proposed provision of financial assistance by …€¦ · 23/11/2012 · ngc energy sdn bhd...
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KUMPULAN PERANGSANG SELANGOR BERHAD (“PERANGSANG SELANGOR” OR
“COMPANY”)
PROPOSED PROVISION OF FINANCIAL ASSISTANCE BY PERANGSANG SELANGOR TO
NGC ENERGY SDN BHD (“NGC ENERGY”), A 40% OWNED ASSOCIATED COMPANY OF
PERANGSANG OIL AND GAS SDN BHD (“POGSB”) (FORMERLY KNOWN AS SALAM
SEKITAR SDN BHD), A WHOLLY-OWNED SUBSIDIARY OF PERANGSANG SELANGOR
(“PROPOSED PROVISION OF FINANCIAL ASSISTANCE”)
1. INTRODUCTION
On 11 June 2012, Perangsang Selangor announced the execution of the Subscription and
Shareholder Agreement between POGSB with NGC Consolidated Holdings Sdn Bhd
(“NGCCHSB”) and NGC Energy for the proposed investment in a liquefied petroleum gas
(“LPG”) business via a forty per cent (40.0%) equity stake in NGC Energy (“SSA”). The LPG
business would be acquired by NGC Energy from Shell Malaysia Trading Sdn Bhd (“Shell”).
Subsequently, on 19 October 2012, POGSB had executed a Supplemental Agreement with
NGCCHSB and NGC Energy to vary certain terms in the SSA (“SA”) as set out in Section 2.1.2
of this Announcement.
On 24 October 2012, POGSB had completed the subscription of 40% equity stake in NGC
Energy pursuant to the SSA and the SA.
Following the investment for the forty per cent (40.0%) equity stake in NGC Energy by POGSB
via the SSA and the SA, Perangsang Selangor would extend financial assistance to NGC Energy
in the form of shareholders’ advances of up to RM4.00 million and provision of corporate
guarantee(s) favouring financial institution(s) extending financing/refinancing facilities to NGC
Energy.
Pursuant to the Shareholders’ Loan Agreement dated 19 October 2012, the shareholders’
advances of up to RM4.00 million was made on 23 October 2012 by POGSB to NGC Energy in
accordance to the terms of the SSA and the SA. The shareholders’ advance does not require the
approval of shareholders of Perangsang Selangor as the percentage ratio is less than one per cent
(<1.0%) of the audited net tangible assets (“NTA”) of Perangsang Selangor and its subsidiaries
(“Perangsang Selangor Group”) as at financial year ended 31 December 2011 (“Audited NTA”),
which is below the five per cent (5%) threshold pursuant to Paragraph 8.23(2)(c) of the Listing
Requirements.
Other than the shareholders’ advances, the value of the corporate guarantee(s) is up to RM104.80
million, which is approximately eighteen point six per cent (18.6%) of the Audited NTA.
Pursuant to Paragraph 8.23(2)(c) of the Main Market Listing Requirements of Bursa Malaysia
Securities Berhad (“Bursa Securities”) (“Listing Requirements”), a listed company is required
to issue a circular to its shareholders and seek its shareholders’ approval where the aggregate
amount of financial assistance provided or to be provided at any time by a listed company or its
subsidiaries to an associated company is equal to or exceeds five per cent (5.0%) of the NTA of
the group.
On behalf of the Board of Directors of Perangsang Selangor (“Board”), Public Investment Bank
Berhad wishes to announce that the Company intends to undertake provision of financial
assistance to NGC Energy for the following purposes:
(i) to finance/refinance the credit facilities for the acquisition consideration of the LPG
business from Shell (“Shell LPG business”) and its related assets from Shell; and
(ii) for NGC Energy’s working capital requirements and issuance of bank guarantees.
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Hence, in compliance with Paragraph 8.23(2)(c) of the Listing Requirements, the Board would
be seeking the approval of shareholders of Perangsang Selangor for the Proposed Provision of
Financial Assistance at a general meeting to be convened and announced later. Further details on
the Proposed Provision of Financial Assistance are set out in Section 3 of this Announcement.
For information purposes and on a standalone basis, the cost of investment of RM38.00 million
for the forty per cent (40.0%) stake in NGC Energy via POGSB and the sum of RM4.00 million
advanced to NGC Energy does not require the approval of the shareholders of Perangsang
Selangor as the total amount of RM42.00 million does not exceed any of the percentage ratios as
prescribed under Paragraph 10.02(g) of the Listing Requirements. The highest percentage ratio
applicable is three point nine three per cent (3.93%) of the audited net asset value of the
Perangsang Selangor Group as at 31 December 2011.
2. DETAILS OF THE INVESTMENT IN THE SHELL LPG BUSINESS 2.1 Background information of the investment in the Shell LPG business 2.1.1 Purchase of the Shell LPG business and its related assets by NGC Energy
On 9 May 2012, National Gas Company, SAOG (“NGC”) and NGC Energy (“Purchaser”) had entered into the Sale and Purchase Agreement (“SPA”) with Shell (“Seller”) for the acquisition of the Shell LPG business and related assets for a total cash consideration of RM275.00 million, subject to final adjustment to the purchase price as provided under the terms of the SPA, further elaborated in Section 2.3.2 of this Announcement. NGC acts as the guarantor in the SPA.
NGC is a joint stock company incorporated on 9 April 1979 and headquartered in the Sultanate of Oman and is listed on the Muscat Securities Market, the stock exchange in Oman. The principal activities of NGC are the operation of the LPG filling plants and marketing and selling of LPG and it has the largest network of LPG infrastructure and bulk tankers in the Oman region. Besides LPG, cylinder and bulk gas and installation, NGC is also involved in the production of synthetic natural gas, cutting gas and other energy-related services and products. In the last five (5) years, NGC has expanded from its Omani market to other markets in the United Arab Emirates, Saudi Arabia and Qatar. Its authorised share capital is Omani Rial (“OMR”) 5,000,000 comprising of 50,000,000 shares of OMR0.100 each and issued and paid-up share capital is OMR2,500,000 comprising of 25,000,000 shares of OMR0.100 each.
NGC is the ultimate holding company of NGCCHSB and NGC Energy was a wholly-owned subsidiary of NGCCHSB before the equity participation by POGSB pursuant to the SSA and the SA. As at the date of this Announcement, the directors of NGC are as follows:
Name Designation
Abdulla Suleiman Al Harthy Chairman
Khalid Ahmed Sultan Al Hosni Vice Chairman
Malik Muhannah Said Al Adawi Non-executive Director
Khalid Said Salem Al Wahaibi Non-executive Director
Hamdan Abdul Hafidh Al Farsi Non-executive Director
Rashad Khamis Hamed Al Battashi Non-executive Director
(Source: Audited financial statements for the year 2011 of NGC, Muscat Securities Market’s website.)
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NGCCHSB was incorporated in Malaysia under the Companies Act, 1965 on 10 April 2012 and is principally an investment holding company. Its authorised share capital is RM100,000 comprising of 100,000 ordinary shares of RM1.00 each and issued and paid-up share capital is RM2.00 comprising 2 ordinary shares of RM1.00 each.
The directors of NGCCHSB are as follows and none of the directors has any interest, direct or indirect in NGCCHSB:
Name Nationality
Goutam Sukhamoy Sen Indian
Nalin Kumar Chandra Indian
Chew Mei Ling Malaysian
Cynthia Gloria Louis Malaysian
NGC Energy was incorporated in Malaysia under the Companies Act, 1965 on
10 April 2012 and is principally involved in LPG distribution. Its authorised
share capital is RM100,000,000 comprising of 100,000,000 ordinary shares of
RM1.00 each and issued and paid-up share capital is RM85,000,000 comprising
85,000,000 ordinary shares of RM1.00 each.
2.1.2 Equity participation in NGC Energy by Perangsang Selangor via POGSB
NGCCHSB has invited POGSB to be its Bumiputra equity shareholder to
participate in the Shell LPG business via NGC Energy. The parties involved had
on 11 June 2012, entered into the SSA to formalise, amongst others, the
subscription of shares in NGC Energy and had on 19 October 2012, entered into
the SA to vary certain terms in the SSA.
Under the terms of the SSA, as amended pursuant to the SA, POGSB
NGCCHSB and NGC Energy have agreed to the following revised terms:
Clause As per the SSA As amended per the SA
2.1 (b) Clause 2.1 (b)
Shareholders advances to
NGC Energy in the following
proportions:
Clause 2.1 (b)
Subscription of additional shares in NGC
Energy in the following proportions:
Party
Amount
RM
Party
No. of
ordinary
shares
Subscription
Price
RM
NGCCHSB 17,000,000 NGCCHSB 18,000,000 18,000,000
POGSB 18,000,000 POGSB 12,000,000 16,000,000
For the avoidance of doubt, NGCCHSB
will subscribe the additional shares at
Ringgit Malaysia One (RM1.00) each,
whereas POGSB will subscribe the above
additional shares in NGC Energy at
premium RM1.3333333334, in which the
total amount payable for the said
subscription price should be rounded up to
the nearest sen. The premiums to be paid
by POGSB shall be transferred to NGC
Energy’s share premium account and shall
only be utilised in accordance with
Section 60 of the Companies Act, 1965.
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Clause As per the SSA As amended per the SA
Subsequently, the total of ordinary shares
held in NGC Energy shall be as follows:
Party Total no. of
ordinary
shares
Percentage
sharehldings
(%)
NGCCHSB 51,000,000 60
POGSB 34,000,000 40
Clause 2.1 (c)
shareholders advances to NGC Energy in
the following proportions:
Party Amount
RM
NGCCHSB 6,000,000
POGSB 4,000,000
2.2 (b) the balance Ringgit Malaysia
Five Million (RM5,000,000)
shall be utilised as working
capital of NGC Energy.
the balance Ringgit Malaysia Fourteen
Million (RM14,000,000) shall be utilised
as working capital of NGC Energy.
2.9 (a) by subscription of shares in
NGC Energy and
shareholders’ advances to
NGC Energy as provided in
Clause 2.1 above for an
aggregate amount of Ringgit
Malaysia Eighty Five Million
(RM85,000,000);
by subscription of shares in NGC Energy
for an aggregated amount of Ringgit
Malaysia Eighty Five Million
(RM85,000,000);
2.11A - The Parties further agree to subscribe the
remaining number of ordinary shares and
pay the subscription price, as set out
below, at the date as may be agreeable to
the Parties
(a) NGCCHSB will subscribe eighteen
million (18,000,000) ordinary shares
of Ringgit Malaysia One (RM1.00)
each in NGC Energy;
(b) POGSB will subscribe twelve million
(12,000,000) ordinary shares of
RM1.3333333334 each in NGC
Energy, in which the total amount
payable for the said subscription price
should be rounded up to the nearest
sen. For the avoidance of doubt, the
premiums to be paid by POGSB shall
be transferred to NGC Energy’s share
premium account and shall only be
utilised in accordance with Section 60
of the Companies Act, 1965.
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On 24 October 2012, the parties had completed the subscription of shares in
accordance to the SSA and the SA whereby the current shareholding structure of
NGC Energy is as follows:
As at the date of this Announcement, the directors of NGC Energy are as follows
and none of the directors has any interest, direct or indirect in NGC Energy:
Name Nationality
Abdulla Suleiman Al Harthy Omani
Hamdan Abdul Hafidh Al Farsi Omani
Goutam Sukhamoy Sen Indian
Suhaimi Kamaralzaman * Malaysian
Azlan Md Alifiah * Malaysian
Note:
* Both of the Directors represent the interests of Perangsang Selangor in NGC Energy.
2.1.3 Source of funds for the payment of the purchase consideration of RM275.00
million by NGC Energy for the Shell LPG business and its related assets
The terms of the SSA and the SA, amongst others, stipulate the manner in which
the purchase consideration of RM275.00 million for the Shell LPG business and
its related assets shall be funded by POGSB and NGCCHSB respectively
(collectively “the Parties” or individually “the Party”) in the following manner:
(i) by subscription of shares in NGC Energy with an aggregate amount of
RM85.00 million.
(ii) financing by financial institution(s) up to an amount of RM190.00
million to settle the balance of the purchase consideration for the Shell
LPG business and its related assets. To finance this amount, corporate
guarantee to the value in proportion of each shareholder’s equity interest
in NGC Energy would be furnished to the financial institution(s); and
100%
Perangsang Selangor
POGSB
NGC
NGCCHSB
NGC Energy
100%
60% 40%
Innovative Energy
Holdings Mauritius
100%
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(iii) any amount in excess of RM275.00 million as a result of any adjustment
to the final purchase consideration of the Shell LPG business and its
related assets shall be funded via shareholders’ advances in proportion to
their respective shareholding of the Parties.
The subscription of shares in NGC Energy and the shareholders’ advances to NGC Energy shall be made in the following proportions: (i) Subscription of shares in NGC Energy
Party
No. of
ordinary
shares of
RM1.00 each
in NGC
Energy
Percentage of
shareholding
(%)
Subscription
price
RM
NGCCHSB 51,000,000 60 51,000,000
POGSB 34,000,000 40 38,000,000
Total 85,000,000 100 89,000,000
The Parties have agreed that save as permitted by the SSA and the SA, their shareholding in NGC Energy shall be held at their respective shareholding proportions of NGCCHSB (60%) and POGSB (40%) at all times.
(ii) Shareholders‟ advances to NGC Energy
Party Amount
RM
NGCCHSB 6,000,000
POGSB 4,000,000
Total 10,000,000
The shareholders’ advance bears the interest rate of four point five per cent (4.5%) per annum to be settled together with repayment of the advances. The shareholders’ advances may be capitalised into equity in proportion of 60:40 and should NGC Energy repay the shareholders’ advance, the payment would be made in proportion to their respective shareholding of the Parties.
As at the date of this Announcement, POGSB has subscribed for 34,000,000 ordinary shares of RM1.00 each representing forty per cent (40.0%) equity interest in NGC Energy. POGSB’s portion of the shareholders’ advances of RM4.00 million was made to NGC Energy on 23 October 2012 pursuant to the Shareholders’ Loan Agreement dated 19 October 2012. The Parties have agreed that, RM99.00 million raised from the shareholders comprising equity contribution and advances are to be utilised as follows: (i) RM85.00 million shall be utilised to pay part of the purchase
consideration for the Shell LPG business and its related assets; and
(ii) RM14.00 million as working capital of NGC Energy.
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In addition to the financing for the amount of RM190.00 million by a banking and/or financial institution(s) as contained in the SSA, the Parties had on 13 July 2012, further agreed that NGC Energy would require an additional financing for the amount of RM71.20 million for working capital and issuance of bank guarantees purposes, which will also be funded via borrowings from financial institution(s) to NGC Energy. The Parties shall be responsible for the financing by way of a corporate guarantee(s) extended to lenders of NGC Energy in proportion of the respective Parties’ shareholdings of 60:40.
Therefore, in relation to the above financing of the aggregate amount of RM261.20 million, Perangsang Selangor will extend a corporate guarantee of up to RM104.48 million (equivalent to 40% of the total financing amount of RM261.20 million) in favour of the financial institution(s) for the financing/refinancing of the credit facilities to NGC Energy.
2.1.4 Other salient terms of the SSA
Other salient terms of the SSA relating to the management, distribution policy of NGC Energy and pre-emptive rights of the shareholders are as follows:
(i) Composition of the Board of Directors The board of directors of NGC Energy shall comprise a minimum of five (5) Directors (including the chairman), three (3) of whom shall be nominated by NGCCHSB and two (2) by POGSB and shall at all times reflect the proportionate shareholding of the shareholders in NGC Energy. The chairman shall be a director nominated and appointed by NGCCHSB and shall have casting vote, except for matters relating to the rights of the shareholders and reserve matters as prescribed in Schedule 2 of the SSA.
(ii) Composition of the Executive Committee (“EXCO”) The board of directors of NGC Energy shall have the discretion to delegate its powers to manage the operations of the business and such other powers may from time to time delegate to the EXCO. The EXCO shall consist of a maximum of three (3) members, of which two (2) members shall be appointed by NGCCHSB and one (1) member to be appointed by POGSB. The chairman of the EXCO shall be a member nominated and appointed by NGCCHSB.
(iii) Future funding requirements If the board of directors of NGC Energy, at any time determines that NGC Energy’s financial resources are at any stage insufficient to satisfy its working capital and/or funding requirements it shall, upon agreement by the Parties determine appropriate means of meeting the company’s requirements which shall include by additional equity contributions by the shareholders, shareholders’ advances and/or external financing by any financial institutions to be agreed upon by the shareholders. Any additional equity contributions from the shareholders shall not at any time result in a dilution of respective shareholders’ shareholding in NGC Energy. The shareholders’ advances and/or external financing shall be borne by the shareholders in proportion of their respective shareholdings of 60:40.
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(iv) Distribution policy
The Parties agree on a policy of maximising distributions of profits of NGC Energy to shareholders annually, in accordance with the respective shareholding proportions of 60:40, after taking into consideration of the working capital requirements of NGC Energy.
(v) Pre-emptive rights The other shareholder shall be given the pre-emption rights to purchase such number of shares in NCG Energy at a stipulated offer price after the service of requisite notice by the selling shareholder to the other shareholder before the selling shareholder can offer it to third party at the price not less than the offer price.
2.2 Details and description of the Shell LPG business and its related assets acquired by
NGC Energy
The Shell LPG business is the second largest LPG supplier in West Malaysia.
The Shell LPG business operates in the bulk and packed segments (demand driven by household users, commercial users and industrial customers). Sales are made through its network of authorised distributors comprising approximately ninety (90) exclusive distributors located throughout West Malaysia. In year 2011, the recorded annual sales volume was approximately 261,019 tonnes
commanding approximately twenty three per cent (23.0%) share of the domestic market
in these segments. (Source: Shell)
The Shell LPG business and its related assets to be acquired by NGC Energy is from a
business unit of Shell as well as certain downstream assets to be acquired from a related
company of Shell within the Shell Group.
The Shell LPG business
The Shell LPG business mainly comprises:
(i) operations that include the supply, loading and bottling facilities at two (2)
located Shell supply points – Port Dickson, Negeri Sembilan (Central) and Pasir
Gudang, Johor (South) via supply contracts. The supply contracts enable the
Shell LPG business to obtain a reliable stream of product supply to the four (4)
filling plants at Port Dickson, Pasir Gudang, Ipoh and Perai within West
Malaysia via pipeline and road transport at a competitive cost.
As at the date of this Announcement, NGC Energy had entered into the LPG
supply contract for the filling plant at Port Dickson on 9 May 2012 and had also
entered into a novation agreement for the LPG supply for the filling plant at
Pasir Gudang on 5 November 2012; and
(ii) distribution channels with two (2) central stores in West Malaysia located at
Jelutong, Penang (North) and Puchong, Selangor Darul Ehsan (Central) used by
the Shell LPG business as warehouses for packed products before transporting it
to the approximately sixty (60) exclusive distributors for onward deliveries to the
end customers.
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In addition to the above, NGC Energy is also acquiring the intangible assets of the Shell LPG business, amongst others, the intrinsic value of the business such as the novation of the existing contracts by Shell (supplies, distributors, customers, central store operators, hauliers, bottling, procurement and lease), experienced employees and the relationships forged over the years with the distributors and direct customers. There is an existing contract between the owner (third party) of the filling plant in Perai and Shell, where the contract(s) will be novated to NGC Energy as part of the acquisition of the Shell LPG business as set out above.
The Shell LPG related assets (“Identifiable Assets”)
The tangible assets that NGC Energy will acquire comprise of:
(i) motor vehicles (i.e. pick-up trucks, forklifts), plant and equipment, lands,
cylinders, stocks and other assets (e.g. furniture and fittings, computers etc.) at the three (3) filling plants located at Port Dickson, Pasir Gudang and Ipoh and at the two (2) central stores located at Puchong and Penang;
(ii) one (1) filling plant together with land located at Ipoh; and
(iii) two (2) central stores together with land at Puchong and Penang.
Further information on the filling plants and the two (2) central stores are set out in
Appendix I of this Announcement.
2.2.1 Employees
As stipulated in the SPA, NGC Energy shall made available and offer full-time
employment to all employees of the Shell LPG business be made available to
NGC Energy. As at the date of this Announcement, if all employees of the Shell
LPG business from Shell accept the full-time employment offers from NGC
Energy, the number of employees at the six (6) locations throughout West
Malaysia amounts to seventy one (71) employees.
2.2.2 Liabilities to be assumed by NGC Energy
Save for the liabilities incurred in the ordinary course of the Shell LPG business,
NGC Energy would not assume any other liabilities including any contingent
liabilities. The liabilities to be assumed by NGC Energy would be determined
and adjusted against the purchase consideration on the final determination upon
completion of the SPA.
2.3 Salient terms of the SPA
The words and abbreviations used in this section of this Announcement shall have the
same meaning as ascribed in the SPA.
2.3.1 Settlement of the purchase consideration
The purchase consideration of RM275.00 million for the acquisition of the Shell
LPG business and the Identifiable Assets shall be payable in cash by NGC
Energy to Shell in the following manner:
(i) the deposit of 20% of the purchase consideration (“Deposit”) shall be
payable by NGC Energy to Shell upon execution of the SPA; and
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(ii) the balance 80% of the purchase consideration (inclusive of the
adjustment to the purchase consideration) (“Balance Consideration”)
shall be payable by NGC Energy to Shell at completion of the SPA.
NGC Energy had on 9 May 2012 paid 15% of the purchase consideration and on
14 June 2012 paid the remaining 5% of the purchase consideration as the
Deposit of the SPA.
The Balance Consideration had been settled on the Completion Date (as defined
herein), which is on 8 November 2012.
2.3.2 Adjustment to purchase consideration
Adjustment to the purchase consideration will be made in accordance to the
calculation of the Final Consideration (as defined in the SPA) as set out in
Schedule 4 of the SPA. Upon the Completion Date (as defined herein), the Seller
shall as soon as practicable, and in any event by the date falling sixty (60) days
after the Completion Date, prepare the Draft Completion Statement (as defined
in the SPA) together with the assistance of the Seller’s auditors and deliver to the
Purchaser a Draft Completion Statement.
The Purchaser shall have a period of thirty (30) days (“Review Period”) after
the delivery to it to review the Draft Completion Statement and to accept or
object.
If no such written objections presented to the Seller by the end of the Review
Period, the Draft Completion Statement shall be deemed to have been accepted
and approved by the Seller and the Purchaser, and shall be final and binding on
the Seller and the Purchaser, and shall be deemed to constitute the Completion
Statement (as defined in the SPA) for all purposes of the SPA.
If the Final Consideration is greater than the purchase consideration of
RM275.00 million, the Purchaser shall pay an amount equal to the difference to
the Seller. If the Final Consideration is lesser than the purchase consideration of
RM275.00 million, the Seller shall pay an amount equal to the difference to the
Purchaser. In each of the above case, payment shall not be later than five (5)
business days after the date on which the Final Consideration is agreed or
determined in accordance with Schedule 4 of the SPA.
2.3.3 Conditions precedent
The Completion (as defined herein) is conditional upon satisfaction or waiver in
writing by Shell and by NGC Energy of the following conditions precedent
being fulfilled within the latter of (a) 30 May 2012; or (b) the date which is six
(6) months from the date of the SPA, or (c) such other date as may be agreed
upon or waived between the parties before the last date which the conditions
precedent must be fulfilled (“Long Stop Date”):
(i) the relevant authorities confirming to the Seller’s satisfaction (and upon
terms and conditions, if any, acceptable to the Seller) that the Purchaser
will be granted:
(a) the approval of and the issuance by the Ministry of Domestic Trade,
Cooperatives and Consumerism (“MDTCC”) of the relevant license
under the Petroleum Development Act 1974 to the Purchaser; and
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(b) the approval of and the issuance by the MDTCC of the relevant
license under the Control of Supplies Act 1961 to the Purchaser.
(hereinafter referred to as the (“Condition(s)”)
If any Condition(s) has not been waived by the parties or has not been satisfied
by 5.00 p.m. on the Long Stop Date, the SPA shall terminate at 11:59 p.m. on
the Long Stop Date.
As at the date of this announcement, the approvals by the relevant authorities
mentioned above had been granted to NGC Energy.
2.3.4 Completion of the SPA (“Completion”)
(i) Completion shall take place at the offices of the Seller at 11.00 a.m. no
later than five (5) business days after the last of the Condition(s) to be
satisfied or waived, or is satisfied or waived (“Completion Date”).
(ii) At or prior to the Completion, the Seller and the Purchaser shall fulfill
their respective obligations as prescribed in Schedule 5 of the SPA.
(iii) Subject to any other provision in the SPA, if the Completion does not
take place on the Completion Date due to certain obligations as
prescribed in Schedule 5 of the SPA not fulfilled, the parties may agree
in writing to:
(a) proceed to the Completion to the extent reasonably practicable;
(b) defer the Completion to a date not more than seven (7) business days
after the Completion Date and not later than the Long Stop Date;
(c) waive all or any such obligations and proceed to the Completion as
far as practicable (without limiting its rights under the SPA); or
(d) terminate the SPA by notice in writing to the defaulting party,
provided that such termination notice may only be given in
circumstances where the defaulting party has materially failed to
comply with the requirements as set out in Schedule 5 of the SPA
and has not remedied that failure within five (5) business days of
receiving notice from the non-defaulting party requiring to do so. If
the Completion does not take place due to the Purchaser’s non-
compliance with its obligations under the Schedule 5 of the SPA, the
Seller shall have the right to forfeit the Deposit following
termination of the SPA. If the Completion does not take place due to
the Seller’s non-compliance with its obligations under Schedule 5 of
the SPA, the Deposit shall be repayable by the Seller to the
Purchaser. Save as provided in the SPA, the Purchaser further agrees
that the return of Deposit by the Seller shall be the sole and
exclusive remedy available to the Purchaser against the Seller and
the Purchaser shall have no other claims and/or remedies against the
Seller under the SPA and/or under any applicable law.
(iv) If the Seller and the Purchaser defer the Completion to another date in
accordance with item (iii)(b) above, the provision of the SPA apply as if
that other date is the Completion Date.
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2.3.5 Termination The SPA may be terminated only in the following circumstances:
(i) By a non-defaulting party, being either the Seller or the Purchaser, pursuant to item (iii)(d) above.
(ii) By mutual agreement of the parties.
(iii) If the Condition(s) is not fulfilled following reasonable efforts by the Party responsible to fulfill such Condition(s), then automatically without further action of any party, at 11:59 p.m. on the Long Stop Date.
(iv) If after the date of the SPA and before the Completion Date, there is a
substantial loss or substantial damage to the assets by fire or other casualty event and such substantial loss or substantial damage reasonably estimated to result in fifty per cent (50%) or more permanent reduction in the LPG filling plant production capacity at the Port Dickson LPG filling plant or Pasir Gudang LPG filling plant longer than three (3) months period from their respective usual operating capacities (save for any planned or unplanned downtime in the ordinary course of business in the LPG filling plants), then the Seller shall provide the Purchaser with written notice of such matter and either party shall have the right to terminate the SPA before or by the Long Stop Date if:
(a) such loss or damage has not been repaired or remedied by the Seller
by the Long Stop Date to the satisfaction of both the Seller and the Purchaser (acting reasonably); or
(b) the Seller and the Purchaser are not able to agree a mutually agreeable reduction of the purchase consideration, following discussions by the Seller and the Purchaser in good faith prior to the Long Stop Date.
In the event that such permanent reduction as stated is less than fifty per cent (50%), the parties shall mutually agree to adjust the purchase consideration by deducting the net book value of such affected assets calculated at the month prior to the event within fifteen (15) days from the date of the substantial damage to the assets occurring.
2.3.6 Debranding
Schedule 9 of the SPA sets out the debranding obligations of NGC Energy to Shell. Following the acquisition of the Shell LPG business and the Identifiable Assets, NGC Energy should phase out the use of all Shell Marks (as defined in the SPA) as soon as practicable after the Completion Date until such assets can be re-branded or replaced. Debranding involves the complete removal or obliteration of all Shell Marks in respect of: (i) such LPG cylinders and LPG bulk tanks by overpainting and affixing
trademarks and/or manifestations associated with NGC Energy’s business; and
(ii) all other Assets (as defined in the SPA) (other than disposable LPG cartridges).
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The debranding exercise should be made in accordance to the timetable as set out in Schedule 3 of the Schedule 9 of SPA, which is scheduled to be completed by thirty six (36) months from the Completion Date. If the debranding is not implemented as per the timetable, fees will apply for unauthorised use of the Shell brand as set out in Schedule 3 of the Schedule 9 of SPA. The date on which NGC Energy has demonstrated to Shell’s satisfaction that it has satisfied the Debranding Obligations (as defined in the Schedule 9 of the SPA) in full shall be the debranding completion date.
2.4 Basis and justification of arriving at the purchase consideration
The purchase consideration of RM275.00 million for the Shell LPG business and the
Identifiable Assets was arrived at on a willing buyer-willing seller basis after taking into
consideration of the following:
(i) the value of the Identifiable Assets of approximately RM166.0 million(1)
;
(ii) the profitability and the historical financial performance of the Shell LPG
business with:
- an average EBITDA (earnings before interest, taxation, depreciation and
amortization) of approximately RM43.00 million per annum based on the
EBITDA achieved from financial year 2008 to 2010. The purchase
consideration of RM275.00 million represents approximately 6.39 times of
the average EBITDA;
- margin of 6.73% based on the average EBITDA over net sales in the last
three (3) years from financial years 2008 to 2010; and
- Average cash delivered margin of 9.03% over the last three (3) years from
financial year 2008 to 2010;
(Source: Management of Perangsang Selangor)
(iii) return on investment of approximately eighteen per cent (18.0%) based on
financial year 2011 results; (Source: Shell)
(iv) the intangible assets of the Shell LPG business, amongst others, which would
provide NGC Energy with an immediate earnings stream from an established
operation with a pool of customers driven by employees who know the dynamics
of the Shell LPG business. Factors that were taken into consideration are as
follows:
- the novation of the supply contracts for the LPG in enabling the Shell LPG
business to obtain a reliable stream of supply within West Malaysia at a
competitive cost;
- its existing market share in West Malaysia (being the second largest) and its
established network of distributors and direct customers;
- the Shell LPG business is supported by a group of third party cylinder and
metal pallet suppliers, plant operators, central store operators and logistic
providers in addition to its own facilities;
- employees of Shell LPG business to be absorbed by NGC Energy;
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- novation/execution of the selected contracts with distributors, customers,
central store operators, hauliers, bottling, procurement and lease (as set out
in Schedule 13 of the SPA);
- the relatively high barrier of entry for new entrant to this business;
- the proven experience of NGC in this field of business in other countries;
and
(v) the earnings potential and prospects of the Shell LPG business as set out in
Section 4.3 of this Announcement.
Note:
(1) No historical audited financial information of the Shell LPG business is available on a
combined basis as it does not form a consolidated group for reporting purposes.
3. DETAILS OF THE PROPOSED PROVISION OF FINANCIAL ASSISTANCE
Pursuant to Paragraph 8.23(2)(c) of the Listing Requirements, a listed company is required to
issue a circular to its shareholders and seek its shareholders’ approval where the aggregate
amount of financial assistance provided or to be provided at any time by a listed company or its
subsidiaries to an associated company is equal to or exceeds five per cent (5.0%) of the NTA of
the group. The percentage ratios of financial assistance to be provided by Perangsang Selangor
and POGSB to the Audited NTA are as follows:
Details and Purpose of the
Financial Assistance
Financial Assistance Amount
up to
RM million
Percentage
ratio (%)(1)
Provided
by
Provided
to
Shareholders‟ advances
- for the working capital purposes
of NGC Energy as set out in
Section 2.1 of this
Announcement
POGSB
NGC
Energy
4.00
<0.01
Provision of corporate
guarantee
- for financing/refinancing of the
credit facilities for the purchase
consideration for the Shell LPG
business and the Identifiable
Assets
- for NGC Energy’s working
capital requirements and
issuance of bank guarantees (2)
Perangsang
Selangor
NGC
Energy
76.00
28.48
13.53
5.07
104.48 18.60
Notes: (1) Percentage of financial assistance valued against the latest audited consolidated NTA of Perangsang
Selangor Group as at 31 December 2011 of approximately RM561.65 million.
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(2) The breakdown of the working capital requirements and bank guarantees of NGC Energy is as follows:
Details Estimated amount RM million
(a)
Estimated timeframe for utilisation
(b)
Operations in relation to supplies of LPG
16.00 Within twenty four (24) months
Bank guarantees in favour of the debranding exercises
4.48 Within twenty four (24) months
Bank guarantees in favour of the supply and utilities
8.00 Within thirty six (36) months
Total 28.48
Notes: (a) The estimated amounts are based on NGC Energy’s management estimate of the amount of
working capital to be incurred and issuance of bank guarantees (the above amount shown only takes into account Perangsang Selangor’s portion of 40%) and may be subject to further changes.
(b) From the date of shareholders’ approval for the Proposed Provision of Financial Assistance.
The shareholders’ cash advance of up to RM4.00 million was made on 23 October 2012 by
POGSB to NGC Energy in accordance to the terms of the SSA and the SA and was funded via
Perangsang Selangor’s internally generated funds. The shareholders’ advance does not require
the approval of shareholders of Perangsang Selangor as the percentage ratio is less than one per
cent (<1.0%), which is below the five per cent (5%) threshold pursuant to Paragraph 8.23(2)(c)
of the Listing Requirements.
Therefore, the Proposed Provision of Financial Assistance entails the provision of the corporate
guarantee(s) to support the financing/refinancing of the credit facilities from a banking and/or
financial institution(s) of the aggregate amount of up to RM104.48 million (18.6%) for the
following purposes:
(i) to finance/refinance the credit facilities for the purchase consideration for the Shell LPG
business and the Identifiable Assets; and
(ii) to finance NGC Energy’s working capital requirements and issuance of bank guarantees.
The Board would seek shareholders’ approval in the event of any further corporate guarantee or
shareholders’ advance or other form of financial assistance, as the case may be, to be provided to
NGC Energy, in the aggregate financial assistance is in excess of the percentage ratio as
prescribed under the Listing Requirements.
4. INDUSTRY OVERVIEW, OUTLOOK AND FUTURE PROSPECTS
4.1 Overview and outlook of the Malaysian economy
The Malaysian economy recorded a growth of 5.2% in the third quarter of 2012 (2Q 12: 5.6%). Growth was driven by a continued robust expansion in domestic demand amid weaker external demand. Net exports contracted further, with exports declining due to the deterioration in exports of manufactured goods and commodities. The last time exports showed a decline was in 3Q 2009. On the supply side, activity in most economic sectors moderated in the third quarter.
Domestic demand expanded by 11.4% in the third quarter of 2012 (2Q 12: 14.0%) supported by the favourable performance of private consumption and investment activity by both the private and public sectors.
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Gross fixed capital formation registered a robust growth of 22.7% in the third quarter (2Q 12: 26.1%), underpinned by capital spending by both the private and public sectors. Private investment grew by 22.9% (2Q 12: 24.6%), supported by capital spending in the services sector, such as the transportation, real estate and utilities sub-sectors and the on-going implementation of projects in the oil and gas sector.
Public investment expanded by 22.4% (2Q 12: 28.9%), driven by capital spending by the public enterprises (mostly, the non-financial public enterprises in the transportation, oil and gas, and utilities sectors). Federal Government development expenditure was channelled mainly into the transportation, education and public utilities sectors. The continued expansion in investment activity was also reflected in key indicators such as sales of commercial vehicles and imports of capital goods.
On the supply side, activity in most economic sectors moderated in the third quarter. Growth in the manufacturing sector slowed, weighed down by the weaker external environment while the mining sector contracted due to a sharp decline in natural gas production following a prolonged planned shutdown of several gas facilities for maintenance purposes. In the agriculture sector, growth turned positive in line with the recovery in crude palm oil production and strong output of food crops. The construction sector continued to record robust growth, while growth in the services sector expanded further, driven by firm domestic demand.
(Source: Bank Negara Malaysia, Economic and Financial Development in the Malaysian Economy in the Third Quarter of 2012)
The Malaysian economy is expected to strengthen further and projected to grow at a faster rate of 4.5% - 5.5% in 2013. Growth will be supported by improving exports and strong domestic demand on the assumption that global growth will pick up, especially during the second half of 2013. The growth projection is premised upon the expectation of an improvement in the resolution of the debt crisis in the euro area and stronger growth momentum in the economies of Malaysia’s major trading partners. Domestic demand is expected to maintain its strong momentum driven by robust private investment and strong private consumption. Private sector activity will be supported by an accommodative monetary policy in an environment of low inflation coupled with a robust financial sector. Recovery in the external sector, particularly increasing external demand from regional economies and major trading partners will further provide the impetus for a private-led growth. The overall public expenditure is expected to increase, led by higher Non-Financial Public Enterprises’ (“NFPE”) capital investment which will further augment growth. Thus, nominal gross national income per capita is expected to increase 6.4% to RM32,947 (2012: 4.4%; RM30,956). In terms of purchasing power parity, per capita income is expected to grow 4.4% to reach USD16,368 (2012: 3.2%; USD15,676).
Given that domestic economic activity is expected to strengthen further in 2013, inflation is estimated to increase moderately, partly mitigated by further capacity expansion in the economy. The key supply side factors that will influence inflation, namely prices of energy and food commodities are expected to ease during the first half of 2013, but are likely to trend up during the second half on the assumption that global growth continues to pick up pace. Hence, for 2013, the average inflation rate is estimated to be between 2% to 3%.
(Source: Economic Report 2012/2013, Ministry of Finance, Malaysia)
4.2 Overview and outlook of the oil and gas industry
The Government of Malaysia has identified the Oil, Gas and Energy as one (1) of the twelve (12) National Key Economic Areas (“NKEA”) under the Economic Transformation Programme (“ETP”). The ETP is a comprehensive effort that will transform Malaysia into a high-income nation by 2020. It will lift Malaysia’s gross national income (“GNI”) per capita from USD6,700 or RM23,700 in 2009 to more than USD15,000 or RM48,000 in 2020, propelling the nation to the level of other high income nations. This GNI growth of 6% per annum will allow Malaysia to achieve the targets set under Vision 2020.
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The Oil, Gas and Energy NKEA is targeting 5% annual growth for the sector in the decade from 2010 to 2020. This target translates into an increase of RM131.4 billion in the period from 2010 to 2020. Twelve (12) Entry Point Projects (“EPP”) has been identified, as well as two (2) business opportunities within the oil, gas and energy sector. These EPPs will contribute RM47.1 billion to GNI to meet 2020 targets. An additional RM61.2 billion will come from business opportunities and baseline growth. Thus, the NKEA expects to deliver a RM131.4 billion GNI impact and create additional 52,300 jobs in the oil, gas and energy sectors. To achieve this target, the Government and the oil, gas and energy industry will focus on four (4) thrusts - sustaining oil and gas production, enhancing downstream growth, making Malaysia the number one Asian hub for oil field services and building a sustainable energy platform for growth. The three (3) EPPs identified in sustaining oil and gas production involves the lifecycle of existing resources by optimizing exploration, development and production activities as: EPP 1: Rejuvenating existing field through enhances oil recovery EPP 2: Developing small fields through innovative solutions; and EPP 3: Intensifying exploration activities. The thrust of enhancing downstream growth aims at tapping two (2) sources of growth in the downstream sub-sector to take advantage of growth opportunities and improve the supply of oil and gas to end users with: EPP 4: Building a regional oil storage and trading hub; and EPP 5: Unlocking premium gas demand in Peninsular Malaysia. The third thrust of making Malaysia the number one Asian hub for oil field services aims at positioning Malaysia as an oil field services and equipment hub for Asia, leveraging the nation’s strategic location at the centre of the Asia Pacific region and adjacent to international shipping lanes. Three (3) EPPs have been identified: EPP 6: Attracting multi-national corporations to bring a sizable share of their global
operations to Malaysia EPP 7: Consolidating domestic fabricators; and EPP 8: Developing engineering, procurement and installation capabilities and capacity
through strategic partnerships and joint ventures. The fourth thrust of building a sustainable energy platform for growth includes initiatives that aim at ensuring energy security for Malaysia which involves reducing reliance on fossil fuels while growing the power generation capacity. The four (4) EPPs identified are: EPP 9: Improve energy efficiency EPP 10: Building up solar power capacity EPP 11: Deploying nuclear energy for power generation; and EPP 12: Tapping Malaysia’s hydroelectricity potential. (Source: ETP Roadmap)
4.3 Prospects of the Shell LPG business
The association with NGC as the Bumiputra shareholder of NGC Energy provides Perangsang Selangor Group with the opportunity to participate in the future expansion of the Shell LPG business in Malaysia and to diversify its earnings base. Historically, the Shell LPG business is profitable and cash flows positive with a market share of approximately 21% in West Malaysia.
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The Shell LPG business in West Malaysia is stable with low penetration of natural gas (one of the substitutes of LPG) piping to residential and commercial areas, present an opportunity to grow the bulk business, to a certain extent, would grow in tandem with the Malaysian economic cycle and the increased in the number of new household, especially in the more developed urban areas. The Shell LPG business had a year on year, achieved volume growth on a compound basis of 4.3% from financial year 2007 to financial year 2009. Based on such historical achievements, moving forward, volume growth in West Malaysia is expected to be positive.
The Shell LPG business is the second largest LPG supplier in West Malaysia (largest being Petronas Dagangan Berhad) with more than thirty (30) years presence in Malaysia. Supported by the existing extensive network of exclusive distributors and established customers base, the investment will present itself as an opportunity for NGC Energy to capitalise and scale the operations to increase its market share. NGC Energy can leverage on the strength and expertise of NGC, a public joint stock company listed on Muscat Securities Market in the Sultanate of Oman, subject to completion of a feasibility study, intends to grow the industrial segment by introducing industrial applications (for e.g. LPG) as a replacement for natural gas, targeting industries with high energy consumption. NGC has the specific expertise of over thirty (30) years in the Middle East energy industry and has the ability to pioneer breakthrough technologies in the LPG business which would allow for transfer of its expertise to grow NGC Energy. Based on the latest available normalised EBITDA of the Shell LPG business for the financial year 2011 of approximately RM33.40 million, the estimated return of investment is approximately 18.69% as compared to its weighted average cost of capital of 8.36% (based on the consolidated financial position as at 31 December 2011), taking into consideration the total financial commitment of RM146.48 million by the Perangsang Selangor Group in NGC Energy as well as the dividend that may be paid by NGC Energy to POGSB in the future. Premised on the above, the Proposed Provision of Financial Assistance bodes well for Perangsang Selangor Group in its entirety and is expected to widen its earnings base and more importantly, contribute positively to Perangsang Selangor Group’s profitability anticipated from year 2014 onwards. (Source: Board of Perangsang Selangor)
5. RISK FACTORS
5.1 Risk factors in relation to the gas industry 5.1.1 Gas industry in Malaysia is highly regulated by the Government
The gas industry in Malaysia is regulated by the Energy Commission under the Gas Supply Act, 1993 (“GSA”). The gas supply legislation provides a regulatory framework where both the Government and industry are expected to play a part in ensuring economical, quality, efficiency, reliability and safety in the use of natural gas and LPG. Standards are set by the GSA for appropriate systems and practices to be put in place. Apart from the GSA, other relevant laws and regulations which the gas industry will include, amongst others, Gas Supply Regulations, 1997, Occupational Safety and Health Act, 1994 and Environmental Quality Act, 1974.
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Non-compliance or breach of these laws and regulations may result in the suspension, withdrawal, non-renewal or termination of licenses or permits, or the imposition of penalties, by the relevant authorities. There is no assurance that in the future, the gas industry may not be subject to stricter enforcement or interpretation of existing laws and regulations or the requirement to renew licenses or obtain new license. Any suspension, withdrawal, non-withdrawal or termination of the licenses or permits, the imposition of penalties or increased compliance costs could have material adverse effect on NGC Energy’s operations, profitability and financial condition. The board of directors of NGC Energy shall use its best endeavours to comply with all the regulations by implementing, amongst others, best practices in its processes, provide continuous training for its employees to keep abreast with the latest changes in regulations, reengineer work processes, conduct regular safety and maintenance audits.
5.1.2 Volatility of gas prices
In Malaysia, the average buying and selling prices of gas, including amongst other LPG, is based on the prices as regulated and approved by the Government. As at the date of this Announcement, the Government regulated the selling of LPG at an average price of RM1.90 per kilogram.
There exists a direct correlation between oil prices and the level of activity in the oil and gas industry and oil is an internationally traded commodity which price fluctuates with the constant interaction between supply and demand factors. Unforeseen supply disruptions, geographical and political factors are amongst an entire host of factors that may influence the market price of oil. As LPG is a co-product of natural gas and crude oil, the volatility of the crude oil prices will affect the price of LPG. The gas prices regulated by the Government would take into consideration on the fluctuations in the global prices of crude oil.
In view of the above, there is no assurance that the buying and average selling prices of LPG will be maintained at the current prices in the future. Accordingly, any narrowing of the buying and selling prices would have adverse effect on the business operations, profitability and financial condition of NGC Energy. To mitigate such risk, the board of directors of NGC Energy shall use its best endeavours to amongst others, continuously improve processes to achieve efficiency and productivity, reduce wastages, meeting deliverables timely, expand its distribution network to reach more end customers and strive to gain market share to achieve scale advantages.
5.1.3 Political, social and economic considerations
Changes and developments in political, social and economic conditions in which NGC Energy operates could indirectly materially and/or adversely affect the profitability and business prospects of the gas sector of the Perangsang Selangor Group. These uncertainties include, but are not limited to, the changes in political leadership, changes in investment policies and taxation, expropriation, nationalisation, changes in regulatory structure and economic downturn.
Demand for gas is typically dependent on the level of general economic activity and political conditions, both domestically and internationally. Adverse political conditions could affect the general economic situation which in turn, could cause industries to lower production thus lowering consumption of LPG which in turn, will affect the volume of gas sold.
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It is not possible to predict accurately the supply and demand balances, general economic and market conditions and other factors that may affect industry operating rates and margins in the future. The uncertainty as to the growth trend of international trade and the general economic and political climate may continue to have an impact on the business, profitability and financial condition of NGC Energy. Notwithstanding, the board of directors of NGC Energy shall monitor trends in demand and supply conditions and focus on being cost efficient, reliable for quality and service oriented with its stakeholders in order to stay competitive and remain relevant in the LPG and gas segments.
5.2 Risk factors in relation to the operations and the LPG business 5.2.1 Business risk
The Shell LPG business segment is subject to business risks common to the oil and gas industry at large. Hence, the business is subject to certain risks inherent in the gas industry. These risks include changes in general economic conditions such as, but not limited to, government regulation, inflation, taxation, interest rates and fluctuation of foreign exchange rates as well as changes in business conditions such as, but not limited to, deterioration in market conditions, constraints in skilled workforce, shortage of natural resources and fluctuations in demand for its products and services. NGC is the national gas company in the Sultanate of Oman which has extensive experience in the Middle East energy industry. The association of NGC Energy with the Omanis national gas company will seek to limit these risks in terms of bridging the expertise gap, however, there is no assurance that any changes to these inherent risks will not adversely affect the Shell LPG business and future financial performance of NGC Energy.
5.2.2 Licensing risk NGC Energy is administered under the Petroleum Development Act, 1974 and the Control of Supplies Act 1961 in which licenses are required to be obtained from the Ministry of Domestic Trade, Cooperative and Consumerism to carry out the LPG business. The licenses and registrations are only valid for a stipulated time frame which is renewable subject to compliance with the relevant conditions. These requirements set out may be subjected to changes, which could then affect certain operations of the business. Failure by NGC Energy to renew or maintain the required licenses and registrations may have an adverse effect on the return of investment to the Perangsang Selangor Group in this Shell LPG business.
Therefore, there can be no assurance that the licenses and registrations will be
renewed within the anticipated time frame or without any new terms and
conditions imposed, which may be adverse, or the future legislative or regulatory
policy changes will not affect the operations of the NGC Energy. Nevertheless,
NGC Energy shall use its best endeavours to continue to ensure that it is in
compliance with the relevant requirements and regulations at all times to
preserve the licenses and registrations.
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5.2.3 Dependency on the Shell Group for supply of gas to the filling plant
Shell Refining Company (Federation of Malaya) Berhad and Shell International
Eastern Trading Company (“Shell Group”) are the two (2) major suppliers of
LPG to filling plants located in Pasir Gudang, Port Dickson, Ipoh and Penang
supplied via direct pipeline and sea/road transportation. As part of the post
divestment structure of the Shell LPG business to NGC Energy, these contracts
for the supply of gas to the filling plants will be novated to NGC Energy. These
supply contracts will determine the supply volume (with agreed minimum
volume) at a purchase price which is based on Saudi Aramco Contract Price plus
an annually agreed premium per metric tonne for freight costs etc.
The positive aspect of the supply contracts is that the contract is renewable every
five (5) years to up to twenty five (25) years provide an assurance for the
continuity in the supply of feedstock for the filling plants. Conversely, should
demand slack below the agreed minimum amount of LPG to be supplied by the
Shell Group, there could be adverse financial implications to NGC Energy.
Operationally, if there are material disruptions in the supply of gas, or supply
shortages or suspension due to gas deficiency from the Shell Group, the gas
filling operations may be disrupted or suspended, which may result in loss of
customers and material loss of revenue. There is no assurance there will be any
non-scheduled material interruptions in the supply of gas from the Shell Group
which will not have a material adverse effect on the business operations,
profitability and financial condition of NGC Energy.
As one of the means to address any impact arising from interruptions in gas
supply, NGC Energy may have the option of purchasing the LPG from other
parties, such as Petronas and/or other suppliers (subject to their existing
agreement to novate the supply arrangements from the Shell Group to NGC
Energy) on an ad hoc basis.
5.2.4 Automatic Pricing Mechanism (“APM”) by the Government
The APM is the regulation under which a ceiling price is set for sale of packed LPG to domestic end users and compensates LPG suppliers for the shortfall between the selling price and a deemed fair market price determined by the Government. The Ministry of Finance will subsidise the difference and pay a fixed rebate allowance for LPG operators and distributors. Since year 2010, the Government has determined that the LPG is priced at RM1.90 per kilogram. However, the purchase price for the Shell LPG business is set in the contract with the Shell Group as detailed in Section 5.2.3 whilst the sales volume is substantially contributed by the packed LPG segment which would be subjected to the APM. This arrangement may adversely impact gross profit margin if the increase in purchase price is not in tandem with the increase in the selling price pre-determined by the Government. Notwithstanding the above, NGC Energy may be in the position to possibly re-negotiate for a more favourable term with the Shell Group in the future to close the gap of the mismatch in selling and purchase price valuation model.
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5.2.5 Operational, health and safety risks
The operation of gas facilities involves a variety of safety and other operating risks, including but not limited to, the handling, distribution and transportation of highly inflammable gas. Similar to other business involved in the oil and gas industry, the NGC Energy’s operation of its business is inherently subject to disruption by a variety of risks and hazards, which are beyond its control such as fires, explosions, leakages, energy crisis and other accidents at the gas facilities. As a result of these risks, NGC Energy may experience difficulties in achieving targeted sales levels. Any technical failure at the gas sites or for any other reason, may affect the LPG sales adversely, which could have a material adverse effect on the business operations, profitability and financial condition. These risks can be mitigated through periodic audits of its health and safety procedures and practices, drills, continuous health and safety meetings and reviews, training and other measures. While NGC Energy places heavy emphasis on health and safety throughout all levels of its operations and undertakes best endeavours to ensure continuous health and safety training for its employees and adequate level of insurance coverage, there is no assurance that incidents and damages will not occur. Depending on the premium costs and if economical, certain of these risks can be insured and NGC Energy would continuously review the insurance coverage with insurance brokers/underwriters to ensure, amongst others, sum insured is adequate, perils are identified and assessed for coverage and mitigate the risks of counterparty default by insuring with reputable insurance company(ies).
5.2.6 Rebranding risk
The Shell LPG business has a sizable presence in West Malaysia partly, due to its strong branding achieved over more than thirty (30) years presence in Malaysia. To a certain extent, this has supported the domestic market share of the Shell LPG business in West Malaysia. Upon the completion of the acquisition of the Shell LPG business and the Identifiable Assets by NGC Energy, NGC Energy is contractually bound to debrand existing Shell brand within thirty six (36) months from the Completion Date as stipulated in the SPA and to undergo rebranding exercise. Further details on the debranding exercise are as set out in Section 2.3.6 of this Announcement. Upon the rebranding exercise, there is no assurance that the current domestic market share will be maintained or improved as customers may be affected by the change in brand, thus altering consumer preference as well. Furthermore, there is a risk of NGC Energy not able to fulfill its obligations under the debranding exercise as set out in the SPA within the stipulated time. This might cause NGC Energy to incur additional fees for the unauthorised use of the Shell brand. Notwithstanding, NGC Energy will undertake all necessary efforts such as customer response analysis, promotions and public awareness to mitigate the risk associated with the rebranding upon completion of the acquisition of the Shell LPG business.
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5.2.7 Change and integration risk
The continuing smooth operations and success of the Shell LPG business post completion of the acquisition by NGC Energy could be disrupted and adversely affected by the change and integration processes that may be implemented to reflect the vision and mission of NGC Energy. Factors such as, differences in values, culture or work ethics could create resistance by the stakeholders especially on the supply side of the Shell LPG business to understand and reposition their operating goal, business philosophies and standards to be in congruent with that of the new owner. The stakeholders may need to understand, adapt, adjust and adopt the policies and processes that may be new and take time for them to fit and be in sync with the objectives of the new owner. Such risks if not mitigated may have an adverse effect on, amongst others, the operations, service levels and financial performance under the direction of the new owner. The board of directors of NGC Energy when considering changes to be made to various areas of the Shell LPG business to improve the performance would amongst others, carefully analyse and assess the potential adverse effects and the benefits of the contemplated changes, seek the feedback from the relevant stakeholders, consider engaging professionals with the experience, skill sets and credentials to formulate, implement and track for results and measure against pre-determined objectives and modify the changes if necessary when undertaking change and integration processes to mitigate risks associated with such processes.
5.3 Risk factors in relation to the Proposed Provision of Financial Assistance
The shareholders’ advance of RM4.00 million by POGSB to NGC Energy made up part of the cost of investment in NGC Energy. The return on investment and the likelihood of POGSB in recouping its investment costs is very much dependent on the Shell LPG business to generate earnings which will enable dividends to be considered for payment to the shareholders. Notwithstanding the distribution policy as stipulated in the SSA on maximising distributions of profits of NGC Energy to shareholders annually after taking into consideration the working capital requirements of NGC Energy, there is no assurance the dividend payable to POGSB will allow POGSB to recover its initial investment in NGC Energy. Furthermore, the SSA and the SA do not provide that the dividend payments are guaranteed, and at the discretion of the board of directors of NGC Energy, may decide not to pay dividends or to change the distribution policy. In addition, the Perangsang Selangor Group could equity account for the share of the results of NGC Energy, being an associated company in its periodic statement of income. Any adverse financial performance by NGC Energy would impact the earnings per share of the Group beside the need to consider potential impairment to the cost of investment. Perangsang Selangor is providing the corporate guarantee(s) of up to RM104.48 million to enable NGC Energy to finance/refinance the credit facilities for the purchase consideration of the Shell LPG business together with the Identifiable Assets and to finance its working capital requirements and issuance of bank guarantees. Although the corporate guarantee will not have direct financial impact to Perangsang Selangor’s financial position, the corporate guarantee being contingent liability may be called upon by the financial institution(s) upon an event of default by NGC Energy, when crystalised, has an adverse impact to the Perangsang Selangor Group. In the event that NGC Energy is unable to service its indebtedness, Perangsang Selangor will be required to, amongst others, allocate a substantial portion of its cash flow to service the indebtedness of NGC Energy to the financial institution(s) as the guarantor. This will reduce available funds for other working capital or investment/expansion purposes by Perangsang Selangor.
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As a mitigating factor, Perangsang Selangor, through its wholly-owned subsidiary POGSB, will have its nominees in the board of directors of NGC Energy. These nominees would play a crucial role on behalf of Perangsang Selangor to ensure, amongst others, the actual financial performance of NGC Energy is in line with expectation, annual business plan are formulated, periodically monitoring the operations for adequate cash flows be generated to service the interest and repay the principal portion of the indebtedness when due. In addition, the Board of Perangsang Selangor would also be apprised and consulted for major issues such as capital expenditure spending and expansion plan of NGC Energy besides monitoring the performance and cash flows position at its regular meetings.
6. RATIONALE OF THE PROPOSED PROVISION OF FINANCIAL ASSISTANCE
The investment in NGC Energy provides an opportunity for the Perangsang Selangor Group to diversify into an established business with its market share, defensive characteristics and growth potential to expand the earning base of the Perangsang Selangor Group. The joint venture partner, NGC has the relevant experience and proven track record in this business segment and such factors would augurs well to deal with the challenges and mitigate the risks inherent in operating the Shell LPG business after completion of the SPA.
The financial assistance to be provided by Perangsang Selangor Group is necessary to facilitate
the investment in the Shell LPG business by POGSB. In addition to finance/refinance the credit facilities for the purchase consideration, the financial assistance will provide NGC Energy with the necessary working capital requirements and bank guarantees for the Shell LPG business such as, rebranding, distributors’ relationship management and internal re-organisation, if necessary.
7. EFFECTS OF THE PROPOSED PROVISION OF FINANCIAL ASSISTANCE
7.1 Share capital and substantial shareholders‟ shareholdings The Proposed Provision of Financial Assistance will not have any effect on the issued and paid-up share capital of the Company and substantial shareholders’ shareholdings of the Company as the Proposed Provision of Financial Assistance does not involve any issuance of shares or other securities in the Company.
7.2 Earnings
The Proposed Provision of Financial Assistance is not expected to have any material
impact on the consolidated earnings and earnings per share of the Perangsang Selangor
Group for the financial year ending 31 December 2012.
Based on the estimates of the management of the Company, the expected return on
investment from the investment in Shell LPG business by POGSB through NGC Energy
is approximately 18.69%. By way of definition, return on investment is a measurement
of the potential cash flows generated from an investment relative to the amount of capital
invested over the estimated duration of that investment.
Premised on the return of investment of 18.69% benchmarking it to the weighted average
cost of capital of 8.36%, based on the audited financial position of the Perangsang
Selangor Group as at 31 December 2011, the investment in NGC Energy is considered
earnings accretive.
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Barring any unforeseen circumstances, the investment in the Shell LPG business by
POGSB is expected to contribute positively to the future earnings of the Perangsang
Selangor Group from the equity accounting of the results of NGC Energy in the future.
7.3 Net Assets (“NA”) and gearing
The provision of the corporate guarantee(s) of up to RM104.48 million by the Company
has no effect on the financial position, including the gearing level of the Perangsang
Selangor Group except that the amount of the corporate guarantee(s) would reflected as
contingent liability.
Notwithstanding, when called upon, in an event of default of the terms and covenants
imposed by the financial institution(s) on NGC Energy, the contingent amount would
crystallised. Under such circumstances, the full value of the corporate guarantee(s) plus
any interest and other charges levied but remained unpaid would be due and payable to
the financial institution(s) by Perangsang Selangor.
Nevertheless for illustrative purposes, the proforma effects of the Proposed Provision of
Financial Assistance on the consolidated NA, NA per share and gearing level of the
Perangsang Selangor Group as at 31 December 2011, (premised that the full amount of
the corporate guarantee of RM104.48 million had crystallised) are as follows:
Audited as at
31 December 2011
After
the Proposed
Provision of
Financial Assistance
Group level RM‟000 RM‟000
Share capital 476,824 476,824
Share premium 34,228 34,228
Other reserves 136,337 136,337
Retained earnings 421,026 421,026
Equity attributable to shareholders of
the Company
1,068,415
1,068,415
Number of Perangsang Selangor Shares
in issue (’000) 476,824 476,824
NA per Perangsang Selangor Share (RM) 2.24 2.24
Total borrowings (RM’000) 1,232,364 1,336,844
Net Gearing (times) 1.15 1.25
7.4 Convertible securities
As at the date of this Announcement, the Company has a total of 15,275,000 outstanding
options granted pursuant to the employee share option scheme (“ESOS Options”) which
are exercisable into new Perangsang Selangor Shares by the options holders. Nonetheless,
the Proposed Provision of Financial Assistance will not have any effect on the ESOS
Options of the Company.
Save for the outstanding ESOS Options, the Company does not have any other
outstanding convertible securities in issue.
26
8. DIRECTORS‟ AND MAJOR SHAREHOLDERS‟ INTERESTS
Save as disclosed below, none of the Directors and/or major shareholders of Perangsang
Selangor and/or persons connected with such Directors or major shareholders of Perangsang
Selangor have any interest, direct or indirect, in the Proposed Provision of Financial Assistance.
Suhaimi Bin Kamaralzaman is a Director of Perangsang Selangor and does not have any direct or
indirect interest in Perangsang Selangor. He is also a director nominated by Perangsang Selangor
to represent the Company’s interest in NGC Energy and does not have any direct or indirect
interest in NGC Energy.
9. APPROVALS REQUIRED The Proposed Provision of Financial Assistance is subject to the approval of:
(i) the shareholders of Perangsang Selangor at an extraordinary general meeting to be
convened; and
(ii) any other parties and/or relevant authorities, if required.
10. DIRECTORS‟ STATEMENT AND RECOMMENDATION
The Board, having considered all aspects of the Proposed Provision of Financial Assistance,
including but not limited to the rationale, prospects, financial effects and risks associated with the
Proposed Provision of Financial Assistance, is of the opinion that the Proposed Provision of
Financial Assistance is:
(i) in the best interest of the Company; and
(ii) is fair and reasonable to Perangsang Selangor and is not detrimental to Perangsang
Selangor and its shareholders.
11. SUBMISSION TO THE AUTHORITIES
The applications to the relevant authorities are expected to be made within one (1) month from
the date of this Announcement.
12. ESTIMATED TIMEFRAME FOR COMPLETION
Barring any unforeseen circumstances, the Proposed Provision of Financial Assistance is
expected to be completed in the first quarter of calendar year 2013.
13. ADVISER
The Board has appointed Public Investment Bank Berhad to act as the Adviser in relation to the
Proposed Provision of Financial Assistance.
27
14. DOCUMENTS AVAILABLE FOR INSPECTION
The following documents are available for inspection at the Registered Office of Perangsang
Selangor at 16th Floor, Plaza Perangsang, Persiaran Perbadanan 40000 Shah Alam Selangor
Darul Ehsan during normal office hours from Monday to Friday (except public holidays) for a
period of three (3) months from the date of this Announcement:
(i) the SSA;
(ii) the SA;
(iii) the SPA; and
(iv) the Shareholders’ Loan Agreement.
This Announcement is dated 23 November 2012.
28
Appendix I of the Announcement
Land – Filling plants
There are four (4) pieces of lands where the filling plants are located for the existing Shell LPG
business as described below:
Location Address
Approximate land
area (square
metres)
Current
Ownership
Port Dickson (1)
Batu 1, Jalan Pantai
71000 Port Dickson
Negeri Sembilan
7,000 Shell Group
Pasir Gudang (1)
PLO 216, Jalan Tembaga
81707 Pasir Gudang
Johor
16,000 Shell Group
Ipoh (2)
Jalan Tun Razak
30710 Ipoh
Perak
33,184 Shell Group
Perai 1399, Solok Perusahaan Satu
Perai Industrial Complex
13600 Perai
Pulau Penang
Unknown Third party
Notes:
(1) These filing plants are not part of the Identifiable Assets to be acquired by NGC Energy from the Shell
Group and the ownership of these filing plants will remain with Shell and the third party. However, NGC
Energy will acquire the other assets, the business and employees of these filing plants and will execute
agreements with the relevant parties for the lease of the land and the filing plants. As at the date of this
Announcement, the lease agreements by NGC Energy with Shell and the third party has been signed.
(2) The acquisition of the Shell LPG business and Identifiable Assets include the Ipoh plant where part of land
area will be transferred to NGC Energy. The total land area is approximately 33,184 square metres
(28,962 square metres will be transferred to NGC Energy and 4,222 square metres belong to Lembaga
Letrik Negara Tanah Melayu). The existing Shell’s lease agreement with Lembaga Lektrik Negara Tanah
Melayu will be novated to NGC Energy. As at the date of this Announcement, the novation agreement for
the lease of land of Lembaga Lektrik Negara Tanah Melayu had been duly executed.
The details of the land of the Ipoh plant are as follow:
Title Geran 29456, Lot 9118N, Bandar Ipoh (Utara), Daerah
Kinta, Negeri Perak Darul Ridzuan
Tenure Freehold
Approximate area for LPG business 28,962 square metres
As at the date of the announcement, the transfer of the title of the land (28,962 square metres) to NGC
Energy is pending subdivision of the total land (33,184 square metres) into two separate titles. However,
NGC Energy as the beneficial owner shall be entitled to enjoy the use of and all rights and interests over
the land.
29
All the four (4) filling plants include storage facilities as well. The following table depicts the rated capacity
and output of the four (4) filling plants based on year 2009, 2010 and 2011:
Location
2009 2010 2011
Annual volume
output
(„000 tonnes)
Bulk
storage
(„000
tonnes)
Annual volume
output
(„000 tonnes)
Bulk
storage
(„000
tonnes)
Annual volume
output
(„000 tonnes)
Bulk
storage
(„000
tonnes)
Packed Bulk Mixture Packed Bulk Mixture Packed Bulk Mixture
Port
Dickson
112.80 42.00 4.00 * 114.82 53.61 4.00 * 115.69 44.16 4.00 *
Pasir
Gudang
27.49 2.22 1.80 27.30 3.91 1.80 27.04 5.76 1.80
Ipoh 41.58 2.16 0.20 44.77 1.88 0.20 39.88 0.45 0.20
Perai 10.91 - 0.30 * 18.53 0.62 0.30 * 17.97 1.95 0.30 *
Note:
* Not exclusively used by LPG business.
(Source: Shell)
THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK
30
Land - Central Stores
There are two (2) pieces of lands where the central stores are located for the existing Shell LPG
business as described below:
Location Address
Approximate land
area (square
metres)
Current
Ownership
Puchong (1)
9 Jalan TPP 6/8,
Taman Perindustrian Puchong,
Mukim Petaling
47200 Puchong Selangor
2,787 Shell Group
Penang (1)
341 Jalan Jeti Jelutong
11600 Jelutong Penang
11,014 Shell Group
Note:
(1) NGC Energy will acquire both pieces of lands where the central stores are located and all of the existing
ownership will be transferred to NGC Energy upon completion of the SPA.
The details of the land are as follow:
Location/Descriptions Central store at Puchong Central store at Penang
Title HS(D) 114716, PT No. 34087,
Mukim Petaling, Daerah
Petaling, Selangor Darul Ehsan
Geran 32794, Lot 302, Seksyen 1
and Geran 43001, Lot 478 Seksyen
1, Bandar Jelutong Daerah Timor
Laut, Penang
Tenure Leasehold (expiring 26 October
2096)
Freehold
Approximate area for LPG
business
2,787 square metres 11,013.8524 square metres
The central stores have the following storage capacity based on year 2009, 2010 and 2011:
Location
2009 2010 2011
Annual volume
output
(„000 tonnes)
Bulk
storage
(„000
tonnes)
Annual volume
output
(„000 tonnes)
Bulk
storage
(„000
tonnes)
Annual volume
output
(„000 tonnes)
Bulk
storage
(„000
tonnes)
Packed Bulk Mixture Packed Bulk Mixture Packed Bulk Mixture
Puchong 6.36 - - 7.40 - - 6.32 - -
Penang 8.78 - - 8.58 - - 7.51 - -
(Source: Shell)