PROPOSED SCHEME OF ARRANGEMENT OF INTRAKOTA KOMPOSIT SDN BHD, A 70% OWNED SUBSIDIARY COMPANY OF DRB-HICOM, TOGETHER WITH ITS SUBSIDIARY, INTRAKOTA CONSOLIDATED BERHAD.
1.1 The Board of Directors of DRB-HICOM is pleased to announce that Intrakota Komposit Sdn Bhd (“IKSB”), a 70% owned subsidiary of DRB-HICOM, and its subsidiary, Intrakota Consolidated Berhad (“ICB”) had on 28 April 2004 obtained a Court Order to convene separate meetings (“Court Convened Meetings”) of its respective classes of creditors, namely the hire purchase creditors of ICB with corporate guarantee by DRB-HICOM (“Scheme Creditors”) within 90 days from the date of the Court Order for the purposes of considering and if thought fit, approving (with or without modification), the proposed scheme of arrangement (“Composite Scheme”) pursuant to Section 176 of the Companies Act, 1965.
Following the said Court Order, IKSB and ICB have decided that the Court Convened Meetings be held on Friday, 28 May 2004 at Level 5, Wisma DRB-HICOM, No. 2, Jalan Usahawan U1/8, Seksyen U1, 40150 Shah Alam, Selangor.
THE COMPOSITE SCHEME
The Composite Scheme seeks to address the repayment, compromise and settlement of the indebtedness of ICB aggregating approximately RM258 million (“Indebtedness”) as at 30 June 2003 (“the Cut Off Date”), comprising principal sum of approximately RM188.2 million and interest accruing thereon of approximately RM69.8 million.
The Composite Scheme consists of the following schemes:-
Scheme A: ICB and the Scheme Creditors; and
Scheme B: IKSB and the Scheme Creditors pursuant to the novation detailed below.
Set out hereunder is a summary of some salient terms of the Composite Scheme :-
Scheme A: ICB and the Scheme Creditors
The principal sum of the Indebtedness will be settled vide cash payment in an amount of up to RM73.9 million, being the sale proceeds arising from the disposal of ICB’s buses and bus related assets to Syarikat Prasarana Negara Berhad (“SPNB”) pursuant to the sale and purchase agreement dated 29th October 2003 (“SPA”) amounting to RM71.5 million and proceeds arising from inter-company repayments and available cash (as at 30 June 2003) amounting to RM2.4 million.
As the above sources of funds would be sufficient to settle only part of the Indebtedness, ICB has sought the assistance of its holding company, IKSB, to settle the remaining part of the Indebtedness whereby the remaining Indebtedness outstanding and owing to the Scheme Creditors after settlement vide the sources of funds stated in paragraph 2.3.1 will be novated to IKSB whereupon IKSB will substitute ICB as the debtor.
The DRB-HICOM corporate guarantee issued in favour of the Scheme Creditors shall be cancelled and revoked.
Scheme B: IKSB and the Scheme Creditor
Following the novation stated in paragraph 2.3.2 above, the balance principal sum of the Indebtedness will be paid and/or settled vide cash payment in an amount up to RM38.7 million from the sales proceeds arising from inter-company repayments of RM11.6 million, proceeds arising from the disposal of other IKSB’s assets to third parties for RM0.5 million and financial assistance from its holding company and available cash (as at 30 June 2003) amounting to RM26.6 million.
The remaining balance after settlement vide the proceeds of funds stated in paragraph 2.3.4 amounting to approximately RM75.6 million (“Termed Out Debts”) will be termed out over a period of seven years at an interest rate which is equivalent to Mayban Finance Berhad cost of fund, with a grace period for the first two years during which only interest will be serviced.
Condition upon the cancellation and revocation of the corporate guarantee referred to in paragraph 2.3.3, IKSB shall procure DRB-HICOM to issue a new corporate guarantee to secure the repayment of the Termed Out Debts by IKSB.
The Scheme Creditors will waive its right of claim against IKSB in respect of the whole interest accrued amounting to RM69.8 million as at the Cut-Off Date. All interest after the Cut-Off Date shall also be waived.
As the main source of funds for the Composite Scheme will come from the sales proceeds arising from the disposal of buses and bus related assets to SPNB, any adjustment to the amount of sale proceeds received from SPNB will affect the proposed respective cash payments by ICB, IKSB and the Termed Out Debts.
Notwithstanding the adjustments to the proposed respective cash payments, the Composite Scheme envisages recovery of 100% of its principal sum of the Indebtedness through a combination of cash settlement at ICB, IKSB and the Termed Out Debts.
RATIONALE FOR THE COMPOSITE SCHEME
The Composite Scheme is to enable IKSB and ICB to manage and provide a long term solution to its debt situation. As a result, DRB-HICOM group expects to be better able to manage its debts taking into consideration the total group borrowings and to provide a continuing commitment of DRB-HICOM and IKSB towards the Scheme Creditors.
The Composite Scheme is structured with the objective of enabling the Scheme Creditors to recover the existing debts owing to them (apart from the interest waiver) and also to alleviate the cash flow constraints presently faced by IKSB. Hence, the extended time period for the settlement of the debts is necessary.
Further, the extended time period for IKSB to settle its debts provides an avenue and time necessary for DRB-HICOM group to make appropriate plans for the future as well as explore opportunities to optimize the value which may arise from existing investments in its subsidiary companies which are involved in various sector such as the automotive, property and construction and services.
FINANCIAL EFFECTS OF THE COMPOSITE SCHEME
The expected effects of the Composite Scheme on the group structure, issued and fully paid up capital, earnings, Net Tangible Assets (“NTA”), gearing and substantial shareholders’ shareholding structure of DRB-HICOM, are illustrated below :-
On the Group Structure
The Composite Scheme will not have any effect on the Group structure of DRB-HICOM.
On issued and Paid-up Capital
The Composite Scheme will not have any effect on the issued and paid-up capital of DRB-HICOM as the Composite Scheme does not involve any issue of new shares by DRB-HICOM.
Based on the interest accrued as at 30 June 2003, the estimated gain from the interest waiver is expected to be approximately RM69.8 million.
On NTA and Gearing
The proforma effects of the Composite Scheme on the audited NTA and gearing position of DRB-HICOM, at consolidated levels, based on the audited accounts of DRB-HICOM as at 31 March 2003, are illustrated as follows :-
Audited as at 31.03.03
After the Composite Scheme
NTA per share (RM)
Net Gearing (times)
On Substantial Shareholders’ Shareholdings and Shareholding Structure
The Proposals will not have any effect on its substantial shareholders' shareholding and shareholdings structure, as the exercise does not involve any issue of new shares by DRB-HICOM.
CONDITIONS PRECEDENT AND APPROVALS REQUIRED
The Composite Scheme is subject to and conditional upon the fulfilment of the following conditions precedent:-
(i) The completion of the SPA
(ii) Execution of Settlement Agreement between ICB, IKSB, S.J Kenderaan Sdn Bhd and their respective hire purchase creditors (not forming part of the Composite Scheme)
(iii) The Composite Scheme being agreed to by a majority in number of the Scheme Creditors present and voting, being a majority representing three-fourths in value of the Scheme Creditors under both Scheme A and Scheme B in accordance with Section 176 (3) of the Companies Act, 1965 (“the Act”)
The approval of the High Court of Malaya in accordance to Section 176 (4) of the Act.
The lodgement of the Order of the High Court of Malaya with the Companies Commission of Malaysia in accordance with Section 176(5) of the Act.
5.2 The Composite Scheme would require approval from the following :
a majority in number of the Scheme Creditors representing three-fourths in value of the Scheme Creditors under Scheme A and Scheme B.
The High Court of Malaya.
DIRECTORS’ AND SUBSTANTIAL SHAREHOLDERS’ INTEREST
None of the Directors and/or substantial shareholders of DRB-HICOM or any other company which is its subsidiary or holding company or a subsidiary of its holding company, have any interest, direct or indirect, in the Composite Scheme.
To the best of the knowledge and belief of the Directors of DRB-HICOM, no other persons connected to the Directors and/or substantial shareholders of DRB-HICOM or any other company which is its subsidiary or holding company or a subsidiary of its holding company, have any interest, direct or indirect, in the Composite Scheme.
COMPLETION OF THE PROPOSED SCHEME OF ARRANGEMENT
7.1 Barring any unforeseen circumstances and subject to the fulfillment of the relevant conditions precedent, the Board of Directors of DRB-HICOM, ICB and IKSB propose to complete the Proposed Scheme of Arrangement by end of June or early July 2004.
c.c Issues and Investment Division
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