINITIONS (cont d): Director : Shall have the meaning given in Section 4 of the Act and for the purpose of the Proposals includes any person who is or was within the preceding 6 months of the date on which the terms of the transaction were agreed upon, a Director of BHIC (or any other company which is its subsidiary or holding company or a Chief Executive Officer of BHIC, its subsidiary, or holding company). Listing Requirements : Listing Requirements of Bursa Securities as amended from time to time and any reenactment thereof. LTAT : Lembaga Tabung Angkatan Tentera, a statutory body established under the Tabung Angkatan Tentera Act, Major Shareholder : A person who has an interest or interests in one or more voting shares in a company and the nominal amount of that share, or the aggregate of the nominal amounts of those shares, is : a) equal to or more than 10% of the aggregate of the nominal amounts of all the voting shares in the company; or equal to or more than 5% of the aggregate of the nominal amounts of all the voting shares in the company where such person is the largest shareholder of the company. For the purpose of this definition, interest in shares shall have the meaning given in section 6A of the Companies Act PMSB : Prokhas Managers Sdn Bhd (848467U) POM : Pyrotechnical Ordnance Malaysia Sdn Bhd (946525W). Proposals : Proposed Renewal of Shareholders Mandate and Proposed Additional Shareholders Mandate. Proposed Additional Shareholders Mandate Proposed Provision of Financial Assistance Proposed Renewal of Shareholders Mandate : Proposed new shareholders mandate for the BHIC Group to enter into Recurrent Related Party Transactions. : Proposed provision of financial assistance by BHIC Group to POM : Proposed renewal of the 2011 Shareholders Mandate. Person Connected : Shall be as defined in Chapter 1 of the Listing Requirements. Recurrent Related Party Transaction : A recurrent related party transaction of a revenue or trading nature which is necessary for day to day operations and is entered into by the Company or its subsidiaries in the ordinary course of business which involves the interest, direct or indirect, of a Related Party. Related Party : A Director, Major Shareholder or a Person Connected with such Director or Major Shareholder. RM and sen : Ringgit Malaysia and sen, respectively Shareholders Mandate : The shareholders mandate obtained on 6 April 2011 for the BHIC Group to enter into Recurrent Related Party Transactions. ii

4 CONTENTS PART A CIRCULAR TO SHAREHOLDERS IN RELATION TO THE PROPOSED RENEWAL OF THE 2011 SHAREHOLDERS MANDATE AND PROPOSED ADDITIONAL SHAREHOLDERS MANDATE FOR RECURRENT RELATED PARTY TRANSACTIONS OF A REVENUE OR TRADING NATURE Page 1. INTRODUCTION 2 2. PROPOSED SHAREHOLDERS MANDATE 3 3. STATEMENT BY AUDIT COMMITTEE RATIONALE AND BENEFIT CONDITION OF THE PROPOSALS FINANCIAL EFFECT OF THE PROPOSALS DIRECTORS AND MAJOR SHAREHOLDERS INTEREST DIRECTORS RECOMMENDATION AGM FURTHER INFORMATION 18 PART B CIRCULAR TO SHAREHOLDERS IN RELATION TO THE PROPOSED PROVISION OF FINANCIAL ASSISTANCE Page 1. INTRODUCTION DETAILS OF THE PROPOSED PROVISION OF FINANCIAL ASSISTANCE RATIONALE AND BENEFITS MALAYSIA DEFENCE INDUSTRY RISK FACTORS OF THE PROPOSED PROVISION OF FINANCIAL 24 ASSISTANCE 6. APPROVAL REQUIRED FINANCIAL EFFECTS OF THE PROPOSED PROVISION OF FINANCIAL 24 ASSISTANCE 8. OUTSTANDING CORPORATE EXERCISES DIRECTORS AND/OR MAJOR SHAREHOLDERS INTERESTS DIRECTORS RECOMMENDATION ESTIMATED TIME FRAME FOR COMPLETION AGM FURTHER INFORMATION 26 APPENDIX I INFORMATION ON POM APPENDIX II FURTHER INFORMATION iii

5 PART A PROPOSED RENEWAL OF THE 2011 SHAREHOLDERS MANDATE AND PROPOSED ADDITIONAL SHAREHOLDERS MANDATE FOR RECURRENT RELATED PARTY TRANSACTIONS OF A REVENUE OR TRADING NATURE 1

6 BOUSTEAD HEAVY INDUSTRIES CORPORATION BERHAD (Company No V) (Incorporated in Malaysia) Registered Office: 17 th Floor, Menara Boustead 69 Jalan Raja Chulan Kuala Lumpur Board of Directors: 12 March 2012 Y. Bhg Tan Sri Dato Che Lodin Bin Wok Kamaruddin (Chairman) Y. Bhg Laksamana Madya Tan Sri Dato Seri Ahmad Ramli Bin Haji Mohd Nor (B) (Executive Deputy Chairman/Managing Director) Mr. David William Berry (NonIndependent/Executive Director) Y. Bhg Datuk Azzat Bin Kamaludin (NonIndependent/NonExecutive Director) Y. Bhg Dato Ishak Bin Osman (Independent/NonExecutive Director) En. Abd Malik Bin A Rahman (Independent/NonExecutive Director) To: The Shareholders of BOUSTEAD HEAVY INDUSTRIES CORPORATION BERHAD Dear Sir/Madam BOUSTEAD HEAVY INDUSTRIES CORPORATION BERHAD PROPOSED RENEWAL OF THE 2011 SHAREHOLDERS MANDATE AND PROPOSED ADDITIONAL SHAREHOLDERS MANDATE FOR RECURRENT RELATED PARTY TRANSACTIONS OF A REVENUE OR TRADING NATURE 1. INTRODUCTION In accordance with Part E, Chapter of the Listing Requirements, the Company has obtained the 2011 Shareholders Mandate to enter into Recurrent Related Party Transactions at the Company s Annual General Meeting on 6 April The 2011 Shareholders Mandate shall, in accordance with the Listing Requirements, lapse at the conclusion of the forthcoming AGM unless authority for its renewal is obtained from the shareholders of the Company at the AGM. Accordingly, on 23 February 2012 the Company announced to the Bursa Securities its intention to seek shareholders approval on the Proposals at the forthcoming AGM. The purpose of this Circular is to provide you with the relevant information pertaining to the Proposals and to seek shareholders approval on the ordinary resolution thereto to be tabled at the forthcoming AGM, which will be held on 5 April 2012 at a.m. or any adjournment thereof. The notice of the AGM is enclosed in the 2011 Annual Report of the Company. 2

7 2. PROPOSED SHAREHOLDERS MANDATE 2.1 Details Of The Proposals Provisions under the Listing Requirements Pursuant to Part E, Chapter of the Listing Requirements, a listed issuer with an issued and paidup capital of RM60 million and above must immediately announce a Recurrent Related Party Transaction as follows: i) the consideration, value of assets, capital outlay or costs of the Recurrent Related Party Transactions is RM1 million or more; or ii) the percentage ratio of such Recurrent Related Party Transaction is 1% or more, whichever is the higher. Transactions entered between a listed issuer (or any of its whollyowned subsidiaries) and its whollyowned subsidiary is excluded from the requirements of Part E, Chapter of the Listing Requirements. Paragraph 2.4 of Practice Note 12 states that where a listed issuer has obtained a shareholders mandate in respect of any Recurrent Related Party Transaction, the above disclosure obligation will not apply to the Recurrent Related Party Transactions which are comprised in the mandate. Accordingly, the Company proposes to seek approval on the Proposed Renewal of Shareholders Mandate from its shareholders for BHIC Group to enter into transactions with the Related Parties which are of a revenue or trading nature and necessary for its day to day operations, on terms not more favourable to the Related Parties than those generally available to the public and are not detrimental to the minority shareholders. Paragraph of Practice Note 12 states that a shareholders mandate is subject to annual renewal and any authority conferred by a shareholders mandate will continue to be in force until: (a) (b) (c) the conclusion of the first AGM of the listed issuer following the general meeting at which such shareholders mandate was passed, at which time it will lapse, unless by a resolution passed at the meeting, the authority is renewed; or the expiration of the period within which the next AGM after that date is required to be held pursuant to Section 143(1) of the Act (but must not extend to such extension as may be allowed pursuant to Section 143(2) of the Act); or revoked or varied by a resolution passed by the shareholders in a general meeting; whichever is the earlier. In addition to the Proposed Renewal of Shareholders Mandate of which the applicable Recurrent Related Party Transactions are specified in Section herein, the Company will be entering into new Recurrent Related Party Transactions as set out in Section Accordingly, the Company proposes to seek approval on the Proposed Additional Shareholders Mandate at the forthcoming AGM. 3

8 The Proposals, if approved, shall take effect from the date of the passing of the Ordinary Resolution relating thereto at the AGM and will continue to be in force until the conclusion of the next AGM of the Company or until the expiration of the period within which the next AGM is required by law to be held unless revoked or varied by the Company in a general meeting, whichever is the earlier. 2.2 Classes of Related Party The principal activity of the Company is investment holding. The holding company of BHIC is Boustead Holdings Berhad, a conglomerate with diverse business operations and listed on the Bursa Securities Main Board. BHB has interest in plantations including plantation management, financial services and investment, property development and construction, heavy industries, trading, manufacturing and services, pharmaceutical and education services. BHB owns 65% equity interest in the Company as at 29 February The holding corporation of BHB is Lembaga Tabung Angkatan Tentera, a local statutory body established by the Tabung Angkatan Tentera Act, 1973, which owns 61.36% of the issued and paidup share capital of BHB as at 29 February LTAT also owns 8.15% of the issued and paidup capital of BHIC as at 29 February The Proposals will apply to the following Related Parties (the effective interest is as at 29 February 2012): I. SUBSIDIARIES NOT WHOLLY OWNED BY BHIC Related Party 1. Atlas Defence Technology Sdn Bhd ( ADT ) Principal Activities Supply of electronics and systems technology to defence related industry BHIC s Effective Interest (%) 70 (a subsidiary of BHICDT) 2. BHIC Bofors Asia Sdn Bhd ( BHIC Bofors ) Providing, supplying and servicing BOFORS weapons systems 51 (a subsidiary of BHICDT) 3. BYO Marine Sdn Bhd ( BYO Marine ) Construction of vessels 51 (a subsidiary of BHICDT) 4. Contraves Advanced Devices Sdn Bhd ( CAD ) Manufacturing of electronic products 51 (a subsidiary of BHICDT) 4

9 II. BHIC S ASSOCIATES Related Party 1. Boustead Naval Shipyard Sdn Bhd ( BN Shipyard ) Principal Activities Construction, repair and maintenance of naval ships, weapons and electronics, design and engineering, fabrication of steel structures and commercial shipbuilding. BHIC s Effective Interest (%) Boustead Yachts Sdn Bhd ( Boustead Yachts ) Repair and maintenance of vessels, boats and yachts (a whollyowned subsidiary of BN Shipyard) 3. Boustead Langkawi Shipyard Sdn Bhd ( BL Shipyard ) Repair and maintenance of boats and yachts (99.99% owned by BN Shipyard) III. BHB S SUBSIDIARY Related Party 1. Boustead Engineering Sdn Bhd ( BESB ) Principal Activities Engineering equipment & chemical distributor BHB s Effective Interest (%) Nature of Recurrent Related Party Transactions and Estimated Values It is anticipated that the Group would, in the normal course of business, enter into transactions with the Related Party set out in section 2.2 above. The shareholdings of BHIC and other interested parties in the Related Party are also set out in section 2.2 above. It is likely that such transactions will occur with some degree of frequency and could arise at any time. For transactions with a Related Party where office rental is paid or received, the transactions are in compliance with Paragraph 3.2(c) of Practice Note 12 of the Listing Requirements, that is the lease period does not exceed three years and does not involve payments of rental on a lump sum basis. 5

10 2.3.1 Existing Recurrent Related Party Transactions Existing Recurrent Related Party Transactions for which approval is now being sought for the Proposed Renewal of Shareholders Mandate at the forthcoming AGM are as follows : Related Party Nature of Transactions Interested Directors (IDir) /Persons Connected (P C) /Interested Major Shareholders (IMS) 2012 Mandate (A) Estimated value of transaction pursuant to 2012 Mandate (RM 000) (B) Estimated value of transaction disclosed in 2011 Mandate (RM 000) 2011 Mandate (C) Actual value of transaction conducted pursuant to 2011 Mandate [as at 29 February 2012] (RM 000) Deviation between values in (B) and (C) (%) I. BHIC S ASSOCIATES BHB has direct and indirect (via BHIC) interest LTAT has direct and indirect (via BHB and BHIC) interest 1. BN Shipyard a) Provision of ship building, ship repair works and provision of related services by BP Shipyard b) Provision of ship repair works and related services by BDT c) Provision of ship repair works and related services by ADT d) Sale of equipment and machinery for ship related activities by DDI IDir LWK ARMN AK (Note 1) (Note 3) IMS BHB #A LTAT #B (Note 2) 300,000 5,000 5,000 5, ,000 7,000 10,000 20,000 89, , , , #A BHB holds 68.85% direct shareholding in BN Shipyard. BHB is deemed to have an interest in BN Shipyard via its substantial shareholding in BHIC. BHB is deemed to have an interest in all subsidiaries of BHIC by virtue of its substantial shareholding in BHIC. #B LTAT holds 10.38% direct interest in BN Shipyard. LTAT is indirectly interested in BN Shipyard via its substantial shareholding in BHB and BHIC. LTAT is deemed to have an interest in all subsidiaries of BHIC via its direct shareholding in BHB and direct and indirect shareholding in BHIC. 6

11 Existing Recurrent Related Party Transactions (cont d) Related Party Nature of Transactions e) Provision of ship repair works and related services by BHIC Bofors f) Provision of ship repair works and related services by BHIC Navaltech g) Provision of ship repair works and related services by BEAT h) Purchase of materials/ consumables in relation to ship repair works and related services by BDT i) Purchase of materials/ consumables in relation to ship repair works and related services by BHIC Navaltech j) Purchase of materials/ consumables in relation to ship repair works and related services by BEAT Interested Directors (IDir) /Persons Connected (P C) /Interested Major Shareholders (IMS) 2012 Mandate (A) Estimated value of transaction pursuant to 2012 Mandate (RM 000) 4,000 50,000 15,000 (2,500) (25,000) (7,500) (B) Estimated value of transaction disclosed in 2011 Mandate (RM 000) 4,000 60,000 20,000 (3,000) (25,000) (7,000) 2011 Mandate (C) Actual value of transaction conducted pursuant to 2011 Mandate [as at 29 February 2012] (RM 000) 1, , ,761.1 Deviation between values in (B) and (C) (%)

12 Existing Recurrent Related Party Transactions (cont d) Related Party Nature of Transactions k) Provision of ship building, ship repair works and provision of related services to BP Shipyard l) Provision of ship repair works and provision of related services from CAD Interested Directors (IDir) /Persons Connected (P C) /Interested Major Shareholders (IMS) 2012 Mandate (A) Estimated value of transaction pursuant to 2012 Mandate (RM 000) (6,500) 8,000 (B) Estimated value of transaction disclosed in 2011 Mandate (RM 000) (10,000) 5, Mandate (C) Actual value of transaction conducted pursuant to 2011 Mandate [as at 29 February 2012] (RM 000) (8,442.4) 2,939 Deviation between values in (B) and (C) (%) Boustead Yachts Provision of services for construction of vessels to BYO Marine IDir LWK ARMN AK (Note 1) (Note 3) IMS BHB #C LTAT #D (Note 2) (5,000) 100 TOTAL 350, , , #C BHB is deemed to have an interest in Boustead Yachts, a wholly owned subsidiary of BN Shipyard via its substantial shareholding in BN Shipyard and BHIC. BHB is deemed to have an interest in BYO Marine, via its substantial shareholding in BHIC. #D LTAT is indirectly interested in Boustead Yachts via its direct shareholding in BHB and direct and indirect shareholding in BN Shipyard and BHIC. LTAT is deemed to have an interest in BYO Marine via its direct shareholding in BHB and direct and indirect shareholding in BHIC. 8

13 Existing Recurrent Related Party Transactions (cont d) Related Party Nature of Transactions Interested Directors (IDir) /Persons Connected (P C) /Interested Major Shareholders (IMS) 2012 Mandate (A) Estimated value of transaction pursuant to 2012 Mandate (RM 000) (B) Estimated value of transaction disclosed in 2011 Mandate (RM 000) 2011 Mandate (C) Actual value of transaction conducted pursuant to 2011 Mandate [as at 29 February 2012] (RM 000) Deviation between values in (B) and (C) (%) II. BHB S SUBSIDIARIES LTAT has indirect (via BHB) interest 1. BESB Provision of engineering services to BHIC Petroleum IDir LWK ARMN AK (Note 1) (Note 3) IMS BHB #E LTAT #F (Note 2) (1,000) 100 TOTAL (1,000) 100 GRAND TOTAL 350, , , #E BESB is a whollyowned subsidiary of BHB. BHB is deemed to have an interest in BHIC Petroleum, a whollyowned subsidiary of BHIC via its substantial shareholding in BHIC. #F LTAT is indirectly interested in BESB via its substantial shareholding in BHB. LTAT is deemed to have an interest in BHIC Petroleum via its direct shareholding in BHB and direct and indirect shareholding in BHIC. 9

14 2.3.2 Additional Recurrent Related Party Transactions Additional Recurrent Related Party Transactions for which approval is now being sought for the Proposed Additional Shareholders mandate at the forthcoming AGM are as follows: Related Party Nature of Transactions Interested Directors (IDir) /Persons Connected (PC) /Interested Major Shareholders (IMS) Estimated Income/ (Expenditure) during the validity of the Proposals (RM 000) I. BHIC S ASSOCIATES BHB has direct and indirect (via BHIC) interest LTAT has direct and indirect (via BHB and BHIC) interest 1. BN Shipyard Provision of subcontracting work on engineering of SETIS combat management system and integration of combat system equipment by CAD 2. BL Shipyard Provision of services for the construction of vessels to BYO Marine IDir LWK ARMN AK (Note 1) (Note 3) IMS BHB #G LTAT #H (Note 2) 500,000 (2,000) TOTAL 498,000 #G BHB is deemed to have an interest in BN Shipyard and BL Shipyard, a subsidiary of BN Shipyard via its substantial shareholding in BN Shipyard and BHIC. BHB is deemed to have an interest in BYO Marine and CAD, via its substantial shareholding in BHIC. #H LTAT is indirectly interested in BN Shipyard and BL Shipyard via its direct shareholding in BHB and direct and indirect shareholding in BN Shipyard and BHIC. LTAT is deemed to have an interest in BYO Marine and CAD via its direct shareholding in BHB and direct and indirect shareholding in BHIC. 10

15 Notes: 1. LWK Y. Bhg Tan Sri Dato Che Lodin Bin Wok Kamaruddin. He is the Chief Executive of LTAT, Deputy Chairman and Group Managing Director of BHB. He is also the Chairman of BHIC and BN Shipyard. As at 29 February 2012, he owns 28,612,758 BHB shares and 2,000,000 BHIC shares. 2. ARMN Y. Bhg Laksamana Madya Tan Sri Dato Seri Ahmad Ramli Bin Haji Mohd Nor (B). He is the Executive Deputy Chairman and Managing Director of BHIC. He is also a director of BN Shipyard, BL Shipyard and CAD. As at 29 February 2012, he does not hold any shares in these companies except for 2,002,100 shares in BHIC. 3. AK Y. Bhg Datuk Azzat Bin Kamaludin. He is a director of BHIC, BP Shipyard, BN Shipyard, BL Shipyard and BHB. As at 29 February 2012, he owns 44,000 BHB shares and 495,300 BHIC shares. The abovementioned values of transactions are based on accounting records, and the estimated figures during the validity of the Proposals are based on management s estimate (on the assumption that the current level of operations will continue and all external conditions remain constant) and are subject to changes, and that the next AGM will be held in April In view of the timesensitive and frequent nature of such Recurrent Related Party Transactions, the Board is seeking the approvals on the Proposals which would allow the Group, in their normal course of business, to enter into Recurrent Related Party Transactions with the classes of Related Party set out above, provided such transactions are made at arm s length and on normal commercial terms and are on terms not more favourable to the Related Party than those generally available to the public and are not to the detriment of the minority shareholders. Such Recurrent Related Party Transactions will be subject to the review procedures as set out in section 2.5 below. 11

16 2.4 Outstanding Amount Due under the Recurrent Related Party Transactions The breakdown of the principal sum (without interest) for the total outstanding amount due to the BHIC Group under the Recurrent Related Party Transactions which exceeded the credit term as at 31 December 2011 are as follows: Related Party Nature of Transactions 1 year or less More than 1 to 3 years Outstanding Amount (RM 000) More than 3 to 5 years More than 5 years BN Shipyard a) Provision of ship building, ship repair works and provision of related services by BP Shipyard b) Provision of ship repair works and related services by ADT c) Provision of ship repair works and related services by BHIC Bofors d) Sale of equipment and machinery for ship related activities by DDI e) Provision of ship repair works and provision of related services from CAD f) Provision of ship repair works and related services by BEAT g) Provision of ship repair works and related services by BDT h) Provision of ship repair works and related services by BHIC Navaltech 81,917 1,182 1,133 15, , ,237 TOTAL 113,845 12

17 There were no late payment charges imposed by the Group on the above outstanding amounts as they were trade in nature. The Management has and will continuously meet and discuss with the debtor for early settlement of the outstanding amounts. The Board of Directors is of the opinion that there will be no recoverability issues as the debtor is a related party with a longstanding business relationship with the Group and has proven to be a creditworthy debtor with a good payment record. 2.5 Guidelines and Review Procedures for Recurrent Related Party Transactions To ensure that Recurrent Related Party Transactions are undertaken on the BHIC Group s normal commercial terms, and to supplement the existing internal control procedures of the Group, the Audit Committee will be tasked with the review of the procedures of such transactions. The Audit Committee currently comprises: En. Abd Malik Bin A Rahman (Chairman) Y. Bhg Datuk Azzat Bin Kamaludin Y. Bhg Dato Ishak Bin Osman The following guidelines will apply to the review and approval of Recurrent Related Party Transactions to ensure that the terms of the Recurrent Related Party Transactions are fair, reasonable and on normal commercial terms; are not more favourable to the Related Party than those generally available to the public; are not detrimental to minority shareholders and are in the best interest of the Group: o o o o o o o The Related Parties and interested Directors will be advised that they are subject to the shareholders mandate and will also be advised of the review and disclosure procedures. Records will be maintained by the Company to capture all Recurrent Related Party Transactions, which are entered into pursuant to the Proposals. The annual internal audit plan shall incorporate a review of the sufficiency and compliance of the guidelines and reviews procedures established to monitor Recurrent Related Party Transactions. The Board and the Audit Committee shall review the internal audit reports to ascertain that the guidelines and procedures established to monitor Recurrent Related Party Transactions have been complied with. Any member of the Audit Committee may, as he deem fit, request for additional information pertaining to the transaction from independent sources or advisers, including obtaining of valuations from professional valuers. If a member of the Board or Audit Committee has an interest (direct or indirect) in any Recurrent Related Party Transactions, he shall abstain from any decision making by the Board or Audit Committee in respect of such transactions and continue to abstain from voting on the resolutions approving the transactions. Should the Audit Committee during its review form an opinion that the Recurrent Related Party Transactions are not being conducted in accordance with established terms and procedures and/or are not being conducted on an arm s length basis and on normal commercial terms, or are detrimental to the interests of shareholders, it will advise the Board to convene a General Meeting of shareholders to seek a fresh shareholders mandate for the Recurrent Related Party Transactions. 13

18 o o o o The interested Director or interested Major Shareholder shall also ensure that the persons connected with him abstain from voting on the resolutions approving the transactions. At least 2 other contemporaneous transactions with unrelated third parties for similar products/services and/or quantities will be used as comparison, wherever possible, to determine whether the price and terms offered to/by the related parties are fair and reasonable and comparable to those offered to/by other unrelated third parties for the same or substantially similar types of products/services and/or quantities. In the event the quotation or comparative pricing from unrelated third parties cannot be obtained (for instance, if there are no unrelated third party vendors/customers of similar products or services, or if the product/service is a proprietary item), the transaction price will be determined based on quotations, tenders and prices guided by the Original Equipments Manufacturers (OEMs) to ensure that the Recurrent Related Party Transactions are not detrimental to the BHIC Group. The management of BHIC shall retain a proper documentation to support the basis in arriving at the relevant transaction prices. There is no specific threshold for approval of the Recurrent Related Party Transactions within the BHIC Group. All Recurrent Related Party Transactions are reviewed and approved by personnel of at least senior managerial level, provided always that such personnel has no interest in the transaction and the said transaction has been approved pursuant to shareholders mandate obtained in the general meeting for the Recurrent Related Party Transactions. All Recurrent Related Party Transactions which are not within the proposed mandate and have a value of not less than RM1,000,000 or 1% of the percentage ratio (as defined under the paragraph 10.02(g) of the Listing Requirements), whichever is the higher, shall be reviewed by the Audit Committee and approved by the Board before the transactions are entered into. The following are the commercial considerations which the BHIC Group takes into account before entering into transactions for the sale/supply of goods and provision of services, in the ordinary course of business: The ability and track record of the purchaser to pay for the goods supplied or services provided; and Whether past experience and the working relationship with the purchaser has been satisfactory. The following are the commercial considerations which the BHIC Group takes into account before entering into transactions for the purchase of goods or services from a vendor/service provider, in the ordinary course of business: The BHIC Group s pricing for the goods to be provided or supplied and/or received or purchased is negotiated between the BHIC Group and the Related Party based on the prevailing market prices as agreed with unrelated third parties; The terms are no more favourable to the Related Party than those extended to unrelated third parties and available to the public, and the Recurrent Related Party Transactions are not detrimental to minority shareholders; 14

19 The transactions are provided after taking into account factors such as pricing, quality, delivery schedules and, where applicable, preferential rates, rebates or discounts accorded for bulk purchases, the terms offered are fair and reasonable and in the BHIC Group s commercial interest; The competitiveness in pricing; The standard and quality of the goods/services and whether it meets the requirements of the BHIC Group; The responsiveness and level of services provided by the goods or service providers and whether past experience and working relationship has been satisfactory; and The track record and competence of the goods or service provider and whether the goods or service provider has sufficient resources to perform its obligations. The BHIC Group would only enter into transactions with relevant parties based on the above criteria, regardless of whether or not the party is related. 2.6 Validity Period of the Proposals If approved at the forthcoming AGM, the Proposals will take effect from the passing of the Ordinary Resolution relating thereto at the AGM and will continue to be in force until: (a) (b) (c) The conclusion of the next AGM of the Company following the general meeting at which the authorisation is obtained, at which time it will lapse, unless by an Ordinary Resolution passed at the meeting, the authority is renewed either unconditionally or subject to conditions; or The expiration of the period within which the next AGM of the Company after this date is required to be held pursuant to Section 143(1) of the Act (but must not extend to such extension as may be allowed pursuant to Section 143(2) of the Act); or Revoked or varied by resolution passed by the shareholders in a general meeting; whichever is the earlier. In view of the foregoing, at the next AGM following the AGM in which approval for the Proposals are obtained, and at each subsequent AGM the Board will seek shareholders approval for the renewal of the same, subject to satisfactory review by the Audit Committee of its continued application to the Recurrent Related Party Transactions. Transactions with any Related Parties which do not fall within the ambit of the Proposals will be subject to other applicable provisions of the Listing Requirements, the Act and/or any applicable law. 15

20 2.7 Disclosure Disclosure has been made in the 2011 Annual Report of the Company of the aggregate value of transactions conducted pursuant to the 2011 Shareholders Mandate during the financial year ended 31 December Similar disclosure will be made in the Annual Report for the subsequent financial year during which the Proposals are in force by providing amongst others, the following: (a) (b) The type of Recurrent Related Party Transactions made; and The names of the Related Parties involved in each type of Recurrent Related Party Transactions made and their relationship with the Company. 3. STATEMENT BY THE AUDIT COMMITTEE The Audit Committee of the Company has seen and reviewed the procedures mentioned in section 2.5 above and is of the view that: 1. The procedures above are sufficient to ensure the terms of the Recurrent Related Party Transactions are not more favourable to the Related Party than those generally available to the public and the Recurrent Related Party Transactions are not detrimental to minority shareholders and are in the best interest of the Group. 2. The BHIC Group has in place adequate procedures to monitor, track and identify the Recurrent Related Party Transactions in timely and orderly manner, and such procedures are reviewed on a yearly basis or whenever the need arises. 4. RATIONALE AND BENEFIT 4.1 The Proposals The Proposals are intended to enhance the Group s ability to pursue business opportunities, which are timesensitive in nature, and will eliminate the need to announce, or to announce and convene separate general meetings on each occasion to seek shareholders prior approval for the entry, by the relevant company in the Group into such transactions. This will substantially reduce the expenses associated with the convening of general meetings on an ad hoc basis, considerably improve administrative efficacy, and allow manpower resources and time to be channelled towards attaining other corporate objectives. 4.2 The Benefit to the BHIC Group from Transacting With the Related Parties The Recurrent Related Party Transactions entered into by the BHIC Group are intended to meet business needs at the best possible terms. The BHIC Group should be able to have access to all available markets and products and services provided by all vendors including its Related Parties. Transacting with its Related Parties also enhances the ability to explore beneficial business opportunities within the BHIC Group, which will be of benefit to all the companies within the BHIC Group. In most instances, companies within the BHIC Group have a better understanding of each other s business needs, thus providing a platform where all parties can benefit from timely provision of products/services. 16

21 5. CONDITION OF THE PROPOSALS The Proposals are conditional upon the approval being obtained from the shareholders of BHIC at the forthcoming AGM. 6. FINANCIAL EFFECT OF THE PROPOSALS The Proposals are not expected to have any effect on the issued and paidup capital, earnings and net tangible assets of the BHIC Group. 7. DIRECTORS AND MAJOR SHAREHOLDERS INTEREST The direct and indirect shareholding of the interested Major Shareholders, interested Directors of the Company and Persons Connected to them as at 29 February 2012, being the last practicable date prior to the Circular are as follows: Name Direct Shareholding Indirect Shareholding Interested Major Shareholders Boustead Holdings Berhad Lembaga Tabung Angkatan Tentera No of Shares 161,497,448 20,250,000 % No of Shares % ,497, *1 Interested Directors Y. Bhg Tan Sri Dato Che Lodin Bin Wok Kamaruddin Y. Bhg Laksamana Madya Tan Sri Dato Seri Ahmad Ramli Bin Haji Mohd Nor (B) Y. Bhg Datuk Azzat Bin Kamaludin 2,000,000 2,002, , , *2 *1 Deemed interest by virtue of its substantial shareholding in BHB *2 Deemed interest by virtue of his daughter, Rinnie Nor Ahmad Ramli who owns 11,200 shares in BHIC and his soninlaw, Emil Renaldi Bin Sjaiful who owns 14,000 shares in BHIC Y. Bhg Tan Sri Dato Che Lodin Bin Wok Kamaruddin, Y. Bhg Laksamana Madya Tan Sri Dato Seri Ahmad Ramli Bin Haji Mohd Nor (B) and Y. Bhg Datuk Azzat Bin Kamaludin ( the Interested Directors ), being the interested directors as mentioned in section 2.3 above have abstained and will continue to abstain from deliberations and voting at the board meetings with regards to the Proposals. The Interested Directors together with BHB and LTAT will also abstain from voting on the resolution pertaining to the Proposals in respect of their direct and indirect interests in BHIC at the AGM. The Interested Directors, BHB and LTAT have undertaken that they will ensure that the Persons Connected with them as disclosed above will abstain from voting on the resolution relating to the Proposals at the AGM to be convened. Save as disclosed above, none of the other Directors and/or Major Shareholders of BHIC and/or persons connected to them have any interest, direct or indirect in the Proposals. 17

22 8. DIRECTORS RECOMMENDATION The Board of Directors (except the Interested Directors), after careful deliberations on the Proposals, is of the opinion that the Proposals are in the best interests of the Company and therefore recommends that you vote in favour of the resolution pertaining to the Proposals to be tabled at the forthcoming AGM. 9. AGM The Fortieth AGM of the Company which will be held at 4 th Floor, Menara Boustead, 69 Jalan Raja Chulan, Kuala Lumpur on Thursday, 5 April 2012 at a.m. for the purpose of considering and if thought fit, passing the Ordinary Resolution as set out in the Notice of AGM to approve the Proposals. If you are unable to attend and vote in person at the AGM, you are requested to complete, sign, and return the enclosed Form of Proxy in accordance with the instructions therein as soon as possible and in any event so as to arrive at the registered office of BHIC not later than fortyeight (48) hours before the time set for the AGM. The lodging of the Form of Proxy does not preclude you from attending and voting in person at the meeting should you subsequently wish to do so. 10. FURTHER INFORMATION Shareholders are advised to refer to Appendix II of this Circular for further information. 18

23 PART B PROPOSED PROVISION OF FINANCIAL ASSISTANCE BY BHIC GROUP TO POM, A NEWLY INCORPORATED ASSOCIATE COMPANY THAT WILL BE 49% OWNED BY BHICDT 19

24 PROPOSED PROVISION OF FINANCIAL ASSISTANCE 1. INTRODUCTION On 28 February 2012, the Company announced to the Bursa Securities its intention to seek shareholders approval for the Proposed Provision of Financial Assistance at the forthcoming AGM. The purpose of this Circular is to provide you with the relevant details on the Proposed Provision of Financial Assistance, to set out the recommendation of the Board and to seek your approval for the resolution pertaining to the Proposed Provision of Financial Assistance to be tabled at the forthcoming AGM, which will be held on 5 April 2012 at a.m or any adjournment thereof. The notice of the AGM is enclosed in the 2011 Annual Report of the Company. 2. DETAILS OF THE PROPOSED PROVISION OF FINANCIAL ASSISTANCE 2.1 Implications of Paragraph 8.23 of the Listing Requirements Pursuant to Paragraph 8.23(1) of the Listing Requirements, the provision of advances by a listed issuer or its subsidiaries in favour of the subsidiaries or associated companies of the listed issuer, the listed issuer (in case of the subsidiaries providing financial assistance) or its immediate holding company which is listed, is deemed to be a provision of financial assistance. Further to the above, pursuant to Paragraph 8.23(2)(c) of the Listing Requirements, where the provision of financial assistance is to an associated company, and the aggregate amount provided or to be provided at any time to each associated company compared to the net tangible assets ( NTA ) of the Group is equal to or exceeds 5%, the listed issuer must issue a circular to its shareholders and seek its shareholders approval in general meeting of such provision of financial assistance. In this respect, the details of the financial assistance to be provided by BHIC Group in favour of POM, a company incorporated on 27 May 2011, which will eventually be an associate company of BHICDT, are as follows: Details Financial Assistance Amount Provided by Provided to RM %* Proposed Provision of Financial Assistance Estimated aggregate amount of advances for POM in BHIC Group, including BP Shipyard relation to the operations of (100% Up to Up to the factory located in owned by POM 60,000, % Bentong, Pahang Darul BHIC) and Makmur BHICDT (100% owned by BP Shipyard) Note: *Percentage of financial assistance valued against latest audited consolidated NTA of BHIC Group as at 31 December 2011 of approximately RM423,208,

25 In light of the above and pursuant to paragraph 8.23(2)(c) of the Listing Requirements, as the value of the Proposed Provision of Financial Assistance will exceed 5% of BHIC Group s latest audited consolidated NTA as at 31 December 2011, the Proposed Provision of Financial Assistance is subject to the Company s shareholders approval at an AGM to be convened. At the time of preparation of this document, the paidup capital of POM is RM2 consisting of two (2) units of ordinary shares of RM1 each, of which one share is currently held by each of BHICDT and PMSB respectively. Pursuant to the Joint Venture Agreement between BHICDT and PMSB signed on 30 May 2011, the paidup capital of POM shall be increased eventually to RM35,294,120 with the shareholding structure being 49% BHICDT and 51% PMSB respectively. The increase in the paid up capital may only take effect once the conditions precedent as per the Joint Venture Agreement between both shareholders have been fulfilled, which is expected to be completed by the second or third quarter of this year. The salient terms of the Joint Venture Agreement signed between BHICDT and PMSB on 30 May 2011 are as follows: (a) (b) The incorporation of the Joint Venture Company (which refers to POM) shall be on or before the date falling six (6) months after the date of signing of the Joint Venture Agreement, or such later date as the Parties may agree; The Joint Venture Company shall upon incorporation have an initial authorised share capital of RM50,000,000 divided into 49,999,999 ordinary shares of RM1.00 each and 1 preference share of RM1.00 each. At the completion of the Joint Venture Agreement the Joint Venture Company shall have a paidup capital of RM35,294,120; (c) The equity structure of the Joint Venture Company shall be 49% BHICDT and 51% PMSB respectively; (d) (e) PMSB also holds one Golden Share (preference share) in the Joint Venture Company; and BHICDT's subscription of the 49% equity in the Joint Venture Company is funded wholly in cash from internally generated funds. The Joint Venture Agreement was executed between BHICDT and PMSB with the objective of establishing a long term relationship through the creation of a Joint Venture Company to jointly carry on the following business: (a) (b) To manufacture, market and sell propellant and related products; and Any other business which parties would agree by unanimous resolution and to enter into contracts pertaining to such unanimous resolution. The paidup capital of POM shall be increased to RM35,294,120 after taking into consideration the level of commitment required from BHICDT and PMSB for POM to carry out its business activities. The provision of financial assistance shall be in the form of advances for POM s working capital and capital expenditure, which includes payments made on behalf of POM by BHIC Group. 21

26 The breakdown of the utilisation of the financial assistance is as follows: Details Estimated Amount (1) (RM) Estimated Time Frame for utilisation (2) Consultants Fee (5) 5,400, months Land & Building (3) 44,000,000 (4) Fixed Assets (6) 6,600,000 Other Expenses (7) 4,000,000 Total 60,000,000 Notes: (1) The estimated amounts are based on the Management s estimate of the value of working capital and capital expenditure to be incurred, and as such may be subject to change. (2) From the date of the shareholders approval for the Proposed Provision of Financial Assistance. (3) The land size is acres which was already purchased in 2007 by BHIC on leasehold for 99 years. The construction of the building has already started and undertaken by BP Shipyard. The building (built up area of 36,494 sq. ft.) is expected to be completed and ready to commence operations in the third quarter of (4) Based on the total purchase price of the land by BHIC and the construction cost incurred by BP Shipyard. (5) Includes the construction s project management consultant, land surveyor, legal consultant, human resource consultant and land valuer. (6) Includes conveyor and hoisting works (RM632,000), office equipment, furniture, fittings and vehicles (RM150,000) and BiModular Charge System (RM5,818,000). (7) Includes forwarding and storage (RM1,010,000), insurance (RM222,000), tax agent (RM8,000), security services (RM356,000), staff cost (RM1,120,000) and operating expenses (RM1,284,000). The financial assistance to be provided to POM is without any specific repayment time frame or interest. Based on mutual understanding and cooperation, POM will repay any amount due to BHIC Group once it has sufficient financial capability to do so. The main source of repayment shall be from the cashflow generated from its operations. As a newly incorporated company, POM is currently on track to ensure the operationalisation of its factory in Bentong, Pahang Darul Makmur in 2012, and will eventually work towards generating its own cashflow for selfsustenance. Based on the assumptions that contracts to manufacture and supply the propellants can be secured in the second half of this year, POM is expected to register profits from the third year of operations onwards. The Proposed Provision of Financial Assistance will be funded via BHIC Group s internally generated funds and will not exceed RM60,000,000 at any point of time during the period of the Proposed Provision of Financial Assistance. Any further financial assistance to be provided exceeding RM60,000,000 or subsequent to the next AGM following the AGM in which approval for this proposal is obtained, will require a separate shareholders approval. 2.2 Validity Period of the Proposed Provision of Financial Assistance In view of the above, the Board is seeking the shareholders approval for the Proposed Provision of Financial Assistance by BHIC Group in favour of POM in respect of the period from the forthcoming AGM to the next AGM. 2.3 Information on POM Please refer to Appendix I of this Circular for the background information on POM. 22

27 3. RATIONALE AND BENEFITS POM was incorporated on 27 May 2011 as a Joint Venture Company between PMSB (a company 50% owned by the Minister of Finance Incorporated) and BHICDT (a 100% subsidiary of BP Shipyard). The manufacturing plant is located at Kawasan Perindustrian Bentong Fasa 2B, Bentong, Pahang. POM will produce and sell Double Base Propellants for locallyused artillery shells and rockets in the defence sector, with the Ministry of Defence (MinDef) as the main customer. Propellant is a generic name for explosives (with its own oxygen for combustion) that burns controllably and is used for propelling projectiles for artilleries, rockets, missiles and other firearms. This distinguishes propellants from the more violent explosives used in shells and mines to produce a blasting effect. There are various types of propellants that are commonly identified as Single Base, Double Base and Triple Base propellants. The manufacturing process of propellants is carried out in a facility called KLP100 production plant (KLP100 plant). A KLP100 plant has a maximum capacity of 100kg/hour. The raw material to be processed in the production plant takes the form of a wet paste that consists of nitroglycerin and nitrocellulose. The wet paste is then processed into semifinished products with various sizes and shapes. The final product to be produced and supplied by POM is known as a Bi Modular Charge System or BMCS. The output from the KLP100 plant will go through a loading, assembling and packing process using the BMCS assembly equipment. At the moment, the BMCS will be used with the G5 155mm 45 Calibre GunHowitzer which is currently being used by the Malaysian Armed Forces. Technically, the BMCS fully combusts inside the gun barrel and creates a sufficient amount of pressure to push the ammunition from the gun to the desired target. The Double Base propellants will be the main components of the BMCS. At the date of this Circular, POM has yet to start its operations. In view of the fact that POM will be involved in an industry that is considered new in the country, local financial institutions are hesitant to grant financing facilities to POM. For a newly established company like POM, the availability of financial assistance is crucial from the preoperationalisation stage until revenues are generated. The Proposed Provision of Financial Assistance will allow POM to meet its necessary expenses, including capital expenditures and overheads. The financial assistance will be fully utilised to ensure that POM can commence its operations as per the scheduled timeline. 4. MALAYSIA DEFENCE INDUSTRY The Malaysia defence industry is a strategic component that forms an integral part in the development of the country s defence capability. A well developed defence industry would contribute significantly to the supply chain from availing indigenous state of the art technology for platform and payload systems and other military solutions to the through life support. Such supply chain would have direct bearing on the availability and readiness of the armed services inventory of equipment. 23