1. Background Information a) Issuer i) Name : KMCOB Capital Berhad ( KMCOB or Issuer ) ii) Address Registered Office : Level 17, 1 First Avenue, Bandar Utama, 47800 Petaling Jaya, Selangor. Business Office : Level 17, 1 First Avenue, Bandar Utama, 47800 Petaling Jaya, Selangor. iii) Business Registration No. iv) Date and Place of Incorporation : 746433-M : 7 September 2006, Malaysia v) Date of Listing : Not applicable vi) Status vii) Principal Activities viii) Board of Directors ix) Structure of shareholdings and names of shareholders or, in the case of public company, name of all substantial shareholders : Non-Resident Controlled Company : The Issuer is a company established for the specific purpose to undertake the issuance of Islamic medium term notes in such classes, series, form or denomination and to secure the redemption thereof and the utilisation of proceeds from such issuance. : Board of directors of the Issuer as at 31 October 2011 are as follows:- 1. Shah Hakim @ Shahzanim bin Zain 2. Loong Chun Nee : The shareholder and shareholding structure of the Issuer as at 31 October 2011 is as follows:- Shareholders Scomi Oiltools Bermuda Limited ( SOBL ) Direct Interest 2 ordinary shares of RM1.00 each Shareholding 100% After the Internal Restructuring (as defined below), the shareholder and shareholding structure of the Issuer will be as follows:- Shareholders Scomi Oilfield Limited ( SOL ) Direct Interest 2 ordinary shares of RM1.00 each Shareholding 100% 1 P a g e
Internal Restructuring refers to a corporate exercise undertaken by Scomi Group Bhd, the ultimate parent company of the Issuer, to split the existing group of companies held by SOL into Eastern Hemisphere Group and the Western Hemisphere Group, and are more particularised in Appendix 2 hereto. Holding Company refers to the direct holding company of the Issuer, which is:- (a) SOBL, pending the completion of the Internal Restructuring; or (b) SOL, upon the completion of the Internal Restructuring. x) Authorised and paid up capital : Authorised Ordinary shares of RM100,000.00 RM1.00 each Issued and fully paid up Ordinary shares of RM2.00 RM1.00 each 2. Principal Terms and Conditions a) Name of parties involved in the proposed transaction (where applicable) i) Principal Adviser : Hong Leong Investment Bank Berhad (formerly known as MIMB Investment Bank Berhad) ( HLIB ) ii) Lead Arranger ( LA ) iii) Co-arranger iv) Solicitor : HLIB : Not applicable : Albar & Partners ( Legal Counsel ) v) Financial Adviser : Not applicable vi) Technical Adviser vii) Trustee viii) Guarantor ix) Valuer : Not applicable : OSK Trustees Berhad ( OSK ) : The Holding Company and subject to terms set out herein, Principal Subsidiaries (as defined in clause 2(v)(10)). : Not applicable x) Facility Agent : HLIB 2 P a g e
xi) Primary subscriber (under a bought-deal arrangement) and amount subscribed xii) Underwriter and amount underwritten xiii) Shariah adviser xiv) Central Depository : Not applicable as the Sukuk (as defined below) will not be issued under bought deal arrangement. : Not applicable : Muamalah Financial Consulting Sdn Bhd : Bank Negara Malaysia ( BNM ) xv) Paying Agent xvi) Reporting Accountant : BNM : Not applicable xvii) Calculation Agent : Not applicable xviii) Others - Lead Manager ( LM ) : HLIB - Security Agent b) Facility description (including the description of Islamic principal) : HLIB : : Facility Description Up to RM343.10 million in nominal value of Sukuk ( Sukuk ). Islamic Principle Tawarruq (Commodity ). Tawarruq in this context refers to a tripartite arrangement where investors ( Investors ) through an agent purchase a specified commodity from a supplier in the market on spot basis. The commodity is subsequently sold by the Investors to the Issuer at cost plus profit on a deferred payment basis. The Issuer through an agent will then sell the commodity, on spot basis, to another party in the market for cash. The proceeds from the sale of the commodities by the Issuer shall be utilised to redeem the Existing MTNs (as defined hereunder). The Investors shall appoint the Facility Agent as a buying and selling agent ( Wakeel ) of Shariah compliant commodities. The Issuer issues a purchase order ( Purchase Order ) to Investors through its Wakeel for the purchase of Shariah compliant commodities*. The Purchase Order constitute a unilateral undertaking (Wa d Mulzim) by the Issuer to purchase the said commodities at a 3 P a g e
sale price ( Sale Price ) to be paid on a deferred payment basis. The Sale Price represents the Purchase Price and profit portion agreed between the Issuer and the Wakeel. Pursuant to the Purchase Order, the Investors shall pay the purchase price ( Purchase Price ) of the commodities to the Wakeel which is equivalent to the amount disbursed under the Sukuk. The Purchase Price shall be in compliance with the asset pricing requirements under the Islamic Securities Guidelines (Sukuk Guidelines) of the Securities Commission issued on 12 July 2011 or as amended from time to time. Upon receipt of the Purchase Price, the Wakeel, on behalf of Investors shall then purchase Shariah compliant commodities from the appointed commodity sellers in the commodity market on spot basis. Upon completion of the purchase, the Wakeel, on behalf of the Investors, will sell the commodities to the Issuer at the Sale Price on a deferred payment basis. The Investors shall subscribe to the Sukuk issued by the Issuer to evidence the Investors entitlement to receive the Sale Price. The Issuer shall appoint the Facility Agent to act as the Wakeel for selling Shariah compliant commodities. Subsequently, the Issuer will sell the commodities via the Facility Agent as Wakeel to commodity buyers on spot basis at an amount equivalent to the Purchase Price. The proceeds from the sale of the commodities by the Issuer shall be utilised to redeem the Existing MTNs. The Issuer shall pay the Sale Price on deferred payment basis via the Wakeel to the Investors. At Maturity Date, or pursuant to the Mandatory Redemption, Voluntary Redemption and/or Put Option ( Early Redemption Events ), the Issuer will pay the Wakeel all amount outstanding on the Sale Price as final settlement of the same (subject to the Redemption Rebate where applicable) upon which the Sukuk will be cancelled. As the Sale Price is calculated based on the Purchase Price and profit portion up to the Maturity Date, a rebate (Ibra ) will be granted if the Sukuk 4 P a g e
is redeemed before Maturity Date pursuant to the Early Redemption Events ( Redemption Rebate ). The Redemption Rebate, which shall be given at the sole discretion of the holder(s) of the Sukuk ( Sukukholders ), shall be the difference between profit portion under the Sale Price calculated up to Maturity Date and the profit portion up to the date of redemption pursuant to the Early Redemption Events. The redemption proceeds payable by the Issuer in such events ( Redemption Proceeds ) shall be an amount as determined by the Wakeel, which shall be calculated in accordance with the formula below:- Redemption Proceeds payable = Sale Price at issue date less the aggregate of profit payment paid (if any) less the Redemption Rebate. For further details, please refer to Appendix 1. Note: * Shariah compliant commodities would exclude ribawi items in the category of medium of exchange such as currency, gold and silver. c) Issue size : The outstanding nominal value of the Sukuk at any point in time shall not exceed RM343.10 million. In the event if the actual amount of the Sukuk issued is less than RM343.10 million, the remaining amount of the unissued Sukuk will be cancelled and will not be available for issuance. d) Tenure of issue : Sukuk shall be issued in series with the following maturities:- Series Tenure (from respectiv e Issue Date) Maturity Date A 1.0 14 December 2012 B 2.0 13 December 2013 C 2.0 13 December 2013 D 3.0 12 December 2014 E 3.0 12 December 2014 Nominal Value RM million 40.00 17.80 26.60 17.80 26.60 5 P a g e
F 4.0 14 December 2015 G 4.0 14 December 2015 H 5.0 14 December 2016 I 5.0 14 December 2016 J 6.0 14 December 2017 K 7.0 14 December 2018 L 7.0 14 December 2018 M 7.0 14 December 2018 N 7.0 14 December 2018 35.60 10.00 38.10 7.00 33.60 10.70 24.75 26.45 28.10 343.10 e) Availability period of the facility : The Sukuk shall be available for issuance upon completion of the documentation and compliance of all Conditions Precedent (as defined below) and other applicable conditions to the satisfaction of the LM. Thereafter, the Sukuk shall be issued within one (1) year from the date of Securities Commission ( SC ) s approval. f) Profit rate : The profit rates for the respective Sukuk shall be as follows:- Series Profit Rate (%) A 6.90 B 6.25 C 7.20 D 6.25 E 7.20 F 6.55 G 6.90 H 6.90 I 7.20 J 7.20 K 7.50 L 7.50 M 7.50 N 7.50 g) Profit payment frequency : Semi-annually in arrears. 6 P a g e
h) Profit payment basis : Actual / 365 day count basis i) Security/ collateral : The Sukuk shall be secured, inter-alia by the following: 1. Corporate guarantee from the Holding Company, the existing and future Principal Subsidiaries subject to terms set out herein; 2. Charge over the issued and paid up share capital of the existing and future Principal Subsidiaries held by the Holding Company; 3. Debenture over the present and future assets of the Issuer; 4. Assignment over the FSRA (as defined hereinafter) or such other account as maybe required by the rating agency to be opened and maintained by the Issuer; 5. Any other security as may be required by the LM in respect of the SOL Asset Disposals (as defined below); and 6. Any other security as may be required by the rating agency to achieve the requisite rating. The requirement of a guarantee or security in respect of any Principal Subsidiary shall be waived in the event that, in the opinion of the Trustee, the relevant legal system affecting the Principal Subsidiary makes it impossible or impracticable for it to be provided. Note: The Issuer is also desirous to procure an arrangement to swap its Ringgit Malaysia liabilities of up to RM343.10 million arising from the Sukuk to US Dollars via a proposed USD/MYR cross currency profit rate swap or in the event an acceptable cross currency profit rate swap could not be obtained, a cross currency interest rate swap ( CCPRS Arrangement ). The CCPRS Arrangement (if entered into) is expected to be secured against the Security, ranking pari-passu in term of priority with the Sukuk. If the assets of SOL under the West Africa Asset Disposal (as defined below) and the US Mexico Disposal (as defined below) (collectively SD Assets ) fall within the definition of Principal Subsidiary, the creation of security interest over the shares of such SD Assets and/or the creation of corporate guarantee by such SD Assets shall only be required to be created over such SD Assets 7 P a g e
(which are not disposed of, pursuant to the SOL Asset Disposals, within six (6) months from the date of the issuance of the Sukuk ). j) Details on utilisation of proceeds by Issuer k) Sinking fund and designated accounts : The proceeds raised from the issuance under the Sukuk will be utilised to early redeem the existing medium term notes ( Existing MTNs ) in full and which will be Shariah compliant. : Sinking fund Not applicable l) Rating - Credit rating(s) assigned - Name of rating agency : : : Designated Accounts The Issuer shall open and maintain a Shariah compliant Finance Service Reserves Account ( FSRA ) with a bank acceptable to the LA/LM for the purpose of (i) setting aside such funds to meet the next projected profit and principal (if applicable) under the Sukuk and pursuant to the term and conditions of the CCPRS Arrangement (if any) ( Minimum Balance ) and (ii) setting aside the Disposal Proceeds as set out in clause 2(v)(11). The Security Agent shall solely operate the FSRA. The Minimum Balance shall be built up progressively over six (6) instalments which is one sixth (1/6) every month commencing six (6) months before the next profit payment and principal repayment date either through setting aside cash and/or by way of provision of bank guarantee. The Minimum Balance in the FSRA can be withdrawn for the purpose of meeting the Issuer s payment obligations in respect of the profits and/or principal of the Sukuk and pursuant to the term and conditions of the CCPRS Arrangement (if any). A+ IS(CG) (indicative rating). Malaysia Rating Corporation Berhad ( MARC ) m) Mode of issue : The Sukuk will be issued via direct placement on a best effort basis. The Sukuk shall be issued in accordance with:- 8 P a g e
The Participation & Operation Rules for Payment & Securities Services issued by Malaysian Electronic Clearing Corporation Sdn Bhd ( MyClear ) ( MyClear Rules ); and The Operational Procedures for Securities Services issued by MyClear ( My Clear Procedures ), or their replacement thereof applicable from time to time. n) Selling restriction, including tradability o) Listing status and types of listing p) Other regulatory approvals required in relation to the issue, offer or invitation and whether or not obtained (please specify) : The Sukuk shall be tradable. The Sukuk may only be offered, sold, transferred or otherwise disposed directly or indirectly to a person to whom an offer or invitation to subscribe the Sukuk and to whom the Sukuk are issued would fall within Schedule 6 or Section 229(1)(b) and Schedule 7 or Section 230(1)(b) of the Capital Markets & Services Act 2007 as amended from time to time ( CMSA ) and would fall within Schedule 9 or Section 257(3) of the CMSA. : Sukuk will not be listed on Bursa Malaysia Securities Berhad or any other stock exchange. : Not applicable q) Conditions precedent : Conditions precedent ( Conditions Precedent ) relevant for issuance of this nature as advised by the Legal Counsel, including but not limited to the following:- 1. board of directors resolution from the Issuer authorising the acceptance and issuance of the Sukuk by the Issuer and for the Issuer to enter into and execute all the relevant agreements ( Transaction Documents ) in relation to the issuance of the Sukuk ; 2. all approvals required in relation to the Sukuk, including but not limited to that from the SC; 3. the Sukuk are accorded a long term rating of at least A+ IS(CG) of MARC; 4. receipt by the LM of the letter of undertaking 9 P a g e
from the Trustee/ Security Agent of Existing MTNs to release the security created pursuant to the Existing MTNs upon full redemption of the Existing MTNs; 5. the approval of the holders of the Existing MTNs; 6. receipt by the LM of an irrevocable letter of undertaking from Scomi Oilfield Limited that upon the completion of the respective SOL Asset Disposals, SOL shall as soon as practicable, deposit the respective Disposal Proceeds into the FSRA; 7. Endorsement from Shariah Adviser that the structure and mechanism together with the Transaction Documents are Shariah compliant; 8. legal opinion from the Legal Counsel addressed to and satisfactory to the LA/LM and the Trustee advising with respect to, among others, the legality, validity and enforceability of the Transaction Documents; and 9. legal opinion from the Legal Counsel that all conditions precedent to the Sukuk have been duly complied with by the Issuer. For avoidance of doubt, the securities which are currently charged under the Existing MTNs will be discharged upon the redemption of the Existing MTNs and be created in favour of the Security Agent upon terms and conditions herein contained within three (3) months from the date of issuance of the Sukuk ( Initial Period ). If such security cannot be perfected within the Initial Period, the Security Agent may at its sole and absolute discretion and subject to a written notification to be given to the Trustee by the Security Agent, grant an extension of time of a further three (3) months period from the Initial Period without the need to seek further instruction or direction from the Sukukholders. The Sukukholders have on 27 June 2012 by way of extraordinary resolution ( Extraordinary Resolution ), granted the waiver to the Issuer to perfect the following securities:- (a) (b) (c) (d) share charge over the shares of Scomi Oiltools Sdn. Bhd.; share charge over the shares of Scomi Oiltools (S) Pte. Ltd.; share charge over the shares of Scomi Oiltools (Shetland) Limited; share charge over the shares of Scomi 10 P a g e
(e) (f) (g) (h) (i) (j) Oiltools (Europe) Limited; share charge over the shares of Scomi Oiltools South America Limited; share charge over the shares of Scomi Oiltools de Venezuela S.A.; share charge over the shares of Scomi Oiltools Egypt S.A.; share charge over the shares of Scomi Oiltools Ltd.; share charge over the shares of Scomi Oiltools (Cayman) Ltd.; and share charge over the shares of Scomi Oiltools (Africa) Limited; subject to the completion of the following securities within the timeline prescribed herein below:- (a) a new corporate guarantee to be given by each of the following parties to the Security Agent to secure the Sukuk (the New Corporate Guarantee ) within four (4) months from the date of the Extraordinary Resolution:- (i) (ii) (iii) Scomi Oiltools Pty. Ltd.; Scomi Oiltools (Thailand) Ltd; and KMC Oiltools BV; (b) a share charge or a memorandum of deposit or a pledge of shares to be executed by the Holding Company over the shares of the following Principal Subsidiaries (as defined below) to secure the Sukuk (the New Share Charge ) within four (4) months from the date of completion ( New Completion Date ) of the Internal Restructuring (the New Initial Period ) or, in the event the New Share Charge cannot be perfected for any reason whatsoever within the New Initial Period, within a further extension of two (2) months period calculated from the end of the New Initial Period as may be granted by the Security Agent at its sole and absolute discretion:- (i) (ii) (iii) (iv) (v) (vi) (vii) Scomi Oiltools Ltd.; Scomi Oiltools (Cayman) Ltd.; Scomi Oiltools Sdn. Bhd.; Scomi Oiltools (S) Pte. Ltd.; Scomi Oiltools (Africa) Limited; Scomi Oiltools Pty. Ltd.; Scomi Oiltools (Thailand) Ltd; and 11 P a g e
(viii) KMC Oiltools BV. For avoidance of doubt, the New Completion Date refers to the last date of completion of the shares transfer of all relevant companies under the respective Hemispheres (including registration with the relevant authority, if any). Notwithstanding the above, in the event the Internal Restructuring is aborted, the Issuer shall proceed to perfect the New Corporate Guarantee and the New Share Charge (by the relevant Security Parties)(collectively the Revised Security Documents ) within three (3) months from the date the Internal Restructuring is aborted. In the event the Revised Security Documents cannot be perfected for any reason whatsoever within the said three (3) months period, the Security Agent may at its sole and absolute discretion grant a further extension of two (2) months period calculated from the end of the said three (3) months period without the need to seek further instruction or direction from the Sukukholders. The Security Agent shall inform the Trustee immediately when the said further extension period is granted. In any event and notwithstanding anything to the contrary, the Issuer shall perfect or cause to be perfected the New Share Charge and New Corporate Guarantee no later than 31 March 2013. r) Representations and warranties : Representations and warranties normal for a facility of this nature as advised by the Legal Counsel including but not limited to the following:- 1. the Issuer is a company with limited liability duly incorporated and validly existing under the laws of Malaysia, has full power to carry on its business; 2. the memorandum and article of association of the Issuer incorporate provisions which authorised, and all necessary corporate and other relevant actions have been taken to authorise, and all relevant consents and approvals of any governmental or other authority or body in Malaysia have been duly obtained and are in full force and effect which are required to authorise, the Issuer to execute and deliver and perform the transactions contemplated in the Transaction Documents; 3. neither the execution and delivery of any of the Transaction Documents nor the performance of any of the transactions contemplated by the 12 P a g e
Transaction Documents (a) contravene or constitute a default under any provision contained a default under any provision contained in any agreement, law, judgement, order, rule, regulation, license, permit or consent by which the Issuer or any of its assets is bound or which is applicable to the Issuer or any of its assets, (b) cause any limitation on the Issuer or powers of its directors, whether imposed by or contained in its memorandum and articles of association or in any agreement, instrument, law, ordinance, decree, order, rule, regulation, judgement or otherwise, to be exceeded; and 4. each of the Transaction Documents is or will when executed and/or issued, as the case may be, be in full force and effect and constitutes, or will when executed, valid and legally binding obligations of the Issuer enforceable in accordance with its terms. s) Events of default : Events of Default normal for a facility of this nature as advised by the Legal Counsel including but not limited to the following:- 1. the Issuer fails to pay any sum due under the Transaction Documents on the due date thereof, if so payable, on demand; 2. the Issuer defaults on any other provision of the Transaction Documents (other than any covenant to pay) which is not capable of remedy or which, being capable of remedy, is not remedied within fourteen (14) working days after the receipt of notice by the Issuer from the Trustee requesting action to remedy the same; 3. any representation, warranty or statement which is made (or acknowledged to have been made) by the Issuer in the Transaction Documents or which is contained in any certificate, statement, legal opinion or notice provided or caused to be provided hereunder or in connection with Transaction Documents proves to be incorrect, inaccurate or misleading in any material respect or, if repeated at any time with reference to the facts and circumstances then existing, would not be accurate in all material respects; 4. any consent referred to in the Transaction Documents is revoked or withheld or modified or is otherwise not granted or fails to remain in full force and effect; 5. any indebtedness for borrowed moneys of the Issuer or any of the security parties becomes 13 P a g e
due or payable due to default or payable prior to its stated maturity or any guarantee or similar or when called or any security created to secure such indebtedness becomes enforceable; 6. the Issuer or any of the security parties enters into or proposes to enter into, or there is declared by any competent court or authority, a moratorium on the payment of indebtedness or other suspensions of payments generally; 7. any provision of the Transaction Documents is or becomes (or is bona fide claimed by the Issuer or any other person to be or to have become) unenforceable for any reason whatsoever; 8. any step or action is taken for the winding up, dissolution or liquidation of the Issuer or any of the security parties (including, without limitation, the presentation of a petition for the winding up against the Issuer or the making of any order or the passing of any resolution for the winding up, dissolution or liquidation of the Issuer or any of the security parties, as the case may be); 9. a distress, execution, attachment or other legal process is levied, enforced or sued out against any of the assets of the Issuer or any of the security parties or any part thereof, and is not discharged or stayed within fourteen (14) days, provided that such distress, execution, attachment or other legal process would have a material and adverse effect on the obligations of the Issuer or ant of the security parties, as the case may be, in relation to the Sukuk ; 10. a receiver, manager, liquidator, trustee, administrator, bailiff or similar officer (other than any officer appointed by BNM) is appointed in respect of the Issuer or any of the security parties or in respect or all or any part of the respective assets, properties or undertaking of the Issuer or any of the security parties; 11. the Issuer or any of the security parties ceases or threatens to cease to carry on all or a substantial part of its business where it would have a material and adverse effect on the obligations of the issuer or any of the security parties, as the case may be, in relation to the Sukuk ; 12. the Issuer or any of the security parties becomes insolvent or commits an act of insolvency or is unable to pay its debts as they 14 P a g e
fall due or any judgement or judgements is or are obtained against the Issuer and that judgement would have a material or adverse effect on the obligations of the issuer or any of the security parties, as the case may be, in relation to the Sukuk ; 13. the Issuer or any of the security parties stops, suspends or threatens to stop or suspend payment of all or any part of its debts, begins negotiations or takes any proceeding or other step with a view of readjustment, rescheduling or deferral of all of its indebtedness which it will or might otherwise be unable to pay when due or proposes or makes a general assignment or any arrangement or composition with or for the benefit of its creditors; 14. any encumbrance over any of the assets of the Issuer or any of the security parties is or becomes enforceable; and 15. any other event or series of events has or have occurred which in the reasonable opinion of the Trustee will materially affect or prejudice the ability or willingness of the Issuer or any of the security parties to comply with or perform all or any of its obligations in relation to the Sukuk or which will materially change in the business assets or financial conditions of the Issuer. Upon the occurrence of any of the events above, the Trustee may at its discretion and shall, if so requested in writing by the Sukukholders holding not less than 50% of the outstanding Sukuk, or if upon the request of the Sukukholders by an extraordinary resolution, by written notice to the Issuer, declare that an Event of Default has occurred under the Sukuk and that, notwithstanding the stated maturity of the outstanding Sukuk, the outstanding Sukuk and such profit accruing up to that date are immediately due and repayable, and the outstanding Sukuk will thereupon become due and repayable. At any time after the Sukuk shall have become due and repayable pursuant to the Event of Default, the Trustee may by written notice to the Issuer institute such proceedings as it may think fit against the Issuer to enforce repayment of the Sukuk, payment of all monies outstanding thereon and to enforce the provisions of the Trust Deed. 15 P a g e
t) Covenants 1) Positive Covenants : Positive covenants normal for facility of this nature as advised by the Legal Counsel including but not limited to the following:- 1. 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, to carry on its business or for the Issuer to enter into or perform its obligations under the Transaction Documents or to ensure the validity, enforceability, admissibility in evidence of the obligations of the Issuer or the priority or rights of the financiers under the Transaction Documents and the Issuer shall comply the same; 2. the Issuer shall at all times on demand execute all such further documents and so all such acts reasonably necessary at any time or times to give further effect to the terms and conditions of the Transaction Documents; 3. the Issuer shall exercise reasonable diligence in carrying out its business and affairs in a proper and efficient manner and in accordance with sound financial and commercial standards and practices; 4. the Issuer shall promptly perform and carry out all its obligations under all the Transaction Documents (including but not limited to redeeming the Sukuk on the relevant Maturity Date or any other date on which the Sukuk are due and payable) and ensure that it shall immediately notify the Trustee in the event that it is unable to fulfil or comply with any of the provisions of the Transaction Documents; 5. the Issuer shall prepare its financial statements on a basis consistently applied in accordance with the approved accounting standard in Malaysia and those financial statements shall give a true and fair view of the results of the operations of the Issuer for the period to which the financial statements are made up and shall disclose or provide against all liabilities (actual or contingent) of the Issuer; 6. in the event of any negative rating action on the Issuer or the Sukuk (such as 16 P a g e
negative outlook, negative watch or rating downgrade) by the Rating Agency, the Issuer shall notify the Trustee of the same and request for a Sukukholders' meeting with a view to formulate a proposal towards resolving the rating issues and to maintain and/or reinstate the rating of the Sukuk within a period of time to be mutually agreed upon by the Issuer and the Sukukholders. 7. maintain a minimum rating of BBB or such other equivalent rating from an acceptable rating agency, including providing any necessary credit enhancement satisfactory to the relevant rating agency to maintain such a rating. 2) Negative Covenants : Negative covenants normal for facility of this nature as advised by the Legal Counsel and/or as required by the rating agency, that the Issuer, will not, without the prior written consent of the Sukukholders including but not limited to the following:- 1. grant guarantees, indemnities or similar assurance against financial loss in respect of any indebtedness of any party; 2. incur any additional indebtedness, which would result in the then prevailing Holding Company Group Net Debt to Equity ratio not being complied with; 3. other than those created for the benefit of the Sukukholders, it will not charge, pledge, assign or otherwise create or permit to exist any security interest over the Issuer s assets and revenues present or future save and except such security interest that are ranked after the Sukuk and the CCPRS Arrangement; 4. amend its Memorandum and Article of Associate to be inconsistent with the Transaction Documents; 5. assign its rights or transfer its obligations under the Transaction Documents; 6. sell, transfer or otherwise dispose its assets if such sale, transfer or disposal would in the opinion of the Trustee materially and adversely affect the Issuer s ability to perform its obligations under the Transaction Documents; 7. enter into any amalgamation, demerger, reconstruction or winding up of itself; 8. declare any dividends; and 9. grant any advances or loans to any third party save and except for advances or loans to 17 P a g e
companies within the Holding Company and its subsidiaries falling within the meaning of the Companies Act, 1965 (the Holding Company Group ) arising out of the proceeds from the issuance of the Sukuk. For avoidance of doubt such company within the Holding Company Group that receive advances or loans from the Issuer shall not subordinate the obligation owing to any other third party. 3) Information Covenants : To include but not limited to the following:- 1. the Issuer shall provide to the Trustee at least on an annual basis, a certificate confirming that it has complied with all its obligations under the Transaction Documents and the terms and conditions of the Sukuk and that there does not exist or had not existed, from the date the Sukuk were issued, any Event of Default, and if such is not the case, to specify the same; 2. the Issuer shall deliver to the Trustee the following:-. a) as soon as they become available (and in any event within one hundred and eighty (180) days after the end of each of its financial year) copies of the financial statements for that year which shall contain the income statements and balance sheets of the Issuer and the Holding Company and which are audited and certified by a firm of independent chartered accountants acceptable to the Trustee; b) as soon as they become available (and in any event within ninety (90) days after the end of first half of its financial year) copies of the unaudited half yearly consolidated management financial statements for the period which shall contain the income statements and balance sheets of the Issuer and the Holding Company and which are duly certified by any one of its directors; c) together with the annual and half yearly financial statements to be provided pursuant to the information covenants, a statement showing the value of the consolidated net assets of each Principal Subsidiaries; d) a monthly updates on the SOL Asset Disposals (as defined hereunder). e) promptly, such additional financial or other information relating to the Issuer s and/or the security parties business and their 18 P a g e
operations as the Trustee may from time to time reasonably request; and f) promptly, all notices or other documents received by the Issuer and/or the Holding Company from any of their shareholders or creditors which contents may materially and adversely affect the interests of the Sukukholders, and a copy of all documents dispatched by the Issuer and/or the Holding Company to their shareholders (or any class of them) in their capacity as shareholders or their creditors generally at the same time as these documents are dispatched to these shareholders or creditors; 3. the Issuer shall promptly notify the Trustee of any change (a) in the Board of Directors of the Issuer and/or the Holding Company or (b) in the shareholders of the Holding Company unless the Holding Company pursues a listing exercise; and 4. the Issuer shall promptly notify the Trustee of any change in its condition (financial or otherwise) and of any litigation or other proceedings of any nature whatsoever being threatened or initiated against the Issuer before any court or tribunal or administrative agency which may materially and adversely affect the ability of the Issuer to perform any of its obligations under any of the Transaction Documents. The Issuer shall promptly give notice to the Trustee of the occurrence of any Event of Default or any event which, upon the giving of notice and/or lapse of time and/or the issue of a certificate and/or the fulfilment of the relevant requirement as contemplated under the relevant Transaction Documents would constitute an Event of Default ( Potential Event of Default ) forthwith upon becoming aware thereof, and it shall take all reasonable steps and/or such other steps as may requested by the Trustee to remedy and/or mitigate the effect of the Event of Default or the Potential Event of Default. u) Provision on buy-back and early redemption : The Issuer may at any time purchase the Sukuk at any price in the open market or by private treaty, but these repurchased Sukuk shall be cancelled and cannot be reissued. 19 P a g e
v) Other principal terms and conditions for the issue 1) Form and Denomination : Each series of the Sukuk shall be represented by a Global Certificate to be deposited with BNM and shall be in bearer form and will be prescribed under Real Time Electronic Transfer of Funds and Securities ( RENTAS ) system maintained by MyClear and be reported on the Fully Automated System for Issuing/ Tendering ( FAST ) and comply with all rules and requirements of FAST/ RENTAS. Each Sukuk certificate will be in the denominations of RM1,000 or such other denominations as shall be agreed upon between the LA/LM and the Issuer. 2) Minimum level of subscription (RM or %) : 100% 3) Instrument : Negotiable and non-interest bearing promissory notes (i.e. primary notes (principal portion) together with non-detachable secondary notes (profit portion)) in bearer form evidencing a promise by the Issuer to pay stated Ringgit Malaysia sums on specified date or such other instrument to be determined on the advice of the LA/Shariah Adviser. 4) Redemption : Subject to the terms herein, unless previously redeemed, purchased and cancelled or the maturity of the Sukuk are accelerated by virtue of the declaration of an Event of Default, the Sukuk shall be redeemed by the Issuer at par on the respective Maturity Date of each series. 5) Status : The Sukuk will constitute direct, secured and unconditional obligations of the Issuer ranking pari-passu without preference or priority among themselves and at least pari-passu with all present and future unsecured and unsubordinated obligations of the Issuer, subject to those preferred by law. 6) the Holding Company s Positive Undertakings : To include but not limited to the following:- 1. the Holding Company shall maintain in full force and effect all relevant authorisation, consents, rights, licenses, approvals and permits (governmental and otherwise) and will promptly obtain any further authorisations, consents, rights, licenses, approvals and permits 20 P a g e
(governmental and otherwise) which is or may become necessary to enable it to own its assets, to carry on its business to enter into or perform its obligations under the Transaction Documents or to ensure the validity, enforceability, admissibility in evidence of the obligations of the Holding Company or the priority or rights of the financiers under the Transaction Documents and the Holding Company shall comply the same; 2. the Holding Company shall exercise reasonable diligence in carrying out its business and affairs in a proper and efficient manner and in accordance with sound financial and commercial standards and practices; and 3. the Holding Company shall prepare its financial statements on a consistently applied in accordance with the approved accounting standard in Malaysia and those financial statements shall give a true and fair view of the results of the operations of the Holding Company for the period to which the financial statements are made up and shall disclose or provide against all liabilities (actual or contingent) of the Holding Company. 7) the Holding Company Negative Undertakings : the Holding Company shall undertake that it shall not: 1. grant or permit its subsidiaries to grant guarantees, indemnities or similar assurances against financial loss in respect of any indebtedness of any affiliate or third party other than (i) corporate guarantees and performance bonds granted in the ordinary course of the Holding Company s business and (ii) corporate guarantees granted by the Holding Company or its subsidiaries for working capital trade lines of the Holding Company, the Principal Subsidiaries, the subsidiaries of the Principal Subsidiaries and/or Scomi Oiltools Oman LLC of up to US Dollar Ninety Five Million (USD95,000,000.00) or its equivalent in aggregate subject to a condition that the drawdown must be in relation to any contract financing, which includes working capital lines such as bank guarantees, letters of credit, trust receipts etc. in connection with projects or contracts in hand. Provided always that for any corporate guarantees granted by the Holding Company or its subsidiaries for working capital trade lines of 21 P a g e
a joint venture, a partnership or a jointly controlled entity which is not a subsidiary of the Holding Company, such corporate guarantees shall only be granted with the prior written consent of the Security Agent (acting on the instructions of the Sukukholders and the provider of CCPRS Arrangement). For the avoidance of doubt, the word subsidiary shall have the meaning ascribed to it under Section 5 of the Companies Act 1965; 2. incur any additional indebtedness or permit its subsidiaries to incur any additional indebtedness which would result in the then prevailing Holding Company Group Net Debt to Equity ratio not being complied with; 3. other than those created for the benefit of the Sukukholders and as disclosed to the LA/LM, charge, pledge, assign or otherwise create or permit to exist, or permit its subsidiaries to charge, pledge, assign or otherwise create or permit to exist, any securities interest over their respective assets and revenues present or future, save and except those given in connection with their respective working capital lines, hire purchase or leasing arrangements entered into in the ordinary course of business; 4. sell, transfer or otherwise dispose its assets if such sale, transfer or disposal would in the opinion of the Trustee materially and adversely affect its ability to perform its obligations in relation to the Sukuk ; 5. enter into any amalgamation, demerger, reconstruction or winding up of itself or any of its subsidiaries which may materially affect its ability to perform its obligations; 6. declare any dividends if:- a) an event of default has occurred, is continuing and has not been waived; or b) the ACSCR is not met or the then prevailing Group Net Debt to Equity ratio not complied with, if calculated immediately following such payment/ distribution; 7. grant any advances or loans to any third party save and except for advances or loans made to:- a) companies within the Holding Company Group in the ordinary course of business or in connection with the Sukuk ; or b) companies within the Holding Company Group to finance or part finance the proposed acquisition of another corporation 22 P a g e
provided that if such corporation falls within the definition of Principal Subsidiaries and security interest is created over such corporation in favour of the Sukukholders. 8) the Holding Company s Financial Covenants : To include but not limited to the following financial ratios to be maintained at all times but measured:- the Holding Company 1. the Group Net Debt to Equity ratio of not more than 1.25 times; 2. the ADSCR is not less than 1.50 times. Definition of terms used in the ratios above:- Equity is defined as the aggregate of paid-up capital (equity and preference), subordinated shareholders loans and advances (if any), irredeemable convertible loan stocks (if any), retained earnings and other reserves. ADSCR is defined as the ratio of (A) available consolidated cash and cash equivalents at the closing of the financial year plus the Consolidated Total Debt Service Obligations (principal and interest and other charges) for the said financial year ( Consolidated Total Debt Service Obligations ), to (B) Consolidated Total Debt Service Obligations. Consolidated Total Debt Service Obligations is defined as the aggregate of:- 1. the nominal value paid and profit paid under the Sukuk ; and 2. monies paid or repaid under the borrowings of the Holding Company Group but exclude principal repayment to be made via draw down of new financing facilities which have no recourse to the Holding Company and the Principal Subsidiaries. 9) Group Net Debt : Group Net Debt is defined as: 1. the principal amount (together with any fixed or minimum premium payable on final repayment) for the time being owing by any member of the Holding Company Group in respect of any loan, debenture, debenture stock, credit facilities, borrowing or any other instrument creating or evidencing that member s borrowing but so that in the case of a debenture, debenture stock, bond, or other instruments created or evidencing collateral security for that member s borrowing, the amount to be taken into account shall be the principal amount thereof or the 23 P a g e
amount for the time being outstanding of the borrowing or indebtedness collaterally secured whichever is the lesser but shall exclude all loans and/or advances from its shareholders which are subordinated to the Sukuk ; 2. in the case of a counter indemnity with respect to any guarantee facility to any member of the Holding Company Group in relation to advances made by that member, the amount to be taken into account shall be the principal amount of those advances granted to that member and not repaid; 3. the principal amount payable in respect of any overdraft or other similar indebtedness of any member of the Holding Company Group ; 4. the amounts raised by any member of the Holding Company Group by acceptance under any acceptance credit opened and the principal amount recoverable in respect of bills or receivables discounted; 5. amounts raised by any member of the Holding Company Group by factoring its hire-purchase receivables with recourse and financial leases; and 6. the principal amount payable by any member of the Holding Company Group pursuant to or in connection with long term debt instruments (including but not limited to bonds, promissory notes and loan stocks) issued by that member; 7. all other indebtedness for borrowed monies (be it actual or contingent) by any member of the Holding Company Group; Less:- 1. the consolidated cash balances of the Holding Company Group and such balances includes accrued interest retained by or on behalf of the Holding Company Group at the end of such period; and 2. the monetary value of all consolidated cash equivalent instruments which are readily convertible to cash, but excludes the double counting of any liability which might otherwise be included as a result of this definition. 10) Principal Subsidiaries : Principal Subsidiary(ies) means each of Scomi Oiltools (Africa) Ltd, Scomi Oiltools (Cayman) Ltd, Scomi Oiltools (S) Pte Ltd, Scomi Oiltools Sdn Bhd, Scomi Oiltools Ltd, Scomi Oiltools Pty. Ltd., Scomi Oiltools (Thailand) Ltd. and KMC Oiltools BV so 24 P a g e
long as it is a subsidiary of the Holding Company and any other subsidiary of the Holding Company:- a) whose revenues or (in the case of a subsidiary which itself has subsidiaries) consolidated revenues, as shown by its management accounts for the cumulative period corresponding to the latest published consolidated income statement of the Holding Company, are at least 5% of the consolidated revenue as shown by the latest published consolidated income statement of the Holding Company; or b) whose profits or losses after tax or (in case of a subsidiary which itself has subsidiaries) consolidated profits or losses after tax, as shown by its management accounts for the cumulative period corresponding to the latest published consolidated income statement of the Holding Company, are at least 5% of the consolidated profits or losses (as the case may be) after tax as shown by the latest published consolidated income statement of the Holding Company including for the avoidance of doubt, the Holding Company s share of profits or losses (as the case may be) of subsidiaries not consolidated and of associated companies and after adjustment for minority interest; or c) whose net assets or (in the case of a subsidiary which itself has subsidiaries) total consolidated net assets, as shown by its latest management accounts, are at least 5% of the consolidated total net assets of the Holding Company as shown by the latest published consolidated balance sheet of the Holding Company including, for the avoidance of doubt, the investment of the Holding Company in each subsidiary whose accounts are not consolidated with the published consolidated accounts of the Holding Company and after adjustment for minority interests; or d) to which is transferred the whole or substantially the whole of the assets of a subsidiary which immediately prior to such transfer was a Principal Subsidiary, provided that the Principal Subsidiary which so transfers its assets shall forthwith upon completion of such transfer cease to be Principal Subsidiary and the Subsidiary to which the assets are so transferred shall become a Principal Subsidiary forthwith upon completion of the transfer, unless such subsidiary would continue to be a Principal 25 P a g e
Subsidiary by virtue of paragraph (a), (b) or (c) above. 11) SOL Asset Disposals : Notwithstanding the Security and the Covenants, and subject to the Mandatory Redemption, SOL is permitted to undertake the following:- 1. disposal of assets in the United States of America and Mexico ( US Mexico Asset Disposal ); and/or 2. disposal of assets in Nigeria and Congo ( West Africa Asset Disposal ). (the US Mexico Asset Disposal and the West Africa Asset Disposal are collectively referred to as the SOL Asset Disposals ) SOL shall set aside a sum of up to USD5 million or 15%, whichever is lower, from the proceeds of each of the US Mexico Asset Disposal and West Africa Asset Disposal upon their respective completion to be utilised towards the payment of transaction costs ( Transaction Cost ). Balance of the proceeds after deduction of the Transaction Cost ( Disposal Proceeds ) shall be deposited by SOL into the FSRA, which shall be applied in the following manner:- (a) to early redeem the Series K, L, M and N Sukuk outstanding pursuant to the Mandatory Redemption clause; and (b) the balance thereof, if any ( Surplus ), shall be utilised in the following manner:- (i) if the Surplus is RM2 million or more, the Surplus shall be utilised to early redeem the remaining Sukuk outstanding pursuant to the Mandatory Redemption clause; or (ii) if the Surplus is less than RM2 million, the Surplus shall be deposited into the FSRA and utilised in accordance with the provisions of the FSRA. The Issuer shall immediately inform the Trustee if the SOL Asset Disposals cannot be completed for any reason whatsoever on or before 31 December 2013 and upon occurrence of such event, the 26 P a g e
Sukukholders shall reserve the right to vary any terms of the Series K, L, M and N Sukuk. Notwithstanding the above, in the event the SOL Asset Disposals cannot be completed for any reason whatsoever on or before 30 June 2013, the Issuer shall call for a meeting of the Sukukholders and provide a plan in relation to the SOL Asset Disposal and/or the source of funding towards the early redemption of Series K Sukuk, Series L Sukuk, Series M Sukuk and Series N Sukuk which are acceptable by the Sukukholders by way of Extraordinary Resolution no later than 30 June 2013. In the event KMCOB fails to call for a meeting of the Sukukholders and to provide a plan in relation to the SOL Asset Disposals and the source of funding towards the early redemption of Series K Sukuk, Series L Sukuk, Series M Sukuk and Series N Sukuk which are acceptable by the Sukukholders on or before 30 June 2013, such non-compliance shall tantamount to a breach of undertaking and therefore the Sukukholders shall reserve the rights to declare an Event of Default in accordance to the terms and conditions of the Trust Deed. If as a result of the SOL Asset Disposals, an impairment of goodwill ( Impairment ) of USD26,178,000.00 in respect of US Mexico Asset Disposal is required to be made in the consolidated financial statements of the Holding Company Group, such Impairment shall be excluded, for the purpose of the calculation of the Group Net Debt to Equity ratio in relation to the Sukuk. 12) Mandatory / Voluntary Redemption : Mandatory Redemption The Issuer shall upon the receipt of the Disposal Proceeds redeem at par, all or in part and if in part, in proportion based on nominal amount outstanding of the relevant Sukuk outstanding in the manner set out in Clause 2(v)(11). Voluntary Redemption The Issuer may after the SOL Asset Disposals redeem at par, all or in part and if in part, in 27 P a g e