TALAM TRANSFORM BERHAD ( TTB or the Company ) PROPOSED DISPOSAL OF THE ENTIRE 85% EQUITY INTEREST IN JILIN PROVINCE MAXCOURT HOTEL LIMITED, A COMPANY INCORPORATED IN THE PEOPLE S REPUBLIC OF CHINA, BY MALIM ENTERPRISE (HK) LIMITED, A COMPANY INCORPORATED IN HONGKONG AND AN INDIRECT WHOLLY- OWNED SUBSIDIARY OF TTB, TO JILIN PROVINCE ZHUO YUE INVESTMENT CO. LIMITED 1. INTRODUCTION The Board of Directors of TTB wishes to announce that Malim Enterprise (HK) Limited (Company No. 377635) ( MEL or Vendor ), a company incorporated in Hong Kong and an indirect wholly-owned subsidiary of the Company, has on 5 January 2017 entered into a Shares Sale Agreement ( SSA ) with Jilin Province Zhuo Yue Investment Co. Limited (Company No. 91220101702338794Y) ( JPZYI or Purchaser ), a company incorporated in the People s Republic of China for the disposal of the entire 85% equity interest ( Sale Shares ) in Jilin Province Maxcourt Hotel Limited (Company No. 220000400005569) ( JPMH ), a company incorporated in the People s Republic of China, to JPZYI, for a cash consideration of RMB84.66 million (which is equivalent to approximately RM55.60 million) [ Proposed Disposal ]. Upon the completion of the Proposed Disposal, JPMH shall cease to be an indirect wholly-owned subsidiary of TTB. 2. DETAILS OF THE PROPOSED DISPOSAL The Proposed Disposal entails the disposal by MEL of its entire 85% equity interest in JPMH, to JPZYI for a cash consideration of RMB84.66 million ( Disposal Consideration ). In addition, the Purchaser will also make available funds to JPMH of RMB95.34 million for the settlement of all JPMH s debts and upon the debts of JPMH being fully resolved, all the remaining funds shall be fully released by the Purchaser to the Vendor as full settlement of the debts owing to the Vendor of RMB82,108,396-48 and TTB of RMB3,820,610 respectively ( TTB and MEL debts ). However, in the event the available funds are not sufficient to fully resolve all the debts of JPMH, the Vendor shall continue to be responsible for repaying such unresolved debts. JPMH s current debts excluding TTB and MEL debts as at 31 December 2016 is RMB82,385,959-68. 2.1 Information on the Vendor MEL was incorporated in Hong Kong on 3 September 1992 under the Companies Ordinance as a limited liability company and having its registered address at Unit 1203, 12/F, CEO Tower, 77 Wing Hong Street, Cheung Sha Wan, Hong Kong. MEL currently has share capital of HK$3,200,000 comprising 3,200,000 ordinary shares. The principal activities of MEL is investment holding. Era-Casa Sdn Bhd (Company No. 259526-T) ( ECSB ) holds 3,199,990 ordinary shares representing 99.999% equity interest in MEL and Talam Plantations Sdn Bhd (Company No. 147570-X) ( TPSB ) holds 10 ordinary shares representing 0.001% equity interest in MEL. Both ECSB and TPSB are wholly-owned subsidiaries of TTB.
2.2 Information on the Purchaser JPZYI was incorporated in People s Republic of China on 8 June 1999 as a limited liability company and having its registered address at 1216 Fuzhou Street, Changchun Economic and Technological Development Zone. JPZYI currently has a registered and paid-up capital of RMB100,000,000. The principal activities of JPZYI are groceries, hardware, automobile parts, community services and investment holding. JPZYI is a wholly-owned subsidiary of Dazhong Zhuo Yue Holdings Group. 2.3 Information on JPMH JPMH was incorporated in the People s Republic of China on 28 December 1993 as a limited liability company and having its registered address at No. 823 Xi an Road, Chaoyang District, Changchun, 130061, Jilin Province. JPMH currently has a registered and paid-up capital of RMB99,600,000. The principal activities of JPMH are the operation and managing of the Maxcourt Hotel ( Property ) but the hotel has already ceased operations during the last financial year. 2.4 Information on the Property The land on which the Property is situated is registered under the name of Jilin Province Expressway Company ( JPEC ) with a lease expiring on 24 December 2043 ( Land ). JPMH has a land use right which will be expiring on 28 December 2023 with an option, subject to the consent of JPEC, to extend to 24 December 2043 within 6 months before the expiry of the original land use rights. The Property is a 23-storey building with 263 hotel rooms plus 2 levels of basement. The total built-up area of the Property is 41,594.92 square metres ( sqm ), out of which JPMH only owns 35,761.23 sqm because the floors at levels 15, 16, 17, 18 and 23 are owned by third parties. The Property which is approximately 18 years old, is located at No. 823 Xi an Road, Chaoyang District, Changchun, 130061, Jilin Province and is currently charged to the financial institutions. The Land use category is commercial and service industry. 2.5 Basis and Justification for the Disposal Consideration The Disposal Consideration was arrived at based on a willing-buyer willingseller basis after taking into consideration of MEL s 85% equity interest in JPMH s net assets which amounted to approximately RM0.53 million. JPMH s net assets were arrived at after taking into consideration the accumulated losses of approximately RM129 million. The original cost of investment in JPMH on 31 December 1997 was RM73.38 million. The Proposed Disposal is expected to result in a net gain on disposal of approximately RM47.78 million based on the net carrying value of TTB s investment in JPMH which was RM73.38 million as at 31 January 2016.
2.6 Salient Terms of the SSA 2.6.1 Sale and Purchase The Vendor has agreed to sell and the Purchaser has agreed to purchase the Sale Shares upon the terms and conditions of the SSA. JPEC, the other shareholder of JPMH which holds the remaining 15% equity interest in JPMH has waived its rights of first refusal and agreed for MEL to sell its entire 85% equity interest in JPMH to JPZYI. 2.6.2 Payment of Disposal Consideration The payment of the Disposal Consideration shall be paid by the Purchaser to the Vendor in the following manner:- (1) Upon the execution and commencement of the SSA, the Purchaser shall pay to the Vendor the sum of RMB4,660,000 being the 1 st Tranche of the Disposal Consideration. (2) On the same day when the Vendor obtained approval from the Bureau of Economic Cooperation, both parties will submit the prepared materials to the Trade and Industry Bureau of Jilin Province Business Hall receiving counter. Upon the Trade and Industry Bureau's acceptance and verification of the materials submitted, the Purchaser shall pay to the Vendor the sum of RMB80,000,000 being the 2 nd Tranche of the Disposal Consideration. 2.6.3 Treatment of JPMH's Debts and Receivables Subsequent to the execution of the Confirmation of Debts and Receivables (which states the debts and receivables of JPMH [not including the rental received in advance] which were accrued before the commencement of the SSA) by both parties, the Purchaser shall set up a special banking account with a limit of RMB95,340,000 (hereinafter referred to as the "Special Account For Debts Settlement") which shall be utilised to ensure timely and smooth payment of the debts as specified in the Confirmation of Debts and Receivables. Upon the debts of JPMH being fully resolved, all the remaining funds in the Special Account For Debts Settlement shall be fully released by the Purchaser to the Vendor. In the event that the funds in the Special Account For Debts Settlement (RMB95,340,000) is not sufficient to fully resolve all the debts of JPMH, the Vendor shall continue to be responsible for repaying such unresolved debts. 2.6.4 Condition Precedent for Handing Over The Condition Precedent for the handing over are as follows:- (1) The Vendor and Purchaser have executed the Confirmation of Debts and Receivables. (2) The Vendor has received the 2 nd Tranche of the Disposal Consideration.
3. LIABILITIES TO BE ASSUMED There are no liabilities to be assumed by the Purchaser arising from the Proposed Disposal. 4. UTILISATION OF DISPOSAL PROCEEDS The net proceeds from the Proposed Disposal will be used to pare down the Group s borrowings and for working capital purposes. 5. APPROVALS REQUIRED The Proposed Disposal is not subject to the approval of the shareholders of TTB but is subject to the approval from the relevant government authorities in the People s Republic of China. 6. RATIONALE FOR THE PROPOSED DISPOSAL The Proposed Disposal will enable TTB to reduce its losses, improve its liquidity position and reduce the Group s borrowings. 7. FINANCIAL EFFECT 7.1 Share Capital and Substantial Shareholders Shareholding The Proposed Disposal will not have any effect on the issued and paid-up share capital of TTB and the shareholding of its substantial shareholders. 7.2 Net Assets, Gearing and Earnings The Proposed Disposal will give rise to a net gain of RM47.78 million or 1.13 sen per ordinary share. The net assets of TTB will also increase by 0.10 sen to 10.61 sen per ordinary share and gearing ratio will improve from 0.45 to 0.38 (Based on the Audited Financial Statement as at 31 January 2016). 8. ESTIMATED TIME FRAME FOR COMPLETION The Proposed Disposal will be completed upon obtaining the approval from the Bureau of Economic Cooperation, the registration of the industrial and commercial documents with the Trade and Industry Bureau of Jilin Province Business Hall and the receipt of the 2 nd Tranche of the Disposal Consideration of RMB80,000,000. 9. DIRECTORS AND MAJOR SHAREHOLDERS INTEREST None of the directors and/or the major shareholders of TTB and/or persons connected with them have any interest, direct or indirect in the Proposed Disposal.
10. DIRECTORS RECOMMENDATION The Board of Directors of TTB, after taking into consideration of all financial and other factors, is of the opinion that the Proposed Disposal is in the best interest of TTB. 11. PERCENTAGE RATIO The highest percentage ratio applicable to the Proposed Disposal pursuant to paragraph 10.02(g) of the Main Market Listing Requirements of Bursa Malaysia Securities Berhad is 12.32% based on the latest audited financial statements of TTB Group as at 31 January 2016. 12. DOCUMENTS FOR INSPECTION The SSA is available for inspection at the registered office of the Company at Suite 2.12, Level 2, Menara Maxisegar, Jalan Pandan Indah 4/2, Pandan Indah, 55100 Kuala Lumpur between 9.00 a.m. and 5.00 p.m. from Monday to Friday (except public holidays) for a period of three (3) months from the date of this announcement. This announcement is dated 5 January 2017.