SUBSCRIPTION OF SHARES IN MEGA HIGHLIGHTS SDN BHD
28th Nov, 2005
The Board of Directors of Inno-Pacific Holdings Ltd (the “Company”) wishes to announce that its wholly owned subsidiary, Awana Rentak Sdn Bhd (“ARSB”) had on 28 th November 2005, entered into a share subscription agreement (the “Subscription Agreement”) with Mega Highlights Sdn Bhd (“Mega Highlights”). Mega Highlights, which is incorporated in Malaysia, carries on the business of designing, manufacturing and assembly of commercial vehicles. Pursuant to the Subscription Agreement, ARSB will subscribe for 42,857 new ordinary shares of RM1.00 (the “New Shares”) each in Mega Highlights, which will represent approximately 30% of the enlarged issued share capital of Mega Highlights, for an aggregate subscription price of RM42,857.00 (the “Subscription Price”). The Subscription Price, which represents approximately 0.19% of the Company’s market capitalisation of S$10,238,015 as at close of market on 25 th November 2005, will be satisfied by cash. The aggregate value of the Subscription Price for the proposed subscription does not exceed 20% of the market capitalisation of the Company and accordingly, does not require the approval of the Company’s shareholders. Pursuant to the Subscription Agreement, ARSB had also entered into a shareholders’ agreement with Mr. Khoriri bin Hj. Abu Sabri (the “Shareholders’ Agreement”), a major shareholder of Mega Highlights, dated 28 th November 2005. The Shareholders’ Agreement sets out the financial, managerial, administrative and other arrangements agreed between ARSB and Mr. Khoriri bin Hj. Abu Sabri in relation to their participation and shareholdings in Mega Highlights. A loan agreement dated 28 th November 2005 (the “Loan Agreement”), has also been entered between ARSB, Mega Highlights and Mr. Khoriri bin Hj. Abu Sabri, pursuant to which ARSB has agreed to extend an interest-free loan of up to RM2 million (the “Loan”) to Mega Highlights for the sole purpose of the initial construction of a factory and assembly facilities located at Sungai Dara, Tanjung Malim, Perak Darul Ridzuan, Malaysia. As security for the repayment of the Loan, Mr. Khoriri bin Hj. Abu Sabri has irrevocably and unconditionally guaranteed the due and punctual repayment of the Loan by Mega Highlights. ABOUT MEGA HIGHLIGHTS SDN BHD (“Mega Highlights”) Mega Highlights was incorporated on 12 October 2001, in Malaysia for the purpose of acquiring the entire share capital of Mega Commercial Vehicle Sdn Bhd (“MCV”) (formerly Hicom Carriage Engineering Sdn Bhd) from Hicom Holdings Berhad. MCV holds one of the four full manufacturing licenses issued by the Malaysian Industrial Development Authority, an agency of the Ministry of International Trade and Industry (MITI) in Malaysia. The other three licenses are issued to major industry players, namely DRB-Hicom Berhad, Inokom Corporation Sdn Bhd and Naza Corporation Sdn Bhd. Since 1995, MCV has been in the business of design, manufacture and assembly of commercial vehicles, particularly buses for the domestic Malaysian market. To date, MCV has produced about 700 units of buses and other vehicles with a total sales value of approximately RM 270,000,000. Following the acquisition of MCV in April 2004, Mega Highlights entered into an agreement with Jua Juara Sdn Bhd, a wholly-owned subsidiary of the Perak State Development Corporation to acquire a 48.3 acres land in Tanjung Malim, Perak Darul Ridzuan. Mega Highlights plans to build an assembly facility for commercial vehicles on this site. Construction of the factory is currently underway and production of vehicles is expected to commence in the first quarter of 2006. In October 2005, MITI announced the National Automative Policy Framework and designated Tanjung Malim as one of the five centres for automotive production in Malaysia. Mega Highlights’ 48.3 acres site, named as Megapoint Commercial Vehicle Industrial Park (“Megapoint”) is located minutes away from the 4,000 acres Proton City. Megapoint will be divided into three zones. Mega Highlight’s own manufacturing and assembly facility will occupy Zone 1 covering about 30 acres and Zone II and III will be allocated for vendors and accommodation facilities, respectively. Phase 1 of Mega Highlight’s manufacturing and assembly facility will have the capacity to produce 750 units of vehicles annually. The next phase of the facility development will expand total production capacity to 3,000 units of commercial vehicles comprising of buses and trucks annually. MCV’s goal is to be the manufacturing and assembly hub for right hand drive commercial vehicles in Malaysia for the domestic as well as export markets. ABOUT THE COMMERCIAL VEHICLE MARKET IN MALAYSIA Malaysia is one of the largest automotive markets in South East Asia. According to the Malaysian Automotive Association, a total of 487,605 vehicles were sold in Malaysia in 2004 consisting of 380,568 passengers cars and 107,037 commercial vehicles. Malaysia produced about 378,000 passengers and 103,300 commercial vehicles during this period. Vehicle sales in 2005 is expected to exceed 500,000 units and continue to grow annually reaching 620,000 units in 2010 (Source: Autopolis 2004) RATIONALE FOR THE SUBSCRIPTION The Directors of the Company are of the view that the subscription and investment in Mega Highlights Sdn Bhd is a rare opportunity to participate in the relatively uncrowded commercial vehicle market in Malaysia. The Directors of the Company are also of the view that risk-reward profile of this investment is highly favourable. FINANCIAL EFFECTS OF THE SUBSCRIPTION The proposed subscription is not expected to have any material impact on the earnings per share and net asset value per share of the Company for the financial year ended 31 December 2004 (“FY2004”) assuming that the transaction had been effected at the beginning and at the end of FY2004. None of the Directors has, and as far as the Directors are aware, the substantial shareholders of the Company do not have, any interest other than their shareholdings in the Company, in the proposed subscription. BY ORDER OF THE BOARD INNO-PACIFIC HOLDINGS LTD WONG CHIN YONG Managing Director 28th November 2005