PROPOSED ACQUISITION OF 51% EQUITY INTEREST IN MEDIA CITY VENTURES SDN BHD ( MCVSB ) BY DRB-HICOM

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1 DRB-HICOM BERHAD ( DRB-HICOM OR COMPANY ) PROPOSED ACQUISITION OF 51% EQUITY INTEREST IN MEDIA CITY VENTURES SDN BHD ( MCVSB ) BY DRB-HICOM 1. INTRODUCTION Pursuant to Paragraphs 9.19(23), 10.08(1) and of Bursa Malaysia Securities Berhad s ( Bursa ) Main Market Listing Requirements ( Listing Requirements ), DRB- HICOM wishes to announce that it has on 26 November 2015 entered into a conditional share sale and purchase agreement ( SSA ) with Enigma Permata Sdn Bhd ( EPSB or Vendor ) for the proposed acquisition of 51% equity interest in MCVSB comprising 51,000 ordinary shares of RM1.00 each in MCVSB ( Sale Shares ) for a total cash consideration of RM85.68 million ( Proposed Acquisition ). DRB-HICOM and EPSB are collectively referred to as the Parties. 2. INFORMATION ON EPSB 2.1 EPSB was incorporated as a private limited company in Malaysia on 3 November The authorised share capital of EPSB is RM100,000 comprising 100,000 ordinary shares of RM1.00 each, all of which are fully issued and paid-up. 2.2 EPSB s shareholders are Azman Hanafi bin Abdullah and Arsad bin Mat Jali who each own 50,000 ordinary shares of RM1.00 each representing 50% each in EPSB. 2.3 The principal activity of EPSB is investment holding. 3. INFORMATION ON MCVSB 3.1 MCVSB was incorporated as a private limited company in Malaysia on 13 December The authorised share capital of MCVSB is RM100,000 comprising 100,000 ordinary shares of RM1.00 each, all of which are fully issued and paid-up. 3.2 MCVSB is a wholly-owned subsidiary company of EPSB. MCVSB s directors are Bahariah bt Bakar and Mohd Azri bin Hashim. 3.3 The principal activity of MCVSB is investment holding. Its only investment is in Media City Holdings Sdn Bhd ( MCHSB ) which in turn wholly owns Media City Development Sdn Bhd ( MCDSB ). 1

2 4. INFORMATION ON MCHSB 4.1 MCHSB was incorporated as a private limited company in Malaysia on 20 September The authorised share capital of MCHSB is RM100,000 comprising 100,000 ordinary shares of RM1.00 each. The issued and paid up share capital of MCHSB is RM2.00 comprising 2 ordinary shares of RM1.00 each. 4.2 MCHSB s directors are Hashim bin Hasan and Ahmad Zaed bin Saleh Hamdi ( AZSH ). 4.3 The principal activity of MCHSB is investment holding. 5. INFORMATION ON MCDSB 5.1 MCDSB was incorporated as a private limited company in Malaysia on 19 October The authorised share capital of MCDSB is RM5 million comprising 5,000,000 ordinary shares of RM1.00 each, all of which are fully issued and paidup. 5.2 MCDSB is a wholly-owned subsidiary company of MCHSB. MCDSB s directors are Dato Hilmi bin Mohd Noor ( DHMN ), Ahmad Zaki bin Hawari, Mohd Nazree bin Abu Kassim and Kamil Ahmad Merican. 5.3 Based on the audited results for the financial year ended 31 December 2014, MCDSB s net loss is RM491 and its net assets is RM4,953,011. Its unaudited net profit for the 9-month period ended 30 September 2015 is RM11,819 and its unaudited net assets as at 30 September 2015 is RM4,964, MCDSB, a single purpose vehicle, holds a 23-year concession from the Government of Malaysia ( GOM ) as represented by the Kementerian Komunikasi dan Multimedia Malaysia to undertake the following pursuant to the terms and conditions under the concession agreement dated 20 March 2012 ( CA ), entered into between the GOM, Syarikat Tanah Dan Harta Sdn Bhd and MCDSB: To undertake the planning, design, financing, construction, landscaping, equipping, installation, testing, commissioning and completion of new facilities and infrastructures including the broadcast equipment and system on the existing premises of Angkasapuri covering an area of approximately 63,613 sq m or acres; To carry out the asset management services on the abovementioned facilities and infrastructures; and To carry out the broadcast system maintenance services on the abovementioned broadcast equipment and systems 2

3 On 20 March 2012, GOM and MCDSB also executed two other agreements, i.e. Lease Agreement 1 ( LA1 ) and Lease Agreement 2 ( LA2 ) in relation to the supply, installation and leasing of broadcast equipment and systems to Pusat Berita Bersepadu and Pusat Penyiaran Antarabangsa and Wisma TV and Wisma Radio, respectively. The CA, LA1 and LA2 are collectively referred to as the Concession Agreements. In return, MCDSB shall be entitled to receive availability charges, asset management services charges and broadcast maintenance charges by way of monthly payment in arrears pursuant to the Concession Agreements. 5.5 CA, LA1 and LA2 will commence on the effective date of the relevant agreements (defined below) as set out below and are subject to the terms and conditions in the Concession Agreements. Type of agreement 1a CA (facilities & infrastructure) 1b CA (broadcast equipment) Construction or Supply and installation period 36 months from the effective date 36 months from the effective date 2 LA1 12 months from the effective date 3 LA2 21 months from the effective date Lease period 20 years from the acceptance of the facilities and infrastructure 8 years from the acceptance of the broadcast equipment and systems 8 years from the acceptance of the broadcast equipment and systems 8 years from the acceptance of the broadcast equipment and systems Maintenance period 20 years from the acceptance of the facilities and infrastructure 8 years from the acceptance of the broadcast equipment and systems 8 years from the acceptance of the broadcast equipment and systems 8 years from the acceptance of the broadcast equipment and systems The effective date of the Concession Agreements is pending the fulfilment of certain conditions precedent in the Concession Agreements. Upon the Concession Agreements being unconditional, the GOM will then confirm the effective date of the Concession Agreements ( Effective Date ). 3

4 5.6 Within 30 days from the issuance of the acceptance for the facilities, infrastructure and broadcast equipment systems pursuant to the CA, GOM will transfer parts of 3 lands measuring 45,648 square metres or approximately acres in Mukim Kuala Lumpur held under GRN Lot No 8354, GRN Lot No and GRN Lot No (collectively referred to as the Exchange Land) to MCDSB. The Exchange Land is unencumbered, is leasehold with tenure of 99 years, subject to the building category of land use and any other conditions/restrictions as may be imposed by the authority. The value of the Exchange Land set out in the CA will be deducted from the availability charges payable to MCDSB in the first 3 years of the payment of availability charges pursuant to the CA. Under the CA, MCDSB is required to develop a portion of the Exchange Land (measuring approximately 4.14 acres) into a mixed development at its own risk, cost and expenses comprising a hotel and a commercial complex, with offices and food and beverage outlets within 5 years of the transfer of the Exchange Land to MCDSB. 5.7 The total construction, supply and installation costs under the Concession Agreements of RM860 million will be financed via a mixture of external borrowings and equity and/or shareholders advances. 6. BASIS OF THE PURCHASE CONSIDERATION 6.1 The purchase consideration of RM85.68 million ( Purchase Consideration ) which represents 51% of the total value of RM168 million was arrived at on a willing buyer-willing seller basis after taking into consideration the following: Negotiated agreed value for 100% equity interest in MCVSB of RM8 million taking into consideration the following: a) audited and unaudited profit after taxation and net assets of MCDSB as set out in Paragraph 5.3; b) potential recurring income and cashflow to be enjoyed by MCDSB during the concession period; and c) Deloitte Corporate Advisory Services Sdn Bhd ( DCAS ), an independent valuer, estimated the fair market valuation of 100% equity interest in MCVSB as at 30 September 2015 to be at a range of between RM0.6 million and RM11.9 million in its valuation report dated 23 November 2015 based on the valuation methods of adjusted net asset value of MCVSB as at 30 September 2015, adjusted net asset value of MCHSB as at 30 September 2015 and the discounted cashflow of MCDSB as at 30 September 2015 ( DCAS Valuation Report ). The valuation of MCDSB based on the discounted free cash flow to equity holders method was based on the cashflow projections 4

5 of MCDSB for the financial years ending 31 December 2015 until the last date of the expiry of the Concession Agreements on 31 December 2038 and applying the effective equity discount rates of between 12.7% and 13.9%. DCAS also compared the implied equity internal rate of return derived from the discounted cashflow of MCDSB against the range of return on market capitalisation of comparable companies as a sense check. The following is the summary of the key assumptions used by DCAS in arriving at the fair market value range of MCVSB group. i) All necessary licences, permits and regulatory approvals required under the Concession Agreements are obtained and renewed; ii) On a as-is-where-is basis and there will be no significant change to the operations and management of MCVSB group; iii) MCDSB achieves its financial projections and there will be no delay during its construction of the infrastructure and facilities; and supply and installation of broadcast equipment and systems period; iv) The effective date of the Concession Agreements is 1 January 2016 and the last date of the concession is on 31 December 2038; v) All revenue, opex and capex are assumed to be goods and services tax ( GST ) taxable and assumed claimable except for capex incurred from October 2015 to December 2015 which is assumed to be GST taxable and not claimable; vi) MCDSB will finance the project based on 20% equity and 80% debt of which MCDSB will be able to secure a 15-year term loan of RM735 million; vii) Amounts owing to the Vendor and third parties in MCVSB group are interest free and will be repaid on the valuation date; viii)there are no surplus assets and/or contingent liabilities that will have a material impact on the valuation; and ix) The equity discount rate has been derived from the capital asset pricing model of which DCAS has considered the projected capital structure of MCDSB, long-term Malaysian risk free rate, expected market return in Malaysia and systematic risk or beta of MCDSB Negotiated agreed value for the Exchange Land of RM160 million taking into consideration the appraisal of the Exchange Land by Raine & Horne International Zaki + Partners Sdn Bhd ( Raine & Horne ). Raine & Horne appraised the total market value of the Exchange Land to be RM million or approximately RM per square feet based on its valuation report dated 18 August 2015 ( Raine & Horne Valuation Report ). As such, the agreed value of RM160 million represents a discount of RM5.18 5

6 7. SALIENT TERMS OF THE SSA million or approximately 3% to the appraised market value by Raine & Horne. In arriving at the market value of the Exchange Land, Raine & Horne adopted the comparison method of valuation as the basis of the valuation. The salient terms of the SSA are as follows: 7.1 EPSB has agreed to sell and DRB-HICOM has agreed to purchase all Sale Shares free from all encumbrances together with all rights, benefits and advantages which would be declared, made or paid in respect of the Sale Shares on the entitlement date whether on or subsequent to the completion date of the SSA for a total purchase consideration of RM85.68 million. 7.2 The Purchase Consideration is payable as follows: Payment Timing % of Purchase Consideration Total (RM million) Deposit Balance Purchase Consideration Within 7 days from the execution date of the SSA, Deposit to be paid to EPSB On the Completion Date of the SSA ( Completion Date ) 10% % Total 100% The Proposed Acquisition is conditional upon the satisfaction (or waiver, if legally permissible) of the following conditions ( Conditions Precedent ) and the parties responsible are set out below: DRB-HICOM to execute the shareholders agreement with EPSB on the same date of the SSA; DRB-HICOM completing a legal and financial due diligence exercise on MCVSB and all matters relating to the Concession Agreements, and the findings of each due diligence exercise are to its satisfaction; DRB-HICOM and EPSB shall, where applicable, obtain the approval from their respective financiers, as the case may be, for the Proposed Acquisition; DRB-HICOM and EPSB shall, where applicable obtain any other regulatory approvals or consents as may be required for the Proposed Acquisition including from Unit Kerjasama Awam Swasta; and EPSB to execute a letter of undertaking to refund the Deposit to DRB- HICOM in the event the Conditions Precedent are not fulfilled or the SSA is terminated. 6

7 7.4 In the event that the relevant authorities or bodies shall impose any material adverse condition and/or impose variation to the terms and conditions of the SSA on the Parties, any party who finds the condition(s) and/or variation(s) unacceptable may appeal to the relevant authorities or bodies, failing which the condition(s) and/or variation(s) shall be deemed to have been accepted by the Parties. 7.5 In the event that all or any of the Conditions Precedent are not fulfilled or obtained or waived within a period of 6 months commencing from the date of the SSA, or such other extended period as the parties may mutually agree in writing ( Conditional Period ), the rights and obligations of the Parties shall lapse and be of no further effect. 7.6 If any of the Conditions Precedent are not satisfied within the Conditional Period, then any party will be entitled to issue a notice of termination to the other party and the Deposit shall be refunded to DRB-HICOM, not later than 7 days from the date of notification by such party to the other party on the non-fulfillment of the Condition(s) Precedent within the Conditional Period. 7.7 Completion will take place at DRB-HICOM s registered office, or such other offices as may be agreed between the Parties. The Completion Date is a date to be mutually agreed between the Parties and is not later than thirty (30) days from the last day of the fulfilment of the Condition(s) Precedent. 7.8 On Completion Date, EPSB shall deliver a written confirmation to DRB-HICOM that: As at the Completion Date, there are no matter or thing which will result in a breach of or be inconsistent with any of the representations, warranties and undertakings herein contained; and There is no Material Adverse Change from the date of the SSA up until Completion Date. For the purposes of the SSA, Material Adverse Change means, in relation to an event or circumstance, the occurrence or effect of which shall adversely change or affect the financial condition, assets, properties, operations or results of operations of MCVSB, MCHSB or MCDSB; or would prevent (or would reasonably be expected to prevent) the fundamental and basic operations of MCVSB, MCHSB or MCDSB s business. 7.9 EPSB shall, after the Unconditional Date but prior to Completion Date, be entitled to seek a remedy of specific performance of the SSA against DRB-HICOM and all such reliefs flowing therefrom or terminate the SSA with immediate effect by giving a written notice to DRB-HICOM if the following events occur: DRB-HICOM fails to remedy a material breach of any terms or conditions or warranty of the SSA or fails to perform or observe its undertaking, obligation or agreement in the SSA within the required timeframe; or 7

8 7.9.2 A petition for winding-up is presented against DRB-HICOM and DRB- HICOM fails to take such steps to oppose or set aside such petition within the required timeframe; or An order is made or a member s resolution is passed or any legislation enacted for the bankruptcy or winding-up of DRB-HICOM and DRB- HICOM fails to oppose or set aside such petition within the required timeframe; or An administrator, a receiver and/or manager is appointed by the Court or any creditor pursuant to a debenture or any other security document in favour of such creditor over the undertaking, assets and properties of DRB-HICOM or any part of its assets and properties. In the event EPSB elects to terminate the SSA, EPSB shall be entitled to forfeit the Deposit within seven (7) business days from the date of the written notice DRB-HICOM shall, after the Unconditional Date but prior to Completion Date, be entitled to seek a remedy of specific performance of the SSA against EPSB and all such reliefs flowing therefrom or terminate the SSA with immediate effect by giving a written notice to EPSB if the following events occur: EPSB fails to remedy a material breach of any terms or conditions or warranty of the SSA or fails to perform or observe its undertaking, obligation or agreement in the SSA within the required timeframe; or A petition for winding-up is presented against EPSB and EPSB fails to take such steps to oppose or set aside such petition within the required timeframe; or An order is made or a member s resolution is passed or any legislation enacted for the bankruptcy or winding-up of EPSB and EPSB fails to oppose or set aside such petition within the required timeframe; or An administrator, a receiver and/or manager is appointed by the Court or any creditor pursuant to a debenture or any other security document in favour of such creditor over the undertaking, assets and properties of EPSB or any part of its assets and properties; or There is a Material Adverse Change event or circumstances arising. In the event DRB-HICOM elects to terminate the SSA, EPSB will return the Deposit to DRB-HICOM within seven (7) business days from the date of the written notice. 8 RATIONALE FOR THE PROPOSED ACQUISITION The Proposed Acquisition will expand the stable of concession businesses currently in the DRB-HICOM Group and can provide the Group with a new source of stable and recurring income. In addition, the Group can enjoy the potential development profits from the development of the strategically located Exchange Land upon its fulfilment of certain conditions in the CA. 8

9 9 APPROVALS REQUIRED The Proposed Acquisition does not require approval from the shareholders of DRB- HICOM or any other relevant authorities. 10 ESTIMATED TIMEFRAME FOR COMPLETION The Proposed Acquisition is expected to be completed by the first (1 st ) quarter of EFFECTS OF THE PROPOSED ACQUISITION 11.1 Share capital and substantial shareholders shareholding The Proposed Acquisition will not have any effect on the share capital and the substantial shareholders shareholdings of DRB-HICOM Net Assets The Proposed Acquisition is not expected to have any material impact on the net assets of the DRB-HICOM Group for the financial year ending 31 March Earnings The Proposed Acquisition is not expected to have any material impact on the earnings of the DRB-HICOM Group for the financial year ending 31 March However, the Proposed Acquisition is expected to contribute positively to the DRB-HICOM Group s future earnings subsequent to the completion of the construction of the facilities and infrastructure and supply and installation of broadcast equipment and systems pursuant to the Concession Agreements Gearing The Proposed Acquisition will be funded via DRB-HICOM s internally generated funds and external borrowings, the proportion of which will be determined later depending on the availability of internally generated funds on the Completion Date. 12 INTERESTS OF DIRECTORS, MAJOR SHAREHOLDERS AND/OR PERSONS CONNECTED Save as disclosed below, none of the other directors, major shareholders and/or persons connected with a director or major shareholder of DRB-HICOM has any interest, direct or indirect in the Proposed Acquisition: 12.1 AZSH, a director in MCHSB, is deemed a person connected to Tan Sri Dato Seri Syed Mokhtar Shah bin Syed Nor ( TSSM ), an indirect major shareholder in DRB-HICOM by virtue of AZSH having been declared as a person connected to TSSM as disclosed in Zelan Berhad s circular to shareholders dated 6 November 2012 on the proposed joint venture between Zelan Construction Sdn Bhd and 9

10 Kiara Teratai Sdn Bhd ( KTSB ) for the construction of an Integrated Immigration Custom Quarantine and Security Complex at Bukit Kayu Hitam. AZSH is a director and major shareholder of KTSB. Etika Strategi Sdn Bhd ( ESSB ) is the largest shareholder with a 55.92% equity interest in DRB-HICOM. ESSB s shareholders are Tan Sri Dato Seri Syed Mokhtar Shah bin Syed Nor ( TSSM ) who holds 90% while the other shareholder is Brig. Gen. (K) Tan Sri Dato Sri (Dr) Mohd Khamil bin Jamil ( TMKJ ) who holds 10% equity interest in ESSB. In view of the above, ESSB is deemed interested in the Proposed Acquisition and will ensure that persons connected to it (if any) will abstain from deliberations and voting at the relevant board meetings of DRB-HICOM in respect of the Proposed Acquisition TMKJ is the Group Managing Director of DRB-HICOM and a shareholder of ESSB. He is deemed a person connected to TSSM. In view of this, TMKJ has abstained and will continue to abstain from deliberations and voting at the relevant Board meetings of DRB-HICOM in respect of the Proposed Acquisition Tan Sri Marzuki bin Mohd Noor ( TSMMN ) is a Director in DRB-HICOM as well as a member of the Audit Committee of DRB-HICOM. DHMN, a director in MCDSB is TSMMN s brother. As such, DHMN is deemed a person connected to TSMMN by virtue of their family relationship. TSMMN is not interested in the Proposed Acquisition pursuant to Paragraph 10.02(k) of the Listing Requirements. For good corporate governance purposes, TSMMN will abstain and will continue to abstain from deliberation and voting at the relevant Audit Committee and Board meetings. 13 DEPARTURE FROM THE SECURITIES COMMISSION S POLICIES AND GUIDELINES ON ISSUE/OFFER OF SECURITIES To the best knowledge of the board of DRB-HICOM, the Proposed Acquisition does not depart from the SC Policies and Guidelines on the Issue/Offer of Securities. 14 RISK FACTORS Apart from the risks relating to the failure to complete the transaction despite the Parties proactively engaging all relevant parties/authorities in fulfilling the Conditions Precedent to ensure timely completion of the SSA and risks relating to the termination of the Concession Agreements despite MCDSB proactively taking all the relevant initiatives to remedy any non-fulfilment of MCDSB s obligations under the Concession Agreements during the prescribed or agreed remedy period with the GOM, the Proposed Acquisition will not expose the DRB-HICOM Group to any other new business and operational risks as the DRB-HICOM Group is already principally involved in the business of construction and provision of the asset management services. 10

11 15 LIABILITES, INCLUDING CONTINGENT LIABILITES AND GUARANTEES TO BE ASSUMED DRB-HICOM will not assume any liabilities, including contingent liabilities and guarantees pursuant to the Proposed Acquisition. 16 THE HIGHEST PERCENTAGE RATIO APPLICABLE TO THE PROPOSED ACQUISITION Pursuant to Paragraphs 10.02(g) and of the Listing Requirements, the highest percentage ratio applicable to the Proposed Acquisition is 3.19% based on the audited consolidated financial statements of DRB-HICOM for the financial year ended 31 March Pursuant to Paragraph of the Listing Requirements, the other previously announced corporate proposals (excluding any recurrent related party transactions) involving TSSM to be aggregated with the Proposed Acquisition and treated as if they were one transaction as the terms of these transactions were agreed upon within a period of 12 months are as follows: 16.1 DRB-HICOM has on 26 February 2015 announced that it has on the even date entered into a conditional share sale and purchase agreement with Northern Gateway Sdn Bhd for the proposed acquisition of 100% equity interest in Northern Gateway Infrastructure Sdn Bhd for a total cash consideration of RM20 million DRB-HICOM has on 30 March 2015 announced that Konsortium Logistik Berhad and HICOM Vertex Sdn Bhd, wholly-owned subsidiary companies of DRB- HICOM has even date executed sale and purchase agreements with Northern Gateway Free Zone Sdn Bhd for the proposed acquisition of 200 acres of land in Bandar Kota Perdana, Mukim Sungai Laka, Daerah Kubang Pasu, Kedah for a total cash consideration of RM million. 17 STATEMENT BY DIRECTORS Having considered all aspects of the Proposed Acquisition, the Board of Directors of DRB-HICOM (save for TMKJ who is deemed interested in the Proposed Acquisition and TSMMN who has abstained from voting in the Proposed Acquisition) is of the opinion that the Proposed Acquisition is in the best interest of DRB-HICOM. 11

12 18 STATEMENT BY THE AUDIT COMMITTEE Having considered all aspects of the Proposed Acquisition including but not limited to the rationale, the Concession Agreements, risk factors and effects of the Proposed Acquisition on the DRB-HICOM Group, the Audit Committee of DRB-HICOM is of the opinion that the Proposed Acquisition is: 18.1 In the best interest of DRB-HICOM Group; 18.2 Fair, reasonable and are on normal commercial terms; and 18.3 Not detrimental to the interest of the minority shareholders of DRB-HICOM. 19 DOCUMENT FOR INSPECTION The SSA, DCAS Valuation Report and Raine & Horne Valuation Report are available for inspection at the registered office of DRB-HICOM at level 5, Wisma DRB-HICOM, No. 2 Jalan Usahawan U1/8, Seksyen U1, Shah Alam, Selangor Darul Ehsan during normal business hours from Monday to Fridays (except public holidays) for a period of three (3) months from the date of this announcement. This announcement is dated 26 November