CIRCULAR DATED 16 DECEMBER 2013 THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. This Circular is issued by See Hup Seng Limited (the “Company”, and with its subsidiaries, the “Group”). If you are in any doubt as to the action you should take, you should consult your stockbroker, bank manager, solicitor, accountant or other professional adviser immediately. If you have sold or transferred all your shares in the capital of the Company held through The Central Depository (Pte) Limited (“CDP”), you need not forward this Circular to the purchaser or transferee as arrangements will be made by CDP for a separate Circular to be sent to the purchaser or transferee. If you have sold or transferred all your shares represented by physical share certificate(s), you should at once hand this Circular to the purchaser or transferee or to the bank, stockbroker or agent through whom you effected the sale or transfer, for onward transmission to the purchaser or transferee. The Singapore Exchange Securities Trading Limited (the “SGX-ST”) assumes no responsibility for the accuracy of any of the statements made, opinion expressed or reports contained in this Circular. The approval in-principle granted by the SGX-ST in respect of the listing and quotation of the Consideration Shares (as defined herein) and the Subscription Shares (as defined herein) on the Official List of the SGX-ST is not to be taken as an indication of the merits of the placement of the Consideration Shares and the Subscription Shares, the Consideration Shares, the Subscription Shares, the Company and/or its subsidiaries. SEE HUP SENG LIMITED (Incorporated in the Republic of Singapore) (Company Registration No. 197502208Z) CIRCULAR TO SHAREHOLDERS in relation to (1) THE PROPOSED ACQUISITION OF THE ENTIRE ISSUED AND PAID-UP SHARE CAPITAL OF HETAT HOLDINGS PTE. LTD. AS A MAJOR TRANSACTION; (2) THE PROPOSED DIVERSIFICATION OF THE BUSINESS SCOPE OF THE GROUP; AND (3) THE PROPOSED ISSUANCE OF 144,500,000 SUBSCRIPTION SHARES (AS DEFINED HEREIN). Financial Adviser to the Company TATA CAPITAL MARKETS PTE. LTD. (Incorporated in the Republic of Singapore) (Company Registration No. 200820715M) Important Dates and Times Last date and time for lodgement of Proxy Form : 31 December 2013 at 10.00 a.m. Date and time of Extraordinary General Meeting : 2 January 2014 at 10.00 a.m. Place of Extraordinary General Meeting : 81 Tuas South Street 5 Singapore 637651
Transcript
CIRCULAR DATED 16 DECEMBER 2013
THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION.
This Circular is issued by See Hup Seng Limited (the “Company”, and with its subsidiaries, the“Group”). If you are in any doubt as to the action you should take, you should consult yourstockbroker, bank manager, solicitor, accountant or other professional adviser immediately.
If you have sold or transferred all your shares in the capital of the Company held through The CentralDepository (Pte) Limited (“CDP”), you need not forward this Circular to the purchaser or transferee asarrangements will be made by CDP for a separate Circular to be sent to the purchaser or transferee. If youhave sold or transferred all your shares represented by physical share certificate(s), you should at once handthis Circular to the purchaser or transferee or to the bank, stockbroker or agent through whom you effectedthe sale or transfer, for onward transmission to the purchaser or transferee.
The Singapore Exchange Securities Trading Limited (the “SGX-ST”) assumes no responsibility for theaccuracy of any of the statements made, opinion expressed or reports contained in this Circular. Theapproval in-principle granted by the SGX-ST in respect of the listing and quotation of the ConsiderationShares (as defined herein) and the Subscription Shares (as defined herein) on the Official List of the SGX-STis not to be taken as an indication of the merits of the placement of the Consideration Shares and theSubscription Shares, the Consideration Shares, the Subscription Shares, the Company and/or itssubsidiaries.
SEE HUP SENG LIMITED(Incorporated in the Republic of Singapore)
(Company Registration No. 197502208Z)
CIRCULAR TO SHAREHOLDERS
in relation to
(1) THE PROPOSED ACQUISITION OF THE ENTIRE ISSUED AND PAID-UP SHARE
CAPITAL OF HETAT HOLDINGS PTE. LTD. AS A MAJOR TRANSACTION;
(2) THE PROPOSED DIVERSIFICATION OF THE BUSINESS SCOPE OF THE GROUP; AND
(3) THE PROPOSED ISSUANCE OF 144,500,000 SUBSCRIPTION SHARES (AS DEFINED
HEREIN).
Financial Adviser to the Company
TATA CAPITAL MARKETS PTE. LTD.(Incorporated in the Republic of Singapore)
(Company Registration No. 200820715M)
Important Dates and Times
Last date and time for lodgement of Proxy Form : 31 December 2013 at 10.00 a.m.
Date and time of Extraordinary General Meeting : 2 January 2014 at 10.00 a.m.
Place of Extraordinary General Meeting : 81 Tuas South Street 5
“Share” : An ordinary share in the capital of the Company
“Shareholders” : Registered holders of Shares, except where the registered
holder is CDP, in which case the term “Shareholders” shall in
relation to such Shares mean the Depositors whose securities
accounts maintained with CDP are credited with Shares
“SPA” : The sale and purchase agreement dated 12 September 2013
entered into between the Company and Mr Ng Han Kok
“Subscribers” : The 15 subscribers whose names and background are set out
in Section 4.1 of this Circular
DEFINITIONS
5
“Subscription” : The proposed subscription of 144,500,000 Subscription
Shares by the Subscribers at the Subscription Price, on the
terms and subject to the conditions of the Subscription
Agreement
“Subscription Agreement” : The subscription agreement dated 12 September 2013
entered into between the Company, the Introducer and the
Subscribers
“Subscription Price” : S$0.2493 per Subscription Share
“Subscription Shares” : 144,500,000 new ordinary shares in the capital of the
Company to be issued by the Company to the Subscribers at
the Subscription Price
“Subscription Sum” : The gross proceeds from the Subscription, which are
expected to amount to S$36,023,850
“Substantial Shareholder” : A person who has an interest in the Shares, the total votes
attached to which is not less than 5% of the total votes
attached to all the voting shares of the Company
“Toh Guan Property” : A property situated in Singapore at 48 Toh Guan Road East,
#03-122, Enterprise Hub, Singapore 608586
“Transactions” : The Acquisition, the Diversification and the Subscription
“VWAP” : Volume-weighted average price
“Valuation Report” : The valuation report dated 8 October 2013 issued by Savills in
relation to the Hetat Property, which is set out in Appendix D
to this Circular
“Valuer” or “Savills
Valuation”
: Savills Valuation and Professional Services (S) Pte Ltd
“Vendor” : Mr Ng Han Kok
“%” : Per centum or percentage
“MNT” : Mongolian tungrik
“RM” : Malaysian ringgit
“S$” and “cents” : Singapore dollars and cents, respectively
“US$” : United States dollars
DEFINITIONS
6
The terms “Depositor”, “Depository Agent” and “Depository Register” shall have the respective
meanings ascribed to them in Section 130A of the Companies Act.
Words importing the singular shall, where applicable, include the plural and vice versa and words
importing the masculine gender shall, where applicable, include the feminine and neuter genders.
References to persons shall include corporations.
Any reference in this Circular to any enactment is a reference to that enactment as for the time
being amended or re-enacted. Any word defined under the Companies Act, the Listing Manual or
any modification thereof and used in this Circular shall have the meaning assigned to it under the
Companies Act, the Listing Manual or any modification thereof, as the case may be.
Any reference to a time of day in this Circular shall be a reference to Singapore time unless stated
otherwise.
All discrepancies in the tables included in this Circular between the listed amounts and totals
thereof are due to rounding. Accordingly, figures shown as totals in certain tables may not be an
arithmetic aggregation of the figures which precede them.
DEFINITIONS
7
SEE HUP SENG LIMITED(Incorporated in the Republic of Singapore)
(Company Registration No. 197502208Z)
Directors: Registered Office:
Mr Lim Siok Kwee, Thomas (Executive Chairman)
Mr Goh Koon Seng (Executive Director)
Mr Ng Keng Sing (Executive Director)
Mr Teo Choon Kow, William (Independent Non-Executive Director)
Mr Lee Kuo Chuen (Independent Non-Executive Director)
81 Tuas South Street 5
Singapore 637651
16 December 2013
To: The shareholders of the Company
Dear Sir/Madam
(1) THE PROPOSED ACQUISITION OF THE ENTIRE ISSUED AND PAID-UP SHARE
CAPITAL OF HETAT HOLDINGS PTE. LTD. AS A MAJOR TRANSACTION;
(2) THE PROPOSED DIVERSIFICATION OF THE BUSINESS SCOPE OF THE GROUP;
AND
(3) THE PROPOSED ISSUANCE OF 144,500,000 SUBSCRIPTION SHARES (AS
DEFINED HEREIN).
1. INTRODUCTION
On 12 September 2013, the Company announced separately that it has entered into (i)
a conditional sale and purchase agreement (the “SPA”) with Mr Ng Han Kok (the
“Vendor”) pursuant to which the Company has agreed to acquire the entire issued and
paid-up share capital of Hetat Holdings Pte. Ltd. (“Hetat Holdings”) for the consideration
of S$42,400,000 (the “Acquisition”); and (ii) a conditional subscription agreement (the
“Subscription Agreement”) with 15 subscribers (collectively the “Subscribers” and
each a “Subscriber”) and Mr Tan Ong Huat (the “Introducer”) pursuant to which the
Subscribers have agreed to subscribe for an aggregate number of 144,500,000 new
ordinary shares (collectively the “Subscription Shares” and each a “Subscription
Share”) in the capital of the Company at S$0.2493 per Subscription Share (the
“Subscription”).
In addition, upon completion of the Acquisition, the Group will be diversifying its business
scope to include the business of Hetat Holdings and its subsidiaries (the “Hetat Group”),
which involves the business of designing, engineering and construction of steel,
aluminium and glass structures and the provision of labour and equipment to fabricate
and install modules for oil-rigs (the “Business”). As such diversification into the Business
(the “Diversification”) will change the risk profile of the Group, the Company intends to
seek the approval of its shareholders (the “Shareholders”) for the same.
LETTER TO SHAREHOLDERS
8
The Company has applied for, and has on 6 December 2013 obtained, the approval
in-principle of the SGX-ST for the listing and quotation of the Consideration Shares and
the Subscription Shares on the Official List of the SGX-ST. The approval in-principle
granted by the SGX-ST is subject to, inter alia, the following conditions:
(a) compliance with the SGX-ST’s listing requirements;
(b) shareholders’ approval for the Acquisition (and consequently the issuance of the
Consideration Shares) and the issuance of the Subscription Shares;
(c) submission of:
(i) a written undertaking from the Company that it will comply with Rule 704(30)
and Rule 1207(20) of the Listing Manual of the SGX-ST (the “Listing Manual”)
in relation to the use of proceeds from the Subscription and where proceeds
are to be used for working capital purposes, the Company will disclose a
breakdown with specific details on the use of proceeds for working capital in
the Company’s announcements on use of proceeds and in the annual report;
(ii) a written undertaking from the Company that it will comply with Rule 803 of the
Listing Manual;
(iii) a written confirmation from the Company that it will not issue the Consideration
Shares and the Subscription Shares to persons prohibited under Rule 812(1)
of the Listing Manual.
The Consideration Shares and the Subscription Shares must be placed out within
7 market days from the date of the EGM.
Please note that the approval in-principle granted by the SGX-ST is not to be taken as
an indication of the merits of the placement of the Consideration Shares and the
Subscription Shares, the Consideration Shares and the Subscription Shares, the
Company and/or its subsidiaries
The purpose of this Circular is to provide Shareholders with information relating to the
Acquisition, the Subscription, and the Diversification (collectively, the “Transactions”),
and to seek Shareholders’ approval for the same at the EGM.
2. THE PROPOSED ACQUISITION
Subject to the terms and conditions of the SPA, the Company has agreed to purchase
and the Vendor has agreed to sell 500,000 ordinary shares representing the entire issued
and paid-up share capital of Hetat Holdings, free from any charge, pledge, lien or other
encumbrances, and together with all rights, benefits and entitlements attaching thereto,
for the consideration of S$42,400,000 (the “Consideration”).
In view of the services provided by the Introducer in relation to the Acquisition, the
Company will pay the Introducer in cash S$1,272,000 which amounts to 3% of the
Consideration upon completion of the Acquisition (the “Introducer Fee”). The Introducer
Fee was arrived at after negotiations between the Introducer and the Company at arms’
length and took into consideration the services provided by the Introducer, which
includes acting as a liaison between the Company and the Vendor to provide the
LETTER TO SHAREHOLDERS
9
necessary information for the purposes of the Acquisition, and negotiating the terms and
conditions of the Acquisition on behalf of the Company. For the avoidance of doubt, as
disclosed under section 4.1, an additional sum of S$792,525 would be payable to the
Introducer in consideration of him introducing the Subscribers to the Company.
The Introducer is a substantial shareholder of the Company and held directorships in the
Company from 9 January 2006 to 14 May 2009 (non-executive director), 15 May 2009 to
20 January 2012 (executive director), and 21 January 2012 to 20 February 2012
(non-executive director). He has extensive experience in civil engineering and
construction industries due to his involvement in major projects such as the North-east
MRT line and Changi Airport Terminal 3 projects. He is currently the Managing Director
of Sindo Resources Pte Ltd, a company engaged in coal mining and trading in Sumatra,
Indonesia. Sindo Resources Pte Ltd is owned 18% by FN Resources Pte Ltd, which is in
turn 90% owned by the Introducer, 5% owned by the Vendor, and the remaining 5%
owned by a third party. Save as disclosed in this Circular, there is no other existing
relationship between (i) the Introducer and the Company; and (ii) the Introducer and
Hetat Holdings.
2.1 Information on the Hetat Group1
2.1.1 Information on Hetat Holdings
Hetat Holdings is incorporated in Singapore on 11 January 2005, and has an issued and
paid-up share capital of S$500,000 comprising 500,000 ordinary shares. The Vendor is
the founder and sole shareholder of Hetat Holdings. The Hetat Group is principally
engaged in the business of designing, engineering and construction of steel, aluminium
and glass structures and the provision of labour and equipment to fabricate and install
modules for oil-rigs. The Hetat Group has a track record of 10 years in the construction
industry and is currently undertaking projects in Singapore, Malaysia and Mongolia.
A geographical breakdown of the Hetat Group’s revenue and net assets is set out below:
2012 Year-To-Date 31 August 2013
Singapore
(%)
Singapore
(%)
Malaysia
(%)
Mongolia
(%)
China
(%)
Revenue 100 88 8 4 0
Net Asset 100 85 7 2 6
Some of the past major property projects undertaken by the Hetat Group and brief
descriptions of such projects are set out below:
Name of Project Description
Gardens by the Bay Supply, installation of canopy, bridge, metal works, timber
suspended ceilings, aluminium and steel plate laser cut
structures.
Resorts World Sentosa Structural steel and aluminium works.
1 Information in relation to the Hetat Group contained in this Circular is provided to the Company by the Hetat Group.
LETTER TO SHAREHOLDERS
10
Name of Project Description
Formula 1 Grand Prix Design, fabricate and installation of temporary pedestrian
overpass, track barrier system. Logistics support for storage
yard and transportation of temporary buildings.
Singapore General Hospital Supply, install and fabricate of steel support, brackets and
platform frames.
Tuas Desalination projects Supply and install pre-engineered building structural steel
works, metal roofing and wall cladding works.
Various MRT projects Fabrication and delivery of king posts, thrust frames and other
steel parts for MRT projects.
The corporate structure of the Hetat Group prior to the completion of the Acquisition is
as set out in Appendix A.
As at the Latest Practicable Date, the Hetat Group has an order book of approximately
S$46 million and a substantial portion of the work associated with these projects is
expected to be completed and recognized within 2014. The net book value or net tangible
assets of the Hetat Group as 31 August 2013 (excluding properties comprising (i) Daerah
Johor Bahru Property and (ii) Toh Guan Property (the “Relevant Properties”))2 is
approximately S$8.08 million.
Some of the major on-going property projects undertaken by the Hetat Group and brief
descriptions of such projects are set out below:
Name of Project Description
Sports Hub bridge Design, fabricate and installation of pedestrian overhead
bridge.
Westgate Design, supply, fabricate and install of glass roof canopy.
Fusionpolis Supply, fabrication and installation of structural steel works.
Shangri-la in Mongolia Supply, fabricate, delivery and installation of structure steels.
Yeh Brothers Factory in
Iskandar.
Supply, fabricate and installation architecture façade steelwork
for glass buildings.
Marina Square Supply, fabricate and install structure steel works.
Various MRT projects Fabrication and delivery of king posts, thrust frames and other
steel parts for MRT projects.
2 The Relevant Properties have been excluded from the determination of the net book value or net tangible assets of theHetat Group as 31 August 2013 pursuant to a commercial agreement between the Company and the Vendor in view
of the fact that the Relevant Properties do not form part of the core assets of the Hetat Group. The net book values asat 31 August 2013 of the Toh Guan Property and Daerah Johor Bahru Property are S$426,508 and RM3,511,325 (or
approximately S$1,364,310) respectively.
LETTER TO SHAREHOLDERS
11
2.1.2 Information on Hetat Group Subsidiaries
Details of the Hetat Group Subsidiaries as the Latest Practicable Date are set out below:
Name of Hetat Group
Subsidiary
Place and
Date of
Incorporation
Issued Share
Capital
Principal
Activities
Percentage
shareholding
held by Hetat
Holdings
(%)
Hetat Global Mongolia
LLC
Mongolia
9 May 2013
MNT
315,372,000
(approximately
US$200,000)
Trading of
merchandise,
equipment and
commodities
100
Hetat Engineering
& Construction
Sdn. Bhd.
Malaysia
6 October 2011
RM500,000 Designing,
engineering and
construction of
steel, aluminium
and glass
structures
100
Hetat Pte. Ltd. Singapore
25 April 2003
S$3,000,000 Designing,
engineering and
construction of
steel, aluminium
and glass
structures
100
Xiang Tong (Shanghai)
International Trading
Pte Co., Ltd
PRC
11 October 2011
US$520,000 Import and export
of construction
materials
100
Hetat Marine Offshore
Pte. Ltd. (“Hetat
Marine”)(1)
Singapore
10 June 2010
S$50,000 Dormant 100
Note:
(1) Hetat Marine is dormant as at the Latest Practicable Date. It is intended that Hetat Marine will undertake
the principal activities of providing labour and equipment to the marine and offshore industry for the
fabrication and installation of modules for oil-rigs.
2.1.3 Key Management of the Hetat Group
The key management team of the Hetat Group comprises Mr Ng Han Kok, Mr Wang Feng
Jung, Willie, Mr Lee Yin Yee, Philip, and Ms Koh Nga Kheng, Selina (the “Key
Management Team”).
The working and business experience of the key management team of Hetat Group are
as follows:–
Mr Ng Han Kok is the founder of Hetat Holdings and has been its managing director of
since 2003. He is responsible for establishing the strategic directions and daily
operations of Hetat Holdings. He is also responsible for spearheading the overseas
expansion plan of the Hetat Group. He has extensive experience of more than 20 years
in the related field of steel, aluminium and glass structures and his previous working
LETTER TO SHAREHOLDERS
12
experience includes working as senior project manager with Yongnam Holdings Limited
and operation manager with MERO GmbH. Mr Ng Han Kok holds a Bachelor of Science
(Building) honours degree from the University of Reading in the United Kingdom.
Mr Wang Feng Jung, Willie is the senior contracts manager of Hetat Holdings and has
been with Hetat Holdings since 2006. He is primarily responsible for the business
development and contracts management of the Hetat Group. He has previously served
as the contracts manager of MERO GmbH and senior quantity surveyor for Sato Kogyo
Co. Ltd for a total period of eight years. He holds a Bachelor of Science (Building)
honours degree from the National University of Singapore.
Mr Lee Yin Yee, Philip has been the chief financial officer of Hetat Holdings since June
2013. He is responsible for all financial aspects of Hetat Holdings including corporate
finance and accounting as well as treasury functions. His previous working experience
includes working as a senior manager with PricewaterhouseCoopers for 16 years. He
holds a Bachelor of Accountancy honours degree from Nanyang Technological
University. He is also a member of the Institute of Singapore Chartered Accountants.
Ms Koh Nga Kheng, Selina has been the Technical Controller and the Technical Manager
of Hetat Holdings since July 2013. She is primarily responsible for all technical issues
arising out of projects of Hetat Holdings. She has more than 25 years of experience in
structural steel related fields. She has previously worked as the Section Chief of the
Steel Structure Section in the Engineering Division of Jurong Engineering Limited, as a
Drawing Office Manager of Yongnam Holdings Limited and as a Drawing Office Manager
of Alfasi Construction Singapore Pte Ltd. She holds a Bachelor of Science (Civil
Engineering) degree from North Dakota State University in the United States.
None of the Key Management Team of Hetat Group is related, directly or indirectly, to the
Company, its directors and/or their associates and none of the Key Management Team
of Hetat Group is a Substantial Shareholder or an associate of any Substantial
Shareholder.
2.1.4 Summary of Financial Information of the Hetat Group
The pro forma consolidated income statement of Hetat Holdings for the last three
calendar years ended 31 December 2010 (“FY2010”), 31 December 2011 (“FY2011”), 31
December 2012 (“FY2012”) and the eight (8) months ended 31 August 2013 (“8M2013”),
and the pro forma consolidated balance sheet of Hetat Holdings as at 31 December 2012
and 31 August 2013 are set out below. The pro forma financial figures presented below
are based on the financial statements of Hetat Holdings and its subsidiaries and have
been prepared in accordance with the Singapore Financial Reporting Standards, and
exclude the Relevant Properties.
(a) Summary of Pro forma Consolidated Income Statement
(S$’000s) FY2010 FY2011 FY2012 8M2013
Revenue 20,045 32,012 32,224 23,734
Gross Profit 9,067 8,574 9,953 7,758
EBITDA 4,931 5,834 6,366 5,183
LETTER TO SHAREHOLDERS
13
(S$’000s) FY2010 FY2011 FY2012 8M2013
Profit before tax 3,736 4,215 4,805 4,223
Profit after tax 3,237 3,549 4,009 3,526(1)
Note:
(1) The sharp increase in the profit after tax for 8M2013 is mainly due to profit recognised from some
of the on-going major projects which are expected to be completed/substantially completed by the
end of 2013. As at the Latest Practicable Date, Hetat Group has an order book of approximately
S$46 million.
(b) Summary of Pro forma Consolidated Balance Sheet
(S$’000s)
As at
31 December 2012
As at
31 August 2013
Non-current Assets 6,115 5,553
Current Assets 9,942 13,281
Non-current Liabilities (2,066) (1,201)
Current Liabilities (9,440) (9,554)
Net Assets 4,551 8,079
2.2 Principal Terms of the Acquisition
2.2.1 Consideration
The Consideration was determined at arm’s length and on a willing-buyer willing-seller
basis, calculated based on approximately 7.7 times of the 2013 Target NPAT of Hetat
Holdings (as defined below), and shall be payable by the Company to the Vendor in the
manner as follows:
(a) on the Acquisition Completion Date,
(i) the payment of S$10,000,000 in cash; and
(ii) the payment of S$10,600,000 of the Consideration via the issuance of
42,519,053 new ordinary shares in the capital of the Company (the
“Consideration Shares”) representing 9.7% of the existing issued share
capital (including treasury shares) of the Company at the issue price of
S$0.2493 (the “Issue Price”), subject to the escrow arrangement set out in
Sections 2.2.2 and 2.8.3 of this Circular; and
(b) on the date falling 14 Business Days after the Acquisition Completion Date, the
payment of S$21,800,000 in cash (the “Second Cash Consideration”), subject to
the escrow arrangement set out in Sections 2.2.2 and 2.8.3 of this Circular.
The key factors taken into consideration in arriving at the Consideration include the
historical financial performance of Hetat Holdings, the Profit Guarantee provided by the
Vendor, the trading price-earning multiples of comparable listed companies and the fact
that the Company is acquiring the entire shareholding interest of Hetat Holdings which
will entail a control premium.
LETTER TO SHAREHOLDERS
14
The Issue Price represents a 10.0% discount to the VWAP of S$0.2769 for trades done
on the Shares on the SGX-ST on 6 September 2013, which is the preceding full market
day of trading of the Shares up to the time the SPA was entered into, and on 9 September
20133.
2.2.2 Profit Guarantee
The Vendor has guaranteed that the consolidated net operating profits after tax of the
Hetat Group for the 12 months ending 31 December 20134 (the “2013 NPAT”) and the 12
months ending 31 December 20145 (the “2014 NPAT”) shall be at least S$5,500,000 (the
“2013 NPAT Guarantee”) and S$6,300,0006 (the “2014 NPAT Guarantee”) respectively
(collectively, the “Profit Guarantee”).
The 2013 NPAT Guarantee will be secured by S$4 million in cash (“First Escrow Cash”)
and 50% of the Consideration Shares (“First Escrow Shares”), both of which will be held
in escrow by the Escrow Agent as a safeguard. The $4 million cash amount is the amount
held back from the payment of the Second Cash Consideration to the Vendor.
The 2014 NPAT Guarantee will be secured by an additional S$4 million in cash (“Second
Escrow Cash”) and the remaining 50% of the Consideration Shares (“Second Escrow
Shares”), both of which will be held in escrow by the Escrow Agent as a safeguard. The
second $4 million cash amount is the additional amount held back from the payment of
the Second Cash Consideration to the Vendor.
2.2.3 Conditions Precedent
Completion of the Acquisition is conditional on, inter alia, the following:
(a) the specific approval of the Shareholders having been obtained for the Acquisition
and the issue of the Consideration Shares and the Subscription Shares (as defined
below) at the EGM;
(b) the results of the due diligence review conducted in respect of the Hetat Group
being satisfactory to the Company;
(c) the appointment of the Escrow Agent and the entry into an escrow agreement
between the Escrow Agent, the Company and the Vendor;
(d) satisfactory completion of all regulatory requirements, including the receipt of all
necessary approvals from the relevant authorities and compliance with all
applicable laws and rules of the SGX-ST;
3 The Company halted trading of its shares on 9 September 2013 at 10:45 am.
4 Excluding exceptional items and non-controlling interests, as reflected in the audited consolidated profit and loss
accounts of the Hetat Group for FY2013.
5 Excluding exceptional items and non-controlling interests, as reflected in the audited consolidated profit and lossaccounts of the Hetat Group for FY2014.
6 Where the 2013 NPAT is greater than S$5,500,000 (the “2013 Target NPAT”), the excess of the 2013 NPAT overS$5,500,000 (subject to a cap of S$400,000) will be added to the 2014 NPAT for the purpose of determining whether
the 2014 NPAT Guarantee is met.
LETTER TO SHAREHOLDERS
15
(e) the receipt of approval-in-principle from the SGX-ST for the listing and quotation of
the Consideration Shares and the Subscription Shares;
(f) the NAV and the cash and cash equivalents (the “Cash Position”) of the Hetat
Group as at the Pre-Acquisition Completion Date (as defined below) being not less
than S$4,550,000 and S$3,290,000 respectively, and such NAV and Cash Position
having been satisfactorily verified by the Company or its professional advisers;
(g) the value of the Hetat Property on an “as-is” basis, as appraised by an independent
property valuer, such valuation to be based on the assumption that Hetat Holdings
has obtained a lease extension to the current leasehold term granted by JTC in
respect of the Hetat Property for a minimum of 22 years from the date of issue of
the lease extension (the “Appraisal Value”) being no less than S$13,000,000;
(h) completion of the internal restructuring of the Hetat Group for the purpose of
achieving the target NAV and Cash Position of not less than S$4,550,000 and
S$3,290,000 respectively under Section 2.2.3(f) of this Circular, which internal
restructuring shall include the divestment of certain properties and equipment but
provided that the Vendor shall consult the Company prior to divesting any property
and/or equipment with a net book value (as recorded in the accounts of the Hetat
Group) exceeding S$50,000;
(i) Hetat Holdings being the legal and beneficial owner of (i) the entire issued and
paid-up share capital of Hetat Global Mongolia LLC, Hetat Engineering &
Construction Sdn. Bhd., Hetat Pte. Ltd. and Xiang Tong (Shanghai) International
Trading Pte Co., Ltd and (ii) the remaining share capital of Hetat Marine Offshore
Pte. Ltd. after it allots up to 49% of its enlarged share capital to third party investors
pursuant to discussions between the Hetat Group and third party investors prior to
the entry of the SPA whereby it was agreed that certain third party investors would
join Marine Offshore Pte. Ltd. as shareholders and to manage the operation of the
new business of Hetat Marine Offshore Pte. Ltd. (which is currently dormant) as
illustrated in Appendix A to this Circular;
(j) the Vendor having entered into a service agreement for the appointment of the
Vendor as the chief executive officer of the Hetat Group for an initial period of three
(3) years commencing from Acquisition Completion Date, on terms mutually
agreeable to the Vendor and the Company;
(k) the Company having received a report from its financial adviser confirming that the
financial adviser is of the view that the Acquisition on the terms of the SPA is on
normal commercial terms and is not prejudicial to the interest of the Company and
its Shareholders;
(l) the Company having received a report from Hetat Holdings’ auditors (the choice of
auditors to be mutually agreed between the parties) confirming that they have
reviewed the bases and assumptions, accounting policies and calculations for the
Profit Guarantee, and stating their opinion on the same;
(m) there being no decrease in the NAV and the Cash Position as at the Acquisition
Completion Date from the NAV and the Cash Position as at the Pre-Acquisition
Completion Date;
LETTER TO SHAREHOLDERS
16
(n) the Vendor having delivered the disclosure letter to the Company7, and the contents
of the disclosure letter being reasonably satisfactory to the Company; and
(o) the Company being satisfied that there are no material differences in the accounting
standards, practices and policies between the Hetat Group and the Group.
For the purposes of this Section 2.2.3, “Pre-Acquisition Completion Date” means a
date falling on the last day of:
(i) in the case of the Acquisition Completion Date falling on or after the 15th day of a
calendar month, the calendar month immediately preceding the Acquisition
Completion Date; and
(ii) in the case of the Acquisition Completion Date falling before the 15th day of a
calendar month, the calendar month that is two (2) months preceding the
Acquisition Completion Date.
For the purposes of Section 2.2.3(h), the properties and equipment to be divested mainly
comprise the Relevant Properties which do not form part of the core assets of the Hetat
Group. The net book values as at 31 August 2013 of the Toh Guan Property and Daerah
Johor Bahru Property are S$426,508 and RM3,511,325 (or approximately S$1,364,310)
respectively. The Daerah Johor Bahru Property shall be disposed to the Vendor at the net
book value of RM3,511,325 by offsetting against amounts owing by the Hetat Group to
the Vendor. The Toh Guan Property shall be disposed to the Vendor at the net book value
as of the date of disposal. The Vendor shall fund the acquisition consideration for the Toh
Guan Property using the dividends to be declared to him. The divestment will take place
prior to the completion of the Acquisition and the pro forma consolidated financial
information of the Hetat Group disclosed in Section 2.1.4 of the Circular has taken into
account the divestments of the Relevant Properties. For the avoidance of doubt, the
Company is agreeable to the divestment of the Relevant Properties.
2.2.4 The Hetat Property
One of the main assets of the Hetat Group is a steel fabrication plant of approximately
194,779 square feet located at No. 19, Tuas Avenue 20, Singapore 638830. The Hetat
Group is currently leasing the land on which the steel fabrication plant is situated from
Jurong Town Corporation (“JTC”). For the purposes of the Acquisition, the Company has
commissioned an independent property valuer, Savills Valuation and Professional
Services (S) Pte Ltd (the “Valuer”), to appraise the “market value” of such land and
buildings sited thereon (the “Hetat Property”) on an “as-is” basis, being “the estimated
amount for which a property should exchange on the date of valuation between a willing
buyer and a willing seller in an arm’s length transaction after proper marketing wherein
the parties had acted knowledgeably, prudently and without compulsion”.
7 The disclosure letter is provided by the seller of a business to the buyer to qualify the representations and warranties
that have been provided to the buyer in the sale and purchase agreement. In this regard, the Vendor has provided adisclosure letter dated 31 October 2013 to the Company which sets out certain exceptions and modifications to the
warranties provided by the Vendor to the Company in the SPA.
LETTER TO SHAREHOLDERS
17
According to its valuation report dated 8 October 2013 (the “Valuation Report”), the
Valuer is of the opinion that:
(a) the market value of the Hetat Property based on its balance term of 5.9 years of the
existing lease with JTC is S$6,200,000; and
(b) the market value of the Hetat Property based on the assumption that JTC grants an
extension of the lease by a minimum of 22 years from the date of the Valuation
Report is S$13,500,000.
The Valuation Report is appended as Appendix D to this Circular.
The Vendor has undertaken to procure that Hetat Holdings use its best endeavours to
obtain an extension of the leasehold term in respect of the Hetat Property (the “Hetat
Property Extension”) within the period of 18 months from the date of completion of the
Acquisition (the “Acquisition Completion Date”) or such later date as may be mutually
agreed between the Parties in writing (“Hetat Property Extension Deadline”). Further,
the Vendor shall procure that Hetat Holdings makes the application for the Hetat Property
Extension within 12 months from the Acquisition Completion Date.
If JTC does not approve the Hetat Property Extension by the Hetat Property Extension
Deadline, the Company and the Vendor shall, within ten (10) Business Days from the
date of JTC Corporation’s response, jointly appoint an independent property valuer
(“Property Valuer”) to appraise the value of the Hetat Property on an “as-is” basis based
on the then remaining leasehold term of the Hetat Property without the Hetat Property
Extension (the “Second Appraisal Value”), such appraisal to be carried out at the cost
of the Vendor and the Company in equal proportion.
In the event that Second Appraisal Value is lower than S$13,000,000, the Vendor shall,
within ten (10) Business Days from the final determination of the Second Appraisal Value
by the Property Valuer, pay the Company an amount equivalent to half of the shortfall of
the Second Appraisal Value from S$13,000,000 (“Vendor Guarantee”), as illustrated by
the formula below:
Vendor Guarantee = (S$13,000,000 – Second Appraisal Value)/2
As upon completion of the Acquisition, the ownership and all risks and rewards accruing
to the assets of Hetat Group to be acquired (including the Hetat Property) will belong to
the Company, both the Company and the Vendor have agreed that each of them shall
bear half of the risk in the event the Hetat Property Extension is not obtained and the
Second Appraisal Value indicates the fair value of the Hetat Property is lower than
S$13,000,000.
2.3 Moratorium
The Vendor undertakes that for an initial period of one (1) year (the “Initial Moratorium
Period”) commencing from the date of allotment and issue of the Consideration Shares,
he shall not sell, realise, transfer or otherwise dispose of any part of the Consideration
Shares. For the period of one (1) year subsequent to the Initial Moratorium Period, the
Vendor also undertakes not to sell, realize, transfer or otherwise dispose of fifty per cent
(50%) of the Consideration Shares during such period.
LETTER TO SHAREHOLDERS
18
2.4 Service Agreements
The Vendor shall be entitled to be appointed as a director to the board of directors of the
Company after completion of the Acquisition, provided that such appointment shall be
subject to the consent of the nominating committee of the Company. As disclosed in
Section 2.2.3 of this Circular, a condition precedent to completion of the Acquisition is the
entry into by the Vendor into a service agreement for the appointment of the Vendor as
the chief executive officer of the Hetat Group and the executive director of the Company
for an initial period of three (3) years commencing from Acquisition Completion Date.
Separately, the Company also intends to appoint Mr Wang Feng Jung, Willie (“Mr Wang”)
as “Director – Contracts & Commercial” of Hetat Holdings.
As such, the Company, through Hetat Holdings, proposes to enter into two separate
service agreements (each a “Service Agreement”, and collectively, the “Service
Agreements”) with (i) the Vendor pursuant to which he shall serve the Group in the role
of the Chief Executive Officer of Hetat Group and (ii) Mr Wang (together with the Vendor,
the “Executives”), pursuant to which Mr Wang shall serve the Group in the role of
“Director – Contracts & Commercial” of Hetat Holdings. The Service Agreements of the
Vendor and Mr Wang will be valid for an initial period of five (5) years and three (3) years
respectively, commencing from the Acquisition Completion Date.
Pursuant to the proposed terms of the Service Agreements, the Executives shall at all
times comply with the lawful and reasonable directions of the Board of Directors of Hetat
Holdings and shall devote their full time and attention to the business and affairs of the
Hetat Group and shall not without the prior consent of the Board of Directors of Hetat
Holdings directly or indirectly carry on or be engaged, concerned or interested in any
other business trade or occupation.
The Executives shall be reimbursed for all reasonable expenses incurred by them in the
course of their service with Hetat Holdings and will also be provided with Group Life
Insurance and Hospitalisation Plan Insurance. The monthly remuneration of the Vendor
and Mr Wang before the deduction of Central Provident Fund contribution shall be
S$28,000 and S$13,500 respectively. Hetat Holdings may at its absolute discretion, pay
to the Executives a bonus at a rate to be decided by Hetat Holdings from time to time.
The remuneration and benefits provided to the Executives shall be reviewed by the
Board of Directors of Hetat Holdings at least once a year.
Hetat Holdings may summarily terminate the Service Agreements by notice with
immediate effect and without payment of any compensation whatsoever in any of the
following events:
(a) if the Executive, in the reasonable opinion of the Board of Directors of Hetat
Holdings, is guilty of dishonesty or wilful misconduct in the discharge of his duties
or incompetence in the performance of his duties or commits any act, which in the
opinion of the Board of Directors of Hetat Holdings, is likely to bring Hetat Holdings
or any of its related corporations, affiliates or associated companies or any of its or
their officials or employees into disrepute, whether such dishonesty, misconduct,
neglect or act is or is not directly related to the affairs of Hetat Holdings;
LETTER TO SHAREHOLDERS
19
(b) if the Executive becomes of unsound mind or if he becomes a patient within the
meaning of the Mental Disorders and Treatment Act (Chapter 178 of Singapore) or
becomes permanently incapacitated by accident or ill-health and is unable to
perform his duties under the service agreement;
(c) if the Executive, in the opinion of the Board of Directors of Hetat Holdings, commits
any material or persistent breach of any of his duties or obligations under the
service agreement;
(d) if the Executive is convicted of any criminal offence; and
(e) if the Executive is found to have made illegal monetary profit or received any
gratuities or other rewards (whether in cash or in kind) out of any of the affairs of
Hetat Holdings or that of its related companies, affiliates or associated companies.
Unless Hetat Holdings summarily terminates the Service Agreement in one of the above
instances, if either party wishes to terminate the Service Agreement prior to the end of
the Service Agreement, the party terminating the Service Agreement shall compensate
the other party for the remaining period of the Service Agreement calculated in
accordance with the last drawn salary.
In respect of the Service Agreement to be entered into between Hetat Holdings and Mr
Wang, as an incentive for serving the full term of the Service Agreement of 3 years
(commencing from the Acquisition Completion Date), Mr Wang will be entitled to a
retention bonus amounting to approximately 11 months of his current monthly salary
under his Service Agreement upon completion of the full term of the Service Agreement.
2.5 Rationale and Benefits
The Company is a leading provider of corrosion prevention services in Singapore and
strategic value added distributor of petroleum-derived products in the Asia Pacific region.
In addition to providing corrosion prevention (“CP”) services to the marine, oil and gas,
construction and infrastructure industries, the Group also operates a refined petroleum
(“RP”) business that offers comprehensive supply chain management of refined
petroleum products to diverse end-user industries including vehicular, agriculture,
coating, pharmaceutical, consumer, plastics, construction, engineering, marine and
electronics industries.
The Acquisition represents a good opportunity for the Group to diversify its existing
operations and to expand its product offerings to its existing customers of the CP
business to include those relating to designing, engineering and construction of steel,
aluminium and glass structures.
Hetat Holdings is a profitable company with a proven track record of 10 years in the
construction industry. The comprehensive product range, established track record and
strong order book of the Hetat Group underpin its positive growth prospects in the
foreseeable future. The pro forma consolidated revenue of the Hetat Group for the last
three financial years ended 31 December 2010, 31 December 2011 and 31 December
2012 were approximately S$20.0 million, S$32.0 million and S$32.2 million respectively.
The pro forma consolidated profit after tax of the Hetat Group for the last three financial
years ended 31 December 2010, 31 December 2011 and 31 December 2012 were
approximately S$3.2 million, S$3.5 million and S$4.0 million respectively. Given the
LETTER TO SHAREHOLDERS
20
foregoing, the Board believes that the completion of the Acquisition will contribute
positively to the future earnings of the Company and enhance shareholder value in the
long term.
2.6 Source of Funds
The Company has entered into the Subscription Agreement to issue the Subscription
Shares for an aggregate consideration of S$36,023,850. The Company intends to use
the proceeds from the issuance of the Subscription Shares to finance the cash portion of
the Consideration payable to the Vendor. Further details of the issue of the Subscription
Shares can be found in Section 4 of this Circular.
2.7 Major Transaction
Based on the latest announced pro forma consolidated financial results of the Group for
the period ending 30 June 2013, the relative figures in respect of the Acquisition, as
computed on the bases set out in Rule 1006 of the Listing Manual, are as follows:
Bases in Rule 1006
(a) Net asset value of the assets to be disposed of, compared with
the group’s net asset value
Not applicable
(b) Net profits(1) attributable to Hetat Holdings of approximately
S$2,426,000, compared with net profits of the Group of
approximately S$6,282,000 for the six (6) months ended 30 June
2013
38.6%
(c) Aggregate value of the Consideration of S$43,573,526(2)
compared with the Company’s market capitalisation(3) of
approximately S$116,697,324 as at 9 September 2013, being
the market day immediately preceding the date of the SPA
37.3%
(d) 42,519,053 Consideration Shares issued as consideration for
the Acquisition, compared with 438,542,125 Shares previously in
issue (inclusive of treasury shares of 17,100,000 treasury
shares)
9.7%
Notes:
(1) “Net profits” means profit or loss before income tax, minority interests and extraordinary items.
(2) Aggregate value of the Consideration is calculated using the sum of the cash consideration and the
market value of the Consideration Shares as at the market day immediately preceding the date of the
SPA.
(3) “Market capitalisation” is determined by multiplying the number of Shares in issue by the weighted
average price of such Shares transacted on the full trading day of 6 September 2013 preceding the date
of the SPA and on 9 September 2013.
As the relative figures as computed on the above bases exceeds 20% but is less than
100%, the Acquisition constitutes a “major transaction” within the meaning of Chapter 10
of the Listing Manual, and pursuant to Rule 1010, it must be made conditional upon
approval by Shareholders in general meeting.
LETTER TO SHAREHOLDERS
21
2.8 Rule 1013 of the Listing Manual
This Section sets out the information required to be disclosed under Rule 1013 of the
Listing Manual in connection with the Profit Guarantee.
2.8.1 Views of the Board
The Board is of the view that the Profit Guarantee is reasonable and helps to safeguard
the interests of Shareholders, having taken into account, inter alia, the following factors:
(a) the terms and rationale of the Acquisition, the proposed escrow arrangement (as
described in Section 2.2.2 of this Circular) and the mechanism agreed by the
Vendor and the Company to compensate the Company in the event that the Profit
Guarantee is not satisfied (as described in Section 2.8.3 of this Circular);
(b) based on the information available to the Company, the Hetat Group has been
profitable since 2004 and its bottomline has been growing year on year since 2009;
(c) the pro forma consolidated net profit of the Hetat Group of approximately S$3.5
million (or approximately 64.1% of the 2013 NPAT Guarantee) for 8M2013; and
(d) the Hetat Group’s order book of approximately S$46 million as at the Latest
Practicable Date.
Completion of the Acquisition is conditional upon, inter alia, satisfactory due diligence
review conducted in respect of the Hetat Group. In this regard, the Company has
appointed RSM Chio Lim LLP to conduct financial due diligence on the Hetat Group on
the financial information for FY2012 and 8M2013. RSM Chio Lim LLP has completed
such financial due diligence, and the results thereof are satisfactory to the Company.
2.8.2 Commercial Bases and Principal Assumptions Upon Which The Quantum Of The
Profit Guarantee Is Based
The principal commercial bases upon which the quantum of the Profit Guarantee is
based would include, inter alia, the following:
(a) the Hetat Group is currently engaged in the business of designing, engineering and
construction of steel, aluminium and glass structures, and the provision of labour
and equipment to fabricate and install modules for oil-rigs. With strong business
relationships of its key recurring customers, it is likely to continue to be awarded
new contracts. Along with current contracts on hand and potential contracts from
tenders and other awards, it is likely that the revenue of Hetat Group will continue
to grow in the future;
(b) the Hetat Group has a profitable track record, with net profit after tax of
approximately S$4.0 million as recorded in pro forma accounts of the Hetat Group
for the financial year ended 31 December 2012; and
(c) following the completion of the Acquisition, Hetat Group will become a subsidiary of
a listed group. This is likely to enhance the profile of Hetat Group in the markets that
the Hetat Group operates in, which include Singapore, Mongolia and Malaysia, and
lead to more favourable perceptions of the Hetat Group by potential new customers.
LETTER TO SHAREHOLDERS
22
The following are the principal assumptions underlying the Profit Guarantee:
(i) there being no material changes in the existing political, economic, legal and social
conditions, and regulatory and fiscal measures in the countries in which the Hetat
Group operates;
(ii) the contracts with the Hetat Group’s customers and suppliers remaining intact and
will be renewed as and when they expire either with existing customers or with new
customers;
(iii) there will be no material loss of major customers, partners and suppliers which are
essential for the operations of the Hetat Group;
(iv) operating expenses will either remain constant or that there will be a corresponding
increase in revenue when operating expenses increase; and
(v) there will be no material changes in the key personnel of the Hetat Group.
2.8.3 Manner and Amount of Compensation and Safeguards
In the event that the 2013 NPAT Guarantee is not met, the shortfall between the actual
profit for the calendar year 2013 and the 2013 NPAT Guarantee will be refunded to the
Company in the manner summarily set out below, save that the first million deficit shall
be on a dollar for dollar basis and the subsequent deficit amounts shall be on a multiple
of 2 times.
(a) the First Escrow Cash will first be used to refund the Company;
(b) if the First Escrow Cash is insufficient, the Vendor will be given notice to make up
the difference;
(c) if the Vendor fails to make up the difference, the Company will be entitled to have
the necessary amount of First Escrow Shares sold and such proceeds of sale used
to make up the difference; and
(d) if the proceeds of the sale of the First Escrow Shares is not sufficient to make up
the difference, the Vendor will be given a second notice to make up the difference.
In the event that the 2014 NPAT Guarantee is not met, the shortfall between the actual
profit for the calendar year 2014 and the 2014 NPAT Guarantee will be refunded to the
Company in the manner summarily set out below, save that the first million deficit shall
be on a dollar for dollar basis and the subsequent deficit amounts shall be on a multiple
of 2 times:
(i) the Second Escrow Cash will first be used to refund the Company;
(ii) if the Second Escrow Cash is insufficient, the Vendor will be given notice to make
up the difference;
(iii) if the Vendor fails to make up the difference, the Company will be entitled to have
the necessary amount of Second Escrow Shares sold and such proceeds of sale
used to make up the difference; and
LETTER TO SHAREHOLDERS
23
(iv) if the proceeds of the sale of the Second Escrow Shares is not sufficient to make up
the difference, the Vendor will be given a second notice to make up the difference.
As an illustration, if the 2013 NPAT is only S$4.0 million, the Vendor will be obligated to
refund S$2.0 million to the Company (i.e. S$1.0 million compensation for the first million
deficit and another S$1.0 million compensation, being two times of the remaining
shortfall of S$0.5 million) and such amount shall be deducted from the First Escrow
Cash.
2.8.4 Opinion of Financial Adviser
The Company has appointed Tata Capital Markets Pte. Ltd. (the “Financial Adviser”) as
its financial adviser in relation to the Acquisition. Save for its role as the Financial Adviser
in relation to the Acquisition, Tata Capital does not have any (i) interest, direct or indirect,
in the Transactions; (ii) relationship, past or existing, with Hetat Holdings, the Introducer,
or any other parties which might lead to a potential conflict of interest.
Having taken into consideration the factors as set out in the Financial Adviser Letter, and
subject to the assumptions and qualifications contained therein, the Financial Adviser is
of the view that the Acquisition is on normal commercial terms and is not prejudicial to
the interest of the Company and its Shareholders.
A copy of the Financial Adviser Letter, containing in full the advice and opinion of Tata
Capital, is set out in Appendix B to this Circular. Shareholders are advised to read the
report carefully before proceeding to vote on the resolution for the Acquisition at the
EGM.
2.8.5 Confirmation from the Auditors
The reporting auditor of Hetat Holdings, Nexia TS Public Accounting Corporation
(“Nexia”), has examined the profit forecast of at least S$5.5 million for the financial year
ending 31 December 2013 (“FY2013”) and profit projection of at least S$6.3 million for
the financial year ending 31 December 2014 (“FY2014”) of the Hetat Group, on which the
Profit Guarantee is based, in accordance with the Singapore Standards on Assurance
Engagements 3400 “Examination of Prospective Financial Information” applicable to the
examination of prospective financial information.
According to its letter dated 16 December 2013 (the “Auditors’ Letter”), Nexia is of the
opinion that:
(a) the profit forecast for FY2013 and the profit projection for FY2014 are properly
prepared on the basis of the assumptions, are consistent with the accounting
policies adopted by the Group, and are presented in accordance with the
accounting policies adopted by the Group; and
(b) based on Nexia’s examination of the evidence supporting the assumptions, nothing
has come to its attention which causes it to believe that the assumptions do not
provide a reasonable basis for the profit forecast for FY2013 and profit projection for
FY2014 of Hetat Group.
LETTER TO SHAREHOLDERS
24
2.9 Outlook of the Singapore, Malaysia and Mongolia markets
In relation to the Singapore market, in the beginning of this year, the BCA announced that
in view of the strong pipeline of housing and construction projects planned by the
Singapore government to meet the needs of the population, it expects the average
construction demand in Singapore from year 2014 to 2015 to be between S$20 billion to
S$28 billion annually(1).
In relation to the Malaysia market, the Malaysian government expects the gross domestic
product of Malaysia to grow between 5.0% and 6.0% in 2013, mainly driven by domestic
demand, with the Economic Transformation Programme and Government Transformation
Programme continuing to be the main catalysts. All sectors of the economy are expected
to contribute to the growth, with the construction sector spearheading the expansion(2).
In relation to the Mongolia market, the Mongolian economy grew at a slower pace in 2012
but still maintained double-digit growth. Despite slower growth of mineral exports,
double-digit economic growth was driven by the robust performance of the non-mineral
sector fuelled by the recovery of agricultural sector as well as steady growth in, inter alia,
the construction and transportation industries. According to the World Bank forecast,
Mongolia’s real gross domestic product would grow at 13.0% and 11.5% in 2013 and
2014 respectively, which is one of the highest in the global economy(3).
Based on the above, the Board believes that barring unforeseen circumstances,
construction demand in the key countries in which the Hetat Group operates in will
remain healthy(4).
Notes:
(1) The above information was extracted from the media release entitled “Public sector projects to boost
construction demand in 2013” dated 16 January 2013 issued by the BCA as published on its website
(http://www.bca.gov.sg/Newsroom/pr16012013_CP.html). The Company has not sought the consent of
the BCA nor has the BCA provided its consent to the inclusion of the relevant information extracted from
this website and disclaimed any responsibility in relation to reliance on the information. As the BCA has
not consented to the inclusion of the above information in this Circular, the BCA is therefore not liable
for the relevant information.
(2) The above information was extracted from the media release entitled “Economic Report 2012/2013”
and “Malaysian Economy – Second Quarter 2013” issued by the Ministry of Finance of Malaysia
as published on its website (http://www.treasury.gov.my/pdf/ekonomi/le/1213/chap1.pdf; and
http://www.treasury.gov.my/pdf/ekonomi/sukutahun2_2013.pdf). The Company has not sought the
consent of the Ministry of Finance of Malaysia nor has the Ministry of Finance of Malaysia provided its
consent to the inclusion of the relevant information extracted from this website and disclaimed any
responsibility in relation to reliance on the information. As the Ministry of Finance of Malaysia has not
consented to the inclusion of the above information in this Circular, the Ministry of Finance of Malaysia
is therefore not liable for the relevant information.
(3) The above information was extracted from the media release entitled “Mongolia Economic Outlook
(April 2013)” issued by the World Bank Group as published on its website (http://www.worldbank.org/
content/dam/Worldbank/document/EAP/Mongolia/MQU_April_2013_en.pdf). The Company has not
sought the consent of the World Bank Group nor has the World Bank Group provided its consent to the
inclusion of the relevant information extracted from this website and disclaimed any responsibility in
relation to reliance on the information. As the World Bank Group has not consented to the inclusion of
the above information in this Circular, the World Bank Group is therefore not liable for the relevant
information.
(4) While reasonable actions have been taken by the Directors to ensure that the relevant information was
extracted accurately and fairly from the respective websites, none of the Hetat Group, the Directors, the
Vendor, the Financial Adviser or other persons involved in the Acquisition has conducted independent
reviews of the information contained in these websites and have not verified the accuracy of the
information extracted from them.
LETTER TO SHAREHOLDERS
25
3. THE PROPOSED DIVERSIFICATION OF BUSINESS
3.1 The Business
Upon completion of the Acquisition, the Company will diversifying its business scope to
include the Business of the Hetat Group, which involves the business of designing,
engineering and construction of steel, aluminium and glass structures and the provision
of labour and equipment to fabricate and install modules for oil-rigs. The rationale and
benefits of the Diversification is set out in Section 2.5 of this Circular.
3.2 Risk Factors
To the best of the Directors’ knowledge and belief, all the risks that are material to the
Shareholders in making an informed judgment on the Diversification are set out below.
Shareholders should carefully consider and evaluate the following risk factors and all
other information contained in this Circular before deciding on whether to vote in favour
of the Diversification at the EGM.
The Business could be affected by a number of risks which relate to the industries and
countries in which the Business is undertaken as well as those which may generally arise
from, inter alia, economic, business, market and political factors, including the risks set
out herein. The risks described below are not intended to be exhaustive. There may be
additional risks not presently known to the Company or that the Company may currently
deem immaterial, which could affect its operations. If any of such risks develops into
actual events, the business, results of operations, financial condition and prospects of
the Hetat Group could be materially and adversely affected.
3.2.1 The Hetat Group may face risk of disputes with and claims by its customers,
suppliers or sub-contractors
The Hetat Group may be involved from time to time in disputes with various parties such
as its customers, suppliers or sub-contractors for various reasons, including differences
in the interpretation of acceptable quality standards of workmanship, material used,
adherence to contract specifications and costs of variation orders. These disputes may
lead to legal and other proceedings. If the Hetat Group is unable to manage such risks,
its business and financial position will be affected if any compensation or damages is
payable by it. As at the Latest Practicable Date, Hetat’s management is not aware of any
pending disputes or settlements with its customers, suppliers or sub-contractors.
3.2.2 The Hetat Group is liable for delays in the completion of projects
The time required to complete a construction project depends on various factors,
including the size of the project, prevailing market conditions and availability of
resources. Delays may arise due to factors such as adverse weather conditions, natural
calamities, power failure, machinery and equipment breakdown, shortage of construction
materials, shortage of labour, accidents, cessation of business of contractors, disputes
with contractors and unexpected delay in obtaining required approvals. Such delays may
result in cost overruns and increased financing costs and accordingly affect the
profitability of the Hetat Group or lead to claims for liquidated damages from customers
of the Hetat Group.
LETTER TO SHAREHOLDERS
26
3.2.3 The Hetat Group may be adversely affected by cost overruns
Unforeseen circumstances such as unfavourable weather conditions, unanticipated
construction constraints at worksites, increase in the costs of labour, construction
materials, equipment, rental and sub-contracting services, unanticipated variations in
labour and equipment productivity over the term of a development or corrective
measures for poor workmanship may arise in the course of the projects which may result
in additional unanticipated costs over and above the initial budget. Where these cost
overruns cannot be passed onto its customers, the Hetat Group may have to absorb the
cost overruns and may suffer losses as a result. The profitability and financial
performance of the Hetat Group may be materially and adversely affected.
3.2.4 The Hetat Group may be affected by competition from existing and new industry
players including foreign companies entering the markets that the Hetat Group is
currently operating in
The construction industry that the Hetat Group is engaged in is highly competitive and
such competition may increase in the near future due to the entry of new players. In the
event the competitors of the Hetat Group are able to provide comparable or better
products or services at lower prices or respond to changes in market conditions more
swiftly or effectively than the Hetat Group does, the operations and financial performance
of the Hetat Group may be adversely affected. There is no assurance that the Hetat
Group will be able to compete effectively with its existing and future competitors and
adapt quickly to changing market conditions and trends. Any failure by the Hetat Group
to remain competitive will adversely affect the demand for its products or services and its
financial performance.
3.2.5 Fluctuations in the steel, aluminium or glass prices may adversely affect the profit
margins and the financial performance of the Hetat Group
The Hetat Group requires steel, aluminium, and glass as raw materials in its construction
process. The market price of such raw materials is dependent on regional and global
supply and demand conditions, which are in turn affected by a number of factors
including cyclical changes in regional and global economic conditions, price and
availability of substitute products. In the event that due to any of the above-mentioned
reasons, the price of steel, aluminium, or glass increases in the jurisdictions in which the
Hetat Group operates in, and the Hetat Group is unable to pass such increase in costs
to its customers or find alternative sources of cheaper supplies, its profit margins and
financial performance will be adversely affected.
3.2.6 The performance of the Hetat Group may be adversely affected by the uncertain
global economic outlook
The performance of the Hetat Group depends largely on the economic situation and the
performance of the construction industry and there is no assurance that the construction
sectors of jurisdictions in which it undertakes its Business will continue to grow. Should
the economy or the construction market experience a downturn, whether globally or in
any country in which it undertake its Business, including but not limited to Singapore,
Malaysia, and Mongolia, its financial performance may be adversely affected. In addition,
as the gestation period for a construction project is long, typically between 6 to 24
LETTER TO SHAREHOLDERS
27
months, any downturn in the economy or the construction market, during the course of
a project, may affect the profitability of such project, thereby adversely affecting its
financial performance.
3.2.7 The Hetat Group may face liquidity and non-payment risks
Generally, the Hetat Group grants a credit term of 30 days to its customers. The Hetat
Group may face uncertainties in respect of the timeliness of payments by its customers
and their solvency or creditworthiness. There is no assurance that the Hetat Group will
be able to collect any progress payments on a timely basis, or at all. In the event that the
customers of the Hetat Group default in payments or there is a significant delay in
collecting progress payments from its customers, the Hetat Group may face stress on its
cash flow and a material increase in bad and doubtful debts, which will have an adverse
impact on its financial performance. As at the Latest Practicable Date, the Hetat Group
does not have any material long overdue receivables balance and has not experienced
significant difficulties in collecting payments from its customers. Its trade receivables as
at 31 August 2013 amount to S$5,664,683. The aging schedule of trade receivables as
at 31 August 2013 which are not yet received as at 31 October 2013 are as follows:
Age of overdue trade
receivables
Percentage of total trade receivables as at 31 August
2013 not yet received as at 31 October 2013
31 to 60 days 2%
61 to 90 days –
More than 90 days 0.5%
3.2.8 Any shortage in the supply of foreign workers or increase in levy for foreign
workers, or any restriction on the number of foreign workers that the Hetat Group
may employ for a project will adversely affect its operations and financial
performance
The construction sector is highly labour intensive, and the Hetat Group employs a
substantial number of foreign workers in its various projects. As such, the Hetat Group
is vulnerable to any shortage in the supply of, or increases in the costs of foreign
workers. Such changes in the supply of foreign workers may result from changes in
government policies. In the event of any disruption to the supply of foreign workers, or
if the costs cannot be controlled, the overall construction costs may increase and the
financial performance of the Hetat Group may be materially and adversely affected.
3.2.9 The Hetat Group may be affected by accidents during the course of business
The Hetat Group employs workers at its work site and supply labour to fabricate and
install modules for oil-rigs. Accidents or mishaps may happen in the course of their work
and such accidents or mishaps may lead to work stoppages and third party claims. Any
significant claims for which the Hetat Group is liable and which are not covered or not
fully covered by its insurance policies may materially and adversely affect its results of
operations and financial condition.
LETTER TO SHAREHOLDERS
28
3.2.10 The financial performance of the Hetat Group is subject to its continued ability to
secure new projects and the non-cancellation of secured projects
The inability to secure new projects, cancellation of secured projects or a drastic scale
down of project sizes due to factors such as changes in its customers’ requirements, poor
market or economic conditions, lack of funds due to a change in customer’s budget may
adversely affect the Hetat Group. Any of the abovementioned factors could lead to idle
or excess capacity and may adversely affect the operations and financial performance of
the Hetat Group.
3.2.11 The Hetat Group is exposed to foreign currency fluctuations
The revenue of the Hetat Group is currently denominated in Singapore Dollar, United
States Dollar and Ringgit Malaysia. The majority of its purchases are denominated in
Singapore Dollar and Chinese Yuan with the balance being denominated in foreign
currencies, mainly United States Dollar and Mongolian Tugrik. From time to time, it also
makes purchases of plant and equipment denominated in foreign currencies.
To the extent that its revenue and purchases are not sufficiently matched in the same
currency and to the extent that there are timing differences between collection and
payments, it will be exposed to any adverse fluctuations in the exchange rates between
the various foreign currencies and the respective entities’ functional currency, which may
have adverse impact to its financial performance.
3.2.12 Changes in government legislations, regulations or policies, in Singapore and
overseas, may directly or indirectly affect the Business of the Hetat Group
Changes in government legislations, regulations or policies of countries in which the
Hetat Group undertakes its Business, including but not limited to Singapore, Malaysia,
and Mongolia, may result in the Hetat Group being unable to complete its construction
project on time, or at all, or result in an increase in construction costs, or adversely affect
the businesses which are relevant to the construction industry. Such changes may
include delays in procuring the necessary approvals, licenses or certificates from
government bodies, and changes in laws, regulations and policies in relation to the
construction sector in general. This may directly or indirectly adversely affect the
financial position of the Hetat Group.
3.2.13 The Hetat Group is dependent on obtaining adequate financing to fund its
operations
The construction business may require substantial capital investments or cash outlay.
There is no assurance that financing, either on a short-term or a long-term basis, will be
made available or, if available, that such financing can be obtained on commercially
reasonable terms, in which event the Hetat Group’s future plans and growth prospects
will be adversely affected.
In addition, debt funding is subject to interest payments and interest rate fluctuations and
may also be subject to conditions that restrict or require consent for corporate
restructuring, additional financing or fund raising, and requirements on the maintenance
of certain financial ratios. These conditions may reduce the availability of cash flow of the
Hetat Group for capital expenditures, working capital and other general corporate
LETTER TO SHAREHOLDERS
29
purposes. In addition, these conditions may limit the flexibility of the Hetat Group in
planning for, or reacting to, changes in the business or industry and increase its
vulnerability to general adverse economic and industry conditions.
3.2.14 The Hetat Group is dependent on its continued ability to retain its key management
personnel for its operation and profitability
The success of the Hetat Group to date is attributable to the contributions and expertise
of its key management personnel who have built the business of the Hetat Group. Hence,
the continued success and growth of the Hetat Group are dependent on the retention of
its key management personnel as well as its ability to continue to attract, retain and
motivate other qualified personnel. Consequently, the loss of the services of one or more
of these individuals without suitable and timely replacement or the inability to attract new
qualified personnel could have a material and adverse effect on its results of operations
and financial condition.
3.2.15 Unfavourable political, social, economic, legal and regulatory developments in
Malaysia, China and Mongolia may have an adverse effect on the Hetat Group
The future growth and financial performance of the Hetat Group are dependent on the
political, social, economic, legal and regulatory conditions of those foreign jurisdictions
in which it has or will have a presence, including countries such as Malaysia, China and
Mongolia. Any changes in the policies of the governments of these countries, fluctuation
in foreign currencies, capital restrictions, social instability, and changes in legislations
could materially affect the operations and financial performance of the Hetat Group.
Greater regulatory barriers and the necessity of adapting to new regulatory systems
could result in an increase in operational costs and adversely affect its financial
condition.
3.2.16 The Hetat Group needs various licenses and permits to operate in Singapore and
overseas and the non-renewal, non-granting or suspension of its licenses and
permits may affect its operations, financial performance, and financial condition
The Hetat Group is required to obtain various licences and permits to conduct its
Business in Singapore and overseas. These licences and permits are generally subject
to conditions stipulated therein and/or the relevant laws or regulations under which such
licences and permits are issued. Failure to comply with such conditions could result in
non-renewal, non-granting or suspension of the relevant licence or permit. As such, it has
to constantly monitor and ensure compliance with such conditions. Should there be any
failure to comply with such conditions resulting in the cancellation, revocation or
non-renewal of any of the licences and permits, it may not be able to carry out its
operations. In such event, its operations, financial performance and financial condition
will be materially and adversely affected. As at the Latest Practicable Date, the
management of Hetat Holdings is not aware of any non-compliance with respect to
licensing and permits.
LETTER TO SHAREHOLDERS
30
4. THE PROPOSED SUBSCRIPTION
Subject to the terms and conditions of the Subscription Agreement, the Company has
agreed to allot and issue and the Subscribers have agreed to subscribe for the
Subscription Shares at S$0.2493 per Subscription Share (the “Subscription Price”).
The Subscription Shares when issued and fully paid will rank pari passu in all respects
with the existing Shares, except that they will not rank for any dividend, right, allotment
or other distributions, the record date for which falls on or before the date of completion
of the Subscription (the “Subscription Completion Date”).
The Subscription Price represents a discount of 10.0% to the VWAP of S$0.2769 for
trades done on the SGX-ST on 6 September 2013, which is the preceding full market day
of trading of the Shares up to the time the Subscription Agreement was entered into, and
on 9 September 20138.
The Subscription will be undertaken pursuant to Section 272B of the Securities and
Futures Act. As such, no prospectus or offer information statements will be issued by the
Company in connection with the Subscription.
4.1 Information on the Subscribers
The names and background of the Subscribers, and the number of Subscription Shares
to be issued and allotted to each of them pursuant to the Subscription are set out below.
Subscriber(1) Background of Subscriber
No. of
Subscription
Shares
As a
Percentage of
Enlarged
Share
Capital(2)
Tommie Goh Thiam Poh Mr Goh is the Chairman of a private
investment company, 2G Capital
Pte Ltd.
4,000,000 0.7%
Jeremy Lee Sheng Poh Mr Lee is the executive director of
private investment company, 2G
Capital Pte Ltd.
4,000,000 0.7%
Khua Kian Keong Mr Khua is the chief executive
officer of Freights Links Express
Holdings Ltd.
4,000,000 0.7%
Lee Yong Miang Mr Lee is the Executive Chairman
of the Expand Group of
Companies.
4,000,000 0.7%
Tan Dah Ching Mr Tan is a Business Development
Manager at Swissco Holdings
Limited and an investor with more
than 10 years of investment
experience.
4,000,000 0.7%
8 The Company halted trading of its shares on 9 September 2013 at 10:45 am.
LETTER TO SHAREHOLDERS
31
Subscriber(1) Background of Subscriber
No. of
Subscription
Shares
As a
Percentage of
Enlarged
Share
Capital(2)
Daniel Lye Tze Loong Mr Lye is a private banker with
more than 5 years of investment
experience.
1,600,000 0.3%
Tay Sia Puan Mr Tay is an investor with more than
10 years of investment experience
and a manager of a company in the
blasting and coating industry.
20,000,000 3.3%
Tan Eng Lee Mr Tan is an investor with more than
10 years of investment experience.
Business owner of Venta Electrical
Contractor.
18,000,000 3.0%
Loke Chee Choong Mr Loke is an investor with more
than 15 years of investment
experience. He is the managing
director of BASF (China), Co, Ltd.
10,000,000 1.6%
Goh King Hiong Mr Goh is an investor with more
than 20 years of investment
experience. He is a director of Musa
Holdings Pte Ltd & Canopus
Holdings Pte Ltd.
14,000,000 2.3%
Cheng Roland Mr Cheng is an investor with more
than 10 years of investment
experience. He is a director of
Golden Ocean Seafood (S) PL.
6,000,000 1.0%
Lee Cheng Peck Mr Lee is an investor with for more
20 years of investment experience.
He is the founder and director of
PSL Holdings Ltd.
19,000,000 3.1%
Kang Yee Yin Mr Kang is an investor with more
than 10 years of investing
experience. He is the managing
director of Lockson Hydraulics &
Engineering Pte Ltd.
15,900,000 2.6%
Ho Tat Toh Mr Ho is a high net worth investor
with more than 10 years of investing
experience and the owner of
Tigercool Airconditioning &
Electrical Services.
15,000,000 2.5%
LETTER TO SHAREHOLDERS
32
Subscriber(1) Background of Subscriber
No. of
Subscription
Shares
As a
Percentage of
Enlarged
Share
Capital(2)
Richill Industries Pte Ltd(3) Richill Industries Pte Ltd is a
company that deals with speciality
and industrials chemicals. It is an
existing shareholder of the
Company with an interest in
11,264,000 Shares as at the Latest
Practicable Date. Richill Industries
Pte Ltd is owned by Mr Charles Ler
Lin Huue, who is also its director,
and Mr Charles Ler Lin Huue’s
spouse, Ms Tan Sok Moey.
5,000,000 0.8%
Notes:
(1) To the best of knowledge of the Directors, the Subscribers are either direct contacts of the Introducer or
recommended by friends of the Introducer. None of the Directors, and to best knowledge of the Directors,
none of the substantial shareholders of the Company introduced any of the Subscribers to the Introducer.
(2) Based on the enlarged share capital comprising of 608,461,178 Shares, upon the completion of the
Acquisition and the Subscription.
(3) Richill Industries Pte Ltd is a customer and supplier of the Group. It sells chemicals to the Company for
the purpose of its use in industrial painting works. Since October 2013, the Company also supplies
certain chemicals to Richill Industries Pte Ltd for their trading purpose. For FY2012 and for the 9 months
ending 30 September 2013, the Company’s total purchases from Richill Industries Pte Ltd was
S$540,000 and S$516,000 respectively, representing 0.25% and 0.28% respectively of the Company’s
cost of sales for the respective periods. For FY2012 and for the 9 months ending 30 September 2013,
the Company did not sell any chemicals to Richill Industries Pte Ltd.
All of the Subscribers were introduced to the Company by the Introducer, and intend to
subscribe for the Subscription Shares for investment purposes. The Subscribers will be
the legal and beneficial owners of their respective Subscription Shares upon issuance of
the same.
The Company will pay a fee of S$792,525, being 2.2% of the Subscription Sum, to the
Introducer in consideration of him introducing the Subscribers to the Company. This fee
was arrived at after negotiations between the Company and the Introducer and taking
into consideration the market practice.
4.2 Rationale of the Subscription and Use of Proceeds
The amount of gross proceeds from the Subscription is expected to be S$36,023,850
(the “Subscription Sum”). The amount of net proceeds from the Subscription (after
deducting expenses relating thereto) is expected to be approximately S$35,171,000 (the
“Proceeds”). The Subscription Price shall be paid in full on the date of completion of the
Subscription.
LETTER TO SHAREHOLDERS
33
The Company has decided to place the Subscription Shares to the Subscribers to finance
(i) the Acquisition and (ii) the Group’s working capital needs. The Company intends to
utilise the Proceeds in the following estimated proportions:
Use of Proceeds
Percentage Allocation
(%)
Acquisition (including related expenses) 97
Working capital 3
Pending utilisation, the Proceeds may be deposited with banks and/or financial
institutions or invested in short-term money markets and/or marketable securities, as the
Directors may deem appropriate in the interests of the Company in their sole discretion.
The Company will make periodic announcements on the use of the Proceeds as and
when the proceeds are materially disbursed, and provide a status report on the use of the
Proceeds in the Company’s annual report.
4.3 Conditions Precedent
Completion of the Subscription is conditional, inter alia, upon:–
(a) the approval in-principle for the listing and quotation of the Subscription Shares on
the Official List of the SGX-ST being obtained from the SGX-ST and not revoked or
amended as at the Subscription Completion Date and, where such approval is
subject to conditions, such conditions being reasonably acceptable to the
Subscribers;
(b) the Company having obtained specific approval from the Shareholders for the
issuance of the Subscription Shares and the Acquisition at the EGM;
(c) the issue and subscription of the Subscription Shares not being prohibited by any
statute, order, rule or regulation promulgated by any applicable legislative,
executive or regulatory body or authority of Singapore; and
(d) the completion of the Acquisition.
4.4 General
(a) None of the Subscription Shares will be placed with any person or groups of
persons as set out under Rule 812(1) the Listing Manual;
(b) the Subscription would not result in any transfer of controlling interest in the
Company; and
(c) to the best of the Directors’ knowledge, none of the Company, the Directors or
Substantial Shareholders of the Company has any connection (including any
business relationship) with any of the Subscribers or their directors or substantial
shareholders, save as disclosed below:
(i) the Introducer, who is a Substantial Shareholder of the Company, had
introduced the Subscribers to the Company for a fee of S$792,525; and
(ii) Richill Industries Pte Ltd, which is a Subscriber, is a customer and supplier of
the Group.
LETTER TO SHAREHOLDERS
34
5. FINANCIAL EFFECTS OF THE ACQUISITION AND SUBSCRIPTION
The pro forma financial effects of the Acquisition and the Subscription set out below are
computed based on the audited consolidated financial statements of the Group and the
pro forma consolidated financial statements of Hetat Group respectively for FY2012 and
have been prepared based on, inter alia, the following assumptions:
(a) for the purpose of calculating the pro forma EPS after the Acquisition and
Subscription, it is assumed that the Acquisition and the Subscription had been
effected on 1 January 2012; and
(b) for the purpose of calculating the pro forma NTA per Share after the Acquisition and
Subscription, it is assumed that the Acquisition and the Subscription had been
effected on 31 December 2012.
The pro forma financial effects are presented for illustration purposes only, and are not
intended to reflect the actual future financial situation of the Group after completion of the
Acquisition and the Subscription.
Upon the completion of the Acquisition, the Group has to fair value the order book of
Hetat Group as at the Acquisition Completion Date which will be recorded as an
intangible asset and amortised over the periods during which the profits attributable to
such contracts are recognised. Accordingly, these non-cash amortisation expenses will
be reflected in the Group’s accounts for FY2014 and FY2015.
5.1 Share Capital
As at 31 December 2012, the issued and paid up capital of the Company comprised
421,442,125 Shares (excluding treasury shares). Upon completion of the Acquisition, the
issued and paid-up share capital of the Company will comprise 463,961,178 Shares
(excluding treasury Shares). Upon completion of the Acquisition and the Subscription,
the issued and paid-up share capital of the Company will comprise 608,461,178 Shares
(excluding treasury Shares).
5.2 Earnings per Share
Assuming that the Acquisition and the Subscription have been effected on 1 January
2012, the effect on the EPS of the Group will be as follows:
Before the
Acquisition
and the
Subscription
After the
Acquisition
but before the
Subscription
After the
Acquisition
and the
Subscription
Profit of the Group (after tax and
minority interest) attributable to
equity holders of the Company
(S$’000)
5,206 7,343 7,343
Weighted Average Number of
Shares (’000)
427,197 469,716 614,216
EPS of the Group
(Singapore cents)
1.22 1.56 1.20
LETTER TO SHAREHOLDERS
35
5.3 Net Tangible Assets
Assuming that the Acquisition and the Subscription have been effected on 31 December
2012, the effect on the NTA per Share of the Group will be as follows:
Before the
Acquisition
and the
Subscription
After the
Acquisition
but before the
Subscription
After the
Acquisition
and the
Subscription
NTA of the Group as at
31 December 2012 (S$’000)
73,551 44,429 79,600
Number of Shares (’000)
(excluding treasury shares)
421,442 463,961 608,461
NTA per Share of the Group
as at 31 December 2012
(Singapore cents)
17.45 9.58(1) 13.08
Note:
(1) The decrease in NTA per Share 17.45 cents to 9.58 cents is due mainly to the decrease in NTA as a result
of acquiring 100% shareholding interest in Hetat Group which has underlying assets of S$4.55 million as
at 31 December 2012 (excluding the Relevant Properties) at the aggregate value of the Consideration
of approximately S$43.57 million (being the sum of the cash consideration and the market value of the
Consideration Shares as at the market day immediately preceding the date of the SPA), resulting in an
indicative goodwill of S$39.02 million arising from the Acquisition, and is partly offset by the issue of the
Consideration Shares at the Issue Price. The indicative goodwill of S$39.02 million was computed for
illustrative purpose only. Upon the completion of the Acquisition, the actual goodwill on acquisition will
be determined based on the excess of the fair value of purchase consideration transferred over the fair
value of the identifiable net assets acquired as at the Acquisition Completion Date. In accordance with
the Singapore Financial Reporting Standards, goodwill on acquisition will be tested for impairment
annually and whenever there is indication that the goodwill may be impaired. As at the Latest Practicable
Date, the Company is not aware of any indication that the goodwill on acquisition will need to be
impaired.
5.4 Gearing
Assuming that the Acquisition and the Subscription have been effected on 31 December
2012, the effect on the gearing of the Group will be as follows:
Before the
Acquisition
and the
Subscription
After the
Acquisition
but before the
Subscription
After the
Acquisition
and the
Subscription
Net debt/(cash) (S$’000) 29,358 61,988 27,670
Total capital (S$’000) 116,502 159,034 159,887
Gearing (times)(1) 0.25 0.39 0.17
Note:
(1) Gearing is determined based on net debt divided by total capital. Net debt is calculated as borrowings
less cash and cash equivalents. Total capital is calculated as total equity plus net debt.
LETTER TO SHAREHOLDERS
36
6. INTERESTS OF DIRECTORS AND SUBSTANTIAL SHAREHOLDERS
6.1 The interests of the Directors and Substantial Shareholders in the capital of the Company
as at (a) the Latest Practicable Date and before the Acquisition and the Subscription; and
(b) after the Acquisition and the Subscription are as follows:
(1) Mr Lim Siok Kwee, Thomas is the father of Terence Lim Peng Chuan.
6.2 Save for their respective shareholding interests in the Company as listed above and save
as disclosed below, to the best of the Directors’ knowledge, none of the Directors or
Substantial Shareholders of the Company (a) has any interest, direct or indirect, in the
Transactions; or (b) have any connection (including any business relationship) with any
of the Subscribers:
(a) Mr Tan Ong Huat, the Introducer and a Substantial Shareholder of the Company,
had introduced the Subscribers to the Company for a fee of S$792,525;
(b) Mr Tan Ong Huat has provided services to the Company in relation to the
Acquisition, in consideration of which the Company will pay him in cash an
introducer fee which amounts to 3% of the Consideration upon completion of the
Acquisition; and
(c) Mr Ng Han Kok is the Vendor who is selling the entire issued and paid-up share
capital of Hetat Holdings to the Company pursuant to the Acquisition.
In respect of the Subscription, none of the Company, its directors or Substantial
Shareholders has any connection (including any business relationship) with any of the
Subscribers or their directors or substantial shareholders, and accordingly, the issue of
the Subscription Shares to the Subscribers will not give rise to any material conflict of
interest.
LETTER TO SHAREHOLDERS
37
7. RECOMMENDATION BY THE DIRECTORS
Having reviewed, inter alia, the terms and rationale of the Acquisition, and the advice and
opinion of Tata Capital, the Directors are of the view that the Acquisition is in the interest
of the Company, and they unanimously recommend that the Shareholders vote in favour
of the Acquisition at the EGM.
Having reviewed, inter alia, the rationale of the Diversification, the Directors are of the
view that the Diversification is in the interest of the Company, and they unanimously
recommend that the Shareholders vote in favour of the Diversification at the EGM.
Having reviewed, inter alia, the rationale of the Subscription, the Directors are of the view
that the Subscription is in the interest of the Company, and they unanimously recommend
that the Shareholders vote in favour of the Subscription at the EGM.
8. EXTRAORDINARY GENERAL MEETING
The EGM will be held on 2 January 2014 at 10.00 a.m. at 81 Tuas South Street 5,
Singapore 637651 for the purpose of considering and, if thought fit, passing with or
without any modifications, the resolutions set out in the notice of EGM on pages 80 and
81 of this Circular.
9. INTER-CONDITIONALITY OF THE ORDINARY RESOLUTIONS TO BE PASSED
In voting for the ordinary resolutions set out in the Notice of EGM, Shareholders should
note that the ordinary resolution to approve the Acquisition (“Ordinary Resolution 1”),
the ordinary resolution to approve the Diversification (“Ordinary Resolution 2”), and the
ordinary resolution to approve the Subscription (“Ordinary Resolution 3”), are inter-
conditional upon one another. As such, in the event any of Ordinary Resolution 1,
Ordinary Resolution 2 and Ordinary Resolution 3 is not approved by Shareholders, the
Acquisition, the Subscription, and the Diversification will not be proceeded with.
10. ACTIONS TO BE TAKEN BY SHAREHOLDERS
Shareholders who are unable to attend the EGM and wish to appoint a proxy to attend
and vote at the EGM on their behalf, may complete, sign and return the proxy form
attached to the notice of EGM in accordance with the instructions printed thereon as soon
as possible and in any event so as to reach the registered office of the Company at 81
Tuas South Street 5, Singapore 637651 not less than 48 hours before the time fixed for
the EGM. The completion and return of the proxy form by a Shareholder will not prevent
him from attending and voting at the EGM, if he wishes to do so, in place of his proxy.
A Depositor shall not be entitled to attend and vote at the EGM unless he is shown to
have shares of the Company entered against his name in the Depository Register as at
48 hours before the time fixed for holding the EGM, as certified by CDP to the Company.
As the Introducer is interested in the Acquisition and the Subscription, the Introducer will
abstain, and will ensure that his associates abstain, from voting at the EGM on the
ordinary resolutions relating to the Acquisition and the Subscription. The Introducer and
his associates will also decline to accept appointment as proxies for voting at the EGM
in respect of the ordinary resolutions relating to the Acquisition and the Subscription
LETTER TO SHAREHOLDERS
38
unless the Shareholders appointing them as proxies give specific instructions in their
proxy forms as to the manner in which their votes are to be cast in respect of such
resolutions.
The Subscribers who are Shareholders will abstain, and will ensure that their associates
abstain, from voting at the EGM on the ordinary resolution relating to the Subscription.
The Subscribers and their associates will also decline to accept appointment as proxies
for voting at the EGM in respect of the ordinary resolution relating to the Subscription
unless the Shareholders appointing them as proxies give specific instructions in their
proxy forms as to the manner in which their votes are to be cast in respect of such
resolution.
The Vendor, being interested in the Acquisition, will abstain and will ensure that his
associates abstain, from voting at the EGM on the ordinary resolution relating to the
Acquisition. The Vendor and his associates will also decline to accept appointment as
proxies for voting at the EGM in respect of the ordinary resolution relating to the
Acquisition unless the Shareholders appointing them as proxies give specific instructions
in their proxy forms as to the manner in which their votes are to be cast in respect of such
resolution.
11. CONSENTS
11.1 Tata Capital has given and has not before the date of this Circular withdrawn its written
consent to the issue of this Circular with the inclusion of its name, its letter or report, and
all references thereto, in the form and context in which they appear in the Circular.
11.2 Nexia has given and has not before the date of this Circular withdrawn its written consent
to the issue of this Circular with the inclusion of its name, its letter or report, and all
references thereto, in the form and context in which they appear in the Circular.
11.3 Savills Valuation has given and has not before the date of this Circular withdrawn its
written consent to the issue of this Circular with the inclusion of its name, the Valuation
Report, and all references thereto, in the form and context in which they appear in the
Circular.
12. DIRECTORS’ RESPONSIBILITY STATEMENT
The Directors collectively and individually accept full responsibility for the accuracy of the
information given in this Circular and confirm after making all reasonable enquiries that,
to the best of their knowledge and belief, this Circular constitutes full and true disclosure
of all material facts about the Acquisition, the Diversification, the Subscription, the
Company and its subsidiaries, and the Directors are not aware of any facts the omission
of which would make any statement in this Circular misleading.
Where information in the Circular has been extracted from published or otherwise
publicly available sources or obtained from a named source, the sole responsibility of the
Directors has been to ensure that such information has been accurately and correctly
extracted from those sources and/or reproduced in the Circular in its proper form and
context.
LETTER TO SHAREHOLDERS
39
13. FINANCIAL ADVISER’S RESPONSIBILITY STATEMENT
To the best of Tata Capital’s knowledge and belief, this Circular constitutes full and true
disclosure of all material facts about the Acquisition, the Diversification, the Subscription,
the Company and its subsidiaries, and Tata Capital is not aware of any facts the omission
of which would make any statement in this Circular misleading.
14. DOCUMENTS AVAILABLE FOR INSPECTION
Copies of the following documents may be inspected at the registered office of the
Company at 81 Tuas South Street 5 Singapore 637651 during normal business hours
from the date of this Circular up to and including the date of the EGM:
(a) the Memorandum and Articles of Association of the Company;
(b) the SPA;
(c) the Subscription Agreement;
(d) the Valuation Report issued by Savills Valuation, which is set out in Appendix D to
this Circular;
(e) the annual report of the Company for FY2012;
(f) the consent letters from Tata Capital, Nexia and Savills Valuation;
(g) the Financial Adviser Letter issued by Tata Capital, which is set out in Appendix B
to this Circular; and
(h) the letter issued by Nexia in relation to the Profit Guarantee, which is set out in
Appendix C to this Circular.
Yours faithfully
for and on behalf of the Board of Directors
See Hup Seng Limited
Lim Siok Kwee, Thomas
Executive Chairman
LETTER TO SHAREHOLDERS
40
The corporate structure of the Hetat Group as at the Latest Practicable Date is as follows:
100% 100%
100%
Hetat Holdings Pte. Ltd.
Hetat Engineering &
Construction Sdn. Bhd.
Hetat Pte. Ltd.Hetat Marine Offshore
Pte. Ltd.
100%
Hetat Global
Mongolia LLC
Xiang Tong (Shanghai)
International Trading Pte
Co., Ltd
100%
APPENDIX A: CORPORATE STRUCTURE
41
16 December 2013
The Board of Directors
See Hup Seng Limited
81 Tuas South Street 5
Singapore 637651
Dear Sirs
THE PROPOSED ACQUISITION OF THE ENTIRE ISSUED AND PAID-UP SHARE CAPITAL OF
HETAT HOLDINGS PTE. LTD. AS A MAJOR TRANSACTION
Unless otherwise defined or the context otherwise requires, all terms defined in the circular dated
16 December 2013 issued by the Company to its shareholders (the “Circular”) shall have the
same meanings herein.
1. INTRODUCTION
On 12 September 2013 (the “Announcement Date”), the Company announced (the
“Announcement”) that it had on the same day entered into the SPA with the Vendor for the
acquisition of the entire issued and paid-up share capital of Hetat Holdings for the
consideration of S$42,400,000.
The Consideration was determined at arm’s length and on a willing-buyer willing-seller
basis, calculated based on approximately 7.7 times of the 2013 Target NPAT of Hetat
Holdings and will be satisfied as follows:
(a) on the Acquisition Completion Date,
i. the payment of S$10,000,000 in cash; and
ii. the payment of S$10,600,000 of the Consideration via the issuance of
42,519,053 new ordinary shares in the capital of the Company at the issue price
of S$0.2493, subject to the escrow arrangement set out in Sections 2.2.2 and
2.8.3 of the Circular; and
(b) on the date falling 14 Business Days after the Acquisition Completion Date, the payment
of the Second Cash Consideration of S$21,800,000 in cash, subject to the escrow
arrangement set out in sections 2.2.2 and 2.8.3 of the Circular.
The Issue Price represents a 10.0% discount to the VWAP of S$0.2769 for trades done on
the Shares on the SGX-ST on 6 September 2013, which is the preceding full market day of
trading of the Shares up to the time the SPA was entered into, and on 9 September 2013.
Tata Capital Markets Pte. Ltd., acting as the financial adviser to the Company, has been
requested to provide its opinion on whether the Acquisition is on normal commercial terms
and not prejudicial to the interests of the Company and its Shareholders pursuant to Rule
1013(2)(b) of the Listing Manual. This Financial Adviser Letter sets out, inter alia, our
evaluation and assessment of the financial terms of the Acquisition and our opinion thereon.
APPENDIX B: FINANCIAL ADVISER LETTER
42
2. TERMS OF REFERENCE
In providing our opinion on whether the Acquisition is on normal commercial terms and not
prejudicial to the interests of the Company and its Shareholders:
(a) we have confined our evaluation to the financial terms of the Acquisition and we have
not evaluated (save to the extent deemed appropriate by us) (i) the strategic merits,
long term or otherwise, and/or the commercial risks and/or commercial merits (if any)
of the Acquisition; or (ii) the future prospects and earnings potential of the Hetat Group;
(b) we have relied upon the assurances of the Directors and the management (the
“Management”) of the Company that, having made all reasonable enquiries and to the
best of their respective knowledge and belief, all material information available to them
in connection with the Acquisition has been disclosed in the Circular, that such
information is true, complete and accurate in all material respects and that there is no
other information or fact, the omission of which would cause any information disclosed
to us or the facts of or in relation to the Acquisition, Hetat Holdings or the Group to be
inaccurate, incomplete or misleading in any material respect. In addition, the Directors
have collectively and individually accepted full responsibility for the accuracy of such
information given in the Circular. We have, nonetheless, made reasonable enquiries
and exercised our judgment (as we deemed necessary) in assessing the information
and representations provided to us and those contained in the Circular, and have found
no reason to doubt the reliability of such information or representations which we have
relied on;
(c) we have not made an independent evaluation or appraisal of the assets and liabilities
of the Hetat Group or the Group (including, without limitation, property, plant and
equipment) and we have not been furnished with any such evaluation or appraisal, save
for the independent valuation report on the Hetat Property (“Valuation Report”)
prepared by Savills Valuation and Professional Services (S) Pte Ltd (“Savills”) dated 8
October 2013. Save as disclosed, we would like to highlight that all information relating
to the Company and the Hetat Group that we have relied upon in arriving at our opinion
has been obtained from the Circular, publicly available information and/or from the
directors and/or management of the Company and/or the Hetat Group. We have not
independently assessed and do not warrant or accept any responsibility as to whether
the aforesaid information adequately represents a true and fair position of the financial,
operational and business affairs of the Company, the Hetat Group or the enlarged group
at any time or as at the Latest Practicable Date;
(d) our opinion as set out in this Financial Adviser Letter is based upon market, economic,
industry, monetary and other conditions prevailing as at Latest Practicable Date, and
the information provided and representations made available to us as at the Latest
Practicable Date. Such conditions may change significantly over a relatively short
period of time. We assume no responsibility to update, revise or reaffirm our opinion in
light of any subsequent development after the Latest Practicable Date that may affect
our opinion contained herein; and
(e) this Financial Adviser Letter is addressed to the Directors for their benefit in connection
with and for the purpose of their consideration of the financial terms of the Acquisition
and should not be relied upon by any other party. The recommendation made by the
Directors to the Shareholders in relation to the Acquisition shall remain the sole
responsibility of the Directors.
APPENDIX B: FINANCIAL ADVISER LETTER
43
3. ASSESSMENT OF THE FINANCIAL TERMS OF THE ACQUISITION
In assessing the financial terms of the Acquisition, we have considered, inter alia, the
following:
(a) financial assessment of the Consideration;
(b) financial assessment of the Issue Price of the Consideration Shares;
(c) financial effects of the Acquisition;
(d) rationale for the Acquisition; and
(e) other relevant considerations.
3.1 Financial assessment of the Consideration
3.1.1 Implied valuations ratios of the Hetat Group
Price-earnings (“P/E”) ratio
The P/E ratio illustrates the ratio of the market value of a company’s shares relative to its
consolidated earnings per share and is commonly used for the purpose of illustrating the
profitability, and hence valuation of a company as a going concern.
Based on the pro forma consolidated profit after tax of the Hetat Group for the financial year
ended 31 December 2012 of approximately S$4.0 million and the Consideration, the Hetat
Group is valued at historical P/E of 10.6 times.
Based on the 2013 Target NPAT of S$5.5 million, which is guaranteed by the Vendor
pursuant to the 2013 NPAT Guarantee, and the Consideration, the Hetat Group is valued at
a forward P/E of 7.7 times.
Enterprise value to EBITDA (“EV/EBITDA”) ratio
The EV/EBITDA ratio illustrates the ratio of the market value of a company’s business
relative to its historical consolidated pre-tax operating cashflow performance, without
regard to its capital structure, and provides an indication of current market valuation relative
to operating performance. “EV” is the sum of a company’s market capitalisation, preferred
equity, non-controlling interests, short and long term debts less cash and cash equivalents,
and represents the actual cost to acquire the entire company. “EBITDA” refers to historical
consolidated earnings before interest, tax, depreciation and amortisation expenses,
inclusive of share of associates’ and joint ventures’ income and excluding exceptional
items. EBITDA can be used to analyse the profitability between companies as it eliminates
the effects of financing and accounting decisions.
Based on the pro forma consolidated full-year EBITDA of the Hetat Group for the financial
year ended 31 December 2012 of approximately S$6.37 million and the Consideration, the
Hetat Group is valued at a historical EV/EBITDA of 6.5 times.
APPENDIX B: FINANCIAL ADVISER LETTER
44
Price-to-NTA (“P/NTA”) ratio
The P/NTA ratio is used to show the extent to which the value of each share is backed by
tangible assets and would be more relevant in the event that a company intends to realise
or convert the uses of all or most of its assets. Hence, although we have included P/NTA
as one of the valuation multiples for comparison with the Comparable Companies, the
NTA-based approach would not be the primary consideration in our overall assessment of
the financial assessment of the Consideration which involves the acquisition of the Hetat
Group as a going concern.
As at 31 August 2013, the NTA of the Hetat Group (excluding the Relevant Properties) is
approximately S$8.08 million. Based on the above, the Consideration represents a P/NTA
of 5.2 times as at 31 August 2013.
3.1.2 Comparison of valuation ratios of selected listed companies whose businesses are
broadly comparable to those of Hetat Group
For the purpose of assessing the financial terms of the Acquisition, we have compared the
valuation ratios of Hetat Group implied by the Consideration with those of selected listed
companies whose businesses are broadly comparable (“Comparable Companies”).
The following is a brief description of the Comparable Companies:
Comparable
Company Principal Business
Primary
Exchange
Market
Capitalisation(1)
(S$ million)
Yongnam
Holdings Limited
(“Yongnam”)
Yongnam provides structural steelworks
including design, supply and erection of
steel frames for aircraft hangars, high rise
buildings, commercial and industrial
buildings. The Company also operates civil
and mechanical engineering businesses.
SGX-ST 304.1
TTJ Holdings Ltd
(“TTJ”)
TTJ designs, manufactures, and
assembles structural steelwork for use in
the construction of buildings, factories, and
plants. The Company operates in
Singapore, Malaysia, and the United Arab
Emirates.
SGX-ST 101.4
Kori Holdings
Limited (“Kori”)
Kori is a Singapore based multi-discipline
engineering and construction services
company principally engaged in providing
civil/structural engineering and
infrastructural construction services as a
sub-contractor for commercial, industrial
and public infrastructural construction
projects. The Company’s customers
include local and overseas developers.
SGX-ST 47.1
APPENDIX B: FINANCIAL ADVISER LETTER
45
Comparable
Company Principal Business
Primary
Exchange
Market
Capitalisation(1)
(S$ million)
Eversendai Corp
Sdn Bhd
(“Eversendai”)
Eversendai is a construction company. The
Company’s activities include structural
steel, engineering, power plant
construction, civil construction, and
general construction.
Bursa
Malaysia
364.9
Source: Bloomberg
Note:
(1) The market capitalisation of the Comparable Companies is calculated based on their respective share price
information as at the Latest Practicable Date and in the case of Eversendai, the market capitalisation has
been re-calculated based on Bloomberg’s SGD/MYR exchange rate of SGD0.3896 per MYR1 as at the
Latest Practicable Date.
We wish to highlight that the Comparable Companies are not exhaustive and may differ
from the Hetat Group in terms of, inter alia, market capitalisation, size of operations,
clientele base, composition of business activities, asset base, geographical spread, track
record, operating and financial leverage, quality of earnings, liquidity, accounting policies,
future prospects and other relevant criteria. As such, any comparison made is necessarily
limited and merely serves as an illustrative guide.
We have tabulated below the comparative financial performance and position of the
Comparable Companies and that of the Hetat Group:
Return on
Equity
(“ROE”)(1)
(%)
Return on
Assets
(“ROA”)(1)
(%)
Total
borrowings(2)/
shareholders’
equity
(times)
CAGR of Net
Profits(3)
(%)
Yongnam 13.5% 7.6% 0.369 -10.6%
TTJ 14.9% 10.7% 0.079 1.5%
Kori 22.5% 14.5% 0.002 18.6%
Eversendai 14.6% 7.8% 0.322 -0.6%
High 22.5% 14.5% 0.369 18.6%
Low 13.5% 7.6% 0.002 -10.6%
Mean 16.4% 10.2% 0.193 2.2%
Median 14.8% 9.2% 0.200 0.5%
Hetat Group 52.4% 22.5% 0.307 11.6%
APPENDIX B: FINANCIAL ADVISER LETTER
46
Notes:
(1) The ROE and ROA figures are based on the latest available full year results as at the Latest Practicable
Date and calculated as follows:
ROE = Net profit after tax for the latest financial year/Total equity as at the end of the financial year
ROA = Net profit after tax for the latest financial year/Total assets as at the end of the financial year
(2) Total borrowings include all bank loans and borrowings as well as hire purchase obligations and interest
bearing debts.
(3) The cumulative annual growth rate (“CAGR”) of net profits of the respective companies over the last three
financial years.
From the table above, we note that the historical financial performance of the Hetat Group
as reflected by the ROE and ROA is better than all of the Comparable Companies and the
historical growth rate in net profits over the last three financial years is also higher than
most of the Comparable Companies. Meanwhile, the financial position of Hetat Group, in
terms of financial leverage as reflected by the ratio of total borrowings to shareholders’
equity is within the range of the respective ratios but higher than the mean and median
financial leverage of the Comparable Companies.
For the purpose of our evaluation and for illustration, we set out below the comparisons of
the valuation ratios of the Comparable Companies, based on their respective last traded
prices as at the Latest Practicable Date, with those of Hetat Group:
Company Name
Historical
EV/EBITDA(1)
(times)
Historical
P/E(1)
(times)
Forward
P/E(2)
(times)
Historical
P/NTA(3)
(times)
1 Yongnam 5.9 7.0 8.9 0.9
2 TTJ 3.2 6.8 NA 1.0
3 Kori 3.4 6.0 NA 1.3
4 Eversendai 6.7 8.1 14.7 1.2
High 6.7 8.1 15.3 1.3
Low 3.2 6.0 8.9 0.9
Mean 4.8 7.0 12.1 1.1
Median 4.6 6.9 12.1 1.1
Hetat Group (as
implied by the
Consideration) 6.5 10.6 7.7 5.2
Source: Bloomberg and annual reports and financial results announcements of the Comparable Companies
Notes:
(1) The figures are based on the latest available full year results as at the Latest Practicable Date.
(2) Forward P/E refers to the price-earnings ratio of the respective Comparable Companies based on current
year earnings per share estimate as obtained from Bloomberg, while the implied forward P/E of Hetat Group
is computed based on the 2013 Target NPAT of S$5.5 million. An “NA” entry denotes that there was no
forward P/E data available on Bloomberg for the respective companies.
(3) The P/NTA figures are based on the latest available financial statements as at the Latest Practicable Date
and the market capitalization of the respective Comparable Companies as at the Latest Practicable Date.
APPENDIX B: FINANCIAL ADVISER LETTER
47
Based on the above, we note that:
(a) the historical EV/EBITDA ratio implied by the Consideration of 6.5 times is within the
range of historical EV/EBITDA ratios of the Comparable Companies of between 3.2
times to 6.7 times and is higher than the mean and median historical EV/EBITDA ratios
of the Comparable Companies of 4.8 times and 4.6 times respectively;
(b) the historical P/E ratio implied by the Consideration of 10.6 times is higher than the
upper limit of the range of historical P/E ratios of the Comparable Companies of 8.1
times;
(c) the forward P/E ratio implied by the Consideration of 7.7 times is below the lower limit
of the range of forward P/E ratios of Comparable Companies of 8.9 times; and
(d) the historical P/NTA ratio implied by the Consideration of 5.2 times is significantly
higher than the upper limit of the range of historical P/NTA ratios of the Comparable
Companies of 1.3 times.
It should be noted that the valuations of the respective Comparable Companies would
usually command a premium in view of their listing status and larger market capitalisations,
as compared to a smaller private limited company. However, at the same time, we wish to
highlight that for transactions involving the acquisition of a majority controlling stake in a
target company, a control premium is typically factored into the purchase consideration. As
our comparison is intended to serve as an illustrative guide only, we have not attempted to
adjust for such factors in our analysis.
APPENDIX B: FINANCIAL ADVISER LETTER
48
3.2 Financial assessment of the Issue Price of the Consideration Shares
3.2.1 Market quotation and trading activity of the Shares
The trend of the closing price and volume traded of the Shares from 13 September 2012,
being the Market Day 12 months prior to the Announcement Date on which the Shares were
traded, to the Latest Practicable Date is set out below:
Source: Bloomberg
Over the 1-year period prior to the Announcement Date, the closing prices of the Shares
ranged between a low of S$0.185 (on 19 November 2012, 21 November 2012 and 28
November 2012) and a high of S$0.315 (on 17 April 2013). The Issue Price represents a
premium of 34.8% over the lowest transacted price of the Shares and a discount of 20.9%
over the highest transacted price of the Shares over the 1-year period.
The trading statistics of the Shares from 13 September 2012 to the Latest Practicable Date
are set out below:
Reference Period
Average
daily
Volume(1)
Average daily
volume as a
percentage of
free float(2)
(%)
VWAP
(S$)
Discount of
Issue Price
to VWAP
(%)
Prior to the Announcement
1 year before 5,784,857 2.15% 0.2635 5.4%
6 months before 7,928,967 2.94% 0.2782 10.4%
3 months before 2,849,150 1.06% 0.2747 9.2%
1 month before 886,450 0.33% 0.2720 8.4%
Last traded on 6 Sep 2013
and 9 Sep 2013(3)
2,510,500 0.93% 0.2769 10.0%
APPENDIX B: FINANCIAL ADVISER LETTER
49
Reference Period
Average
daily
Volume(1)
Average daily
volume as a
percentage of
free float(2)
(%)
VWAP
(S$)
Discount of
Issue Price
to VWAP
(%)
After the Announcement
Between the Announcement
Date and the Latest
Practicable Date (both dates
inclusive)
9,037,951 3.35% 0.3516 29.1%
Latest Practicable Date 4,118,000 1.53% 0.3134 20.5%
Source: Bloomberg
Notes:
(1) The average daily volume of the Shares is calculated based on the total volume of Shares traded during the
period divided by the number of Market Days over the same period.
(2) Free float in this instance refers to approximately 269.45 million Shares (excluding treasury shares) held by
the “public” as at the Latest Practicable Date. The definition of “public” is based on the definition as set out
in the Listing Manual and excludes (a) Directors, chief executive officer, substantial shareholders and
controlling shareholders of the Company and its subsidiaries, and (b) associates of the persons in
paragraph (a).
(3) Includes the trades done on 6 September 2013 and on 9 September 2013 up till the time trading was halted
at 10:45 hours on 9 September 2013.
Based on the above, we note that:
Period prior to the Announcement Date
(a) the Issue Price represents a discount of 5.4%, 10.4%, 9.2% and 8.4% to the VWAP of
the Shares for the 1-year period, 6-month period, 3-month period and 1-month period
prior to the Announcement Date respectively;
(b) the Issue Price represents a discount of 10.0% to the VWAP of the Shares on 6
September 2013 and on 9 September 2013 till trading of the Shares was halted at
10:45 hours on 9 September 2013;
Period commencing on the Market Day immediately after the Announcement Date and up
to the Latest Practicable Date
(c) following the Announcement Date, the closing share price increased significantly to a
high of S$0.390 on 1 October 2013 on overall heavier trading volume. In spite of the
potential issuance of a significant number of new Shares for the Acquisition and
Subscription at S$0.2493 per Share, the market continued to maintain its positive view
of the Acquisition and Subscription as evidenced by the sustained share price
performance significantly above the Issue Price up to the Latest Practicable Date. The
Issue Price represents a discount of approximately 20.9% to the last transacted price
of the Shares of S$0.315 as at the Latest Practicable Date;
APPENDIX B: FINANCIAL ADVISER LETTER
50
Trading liquidity
(d) the average daily trading volume of the Shares for the 1-year, 6-months, 3-months and1-month periods prior to the Announcement Date represented 2.15%, 2.94%, 1.06%and 0.33% of the free float of the Shares respectively; and
(e) during the period between the Announcement Date and up to the Latest PracticableDate, the Shares had traded on substantially higher volume, with an average dailytraded volume of 9,037,951 Shares representing 3.35% of the free float.
In this regard, we note that the trading liquidity of the shares had increased significantlyduring the period after the Announcement Date till the Latest Practicable Date.
Shareholders should note that the market price performance of the Shares may be due tovarious market factors, the individual factors of which may not be easily isolated andidentified with certainty. As such, Shareholders should note that past trading performanceof the Shares should not be relied upon as a promise of its future trading performance.
3.2.2 Valuation ratios of the Company implied by the Issue Price
The EPS of the Group is approximately S$0.0122 for FY2012. We note that the Issue Priceof S$0.2493 per Consideration Share represents a historical P/E ratio of 20.5 times. Purelyfor illustration purposes only, the historical P/E ratio of the Company implied by the IssuePrice is substantially higher than the historical P/E ratio of Hetat Holdings implied by theConsideration of 10.6 times.
The NTA per Share of the Company on a consolidated basis is approximately S$0.1819 asat 30 June 2013. We note that the Issue Price of S$0.2493 per Consideration Sharerepresents a P/NTA ratio of 1.4 times. Purely for illustration purposes only, the P/NTA ratioimplied by the Issue Price is substantially lower than the P/NTA ratio of Hetat Group impliedby the Consideration of 5.2 times.
3.3 Financial effects of the Acquisition and Subscription
The pro forma financial effects of the Acquisition and Subscription are set out in Section 5of the Circular for illustrative purposes only and prepared based on the audited financialstatements of the Group for FY2012 and certain assumptions as set out therein.
3.3.1 NTA per Share
Assuming that the Acquisition and the Subscription had been effected on 31 December2012, the Acquisition and Subscription would have the following impact on the NTA perShare of the Group:
Before the
Acquisition
and
Subscription
After the
Acquisition
but before the
Subscription
After the
Acquisition
and the
Subscription
After the
Transactions and
post-adjustments(1)
NTA of the Group as at
31 December 2012 (S$’000) 73,551 44,429 79,600 85,320
