PUNCAK NIAGA HOLDINGS BERHAD (Company No. 416087-U) (Incorporated in Malaysia) SUMMARY OF KEY MATTERS DISCUSSED AT THE EXTRAORDINARY GENERAL MEETING OF THE COMPANY HELD AT CONCORDE I, LEVEL 2, CONCORDE HOTEL SHAH ALAM, NO. 3, JALAN TENGKU AMPUAN ZABEDAH C9/C, 40100 SHAH ALAM, SELANGOR DARUL EHSAN ON TUESDAY, 13 FEBRUARY 2018 AT 9.30 A.M. PRESENT Six (6) Directors of Puncak Niaga Holdings Berhad ( PNHB or the Company ) and a total of One Hundred and Twenty-Five (125) Members/Shareholders of the Company, One (1) Corporate Representative and Fifty-Six (56) Proxies, as per the Attendance List, attended the Meeting together with the Chief Financial Officer, Company Secretaries, Management personnel and representatives from the Principal Adviser, Hong Leong Investment Bank Berhad ( HLIB ), the Independent Adviser, Public Investment Bank Berhad ( PIVB ), the Legal Adviser, Messrs Adnan Sundra & Low, the Business Valuers, FHMH Corporate Advisory Sdn Bhd, Khong & Jaafar, Smith Zander International Sdn Bhd, Messrs BDO, the Company s Share Registrar and Poll Administrator, Tricor Investor & Issuing House Services Sdn Bhd, the Company s Independent Scrutineers, Coopers Professional Scrutineers Sdn Bhd and the Company s External Auditors, Messrs KPMG PLT. CHAIRMAN OF MEETING YBhg Tan Sri Dato Seri Dr Ting Chew Peh chaired the Meeting as per the mandate given by the Board of the Company as YBhg Tan Sri Rozali Bin Ismail, the Executive Chairman of the Company was unable to chair the Meeting as he is deemed interested in the Proposed Acquisition By Puncak Niaga Of The Entire Issued Share Capital Of TRIplc Berhad From Pimpinan Ehsan Berhad For A Cash Consideration Of RM210,000,000 ( Proposed Acquisition ) and had and will continue to abstain from all deliberations and voting on the Proposed Acquisition. NOTICE OF MEETING The Notice convening the Meeting was taken as read. QUORUM The requisite quorum being present pursuant to Article 62 of the Articles of Association of the Company, the Meeting was duly convened at 9.35 a.m.
Page 2 CORPORATE PRESENTATION AND QUESTIONS RECEIVED BY THE COMPANY The Meeting was preceded by the Presentation ( Corporate Presentation ) on the presentations on the Proposed Acquisition by the representative of Hong Leong Investment Bank Berhad ( HLIB ), Mr Phang Siew Loong, Head of Equity Markets, Investment Banking and the representative of Public Investment Bank Berhad ( PIVB ), Ms Rachel Ong, Senior Manager. MSWG s Questions And The Company s Responses:- The Chairman informed the shareholders that the Company received a letter from the Minority Shareholders Watchdog Group ( MSWG ) dated 7 February 2018. Mr Danny Ng Wah Tar, the Executive Director, Corporate Finance Division of Puncak Niaga Holdings Berhad ( Puncak Niaga or the Company ) read out the questions raised by MSWG and the Company s responses as follows:-. Question 1:- We noted that on page 11 of the Circular to Shareholders dated 18 January 2018 (the Circular ), the range of value could potentially be reduced by up to RM25.32 million if the deferred tax assets are not realisable. What steps are being taken by Puncak Niaga Group to realise the deferred tax assets? Answer 1:- The deferred tax assets should be realisable in the future as Zuriat Watan Sdn Bhd is able to: (i) (ii) claim tax deduction for the development expenditure previously impaired amounting to RM52.88 million. The development expenditure comprises costs that are directly attributable to the development activities which should be allowed by IRB as a deduction when the company continues to develop the same project; and demonstrate that it is still an active company which has not ceased its business and hence should be able to utilise the tax losses of RM52.61 million brought forward to set off against its future taxable profits. Question 2:- On page 45 of the Circular, it is stated that FHCA had discounted each period s FCFE to the present value using the cost of equity which is derived from the Capital Asset Pricing Model. Why is the beta of ZIP3 Project (1.39) higher than that of ZIP2 Project (0.82)?
Page 3 Answer 2:- Beta, a measure for systematic risks, of Z1P3 Project is higher than Z1P2 Project due to the higher debt-to-equity ratio of Z1P3 Project (400%) as compared to Z1P2 Project (182.60%). Question 3:- What is Puncak Niaga Group s targeted return on investment of the acquisition of TRIplc s entire equity interest? Answer 3:- The TRIplc Berhad Group consists of two (2) businesses, namely the concession business and the property investment/property development business. The targeted return on investment for Z1P2 Project is expected to be in the range of 10.49% to 12.49%; while the targeted return on investment for Z1P3 Project is expected to be in the range of 19.30% to 21.30%. For the property investment/property development business, the targeted return on investment has not been determined at this point in time as the Company will only launch the developments in the longer term. The Chairman thereafter invited the shareholders of the Company to raise questions in relation to Agenda 1 of the Notice for the EGM of the Company, if any. Questions Raised By The Shareholders/Proxy Holders At The Meeting The following questions were raised at the Meeting and answered by the Company, the Principal Adviser, HLIB and the Independent Adviser, PIVB, as appropriate. Question 1:- a) What is the cost of the corporate exercise for the Proposed Acquisition? b) TRIplc Berhad ( TRIplc ) is a highly leveraged company and the Proposed Acquisition is a Related Party Transaction ( RPT ). Why should TRIplc be sold as they are good on their own? He commented that Puncak Niaga should focus on managing its existing businesses which are all making losses instead of acquiring a new business which is a RPT with a lot of assumptions made. As a minority shareholder, he commented that it is better for Puncak Niaga to sell its assets and carry out a capital repayment exercise for the shareholders and the major shareholders can do what they like with the Company, going forward.
Page 4 c) The shareholder was concerned on a lot of assumptions made on the Proposed Acquisition and the possibility of revocation of the two (2) concessions awarded to TRIplc should there be a change of Government/Government s policy. He added that shareholders did not like losing their investments as Puncak Niaga s share price had eroded in recent years to become a penny stock, following the disposal of its water concession business. What is the impact on Puncak Niaga if the concessions are revoked? d) What is the impact to TRIplc on the anticipated increase in interest rates in Malaysia since TRIplc is a highly geared company? e) Since the completion of the disposal of the water concession business to the Selangor State Government, Puncak Niaga Group has been making losses. As a minority shareholder, he is worried for Puncak Niaga to get involved in another concession business. Furthermore, the Proposed Acquisition will only reduce Puncak Niaga s losses moving forward and will not turn around Puncak Niaga from a loss making company into a profit making company. As for the plantation business, it will need approximately five (5) years to be profitable as three-quarter of the land have not been developed. He enquired how the Management of Puncak Niaga handle the existing losses of the Company and asked for an assurance on when Puncak Niaga can turn into a profit-making company. Answer 1:- a) The total cost of the corporate exercise for the Proposed Acquisition is approximately RM3.7 million. b) It is a norm for a concession company like TRIplc, to be highly leveraged and usually, bonds will be raised to fund the construction/development of the project and upon completion of the construction of the projects, recurring income will be generated during the remaining concession period. As presented by HLIB, the Principal Adviser in the presentation earlier, the construction of the ZIP2 project had already been completed and therefore, the risk profile for ZIP2 project is low. The targeted return on investment for the ZIP2 project is expected to be approximately 10% while the Z1P3 project is approximately 21%. All these assumptions have been tabulated based on the future cash flow profile of ZIP2 and ZIP3 projects respectively. On the future prospects of Puncak Niaga, TRIplc has close rapport/relationship with the Government and Universiti Teknologi MARA ( UiTM ) and hence, Puncak Niaga may leverage on this to secure additional contracts for further development of UiTM Puncak Alam Campus. The Proposed Acquisition will allow Puncak Niaga to gain immediate access to a profitable TRIplc Group via recurring concession income for the next 16 years from the Z1P2 project and 22 years from the Z1P3 project of the UiTM Puncak Alam Campus. In addition, the Proposed Acquisition is also a strategic opportunity for Puncak Niaga to secure additional land bank for Puncak Niaga Group s future growth in the property development segment and would enlarge the land bank of Puncak Niaga Group.
Page 5 It must be noted that Puncak Niaga had not been able to acquire new businesses/companies which can provide sizeable profits to the Group post disposal of its water concession business in 2015. After careful evaluation, the Management and Board (with the exception of YBhg Tan Sri Rozali Bin Ismail and Encik Azlan Shah Bin Tan Sri Rozali) opined that TRIplc is ideal as it can provide future profits and cash flows to the Group with its two (2) concession businesses and the purchase consideration for the acquisition of TRIplc of RM210 million is considered reasonable. c) There is always an element of risk in any investment. After the disposal of its water concession business, Puncak Niaga has been actively looking for new investment/business opportunities that will sustain the long term value of the Company and TRIplc was identified after careful evaluation. Post completion of the construction phase of the projects, TRIplc will provide facilities management and maintenance services to both Z1P2 and Z1P3 projects, thus providing recurring income to the Company and hence, mitigating the risk. With regard to the risk of revocation of concession arising from the change of Government/Government s policy, if any, it is a sovereign risk and the Federal Government must honour the terms of the concessions granted to TRIplc. d) Bonds had been raised to fund the Z1P2 project four (4) years ago at fixed interest rate throughout the bond period. Similarly, for the ZIP3 project, bonds were also raised before the increase in interest rate and hence, TRIplc will not be affected by the fluctuation in interest rates, going forward. e) The two (2) concession businesses of TRIplc are different from the water concession business previously owned by Puncak Niaga and to-date, the Federal Government had honoured all the terms of the two (2) concessions. In the case of the water concession business, revenue is derived from the sale of water to consumers. However, in the case of the TRIplc concession business, the revenue is derived from direct payment by the Federal Government to the concession companies. Hence the collection risk is much lower. The purchase consideration of RM210 million for the Proposed Acquisition is reasonable taking into consideration the two (2) concession businesses as well as the land bank of approximately 311 acres valued at approximately RM260 million. The Proposed Acquisition is deemed reasonable to Puncak Niaga. Question 2:- a) How is Puncak Niaga Group going to turnaround the Construction business? b) What is the future direction of the Oil & Gas Division of Puncak Niaga Group? c) When will Puncak Niaga Group turn to be a profitable company?
Page 6 Answer 2:- a) On the turn around of the Construction business, Puncak Niaga Group hopes to increase the profit by securing more sizeable construction contracts in the future. b) As for the future direction of the Oil & Gas Division ( O&G ), Puncak Niaga Group only has one (1) barge and hence, will be lying low in view of the current business environment of the O&G industry. c) With regard to the plantation business, it will need approximately five (5) years to be profitable. Hence, the Management of the Company anticipates the Group to be profitable within the next three (3) to five (5) years. Question 3:- a) Following the completion of the acquisition of Danum Sinar Sdn Bhd ( Danum Sinar ) in July 2017, is Danum Sinar financially independent? What are the future commitments from Puncak Niaga to Danum Sinar for the development of the plantation business? b) Is TRIplc financially independent or would it require injection of capital/funds from Puncak Niaga? Does the Company still have cash to undertake the property development of TRIplc s land? c) Upon completion of the Proposed Acquisition, is Puncak Niaga still have surplus cash/funds for future projects/businesses and what is the balance of cash post Proposed Acquisition? Answer 3:- a) Danum Sinar had secured bank loans for future development of the plantation business. b) TRIplc is financially independent and does not require any capital injection from Puncak Niaga at this point in time. For the development of land, if any, TRIplc can source for bridging loan to fund the property development projects in future which is common for all property development projects. c) As for future project/business, Puncak Niaga will look into the nature of the project/business before determining the structure of the financing. The balance of funds as of to-date is approximately RM536 million and after the completion of the acquisition of TRIplc, the balance of cash is approximately RM300 million.
Page 7 Question 4:- Puncak Niaga had incurred losses for the past eight (8) quarters and almost reaching above RM400 million. Based on the presentation, the average profit of TRIplc for five years is approximately RM15 million per annum. How would the acquisition of TRIplc benefit Puncak Niaga shareholders? Furthermore, upon completion of the acquisition of TRIplc, the borrowings of Puncak Niaga Group would also increase. How much contribution will be gained from the concession businesses of TRIplc? Answer 4:- TRIplc had been making profits for the past four (4) years and the unaudited profit after tax ( PAT ) for the last six months for the period ended 30 November 2017 was approximately RM12.6 million and the extrapolated full year PAT of approximately RM25 million for the financial year ending 31 May 2018. The expected revenue from the maintenance contract from the Z1P2 and Z1P3 projects will be approximately RM50 million and RM100 million respectively, thus providing a total revenue for both concessions of approximately RM150 million once the construction for the Z1P3 project are completed and the facilities management services commences. Question 5:- a) Why the gross profit of RM60,714,000 was higher than the revenue of RM50,503,000 for TRIplc s financial year ended 31 May 2016 ( FYE 2016 )? b) What is the impact on the escalation of construction costs such as raw materials, steel, cement and energy costs against the projected income from the construction of the Z1P3 project and is there an adverse impact to Puncak Niaga Group s earnings? Answer 5:- a) The gross profit of RM60.7 million was higher than the revenue of RM50.5 million for TRIplc s financial year ended 31 May 2016 ( FYE 2016 ) due to the finalisation of the Z1P1 contract sum with the client only in FYE 2016 eventhough the Z1P1 project at UiTM was completed in year 2009. Due to this, the gross profit is correspondingly higher with the recognition of revenue and negative cost of sales which was over-recognised in the previous financial years arising from the finalisation of the contract sum for the ZIP1 project. b) For the ZIP3 project, where TRIplc is involved in the construction of Z1P3 of UiTM Puncak Alam Campus, TRIplc has managed to lock in the contractors cost for the project. Furthermore, the payment from the Federal Government towards this construction is over a lease period of 20 over years. The construction and developments costs have been locked-in and the escalation of costs is not expected to have a material impact on the project costs.
Page 8 PIVB as the Independent Adviser had evaluated the valuation for the Proposed Acquisition performed by the Independent Valuer after taking into consideration the forecast and projection of TRIplc, consisting of ZIP2 and ZIP3 projects. The concession income from Z1P2 project has a remaining period of approximately 16 years and from Z1P3 project of 22 years. This concession income can be generated upon completion of Z1P3 s construction activities. All these projections minus the bank borrowings i.e. sukuk, will provide an average forecast profit per annum of approximately RM25 million, which is expected to further boost Puncak Niaga Group s performance. Question 6:- The Independent Adviser had earlier informed that an average forecast profit is approximately RM25 million based on the forecast as highlighted above. It will reduce the losses of Puncak Niaga and not to make profit. Please confirm. Answer 6:- PIVB confirmed that based on the forecast and assumptions, the average forecast profit per annum of approximately RM25 million will reduce the losses of Puncak Niaga Group. VOTING BY POLL At 10.50 am, the Chairman informed the shareholders that, in line with Paragraph 8.29A(1) of the Main Market Listing Requirements of Bursa Malaysia Securities Berhad, the voting at the EGM will be conducted on a poll and the Chairman of the Meeting exercised his right to demand for a poll in accordance with Article 66 of the Company s Articles of Association in respect of the resolution on the Proposed Acquisition at the Meeting. The Company s Share Registrar, Tricor Investor & Issuing House Services Sdn Bhd was appointed to act as Poll Administrator and Coopers Professional Scrutineers Sdn Bhd as the Independent Scrutineers for the conduct of the polling process for the EGM. PROPOSED ACQUISITION BY PUNCAK NIAGA OF THE ENTIRE ISSUED SHARE CAPITAL OF TRIPLC BERHAD FROM PIMPINAN EHSAN BERHAD FOR A CASH CONSIDERATION OF RM210,000,000 ( PROPOSED ACQUISITION ) Upon the invitation of the Chairman, the shareholders proposed and seconded for the approval of Resolution 1. At 11.00 a.m., the Chairman declared the Meeting adjourned for approximately 20 minutes for the e-polling to be conducted.
Page 9 ANNOUNCEMENT OF POLL RESULTS The EGM resumed at 11.25 a.m. for the declaration of the poll results. The number of abstained shares for the Proposed Acquisition is totalling 175,143,024 ordinary shares representing 39.16% of the total issued share capital of the Company. Outcome Of The EGM Poll Results For The Ordinary Resolution:- Proposed Acquisition By Puncak Niaga Of The Entire Issued Share Capital Of TRIplc Berhad From Pimpinan Ehsan Berhad For A Cash Consideration Of RM210,000,000 ( Proposed Acquisition ) Poll Results No. of shares % For 60,871,051 96.191 Against 2,410,282 3.809 Resolution 1 was duly passed as follows:- THAT subject to all other relevant approvals being obtained from the relevant authorities/parties (if any), approval be and is hereby given for the Company to acquire the entire issued share capital of TRIplc Berhad ( TRIplc ) from Pimpinan Ehsan Berhad ( Pimpinan Ehsan ) for a cash consideration of RM210,000,000 only ( Proposed Acquisition ), in accordance with the terms and conditions of the conditional Share Sale Agreement dated 16 December 2016 entered between Pimpinan Ehsan and the Company for the Proposed Acquisition (as supplemented by the supplemental agreement dated 15 September 2017) and any amendments, variations, modifications and additions thereto from time to time ( SSA ) AND THAT in order to implement, complete and give full effect to the Proposed Acquisition, any one (1) Director of the Company (other than the Directors of the Company interested in the Proposed Acquisition), be and is hereby authorised to do or to procure to be done all such acts, deeds and things and to execute, sign and deliver, for and on behalf of the Company, all relevant documents and to enter into any arrangements, agreements and/or undertakings with any party or parties as deemed necessary, expedient and/or appropriate, with full powers to assent to any terms, conditions, modifications, variations and/or amendments as may be agreed to/required by any relevant authorities or parties (if any) or as a consequence of any such requirements or as he may in his absolute discretion deem fit, necessary, expedient and/or appropriate in connection with the SSA and/or the Proposed Acquisition and in the best interest of the Company. TERMINATION OF MEETING The Meeting was duly closed at 11.30 a.m.