1. INTRODUCTION
On behalf of the Board of Directors ("Board") of Naim Cendera Holdings Berhad ("Naim",
"Company" or "Purchaser"), AmInvestment Bank Berhad (formerly known as AmMerchant Bank Berhad) ("AmInvestment Bank"), a member of AmInvestment Bank Group, is pleased to announce that Naim is proposing to undertake the Proposed Acquisitions.
2. THE PROPOSED ACQUISITIONS
2.1 Details of the Proposed Acquisitions
The Proposed Acquisitions involve the acquisition of 45% equity interests in Dayang Enterprise Sdn Bhd ("DESB"), DESB Marine Services Sdn Bhd ("DMSSB") and Fortune Triumph Sdn Bhd ("FTSB") (collectively referred to as "Dayang Companies") for a total cash consideration of RM87,750,000.
Accordingly, Naim, had on 24 May 2007 entered into:-
(a) a conditional Share Sale Agreement ("CSSA 1") with Encik Burhanuddin Bin Md. Radzi, Mr. Ling Suk Kiong and Vogue Empire Sdn Bhd ("VESB") (collectively referred to as the "Vendors") for the acquisition of 1,170,000 ordinary shares of RM1.00 each ("Shares") in DESB representing 45% equity interests in DESB ("DESB Shares") for a cash consideration of RM56,138,205 ("Proposed Acquisition of DESB");
(b) a conditional Share Sale Agreement ("CSSA 2") with the Vendors for the acquisition of 4,950,000 Shares in DMSSB representing 45% equity interests in DMSSB ("DMSSB Shares") for a cash consideration of RM28,746,606
("Proposed Acquisition of DMSSB"); and
(c) a conditional Share Sale Agreement ("CSSA 3") with the Vendors for the acquisition of 9,000 Shares in FTSB representing 45% equity interests in FTSB ("FTSB Shares") for a cash consideration of RM2,865,189 ("Proposed Acquisition of FTSB").
(CSSA 1, CSSA 2 and CSSA 3 are collectively referred to as "CSSAs", the DESB Shares, DMSSB Shares and FTSB Shares are collectively referred to as "Sale Shares")
The total purchase consideration of RM87,750,000 ("Purchase Consideration") shall be financed by a combination of internally-generated funds and borrowings, the breakdown of which will depend on the cash flow position of Naim at the time of settlement.
There are no liabilities, contingent liabilities or guarantees to be assumed by Naim pursuant to the Proposed Acquisitions and there are no additional financial commitment required of Naim in putting the Dayang Companies on-stream.
The number of Shares in the Dayang Companies to be disposed by the Vendors are set out in Table 1.
2.2 Background Information on the Dayang Companies
2.2.1 DESB
DESB was incorporated in Malaysia on 20 August 1980 under the Companies Act, 1965 ("Act") as a private limited company. At present, the authorised share capital of DESB is RM5,000,000 comprising 5,000,000 Shares, of which RM2,600,000 comprising 2,600,000 Shares are issued and credited as fully paid-up.
DESB is licensed by Petroliam Nasional Berhad ("Petronas") to carry out the business of offshore maintenance and construction services and is principally involved in the provision of maintenance services for topside structures, pipes and valves, and electrical and instrumentation, fabrication operations and hook-up and commissioning services for the oil and gas industry.
The shareholders of DESB and their respective shareholdings in DESB together with the list of directors of DESB are set out in Table 2(a)whilst a summary of the financial results of DESB for the past five (5) financial years ended 30 September 2006 are set out in Table 2(b).
2.2.2 DMSSB
DMSSB was incorporated in Malaysia under the Act on 18 November 2003 as a private limited company and it commenced operations in May 2005. At present, the authorised share capital of DMSSB is RM25,000,000 comprising 25,000,000 Shares, of which RM11,000,000 comprising 11,000,000 Shares are issued and credited as fully paid-up.
DMSSB is principally involved in the charter of marine vessels including floating accommodation and catering to the oil and gas industry. DMSSB currently owns three (3) marine vessels.
The shareholders of DMSSB and their respective shareholdings in DMSSB together with the list of directors of DMSSB are set out in Table 3(a)whilst a summary of the financial results of DMSSB for the financial period from date of incorporation to 30 September 2006 and for the past two (2) financial years ended 30 September 2006 are set out in Table 3(b).
2.2.3 FTSB
FTSB was incorporated in Malaysia on 3 December 1997 under the Act as a private limited company and it commenced operations in March 1999. At present, the authorised share capital of FTSB is RM100,000 comprising 100,000 Shares, of which RM20,000 comprising 20,000 shares are issued and credited as fully paid-up.
FTSB is principally involved in the business of providing rental equipment and machinery to the oil and gas industry.
The shareholders of FTSB and their respective shareholdings in FTSB together with the list of directors of FTSB are set out in Table 4(a)whilst a summary of the financial results of FTSB for the past five (5) financial years ended 30 September 2006 are set out in Table 4(b).
2.3 Salient Terms of the CSSAs
A summary of the salient terms of the CSSAs, inter-alia, are as follows:-
(a) The Vendors agree to sell and the Purchaser agrees to purchase the Sale Shares on the condition that the Sale Shares are sold to the Purchaser free from all claims and encumbrances and together with all rights now or hereafter attaching or accruing thereto, including without limitation to all bonuses, rights, benefits, dividends, dividends in specie and other distributions declared, paid or made in respect of the Sale Shares whether on or after the date of the respective CSSAs.
(b) The purchase consideration under the respective CSSAs shall be satisfied by the Purchaser in cash terms in the following manner:-
(i) ten percent (10%) of the purchase consideration under each of the CSSAs (the "Deposit") to be paid to the Vendors' solicitors to hold as stakeholders (the "Stakeholders") upon execution of the respective CSSAs; and
(ii) the balance ninety percent (90%) of the purchase consideration (the "Balance Consideration") under each of the CSSAs shall be paid to the Stakeholders by way of a bank draft or such other mode of payment to be mutually agreed between the parties upon Completion (as defined in paragraph 2.3 (e) of this announcement).
(c) The completion of the CSSAs are conditional upon and subject to all the following conditions ("Conditions Precedent") being fulfilled within the period of one hundred eighty (180) days from the date of the respective CSSAs, with an automatic extension for another period of thirty (30) days or such other period as may be mutually agreed upon by the parties (the "Conditional Period"), namely:-
(i) the approval of the Securities Commission ("SC") under the Guidelines on the Acquisition of Interests, Mergers and Take-overs by Local and Foreign Interests issued by the Foreign Investment Committee ("FIC Guidelines") to the acquisition of the Sale Shares been obtained by the Purchaser;
(ii) the exemption from the SC from making a general offer to purchase the remainder of the shares in the Dayang Companies which do not form part of the Sale Shares or are not to be purchased pursuant to the CSSAs been obtained by the Purchaser;
(iii) the Purchaser being satisfied with the due diligence review into, without limitation, financial conditions, tax, operations, assets, personnel, legal, environment and occupational health and safety affairs of the Dayang Companies ("Due Diligence Review"), to be conducted by the Purchaser;
(iv) a resolution passed at a board meeting of the each of the Dayang Companies acknowledging the transaction as contemplated in the respective CSSAs and approving the transfer of the respective Sale Shares from the Vendors to the Purchaser been obtained by the respective Dayang Companies;
(v) a resolution passed at a general (if required) and board meeting of the Purchaser approving the transaction as contemplated therein been obtained by the Purchaser;
(vi) waiver to any of pre-emptive rights over the Sale Shares been obtained by the Vendors from the remaining shareholders of the respective Dayang Companies (the "Other Shareholders") and letters of confirmation from the Vendors and the Other Shareholders confirming that they do not intend to dispose their other shares in the respective Dayang Companies not being the Sale Shares ("Other Shares") and shall refuse any offer for purchase of the Other Shares;
(vii) all consents, authorisations, approvals, orders, waivers (including, waivers of any pre-emptive rights, tag-along rights, put or call options and other rights or options) and alike that are necessary or required to be obtained by any of the Vendors or the Dayang Companies from any counter parties to the joint ventures, relevant governmental authorities or any other third parties in connection with the transfer of the Vendors' interests in the respective Dayang Companies to the Purchaser having been obtained and shall be in full force (including expiry of waiting periods);
(viii) all consents, approvals, waivers and alike that are necessary or required under any change of shareholdings provisions under any material contracts entered into by the Dayang Companies having been obtained and are in full force (including expiry of waiting periods as defined in the respective CSSAs);
(ix) representations, warranties and covenants (individually and collectively) of the Vendors remaining true and accurate and having been fulfilled or performed in all material respects on each day from the date of the respective CSSAs until the Completion as if repeated on each such day;
(x) there having not been at any time after the execution of the respective CSSAs any material adverse change, event, act, claim (or threat of claim), omissions or alike reasonably likely to lead to such a change in the business, assets, prospects, performance, financial position or results of operations of any of the Dayang Companies and that from the date of the respective CSSAs to Completion the business of the respective Dayang Companies has been carried on in a satisfactory and normal manner and the respective Dayang Companies has not disposed of any material assets or assumed or incurred any material liabilities (including contingent liabilities) other than those in connection with its ordinary course of business;
(xi) each of the key employees named in the respective CSSAs having furnished a written undertaking to the Purchaser, on terms reasonably satisfactory to the Purchaser, that each of them will not voluntarily leave the employ of the respective Dayang Companies in whose employ they are, for a period of no less than thirty six (36) months after Completion, and there being no breach of such undertaking as at Completion;
(xii) simultaneous completion of CSSA 1, CSSA 2 and CSSA 3; and
(xiii) delivery to the relevant party copies of consents, authorisations, exemptions, approvals, orders, waivers and alike as referred to in paragraphs (c) (i), (ii), (iv), (v), (vi), (vii), (viii) and (xi) above.
(d) The Vendors jointly and severally further undertake, warrant and guarantee to the Purchaser as follows:
(i) that the Dayang companies and their future subsidiaries and associated companies (the "Group") will collectively achieve an aggregate profit after tax ("PAT") of at least RM28,000,000 (the "Guaranteed Profit 2007") at the respective company's level or at the Group's level, over the period covering financial year ending 30 September 2007 and an aggregate PAT of at least RM34,000,000 (the "Guaranteed Profit 2008") at the respective company's level or at the Group's level, over the period covering financial year ending 30 September 2008;
(ii) that in the event there is a shortfall in the Guaranteed Profit 2007, the sum of RM1,800,000 shall be the shortfall compensation for 2007 ("Shortfall Compensation 2007") whereas in the event there is a shortfall in the Guaranteed Profit 2008, the sum of RM2,700,000 shall be the shortfall compensation for 2008 ("Shortfall Compensation 2008") and Vendors shall deliver to the Purchaser bank guarantees undertaking to pay the Shortfall Compensation 2007 and the Shortfall Compensation 2008 on Completion.
(e) Completion of the sale and purchase of the Sale Shares shall take place within fourteen (14) Business Days after the unconditional date (being the date when all the Conditions Precedent shall have been fulfilled) at the Vendors' or the Vendors' Solicitors' or the Purchaser's office or any other place(s) to be mutually agreed upon by the Parties ("Completion").
2.4 Basis Of Arriving At The Purchase Consideration
The Purchase Consideration was arrived at on a willing-buyer willing-seller basis after taking into consideration:-
(a) the audited net assets ("NA") of DESB, DMSSB and FTSB as at 30 September 2006 of approximately RM42.4 million, RM20.9 million and RM2.9 million respectively;
(b) Guaranteed Profit 2007 and Guaranteed Profit 2008; and
(c) the synergistic benefits expected to be derived from the Proposed
Acquisitions.
2.5 Implications under the Malaysian Code on Take-Overs and Mergers, 1998
("Code")
Upon completion of the Proposed Acquisitions, Naim will hold 45% equity interests in each of the Dayang Companies. As a result, Naim will be under an obligation to undertake mandatory offers for all the remaining Shares in the Dayang Companies not held by Naim ("MO").
The Vendors and the Other Shareholders will give written confirmations that they do not intend to dispose the Other Shares and shall refuse any offer for purchase of the Other Shares. This is also one of the Conditions Precedent as stipulated in Section 2.3 (c) (iv) of this Announcement.
Accordingly, exemptions will be sought from the SC under Practice Note 2.9.6 of the Code to exempt Naim from the obligation to undertake the MO ("MO Exemption").
2.6 Original Cost And Date Of Investment
The original cost and date of investment by the Vendors in DESB, DMSSB and FTSB are set out in Table 5.
2.7 Expected Completion Date
The Proposed Acquisitions are expected to be completed in the fourth quarter of 2007.
2.8 Prospects of the Dayang Companies
The Dayang Companies hold licences issued by Petronas which enable the Dayang Companies to provide supporting products and services for the oil and gas industry in Malaysia. DESB is also a registered contractor with the Ministry of Finance which allows it to tender for contracts issued by the Malaysian Government.
The Dayang Companies have successfully established a track record associated with quality, reliability, technical expertise as well as service excellence with approximately twenty-five (25) years of experience in the oil and gas industry, especially in maintenance services for a wide range of exploration and production platforms and other offshore structures. In the light of the current expansion experienced within the oil and gas industry, the Dayang Companies' wide experience profile coupled with established track record serve as a distinct competitive advantage when bidding for most types of offshore structures contracts.
In addition, the Dayang Companies are planning to provide marine logistic services to operators in the oil and gas industry, onshore maintenance services and charter of marine vessels. The Group is also planning to expand its supporting products and services businesses to Brunei and the Middle East.
Pursuant to the Proposed Acquisitions, the Naim group is able to expand its business activities to include providing wide range of supporting products and services to the oil and gas industry, which is in line with Naim's expansion / diversification plan into the oil and gas sector.
2.9 Risk Factors
The following are the salient risk factors (which are not exhaustive) in relation to the Proposed Acquisitions:-
2.9.1 Business Risks
The business activities of Dayang Companies are subject to risks inherent in the provision of supporting products and services to the oil and gas industry, including fluctuations in the market price of hydrocarbons, depletion of hydrocarbon resources and ability to secure new customers or contracts.
2.9.2 Operational Risk
As a supporting product and service provider to the oil and gas industry, Dayang Companies face potential operational risks such as unforeseen operational hazards and delay in the completion of work orders due to work stoppage caused by poor weather conditions or unexpected breakdown in the Dayang Companies' charter marine vessels.
2.9.3 Dependence on key customers
The performance of Dayang Companies depends on contracts secured from major players such as Petronas Carigali Sdn Bhd, Exxonmobil Exploration & Production Malaysia and Sarawak Shell Berhad. Notwithstanding this, Dayang Companies is continuously increasing efforts to secure contracts from other customers.
2.9.4 Dependence on key personnel
The continued performance and future success of Dayang Companies depends upon the abilities, continued efforts and teamwork of its directors and senior personnel as well as its ability to attract and retain experienced engineers, project managers and other technical and management personnel. Any sudden departure of its executive directors or members of senior management may affect Dayang Companies' performance.
2.9.5 Political and Economic Risks
Any adverse developments in the political, economic and regulatory environment in Malaysia or other countries that Dayang Companies intends to expand its businesses could materially affect the Dayang Companies' financial and business prospects. Moreover, Dayang Companies are required to conduct their business within a strict environmental regime and may be exposed to potential liabilities and increased compliance costs.
2.9.6 Competition
Dayang Companies' work contracts are awarded based on open tender which are restricted to Petronas licencees. In view of the increasing number of service providers in the industry, the Dayang Companies are expected to face competitions from other competitors, especially in terms of pricing. However, the Dayang Companies' long track record and experience would enable Dayang Companies to compete successfully.
2.9.7 Borrowing Costs
Dayang Companies' material capital commitment are to be funded through a combination of internally generated funds and / or borrowings. Accordingly, any significant fluctuations in interest rates which may increase the borrowing costs of Dayang Companies might affect the financial performance of Dayang Companies although they have historically been operating under a low gearing.
3. RATIONALE FOR THE PROPOSED ACQUISITIONS
The Proposed Acquisitions represent an opportune time for Naim to expedite the Naim group's diversification plan into the oil and gas industry in order to immediately benefit from the positive developments and expected growth of the oil and gas industry.
Following the Proposed Acquisitions, Naim will have significant interests in one of the leading offshore maintenance and construction services providers for the oil and gas industry with a ready pool of skilled workforce, technical know-how and secured contracts.
4. EFFECTS OF THE PROPOSED ACQUISITIONS
4.1 Share Capital
As the Proposed Acquisitions will not involve any issuance of securities by Naim, it will not have any effect on the issued and paid-up share capital of the Company.
4.2 Earnings
Barring unforeseen circumstances, the Proposed Acquisitions are expected to be completed in the fourth quarter of 2007 and are expected to contribute positively to the earnings and earnings per Share of the Naim group for the financial year ending 31 December 2007 and its future earnings.
4.3 NA and Gearing
The Proposed Acquisitions will not have any material effect on the NA and NA per Share of the Naim group. Nevertheless, the gearing of the Naim group may be increased depending on the quantum of the Purchase Consideration to be financed by borrowings.
4.4 Shareholding Structure
As the Proposed Acquisitions will not involve any issuance of securities by Naim, it will not have any effect on the substantial shareholders' shareholdings in the Company.
4.5 Dividend
For the financial year ending 31 December 2007, Naim declared a gross interim dividend of 7.0 sen per Share less taxation at 27%.
The Proposed Acquisitions are not expected to have any material effect on the dividends to be declared by Naim for the financial year ending 31 December 2007. The declaration of dividends, if any, in the future years will be dependent upon the financial position and performance of the Naim group.
5. CONDITIONS OF THE PROPOSED ACQUISITIONS
The Proposed Acquisitions are subject to the following approvals being obtained:-
(a) the SC under the FIC Guidelines;
(b) the SC for the MO Exemption; and
(c) any other relevant authorities.
The Proposed Acquisitions are not subject to the approval of the shareholders of Naim. A copy of this Announcement will be despatched to the shareholders of Naim for their information only.
6. DIRECTORS' AND SUBSTANTIAL SHAREHOLDERS' INTERESTS
None of the directors and/or substantial shareholders of Naim or persons connected to the directors and/or substantial shareholders of Naim have any interest, direct or indirect, in the Proposed Acquisitions.
7. DIRECTORS' RECOMMENDATION
The Board, having taken into consideration all aspects of the Proposed Acquisitions, is of the opinion that the Proposed Acquisitions are in the best interest of the Company.
8. DEPARTURE FROM THE SECURITIES COMMISSION'S POLICIES AND GUIDELINES ON ISSUE/ OFFER OF SECURITIES ("SC GUIDELINES")
To the best knowledge of the Board, the Proposed Acquisitions do not depart from the SC's Guidelines.
9. ADVISER
AmInvestment Bank has been appointed as the Adviser to Naim for the Proposed Acquisitions.
10. SUBMISSION TO THE AUTHORITIES
The applications to the relevant authorities for the Proposed Acquisitions are expected to be submitted within two (2) months from the date of this Announcement.
11. DOCUMENTS AVAILABLE FOR INSPECTION
The CSSAs may be inspected at the registered office of Naim at 9th Floor, Wisma Naim, 2? Mile, Rock Road, 93200 Kuching, Sarawak during normal office hours from Monday to Friday (except public holidays) for a period of three (3) months from the date of this Announcement.
This announcement is dated 24 May 2007.
