DIVERSIFIED GATEWAY SOLUTIONS BERHAD ( DGSB OR COMPANY ) PROPOSED PRIVATE PLACEMENT OF UP TO 10% OF THE ISSUED ORDINARY SHARES IN DGSB 1. INTRODUCTION On behalf of the Board of Directors of DGSB ( Board ), M&A Securities Sdn Bhd ( M&A Securities ) wishes to announce that the Company proposes to undertake a private placement of up to 10% of its issued ordinary shares ( Proposed Private Placement ). The Proposed Private Placement will be undertaken in accordance with the general mandate pursuant to Sections 75 and 76 of the Companies Act 2016 obtained from the shareholders of the Company at its 12 th Annual General Meeting ( AGM ) held on 14 September 2017, whereby the Board has been authorised to allot and issue new ordinary shares in DGSB ( DGSB Shares ) not exceeding 10% of the issued ordinary shares of the Company ( Shareholders Mandate ). Further details of the Proposed Private Placement are set out in the ensuing sections. 2. DETAILS OF THE PROPOSED PRIVATE PLACEMENT As at 20 March 2018, being the last practicable date preceding the date of this announcement ( LPD ), DGSB has share capital of RM150,833,829 comprising 1,355,877,090 DGSB Shares. As such, the Proposed Private Placement will involve the issuance of up to 135,587,700 new DGSB Shares ( Placement Share(s) ) representing not more than 10% of the issued ordinary shares of the Company. However, the actual number of DGSB Shares to be issued pursuant to the Proposed Private Placement will be determined at a later date, after obtaining the relevant approvals. Subject to prevailing market conditions and depending on investors interest at the point of implementation, the Proposed Private Placement may be implemented in multiple tranches, if required, within 6 months from the date of approval of Bursa Malaysia Securities Berhad ( Bursa Securities ) for the Proposed Private Placement, or any extended period as may be approved by Bursa Securities, until the conclusion of the next AGM of the Company, provided that the Placement Shares, when aggregated, must not exceed 10% of the issued DGSB (excluding treasury shares, if any). As such, there could potentially be several price fixing dates depending on the number of tranches and timing of implementation. 2.1 Basis of arriving at the issue price of the Placement Shares The issue price of each tranche of the Placement Shares, where applicable, shall be determined separately and fixed by the Board at a later date after obtaining the relevant approvals for the Proposed Private Placement. The Board will take into consideration amongst others, the prevailing market conditions and the provisions of Paragraph 6.05(a) of the ACE Market Listing Requirements of Bursa Securities ( AMLR ), in determining the issue price of the Placement Shares. The issue price shall not be a discount of more than 10% to the volume weighted average market price of DGSB Shares for the 5 market days immediately preceding the price fixing date(s) ( 5D-VWAMP ). The mechanism to determine the issue price of the Placement Shares is in accordance with market based principles. For illustrative purpose, the issue price of the Placement Shares is assumed to be RM0.09 each ( Indicative Issue Price ). The Indicative Issue Price represents a discount of approximately 3.85% to the 5D-VWAMP of DGSB Shares for the 5 market days up to the LPD of RM0.0936. 1
2.2 Placement arrangement The Placement Shares are proposed to be placed to independent investor(s) ( Placee(s) ) to be identified later. In accordance with Paragraph 6.05(c) of the AMLR, the Placement Shares will not be placed to the following parties: (i) (ii) the interested Director, interested major shareholder or interested chief executive of DGSB or a holding company of DGSB (if applicable), or interested person(s) connected with such director, major shareholder or chief executive; and nominee corporations, unless the names of the ultimate beneficiaries are disclosed. Additionally, the Placees shall also be person(s) or party(ies) who/which qualify under Schedules 6 and 7 of the Capital Markets and Services Act 2007. 2.3 Ranking of the Placement Shares The Placement Shares shall, upon issuance and allotment, rank equally in all respects with the then existing issued DGSB Shares, save and except that the holders of the Placement Shares shall not be entitled to any dividends, rights, allotments and/or other forms of distributions that may be declared, made or paid to the shareholders of the Company, for which the relevant entitlement date precedes the date of allotment of the Placement Shares. 2.4 Listing of and quotation for the Placement Shares On behalf of the Company, M&A Securities has on 21 March 2018 submitted an application to Bursa Securities for the listing of and quotation for the Placement Shares on the ACE Market of Bursa Securities. 2.5 Utilisation of proceeds For illustrative purposes, based on the proposed placement size of 135,587,700 Placement Shares and assuming the Placement Shares are issued at the Indicative Issue Price, the Proposed Private Placement is expected to raise gross proceeds of RM12,202,893. The proceeds raised are expected to be utilised in the following manner: Details RM million Notes Expected time frame for utilisation (from listing date) For the operations of: - ISS Consulting (Thailand) Ltd 7.00 (i) Within 12 months - Diversified Gateway Berhad 2.54 (ii) Within 12 months Repayment of short term borrowings 2.50 (iii) Within 1 month Estimated expenses for the Proposed (iv) Within 1 month Private Placement 0.16 Total estimated proceeds 12.20 (i) RM7.00 million of the proceeds are earmarked for additional working capital for the ISS Consulting (Thailand) Ltd s day-to-day operations. The business operations in Thailand have been growing significantly for the past 3 financial years, recording a revenue of THB297.67 million for the financial year ended ( FYE ) 31 December 2015 and growing to THB433.89 million in FYE 31 December 2017. The additional working funds will be used to hire additional SAP software engineers and consultants, as well as to make initial payments for SAP software licenses and related hardware to suppliers to support the Group s continued growth in Thailand. 2
(ii) (iii) (iv) The Board proposes to utilise RM2.54 million of the proceeds for the Group s Malaysian operations to expand the number of support centres within Malaysia through partnerships with third party companies to provide customers with better turnaround time. To further reduce the Group s gearing, the Board proposes to utilise RM2.50 million of the proceeds to repay the Group s short term bank borrowings, namely overdrafts and hire purchase, of which RM2.80 million is outstanding as at 28 February 2018. These borrowings were utilised mainly to finance the timing difference between collection from customers and payment to suppliers of approximately 65 days. This repayment is expected to result in annual interest savings of approximately RM0.22 million based on an effective interest rate of 8.70% per annum. This includes payment of fees to the relevant authorities, advisers and placement agent. If the actual expenses are higher than the amount budgeted, the deficit will be funded out of the Group s working capital. Conversely, if the actual expenses are lower than the amount budgeted, the excess will be utilised for the Group s working capital. The actual proceeds to be raised from the Proposed Private Placement are dependent on the issue price of the Placement Shares and actual number of Placement Shares issued. Any excess or shortfall of the actual proceeds raised will be adjusted against the utilisation for the working capital of the Group. Pending full utilisation of the proceeds from the Proposed Private Placement for the abovementioned purposes, the proceeds will be placed in interest-bearing deposit accounts with licensed financial institution(s) or in short-term money market instruments as the Board deems fit. The interest derived from the deposits with financial institutions or any gains arising from the short-term money market instruments will be used as additional working capital of the Group. 3. RATIONALE The Proposed Private Placement will strengthen the capital position of DGSB and allow the Group to raise the necessary funding to finance its working capital requirements without incurring additional financing cost. The Board is thus of the opinion that the Proposed Private Placement is the most cost effective way to meet the Group s funding needs in the short-term and also the most expeditious way of fund raising from the capital market as opposed to other forms of fund raising, as the Company has procured the Shareholders Mandate. 4. EFFECTS OF THE PROPOSED PRIVATE PLACEMENT 4.1 Share capital The pro forma effects of the Proposed Private Placement on the share capital of DGSB are as follows: Minimum Scenario shares RM Share capital as at the LPD 1,355,877,090 150,833,829 To be issued pursuant to the Proposed Private Placement 135,587,700 (1) 12,202,893 Enlarged share capital 1,491,464,790 163,036,722 (1) Based on the Indicative Issue Price. 3
4.2 Net assets ( NA ) and gearing The pro forma effects of the Proposed Private Placement on the NA and gearing of the Group based on the latest audited consolidated financial position of the Group as at 31 March 2017 are as follows: Audited as at 31 March 2017 RM After Proposed Private Placement Share capital 150,833,829 (1) 163,036,722 Reverse acquisition reserve (131,013,020) (131,013,020) Exchange translation reserve (622,204) (622,204) Retained earnings 25,276,870 (2) 25,111,870 Total attributable to owners of 44,475,475 56,513,368 the parent Non-controlling interest 89,332 89,332 Total equity 44,564,807 56,602,700 Number of shares in issue 1,355,877,090 1,491,464,790 NA per ordinary share (RM) 0.03 0.04 Borrowings (RM) 3,197,333 697,333 Gearing ratio (times) 0.07 0.01 (1) Based on the Indicative Issue Price. (2) After adjusting for the estimated expenses relating to the Proposed Private Placement of approximately RM0.16 million. 4.3 Earnings and earnings per share ( EPS ) The Proposed Private Placement is expected to be earnings accretive due to the utilisation of proceeds which are to primarily finance the Group s increasing working capital requirements. As such, the Proposed Private Placement is expected to contribute positively to the Group s future earnings as and when the benefits of the utilisation of proceeds are realised. The EPS of the Group will however be proportionately diluted as a result of the increase in the number of DGSB Shares after the Proposed Private Placement. 4.4 Convertible securities The Company does not have any convertible securities as at the LPD. 4
4.5 Substantial shareholders shareholding The pro forma effects of the Proposed Private Placement on the shareholding of the substantial shareholders of DGSB based on the Company s Register of Substantial Shareholders as at the LPD are set out in the table below: Substantial shareholders As at the LPD After Proposed Private Placement Direct Indirect Direct Indirect Shares % Shares % Shares % Shares % Insas Technology Berhad 270,000,000 19.91 - - 270,000,000 18.10 - - Insas Berhad - - 270,000,000 (1) 19.91 - - 270,000,000 (1) 18.10 Dato Sri Thong Kok Khee - - 270,000,000 (2) 19.91 - - 270,000,000 (2) 18.10 Omesti Holdings Berhad 209,157,709 15.43 - - 209,157,709 14.02 - - Omesti Berhad - - 209,157,709 (3) 15.43 - - 209,157,709 (3) 14.02 (1) Deemed interest by virtue of Insas Technology Berhad, being the subsidiary of Insas Berhad pursuant to Section 8(4) of the Companies Act, 2016. (2) Deemed interest by virtue of his interest in Insas Berhad pursuant to Section 8(4) of the Companies Act, 2016. (3) Deemed interest by virtue of Omesti Holdings Berhad, being the subsidiary of Omesti Berhad pursuant to Section 8(4) of the Companies Act, 2016. 5
5. APPROVALS REQUIRED The Proposed Private Placement is subject to the following approvals: (i) (ii) Bursa Securities, for the listing of and quotation for the Placement Shares on the ACE Market of Bursa Securities; and Any other relevant persons or authorities, if required. Approval has been obtained from the shareholders of DGSB at the 12 th AGM held on 14 September 2017 authorising the Board to allot and issue new DGSB Shares not exceeding 10% of the issued ordinary shares in the Company pursuant to Sections 75 and 76 of the Companies Act 2016. The approval is valid, unless revoked or varied by the Company at a general meeting, until the conclusion of the next AGM of DGSB. As such, the Proposed Private Placement does not require another specific approval from the shareholders of DGSB. The Proposed Private Placement is not conditional upon any other corporate proposals undertaken or to be undertaken by DGSB. 6. INTERESTS OF DIRECTORS, MAJOR SHAREHOLDERS AND/OR PERSONS CONNECTED WITH THEM None of the Directors and/or major shareholders of DGSB and/or persons connected with them have any interest, whether direct or indirect, in the Proposed Private Placement. 7. DIRECTORS RECOMMENDATION The Board, after having considered all aspects of the Proposed Private Placement (including, but not limited to the rationale as set out in Section 3 of this announcement and the effects as set out in Section 4 of this announcement), is of the opinion that the Proposed Private Placement is in the best interest of the Group and its shareholders. 8. ADVISER AND PLACEMENT AGENT M&A Securities Sdn Bhd has been appointed as the Adviser and Placement Agent to the Company for the Proposed Private Placement. 9. ESTIMATED TIMEFRAME FOR COMPLETION Barring unforeseen circumstances, the Proposed Private Placement is expected to be completed by the second quarter of 2018. This announcement is dated 21 March 2018. 6