1. INTRODUCTION Further to its Announcement dated 2 February 2012, Zelan Berhad ( ZB ) wishes to announce that: Zelan Construction Sdn Bhd ( ZCSB ), a wholly owned subsidiary of ZB, has on 28 May 2012 entered into a Joint Venture Agreement ( JV Agreement ) with Kiara Teratai Sdn Bhd ( KTSB ) to form a joint venture on an unincorporated basis under the name of Zelan - Kiara Teratai JV ( Proposed JV ) for the sole purpose of carrying out the construction of a new integrated Immigration, Custom, Quarantine and Security Complex ( ICQS Complex, Proposed Project or Works ) at Bukit Kayu Hitam, in the State of Kedah; and Northern Gateway Infrastructure Sdn Bhd ( NGISB or Client ) has, by a letter of award dated 28 May 2012 ( Letter of Award ), appointed Zelan Kiara Teratai JV to carry out and complete the Works for a maximum guaranteed lump sum price of RM310 million. Further information on the Proposed JV and the Proposed Project (collectively Proposals ) are set out in the ensuing sections of this Announcement. 2. INFORMATION ON THE PROPOSED JV 2.1 ZCSB, as the Lead Partner in the joint venture, will have 51% participating interest in Zelan Kiara Teratai JV, while KTSB will have 49%. The rights and obligations (including sharing of profits and liabilities) of ZCSB and KTSB in the Proposed Project shall be based on the aforementioned percentages of participating interests. ZCSB was incorporated as a private limited company under the Companies Act 1965 on 6 August 1992. It has an authorized share capital of RM25 million, out of which RM20 million has been issued and paid-up, all of which is owned by Zelan Holdings (M) Sdn Bhd, which in turn is a wholly owned subsidiary of ZB. KTSB was incorporated as a private limited company under the Companies Act 1965 on 16 February 2004. It has an authorized share capital of RM1 million, all of which has been issued and paid-up. The present shareholders of KTSB are Hashim bin Hasan and Ahmad Zaed bin Saleh Hamdi. Each of them holds 500,000 ordinary shares of RM1.00 in KTSB. 2.2 The JV Agreement is conditional upon the fulfillment of the following conditions precedent within 3 months from the date of the JV Agreement or any extended period agreed between the parties: the award of the Works by the Client to Zelan Kiara Teratai JV; 1
(c) the approval of the directors and shareholders of each of the parties at their respective board and general meetings (if required) for the Proposed JV being obtained; and the approval of the directors and shareholders of each of the parties at their respective board and general meetings (if required) for the Proposed Project being obtained. In respect of the condition precedent stated in paragraph 2.2 above, the parties to the Proposed JV have received the Letter of Award from the Client. The parties will take the necessary steps to fulfil the conditions precedent stated in paragraph 2.2 and (c) above. 3. DETAILS OF THE PROPOSED PROJECT 3.1 Pursuant to a Concession Agreement dated 30 December 2011 entered into between the Government of Malaysia ( Government ) and the Client, the Government has agreed to grant the rights and authority to the Client to develop a new ICQS Complex at Bukit Kayu Hitam, in the State of Kedah under the concept of private finance initiative. NGISB was incorporated as a private limited company under the Companies Act 1965 on 14 July 2004. As at the date hereof, NGISB has an authorised share capital of RM1 million, out of which RM500,000 has been issued and paid-up. NGISB is wholly owned by Northern Gateway Sdn Bhd ( NGSB ). 3.2 The contract value of RM310 million for the Works awarded by the Employer to Zelan Kiara Teratai JV was arrived at after negotiations between the Client, ZCSB and KTSB, taking into consideration of the scope of work, cost of materials and wages, technical support and supervision required in relation to the Works. 3.3 The salient terms of the Letter of Award include, inter alia, the following: The Completion Period is 30 months, divided into 2 phases as follows: (i) (ii) Phase 1 to be completed within 17 months from the Date of Site Possession; and Phase 2 to be completed within 13 months from the issuance of the Certificate of Partial Occupation for Phase 1. The Date of Site Possession is subject to the Client obtaining the approval from Kementerian Dalan Negeri and also conformity of financing support from the Client s project financier. Notwithstanding the aforementioned, the Client will issue a letter specifically for the confirmation of the Date of Site Possession to Zelan Kiara Teratai JV no later than 29 June 2012. 2
(c) Disbursement of payments for certified progress of work will be made by the Client to Zelan - Kiara Teratai JV within 21 days upon the Client s receipt of payment from its project financier. 4. RATIONALE FOR THE PROPOSALS The undertaking of the Proposals is in line with the existing core business activities of ZB, amongst others, in engineering and construction works and it is expected to contribute positively to the future profitability and growth of ZB. 5. FINANCIAL EFFECTS 5.1 The Proposals will not have any impact on the issued and paid up share capital and substantial shareholder s shareholdings in ZB as no new shares are to be issued. The Proposals will not have material effect on the gearing of ZB as the Proposals are funded mainly through internally generated funds. 5.2 The Proposals are expected to contribute positively to the consolidated earnings of ZB for the financial year ending 31 March 2013 as well as the future consolidated earnings over the duration of the Proposals. 5.3 The Proposals are envisaged to improve the net assets of ZB for the financial year ending 31 March 2013 and the subsequent financial years over the duration of the Proposals. 6. RISK FACTORS 6.1 During the course of implementation of the Works, Zelan Kiara Teratai JV may face risks from external factors such as shortage of labour and/or construction materials and unsatisfactory performance of sub-contractors which may delay the progress of the Works. ZB will endeavour to place its necessary resources by planning, supervising and complying with its quality control policies and procedures to meet its obligations under the Proposals to ensure timely completion of the Works. 6.2 Zelan Kiara Teratai JV may face the risk of fluctuations in the cost of wages and/or materials which may impact the profitability of the Proposed Project. ZB will conduct careful and proper planning of manpower and materials requirements to ensure timely completion of the Proposed Project within the project budget. 3
7. DIRECTORS AND MAJOR SHAREHOLDERS INTERESTS AND PERSONS CONNECTED TO DIRECTORS AND MAJOR SHAREHOLDERS Save as disclosed below, none of the other directors and/or major shareholders and persons connected to them has any interest, direct or indirect, in the Proposals. ZB is 39.25% indirectly owned by Tan Sri Syed Mokhtar bin Syed Nor Al-Buklhary ( TSSM ) by virtue of his interest in MMC Corporation Berhad ( MMC ). The Proposals constitute related party transactions of ZB, which fall within the provisions of Paragraph 10.08 of the Listing Requirements, on the following basis: Proposed JV between ZCSB and KTSB Ahmad Zaed bin Saleh Hamdi, who is a director and substantial shareholder of KTSB, is deemed to be related to TSSM by virtue of him having declared as a person connected to TSSM. Proposed Project awarded by NGISB to Zelan Kiara Teratai JV Ahmed Kamil bin P M Mustafa Kamal, who is a director of both NGISB and its holding company, NGSB, is deemed to be related to TSSM by virtue of him having declared as a person connected to TSSM. 8. HIGHEST PERCENTAGE RATIO Pursuant to Paragraph 10.02(g) of the Listing Requirements, the highest percentage ratio is 14.78% based on the project cost attributed to ZB over the total assets of ZB as at 31 March 2011. 9. INDEPENDENT ADVISER In compliance with the provisions in Paragraph 10.08 of the Listing Requirements, ZB has appointed KAF Investment Bank Berhad as the Independent Adviser in relation to the Proposals. 10. APPROVAL REQUIRED The approval of the shareholders of ZB is required to be obtained at a forthcoming EGM to be convened in order for ZCSB to undertake the Proposals. 4
11. DIRECTORS RECOMMENDATION After having considered all aspects of the Proposals, the Board is of the opinion that the Proposals are in the best interests of ZB and will therefore recommend the same for the shareholders approval. 12. DOCUMENTS AVAILABLE FOR INSPECTION The Letter of Award and the JV Agreement both dated 28 May 2012 are available for inspection at the registered office of ZB at 24 th Floor, Wisma Zelan, No. 1, Jalan Tasik Permaisuri 2, Bandar Tun Razak, Cheras, 56000 Kuala Lumpur during normal business hours from Mondays to Fridays (except public holidays) for a period of three (3) months from the date of this Announcement. This Announcement is dated 29 May 2012 5