PRINCIPAL TERMS AND CONDITIONS BACKGROUND INFORMATION ON THE ISSUER (i) Name : Malaysian Resources Corporation Berhad ( MRCB or the Issuer ). (ii) Address : Level 21, 1 Sentral, Jalan Travers, Kuala Lumpur Sentral, 50470 Kuala Lumpur. (iii) (iv) Business registration number Date and place of incorporation : 7994-D. : 21 August 1968/ Malaysia. (v) Date of listing, where applicable (vi) Status on residence (Resident/nonresident controlled company) : 22 March 1971 on the Main Market of Bursa Malaysia Securities Berhad. : Resident-controlled company. (vii) Principal Activities : The Issuer is principally an investment holding company. The Issuer and its subsidiaries are engaged in property development and investment, building services, environmental engineering, infrastructure and engineering and construction related activities. (viii) Board of Directors : The board of directors of MRCB as at 6 March 2014 consist of the following persons: (1) Tan Sri Azlan Mohd Zainol (2) Datuk Shahril Ridza Ridzuan (3) Dato Abdul Rahman Ahmad (4) Che King Tow (5) Dato Chong Pah Aung (6) Jamaludin Zakaria (7) Datuk Mohamad Salim bin Fateh Din (8) Dato Ishak bin Haji Mohamed (9) Dato Ahmad Johari Tun Abdul Razak (10) Tan Sri Ahmad Fuad Ismail (11) Rohaya Mohammad Yusof 1
ix) Structure of shareholdings and names of shareholders or, in the case of a public company, names of all substantial shareholders (as at 30 January 2014) : Substantial shareholder Employees Provident Fund Board Gapurna Sdn Bhd No of Ordinary Shares % 641,934,951 38.87 206,635,604 12.51 Lembaga Tabung Haji 146,070,473 8.85 (x) Authorised, issued and paidup capital (as at 28 February 2014) : Authorised capital as at 28 February 2014: RM5,000,000,000.00 comprising 5,000,000,000 ordinary shares of RM1.00 each. Issued and paid-up capital as at 28 February 2014: RM1,651,310,934.00 divided into 1,651,310,934 ordinary shares of RM1.00 each. (xi) Disclosure of the following: (a) If the issuer or its board members have been convicted or charged with any offence under the securities laws, corporation laws or other laws involving fraud or dishonesty in a court of law, for the past five years prior to the date of application; and (a) None 2
(b) If the issuer has been subjected to any action by the stock exchange for any breach of the listing requirements or rules issued by the stock exchange, for the past five years prior to the date of application. (b) None 3
2. PRINCIPAL TERMS AND CONDITIONS (a) Names of parties involved in the proposal, where applicable (i) Principal Adviser : RHB Investment Bank Berhad (Company No. 19663-P) ( RHB Investment Bank ). (ii) Lead Arranger : RHB Investment Bank. (iii) Co-Arranger : Not applicable. (iv) Solicitor : Messrs Zaid Ibrahim & Co. (v) Financial Adviser : Not applicable. (vi) Technical Adviser : Not applicable. (vii) Sukuk Trustee (viii) Shariah Adviser : : Pacific Trustees Berhad. RHB Islamic Bank Berhad (ix) Guarantor : Not applicable. (x) Valuer : CH Williams Talhar & Wong and/or any other valuer to be agreed between the Issuer and the Murabahah Investors (as defined below). (xi) Facility Agent : RHB Investment Bank. (xii) Primary subscriber (under a bought-deal arrangement) and amount subscribed (xiii) Underwriter and amount underwritten (xiv) Central Depository : Not applicable. : Not applicable. : Bank Negara Malaysia ( BNM ). (xv) Paying Agent : BNM. (xvi) Reporting Accountant (xvii) Calculation Agent : Not applicable. : Not applicable. 4
(xviii) Others (please specify) : Murabahah Investors: To be finalised prior to the issuance. Security Trustee: Pacific Trustees Berhad. Lead Manager(s): RHB Investment Bank and any other financial institutions to be identified prior to issuance. (b) Islamic principle used : Murabahah (Cost-Plus Sale). A contract that refers to the sale and purchase transaction for the financing of an asset whereby the cost and profit margin (mark-up) are made known and agreed by all parties involved. (c) Facility description : A sukuk programme of up to RM680.0 million in nominal value (the "Programme"), pursuant to which Sukuk Murabahah (as defined below) may be issued from time to time which total nominal value of the outstanding Sukuk Murabahah will not exceed RM680.0 million at any one time. The sukuk issued from time to time under the Programme based on the Shariah principle of Murabahah (via Tawarruq arrangement) based on Commodity Murabahah structure in the following form ( Sukuk Murabahah ): Commodity Murabahah The Issuer will be appointed as agent/wakeel ("Wakeel") by Sukuk Trustee (acting for the investors (the "Murabahah Investors" or "Sukukholders")) to buy Shariah-compliant commodities* (the "Commodities"). The Wakeel will then appoint the Facility Agent (as its sub-purchase agent) to purchase and sell the Commodities. The Issuer (in the capacity as the Purchaser ) will issue a purchase order (the "Purchase Order") to the Wakeel and the Facility Agent from time to time wherein the Issuer will irrevocably undertake to purchase the Commodities from the Murabahah Investors through the Facility Agent. 5
The Issuer through its issue request will specify the specific purpose of the utilisation of the proceeds of the Sukuk Murabahah. This will be a supporting document for the Shariah Adviser to confirm on the utilisation of the proceeds of the Sukuk Murabahah The Facility Agent will purchase the Commodities from commodity vendor(s) in the Bursa Suq Al-Sila commodity market (through a Commodity Trading Participant ("CTP")) at a purchase price (the "Purchase Price") on a spot basis, which shall be equivalent to the Sukuk Murabahah proceeds. The Purchase Price will be in compliance with the asset pricing requirements as set out in the Securities Commission Malaysia's ( SC ) Guidelines on Sukuk (revised and effective on 8 January 2014) as may be replaced, substituted or revised from time to time. Subsequently, the Issuer shall issue the Sukuk Murabahah to the Murabahah Investors whereupon the Sukuk Murabahah shall evidence the Murabahah Investors' ownership of the Commodities and all such rights thereto (including all rights against the Issuer under the Purchase Order as well as the rights to the Deferred Sale Price (as defined below) once the commodities are sold to the Issuer). Proceeds received from the issuances of the Sukuk Murabahah shall be used by or deemed to have been used by the Facility Agent to pay for the Purchase Price of the Commodities. Thereafter, the Facility Agent shall sell the Commodities to the Purchaser at a price equivalent to the Purchase Price and a markup (profit) payable on a deferred payment basis by way of instalments or in one lump sum (the "Deferred Sale Price"). Upon completion of such purchase, the Purchaser shall appoint the Facility Agent to sell the Commodities to Bursa Suq Al-Sila through a CTP for a cash consideration equal to the Purchase Price on a spot basis. 6
During the tenure of the Sukuk Murabahah, the Purchaser shall make periodic payments to the Sukuk Trustee (acting for the Sukukholders) amounting to its obligation to pay the Deferred Sale Price to the Sukukholders. Each such payment shall pro tanto reduce the obligation of the Purchaser on the Deferred Sale Price payable for the Commodities. On the date of maturity of the Sukuk Murabahah, all amounts then outstanding on the Deferred Sale Price shall be paid by the Purchaser to the Sukuk Trustee whereupon the Sukuk Murabahah shall be cancelled. Note(*): Shariah-compliant commodities would exclude ribawi items in the category of medium of exchange such as currency, gold and silver. The transaction structure is illustrated in Appendix 1. (d) Identified assets : Shariah-compliant commodities would exclude ribawi items in the category of medium of exchange such as currency, gold and silver. (e) (f) (g) Purchase and selling price/rental (where applicable) Issue/Sukuk programme size Tenure of issue/sukuk programme : To be determined prior to each issuance of Sukuk Murabahah under the Programme. : The size for the Programme shall be up to RM680.0 million in nominal value. The outstanding nominal value of the Sukuk Murabahah issued under the Programme should not exceed RM680.0 million at any one time. : Programme Tenure The tenure of the Programme shall be up to five (5) years from the date of first issuance of Sukuk Murabahah under the Programme. 7
Tenure of the Sukuk Murabahah The tenure of the Sukuk Murabahah shall be more than one (1) year and up to five (5) years, provided that no Sukuk Murabahah shall mature after the expiry of the tenure of the Programme. (h) (i) (j) Availability period of sukuk programme Profit/coupon/rental rate Profit/coupon/rental payment frequency : The Sukuk Murabahah may be issued at any time during the Programme Tenure (as described in paragraph 2(g) above), provided that the first issuance under the Programme shall be within two (2) years from the date of the SC s approval and the final issuance shall take place no later than four (4) years after the first issuance. : A spread (to be determined prior to the each issuance) per annum above the respective Sukukholders Effective Cost of Funds ( ECOF ) or such other reference to be agreed between the Issuer and the Sukukholders. Note: ECOF is the effective cost of fund for the relevant interest period of the respective Sukukholders and is taken as the sum of the Kuala Lumpur Interbank Offered Rate ( KLIBOR ) plus the cost of maintaining statutory reserves and complying with the liquidity and other requirements imposed from time to time either internally or externally by BNM or any other appropriate authorities having jurisdictions over the Sukukholders. The ECOF or such other reference will be determined by the respective Sukukholders prior to the issuance and at the beginning of each profit period. : The frequency of the profit payment for the Sukuk Murabahah shall be on a quarterly basis in arrears with the first payment commencing three (3) months from the issue date of the respective Sukuk Murabahah or such other period agreed upon between the Issuer and the Sukukholders. 8
(k) (l) Profit/coupon/rental payment basis Security/collateral, where applicable : Actual/365 days. The profit payment shall subject to MyClear Rules and Procedures (as defined herein), as amended and substituted from time to time. : 1) First or third party first legal charge over the land(s) and property(ies) subject to a minimum Security Cover Ratio (as defined below) of 0.7 time. The charged lands and properties include the following: (a) A third party first legal charge by 59 INC Sdn Bhd ( 59 INC ) over three (3) plots of vacant land in Setapak totalling 27.41 acres held under title (i) HSD 118118, Lot No. PT9311 (8.18 acres), (ii) HSD 118119, Lot No. PT9312 (1.03 acres) and (iii) HSD 118120, Lot No. PT9313 (18.2 acres), Mukim Setapak, Daerah Kuala Lumpur ( Setapak Land ); and/or (b) Any other lands and properties to be identified subject to the agreement between the Issuer, the Lead Arranger and the Sukukholders of first issuance, if required in order to maintain the Security Cover Ratio. The above are collectively known as Charged Lands. 59 INC and any party providing the Charged Lands as security in relation to the above are collectively known as Security Parties. 2) A charge over the Designated Accounts (as defined herein). 3) Assignment(s) of all insurances for the Charged Lands. 4) A pledge over shares or units (REIT) (as defined below) referred to in item 2(n)(a)(ii) below (if any). 9
In the event that the Security Cover Ratio falls below 0.7 time, the Issuer shall either charge additional land(s) and/or property(ies) or reduce the outstanding amount of Sukuk Murabahah to maintain the required Security Cover Ratio. The Security Cover Ratio shall be calculated by the Facility Agent Security Cover Ratio shall be defined as the ratio of 70.0% of the open market value of the Charged Lands (supported by valuation report(s) prepared by CH Williams Talhar & Wong and/or any other valuer to be agreed between the Issuer and the Murabahah Investors), to the outstanding amount of Sukuk Murabahah, at any point in time. (m) Details on utilisation of proceeds by issuer. If proceeds are to be utilised for project or capital expenditure, description of the project or capital expenditure, where applicable : The proceeds shall be utilised for Shariahcompliant purposes as follows: The proceeds of the Sukuk Murabahah issued under the Programme will be utilised for the following Shariah-compliant purposes: No Purpose Up to RM million 1 To part finance the acquisition of lands* 2 To finance the working capital requirements of the Issuer 680 100 For the avoidance of doubt, the aggregate outstanding nominal value of the Sukuk Murabahah issued under the Programme shall not exceed RM680.0 million at any one time. Note: * The proceeds shall be used to part finance the purchase of land(s) as may be determined by the Issuer and to be approved by the Sukukholders. The Issuer may acquire the approved land directly (via purchase of the land itself) and/or indirectly via (i) an acquisition of a company holding 10
the approved land; and/or (ii) an equity injection into a company holding or acquiring the approved land. (n) Sinking Fund and Designated Accounts, where applicable : Sinking Fund None. Designated Accounts The following Shariah compliant accounts shall be opened and maintained with RHB Islamic Bank Berhad: (a) Proceeds Account The Issuer shall open and maintain a Proceeds Account for the purpose of depositing the following, including but not limited to:- (i) (ii) (iii) Proceeds of issuance of Sukuk Murabahah; All proceeds from (1) potential listing of Real Estate Investment Trust ( REIT ) of MRCB Group s investment properties (after deduction of any monies payable to the relevant financiers); and/or (2) any corporate exercises (including rights issue of shares), to be mutually agreed between the Issuer, the Lead Arranger and the Sukukholders of first issuance. In the event that such proceeds comprise shares or REIT units, such shares or REIT units shall be charged as security for the Programme and upon disposal of such shares or REIT units, the cash proceeds from such disposal should be deposited into the Proceeds Account; Proceeds arising from disposal of any properties (which for the avoidance of doubt refers to all immovable properties such as lands or buildings) by MRCB and/or its subsidiaries (after deducting 11
monies payable to applicable financiers), excluding properties to be mutually agreed between the Issuer, the Lead Arranger and the Sukukholders of first issuance); (iv) Monies receivable from the Permitted Investments (as defined herein); (v) Proceeds from the potential refinancing and/or the disposal of the Charged Lands; (vi) Proceeds from insurance claims arising from the Charged Lands, if any; and (vii) Any other proceeds to be agreed between the Issuer, the Lead Arranger and the Sukukholders of first issuance. Funds in this account shall be utilised as follows:- (i) (ii) (iii) In the case of proceeds from listing of REIT and corporate exercises as described in item 2(n)(a)(ii) above, 50% of such proceeds shall be used to redeem the outstanding Sukuk Murabahah on a pro-rata basis among the respective Sukukholders, while the remaining 50% may be released to the Issuer; In the case of proceeds from refinancing and disposal of the Charged Lands as described in item 2(n)(a)(iii) above, all of such proceeds shall be used to redeem the outstanding Sukuk Murabahah on a pro-rata basis among the respective Sukukholders; The other proceeds/monies in the Proceeds Account shall be utilised for the following purposes in the following order of priority: (1) For the purposes of utilisation as detailed in item 2(m) above subject to fulfilment of the conditions precedent in relation 12
to each issuance listed under item 2(t) below; (2) Profit payments under the Sukuk Murabahah; (3) Principal redemption of the Sukuk Murabahah; (4) Transfer to FSRA to maintain the Minimum Balance (as defined in item 2(n)(b) below); and (iv) Transfer to the Issuer for working capital purposes. The Proceeds Account is to be operated solely by the Security Trustee. (b) Finance Service Reserve Account ( FSRA ) The Issuer shall open and maintain a FSRA for the purpose of setting aside an amount equivalent to six (6) months profit for the Sukuk Murabahah (based on the maximum programme size of the Programme) ( Minimum Balance ) at all times. The sources of fund to maintain the Minimum Balance will be from the Proceeds Account and/or the internally generated funds from the Issuer group of companies. Funds in the FSRA shall be utilised for the payment of the profit on the Sukuk Murabahah. Withdrawals from FSRA shall only be allowed if the Issuer has insufficient funds to make such payments from the Proceeds Account and its internally generated funds. Any withdrawal from the FSRA and/or shortfall in the Minimum Balance shall be replenished within a period of not exceeding fourteen (14) days from the date of withdrawal. For the avoidance of doubt, any shortfall in the Minimum Balance within that fourteen (14) days period shall not constitute an Event of Default. FSRA is to be operated solely by the Security Trustee. 13
(o) Rating Credit ratings assigned and whether the rating is final or indicative. In the case of a Sukuk programme where the credit rating is not assigned for the full amount, disclosures set out in paragraph 9.04 of these Guidelines must be made Name of credit rating agencies (the Proceeds Account and the FSRA are collectively known as the Designated Accounts ) Note: Funds in the Designated Accounts may be utilised for Permitted Investments as set out in paragraph 2 (y)(ii) below. : Not applicable. The Sukuk Murabahah will not be rated. : Not applicable. (p) Mode of issue : Private placement to the Sukukholders at yield to be mutually agreed upon prior to each issuance, without prospectus or information memorandum. The Sukuk Murabahah shall be issued in accordance with the (1) Participation and Operation Rules for Payment and Securities Services issued by Malaysian Electronic Clearing Corporation Sdn Bhd ( MyClear ) ( MyClear Rules ) and (2) Operational Procedures for Securities Services issued by MyClear ( MyClear Procedures ) (collectively referred to as the MyClear Rules and Procedures ), as amended and substituted from time to time. (q) Selling restriction, including tradability, i.e. whether tradable or non-tradable : Selling restrictions at issuance The Sukuk Murabahah may not be offered or sold directly or indirectly, nor may any document or other material in connection therewith be distributed in or outside Malaysia, 14
other than to persons falling within any of the categories of persons or in the circumstances specified under: (a) (b) Schedule 6 (or Section 229(1)(b)); Schedule 7 (or Section 230(1)(b)); read together with (c) Schedule 9 (or Section 257(3)), of the Capital Markets and Services Act 2007, as amended from time to time ( CMSA ). Selling restrictions thereafter Not applicable as the Sukuk Murabahah are neither transferable nor tradable. Tradability The Sukuk Murabahah are non-transferable and non-tradable. (r) Listing status and types of listing, where applicable (s) Other regulatory approvals required in relation to the issue, offer or invitation to subscribe or purchase sukuk, and whether or not obtained : The Sukuk Murabahah will not be listed on Bursa Malaysia Securities Berhad or any other stock exchange. : Not applicable. (t) Conditions Precedent : For the establishment of the Programme To include but not limited to the following (in form and substance acceptable to the Lead Arranger): (a) The Transaction Documents have been signed and, where applicable, stamped or endorsed as exempt from stamp duty and presented for registration with the relevant registries; (b) All relevant notices and acknowledgements (where applicable) shall have been made or received as the case may be; (c) Certified true copy of the board resolution(s) of the Issuer authorizing, amongst others, the establishment of the 15
Programme, the issuance of Sukuk Murabahah and the execution of the Transaction Documents; (d) Certified true copy of the board resolution(s) of 59 INC and the Issuer, authorizing, amongst others, the execution of the relevant security documents; (e) The Issuer and 59 INC shall have furnished certified true copies of their respective Forms 24, 44 & 49, Memorandum & Articles of Association and a list of its authorised signatories and their specimen signatures; (f) Satisfactory reports of the company searches of the Issuer and 59 INC; (g) Satisfactory reports of the winding up searches of the Issuer and 59 INC; (h) Evidence on presentation for registration of charge with the relevant authorities in relation to the Setapak Land; (i) (j) A copy of the title search made at the relevant land registry against the Setapak Land and the results of which show that the Setapak Land is free from encumbrances and no acquisition notices or adverse entries have been made in respect of the Setapak Land; Evidence that the Designated Accounts shall have been opened with RHB Islamic Bank Berhad; (k) The authorisation from the SC for the Programme shall have been obtained; (l) A legal opinion from the Solicitor confirming that all the conditions precedent have been duly complied/fulfilled and the validity and enforceability of Transaction Documents; (m) Receipt of a copy each of the cover note, insurance policy and receipt for the most recent contribution/premium in connection with the insurance policy(ies) over the Setapak Land, if applicable; (n) Receipt of the latest valuation report by the Valuer, confirming that the open 16
market value for the Setapak Land shall not be less than an amount to be agreed by the Lead Arranger; (o) Confirmation from the Shariah Adviser that the structure and mechanism together with the Transaction Documents of the Programme are in compliance with Shariah, have been obtained; (p) Evidence that all relevant fees due and payable by the Issuer in connection with the Programme have been paid in full or will be paid in a manner agreed by transaction parties; (q) Legal due diligence for the Programme shall have been completed by the Solicitor and the results thereof being acceptable to the Lead Arranger; and (r) Such other conditions precedent as may be advised by the Solicitor. For each issuance: To include but not limited to the following (in form and substance acceptable to the Lead Manager(s)): i) The receipt of satisfactory supporting reports, document, opinion, and information evidencing the purpose of the utilisation of the Sukuk Murabahah proceeds as may be requested by the Lead Manager(s)/ relevant Murabahah Investors/ Facility Agent, including but not limited to copies of the applicable sale and purchase agreement ( SPA ) and/or applicable share sale agreement ( SSA ); ii) Documentary evidence that the differential sum (if any) between the SPA/ SSA price and issuance amount of the Sukuk Murabahah which is based on 90% margin of financing, has been duly settled; iii) Issuer s certification that it is in compliance with all representations, warranties and covenants made by it under the Transaction Documents; iv) Issuer s written confirmation set out in the issue request, on the specific purpose of the utilisation of the Sukuk Murabahah 17
proceeds which is satisfactory to the relevant Murabahah Investors; v) No Event of Default has occurred or may occur as a result of the relevant issuance; vi) No material adverse change to the financial condition of the Issuer; and vii) Such other conditions precedent as may be advised by the Solicitor and to be reasonably requested by the Lead Manager(s)/ relevant Murabahah Investors/ Facility Agent and to be mutually agreed by the Issuer. (u) Representations and Warranties : To include but not limited to the following: (a) The Issuer is a company duly established and existing under the laws of Malaysia and it has the power and authority to enter into the business in which it is or proposes to be engaged; (b) The Issuer has the power to enter into, exercise its rights under and perform its obligations under the Transaction Documents; (c) The Issuer s entry into, exercise of its rights under and performance of the Transaction Documents do not and will not violate any existing law or agreements to which it is a party; (d) The Transaction Documents create valid and binding obligations which are enforceable on and against the Issuer; (e) All necessary actions, authorisations and consents required under the Transaction Documents have been taken, fulfilled and obtained and remain in full force and effect; (f) Save as disclosed by the Issuer, no event has occurred which, if the Sukuk Murabahah had already been issued, would constitute an Event of Default (as defined herein) under the Sukuk Murabahah; (g) The audited accounts of the Issuer are prepared in accordance with generally accepted accounting principles and 18
standards and they fairly represent its financial position; (h) No litigation or arbitration is current or, to the Issuer s knowledge, is threatened, which if adversely determined would have a Material Adverse Effect on the ability of the Issuer to comply with the Transaction Documents; (i) (j) For the purposes of the PTC, Material Adverse Effect means any material adverse effect on the asset, business or condition (financial or otherwise) or results of the operations of the Issuer and/or any of the Security Parties or the ability of the Issuer and/or any of the Security Parties to perform any of its obligations under any of the Transaction Documents or the validity and enforcement of any of the security for the Programme. The financial statements and other information supplied are true and accurate in all material aspects and not misleading; The Issuer is in compliance with and will comply with all applicable laws and regulations; and (k) Such other representations and warranties as may be advised by the Solicitor to the Lead Manager(s)/ Facility Agent. (v) Events of default, dissolution event and enforcement event, where applicable : The Events of Default shall include, but shall not be limited to, the following: (a) The Issuer and/or any of the Security Parties fails to pay or there is any default in payment of any amount due under any of the Transaction Documents on the due date or, if so payable, on demand; (b) Failure to meet the requirements with respect to the Minimum Balance and such failure is not remedied within fourteen (14) days; (c) If any step or action is taken for the winding-up, dissolution or liquidation of the Issuer and/or any of the Security 19
Parties (including, without limitation, the presentation of a petition for the windingup of the Issuer and/or any of the Security Parties where no action is taken in good faith to set aside such petition within thirty (30) days from the date of service of such winding-up petition or the making of any order or the passing of any resolution for the winding-up, dissolution or liquidation of the Issuer and/or any of the Security Parties); (d) If the Issuer and/or any of the Security Parties enters into a scheme of arrangement under section 176 of the Companies Act 1965 or such a scheme has been instituted against the Issuer and/or any of the Security Parties (other than for the purpose of a scheme of reconstruction, amalgamation, consolidation or merger, unless during or following such reconstruction, amalgamation, consolidation or merger the Issuer and/or such Security Parties becomes or is declared to be insolvent); (e) If an encumbrancer takes possession of or a receiver, liquidator or similar officer is appointed over the whole or a substantial part of the assets or undertaking of the Issuer and/or the Security Parties; (f) If the Issuer and/or any of the Security Parties commits any breach of or omits to observe any of the obligations or undertakings expressed to be assumed by the Issuer and/or such Security Parties under any of the Transaction Documents or the Sukuk Murabahah (other than the breach of obligations under subparagraphs (a) and (b) above) and in respect of any such breach or omission which: (i) has a Material Adverse Effect on the ability of the Issuer and/or any of the Security Parties to comply with the Transaction Documents to which they are a party or terms and conditions of the Sukuk Murabahah and is capable of remedy; and 20
(ii) that the breach or omission has not been remedied to the Sukuk Trustee s satisfaction within thirty (30) days after the Issuer and/or the Security Parties (as the case may be) became aware or having been notified by the Sukuk Trustee of the breach or the omission; (g) If the Issuer and/or any of the Security Parties makes any representation or warranty under the Transaction Documents or which is contained in any certificate, document or statement furnished at any time pursuant to the terms of the financing facilities and/or any of the Transaction Documents proves to have been incorrect or misleading in any material respect on or as of the date made or given or deemed made or given or repeated; (h) If any indebtedness of the Issuer and/or any of the Security Parties become (after the expiration of any applicable grace period) due and unpaid or is declared due before its stated maturity or where the security created for any such indebtedness becomes enforceable; (i) (j) If the Issuer and/or any of the Security Parties ceases to carry on the whole or substantially the whole of its business or where there is revocation, withholding, invalidation or modification of licences, permits, consents, authorisations or approvals that impair or prejudice the Issuer and/or any of the Security Parties ability to comply with the Transaction Documents or the terms of the Sukuk Murabahah to which it is a party; If it becomes unlawful or illegal for the Issuer and/or any of the Security Parties to perform or comply with their obligations under the Transaction Documents to which it is a party or any of the provisions of the said Transaction Documents becomes void, voidable or unenforceable; (k) If the Issuer and/or the Security Parties repudiates the Trust Deed or any other 21
(l) Transaction Documents or does any act or thing evidencing an intention to repudiate the Trust Deed or any other Transaction Documents; If any agency, authority or governmental body seizes, compulsorily acquires, expropriates or nationalises any assets, undertakings, rights or revenue of the Issuer and/or any of the Security Parties which has a Material Adverse Effect on the Issuer or any of the Security Parties ability to perform their respective obligations under the Transaction Documents; and (m) Such other events as may be advised by the Solicitor, including those which are required in order to comply with the SC s Trust Deeds Guidelines revised on 12 July 2011 and effective on 12 August 2011 ( Trust Deeds Guidelines ). Upon the occurrence of an Event of Default, the Sukuk Trustee may at its discretion or, if directed to do so by the Sukukholders, will declare that the Event of Default has occurred and the Sukuk Murabahah are immediately due and payable, whereby: (a) no further issuance may be made under the Programme and the whole of the outstanding Sukuk Murabahah together with all other sums payable shall become immediately due and payable; (b) the Sukuk Trustee shall have recourse to all remedies made available under the Transaction Documents and the Issuer will reimburse all parties for all losses and expenses incurred in consequence of the Event of Default; and/or (c) the Sukuk Trustee take proceedings as it may think fit to enforce immediate payment of the Redemption Amount and all other sum payable under the Programme and to enforce its rights under the Transaction Documents. Redemption Amount means the amount equivalent to the Deferred Sale Price at the Issue Date less the aggregate of periodic payments paid (if any) less the Rebate (Ibra ) 22
(if any). (w) Covenants (i) Positive Covenants : Positive covenants as may be deemed standard for a facility of this nature which shall include, but not be limited to the following: (a) The Issuer shall furnish such information relating to the Issuer s affairs as may be reasonably required by the Sukuk Trustee (to the extent permitted by law), in order to discharge the Sukuk Trustee s duties and obligations under the Transaction Documents, including but not limited to: (i) Interim quarterly financial results within ninety (90) days after the end of each quarter; and (ii) Audited accounts within 180 days after the end of the financial year; (b) All existing and future loans and advances extended to the Issuer by its shareholders, directors and/or related parties, shall be subordinated to the Sukuk Murabahah; (c) The Issuer shall maintain in full force and effect all relevant authorisations, consents, rights, licenses, approvals and permits (governmental and otherwise) and will promptly obtain any further authorisations, consents, rights, licenses, approvals and permits (governmental and otherwise) which is or may become necessary to enable it to own its assets and/or to operate its business; (d) The Issuer will comply and shall procure that the Security Parties comply, with all the provisions in the Transaction Documents and the terms and conditions of the Sukuk Murabahah; (e) The Issuer will redeem in full all outstanding Sukuk Murabahah in accordance with the terms and conditions of the Sukuk Murabahah and pay and discharge all of its indebtedness and other obligations on or before their due 23
(f) dates; The Issuer will utilise the proceeds from the issuance of the Sukuk Murabahah only for the intended purposes; (g) The Issuer will keep proper books and accounts at all times and to provide the Sukuk Trustee and any person appointed by it with access to its books and accounts to the extent permitted by law; (h) The Issuer will maintain a paying agent in Malaysia and procure it to inform the Sukuk Trustee, through the Facility Agent, if it does not receive payment when due from the Issuer as required under the Transaction Documents and the Sukuk Murabahah; (i) (j) The Issuer will exercise reasonable diligence to carry on and conduct its business and affairs in a proper and efficient manner in accordance with sound financial and commercial standards and practices, in particular to ensure that all necessary approvals or relevant licences are obtained and preserved; The Issuer will prepare accounts in accordance with all relevant laws and accounting principles and practices generally accepted in Malaysia; (k) The Issuer will defend itself against claims from third parties and diligently pursue claims against third parties (with de minimis exception); (l) The Issuer shall at all times maintain the Minimum Balance in accordance with the terms out in paragraph 2(n) above; (m) The Issuer shall procure that the Security Parties shall, maintain and/or cause to be maintained such insurances with licensed insurance company(ies) in respect of their assets including the Charged Lands and businesses against all risks; (n) The Issuer shall provide to the Sukuk Trustee at least on an annual basis, a certificate that the Issuer has complied with its obligations under the Trust Deed 24
and the terms and conditions of the Sukuk Murabahah and that there did not exist or had existed, from the date of Sukuk Murabahah were issued or the date of the previous certificate as the case may be, any Event of Default, where applicable, and if such is not the case, to specify the same; and (o) Such other covenants as may be advised by the Solicitor, including those which are required in order to comply with the Trust Deeds Guidelines. (ii) Negative Covenants : The Issuer shall not without the prior written consent from the Sukuk Trustee:- (a) Delete, vary or amend its Memorandum or Articles of Association in any manner which may be materially prejudicial to the interests of the Sukuk Murababah holder(s); (b) Enter into a transaction (whether directly or indirectly) with any interested persons (including directors, major shareholders and chief executive) unless: (i) such transactions shall be on terms that are no less favourable to the Issuer than those which could have been obtained in a comparable transaction from persons who are not interested persons; and (ii) with respect to transactions involving an aggregate payment or value equal to or greater than the relevant agreed percentage ratio as provided in the Main Market Listing Requirements of Bursa Securities ( Listing Requirements ), which requires the Issuer to obtain certification from an independent adviser that the transaction is carried out on fair and reasonable terms, PROVIDED that the Issuer certifies to the Sukuk Trustee that the transaction complies with paragraph (i) above, that the Issuer has received the certification referred to in paragraph (ii) (where 25
applicable) and that the transaction has been approved by the majority of the board of directors or shareholders in a general meeting as the case may require; and (iii) with respect to transactions constituting a recurrent relatedparty transaction of a revenue or trading nature ( RRPT ) which are provided for and permitted under the Listing Requirements, PROVIDED that the Issuer certifies to the Sukuk Trustee that the transaction complies with paragraph (i), that the Issuer has obtained or renewed, where applicable, the shareholders mandate in accordance with the Listing Requirements and that the Issuer furnishes at least one (1) certificate to the Sukuk Trustee in respect of the RRPT contemplated under one (1) shareholders mandate; (c) Pledge or create any security interest over any of its assets to secure any loans other than: (i) in the ordinary course of business; or (ii) such security interest disclosed to and agreed by the Lead Arranger and the Sukukholders and set out in the Transaction Documents; (d) Dispose any of its assets, other than in the ordinary course of business; (e) Extend any loans or advances to its shareholders, directors or related companies other than in the ordinary course of business; (f) Repay or redeem any share capital; (g) Change the utilization of proceeds arising from the issuance of the Sukuk Murabahah to other than the intended purposes as in item (2)(m) above; and (h) Such other covenants as may be advised by the Solicitor, including those which are required in order to comply with the Trust Deeds Guidelines. 26
(iii) Reporting Covenants : The Issuer shall give notice in writing to the Sukuk Trustee immediately upon becoming aware of the happening of: (a) any Event of Default or potential Event of Default; (b) any right or remedy under the terms, provisions or covenants under the Trust Deed becoming immediately enforceable or any amount payable under the Sukuk Murabahah becoming immediately payable; (c) any change in the withholding tax position or taxing jurisdiction of the Issuer; (d) any other matter or circumstance that would materially prejudice the Issuer, its subsidiaries or otherwise materially prejudice the interests of the Sukuk Murabahah holder(s) or cause the Issuer to be unable to fulfill or comply with any of the provisions of the Trust Deed; or (e) such other covenants as may be advised by the Solicitor, including those which are required in order to comply with the Trust Deeds Guidelines. (iv) Financial Covenants : The Issuer shall ensure that its net debt to equity ratio ( Net D/E Ratio ) on a consolidated basis is not more than 3.0 times throughout the tenure of the Programme. The Net D/E Ratio shall be calculated as the ratio of the outstanding nominal value of the Sukuk Murabahah and all the other borrowings less cash and cash equivalents to the net tangible networth of the Issuer. The computation of Net D/E Ratio shall be based on the Issuer s latest audited accounts and confirmed by the auditors, whereupon a director of the Issuer shall provide a written confirmation to the Sukuk Trustee confirming that the Net D/E Ratio have been complied with. Note: Net tangible networth means shareholders funds less any intangible assets. 27
(x) Provisions on buyback and early redemption of sukuk : Redemption upon maturity Unless previously redeemed, purchased or cancelled, all outstanding Sukuk Murabahah will be redeemed at their face value on the respective maturity dates. Early Redemption The Issuer may redeem the Sukuk Murabahah (in whole or in part) prior to their maturity provided that the following conditions are fulfilled: (a) notice period of at least thirty (30) days is given to the Facility Agent and the Sukuk Trustee; (b) redemption is made on a profit payment date or otherwise, a break funding cost (to be agreed between the Issuer and the Sukukholders) will be imposed; and (c) the nominal value of the Sukuk Murabahah to be redeemed shall be at least RM10.0 million and in multiples of RM5.0 million. In the event Employees Provident Fund Board ( EPF ) ceases to be the largest single shareholder of the Issuer, the Issuer shall redeem all the outstanding Sukuk Murabahah in accordance with the requirements set out above and no further issuance of Sukuk Murabahah is permitted. For the avoidance of doubt, any partial early redemption shall be done on a pro-rata basis among the respective Sukukholders. Purchase and cancellation The Issuer or their subsidiaries or agent(s) may at any time purchase the Sukuk Murabahah by private treaty. The Sukuk Murabahah purchased by the Issuer or by the subsidiaries or agent(s) who is acting for the redemption or purchase shall be cancelled and could not be resold or reissued. The Sukuk Murabahah held by any Interested Person shall not be counted for purposes of voting 28
Ibra' (rebate) The Sukukholder(s) in subscribing or purchasing the Sukuk Murabahah consent to grant a rebate, if the Sukuk Murabahah is redeemed before the maturity date as a result of the declaration of an Event of Default or upon early redemption. In case of declaration of an Event of Default, the Rebate (Ibra ) shall be the unearned profit due to the Sukukholder(s) from the date of redemption of the Sukuk Murabahah upon the declaration of an Event of Default up to the maturity date of the Sukuk Murabahah. In case of an early redemption, the Rebate (Ibra ) shall be at the discretion of the Sukukholders based on a formula which is to be mutually agreed the parties. (y) Other principal terms and conditions for the proposal (i) Form and Denomination (ii) Permitted Investments : Each tranche of the Sukuk Murabahah shall be represented by a global certificate to be deposited with BNM and is exchangeable for definitive bearer form only in certain limited circumstances. The Sukuk Murabahah shall be issued in denomination of RM1.0 million each. : The Issuer shall be permitted from time to time to utilise funds held in the Designated Accounts to make Shariah compliant permitted investments as follows, provided that such funds to be utilised for the permitted investments shall be remitted to the respective Designated Account at least three (3) business days before the next payment obligation of the Issuer is due and payable: (i) Sukuk guaranteed by the Government of Malaysia; (ii) Islamic market instruments (such as bankers acceptance or promissory notes or certificates of deposit) issued by any bank licensed pursuant to the Islamic 29
Financial Services Act 2013 ( IFSA ) or any development financial institution licensed pursuant to the Development Financial Institutions Act 2002 and having a minimum long term rating of AA 3 and short term rating of P1 by RAM Rating Services Berhad ( RAM ) or their equivalent rating by such other approved rating agencies or money market funds where there is the flexibility of early withdrawal without incurring any penalty; and (iii) Deposits with any bank licensed pursuant to the IFSA or any development financial institution licensed pursuant to the Development Financial Institutions Act 2002 and having a minimum long term rating of AA 3 and short term rating of P1 by RAM or their equivalent rating by such other approved rating agencies. (iii) Compensation for Late Payment ("Ta'widh") (iv) Transaction Documents In the event of any delay in payments of the Deferred Sale Price under the Sukuk Murabahah, the Issuer shall pay to the Sukukholders the compensation on such delay payments at an amount and manner prescribed by the SC's Shariah Advisory Council : The Programme shall be evidenced inter alia, by the following: (a) Programme Agreement; (b) Securities lodgement form pursuant to the Central Securities Depository and Paying Agency Rules issued by BNM; (c) Trust Deed; (d) Relevant Islamic transaction documents; (e) Security documents in relation to securities listed under item 2(l) above; and (f) Any other relevant documentation which may be advised by the Solicitor and mutually agreed by the Issuer and the Lead Arranger. 30
(v) Status : The Sukuk Murabahah will constitute direct, secured, unconditional and unsubordinated obligations of the Issuer and shall at all times rank pari passu without priority or preference amongst themselves and at least pari passu with all its other present and future unsecured and unsubordinated obligations (except those obligations preferred by applicable laws). (vi) Taxation : All payments of face value of the Sukuk Murabahah, profit, and other amounts payable to the Sukukholders shall be made without withholding or deduction for, or on account of, any present or future taxes, duties, assessments or governmental charges of whatever nature imposed or levied by or on behalf of any authority therein or thereof having power to tax, unless the withholding or deduction of such taxes, duties, assessments or governmental charges is required by law. The Issuer will pay any additional amount in respect of any deduction or withholding from the payment of principal or profit portion for or on account of any such taxes, duties, assessment or governmental charges in relation to the Sukuk Murabahah. (vii) Fees and Expenses (viii) Trustees Reimbursement Account for Sukukholders Actions : All costs and expenses including legal fees, out of pocket expenses and reasonable expenses incurred in connection with the Sukuk Murabahah, including professional due diligence fees, if any, shall be for the account of the Issuer or be borne by the Issuer. The Issuer shall open and maintain an account designated as Trustees Reimbursement Account for Sukukholders Actions (as required under the Trust Deeds Guidelines), in which a sum of RM30,000.00 from the monies received by the Issuer when the Sukuk Murabahah are issued are to be deposited ( Trustees Reimbursement Account ). The Sukuk Trustees Reimbursement Account shall be operated by the Sukuk Trustee and the monies shall only be used strictly by the Sukuk Trustee in carrying out its duties in relation to the occurrence of events of default or enforcement events which are provided in the 31
Trust Deed. The sum of RM30,000.00 in the Trustees Reimbursement Account shall be maintained at all times by the Issuer throughout the tenure of the Programme. (ix) Mandatory Repayment Throughout the tenure of the Programme, EPF shall remain as the Issuer s single largest shareholder (both direct and indirect shareholdings), failing which the Issuer shall redeem all the outstanding Sukuk Murabahah in accordance with item 2(x) above. (x) Other Conditions : (a) MRCB shall provide an irrevocable and unconditional undertaking, in form and substance acceptable to the Lead Arranger and the Sukukholders of first issuance, to undertake the following during the tenure of the Programme: (xi) Governing Laws : Laws of Malaysia. (i) (ii) Development of Setapak Land shall commence within 36 months from the first issuance of the Sukuk Murabahah; and There shall be no change in the principal business activities of the Issuer. (b) At least 50% of any new funds raised from potential listing of REIT of MRCB Group s investment properties and/or any corporate exercises to be mutually agreed between the Issuer, the Lead Arranger and the Sukukholders of first issuance (including rights issue of shares) (after repayment of any existing borrowings in relation to the relevant properties) shall be used to redeem the outstanding Sukuk Murabahah. (c) The Issuer shall procure the consent from the Sukukholders in relation to the refinancing and/or disposal of Charged Lands and also its consent in relation to the adjustment and/or variation of the Security Cover Ratio, if applicable. Proceeds from such refinancing and/or disposal of Charged Lands shall be used to redeem the outstanding Sukuk Murabahah. 32
Appendix 1 OVERVIEW OF TRANSACTION STRUCTURE 1. MRCB ("Issuer") will be appointed as agent/wakeel ("Wakeel") by Sukuk Trustee (acting for the investors (the "Murabahah Investors" or "Sukukholders")) to buy Shariah-compliant commodities* (the "Commodities"). 2. The Wakeel will then appoint the Facility Agent (as its sub-purchase agent) to purchase and sell the Commodities. 3. The Issuer (in the capacity as the Purchaser ) will issue a purchase order (the "Purchase Order") to the Wakeel and the Facility Agent from time to time. In the Purchase Order, the Issuer will irrevocably undertake to purchase the Commodities from the Murabahah Investors at a price equivalent to the Purchase Price (as defined below) and a mark-up (profit) payable on a deferred payment basis by way of instalments or in one lump sum (the "Deferred Sale Price"). 33
The Issuer through its issue request will specify the specific purpose of the utilisation of the proceeds of the Sukuk Murabahah. This will be a supporting document for the Shariah Adviser to confirm on the utilisation of the proceeds of the Sukuk Murabahah. 4. The Facility Agent will purchase the Commodities from commodity vendor(s) in the Bursa Suq Al-Sila commodity market (through a Commodity Trading Participant ("CTP")) at a purchase price (the "Purchase Price") on a spot basis, which shall be equivalent to the proceeds of the Sukuk Murabahah. The Purchase Price will be in compliance with the asset pricing requirements as set out in the Securities Commission Malaysia's ( SC ) Guidelines on Sukuk (revised and effective on 8 January 2014) as may be replaced, substituted or revised from time to time. 5. Subsequently, the Issuer shall issue the Sukuk Murabahah to the Murabahah Investors whereupon the Sukuk Murabahah shall evidence the Murabahah Investors' ownership of the Commodities and all such rights thereto (including all rights against the Issuer under the Purchase Order as well as the rights to the Deferred Sale Price once the commodities are sold to the Issuer). Proceeds received from the issuances of the Sukuk Murabahah shall be used by or deemed to have been used by the Facility Agent to pay for the Purchase Price of the Commodities. 6. Thereafter, the Facility Agent as instructed by the Sukukholders, shall sell the Commodities to the Purchaser at the Deferred Sale Price. 7. Upon completion of such purchase, the Purchaser shall appoint the Facility Agent to sell the Commodities to Bursa Suq Al-Sila through a CTP for a cash consideration equal to the Purchase Price on a spot basis. 8. During the tenure of the Sukuk Murabahah, the Purchaser shall make periodic payments to the Sukuk Trustee (acting for the Sukukholders) amounting to its obligation to pay the Deferred Sale Price to the Sukukholders. Each such payment shall pro tanto reduce the obligation of the Purchaser on the Deferred Sale Price payable for the Commodities. On the date of maturity of the Sukuk Murabahah, all amounts then outstanding on the Deferred Sale Price shall be paid by the Purchaser to the Sukuk Trustee whereupon the Sukuk Murabahah shall be cancelled. Note(*): Shariah-compliant commodities would exclude ribawi items in the category of medium of exchange such as currency, gold and silver. 34