AMSTEEL CORPORATION BERHAD (20667-M) (Incorporated in Malaysia) INDEPENDENT ADVICE CIRCULAR IN RELATION TO

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1 THIS INDEPENDENT ADVICE CIRCULAR ( IAC ) IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. YOU SHOULD READ THIS IAC IN CONJUNCTION WITH THE OFFER DOCUMENT DATED 27 FEBRUARY 2009 ISSUED BY AMINVESTMENT BANK BERHAD, ON BEHALF OF LION CORPORATION BERHAD AND LIMPAHJAYA SDN BHD WHICH HAS BEEN SENT TO YOU. If you are in any doubt as to the course of action you should take, you should consult your stockbroker, solicitor, accountant, banker or other professional adviser immediately. Pursuant to Section 15(6) of the n Code on Take-Overs and Mergers 1998 ( Code ), the Securities Commission ( SC ) has granted its consent for the issuance of this IAC. The consent of the SC shall not be taken to indicate that the SC concurs with the views and recommendation of MIMB Investment Bank Berhad. It merely means that the IAC has complied with the disclosure requirements under the Code. The SC takes no responsibility for the contents of this IAC, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this IAC. AMSTEEL CORPORATION BERHAD (20667-M) (Incorporated in ) INDEPENDENT ADVICE CIRCULAR IN RELATION TO THE CONDITIONAL VOLUNTARY TAKE-OVER OFFER BY LION CORPORATION BERHAD AND LIMPAHJAYA SDN BHD ( JOINT OFFERORS ) THROUGH AMINVESTMENT BANK BERHAD TO ACQUIRE THE REMAINING ORDINARY SHARES OF RM1.00 EACH IN AMSTEEL CORPORATION BERHAD ( ACB SHARES ) NOT ALREADY HELD BY THE JOINT OFFERORS ( OFFER SHARES ) TO BE SATISFIED BY THE ISSUE AND ALLOTMENT OF ONE (1) NEW WARRANT OF LION CORPORATION BERHAD ( LCB B WARRANT ) AT AN ISSUE PRICE OF RM0.10 FOR EVERY TEN (10) EXISTING ACB SHARES HELD ( OFFER ) Independent Adviser This Independent Advice Circular is dated 6 March 2009

2 DEFINITIONS Except where the context otherwise requires or where otherwise defined herein, words and expressions defined in the n Code on Take-Overs and Mergers, 1998 and Section 33 of the Securities Commission Act, 1993 shall have the same meaning when used herein, and the following abbreviations shall apply throughout this IAC:- Act : The Companies Act, 1965 (as amended from time to time and any re-enactment thereof) ACB or the Offeree : Amsteel Corporation Berhad ACB Bonds : Collectively, the ACB Class A Bonds, ACB Class B Bonds and ACB Class C Bonds ACB Class A Bonds : Zero-Coupon Redeemable Secured Class A RM denominated Bonds issued by ACB on 14 March 2003 with maturity date of 31 December 2011 ACB Class B Bonds : Zero-Coupon Redeemable Secured Class B RM denominated Bonds issued by ACB on 14 March 2003 with maturity date of 31 December 2014 ACB Class C Bonds : Zero-Coupon Redeemable Secured Class C RM denominated Bonds issued by ACB on 14 March 2003 with maturity date of 31 December 2011 ACB Class A SPV Debts : Zero-Coupon Redeemable Secured Class A USD denominated consolidated and rescheduled debts of the ACB SPV issued on 14 March 2003 with final repayment date of 31 December 2011 ACB Class B SPV Debts : Zero-Coupon Redeemable Secured Class B USD denominated consolidated and rescheduled debts of the ACB SPV issued on 14 March 2003 with final repayment date of 31 December 2014 ACB Class C SPV Debts : Zero-Coupon Redeemable Secured Class C USD denominated consolidated and rescheduled debts of the ACB SPV issued on 14 March 2003 with final repayment date of 31 December 2011 ACB Debts : The USD denominated debts which were issued by ACB to ACB SPV as consideration for ACB SPV issuing the ACB SPV Debts to certain ACB scheme creditors pursuant to the GWRS ACB Group : Collectively, ACB and its subsidiaries ACB Scheme : The corporate and debt restructuring scheme of ACB as detailed in the ACB Scheme Circular which is available on the Lion Group s website ( The ACB Scheme was completed for purposes of implementation on 27 February 2009 ACB Scheme Circular : ACB s circular to shareholders dated 7 January 2009 in relation to the ACB Scheme ACB SPV : Amsteel Harta (L) Limited, a wholly-owned subsidiary of ACB ACB SPV Debts : Collectively, the ACB Class A SPV Debts, ACB Class B SPV Debts and ACB Class C SPV Debts

3 DEFINITIONS (CONT D) AmInvestment Bank or Adviser : AmInvestment Bank Berhad (a member of the AmInvestment Bank Group), the adviser for the Offer Accepting Holder(s) : Holder(s) who accepts the Offer BNM : Bank Negara Board of ACB : Board of Directors of ACB Bursa Securities : Bursa Securities Berhad CDRS : The corporate and debt restructuring scheme involving the LCB Scheme and the ACB Scheme, which were completed for purposes of implementation on 27 February 2009 CDS : Central Depository System Closing Date : The First Closing Date of the Offer or in the event that the Offer is revised or extended, such other revised or extended closing date as may be decided by the Joint Offerors and announced in accordance with the Code Code : n Code on Take-Overs and Mergers, 1998, including any amendments made thereto from time to time CRC : Cold rolled coil steel DAC : Datuk Cheng Yong Kim Disposal of LCB Class B(b) Bonds Disposal of Property Holding Companies Divestment of Other Assets : The disposal by ACB of RM900,000,000 NV of LCB Class B(b) Bonds with a PV as at 27 February 2009 of RM804,460,000 to LDHB and Teraju Varia Sdn Bhd for a total disposal consideration of RM400,000,000, which will be utilised by ACB for the settlement of the ACB Class A Bonds/ SPV Debts and the tender of the ACB Class B Bonds/ SPV Debts. The Disposal of LCB Class B(b) Bonds was completed for purposes of implementation on 27 February 2009 : The disposal by ACB of the Property Holding Companies to Limbungan Emas for a cash consideration of RM818,398,818, which was completed for purposes of implementation on 27 February 2009 The divestment of the non-core and peripheral assets by ACB (other than any of the Property Holding Companies and subsidiaries of the Property Holding Companies) to be divested in the future, which was completed for purposes of implementation on 27 February 2009 ECU : Equity Compliance Unit of the SC EGM : Extraordinary General Meeting EPS/LPS : Earnings per share/ loss per share First Closing Date : 20 March 2009, being twenty-one (21) days from the Posting Date Form of Acceptance and Transfer : The form of acceptance and transfer for Offer Shares ii

4 DEFINITIONS (CONT D) FPE : Financial period ended FYE : Financial year(s) ended/ending GWRS : The group wide restructuring scheme which was implemented by LCB, ACB together with LICB and Silverstone Corporation Berhad and their respective subsidiaries on 14 March 2003 Holder(s) : Holder(s) of the Offer Shares HRC : Hot rolled coil steel IAC : This independent advice circular dated 6 March 2009 IAL : The independent advice letter by MIMB, as contained in the IAC Independent Adviser or MIMB : MIMB Investment Bank Berhad, the independent adviser appointed by ACB Joint Offerors : Collectively, LCB and Limpahjaya LCB : Lion Corporation Berhad LCB A Warrants : The new warrants to be issued by LCB pursuant to the Proposed Rights Issue of Warrants LCB B Warrants : The new warrants to be issued by LCB pursuant to the Offer LCB Class A Bonds : Zero-Coupon Redeemable Secured Class A RM denominated bonds issued by LCB on 14 March 2003 with maturity date of 27 February 2009 LCB Class B(a) Bonds : Zero-Coupon Redeemable Secured Class B(a) RM denominated bonds issued by LCB on 14 March 2003 with maturity date of 31 December LCB Class B(b) Bonds : Zero-Coupon Redeemable Secured Class B(b) RM denominated bonds, issued by LCB on 14 March 2003 with maturity date of 31 December 2020 LCB Class B(a) RCSLS : 5% coupon redeemable convertible secured loan stocks issued by LCB with maturity date of 31 December 2015 LCB Class B(b) RCSLS : 7% coupon redeemable convertible secured loan stocks issued by LCB with maturity date of 31 December 2015 LCB Class B(a) and B(b) RCSLS Conversion LCB Class B(a) RCSLS Conversion LCB Class B(b) RCSLS Conversion : Collectively, the LCB Class B(a) RCSLS Conversion and LCB Class B(b) RCSLS Conversion : The RM1,218,342 NV of LCB Class B(a) RCSLS converted from RM1,251,959 NV of LCB Class B(a) Bonds with PV of RM1,218,342 held by ACB on 27 February 2009 : RM178,769,000 NV of LCB Class B(b) RCSLS converted from RM200,000,000 NV of LCB Class B(b) Bonds with PV of RM178,769,000 held by ACB on 27 February 2009 LCB Class B(c) RCSLS : 4.25% coupon redeemable convertible secured loan stocks to be issued by LCB with maturity date of 31 December 2015 iii

5 DEFINITIONS (CONT D) LCB Group : Collectively, LCB and its subsidiaries LCB RCSLS : Collectively, the LCB Class B(a) RCSLS, LCB Class B(b) RCSLS and LCB Class B(c) RCSLS LCB Scheme : The corporate and debt restructuring scheme of LCB as detailed in the LCB Scheme Circular which is available on Bursa Securities website ( The LCB Scheme was completed for purposes of implementation on 27 February 2009 LCB Scheme Circular : LCB s circular to shareholders dated 7 January 2009 in relation to the LCB Scheme LCB Shares : Ordinary share(s) of RM1.00 each in LCB LCB USD Debts : Zero-Coupon Redeemable Unsecured Class B USD denominated consolidated and rescheduled debts of LCB issued on 14 March 2003 with final repayment date of 31 December 2019 LCB Warrants : Collectively, LCB A Warrants and LCB B Warrants LDHB : Lion Diversified Holdings Berhad LICB : Lion Industries Corporation Berhad Limpahjaya : Limpahjaya Sdn Bhd, a wholly-owned subsidiary of LCB Listing Requirements : Listing Requirements of Bursa Securities, including any amendments thereto that may be made from time to time LPD : 27 February 2009, being the latest practicable date prior to the despatch of the IAC Market Day : A day on which Bursa Securities is open for the trading of securities Megasteel : Megasteel Sdn Bhd MI : Minority interests MITI : Ministry of International Trade and Industry NA /NL : Net assets/net liabilities Non-Resident Holder(s) : Holder(s) (including, without limitation, custodians, nominees and trustees) who are citizens or nationals of, or residents in, or have registered addresses in, any jurisdiction outside, or are incorporated or registered with, or approved by any authority outside Notice : The notice of conditional voluntary take-over offer dated 6 February 2009 which was served on the Board of ACB by the Adviser on behalf of the Joint Offerors in relation to the Offer Offer : The conditional voluntary take-over offer by the Joint Offerors through AmInvestment Bank to acquire the Offer Shares to be satisfied by the issue and allotment of one (1) LCB B Warrant at an issue price of RM0.10 for every ten (10) existing ACB Shares held iv

6 DEFINITIONS (CONT D) Offer Document : The offer document dated 27 February 2009 issued by the Adviser on behalf of the Joint Offerors, which sets out, inter alia, the terms and conditions of the Offer Offer Period : The period commencing from 21 May 2008, being the earlier of the date the Joint Offerors make an announcement of a proposed or possible take-over offer under subsection 12(1) or sends a written notice and announcement under subsection 12(3), until:- (a) (b) The First Closing Date of the Offer; or The date when the Offer becomes or is declared unconditional as to acceptances, lapses or is withdrawn, if this date is later than the date referred to in paragraph (a) Offer Price : One (1) LCB B Warrant for every ten (10) existing ACB Shares held Offer Shares : The remaining ACB Shares which are not already held by the Joint Offerors PATMI : Profit after taxation and MI Posting Date : 27 February 2009, being the date of despatch of the Offer Document Press Notice : A notice given to at least three (3) daily newspapers circulating generally throughout, one of which shall be in the national language and one in English Property Holding Companies Proposed Rights Issue of Warrants : Collectively the following companies:- (i) (ii) (iii) (iv) (v) (vi) Akurjaya Sdn Bhd, a wholly-owned subsidiary of ACB; Ayer Keroh Resort Sdn Bhd, a 70% owned subsidiary of ACB; Bungawang Sdn Berhad, a 70% owned subsidiary of ACB; Visionwell Sdn Bhd, a 80% owned subsidiary of ACB; Lion Metal Industries Sdn Bhd, a wholly-owned subsidiary of ACB; and Inverfin Sdn Bhd, a 20% owned associated company of ACB : The proposed issuance of up to 253,610,407 LCB A Warrants to LCB s existing shareholders on a rights basis of one (1) LCB A Warrant for every four (4) LCB ordinary shares held excluding the 894,408,000 shares issued by LCB on 27 February 2009 pursuant to the LCB Scheme RCSLS : Redeemable convertible secured loan stocks Registrar or Secretarial Communication : Secretarial Communications Sdn Bhd, to whom acceptances of the Offer should be forwarded, whose address and contact number are set out in Section 1.1 of Appendix III of the Offer Document v

7 DEFINITIONS (CONT D) Relevant Day : The Market Day following the day on which the Offer is:- (a) closed; or (b) revised or extended, as the case may be SC : Securities Commission of SCA : Securities Commission Act, 1993 and any amendments made thereto from time to time and any regulations made thereunder which are in force for the time being SICDA : Securities Industry (Central Depositories) Act, 1991 TSWC : Tan Sri William H.J. Cheng WAMP : Weighted average market price YTM : Yield to Maturity RM and sen : Ringgit and sen respectively Kindly refer to ACB s announcements on Lion Group s website ( and LCB s announcements on Bursa Securities website ( for further development on the CDRS. Words importing the singular shall, where applicable, include the plural and vice versa and words denoting the masculine gender shall, where applicable, include the feminine and neuter genders and vice versa. References to persons shall include corporations. Any reference in this IAC to any enactment is a reference to that enactment as for the time being amended or re-enacted. All references to dates and times in this IAC refer to n dates and times unless otherwise stated. vi

8 EXECUTIVE SUMMARY This executive summary highlights the salient information on the Offer. We advise Holders to read the letter from the Board of ACB and the IAL from MIMB to the Holders in relation to the Offer for further information and for the recommendation in relation to the Offer. This IAC should also be read in conjunction with the Offer Document issued by AmInvestment Bank on behalf of the Joint Offerors. 1. INTRODUCTION On 21 May 2008, LCB announced that the LCB Group proposes to undertake the LCB Scheme. Simultaneously, ACB, a 40.1% owned associated company of LCB also proposes the ACB Scheme. Additionally, LCB had on the same date announced the Offer which is conditional upon the LCB Scheme, which in turn is inter-conditional with the ACB Scheme. The LCB Scheme and ACB Scheme were completed for purposes of implementation on 27 February On 6 February 2009, the Joint Offerors, through AmInvestment Bank, served the Notice on the Board of ACB, notifying ACB of their intention to undertake the conditional voluntary take-over offer to acquire the Offer Shares at the Offer Price. A copy of the Notice is set out in Appendix I of the Offer Document. The Notice was also sent to you in a notification to Holders dated 13 February You should also have by now received a copy of the Offer Document dated 27 February 2009 which sets out the background, terms of the Offer as well as the procedures for acceptances and method of settlement of the Offer. The Board of ACB had on 12 May 2008 appointed MIMB as the Independent Adviser to provide independent advice to the Holders in relation to the Offer. 2. PRINCIPAL TERMS OF THE OFFER (i) Offer The conditional voluntary take-over offer by the Joint Offerors through AmInvestment Bank to acquire the Offer Shares to be satisfied by the issue and allotment of one (1) LCB B Warrant at an issue price of RM0.10 for every ten (10) existing ACB Shares held. (ii) Offer Price The Offer Price for the Offer is one (1) LCB B Warrant for every ten (10) ACB Shares held. Based on the issue price of LCB B Warrants of RM0.10 each, the implied offer price for each Offer Share is RM0.01 calculated based on the exchange ratio of one (1) LCB B Warrant for every ten (10) ACB Shares held. The salient terms and conditions of the LCB B Warrants are as disclosed in Appendix I of the Notice. vii

9 EXECUTIVE SUMMARY (CONT D) (iii) Condition of the Offer The Offer is conditional upon the Joint Offerors receiving by 5.00 pm (n time) on or before the Closing Date, valid acceptances (provided that they are not, where permitted, withdrawn), which would result in the Joint Offerors holding in aggregate, together with such ACB Shares that are already acquired, held or entitled to be acquired or held by the Joint Offerors, more than 50% of the voting shares of ACB, failing which the Offer shall lapse and the Offer will cease to be capable of further acceptance and that the Accepting Holder and the Joint Offerors will thereafter cease to be bound by any prior acceptances of the Offer ( Shareholding Condition ). (iv) Duration of the Offer The Offer will remain open for acceptances for twenty-one (21) days from the date of the Offer Document, until 20 March 2009, unless extended or revised as may be decided by the Joint Offerors and announced in accordance with the Code. Where the Offer has become or is declared unconditional as to acceptances of the Offer on any day before the forty-sixth (46 th ) day from the Posting Date, the Offer will remain open for acceptances for not less than fourteen (14) days from the date on which the Offer becomes and is declared unconditional which shall, in any event, be not later than the sixtieth (60 th ) day from the Posting Date. Where the Offer has become or is declared unconditional as to acceptances on any day after the forty-sixth (46 th ) day from the Posting Date, the Offer will remain open for acceptances for not less than fourteen (14) days from the date on which the Offer becomes and is declared unconditional which shall, in any event, be not later than the seventy-fourth (74 th ) day from the Posting Date. The Offer shall lapse if the Shareholding Condition is not fulfilled by 5.00 p.m. (n time) on the sixtieth (60 th ) day from the Posting Date. (v) Method of Settlement Subject to the Offer having become or having been declared wholly unconditional as to acceptances prior to the Closing Date of the Offer, the Joint Offerors shall credit the LCB B Warrants into the CDS account of the Accepting Holder within twentyone (21) days from the Closing Date of the Offer in respect of acceptances which are received and are complete in all respects by that date. Further information on the salient terms of the Offer is set out in Appendix IV of this IAC. Details on the procedures for accepting the Offer are set out in Appendix III of the Offer Document. 3. SALIENT CONSIDERATIONS BY MIMB In arriving at the recommendation whether to reject or accept the Offer, MIMB has considered primarily the following salient considerations:- (i) Based on the proforma consolidated NL as at 30 June 2008, the ACB s total asset value is not expected to be sufficient to meet its total debt obligation. Accordingly, ACB shareholders may not be able to recover their investments in ACB due to the deficit shareholders funds position; viii

10 EXECUTIVE SUMMARY (CONT D) (ii) (iii) (iv) (v) (vi) (vii) It is unlikely that ACB will be able to declare any dividends to the shareholders of ACB until and unless it is able to fully redeem/repay all of its ACB Bonds and ACB SPV Debts issued by ACB and its wholly-owned subsidiary, ACB SPV; Even if the Offer is unsuccessful, it would be unlikely that ACB would be able to seek a re-listing on Bursa Securities; There is no assurance that the Joint Offerors (or any other parties) would extend a new offer to acquire the remaining shares in ACB not held by the Joint Offerors (or any other parties); Holders who choose to reject the Offer and remain as ACB Shareholders after the completion of this Offer should not expect any immediate improvement in the financial position of ACB; The implied Offer Price of RM0.01 per Offer Share represents a significant premium over the proforma consolidated NL of ACB as at 30 June 2008 of 6.19 sen per share; and Pursuant to the Proposed Rights Issue of Warrants, LCB Shareholders will be paying the same price for the warrants in LCB as the price offered to the Holders. 4. RECOMMENDATION 4.1 Recommendation of MIMB After having performed an independent evaluation of the Offer, MIMB is of the view that the Offer is fair and reasonable. Accordingly, we recommend to all Holders to ACCEPT the Offer. 4.2 Recommendation of the Board of ACB Based on the salient considerations and upon the recommendation by MIMB, the Board of ACB wishes to recommend to all Holders to ACCEPT the Offer. As at LPD, Tan Siak Tee has indicated his intention to ACCEPT the Offer in respect of his direct shareholding in ACB, as disclosed in Section of Appendix V of this IAC. 5. TENTATIVE TIMETABLE Notice of the Offer 6 February 2009 Date of despatch of the Offer Document 27 February 2009 Issuance of this IAC 6 March 2009 Closing date of the Offer (unless otherwise revised or extended) 20 March 2009 ix

11 TABLE OF CONTENT PAGE PART A LETTER FROM THE BOARD OF ACB 1. INTRODUCTION 1 2. DETAILS OF ACCEPTANCES 2 3. BOARD OF ACB S COMMENTS 2 4. BOARD OF ACB S RESPONSIBILITY 4 5. RECOMMENDATION BY THE BOARD OF ACB 5 PART B INDEPENDENT ADVICE LETTER FROM MIMB 1. INTRODUCTION 6 2. PRINCIPAL TERMS OF THE OFFER 7 3. DETAILS OF ACCEPTANCES 8 4. LIMITATIONS 9 5. RATIONALE OF THE OFFER FUTURE PLANS FOR THE ACB GROUP FINANCIAL EVALUATION OF THE OFFER INDUSTRY OVERVIEW AND PROSPECTS OF THE ACB GROUP AND THE LCB GROUP 9. IMPLICATIONS ON THE ACCEPTANCE OR REJECTION OF THE OFFER 10. FURTHER INFORMATION CONCLUSION AND RECOMMENDATION APPENDICES I INFORMATION ON ACB 29 II INFORMATION ON LCB 41 III INFORMATION ON LIMPAHJAYA 51 IV SALIENT TERMS OF THE OFFER 55 V FURTHER INFORMATION 61 x

12 PART A LETTER FROM THE BOARD OF ACB

13 AMSTEEL CORPORATION BERHAD (20667-M) (Incorporated in ) Registered Office: Level 46, Menara Citibank 165 Jalan Ampang Kuala Lumpur Board of Directors: 6 March 2009 Jen Tan Sri Dato Zain Mahmud Hashim (b) (Chairman) Tan Sri William H.J. Cheng Lt Jen (B) Datuk Seri Abdul Manap bin Ibrahim M. Chareon Sae Tan Whye Aun Tan Siak Tee To: The Holders of the Offer Shares Dear Sir/Madam, CONDITIONAL VOLUNTARY TAKE-OVER OFFER BY THE JOINT OFFERORS THROUGH AMINVESTMENT BANK TO ACQUIRE THE OFFER SHARES TO BE SATISFIED BY THE ISSUE AND ALLOTMENT OF ONE (1) LCB B WARRANT AT AN ISSUE PRICE OF RM0.10 FOR EVERY TEN (10) EXISTING ACB SHARES HELD 1. INTRODUCTION On 21 May 2008, LCB announced that the LCB Group proposes to undertake the LCB Scheme to address its debt obligations to redeem/repay the LCB Bonds and LCB USD Debts issued pursuant to the GWRS. Simultaneously, ACB, a 40.1% owned associated company of LCB also proposes the ACB Scheme to address its debt obligations to redeem/repay the ACB Bonds and ACB SPV Debts issued pursuant to the GWRS. The LCB Scheme and the ACB Scheme shall collectively be referred to as the CDRS. Additionally, LCB had on the same date announced the Offer which is conditional upon the LCB Scheme, which in turn is interconditional with the ACB Scheme. The CDRS were completed for purposes of implementation on 27 February On 6 February 2009, the Joint Offerors, through AmInvestment Bank, served the Notice on the Board of ACB, notifying ACB of their intention to undertake the conditional voluntary take-over offer to acquire the Offer Shares at the Offer Price. A copy of the Notice is set out in Appendix I of the Offer Document. The Notice was also sent to you in a notification to Holders dated 13 February You should also have by now received a copy of the Offer Document dated 27 February 2009 which sets out the background, terms of the Offer as well as the procedures for acceptances and method of settlement of the Offer.

14 The Board of ACB had on 12 May 2008 appointed MIMB as the Independent Adviser to provide independent advice to the Holders in relation to the Offer. The SC had consented to the appointment of MIMB vide its letter dated 23 February On 5 March 2009, the SC had given its consent to the despatch of this IAC pursuant to the disclosure requirements of the Code. In this letter, we highlight the relevant information relating to the Offer and provide you with our views on the Offer and the recommendation of MIMB. However, all views and recommendation of the Board of ACB represented in this letter do not include that of TSWC (who is a substantial shareholder and Director of LCB and Limpahjaya) and M. Chareon Sae Tan Whye Aun (who is a Director of LCB) who are deemed interested in the Offer. In this regard, TSWC and M. Chareon Sae Tan Whye Aun have abstained from making any recommendation. 2. DETAILS OF ACCEPTANCES There are no other Holders who have already accepted or have provided irrevocable undertakings to accept the Offer in respect of their holdings in the Offer Shares as at LPD. To the best of the knowledge of the Board of ACB, as at LPD, the Board of ACB is not aware of any other acceptance of the Offer or any other irrevocable undertaking given to accept the Offer by any Holder. 3. BOARD OF ACB S COMMENTS 3.1 Rationale of the Offer The Board of ACB has taken note of the rationale for the Offer as disclosed in the Offer Document, which is extracted as follows:- (i) (ii) (iii) The ACB Group is implementing the Proposed ACB Scheme to address its debt obligations to redeem/repay the ACB Bonds and ACB SPV Debts issued by ACB and its wholly-owned subsidiary, ACB SPV, pursuant to the GWRS. Simultaneously, the LCB Group is also implementing the Proposed LCB Scheme to address its debt obligations to redeem/repay the LCB Bonds and LCB USD Debts issued by LCB pursuant to the GWRS. The Offer is undertaken to provide an avenue for the Holders to realise their investments in ACB (which was delisted on 11 October 2007) by way of an exchange of their shareholdings in ACB for the LCB B Warrants proposed to be listed on the Main Board of Bursa Securities. The ACB Scheme and the LCB Scheme were completed for purposes of implementation on 27 February After considering the various implications raised by the Independent Adviser as set out in Section 5 of the IAL, we concur that the Offer offers the Holders with a timely opportunity for them to convert their investments in ACB into a more liquid and marketable equity investment which is capable of being realised in the open market.

15 3.2 Future plans of the Joint Offerors for ACB Based on Section 6 of the Offer Document, we take note that the future plans of the Joint Offerors for ACB Group and its employees are extracted as follows:- (a) Continuation of the ACB Group s Business and Major Changes to the ACB Group s Business The Joint Offerors have no intention to liquidate ACB and they have no intention to make any major changes to the structure of the ACB Group within six (6) months from the date of this Offer Document. However, pursuant to the Proposed ACB Scheme undertaken to address the debt obligation of the ACB Group, the ACB Group proposes, inter-alia, the following:- (a) (b) Proposed Disposal of Property Holding Companies; and Proposed Divestment of the Other Assets. Subsequent to the above-mentioned Proposed Disposal of Property Holding Companies and Proposed Divestment of the Other Assets, ACB s principal activities will eventually no longer be in property development and management and its core assets will be investment in the LCB Class B(b) Bonds and LCB Class B(b) RCSLS. These investments are and will be charged to its lenders and the proceeds from the redemption are earmarked for the redemption/repayment of the ACB Bonds/ACB SPV Debts. Within six (6) months from the date of this Offer Document, LCB may review the business and operations of the ACB Group and carry out reorganisations of the ACB Group where necessary. Other disposals or re-deployment of the ACB Group s remaining assets after the Proposed ACB Scheme may be undertaken to rationalise business activities and/or direction or to improve the utilisation of resources. (b) Employees of the ACB Group Within six (6) months from the date of this Offer Document, the Joint Offerors do not intend to dismiss or make redundant the employees of the ACB Group as a direct consequence of the Offer. However, it should be noted that some changes in staff employment and/or re-deployment may take place as a result of any rationalisation of business activities and/or direction, or to further improve the efficiency of operations and optimise staff productivity. As at LPD, save for those proposals under the ACB Scheme, the Joint Offerors have no knowledge of and have not entered into any negotiations or arrangements or understanding whatsoever with any third party with regards to any change in the ACB s businesses, assets or equity structure. After considering the Joint Offerors future plans for the ACB Group, we concur with the Independent Adviser s comments that ACB will no longer be involved in the property development and management business since the remaining core assets of ACB comprises mainly LCB Class B(b) Bonds and LCB Class B(b) RCSLS.

16 3.3 Listing Status of ACB and Compulsory Acquisition The ACB Shares were delisted from the Main Board of Bursa Securities on 11 October Currently, the Joint Offerors do not intend to seek a re-listing of ACB Shares on Bursa Securites. In view that the Joint Offerors have no intention to seek a re-listing of ACB Shares on Bursa Securities upon the completion of the Offer, we concur with the Independent Adviser s view that ACB shareholders is expected to be in a better position by accepting the Offer to exchange their ACB Shares for LCB B Warrants, which is a marketable security, upon listing on the Main Board of Bursa Securities. The Board of Directors of ACB has noted that the Joint Offerors intend to invoke the provisions of Section 34 of the SCA to compulsorily acquire any remaining Offer Shares from the Holders who had elected not to accept the Offer, as detailed in Section 4.2 of the Offer Document and in Section 9.3 of the IAL. Accordingly, we wish to highlight that Holders who reject the Offer would be subject to a compulsory acquisition by the Joint Offerors if they receive acceptances in respect of not less than ninety percent (90%) of the Offer Shares (other than shares already held at the date of the Notice by the Joint Offerors or by a nominee for or a related corporation of the Joint Offerors) within four (4) months after making the Offer. Nonetheless, Holders of the Offer Shares which are compulsorily acquired will receive the same consideration as that specified in the Offer. 3.4 Financial Evaluation After careful consideration of the financial evaluation of the Offer by MIMB, as set out in Section 7 of the IAL contained in Part B of this IAC, we concur that the Offer appears to be reasonable to the Holders after considering the following factors:- (i) (ii) The implied Offer Price of RM0.01 per Offer Share represents a significant premium over the proforma consolidated shareholders NL of ACB as at 30 June 2008 of 6.19 sen per share; and Pursuant to the Proposed Rights Issue of Warrants, the LCB Shareholders will be paying the same price for the warrants in LCB as the price offered to the Holders. 3.5 Prospects of the ACB Group Pursuant to the ACB Scheme, the ACB Group s property division will cease to be the main income contributor. In the next 12 months, the ACB Group s main source of income would be from the ACB Group s investments in LCB Class B(b) Bonds and LCB Class B(b) RCSLS. 4. BOARD OF ACB S RESPONSIBILITY The responsibility statement of the Board of ACB is set out in Section 1 of Appendix V of this IAC. The views of the Board of ACB contained in this IAC are to the Holders at large and not meant for any Holder individually. Hence, the Board of ACB has not given any regard to the specific investment objectives, financial objectives, financial situation and particular needs of any Holders.

17 5. RECOMMENDATION BY THE BOARD OF ACB The recommendation by the Board of ACB is made after considering the factors as discussed above and the evaluation and recommendation of the Offer by the Independent Adviser as set out in Part B of this IAC. After careful consideration, the Board of ACB CONCURS with the evaluation and recommendation of MIMB that the Offer appears fair and reasonable having taken into consideration the following key factors as set out in the IAL:- (i) (ii) (iii) (iv) (v) (vi) (vii) Based on the proforma consolidated NL as at 30 June 2008, the ACB s total asset value is not expected to be sufficient to meet its total debt obligation. Accordingly, ACB shareholders may not be able to recover their investments in ACB due to the deficit shareholders funds position; It is unlikely that ACB will be able to declare any dividends to the shareholders of ACB until and unless it is able to fully redeem/repay all of its ACB Bonds and ACB SPV Debts issued by ACB and its wholly-owned subsidiary, ACB SPV; Even if the Offer is unsuccessful, it would be unlikely that ACB would be able to seek a re-listing on Bursa Securities; There is no assurance that the Joint Offerors (or any other parties) would extend a new offer to acquire the remaining shares in ACB not held by the Joint Offerors (or any other parties); Holders who choose to reject the Offer and remain as ACB Shareholders after the completion of this Offer should not expect any immediate improvement in the financial position of ACB; The implied Offer Price of RM0.01 per Offer Share represents a significant premium over the proforma consolidated NL of ACB as at 30 June 2008 of 6.19 sen per share; and Pursuant to the Proposed Rights Issue of Warrants, LCB Shareholders will be paying the same price for the warrants in LCB as the price offered to the Holders Based on the above and upon the recommendation by MIMB, the Board of ACB wishes to recommend to all Holders to ACCEPT the Offer. As at LPD, Tan Siak Tee has indicated his intention to ACCEPT the Offer in respect of his direct shareholding in ACB, as disclosed in Section of Appendix V of this IAC. We advise the Holders to consider carefully all other information as contained in the Offer Document and this IAC which also include the opinion and recommendation of the Independent Adviser, as disclosed in the IAL in Part B of this IAC, before making a decision on the course of action to be taken. Yours faithfully For and on behalf of AMSTEEL CORPORATION BERHAD JEN TAN SRI DATO ZAIN MAHMUD HASHIM (b) CHAIRMAN

18 PART B INDEPENDENT ADVICE LETTER FROM MIMB INVESTMENT BANK BERHAD

19 Date: 6 March 2009 To: The Holders of the Offer Shares Dear Sir/Madam, CONDITIONAL VOLUNTARY TAKE-OVER OFFER BY THE JOINT OFFERORS THROUGH AMINVESTMENT BANK TO ACQUIRE THE OFFER SHARES TO BE SATISFIED BY THE ISSUE AND ALLOTMENT OF ONE (1) LCB B WARRANT AT AN ISSUE PRICE OF RM0.10 FOR EVERY TEN (10) EXISTING ACB SHARES HELD 1. INTRODUCTION 1.1 On 21 May 2008, LCB announced that the LCB Group proposes to undertake the LCB Scheme to address its debt obligations to redeem/repay the LCB Bonds and LCB USD Debts issued pursuant to the GWRS. Simultaneously, ACB, a 40.1% owned associated company of LCB also proposes the ACB Scheme to address its debt obligations to redeem/repay the ACB Bonds and ACB SPV Debts issued pursuant to the GWRS. The LCB Scheme and the ACB Scheme shall collectively be referred to as the CDRS. Additionally, LCB had on the same date announced the Offer which is conditional upon the LCB Scheme, which in turn is interconditional with the ACB Scheme. The CDRS was completed for purposes of implementation on 27 February On 6 February 2009, the Joint Offerors, through AmInvestment Bank, served the Notice on the Board of ACB, notifying ACB of their intention to undertake the conditional voluntary take-over offer to acquire the Offer Shares at the Offer Price. A copy of the Notice is set out in Appendix I of the Offer Document. The Notice was also sent to you in a notification to Holders dated 13 February You should also have by now received a copy of the Offer Document dated 27 February 2009 which sets out the background, terms of the Offer as well as the procedures for acceptances and method of settlement of the Offer. 1.2 Pursuant to Section 15 of the Code, the Board of ACB had appointed MIMB as the Independent Adviser to the Holders in relation to the Offer on 12 May The SC had consented to the appointment of MIMB vide its letter dated 23 February On 5 March 2009, the SC had given its consent to the despatch of this IAC pursuant to the disclosure requirements of the Code. The consent of the SC for the despatch of this IAC does not imply that the SC concurs with the views and recommendation of MIMB contained herein but only that this IAC has been prepared in compliance with the provisions of the Code.

20 The purpose of this IAL is to provide the Holders with relevant information on the Offer and our independent evaluation of the terms and conditions of the Offer together with our recommendation thereon, subject to the scope of our role and evaluation specified herein. Our IAL is solely for the use of the Holders for the purpose of considering the Offer and should not be used or relied upon by any other party. 1.3 We advise the Holders to read this IAC carefully together with the Offer Document and consider carefully the recommendation contained herein before taking any action. This IAC does not constitute the Offer or any part thereof. If you have any doubt as to what course of action you should take in relation to the Offer, please consult an appropriate independent professional adviser immediately. 2. PRINCIPAL TERMS OF THE OFFER The principal terms of the Offer, as extracted from the Offer Document, are reproduced as follows:- (i) Offer Price The Offer Price for the Offer is one (1) LCB B Warrant for every ten (10) ACB Shares held. Based on the issue price of LCB B Warrants of RM0.10 each, the implied offer price for each Offer Share is RM0.01 calculated based on the exchange ratio of one (1) LCB B Warrant for every ten (10) ACB Shares held. In the event ACB declares, makes or pays any dividend and/or other distributions after the date of the Offer Document but prior to the close of the Offer which the Joint Offerors are not entitled to retain, the consideration for each Offer Share shall be reduced by the quantum of the net dividend and/or other distributions declared, made or paid. Any fractional entitlements arising from the Offer will be disregarded and shall be dealt with in such manner as the Joint Offerors may in their sole and absolute discretion deem expedient or to be in the best interest of the Joint Offerors. Holders of the Offer Shares may accept the Offer in respect of all or part of their Offer Shares. The salient terms and conditions of the LCB B Warrants are as disclosed in Appendix I of the Notice. (ii) Conditions of the Offer The Offer is conditional upon the Joint Offerors receiving by 5.00 pm (n time) on or before the Closing Date, valid acceptances (provided that they are not, where permitted, withdrawn), which would result in the Joint Offerors holding in aggregate, together with such ACB Shares that are already acquired, held or entitled to be acquired or held by the Joint Offerors, more than 50% of the voting shares of ACB, failing which the Offer shall lapse and the Offer will cease to be capable of further acceptance and that the Accepting Holder and the Joint Offerors will thereafter cease to be bound by any prior acceptances of the Offer.

21 (iii) Duration of the Offer The Offer will remain open for acceptances for twenty-one (21) days from the date of the Offer Document, until 20 March 2009, unless extended or revised as may be decided by the Joint Offerors and announced in accordance with the Code. Where the Offer has become or is declared unconditional as to acceptances of the Offer on any day before the forty-sixth (46 th ) day from the Posting Date, the Offer will remain open for acceptances for not less than fourteen (14) days from the date on which the Offer becomes and is declared unconditional which shall, in any event, be not later than the sixtieth (60 th ) day from the Posting Date. Where the Offer has become or is declared unconditional as to acceptances on any day after the forty-sixth (46 th ) day from the Posting Date, the Offer will remain open for acceptances for not less than fourteen (14) days from the date on which the Offer becomes and is declared unconditional which shall, in any event, be not later than the seventy-fourth (74 th ) day from the Posting Date. The Offer shall lapse if the Shareholding Condition is not fulfilled by 5.00 p.m. (n time) on the sixtieth (60 th ) day from the Posting Date. (iv) Method of Settlement Subject to the Offer having become or having been declared wholly unconditional as to acceptances prior to the Closing Date of the Offer, the Joint Offerors shall credit the LCB B Warrants into the CDS account of the Accepting Holders within twentyone (21) days from the Closing Date of the Offer in respect of acceptances which are received and are complete in all respects by that date. Further information on the salient terms of the Offer is set out in Appendix IV of this IAC. Details on the procedures for accepting the Offer are set out in Appendix III of the Offer Document. 3. DETAILS OF ACCEPTANCES As at LPD, the Joint Offerors have not received any irrevocable undertaking from any of the Holders to accept the Offer. To the best of the knowledge of the Board of ACB, as at LPD, the Board of ACB is not aware of any other acceptance of the Offer or any other irrevocable undertaking given to accept the Offer by any Holder. [The rest of this page has been intentionally left blank]

22 4. LIMITATIONS 4.1 Our scope as Independent Adviser is limited to expressing a recommendation on the Offer, subject to the other limitations expressed herein, based on and in reliance upon the information, confirmations, representations and documents provided to us by ACB and as contained in the Offer Document, as well as other publicly available information for which we have not independently verified. 4.2 We have also obtained written confirmation from the Board of ACB that:- (a) (b) (c) the contents of this IAL have been reviewed, considered and approved by the Directors of ACB and they individually and collectively and individually accept full responsibility for the accuracy of the information provided by ACB in this IAL. the Board of ACB also confirms that it has taken all reasonable care to ensure that the information provided by ACB in this IAL, is fair and accurate and that there are no facts, the omission of which would make any statement or information herein misleading in any material respect. all material facts and information required for the purpose of our evaluation of the Offer have indeed been disclosed to us by ACB, as requested and that there are no facts or information, the omission of which would make any such information or representation supplied to us misleading in any material respect. 4.3 We have evaluated the Offer and in rendering our recommendation or views, we have only taken into consideration pertinent matters which we believe are of general importance to the assessment of the implications of the Offer and would be of relevance and general concern to the Holders as a whole. As such, our advice as contained in this IAL is addressed to the Holders at large and not to any particular individual Holder. Accordingly, in providing this advice, we have not given any regard to the specific investment objectives, financial objectives, financial situation and particular needs of any individual Holder or any specific group of Holders who may require advice in the context of their individual investment objectives. We recommend that any individual Holder who requires specific advice within the context of their individual objectives, financial situation and particular needs to consult their stockbroker, bank manager, solicitor, accountant or other professional advisers. 4.4 In our assessment and evaluation of the Offer, we have taken into consideration the following factors in forming our opinion:- (i) (ii) (iii) (iv) (v) Rationale for the Offer; Future Plans for the ACB Group; Financial Evaluation of the Offer; Industry Overview and Prospects of the ACB Group and the LCB Group; and Implications on the Acceptance or Rejection of the Offer.

23 5. RATIONALE OF THE OFFER We have considered the rationale for the Offer as disclosed in Section 3 of the Offer Document, which is extracted as follows:- The ACB Group is implementing the Proposed ACB Scheme to address its debt obligations to redeem/repay the ACB Bonds and ACB SPV Debts issued by ACB and its wholly-owned subsidiary, ACB SPV, pursuant to the GWRS. Simultaneously, the LCB Group is also implementing the Proposed LCB Scheme to address its debt obligations to redeem/repay the LCB Bonds and LCB USD Debts issued by LCB pursuant to the GWRS. The Proposed ACB Scheme and the Proposed LCB Scheme is expected to be completed by end February The Offer is undertaken to provide an avenue for the Holders to realise their investments in ACB (which was delisted on 11 October 2007) by way of exchanging their shareholdings in ACB for the LCB B Warrants proposed to be listed on the Main Board of Bursa Securities. MIMB s Commentary:- 5.1 ACB in Shareholders Fund Deficit Position We wish to recap on the financial condition of the ACB Group for the past four (4) financial years up to 30 June 2008 as follows:- Note:- (i) The revenue for FYE 30 June 2007 and FYE 30 June 2008 of the ACB Group exclude discontinued operations of RM121 million and RM118 million respectively. (ii) The PAT/(LAT) for FYE 30 June 2007 and FYE 30 June 2008 of the ACB Group exclude loss on discontinued operations of RM81 million and RM28 million respectively. Source: ACB Scheme Circular The financial performance of the ACB Group has deteriorated significantly over the last four (4) financial years. Particularly, for the FYE 30 June 2008, ACB has registered an audited loss after tax of RM42 million while its audited shareholders funds had declined to RM1 million or approximately 0.07 sen per ACB Share. 10

24 Given the weak financial standing of ACB, the ACB Scheme was recently implemented to allow ACB to continue as a going concern and address its debt obligations. The ACB Scheme was also intended to raise cash for the redemption and/or repayment of ACB s debt obligations, which are mainly in the form of ACB Bonds and ACB SPV Debts. As part of the ACB Scheme, ACB has successfully negotiated with its lenders to revise certain terms and conditions of its debt obligations, which would allow ACB and ACB SPV to meet their debt redemption/repayment schedule on a timely manner. Holders should note that upon completion of the ACB Scheme, ACB s shareholders funds are negatively impacted resulting from the realisation of certain losses arising from the Disposal of LCB Class B(b) Bonds and Disposal of Property Holding Companies. The proforma effects of the ACB Scheme on the consolidated shareholders funds of ACB, as extracted from ACB Scheme Circular, are as follows:- Audited as at 30 June 2008 Proforma I Proforma II Proforma III Proforma IV RM 000 RM 000 RM 000 RM 000 RM 000 Share Capital 1,331,175 1,331,175 1,331,175 1,331,175 1,331,175 Share Premium 230, , , , ,188 Reserves (1,560,374) (1,495,049) (1,605,532) (1,688,341) (1,643,764) Shareholders funds ,314 (44,169) (126,978) (82,401) NA(NL) per share (sen) (3.32) (9.54) (6.19) Total Borrowings 2,677,069 2,779,834 2,216,340 1,432,310 1,273,127 Gearing (times) 2, N/A N/A N/A Source: ACB Scheme Circular Notes:- Proforma I : Adjusted present value to 28/02/2009 Proforma II : After Proforma I and Disposal of LCB Class B(b) Bonds Proforma III : After II and Disposal of Property Holding Companies Proforma IV : After III and LCB Class B(a) and B(b) RCSLS Conversion The Disposal of LCB Class B(b) Bonds, Disposal of Property Holdings Companies and LCB Class B(a) and B(b) RCSLS Conversion are components of the ACB Scheme As shown in the table above, whilst the ACB Group s borrowings would be reduced from RM2.677 billion to RM1.273 billion, the proforma shareholders funds of ACB as at 30 June 2008, assuming that the effects of the ACB Scheme is fully incorporated, would be in a deficit position of RM82.4 million. The proforma consolidated shareholders funds of ACB would decline from 0.07 sen to a deficit position of 6.19 sen per share. Essentially, should ACB be wound-up, ACB s total asset value, comprising mainly LCB Class B(b) Bonds and LCB Class B(b) RCSLS would not be sufficient to meet its total debt obligation. Accordingly, ACB shareholders would not be able to recover their investments in ACB due to the deficit shareholders funds position. 11

25 5.2 ACB s Inability to Pay Dividends We note that the ACB Group s proforma debt obligations as at 30 June 2008 after the full implementation of the ACB Scheme stood at RM1,273.1 million. Pursuant to the ACB Scheme, the lenders of ACB have agreed to revise the terms of the ACB Bonds/SPV Debts and ACB Debts (save for the ACB Class C Bonds/Debts) to reflect lower yield to maturity and/or longer maturity period, as follows:- ACB A (1) Bonds ACB A (2) Bonds ACB (1) SPV Debts ACB (2) SPV Debts ACB B(a) Bonds ACB B(b) Bonds ACB B SPV Debts TI ACB B SPV Debts TII ACB A (1) Debts ACB A (2) Debts Before Maturity Date: 31 December 2007 YTM: 4.00% %. Maturity Date: 31 December 2010 Maturity Date: 31 December 2007 Revised Terms Maturity Date : 31 December 2011 YTM: reduced by 0.75% Maturity Date: 31 December 2014 Maturity Date: 31 December 2011 ACB B Debts YTM: 4.25%. Maturity Date: 31 December 2010 YTM: Reduced by 0.75% Maturity Date: 31 December 2014 Following the Disposal of Property Holding Companies, the ACB Group s income source will only be from its remaining investments in LCB Class B(b) Bonds and LCB Class B(b) RCSLS held by ACB after the completion of the ACB Scheme. In view of the sizable debts owing by ACB to its lenders, it is unlikely that ACB will be able to declare any dividends to the shareholders of ACB until and unless it is able to fully redeem/repay all of its ACB Bonds and ACB SPV Debts issued by ACB and its whollyowned subsidiary, ACB SPV. In any case, upon the maturity of the LCB Class B(b) Bonds and LCB Class B(b) RCSLS in 2020 and 2015 respectively, ACB shall cease to have any more core assets and income source. 5.3 ACB Shares have Minimal Marketable Value ACB Shares has been delisted from the Official List of Bursa Securities since 11 October 2007, after a prolonged suspension on the trading of ACB Shares since 16 February Hence, the Holders have been deprived of an avenue to realise their investments in the open market since early Whilst there is no certainty of the market value of the LCB B Warrants upon listing of such warrants on Bursa Securities, the Offer essentially provides the Holders with an immediate opportunity to convert their investment in ACB into a marketable convertible security, in the form of LCB B Warrants. With the present financial condition of ACB, even if the Offer is unsuccessful, it would be unlikely that ACB would be able to seek a re-listing on Bursa Securities. 12

26 5.4 The Offer is not a Mandatory Obligation It is pertinent to understand that the present Offer made by the Joint Offerors does not arise from a mandatory obligation to extend an offer to all shareholders of ACB as a consequence of the ACB Scheme. The Offer constitutes a voluntary take-over offer by the Joint Offerors to provide an avenue to the Holders to realise their investments in ACB by exchanging their shares in ACB for LCB B Warrants. Apart from this Offer, there is presently no other competing offers by any other parties. After this Offer, there is no assurance that the Joint Offerors (or any other parties) would extend a new offer to acquire the remaining shares in ACB not held by the Joint Offerors (or any other parties). Holders of ACB Shares should therefore consider this Offer carefully as an opportunity to exit your investments in ACB, which would otherwise continue to be an illiquid stock as ACB is no longer a listed entity. 6. FUTURE PLANS FOR THE ACB GROUP 6.1 Listing Status of ACB The ACB Shares were delisted from the Main Board of Bursa Securities on 11 October The Joint Offerors have stated in the Offer Document that they do not intend to seek a re-listing of ACB Shares on Bursa Securities. 6.2 The Joint Offerors plans for the ACB Group We have taken cognizance of the intentions of the Joint Offerors for the ACB Group, as detailed in Section 6 of the Offer Document and extracted as follows:-. (a) Continuation of the ACB Group s Business and Major Changes to the ACB Group s Business The Joint Offerors have no intention to liquidate ACB and they have no intention to make any major changes to the structure of the ACB Group within six (6) months from the date of this Offer Document. However, pursuant to the Proposed ACB Scheme undertaken to address the debt obligation of the ACB Group, the ACB Group proposes, inter-alia, the following:- (a) (b) Proposed Disposal of Property Holding Companies; and Proposed Divestment of the Other Assets. Subsequent to the above-mentioned Proposed Disposal of Property Holding Companies and Proposed Divestment of the Other Assets, ACB s principal activities will eventually no longer be in property development and management and its core assets will be investment in the LCB Class B(b) Bonds and LCB Class B(b) RCSLS. These investments are and will be charged to its lenders and the proceeds from the redemption are earmarked for the redemption/repayment of the ACB Bonds/ACB SPV Debts. 13

27 Within six (6) months from the date of this Offer Document, LCB may review the business and operations of the ACB Group and carry out reorganisations of the ACB Group where necessary. Other disposals or redeployment of the ACB Group s remaining assets after the Proposed ACB Scheme may be undertaken to rationalise business activities and/or direction or to improve the utilisation of resources. (b) Employees of the ACB Group Within six (6) months from the date of this Offer Document, the Joint Offerors do not intend to dismiss or make redundant the employees of the ACB Group as a direct consequence of the Offer. However, it should be noted that some changes in staff employment and/or re-deployment may take place as a result of any rationalisation of business activities and/or direction, or to further improve the efficiency of operations and optimise staff productivity. As at LPD, save for those proposals under the ACB Scheme, the Joint Offerors have no knowledge of and have not entered into any negotiations or arrangements or understanding whatsoever with any third party with regards to any change in the ACB s businesses, assets or equity structure. MIMB s Commentary Based on the Joint Offerors statement on the future plans for the ACB Group, we take note that there is no intention to liquidate ACB or make changes to the structure of the ACB Group. As such, Holders who reject the Offer and remain as ACB Shareholders should note that there is no immediate risk of ACB being liquidated, which would have resulted in no recovery of your investments in ACB Shares, in view of the fact that the shareholders funds of ACB is in a deficit position. Whilst there is the possibility that the Joint Offerors may review the business and operations of the ACB Group and carry out reorganisations of the ACB Group, the Joint Offerors have only indicated that the reorganisations would involve the disposals or re-deployment of ACB s remaining assets. No concrete plans for the redeployment of assets have been proposed by the Joint Offerors at this juncture. It is also not apparent that the Joint Offerors have any intention to introduce new business(es) into ACB in order for it to return to profitability. Accordingly, Holders who choose to reject the Offer and remain as ACB Shareholders after the completion of this Offer should not expect any immediate improvement in the financial position of ACB. 14

28 7. FINANCIAL EVALUATION OF THE OFFER In evaluating the reasonableness of the Offer Price for the Offer Shares, we have considered the following factors:- (i) (ii) (iii) (iv) (v) Price to Book Ratio ( PBR ) and Price to Earnings Ratio ( PER ) analysis of the Offer Price; Basis of Determining the Issue Price of the LCB B Warrants; Basis of Arriving at the Exercise Price of the LCB B Warrants; Principal Terms of the LCB B Warrants; and Evaluation of Prospects of LCB. 7.1 PBR and PER analysis of the Offer Price (i) PBR Analysis We refer to the financial consideration of the implied offer price of RM0.01 per Offer Share, detailed in Section 5 of the Offer Document, of which we have reproduced and analysed as follows:- Premium Based on Par Value 1 Audited consolidated NA per share as at 30 June 2008 NA/(NL) per ACB Share Implied Offer Price per ACB Share 1 Premium of the implied Offer Price over the NA per share PBR (Sen) (Sen) (Sen) (%) (times) > Proforma consolidated NL as at 30 June (6.19) >100 N/A Source: Offer Document & ACB Scheme Circular Note:- 1. The implied Offer Price is computed based on the issue price of LCB B Warrants of RM0.10 each and the exchange ratio of one (1) LCB B Warrant for every ten (10) ACB Shares. 2. Based on the proforma effects of the ACB Scheme as extracted from the ACB Scheme Circular assuming all proposals within the ACB Scheme are effected as at 30 June Based on the above, we note that the implied Offer Price of RM0.01 per Offer Share represents a premium of 0.93 sen or at a PBR of times over the consolidated NA of ACB of 0.07 sen per share as at 30 June The implied Offer Price of RM0.01 per Offer Share also represents a significant premium over the proforma consolidated shareholders NL of ACB as at 30 June 2008 of 6.19 sen per share. (ii) PER Analysis As ACB is currently in a loss making position, a price to earnings analysis on the implied Offer Price would not be appropriate. 15

29 7.2 Basis of determining the Issue Price of the LCB B Warrants As mentioned in the LCB Scheme Circular, the issue price of RM0.10 per LCB B Warrant represents a discount of 16 sen to the estimated fair value of LCB B Warrants of RM0.26 (which was arrived at based on the option pricing model computed by LCB based on the 5- day WAMP of LCB Shares up to 20 May 2008, being the latest practicable market day prior to the date of the announcement dated 21 May 2008 of RM0.811). However, as at the date of the Notice, the closing price of LCB Share was RM As such, the estimated fair value of the LCB B Warrants would potentially be lower than what was previously determined by LCB. We also take cognizance that all the terms and conditions of the LCB B Warrants (including the issue price of RM0.10 per warrant) are the same as those of the LCB A Warrants which are being offered to existing shareholders of LCB pursuant to the Proposed Rights Issue of Warrants. Pursuant to LCB s Proposed Rights Issue of Warrants, LCB has procured written commitment from TSWC to subscribe for or procure the subscription by persons connected to him for the LCB A Warrants amounting to million or 48.9% of the total LCB A Warrants to be issued, at RM0.10 per LCB A Warrant. This would mean that shareholders of LCB will be paying the same price for the warrants in LCB as the implied price offered to the Holders. Notwithstanding the above, Holders should note that there is no assurance that the LCB B Warrants will trade at or above its issue price of RM0.10 each as there is no prior market for the trading of the LCB B Warrants since they are not issued yet. [The rest of this page has been intentionally left blank] 16

30 7.3 Basis of arriving at the Exercise Price of the LCB B Warrants As mentioned in the LCB Scheme Circular, the exercise price of the LCB B Warrants was arrived at after taking into consideration the 5-day WAMP up to and including 20 May 2008, being the last practicable market day prior to the date of the announcement of the LCB Scheme dated 21 May 2008 of RM0.81 subject to the minimum issue price of RM1.00 par. At RM1.00, the exercise price of the LCB B Warrants is at an effective premium of 19 sen to the WAMP of LCB Shares on the date prior to the announcement of the LCB Scheme. However, as at 6 February 2009 (being the date of the Notice) LCB Share price had closed at RM0.205 per share. As such, at RM1.00 the exercise price of the LCB B Warrants would be at an effective premium of 79.5 sen over the closing LCB Shares price as at the date of the Notice. In view of the vagaries of the trading prices of LCB Shares, we have considered the price movement of LCB Shares for the past five (5) years up to 6 February 2009 being the date of the Notice, as follows:- Source: Bloomberg For the past five (5) years prior to the Notice of the Offer, the prices of LCB Shares have traded at a range between RM0.19 per share to RM1.89 per share, while the average closing price was at RM0.735 per share. Since mid-2008, LCB Share prices have been affected, in tandem with the direction of n equity market, largely due to the global economic slowdown. Nonetheless, in view of the long term historical trading prices of LCB Shares, it is probable that LCB Share price could rebound from its current levels, in line with an up-turn in the steel sector and a recovery in the global economy in general. 17

31 7.4 Principal Terms of the LCB B Warrants A summary of the salient features of the LCB B Warrants and our commentary on the said features are tabled below. Features Number Up to 79,780,007 LCB B Warrants to be issued Issue Price RM0.10 per LCB B Warrant Commentary Assuming full acceptance of the Offer by the Holders and full conversion of the LCB RCSLS, LCB A Warrants and LCB B Warrants to LCB Shares, the LCB Shares arising from the conversion of the LCB B Warrants would represent approximately 3.03% of the proforma issued and paid up share capital of LCB comprising billion shares. Based on the Offer Document, we note that the issue price of RM0.10 per LCB B Warrant represents a discount of 16 sen to the estimated fair value of LCB B Warrants of 26 sen (which was arrived at based on the option pricing model computed by LCB based on the 5 day WAMP of LCB Shares up to 20 May 2008, being the latest practicable market day prior to the date of the announcement dated 21 May 2008 of RM0.811). Please refer to Section 7.2 of this IAL for further comments. Exercise Price RM1.00 per LCB Share The exercise price of the LCB B Warrants of RM1.00 each is higher than the 5-day WAMP up to and including 20 May 2008, being the last practicable market day prior to the date of the announcement of the LCB Scheme dated 21 May 2008 of RM0.81 per share. The closing price of LCB Shares on 6 February 2009 (being the date of the Notice) was RM0.205 per share RM1.00 is the minimum permissible issue price of LCB Shares, as prescribed under the Act, given that the nominal par value of LCB Shares is RM1.00 each. Please refer to Section 7.3 of this IAL for further comments. Expiry Date Ten (10) years from date of issue The expiry date of the LCB B Warrants of ten (10) years from date of issue is at the maximum permissible tenure, as prescribed under Section 68 of the Act. We view that the tenure of the LCB B Warrants of 10 years is sufficiently long enough for the ACB shareholders to have an opportunity to realise their LCB B Warrants in the future at a profit vis-à-vis the issue price. Please refer to Section 7.3 of this IAL for the historical share price movements of LCB Shares. Source: Notice dated 6 February For further details on the salient terms and conditions of the LCB B Warrants, please refer to Appendix I of the Offer Document. 18

32 7.5 Evaluation of the Prospects of LCB In view that the Accepting Holders will be participating in the businesses of LCB, we have taken note of the historical performance of LCB in the last four (4) financial years and the unaudited results for the six (6) months period ended 31 December 2008, as detailed in the following charts:- * Unaudited Source: ACB Scheme Circular Based on the above, we note that the revenue of the LCB Group has been on an uptrend up till FYE 30 June However, profitability of the LCB Group has been rather volatile, reflecting the vagaries of the steel sector over the past 4 financial years and in the first 6 months of FYE 30 June A comparison of the proforma financial position of the LCB Group and ACB Group is as follows:- Proforma LCB Group 1 Proforma ACB Group 2 RM 000 RM 000 Share Capital 1,900,073 1,331,175 Share Premium 97, ,188 Reserves (631,731) (1,643,764) Shareholders funds 1,365,972 (82,401) Total Borrowings 3,439,064 1,273,127 Gearing 2.52 N/A Notes: (1) After the completion of the LCB Scheme, the Proposed Rights Issue of Warrants and the Offer, but prior to the Conversion of LCB RCSLS and Exercise of LCB A Warrants and LCB B Warrants assuming outstanding LCB ESOS is not exercised. (2) After the completion of the ACB Scheme. Source: LCB Scheme Circular and ACB Scheme Circular. Please refer to LCB Scheme Circular and ACB Scheme Circular for further details of the financial position after the completion of the LCB Scheme and ACB Scheme, respectively. 19

33 As the remaining core assets of ACB after the completion of the ACB Scheme mainly comprises LCB Class B(b) Bonds and LCB Class B(b) RCSLS, the financial position of ACB would largely depend on LCB s ability to turnaround itself and achieve sustainability and growth in earnings. The LCB Scheme, which has substantially addressed the debt obligations of the LCB Group, would put LCB in a better financial footing to weather the current downtrend of the global economy and uncertainty surrounding the domestic economy and the steel sector. Further, Accepting Holders would still have the opportunity to enjoy any potential capital value upside through LCB s direct equity exposure to the steel industry, as opposed to the ACB Group, whose exposure is indirect via its investments in LCB Class B(b) Bonds and LCB Class B(b) RCSLS. Any cash flow from ACB s investment in LCB Class B(b) Bonds and LCB Class B(b) RCSLS will be utilised towards repayment of the ACB Lenders. In summary, by accepting the Offer, Holders can migrate their investments from ACB to LCB, which is in a relatively better financial position after the completion of the LCB Scheme. [The rest of this page has been intentionally left blank] 20

34 8. INDUSTRY OVERVIEW AND PROSPECTS OF THE ACB GROUP AND THE LCB GROUP Pursuant to the ACB Scheme, ACB will hold LCB Class B(b) Bonds and LCB Class B(b) RCSLS. The income arising from these investments are directly linked to the financial performance and prospects of LCB. Furthermore, Accepting Holders would be entitled to LCB B Warrants, of which the theoretical and market value are indirectly linked to the prospects of LCB. At present, LCB s main profit contributor is the steel division. Accordingly, Holders should give due consideration to the outlook of the n economy, steel industry and the construction sector. 8.1 The n Economy Growth of the n economy slowed to 0.1% (3Q 08: 4.7%) in the fourth quarter of 2008 as global economic conditions worsened significantly. Growth was affected by the sharply weaker external demand that has resulted in a further decline in net real exports of goods and services by 40.1% (3Q 08: %). Nevertheless, domestic demand continued to provide support to growth, driven mainly by private consumption and public spending. For the year as a whole, the n economy expanded by 4.6% (2007: 6.3%). Chart: GDP at Current and Constant Prices (RM Million) and Annual Growth Rates During the quarter, domestic demand expanded at 3.1% (3Q 08: 6.5%). Growth in private consumption moderated to 5.3% (3Q 08: 8.1%) as spending activity was constrained by higher retrenchments in the manufacturing sector, reduction in smallholders income arising from the significant decline in commodity prices as well as lower consumer confidence. Public consumption, however, increased strongly by 13.8% (3Q 08: 6.9%), underpinned by higher expenditure on emoluments as well as supplies and services. Meanwhile, subdued investment activity led to a negative growth in gross fixed capital formation (-10.2%; 3Q 08: 3.1%) in the fourth quarter. 21

35 The slowdown was across all economic sectors, led by a sharp decline in the manufacturing sector (-8.8%; 3Q 08: 1.8%), particularly the export-oriented industries (-12.3%; 3Q 08: - 1.1%) due to the significant contraction in global demand. Domestic-oriented industries recorded a negative growth of 2.5% (3Q 08: 8.4%) as production of construction related materials declined while construction activities declined by 1.6% (3Q 08: 1.2%) due to lower activity in the civil engineering sub-sector. Performance of manufacturing exports was affected by lower demand for both E&E and non-e&e products from the major markets as well as weaker global semiconductor prices. Growth in commodity exports (6.1%; 3Q 08: 48.1%) also moderated significantly, reflecting a lower growth in mineral exports while agriculture exports declined sharply due mainly to lower prices. The decline in gross imports (-12.3%; 3Q 08: 10.1%) was due to lower imports of intermediate and capital goods following weaker export performance and slower private investment activities. Source: BNM press release dated 27 February 2009, Economic and Financial Developments in in the Fourth Quarter of 2008 Delays in the resolution to the financial crisis in the advanced economies have resulted in a sharp and rapid deterioration in the recent months. The inability to stabilize conditions is highly likely to have a more protracted effect on the global economy. While there has been concerted monetary policy action and fiscal stimulus across the globe, confidence needs to be restored. This can, however, only happen when the financial system in the crisis-affected countries are repaired and credit continues to flow again, when markets continue to function efficiently and when prices reflects the value of the assets. as an open economy is already adversely affected by these global developments. The domestic conditions are expected to remain challenging in the coming quarters and a range of policy responses are being implemented. There is a need to ensure that the domestic intermediation process remains strong so as to support domestic demand. And secondly, the fiscal stimulus is key to containing the effects of the external developments and to placing in a position to resume growth once conditions in the global economy stabilize. Source: Excerpts from BNM Governor Tan Seri Zeti Akhtar Aziz speech dated 3 March The Steel Industry World crude steel production in 2008 was 1.33 billion tonnes, down 1.2% from 2007, but making 2008 the second year that world steel production was more than 1.3 billion tonnes, according to the World Steel Association ( Worldsteel of which the n Iron and Steel Federation is a member of). Production fell fastest in the fourth quarter of 2008 and world crude steel output recorded a decrease of 24.3% in December 2008 compared with the corresponding month a year earlier. Steel production declined in nearly all the major steel producing countries and regions, including the EU, North America, South America and the Commonwealth Independent States (CIS), through the year. However, Asia, in particular China, and the Middle East showed positive growth in 2008, China became the first country ever to produce more than 500 million tonnes in one year. 22

36 According to Worldsteel's statistics, China's crude steel production in 2008 reached 502 million tonnes, 2.6% higher than the year before. Production volume in China has more than doubled within 5 years, from 222 million tonnes in China's share of world steel production continued to grow in 2008 producing 38% of world steel production. Crude steel production in the EU27 countries fell by 5.3% on 2007 levels to 199 million tonnes in 2008, while North American steel production fell further by 5.5%, with US steel production down 6.8% at 91 million tonnes. World crude steel production for the 66 countries reporting to the Worldsteel amounted to 86 million tonnes in January 2009, down 24% year-on-year. World steel production in January 2009 was 4.5% higher than the previous month mainly as a result of a 9.9% increase in Chinese production, month-on-month. Source: Bloomberg The recent rebound in iron ore spot prices, slowing de-stocking of steel inventories and the economic stimulus activities around the world have raised expectations that prices of scrap iron and steel products may start rising. According to the n Iron and Steel Industry Federation (MISIF), scrap iron prices could firm up in tandem with iron ore prices and steel mills would have to adjust their product prices accordingly. Steel bar price at about RM1,900 per tonne currently is very competitive internationally and chances are higher for steel product prices to be on the uptrend than downtrend as raw material prices increase and demand improves as de-stocking activities wind down and economic stimulus packages in various countries start to take off. De-stocking of steel inventories are expected to be completed latest by the second quarter on average globally. According to OSK Research, spot iron ore prices have been improving in the past few months with prices narrowing to a 15% discount to the benchmark contract price of US$82 to US$83 per tonne before Chinese New Year (CNY) and a 9% discount after CNY, compared to a more than 30% discount at the end of last year. However, negotiations are under way between mining companies and major steel players on new iron ore contract prices to take effect in 1 April The consensus was for a 20%-40% cut in benchmark contract prices due to deteriorating steel demand worldwide. Despite the potential cut in iron ore prices, steel prices are seen to be consolidating at current levels of US$520 (RM1,860) to US$580 (RM2,080) per tonne based on the historical correlation between steel and iron ore prices. The same quantum for steel production and sales this year is expected. The outlook may be weak but it is not as bad as many think steel consumption should be boosted by government pump priming. The performance of local steel players are expected to have their margins normalised from the second quarter of the year as hefty inventory losses would have been written off in the fourth quarter of According to AmResearch, demand for steel in the country would very much depend on how fast big-impact projects such as the double tracking project was implemented and the effectiveness of stimulus packages elsewhere around the world. The impact of the stimulus packages will filter down to economies globally thus boosting demand of steel with prices following suit. Source: 12 February

37 8.3 The n Construction Sector The construction sector saw a 1.6 per cent contraction in the fourth quarter, thus reversing the 1.2 per cent growth recorded in the previous quarter. This negative growth was due to the contraction of 3.5 per cent in the civil engineering sub-sector. Nevertheless, the residential and non-residential sub-sectors posted small growths of 0.7 per cent and 0.4 per cent respectively. For the whole year, this sector continued to post a positive growth of 2.1 per cent following a 4.6 per cent expansion for Chart : Value Added in Construction Sector at Current and Constant Prices (RM Million) and Annual Growth Rates Source: BNM press release dated 27 February 2009, Economic and Financial Developments in in the Fourth Quarter of Prospects of the ACB Group Pursuant to the ACB Scheme, the property division of the ACB Group will cease to be the main income contributor to the ACB Group. In the next 12 months, after the completion of the ACB Scheme, the ACB Group s income source would be derived from its investments in LCB Class B(b) Bonds and LCB Class B(b) RCSLS. Furthermore, LCB s ability to service the LCB Class B(b) Bonds and LCB Class B(b) RCSLS would largely depends on its operations in the steel manufacturing and property development business. As mentioned in Section 5.2 of this IAL, income from the LCB Class B(b) Bonds and LCB Class B(b) RCSLS have been charged to ACB s lenders and proceeds from the redemption are earmarked for the redemption/repayment of the ACB Bonds/ACB SPV Debts. MIMB s Commentary In view of the financial position of the ACB Group after the ACB Scheme as mentioned above, it is unlikely that ACB will be able to declare any dividends to the shareholders of ACB until and unless it is able to fully redeem/repay all of its ACB Bonds and ACB SPV Debts issued by ACB and its wholly-owned subsidiary, ACB SPV. 24