(Company Registration No.: 191200018G) (Incorporated in Singapore) THE PROPOSED OFFERING AND LISTING OF THE ENGINEERING AND CONSTRUCTION BUSINESS OF UNITED ENGINEERS LIMITED 1. Introduction The Board of Directors ( Directors ) of United Engineers Limited (the Company or United Engineers ) wishes to announce the following: (i) (ii) (iii) the Company proposes a spin-off (the Listing ) of its engineering and construction business ( E&C Business (as defined below)) on the Main Board of the Singapore Exchange Securities Trading Limited (the SGX-ST ); in connection with the Listing, the Company has acquired a shelf public company, UE E&C Ltd. (formerly known as Ljubica Limited) (the Listco ). The Listco will hold the E&C Business pursuant to a corporate restructuring exercise (the Restructuring Exercise ); the Listco has obtained a letter of eligibility-to-list from the Singapore Exchange Securities Trading Limited ( SGX-ST ) for the listing of and quotation for all its issued ordinary shares (the Listco Shares ) and the new Listco Shares to be issued pursuant to its initial public offering, on the Main Board of the SGX-ST. In conjunction with the Listing, the Listco is expected to undertake a public offering of new Listco Shares (the Share Issue ) and the Company is considering a public offering of part of its shareholding interest in the Listco (the Vendor Sale, and together with the Share Issue, the Proposed Offering ). In connection with the Proposed Offering, the Listco may grant to Oversea-Chinese Banking Corporation Limited ( OCBC Bank ) an over-allotment option (the Over-allotment Option ) exercisable in full or in part by OCBC Bank. The Proposed Offering is subject to, among other things, approval from members of the Company ( Members ) and the prevailing market conditions. Upon completion of the Restructuring Exercise, it is expected that the Company will, directly and indirectly through its wholly-owned subsidiary, UES Holdings Pte. Ltd. ( UES Holdings ), hold 92.1 per cent. of the issued and paid up share capital of the Listco (the Post-Restructuring Shareholding ), with the remaining 7.9 per cent. held by Mr Chua Hock Tong, the Executive Director and Chief Executive Officer of the Listco. Mr Chua Hock Tong may also consider a public offering of part of his shareholding interest in the Listco as part of the Listing. The Company will, directly and indirectly through UES Holdings, retain majority control of the Listco of approximately 60.0 per cent. immediately post Listing. If the Over-allotment Option is exercised fully, the Company s shareholding interest in the Listco could potentially be reduced to 57.0 per cent. immediately post Listing. 1
The Company has engaged OCBC Bank as the Issue Manager for the Proposed Offering. The Directors have decided to convene an extraordinary general meeting ( EGM ) to seek Members approval for the Proposed Offering for the reasons set out in section 3 of this Announcement. A circular, together with a notice of the EGM, will be despatched to Members in due course. 2. Rationale for and benefit to the Company, its subsidiaries and associated companies (the United Engineers Group ) Overview The Listco will own the E&C Business of the United Engineers Group following the Restructuring Exercise. The E&C Business comprises the following: (i) (ii) (iii) mechanical and electrical engineering, construction and civil engineering, and renting and supply of metal forms and power generators and supply of other industrial equipment. The Proposed Offering will unlock shareholder value and increase the overall financial capacity and flexibility of the United Engineers Group to strengthen the growth of its other strategic business units. The Proposed Offering will enable the United Engineers Group to achieve a more balanced exposure in its business units, increase the scale of its businesses going forward and continue to participate in the growth of the Listco with a more optimal capital structure for the foreseeable future. This is consistent with the United Engineers Group s approach of optimising business growth with prudent capital management. The benefits of the Listing are described in greater detail below. 2.1 Unlocks shareholder value by ascribing a separate value to the E&C Business of the United Engineers Group The Listing will provide a transparent valuation benchmark for the United Engineers Group s E&C Business under the Listco, its subsidiaries and associated companies upon completion of the Restructuring Exercise (the Listco Group ) and will allow the United Engineers Group s different core businesses to be assessed and valued more distinctly. 2.2 The Listco will gain financial autonomy and be able to access the capital markets directly to fund existing operations and future expansion The United Engineers Group will be able to better utilise its financial resources for its other business units as the Listco will be financially independent from its parent. Further, having a separate group of companies listed on the SGX-ST will allow the United Engineers Group to increase its overall financial capacity and access the capital markets for debt and equity funding via two separate listed entities. With the Listing, the Listco can leverage on a wider range of funding options to finance its existing operations and future business expansion plans in Singapore, Asia and the Middle East. With the enhanced profile and availability of direct access to capital markets in 2
Singapore upon Listing, the Listco will be able to allocate funds specifically to its own target growth initiatives. This will put them in a better position to tap into the growth opportunities for the E&C Business in Singapore, Asia and the Middle East. 2.3 United Engineers will be able to continue to participate in the growth of the E&C Business The Company will, directly and indirectly through UES Holdings, retain majority control of the Listco immediately post Listing. The Listco Group is a successful business unit of the United Engineers Group and coupled with its growth potential in Singapore, Asia and the Middle East, the business will remain a strategic focus of the United Engineers Group. Following the Listing, the Company and its Members will continue to participate in the growth of the E&C Business in Singapore, Asia and the Middle East through its majority interest in the Listco. 2.4 Spin-off of the E&C Business will allow the Company to streamline its operations and focus on growing its remaining businesses The spin-off of the E&C Business will allow the Company to streamline its operations and focus its resources on growing its property development, property asset management and leasing, and environmental and water related businesses, in Singapore, Asia and the Middle East. 3. Overview of the Proposed Offering 3.1 The Proposed Offering The Company currently owns 100 per cent. of the issued and paid-up share capital of the Listco. In connection with the Listing, the Company had acquired the Listco from nominees of Allen & Gledhill LLP for a cash consideration of S$6,000 (excluding GST). The consideration for the acquisition is based on the usual rates for such services provided by Allen & Gledhill LLP. As of the date of this Announcement, the Listco has a net asset value of S$2 and an issued and paid-up share capital of S$2, comprising two shares which are held by the Company. The Listco will own the E&C Business pursuant to Restructuring Exercise. Please refer to Appendix 1 to this Announcement for an overview of the Listco Group and the Restructuring Exercise. Subject to other factors and considerations including the prevailing market conditions, the Proposed Offering will be by way of (a) a placement to investors, including institutional and other investors in Singapore, including offering shares reserved for subscription and/or purchase by the directors and employees of the Listco Group and the United Engineers Group, and (b) an offering to the public in Singapore. As the Proposed Offering and the offering price of the Listco Shares (the Offering Price ) are subject to various factors and considerations, the Company has, for the purposes of illustrating the financial effects of the Proposed Offering made certain assumptions as set out in section 4 below. This should, however, not be taken as an indication of the pricing that the Proposed Offering would achieve. In the event that the Company and the Listco proceed with the Proposed Offering, the Company and the Listco expect to enter into underwriting arrangements with OCBC Bank. 3
The Company will, directly and indirectly through UES Holdings, retain majority control in the Listco immediately post Listing. 3.2 Factors and Conditions relating to the Proposed Offering The Proposed Offering and the completion thereof will be conditional upon, inter alia: (a) (b) (c) (d) (e) the passing of an ordinary resolution by Members to approve the Proposed Offering at the EGM; the eligibility-to-list letter from the SGX-ST for the listing of and quotation for all the issued Listco Shares and the new Listco Shares to be issued pursuant to its initial public offering, on the Main Board of the SGX-ST, not having been revoked or withdrawn; the approval of the Directors, after taking into account factors and considerations such as the prevailing market conditions; the registration of the Prospectus by the Monetary Authority of Singapore; and such other regulatory or other approvals or consents as may be required or advisable and the same remaining in force. 3.3 Rule 805(2)(b) of the SGX-ST Listing Manual ( Listing Manual ) Rule 805(2)(b) of the Listing Manual provides as follows: Except as provided in Rule 806, an issuer must obtain the prior approval of shareholders in general meeting if a principal subsidiary of an issuer issues shares or convertible securities or options that will or may result in a percentage reduction of 20% or more of the issuer s equity interest in the principal subsidiary. For example, if the issuer has a 70% interest in a principal subsidiary, shareholders approval will be required for any issue of shares in the principal subsidiary reducing the issuer s equity interest to 56%. As mentioned above, in conjunction with the Listing, the Listco is expected to undertake an offering of new Listco Shares. The Listco currently expects to offer new Listco Shares pursuant to the Proposed Offering such that the Company s Post-Restructuring Shareholding in the Listco may be diluted from 92.1 per cent. to approximately 69.1 per cent. or below. This will result in the Company s shareholding interest in the Listco being diluted by at least 20.0 per cent. from its Post- Restructuring Shareholding of 92.1 per cent. It should be noted that the extent of percentage dilution of the Company s shareholding interest in the Listco has not been determined as it is subject to, inter alia, prevailing market conditions at the time of the Proposed Offering. Accordingly, Members approval is being sought for the Share Issue in the event that there will be a percentage dilution of 20.0 per cent. or more of the Company s Post-Restructuring Shareholding in the Listco. 4
3.4 Possible Vendor Sale The Offering Price will be determined by the Listco, Mr Chua Hock Tong and the Company, in consultation with the Issue Manager and the underwriter of the Proposed Offering, after taking into consideration, inter alia, prevailing market conditions and estimated market demand for the Listco Shares determined through a book-building process. For illustrative purposes only, on the assumption that (a) the Company s Post- Restructuring Shareholding in the Listco is diluted by 25.0 per cent. as a result of the Share Issue (thereby resulting in its shareholding interest being reduced to 69.1 per cent.), (b) following such dilution, the Company sells Listco Shares amounting to 9.1 per cent. of the issued share capital of the Listco pursuant to the Vendor Sale, thereby resulting in the Company and UES Holdings retaining an aggregate interest of 60.0 per cent. of the issued share capital of the Listco, (c) the Proposed Offering will raise aggregate gross proceeds of approximately S$72.3 million, and (d) the Restructuring Exercise has been completed: (a) the pro forma Net Asset Value ( NAV ) of the Listco Group as at 30 September 2010 is S$69.0 million and the Listco Shares offered under the Proposed Offering represent an underlying NAV of S$22.2 million where NAV is defined as total assets minus total liabilities; and (b) the pro forma profit before tax and before non-controlling interests of the Listco Group for the period ended 30 September 2010 is S$27.9 million and, the profit before tax and before non-controlling interests attributable to the Listco Shares offered under the Proposed Offering is S$9.0 million. Members are advised that the exact number of Listco Shares to be offered in the Proposed Offering and the Offering Price will be subject to, inter alia, prevailing market conditions. Based on the illustrative assumptions set out above, the relative figures computed on the bases set out in Rule 1006 of the Listing Manual are as follows: (a) Rule 1006(a) NAV of the Listco Shares to be offered under the Proposed Offering (S$ million) 22.2 1 NAV of the United Engineers Group (S$ million) 948.9 2 Size of relative figure (%) 2.3 5
(b) Rule 1006(b) Profit before tax and before non-controlling interests attributable to the Listco Shares offered under the Proposed Offering (S$ million) Profit before tax and before non-controlling interests of the United Engineers Group (S$ million) 9.0 1 125.4 3 Size of relative figure (%) 7.2 (c) Rule 1006(c) Aggregate gross proceeds of the Proposed Offering (S$ million) United Engineers' market capitalisation as at 30 November 2010 (S$ million) 72.3 671.1 4 Size of relative figure (%) 10.8 Notes: 1 Based on the unaudited pro forma financial statements of the Listco Group as at 30 September 2010. 2 Based on the NAV of the United Engineers Group included in the latest announced unaudited consolidated accounts of the United Engineers Group as at 30 September 2010. 3 Based on the profit before tax and before non-controlling interests of the United Engineers Group included in the latest announced unaudited consolidated accounts of the United Engineers Group for the period ended 30 September 2010. 4 Based on the volume weighted average price of the ordinary stock units in the capital of the Company ( Stock Units ) on 30 November 2010, being the last market day preceding the date of this Announcement. It should be noted again that the relative figures as set out above are purely for illustrative purposes only. At this juncture, the other details for the Proposed Offering have not yet been concluded and determined. These other details will be determined by the Directors, in consultation with the Company s advisers, in due course. 4. Financial Effects The proforma financial effects of the Proposed Offering on selected financial measures and ratios of the United Engineers Group are set out below, and have been computed using the latest audited consolidated financial information of the United Engineers Group for the financial year ended 31 December 2009. For the purpose of illustrating the financial effects of the Proposed Offering, the financial effects are based on, inter alia, the following assumptions: 6
(i) (ii) (iii) (iv) (v) (vi) the Proposed Offering will raise aggregate gross proceeds of approximately S$72.3 million; the transaction costs in connection with the Proposed Offering are approximately S$5.0 million; the Company s Post-Restructuring Shareholding in the Listco is diluted by 25.0 per cent. as a result of the Share Issue (thereby resulting in its shareholding interest being reduced to 69.1 per cent.); following such dilution, the Company sells Listco Shares amounting to 9.1 per cent. of the issued share capital of the Listco pursuant to the Vendor Sale, thereby resulting in the Company and UES Holdings retaining an aggregate interest of 60.0 per cent. of the issued share capital of the Listco; no adjustments have been made in respect of the use of the net proceeds from the Proposed Offering; and the Restructuring Exercise has been completed. As these financial effects are based on the United Engineers Group s latest audited consolidated financial information for the financial year ended 31 December 2009 and are presented for illustrative purposes only, they do not reflect the future financial position of the United Engineers Group following the completion of the Proposed Offering. Share Capital As no new shares will be issued by the Company in connection with the Proposed Offering, the Proposed Offering will not have any impact on the share capital of the Company. Earnings Assuming that the Proposed Offering had been completed on 1 January 2009, being the beginning of the most recently completed financial year, based on the United Engineers Group s audited consolidated financial statements for the financial year ended 31 December 2009, the earnings per Stock Unit of the United Engineers Group for the financial year ended 31 December 2009 reduces from S$0.22 per Stock Unit before the Proposed Offering to S$0.20 per Stock Unit after the Proposed Offering. The actual effects on the earnings per Stock Unit will depend on, inter alia, the earnings or returns realised from the proceeds of the Proposed Offering. These figures are purely for illustrative purposes only and are subject to changes, depending on the actual Offering Price, as well as the tax impact on gains on disposal of Listco Shares and the accounting treatment for the transaction costs relating to the Proposed Offering. Profit after tax and non-controlling interests will decrease by S$3.9 million as a result of decrease in share of profits in the Listco Group arising from dilution of United Engineers shareholding interest in the Listco pursuant to the Proposed Offering which was partially offset by a gain on disposal of Listco Shares. 7
Net Tangible Assets ( NTA ) Assuming that the Proposed Offering had been completed on 31 December 2009 and based on the United Engineers Group s audited consolidated financial statements as at 31 December 2009, the financial effects on the NTA per Stock Unit, would be as follows: Before the Proposed Offering After the Proposed Offering 1 NTA (S$ million) 852.1 885.0 Number of Stock Units ( 000) 255,845 255,845 NTA per Stock Unit (S$) 3.33 3.46 Note: 1 These figures are purely for illustrative purposes only and are subject to changes, depending on the actual Offering Price, as well as the tax impact on gains on disposal of Listco Shares and the accounting treatment for the transaction costs relating to the Proposed Offering. Gain on the Possible Disposal On the assumption that Listco Shares are disposed of by the Company above the estimated cost of investments made by the Company in the Listco, there will be a gain on the possible disposal upon completion of the Proposed Offering, and as a result, the NTA of the United Engineers Group is expected to increase. The actual gain from the Vendor Sale will be determined based on the actual Offering Price and the cost of investment of the Listco Shares sold under the Vendor Sale. The actual results arising from the Vendor Sale will depend on certain external factors including but not limited to the then prevailing market conditions, price earnings ratio and level of subscription interest for the Proposed Offering. A further announcement on the financial effects of the Proposed Offering will be released via SGXNET when all the relevant details required for such computation including but not limited to the Share Issue and Vendor Sale are available. 5. Use of Proceeds The estimated net proceeds due to the Company based on the illustrative assumptions stated in section 4 above will amount to approximately S$17.9 million. It is expected that the net proceeds due to the Company may be utilised for investments, debt repayments, and general corporate and working capital purposes. 8
6. Interests of Directors and Substantial Shareholders As at the date of this Announcement, OCBC Bank is a substantial shareholder of the Company. Mr Lai Teck Poh is a Director of OCBC Bank and OCBC Bank is the Issue Manager of the Proposed Offering. Save for their interests in the Company and as disclosed in this Announcement, none of the Directors or substantial shareholders have any direct or indirect interest in the Proposed Offering. By Order of the Board Heng Fook Pyng Company Secretary 1 December 2010 9
APPENDIX 1 OVERVIEW OF THE LISTCO GROUP AND THE RESTRUCTURING EXERCISE Background UE E&C Ltd. (Registration Number: 201005048D) was incorporated in the Republic of Singapore on 9 March 2010 under the Companies Act as a public company limited by shares under the name Ljubica Limited. On 1 December 2010, Ljubica Limited changed its name to UE E&C Ltd. Currently, the Listco has a paid-up capital of S$2 and is wholly-owned by the Company. Pre-IPO Restructuring Exercise The following Restructuring Exercise is proposed to be undertaken in conjunction with the Proposed Offering and the Listco s listing on the Main Board of the SGX-ST: (a) (b) (c) (d) (e) (f) UE-Tradetec (Singapore) Pte Ltd (a wholly-owned subsidiary of the Company) will acquire the property located at 2 Gul Street 4, Singapore 629234, from the Company; the Company will subscribe for Listco Shares at an aggregate subscription price of approximately S$19.2 million; UE-Tradetec (Singapore) Pte Ltd will sell its entire shareholding interest in Lysaght Corrugated Pipe (S) Pte. Ltd. to the Company; the Company will sell the entire issued share capital of UE-Tradetec (Singapore) Pte Ltd to the Listco; UES Holdings will make a subvention contribution of S$20.6 million to its mechanical and electrical engineering business ( M&E Business ) to make up for the capital deficiency resulting from past accumulated losses of the M&E Business to be carved out from UES Holdings; UES Holdings will sell to the Listco its M&E Business (including interests in certain listed securities held by UES Holdings as well as S$17.2 million in cash) and its interests in certain subsidiaries, namely, (i) (ii) (iii) Greatearth Holding Pte Ltd ( Greatearth Holding ); United Engineers (Vietnam) Limited; and United Engineers (B) Sdn Bhd, and (g) Mr Chua Hock Tong will sell his 15% shareholding interest in Greatearth Holding to the Listco. The total consideration payable by the Listco for the transactions contemplated by (d), (f) and (g) above will be satisfied through allotment and issuance of new Listco Shares to the Company, UES Holdings and Mr Chua Hock Tong. Upon completion of the Restructuring Exercise, it is expected that the Listco will have the following shareholding structure: 10
Shareholding % United Engineers 17.8 UES Holdings 74.3 Mr Chua Hock Tong 7.9 100.0 The Listco Group Upon completion of the Restructuring Exercise, the United Engineers Group (excluding the Listco Group) (the Proforma United Engineers Group ) will be engaged in (i) property development, (ii) property asset management and leasing, and (iii) environmental and water related businesses, while the Listco Group will be engaged in (i) mechanical and electrical engineering, (ii) construction and civil engineering, and (iii) renting and supply of metal forms and power generators and supply of other industrial equipment. From time to time, in order to support its core building engineering and construction and civil engineering business and secure mandates as main contractors and construction managers, the Listco Group will continue to co-invest as a minority shareholder, with other property developers and/or the Proforma United Engineers Group, up to a stake of 30 per cent. to undertake property development projects. Non-Compete Agreement In order to mitigate any potential conflicts of interests, United Engineers will enter into a Non-Compete Agreement with the Listco pursuant to which, inter alia, the Listco undertakes to and with United Engineers that the Listco shall not, and shall procure its subsidiaries and to the extent that it has knowledge, shall use its best endeavours to procure its associated companies not to, whether directly or indirectly, engage in, carry on (whether alone or in partnership or joint venture with anyone else) or otherwise be interested in (whether as trustee, principal, agent, shareholder, unitholder or in any other capacity) property development projects, other than by taking a minority stake of not more than 30 per cent. in joint ventures with other third parties or the Proforma United Engineers Group for development of property projects and provided that the Listco or its subsidiaries or associated companies is appointed as the main contractor or the construction manager for such projects. The Non-Compete Agreement shall commence on the date of the listing of the Listco on the Main Board of the SGX-ST and be effective for so long as (i) the Listco remains listed on the SGX-ST, (ii) United Engineers remains a controlling shareholder of the Listco and (iii) United Engineers remains the single largest shareholder of the Listco based on the aggregate of its direct and deemed interests in the Listco Shares. IMPORTANT NOTICE This Announcement is made in reliance on Section 251(9)(a) of the Securities and Futures Act, Chapter 289 of Singapore and does not constitute an offer, invitation to purchaser or subscribe for or solicitation of Listco Shares in Singapore or any other jurisdiction nor should it or any part of it form the basis of, or be relied upon in any connection with, any contract or commitment whatsoever. The information in this Announcement is qualified in its entirety by, and is subject to, the more detailed information to be set out in the final prospectus of the Listco (the Final Prospectus ) to be registered by the Monetary Authority of Singapore ( MAS ). The information presented in this Announcement is subject to change. After registration of the Final Prospectus by the MAS, copies of the Final 11
Prospectus relating to the Proposed Offering may be obtained, subject to availability, from Oversea- Chinese Banking Corporation Limited. Anyone wishing to purchase Listco Shares should read the Final Prospectus before deciding whether to purchase Listco Shares and will need to make an application in the manner set out in the Final Prospectus. Any decision to purchase Listco Shares should be made solely on the basis of information contained in the Final Prospectus and no reliance should be placed on any information other than that contained in the Final Prospectus. 12