General Announcement

Reference No MM-051118-39948

Submitting Merchant Bank	:	COMMERCE INTERNATIONAL MERCHANT BANKERS BERHAD
Company Name	:	SINORA INDUSTRIES BERHAD
Stock Name	:	SINORA
Date Announced	:	18/11/2005


Type	:	Announcement
Subject	:	SINORA INDUSTRIES BERHAD ("SINORA" OR THE "COMPANY") PROPOSED DEVELOPMENT BY SERIJAYA INDUSTRI SDN BHD ("SERIJAYA"), A WHOLLY-OWNED SUBSIDIARY OF SINORA, OF APPROXIMATELY 22,763 HECTARES OF LAND INTO AN OIL PALM PLANTATION PURSUANT TO AN AGREEMENT BETWEEN SERIJAYA AND BENTA WAWASAN SDN BHD ("BENTA")

Contents :

1. INTRODUCTION

On behalf of the Board of Directors of Sinora (“Board”), we are pleased to announce that Serijaya, a wholly-owned subsidiary of Sinora, had on 18 November 2005 entered into an Agreement for Oil Palm Plantation with Benta (“Agreement”) for the proposed development of approximately 22,763 hectares of land located in the locality of Gunung Rara/Kalabakan, Sabah (“Development Land”) with an estimated net plantable area measuring approximately 20,000 hectares into an oil palm plantation (“Proposed Development of Oil Palm Plantation”).

2. DETAILS ON THE PROPOSED DEVELOPMENT OF OIL PLAM PLANTATION

The Proposed Development of Oil Palm Plantation involves the permission granted by Benta, as licensee under a Licence Agreement dated 24 April 1996 with the Chief Minister of Sabah (“Licence Agreement”), to Serijaya to enter upon, occupy and use the Development Land for the proposed development of oil palm plantation. The Proposed Development of Oil Palm Plantation is for a term of thirty (30) years or such longer period as may be approved by the Director of the Forestry Department of Sabah (“Forestry Department”) for the use of the Development Land, or any parts thereof as an oil palm plantation provided that the maximum period shall not exceed thirty-eight (38) years (“Agreed Term”).

Benta shall deliver vacant possession of the Development Land to Serijaya and Serijaya shall be entitled to take possession of the Development Land based on a schedule as set out in Table 1.

Serijaya shall use the Development Land for the sole purpose of cultivation of oil palm. Subject to all conditions precedent set out in Section 2.2 being fulfilled (“Commencement Date”), Serijaya shall pay Benta consideration in the following manner:

(i) During the period of nine (9) years commencing from the Commencement Date, an annual sum of RM50,000 (“Fixed Annual Payment”) shall be payable and the first such annual payment shall be made within thirty (30) days commencing from the Commencement Date and each successive Fixed Annual Payment shall be paid by Serijaya to Benta on the anniversary date thereof;

(ii) From the tenth (10th) year from the Commencement Date and until the end of the Agreed Term, subject to a minimum annual sum payable of RM50,000, Serijaya shall pay Benta a sum based on the tonnage of fresh fruit bunches of oil palm fruits (“FFB”) harvested from the Development Land and sold by Serijaya at RM300 or less per tonne (“FFB Production Payments”) based on the rates as set out in

Table 2

;

(iii) In the event that Serijaya sells any FFB harvested from the Development Land at a selling price in excess of RM300 per tonne, Serijaya shall pay Benta an additional amount equivalent to ten per centum (10%) of the said excess (“Additional Consideration”). In the event that any FFB harvested from the Development Land are sold or otherwise disposed off to any mills and/or to any entity owned by Serijaya and/or related to Serijaya and/or which Serijaya has any interest, the average monthly price recorded by the Malaysian Palm Oil Board in respect of any relevant period shall be deemed to be selling price of the said FFB for the purpose of determining the FFB Production Payments;

The Fixed Annual Payment, FFB Production Payments and Additional Consideration are to be satisfied fully in cash. There are no liabilities to be assumed by Serijaya arising from the Proposed Development of Oil Palm Plantation; and

The amount and basis of the payments mentioned above was agreed upon by Serijaya and Benta as willing parties.

2.1 Other salient terms of the Agreement

The other salient terms of the Agreement include, amongst others, the following:

(i) Serijaya shall use its best endeavours to obtain the consent of the Director of the Forestry Department to the planting of oil palm on the Development Land and for such Development Land to be maintained as an oil palm plantation for not less than thirty (30) years;

(ii) Benta agrees that all rights, title and interest in any logs or timber (“Residual Timber”) and/or other forest produce, if any, which may remain on the Development Land after possession of the same (or any parts thereof) has been delivered from Benta to Serijaya shall vest upon Serijaya and Serijaya shall be entitled to cut, fell, extract and remove such Residual Timber and/or other forest produce and dispose of the same in such manner as Serijaya deems fit. Serijaya shall comply with all written laws and regulations in connection with the cutting, felling, extracting and removal of the Residual Timber and/or other forest produce including the payment of any royalties payable to the relevant authorities;

(iii) Serijaya shall use its best endeavours to complete the development of the Development Land within ten (10) years commencing from the Commencement Date and the development of the Development Land shall be deemed to be completed upon the same having been planted with oil palm seedlings excluding such portions thereof which shall have been intended to be excluded for such planting taking into consideration the contents of the Environmental Impact Assessment (“EIA”) and such portions excluded for the purpose of infrastructure in connection with the Proposed Development of Oil Palm Plantation;

(iv) In the event that Serijaya fail to fully develop the Development Land within the period of ten (10) years after Benta has delivered vacant possession of the Development Land and the Director of the Forestry Department has issued the necessary permits or approvals to commence the Proposed Development of Oil Palm Plantation, Benta shall be entitled to terminate the Agreement in respect of the undeveloped portions of the Development Land by giving a notice in writing (“Non-Development Termination Notice”). Hence, Serijaya shall vacate and deliver possession of the undeveloped portion of the Development Land to Benta. This provision shall not apply in respect of the areas within the Development Land if development of such areas is not permitted under the terms of the Licence Agreement or not environmentally expedient considering the contents of the EIA;

(v) At any time after the service of the Non-Development Termination Notice by Benta on Serijaya, Benta shall be entitled to deal with the undeveloped portions of the Development Land in such manner as Benta deems fit and Benta shall not be under any obligations whatsoever to compensate Serijaya for any improvements made to or in respect of the undeveloped portions of the Development Land;

(vi) If Serijaya shall cease to be a wholly-owned subsidiary of Sinora and/or if Sinora shall cease to be a subsidiary of Innoprise Corporation Sdn Bhd (“Innoprise”) (“Said Event”), Serijaya shall forthwith notify Benta of the Said Event and Serijaya shall be deemed to have granted an option (“Option”) to Benta for Benta to purchase all the rights title and interest in the Development Land together with the development and/or improvements thereon together with the benefits of Serijaya under the Agreement at a price equivalent to the Designated Price. The Designated Price refers to the then market value of the Development Land with any development and/or improvements thereon minus the then market value of the Development Land without any development and/or improvements thereon. The Option shall be exercisable by Benta and/or any party or parties nominated by Benta by notice in writing (“Option Notice”) to be served on Serijaya within twelve (12) months commencing from the date Benta received notice of the Said Event. The Designated Price shall be payable within three (3) months commencing from the date of service of the Option Notice. Upon payment, all rights title and interest in the Development Land and all benefits of Serijaya under the Agreement shall vest on Benta and/or any party or parties nominated by Benta;

(vii) Benta shall be entitled to terminate the Agreement by notice in writing upon the happening of any of the following events:

(a) if an order for the winding up, dissolution or liquidation of Serijaya has been issued by the Court in Malaysia; or

(b) if Serijaya enters into any composition or arrangement with or for the benefit of creditors or if a liquidator or receiver and/or manager, administrator or judicial manager shall be appointed in respect of the undertaking or property belonging to Serijaya; or

(c) if the Licence Agreement is terminated, revoked or suspended for any reason whatsoever due to the acts and/or omissions of Serijaya; or

(d) if Serijaya shall fail or refuse to pay Benta any Fixed Annual Payment more than sixty (60) days after due date of payment or if Serijaya fails or refuses to pay the FFB Production Payments and the Additional Consideration (if any) for two (2) or more consecutive quarters; or

(e) if Serijaya shall fail or refuse to rectify any breach of any terms and conditions of the EIA after expiry of a period of six (6) months following the date of notice requiring the rectification of the same has been served on Serijaya by or on behalf of Benta; and

(viii) Serijaya shall be entitled to terminate the Agreement by notice in writing upon the happening of the following events:

(a) if the EIA shall not have been approved by the relevant authority within twelve (12) months from the Commencement Date or if the approval of the EIA is given by the relevant authority subject to terms and conditions not acceptable to Serijaya; or

(b) if the development plan for the Proposed Development of Oil Palm Plantation is not approved by the Director of Forestry Department within twelve (12) months from the Commencement Date.

2.2 Conditions precedent

The Agreement shall be conditional upon, amongst others, the following conditions being satisfied within six (6) months from the date of the Agreement or any other days as may be agreed upon by Serijaya and Benta in writing (“Cut-Off Date”):

(i) the consent of the Chief Minister of Sabah being obtained;

(ii) the shareholders of Sinora shall have approved the terms and conditions of the Agreement; and

(iii) the shareholders of Benta shall have approved the terms and conditions of the Agreement.

If the conditions precedent set out above are not obtained by the Cut-Off Date, either of the parties shall be entitled to terminate the Agreement by notice in writing.

3. BACKGROUND INFORMATION ON THE DEVELOPMENT LAND AND BENTA

3.1 Background information on the Development Land

The Development Land is a parcel of land situated in the locality of Gunung Rara/Kalabakan, Sabah, measuring approximately 22,763 hectares with an estimated net plantable area measuring 20,000 hectares. It is situated about 140 kilometers north-west of Tawau town and is accessible from Tawau via Merotai Besar and passing through the Luasong Forestry Centre. The Development Land forms part of Benta Wawasan 1 in the Yayasan Sabah Forest Management Area, Kalabakan Forest Reserve, Tawau District, Sabah pursuant to the Licence Agreement.

3.2 Background information on Benta

Benta was incorporated in Malaysia as a private limited company under the Companies Act, 1965 on 13 February 1996. The authorised share capital of Benta is RM1,000,000 comprising 1,000,000 ordinary shares of RM1.00 each in Benta (“Benta Shares”) while its issued and paid-up share capital is RM500,000 comprising 500,000 Benta Shares.

Benta is a wholly-owned subsidiary of Innoprise, the controlling shareholder of Sinora. Benta’s principal activity is log extraction. The major shareholders and directors of Benta and their respective shareholdings, direct and indirect, in Benta as at 21 October 2005 are set out in

Table 3

4. RATIONALE FOR THE PROPOSED DEVELOPMENT OF OIL PALM PLANTATION

Oil palm cultivation is expected to be the long term major business operation of Sinora. The Proposed Development of Oil Palm Plantation will enable Sinora to venture into oil palm cultivation, which is expected to enhance its future earnings potential. The Proposed Development of Oil Palm Plantation will allow the use of the Development Land without exposing Sinora and its subsidiary (“Sinora Group”) to a major cash outflow as opposed to the purchase of the Development Land. This will enable Sinora to channel its financial resources to the development of the Development Land.

5. RISK FACTORS

The following are some of the investment considerations, (which may not be exhaustive), that the Sinora Group may encounter pursuant to the Proposed Development of Oil Palm Plantation:

5.1 Inherent business risks in the oil palm industry

The Proposed Development of Oil Palm Plantation will entail a business of oil palm cultivation. Therefore, the Sinora Group is susceptible to certain risks inherent in the oil palm industry. These risks include but are not limited to constraints and rising costs of labour supply and raw materials for its plantation operations, changes in the world demand for oils and fats, poor weather conditions, price fluctuations, threats of substitute products and changes in economic and business conditions. Although the Sinora Group seeks to mitigate these risks through, amongst others, effective resource management and cost control policy, there can be no assurance that changes in any of these factors will not have a material adverse effect on the business and financial performance of the Sinora Group.

5.2 Operational

The Sinora Group is susceptible to certain operational risks associated with cultivation of oil palm, such as shortages of labour supply, shortages of seedlings supply and outbreak of diseases affecting the oil palm. There can be no assurance that any change to these factors will not have a material adverse effect on the business operation of the Sinora Group.

5.3 Volatility of the crude palm oil (“CPO”) and palm kernel (“PK”) prices

Crude and processed palm oil are commodity products which are susceptible to the supply and demand conditions. The prices of CPO and PK vary day to day and as such the earnings of the Sinora Group would be subject to market vagaries.

Trade and exports of the country’s CPO and processed palm oil products are undertaken in United States of America Dollar (“USD”), hence the prices of CPO and PK are subject to fluctuations of the USD. The RM is currently traded on a managed float basis based on a basket of currencies. As such, there can be no assurance that any change to the exchange rate would not have a material effect on the financial performance of the Sinora Group. In addition to the exchange rate, the prices of the CPO and PK are also fundamentally dependent on the supply and demand conditions in the world’s oils and fats market.

5.4 Political, economic and regulatory considerations

Like any other commodity business, the palm oil operations are closely linked to the political, economic and regulatory conditions both domestically as well as those other palm oil producing countries particularly those that are also palm oil exporting countries. Developments in political, economic and regulatory conditions in palm oil exporting and importing countries could materially affect the financial prospects of the Sinora Group. There can be no assurance that any adverse development or uncertainties in the above external factors will not have a material adverse effect on the business and financial performance of the Sinora Group.

5.5 No prior experience in the cultivation of oil palm

The Sinora Group has historically been involved in timber related businesses and thus does not have prior experience in the business of oil palm cultivation. As such, the future performance of the Sinora Group in the oil palm cultivation business will depend to a significant extent, upon the Sinora Group’s capability of attracting experienced personnel in the oil palm industry to join the Sinora Group.

5.6 Financing risk

The Sinora Group plans to finance the Proposed Development of Oil Palm Plantation via internally generated funds and also through external borrowings. There is no assurance that the Sinora Group will be able to source the relevant additional financing required for the Proposed Development of Oil Palm Plantation from time to time. Furthermore, additional borrowings would entail additional risks to the Sinora Group in terms of servicing the loan, financing costs and additional covenants.

6. PROSPECTS OF THE OIL PALM INDUSTRY

Production of CPO is expected to increase significantly by 9.5% to 15.3 million tonnes in 2005 (2004:4.6%; 14 million tonnes), on account of expanded matured areas and improvement in yield per hectare as well as higher palm oil extraction rate. The increase in production is also encouraged by fairly high CPO prices.

CPO is expected to trade at a moderately high average price of RM1,400 per tonne (2004: RM1,664 per tonne) in 2005. The palm oil industry is also expected to benefit from tight world supply of vegetable oils and fats as well as higher demand for palm oil from China, the 25-nation European Union area and the United States of America. The price of CPO is projected to trend up following higher prices of competing oils and fats, including soya and rapeseed oils on account of increasing use of those oils for biodiesel in the United States of America and the European Union area.

(Source: Economic Report 2005/2006 as published by the Ministry of Finance)

The Malaysian oil palm industry recorded an impressive performance in 2004. The industry continued to contribute significantly to the country’s economic development and foreign exchange earnings. Export earnings of oil palm products rose to a commendable RM30.41 billion despite facing strong competition from other palm oil producing countries and unfavourable tariff treatment in some markets.

The production of CPO soared to the highest level in the Malaysian oil palm industry’s history, increasing by 4.7% or 0.63 million tonnes to 13.98 million tonnes from 13.35 million tonnes in 2003. The increase was mainly attributed to the large expansion in matured areas, as well as improvement in the oil extraction rate from 19.75% in 2003 to 20.03% in 2004.

Exports of palm oil increased by 2.5% to 12.58 million tonnes from 12.27 million tonnes in 2003. China maintained its position as the biggest market for Malaysian palm oil, with export offtake totaling 2.80 million tonnes, an increase of 10.5% compared to 2.53 million tonnes in 2003. The European Union came in second, accounting for 1.97 million tonnes, followed by Pakistan with 0.95 million tonnes and India 0.94 million tonnes. However, in the case of India, its intake of Malaysian palm oil declined by 41% or 652,584 tonnes mainly attributed to the tariff preference for CPO.

The average prices of oil palm products sustained its upward trend in 2004, influenced mainly by supply tightness, especially during the first half of the year, moderate export growth and strength of soyabean oil prices in the world market. The average CPO price increased by 4.3% or RM66 to RM1,610 as against RM1,544 the previous year.

(Source: Website of Malaysian Palm Oil Board)

7. FINANCIAL EFFECTS

7.1 Share capital and major shareholders’ shareholdings

The Proposed Development of Oil Palm Plantation will not have any effect on the share capital and major shareholders’ shareholdings of Sinora.

7.2 Net tangible assets (“NTA”)

The Proposed Development of Oil Palm Plantation is not expected to have any material effect on the consolidated NTA of Sinora based on the audited financial statements of Sinora for the financial year ended 31 December 2004.

7.3 Earnings

The Proposed Development of Oil Palm Plantation is not expected to have material effect on the consolidated earnings of Sinora for the financial year ending 31 December 2005 as the Proposed Development of Oil Palm Plantation is only expected to commence after the financial year ending 31 December 2005. Nevertheless, barring any unforeseen circumstances, the Proposed Development of Oil Palm Plantation is expected to contribute positively to the future earnings of the Sinora Group.

7.4 Dividend

The Proposed Development of Oil Palm Plantation is not expected to have any adverse effect on the dividend policy of the Company. Any dividends to be declared would depend on, amongst others, profitability, cashflow position and funding requirements of the Sinora Group.

8. APPROVALS REQUIRED

The Proposed Development of Oil Palm Plantation is conditional upon fulfillment and/or satisfaction of the conditions precedent set out in the Section 2.2 herein.

9. DIRECTORS’ AND MAJOR SHAREHOLDERS’ INTERESTS

Save as disclosed below, to the best knowledge of the Directors of Sinora and/or major shareholders of Sinora, none of the Directors and/or major shareholders of Sinora (for the purpose herein, Directors and major shareholders include those persons who were Directors or major shareholders of Sinora within the preceding twelve (12) months of the date of the Agreement) or persons connected to the Directors and/or substantial shareholders of Sinora have any interest, direct or indirect, in the Proposed Development of Oil Palm Plantation.

Benta is a wholly-owned subsidiary of Innoprise who is also the controlling shareholder of Sinora. As at 21 October 2005, Innoprise holds 56,608,000 shares of RM1.00 each in Sinora, representing 56.61% of the equity interest in the Company. Accordingly, Innoprise is deemed interested in the Proposed Development of Oil Palm Plantation. Innoprise will abstain from voting in respect of its direct and/or indirect shareholdings in Sinora, if any, on the resolution pertaining to the Proposed Development of Oil Palm Plantation at the Extraordinary General Meeting (“EGM”) of Sinora. Innoprise will also ensure that persons connected to it, if any, will abstain from voting on the resolution pertaining to the Proposed Development of Oil Palm Plantation at the EGM.

Sam Mannan @ Sham Mannan and Douglas J. Joinol are nominees of Innoprise on the Board. Sam Mannan @ Sham Mannan is also a director of Benta. Accordingly, Sam Mannan @ Sham Mannan and Douglas J. Joinol have abstained and will continue to abstain from all deliberations and votings on the Proposed Development of Oil Palm Plantation at the relevant meetings of the Board. Sam Mannan @ Sham Mannan and Douglas J. Joinol will also abstain from voting in respect of their direct and/or indirect shareholding in Sinora, if any, on the resolution pertaining to the Proposed Development of Oil Palm Plantation at the EGM. Sam Mannan @ Sham Mannan and Douglas J. Joinol will also ensure that persons connected to them, if any, will abstain from voting on the resolution pertaining to the Proposed Development of Oil Palm Plantation.

10. DIRECTORS’ STATEMENT

Save for Sam Mannan @ Sham Mannan and Douglas J. Joinol, the Directors of Sinora, having considered all aspects of the Proposed Development of Oil Palm Plantation, are of the opinion that the Proposed Development of Oil Palm Plantation is in the best interest of Sinora.

11. INDEPENDENT ADVISER

By virtue of Innoprise being interested in the Proposed Development of Oil Palm Plantation as set out in Section 9 above, in compliance with Paragraph 10.08 of the Listing Requirements of Bursa Malaysia Securities Berhad, Avenue Securities Sdn Bhd has been appointed as the independent adviser to advise the independent directors and minority shareholders of Sinora in respect of the Proposed Development of Oil Palm Plantation.

12. DEPARTURE FROM THE POLICIES AND GUIDELINES ON ISSUE/OFFER OF SECURITIES OF THE SECURITIES COMMISSION (“SC GUIDELINES”)

There is no departure from the SC Guidelines in respect of the Proposed Development of Oil Palm Plantation.

13. DOCUMENTS FOR INSPECTION

A copy of the Agreement is available for inspection at the registered office of Sinora at 6th Floor, Menara Tun Mustapha, Teluk Likas, P.O. Box 11623, 88817 Kota Kinabalu, Sabah from Monday to Friday (except public holidays) during normal business hours from 9.00 a.m. to 5.00 p.m. for a period of three (3) months from the date of this announcement.

This announcement is dated 18 November 2005