CIRCULAR DATED 7 AUGUST 2014
THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION.
This Circular is issued by Giken Sakata (S) Limited (the “Company”). 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 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.
This Circular has been prepared by the Company and its contents have been reviewed by the Company’s
continuing sponsor, Stamford Corporate Services Pte. Ltd. (the “Sponsor”), for compliance with the
relevant rules of the SGX-ST. The Sponsor has not independently verified the contents of this Circular.
The contact person for the Sponsor is Mr. Bernard Lui, at telephone no. (65) 6389 3000; email address
[email protected].
This Circular has not been examined or approved by the SGX-ST and the SGX-ST assumes no
responsibility for the contents of this document, including the correctness of any of the statements or
opinions made or reports contained in this Circular.
GIKEN SAKATA (S) LIMITED
(Incorporated in the Republic of Singapore)
(Company Registration No. 197903879W)
CIRCULAR TO SHAREHOLDERS
in relation to
(1)
THE PROPOSED ACQUISITION OF 624,079 SHARES IN THE CAPITAL OF CEPU SAKTI
ENERGY PTE. LTD. AS A MAJOR TRANSACTION;
(2)
THE PROPOSED ISSUE AND ALLOTMENT OF 1,600,000 INTRODUCER SHARES TO TAM
SIEW FOONG;
(3)
THE PROPOSED ISSUE AND ALLOTMENT OF UP TO 80,000,000 PLACEMENT SHARES;
(4)
THE PROPOSED DIVERSIFICATION; AND
(5)
THE PROPOSED NEW SHARE ISSUE MANDATE.
Important Dates and Times
Last date and time for lodgement of Proxy Form
:
20 August 2014 at 10.00 a.m.
Date and time of Extraordinary General Meeting
:
22 August 2014 at 10.00 a.m.
Place of Extraordinary General Meeting
:
The Grassroots’ Club
190 Ang Mo Kio Avenue 8,
Singapore 568046
TABLE OF CONTENTS
PAGE
DEFINITIONS .....................................................................................................................................
3
LETTER TO SHAREHOLDERS .........................................................................................................
9
1.
INTRODUCTION .......................................................................................................................
9
2.
THE ACQUISITION...................................................................................................................
11
3.
TRANSFER OF CONTROLLING INTEREST IN THE COMPANY PURSUANT TO THE
ISSUANCE OF THE CONSIDERATION SHARES TO JPEL ...................................................
25
4.
THE PROPOSED DIVERSIFICATION INTO THE NEW BUSINESS .......................................
25
5.
THE PLACEMENT OF SHARES..............................................................................................
42
6.
RATIONALE AND USE OF PROCEEDS .................................................................................
45
7.
FINANCIAL EFFECTS OF THE TRANSACTIONS ..................................................................
46
8.
NEW SHARE ISSUE MANDATE ..............................................................................................
47
9.
DIRECTORS’ OPINION ON WORKING CAPITAL ...................................................................
49
10.
UNDERTAKING ........................................................................................................................
49
11.
RECOMMENDATION BY DIRECTORS ...................................................................................
49
12.
INTERESTS OF DIRECTORS AND SUBSTANTIAL SHAREHOLDERS................................
49
13.
SHAREHOLDING STRUCTURE OF THE COMPANY .............................................................
50
14.
EXTRAORDINARY GENERAL MEETING ...............................................................................
51
15.
INTER-CONDITIONALITY OF THE ORDINARY RESOLUTIONS TO BE PASSED ...............
51
16.
ACTIONS TO BE TAKEN BY SHAREHOLDERS ....................................................................
51
17.
DIRECTORS’ RESPONSIBILITY STATEMENT .......................................................................
51
18.
DOCUMENTS AVAILABLE FOR INSPECTION ......................................................................
52
NOTICE OF EXTRAORDINARY GENERAL MEETING .....................................................................
N-1
PROXY FORM
2
DEFINITIONS
In this Circular, the following definitions apply throughout except where the context otherwise requires:
“2013 AGM”
:
Has the meaning ascribed thereto in Section 8.1 of this Circular
“2013 General Mandate”
:
Has the meaning ascribed thereto in Section 8.1 of this Circular
“2014 Subscription”
:
Has the meaning ascribed thereto in Section 8.1 of this Circular
“3M2014”
:
Has the meaning ascribed thereto in Section 2.1.3 of this
Circular
“Acquisition”
:
Has the meaning ascribed thereto in Section 1.1 of this Circular
“Adjustment Event”
:
Has the meaning ascribed to it in Section 2.4.6 of this Circular
“annual general meeting”
:
An annual general meeting of the Company
“Associate”
:
(a)
(b)
in relation to any Director, chief executive officer,
Substantial Shareholder or Controlling Shareholder
(being an individual) means:
(i)
his immediate family;
(ii)
the trustees of any trust of which he or his
immediate family is a beneficiary or, in the case of
a discretionary trust, is a discretionary object; and
(iii)
any company in which he and his immediate family
together (directly or indirectly) have an interest of
30% or more; and
in relation to a Substantial Shareholder or a Controlling
Shareholder (being a Company) means any other
company which is its subsidiary or holding company or is
a subsidiary or holding company or one in the equity of
which it and/or such other company or companies taken
together (directly or indirectly) have an interest of 30% or
more
“Benchmark”
:
Has the meaning ascribed to it in Section 2.4.6 of this Circular
“Blue Water”
:
Blue Water Engineering Pte Ltd (Company Registration No.
199101832Z), a company incorporated in Singapore and having
its registered address at 45 Cantonment Road, Singapore
089748
“Blue Water Shareholders”
:
Has the meaning ascribed thereto in Section 2.2 of this Circular
“Blue Water Shares
Moratorium”
:
Has the meaning ascribed thereto in Section 2.4.5 of this
Circular
“Board”
:
The board of Directors of the Company as at the Latest
Practicable Date
“Business Day”
:
A day (other than a Saturday, Sunday or public holiday in
Singapore or Indonesia) on which commercial banks are
generally open for business in Singapore and Indonesia
3
DEFINITIONS
“Cash Consideration”
:
“Catalist”
:
The Catalist Board of the SGX-ST
“CDP”
:
The Central Depository (Pte) Limited
“Circular”
:
This circular to Shareholders dated 7 August 2014
“Code”
:
The Singapore Code on Take-overs and Mergers
“Companies Act”
:
The Companies Act (Chapter 50) of Singapore as amended,
modified or supplemented from time to time
“Company”
:
Giken Sakata (S) Limited
“Completion”
:
Has the meaning ascribed thereto in Section 1.1 of this Circular
“Completion Date”
:
Has the meaning ascribed thereto in Section 2.4.3(e) of this
Circular
“Concessions”
:
The rights granted by the Minister of Energy and Mineral
Resources of Indonesia to PEP to operate and produce oil from
the Oil Fields
“Consideration”
:
Has the meaning ascribed thereto in Section 1.1 of this Circular
“Consideration Shares”
:
Has the meaning ascribed thereto in Section 1.1 of this Circular
“Controlling Interest”
:
The interest of the Controlling Shareholder(s)
“Controlling Shareholder”
:
A person who (a) holds directly or indirectly 15% or more of the
total number of issued shares excluding treasury shares in the
Company or (b) in fact exercises control over the Company
“Cooperation Agreements”
:
Means (a) the Tungkul Agreement; (b) the Dandangilo
Agreement; and (c) the Kawengan Agreement
“Dandangilo Agreement”
:
The cooperation agreement on the Management of Old Wells
at Dandangilo – Wonocolo and Ngrayong Fields in Kedewan –
Bojonegoro, East Java between KUD SP and PT Cepu dated 25
March 2013
“Dandangilo-Wonocolo and
Tungkul Oil Fields”
:
Has the meaning ascribed thereto in Section 2.1.1 of this
Circular
“Director”
:
A director of the Company as at the Latest Practicable Date
“Diversification”
:
Has the meaning ascribed thereto in Section 1.1 of this Circular
“EGM”
:
The extraordinary general meeting of the Company to be
convened and held on 22 August 2014 at 10.00 a.m. at The
Grassroots’ Club, 190 Ang Mo Kio Avenue 8, Singapore
568046, the notice of which is set out on page N-1 of this
Circular
“EPS”
:
Earnings per Share
“Evidence of Renewal”
:
Has the meaning ascribed thereto in Section 2.4.1.2 of this
Circular
Has the meaning ascribed thereto in Section 1.1 of this Circular
4
DEFINITIONS
“First Tranche”
:
Has the meaning ascribed thereto in Section 2.4.1.2 of this
Circular
“FY2011”
:
Has the meaning ascribed thereto in Section 2.1.3 of this
Circular
“FY2012”
:
Has the meaning ascribed thereto in Section 2.1.3 of this
Circular
“FY2013”
:
Has the meaning ascribed thereto in Section 2.1.3 of this
Circular
“Group”
:
The Company and its subsidiaries
“GSIHL”
:
Giken Sakata Investment Holdings Limited (BVI Company No.
1822606), a company incorporated in the British Virgin Islands,
and having its registered address at P.O. Box 957, Offshore
Incorporations Centre Road Town, Tortola, British Virgin Islands
“Introducer”
:
Tam Siew Foong
“Introducer Consideration”
:
Has the meaning ascribed to it in Section 2.4.2 of this Circular
“Introducer Moratorium”
:
Has the meaning ascribed thereto in Section 2.4.5 of this
Circular
“Introducer Shares”
:
Has the meaning ascribed thereto in Section 1.1 of this Circular
“JPEL”
:
Java Petral Energy Pte. Ltd. (Company Registration
No. 201302594W), a company incorporated in Singapore
and having its registered address at 45 Cantonment Road,
Singapore 089748
“JPEL Shareholders”
:
Has the meaning ascribed thereto in Section 2.2 of this Circular
“JPEL Shares Moratorium”
:
Has the meaning ascribed thereto in Section 2.4.5 of this
Circular
“Kawengan Agreement”
:
Has the meaning ascribed thereto in Section 1.1 of this Circular
“Kawengan Oil Field”
:
Has the meaning ascribed thereto in Section 2.1.1 of this
Circular
“Key Management Team”
:
Has the meaning ascribed thereto in Section 2.1.2 of this
Circular
“KUD SP”
:
Village Cooperative (Koperasi Unit Desa) Sumber Pangan, a
village cooperative and a company incorporated in Indonesia
“Latest Practicable Date”
:
31 July 2014, being the latest practicable date prior to the
printing of this Circular
“Listing Manual”
:
Listing Manual Section B: Rules of Catalist of the SGX-ST, as
may be amended, varied or supplemented from time to time
“MMstb”
:
Millions of stock tank barrels
“Moratorium Period”
:
Has the meaning ascribed thereto in Section 2.4.5 of this
Circular
5
DEFINITIONS
“Mother Agreements”
:
Has the meaning ascribed thereto in Section 2.4.4.1 of this
Circular
“Net Proceeds”
:
Has the meaning ascribed thereto in Section 6 of this Circular
“New Business”
:
Has the meaning ascribed thereto in Section 1.1 of this Circular
“New Share Issue Mandate”
:
Has the meaning ascribed thereto in Section 8.1 of this Circular
“Notice of EGM”
:
The notice of the EGM which is set out on page N-1 of this
Circular
“NPV10”
:
Has the meaning ascribed thereto in Section 2.4.4.3 of this
Circular
“NTA”
:
Net tangible assets
“Offer Information Statement”
:
Has the meaning ascribed thereto in Section 5 of this Circular
“Oil Fields”
:
Means the Dandangilo-Wonocolo and Tungkul Oil Fields and the
Kawengan Oil Field
“Ordinary Resolutions”
:
The ordinary resolutions 1 to 5 set out in this Circular and in the
Notice of EGM
“Parties”
:
The parties to each of the SPA and the Supplemental
Agreement, being the Company, GSIHL and JPEL
“PEP”
:
Has the meaning ascribed thereto in Section 1.1 of this Circular
“Permitted Transferee”
:
Has the meaning ascribed to it in Section 2.4.5 of this Circular
“Placees”
:
The placees procured and/or to be procured, on a commercially
reasonable efforts basis, by the Placement Agent to subscribe
for the Placement Shares
“Placement”
:
Has the meaning ascribed thereto in Section 1.1 of this Circular
“Placement Agent”
:
Has the meaning ascribed thereto in Section 1.1 of this Circular
“Placement Agreement”
:
Has the meaning ascribed thereto in Section 1.1 of this Circular
“Placement Price”
:
The price per Placement Share
“Placement Shares”
:
Has the meaning ascribed thereto in Section 1.1 of this Circular
“Pledged Shares”
:
Has the meaning ascribed to it in Section 2.4.6 of this Circular
“Possible Reserves”
:
Those additional reserves which analysis of geoscience and
engineering data indicate are less likely to be recoverable than
Probable Reserves
“Probable Reserves”
:
Those additional Reserves which analysis of geoscience and
engineering data indicate are less likely to be recovered than
Proved Resources but more certain to be recovered than
Possible Reserves
6
DEFINITIONS
“Proved Reserves”
:
Those quantities of petroleum, which by analysis of geoscience
and engineering data, can be estimated with reasonable
certainty to be commercially recoverable, from a given date
forward, from known reservoirs and under defined economic
conditions, operating methods, and government regulations
“PT Cepu”
:
PT Cepu Sakti Energy, a company incorporated in Indonesia
“PT SPJ”
:
Has the meaning ascribed thereto in Section 1.1 of this Circular
“PT SPJ Mother Agreement”
:
Has the meaning ascribed thereto in Section 1.1 of this Circular
“PT SPJ and 1st KUD
SP Mother Agreements”
:
Means (a) the Production of Oil from Old Wells Agreement
between PEP and PT SPJ dated 3 November 2010; and (b) the
Production of Oil from Old Wells Agreement between PEP and
KUD SP dated 31 October 2012
“QPR”
:
Has the meaning ascribed to it in Section 2.4.4 of this Circular
“Reg. ESDM No. 1/2008”
:
Regulation of the Minister of Energy and Mineral Resources No.
1 of 2008 regarding the Guidelines for the Exploitation of Oil
Mining in the Old Wells
“Reserves”
:
Those quantities of petroleum anticipated to be commercially
recoverable by application of development projects to known
accumulations from a given date forward under defined
conditions
“Sale Shares”
:
Has the meaning ascribed thereto in Section 1.1 of this Circular
“Second Tranche”
:
Has the meaning ascribed to it in Section 2.4.1.2 of this Circular
“SFA”
:
Securities and Futures Act (Cap. 289) of Singapore, as
amended, modified or supplemented from time to time
“SGX-ST”
:
Singapore Exchange Securities Trading Limited
“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
“Shareholder’s Loan”
:
Has the meaning ascribed to it in Section 2.4.10 of this Circular
“SPA”
:
The sale and purchase agreement between the Company,
GSIHL and JPEL dated 31 May 2014, as amended by the
Supplemental Agreement
“Sponsor”
:
The continuing sponsor of the Company, Stamford Corporate
Services Pte. Ltd.
“Substantial Shareholder”
:
Shareholders who are beneficial owners of 5% or more of the
Shares
“Supplemental Agreement”
:
Has the meaning ascribed thereto in Section 1.1 of this Circular
7
DEFINITIONS
“Target”
:
Cepu Sakti Energy Pte. Ltd. (Company Registration No.
200207320H), a company incorporated in Singapore and having
its registered address at 45 Cantonment Road, Singapore
089748
“Target Group”
:
The Target and its subsidiaries
“Transactions”
:
Has the meaning ascribed thereto in Section 1.1 of this Circular
“Tungkul Agreement”
:
The cooperation agreement on the Management of Old Wells at
Tungkul and Trembul Fields in Blora – Central Java between PT
SPJ and PT Cepu dated 28 February 2013
“VWAP”
:
Volume weighted average price of the Shares
“%”
:
Per centum or percentage
“S$” and “cents”
:
Singapore dollars and cents, respectively
“US$” and “cents”
:
United States dollars and cents, respectively
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.
8
LETTER TO SHAREHOLDERS
GIKEN SAKATA (S) LIMITED
(Incorporated in the Republic of Singapore)
(Company Registration No. 197903879W)
Directors:
Registered Office:
Mr. Chin Siew Gim (Non-Executive Chairman, Independent Director)
Mr. Yeung Kin Bond, Sydney (Non-Executive Non-Independent Director)
Mr. Tan Kay Guan (Chief Executive Officer, Executive Director)
Mr. Ng Say Tiong (Executive Director)
Mr. Lee Kok Wah (Non-Executive Non-Independent Director)
Mr. Chee Sanford (Independent Director)
Mr. Valentin Schillo (Independent Director)
50 Raffles Place
#32-01 Singapore Land Tower,
Singapore 048623
7 August 2014
To:
The Shareholders of the Company
Dear Sir / Madam
(1)
THE PROPOSED ACQUISITION OF 624,079 SHARES IN THE CAPITAL OF CEPU SAKTI
ENERGY PTE. LTD. AS A MAJOR TRANSACTION;
(2)
THE PROPOSED ISSUE AND ALLOTMENT OF 1,600,000 INTRODUCER SHARES TO TAM
SIEW FOONG;
(3)
THE PROPOSED ISSUE AND ALLOTMENT OF UP TO 80,000,000 PLACEMENT SHARES;
(4)
THE PROPOSED DIVERSIFICATION; AND
(5)
THE PROPOSED NEW SHARE ISSUE MANDATE
1.
INTRODUCTION
1.1
Overview
The Acquisition
On 1 June 2014, the Company announced that it entered into a sale and purchase agreement
with GSIHL and JPEL dated 31 May 2014, pursuant to which GSIHL shall acquire 624,079
ordinary shares in the capital of the Target representing approximately 53.6842% of the issued
share capital of the Target (the “Sale Shares”) from JPEL for an aggregate consideration of
up to S$48.0 million (the “Acquisition”). The Company further announced on 30 June 2014
that the Target Group has informed the Company that the Production of Oil from Old Wells
Agreement between PT Pertamina EP1 (“PEP”) and PT Sarana Patra Jateng2 (“PT SPJ”) dated 3
November 2010 (the “PT SPJ Mother Agreement”) has been extended until 3 November 2020,
and on 2 July 2014 that it entered into a supplemental agreement with GSIHL and JPEL dated
2 July 2014 (the “Supplemental Agreement”) to amend the terms of the sale and purchase
agreement dated 31 May 2014. The Company also announced on 16 July 2014 that the Target
Group has informed the Company that it has entered into a cooperation agreement on the
1
JPEL has informed the Company that PEP is an Indonesian national oil major who holds the rights to operate and produce oil
in the relevant Oil Fields.
2
JPEL has informed the Company that PT SPJ has been granted a right from PEP to operate the old wells at the Tungkul and
Trumbul fields in Blora, Central Java.
9
LETTER TO SHAREHOLDERS
Management of Old Wells located in the Village Kawengan, District Kedewan, Bojonegoro with
KUD SP dated 20 June 2014 (the “Kawengan Agreement”). The Company further announced
on 23 July 2014 that the Target Group had notified the Company on the extension of the PT SPJ
Mother Agreement based on a letter issued by PEP to PT SPJ, committing that PEP will extend
the PT SPJ Mother Agreement until 3 November 2020 and that, pursuant to further discussions
with the Company’s Indonesian legal counsel and the Target Group, the Company has been
advised that further formalities may need to be fulfilled before the extension of the PT SPJ
Mother Agreement is legally completed.
GSIHL is a wholly-owned subsidiary of the Company, which was incorporated as part of the
Company’s ongoing business development. For further details, please refer to the Company’s
announcement dated 7 May 2014.
The aggregate consideration for the Acquisition (the “Consideration”) shall be the sum of up
to S$48.0 million to be satisfied by GSIHL and the Company in the following manner upon
completion of the Acquisition (the “Completion”):
(a)
S$25,200,000 of the Consideration shall be satisfied in cash (the “Cash Consideration”)
in two (2) tranches; and
(b)
S$22,800,000 shall be satisfied by the issue and allotment of 76,000,000 new ordinary
shares in the capital of the Company (the “Consideration Shares”) to JPEL at the issue
price of S$0.30 per Consideration Share, all of which shall rank pari passu with the
existing issued ordinary shares of the Company.
Subject to and upon Completion, the Company shall issue and allot 1,600,000 new Shares (the
“Introducer Shares”) at the issue price of S$0.30 per Introducer Share to Tam Siew Foong, as
consideration for her services for introducing the Company and GSIHL to the Target in respect of
the Acquisition.
The Placement
On 11 July 2014, the Company further announced that it has entered into a placement
agreement with Religare Capital Markets (Singapore) Pte. Limited (the “Placement Agent”)
dated 11 July 2014 (the “Placement Agreement”) pursuant to which the Company proposes
to issue up to 80,000,000 new ordinary shares in the capital of the Company (the “Placement
Shares”), amounting to an aggregate amount of S$24,000,000 (assuming 80,000,000
Placement Shares are issued at the minimum Placement Price of S$0.30 per Placement Share)
(the “Placement”). The Placement Agent and the Company may agree on a Placement Price
which is higher than the minimum Placement Price of S$0.30 per Placement Share.
In connection with the Acquisition, the Group also intends to diversify its business scope
(the “Diversification”) to include the business of exploration, exploitation and production of
oil and gas as well as the provision of services to the upstream oil and gas sector (the “New
Business”). This includes the business of the Target Group, which involves the provision
of services in relation to the operation and production of oil in the Oil Fields, including the
procurement of equipment, transportation of the oil, manpower and injecting working capital.
Please refer to Section 2.1 and Section 4.1 of this Circular for more information about the Target
Group and the scope of the New Business respectively.
The Acquisition, the issue and allotment of the Introducer Shares to the Introducer, the
Placement and the Diversification are collectively referred to as, the “Transactions”.
In addition, as the issuance of the 2014 Subscription had substantially exhausted the 2013
General Mandate, the Company intends to seek Shareholders’ approval for the proposed New
Share Issue Mandate.
10
LETTER TO SHAREHOLDERS
1.2
Extraordinary General Meeting
The Board is proposing to convene the EGM to seek Shareholders’ approval in respect of the
Ordinary Resolutions 1, 2, 3 and 4 to approve the Transactions, and in respect of Ordinary
Resolution 5 to approve the proposed New Share Issue Mandate.
1.3
Purpose of this Circular
The purpose of this Circular is to provide Shareholders with information relating to, and the
rationale for, the Ordinary Resolutions and to seek Shareholders’ approval for the same at the
EGM to be held on 22 August 2014 at 10.00 a.m. at The Grassroots’ Club, 190 Ang Mo Kio
Avenue 8, Singapore 568046. The Notice of EGM is set out on page N-1 of this Circular.
This Circular has been prepared solely for the purposes set out herein and may not be relied
upon by any persons (other than the Shareholders to whom this Circular is dispatched to) or for
any other purpose.
SHAREHOLDERS SHOULD NOTE THAT THE ORDINARY RESOLUTIONS 1, 2, 3 AND
4 ARE INTER-CONDITIONAL. ACCORDINGLY, THE APPROVAL OF A TRANSACTION
OF AN ORDINARY RESOLUTION IS INTER-CONDITIONAL WITH THE APPROVAL OF
EACH OF THE OTHER TRANSACTIONS TO BE APPROVED IN THE OTHER ORDINARY
RESOLUTIONS. ORDINARY RESOLUTION 5 IS NOT INTER-CONDITIONAL WITH ANY OF
THE OTHER RESOLUTIONS.
2.
THE ACQUISITION
Subject to the terms and conditions of the SPA, GSIHL has agreed to purchase, and JPEL has
agreed to sell, the Sale Shares, free from any charge, pledge, lien or other encumbrances,
and together with all rights, benefits and entitlements attaching thereto, for an aggregate
consideration of up to S$48.0 million.
GSIHL shall not be obliged to complete the purchase of any of the Sale Shares unless the
purchase of all the Sale Shares is completed simultaneously.
2.1
Information on the Target Group
The information presented herein and in other sections of this Circular relating to information on
the Target Group is based on information provided by JPEL and the Target Group.
2.1.1
Information on the Target and PT Cepu
The Target is the corporate headquarter of the Target Group (comprising the Target and PT
Cepu), and was incorporated in Singapore in 2002. The Target owns 95% of the issued and
paid-up share capital of PT Cepu, while the remaining 5% of the issued and paid-up share
capital of PT Cepu is owned by Muhammad Saleh and Ario Djoko Damar in equal parts, who
are also shareholders of JPEL.
As at the date of this Circular, PT Cepu has signed Cooperation Agreements with PT SPJ
and KUD SP. Pursuant to the Tungkul Agreement and the Dandangilo Agreement, PT Cepu
has been granted exclusive rights to cooperate in conducting operations for extracting oil
from two (2) oilfields in (a) the Tungkul and Trumbul fields in Blora, Central Java, and (b) the
Dandangilo-Wonocolo fields in Bojonegoro, East Java, Indonesia, with a total of 148 oil wells
(the “Dandangilo-Wonocolo and Tungkul Oil Fields”). Under the Tungkul Agreement and the
Dandangilo Agreement, PT Cepu is responsible for the operations of the old wells, including the
procurement of equipment, transportation of the oil, manpower and injecting working capital.
In return for its operational services, it has the right to acquire a substantial proportion of the
revenues arising from the oil that is produced. Pursuant to the Kawengan Agreement, PT Cepu
11
LETTER TO SHAREHOLDERS
has been granted the right to manage at least 91 old oil wells located in the Village Kawengan,
District Kedewan, Bojonegoro (the “Kawengan Oil Field”). Under the Kawengan Agreement,
PT Cepu is responsible for funding the drilling and the operational costs of the old oil wells and
bearing the costs incurred for deepening wells in return for the rights to 80% of the revenues
arising from the oil that is produced.
As at the Latest Practicable Date, the Dandangilo-Wonocolo and Tungkul Oil Fields are
producing a minimum of 300 barrels of crude oil per day. Please refer to Section 2.4.4 of this
Circular for more information about the Oil Fields.
Based on the unaudited consolidated financial statements of the Target Group for the 3 month
period ended 31 March 2014, the consolidated net asset value of the Target Group as at 31
March 2014 was S$3.96 million.
The corporate structure of the Target Group after the Acquisition has been completed will be as
follows:
GIKEN SAKATA (S) LIMITED
JAVA PETRAL ENERGY PTE LTD
53.7%
46.3%
CEPU SAKTI ENERGY PTE LTD
95.0%
Muhammad Saleh & Ario
Djoko Damar
5.0%
PT CEPU SAKTI ENERGY
TUNGKUL
DANDANGILO WONOCOLO
KAWENGAN
Oil in place: 19.3 MMstb 1
30 wells
Oil in place: 47.5 MMstb 1
109 wells
at least 91 wells
Note:
(1)
2.1.2
Source: Senergy Oil & Gas (Singapore) Pte Ltd – Reserves and Resource Estimation of Dandangilo-Wonocolo
and Tungkul Fields (a Qualified Person’ Report), Table 4 Stock Tank Oil Initially In-Place dated May 2014
Key Management of the Target Group
The key management team of the Target Group as at Completion comprises Lee Kok Wah,
Charles Madhavan, Muhammad Saleh and Ario Djoko Damar (the “Key Management Team”).
The working and business experience of the Key Management Team are as follows:
Lee Kok Wah is the Executive Chairman of the Target and has more than 30 years of experience
in the corporate, finance and capital markets, with emphasis on the marine and shipping sectors.
He was previously with Otto Marine Ltd, a listed company on the SGX-ST, from 2003 to 2011
and held various capacities at different stages, including being appointed as its Managing
Director and Group Chief Executive Officer. Lee Kok Wah was also appointed as a Director
pursuant to the Acquisition on 4 July 2014.
12
LETTER TO SHAREHOLDERS
Charles Madhavan is the Managing Director of the Target and has overall responsibility for
the operations of the Target Group. He has more than 30 years of experience in oil and gas
construction and drilling, with expertise in managing and operating land drilling rigs and sludge
processing plants. Prior to heading up Blue Water Consultants International Ltd, he was the
Managing Director of Rotary Environmental Pte Ltd from 1996 to 2000. He also has former
experience working in a number of large oil and gas players, such as Chevron and Unocal.
Muhammad Saleh is the President Director of PT Cepu, and has more than 30 years of
commercial experience in the Indonesian oil and gas industry, and has worked with PT Ekamaro
Sakti and Mobil Oil Indonesia.
Ario Djoko Damar is responsible for the administration and general affairs (including health,
safety and environmental matters) of PT Cepu, has more than 30 years of experience in the oil
and gas, petrochemical, energy and heavy industrials and engineering sectors, with stints at PT
Satoro Energy, KBR, Inc. (formerly known as Kellogg Brown & Root) and PT Inti Karya Persada
Tehnik.
Save as disclosed in Sections 2.2 and 2.4.8 and the appointment of Lee Kok Wah as a Director,
none of the Key Management Team is related, directly or indirectly, to the Company, its Directors
and/or their Associates and none of the Key Management Team is a Substantial Shareholder or
an Associate of any Substantial Shareholder.
2.1.3
Summary of Financial Information of the Target Group
The consolidated income statement of the Target Group for the last three (3) calendar years
ended 31 December 2011 (“FY2011”), 31 December 2012 (“FY2012”), 31 December 2013
(“FY2013”) and the three (3) months ended 31 March 2014 (“3M2014”) and the consolidated
balance sheet of the Target Group as at 31 December 2013 and 31 March 2014 are set out
below. The financial figures presented below are based on the audited financial statements of
the Target Group for FY2012 and the unaudited financial statements of the Target Group for
FY2011, FY2013 and 3M2014, and have been prepared in accordance with the Singapore
Financial Reporting Standards.
(a)
Summary of Consolidated Income Statement
(S$’000)
FY2011
Revenue
–
–
Cost of Sales
–
–
Gross Profit
(b)
FY2012
–
–
FY2013
3M2014
1,634
1,075
(619)
(362)
1,015
713
Earnings before interest, taxes,
depreciation, and amortization
(0.4)
(211)
(445)
353
Profit before tax
(0.4)
(211)
(617)
290
Profit after tax
(0.4)
(211)
(617)
168
Summary of Consolidated Balance Sheet
(S$’000)
As at 31 December 2013
As at 31 March 2014
Non-current Assets
2,347
4,962
Current Assets
2,471
2,680
Non-current Liabilities
–
–
Current Liabilities
1,141
3,684
Net Assets
3,677
3,958
13
LETTER TO SHAREHOLDERS
2.2
Information on JPEL
The information presented herein and in other sections of this Circular relating to information on
JPEL is based on information provided by JPEL.
JPEL is an investment holding company incorporated in Singapore in 2013. The shareholders of
JPEL and their respective shareholdings in JPEL (the “JPEL Shareholders”) are as follows:
JPEL Shareholder
Number of shares held in
JPEL
Approximate percentage
shareholding in JPEL
280,000
30.4%
Blue Water (1)
Howard James Smith
Lee Kok Wah
Ong Chin Yew
Yaw Chee Siew
46,000
5.0%
161,000
17.5%
49,000
5.3%
175,000
19.0%
Muhammad Saleh
105,000
11.4%
Ario Djoko Damar
105,000
11.4%
Total
921,000
100%
Note:
(1)
2.3
Blue Water is an investment holding company which is equally owned by Charles Madhavan and Anthony Clive
Reudavey (collectively, the “Blue Water Shareholders”).
Rationale and Benefits of the Acquisition
The Group is currently engaged in the (i) manufacturing of microshafts and plastic injection
moulding parts; (ii) assembly of mechanisms and printed circuit board assembly used in a range
of electronic products; and (iii) sourcing and marketing of component parts for the electronics
industry.
The Target is an operating company with a proven track record of two (2) years in the Indonesian
oil and gas resources sector. Its business model of reworking old wells enables its customers to
minimise the risk of encountering dry wells. Its business model and the established track record
of its Key Management Team underpin its positive growth prospects in the foreseeable future. In
addition, the Target is the majority shareholder of PT Cepu which holds the exclusive rights to
cooperate in conducting operations for extracting oil from the Dandangilo-Wonocolo and Tungkul
Oil Fields pursuant to the Tungkul Agreement and the Dandangilo Agreement, thus accounting
for an initial 148 oil wells. PT Cepu also recently entered into the Kawengan Agreement pursuant
to which PT Cepu has been granted the right to manage at least an additional 91 old oil wells.
The Target Group recorded no revenue in the financial years ended 31 December 2011 and
31 December 2012. The consolidated revenue of the Target Group for the last financial year
ended 31 December 2013 was approximately S$1.6 million. The consolidated loss after tax of
the Target Group for the last three (3) financial years ended 31 December 2011, 31 December
2012 and 31 December 2013 were approximately S$436, S$0.2 million and S$0.6 million
respectively. Based on the unaudited consolidated income statements of the Target Group for
the three (3) months ended 31 March 2014, the Target Group recorded revenue of approximately
S$1.1 million and turned a profit after tax of approximately S$0.17 million. Given the foregoing,
the Board believes that the completion of the Acquisition will contribute positively to the future
earnings of the Group and enhance shareholder value in the long term.
14
LETTER TO SHAREHOLDERS
2.4
Principal Terms Of The Acquisition
2.4.1
Consideration
2.4.1.1 Subject to Section 2.4.1.2 below, the aggregate Consideration for the Acquisition shall be the
sum of up to S$48,000,000 to be satisfied by GSIHL and the Company in the following manner
upon Completion:
(a)
S$25,200,000 of the Consideration shall be satisfied in cash in two (2) tranches; and
(b)
S$22,800,000 shall be satisfied by the issue and allotment of 76,000,000 Consideration
Shares to JPEL at the issue price of S$0.30 per Consideration Share, all of which shall
rank pari passu with the existing issued ordinary shares of the Company.
As the issue price of S$0.30 per Consideration Share represents a discount of approximately
20.9% to the VWAP of S$0.3793 of the Shares for trades done on the SGX-ST on 30 May 2014
(being the last full market day on which the Shares were traded prior to the date the SPA was
signed), and a discount of approximately 14.3% to the VWAP of S$0.350 of the Shares for
trades done on the SGX-ST as at the Latest Practicable Date, the Company is required under
Rule 811(3) of the Listing Manual to seek the specific approval of Shareholders for the issuance
of the Consideration Shares.
The Company intends to seek the specific approval of Shareholders for the allotment and issue
of the Consideration Shares at the EGM in accordance with Rules 805(1) and 811(3) of the
Listing Manual and Section 161 of the Companies Act.
2.4.1.2 The Cash Consideration shall be payable to JPEL in the following manner:
(a)
S$15,000,000 on the Completion Date (the “First Tranche”); and
(b)
S$10,200,000 (the “Second Tranche”) upon evidence being provided to GSIHL’s
satisfaction of the renewal of the PT SPJ Mother Agreement for an additional 5-year term
from the expiry date (the “Evidence of Renewal”), to be paid in the following manner:
(i)
if the approval of Shareholders is not required for the raising of capital, within:
(a)
30 days of the Evidence of Renewal being provided to GSIHL’s satisfaction; or
(b)
nine (9) calendar months from the Completion Date,
whichever is later; and
(ii)
if the approval of Shareholders is required for the raising of capital, within:
(a)
90 days of the Evidence of Renewal being provided to GSIHL’s satisfaction; or
(b)
nine (9) calendar months from the Completion Date,
whichever is later.
The Second Tranche shall not be payable by GSIHL if the PT SPJ Mother Agreement
is not renewed for an additional 5-year term from the expiry date. The Target Group has
informed the Company that it will continue to explore and evaluate other oil field projects
to cooperate in conducting operations for extracting oil, irrespective of whether the PT SPJ
and 1st KUD SP Mother Agreements are renewed.
15
LETTER TO SHAREHOLDERS
The Consideration was determined at arm’s length on a willing-buyer willing-seller basis, and
after taking into consideration the anticipated rate of production and the anticipated recoverable
reserves of the Dandangilo-Wonocolo and Tungkul Oil Fields, as well as the QPR prepared by
Senergy Oil & Gas (Singapore) Pte. Ltd. and dated 26 May 2014 jointly commissioned by the
Company and JPEL. Please refer to Section 2.4.4 for more information about the DandangiloWonocolo and Tungkul Oil Fields.
In connection with the Acquisition, the Company intends to undertake a placement of up to
80,000,000 new Shares to, amongst others, partially fund the Cash Consideration. Please refer
to Section 5 of this Circular for more information on the Placement.
Upon completion of the Acquisition, the interests of JPEL, Blue Water, Charles Madhavan and
Anthony Clive Reudavey in the enlarged share capital of the Company will be as follows:
Direct Interest
JPEL
Deemed Interest
Number of Shares
%(3)
Number of Shares
–
%(3)
76,000,000
16.1
Blue Water
–
–
76,000,000(1)
16.1
–
Charles Madhavan
–
–
76,000,000(2)
16.1
Anthony Clive Reudavey
–
–
76,000,000(2)
16.1
Notes:
(1)
Blue Water holds 30.4% of the shares in the capital of JPEL and is deemed interested in the 76,000,000 Shares to
be held by JPEL by virtue of Section 7 of the Companies Act.
(2)
Each of Charles Madhavan and Anthony Clive Reudavey holds 50% of the shares in the capital of Blue Water.
Each of Charles Madhavan and Anthony Clive Reudavey is deemed interested in the 76,000,000 Shares to be
held by JPEL by virtue of Section 7 of the Companies Act.
(3)
Based on an enlarged issued share capital of the Company of 472,618,657 Shares, comprising the existing issued
share capital of 315,018,657 Shares, the 76,000,000 Consideration Shares and the 1,600,000 Introducer Shares
assuming (i) 80,000,000 Placement Shares have been issued pursuant to the Placement, and (ii) none of JPEL,
Blue Water, Charles Madhavan and Anthony Clive Reudavey subscribe for new Shares pursuant to the Placement.
The Company will be making an application to the SGX-ST through the Sponsor for the listing
of and quotation for the Consideration Shares on the Catalist, and will make the necessary
announcement upon receipt of the listing and quotation notice from the SGX-ST.
2.4.2
Introducer Shares
Subject to and upon completion of the Acquisition, the Company shall issue 1,600,000
Introducer Shares at the issue price of S$0.30 per Introducer Share to Tam Siew Foong, as
consideration for her services for introducing the Company to the Target in respect of the
Acquisition (the “Introducer Consideration”). The Introducer Consideration 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 JPEL to provide the necessary information for the purposes of the Acquisition,
and assisting the Company in the discussions relating to the terms and conditions of the
Acquisition.
Tam Siew Foong is a private equity investor and currently runs an investment company which
she set up in 2004. Prior to 2004, Tam Siew Foong joined a local bank as a banking officer,
and was a dealer at BZQ Securities and UOB Securities. She graduated from City University,
London, with a Bachelor of Science in Banking and Finance in 1984. Tam Siew Foong has been
acquainted with Lee Kok Wah of the Key Management Team of the Target for more than 20
years. She started off as Lee Kok Wah’s broker, but remained in touch with him on a social basis
over the last 20 years. Tam Siew Foong has also been acquainted with Sydney Yeung from
Roots Capital Asia Limited on a social basis for approximately three (3) years. Save as disclosed
above, there is no other existing relationship between (i) the Introducer and the Company; and
(ii) the Introducer and the Target.
16
LETTER TO SHAREHOLDERS
The Introducer Shares when issued and allotted shall be free from all charges, liens and other
encumbrances and shall rank in all respects pari passu with the Shares existing at the date of
issue of the Introducer Shares, save that they shall not rank for any dividend, right, allotment or
other distributions, the record date for which falls on or before the date of issue of the Introducer
Shares.
The issue price of S$0.30 per Introducer Share represents a discount of approximately 20.9% to
the VWAP of S$0.3793 of the Shares for trades done on the SGX-ST on 30 May 2014 (being the
last full market day on which the Shares were traded prior to the date the SPA was signed), and
a discount of approximately 14.3% to the VWAP of S$0.350 of the Shares for trades done on the
SGX-ST as at the Latest Practicable Date, the Company is required under Rule 811(3) of the
Listing Manual to seek the specific approval of Shareholders for the issuance of the Introducer
Shares.
The Company intends to seek the specific approval of Shareholders for the allotment and issue
of the Introducer Shares at the EGM in accordance with Rules 805(1) and 811(3) of the Listing
Manual and Section 161 of the Companies Act.
The Company will be making an application to the SGX-ST through the Sponsor for the
listing of and quotation for the Introducer Shares on the Catalist, and will make the necessary
announcement upon receipt of the listing and quotation notice from the SGX-ST.
2.4.3
Conditions Precedent
Completion of the Acquisition is conditional upon the following conditions being fulfilled (unless
expressly waived by the Parties):
(a)
the completion by GSIHL of the legal, financial, operational, tax and other due diligence
on the affairs of the Target Group and the results of such due diligence being satisfactory
in the opinion of GSIHL;
(b)
in relation to the Sale Shares:
(i)
the receipt by GSIHL of such waivers or consents as may be necessary to enable
GSIHL to be registered as holder of any and all of the Sale Shares; and
(ii)
all other consents and approvals required under any and all applicable laws for
the sale of the Sale Shares and/or to give effect to the transactions contemplated
thereunder (including without limitation, such waivers as may be necessary of
terms which would otherwise constitute a default under any instrument, contract,
document or agreement to which JPEL or the Target is a party or by which JPEL or
the Target or its or their respective assets are bound) being obtained and where any
consent or approval is subject to conditions, such conditions being satisfactory to
GSIHL;
(c)
the completion of the Placement;
(d)
the completion of a qualified person’s report (made in accordance with Rule 1014(2) of
the SGX-ST Listing Manual of the crude oil reserves and resources of the DandangiloWonocolo and Tungkul Oil Fields which shall be addressed to the Company and GSIHL
and in a form reasonably acceptable to the Company and GSIHL, and such report stating
that the Dandangilo-Wonocolo and Tungkul Oil Fields have a gross and net entitlement of
oil reserves of not less than approximately 10,000,000 barrels of recoverable reserves and
a net present value of not less than US$100,000,000;
17
LETTER TO SHAREHOLDERS
2.4.4
(e)
there being no change to the prospects, operations, financial and/or business conditions
of JPEL, the Target Group and/or the Dandangilo-Wonocolo and Tungkul Oil Fields from
the date of the SPA and up to and including the date of the Completion (the “Completion
Date”) that could constitute a material adverse effect on or material adverse change in
the condition (financial or otherwise), results of operations, assets, prospects, liabilities or
business of the Target and/or the Target Group as a whole;
(f)
JPEL having performed all of the covenants and undertakings required to be performed by
it under the SPA on or before the Completion Date;
(g)
receipt of the listing and quotation notice from the SGX-ST for the listing and quotation of
the Consideration Shares and the Introducer Shares on the Catalist, and such listing and
quotation notice not being revoked, rescinded or cancelled prior to Completion;
(h)
there being no delisting or suspension of the existing Shares on the Catalist on or before
the Completion Date;
(i)
the approval of the Shareholders being obtained at an extraordinary general meeting to be
held (or any adjournment thereof) in respect of:
(i)
the Acquisition;
(ii)
the Placement; and
(iii)
the diversification of business in relation to the Acquisition;
(j)
the Target, Muhammad Saleh and Ario Djoko Damar being collectively the legal and
beneficial owners of the entire issued and paid-up share capital of PT Cepu, holding 95%,
2.5% and 2.5% respectively of the issued and paid-up share capital of PT Cepu;
(k)
PT Cepu holding the exclusive rights:
(i)
to cooperate in conducting operations for extracting oil from the DandangiloWonocolo and Tungkul Oil Fields; and
(ii)
to have access to, make use of, and perform all other activities in, the DandangiloWonocolo and Tungkul Oil Fields that may be necessary or convenient in
connection with (i) above;
(l)
JPEL, GSIHL and the Company having obtained all third party consents and approvals
(including, if applicable, the approval of the SGX-ST and the Sponsor) as may be
necessary in connection with the transactions contemplated by the SPA, and where
any such third party consents and approvals are subject to conditions, such conditions
being satisfactory to the Parties in their reasonable discretion and being in full force and
effect and not having been withdrawn, suspended, amended or revoked, on or before
Completion; and
(m)
each of Charles Madhavan, Muhammad Saleh and Ario Djoko Damar having entered into
a service agreement with the Company, the Target or PT Cepu (as the case may be), on
terms satisfactory to GSIHL.
The Oil Fields
The information presented herein and in other sections of this Circular relating to information on
the oil fields managed and/or operated by the Target Group is based on information obtained
from the QPR (as defined below) or provided by JPEL or the Target Group.
18
LETTER TO SHAREHOLDERS
In accordance with the condition precedent to Completion set out in Section 2.4.3(d) of
this Circular, Senergy Oil & Gas (Singapore) Pte. Ltd. has been jointly commissioned by the
Company and JPEL to produce a qualified person’s report (made in accordance with Rule
1014(2) of the Listing Manual) of the crude oil reserves and resources of the DandangiloWonocolo and Tungkul Oil Fields prepared in accordance with the 2007 Petroleum Resources
Management System which is addressed to the Company and GSIHL and presented in a form
reasonably acceptable to the Company and the Target (the “QPR”).
Based on information extracted from the QPR and information provided by the Target Group and
JPEL, PT Cepu holds the exclusive rights to cooperate in conducting operations for extracting oil
from the Dandangilo-Wonocolo and Tungkul Oil Fields pursuant to the Tungkul Agreement and
the Dandangilo Agreement. PT Cepu also holds the rights to manage at least an additional 91
old oil wells pursuant to the Kawengan Agreement.
Some of the key findings of such QPR dated 26 May 2014 are set out herein. Where information
in this Circular has been extracted from the QPR or obtained from the Target Group or JPEL,
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 this Circular in its
proper form and context. A copy of the QPR is available for inspection at the registered office of
the Company during normal business hours from the date of this Circular up to and including the
date of the EGM. Please refer to Section 18 of this Circular for more information.
2.4.4.1 Description of the Oil Fields
The Dandangilo-Wonocolo and Tungkul Oil Fields and the Kawengan Oil Field are located
onshore in North-East and Central Java, Indonesia.
Issuer’s Interest (%)
Development Status
Type of Mineral,
Oil or Gas Deposit
Dandangilo-Wonocolo
80
Producing
Oil
Tungkul
80
Producing
Oil
Kawengan
80
Yet to commence
production
Oil
Asset Name
Pursuant to Reg. ESDM No. 1/2008, PEP signed three (3) agreements to extract and produce
oil from the Oil Fields, namely, (a) the Production of Oil from Old Wells Agreement between
PEP and PT SPJ dated 3 November 2010; (b) the Production of Oil from Old Wells Agreement
between PEP and KUD SP dated 31 October 2012; and (c) the Production of Oil from Old
Wells Agreement between PEP and KUD SP dated 12 May 2014 (collectively, the “Mother
Agreements”). The Mother Agreements are for a five (5)-year period and may be renewed for
a period of five (5) years upon prior written application by PT SPJ or KUD SP (as the case
may be) to PEP, expiring on October 2022 for the assets located in Dandangilo-Wonocolo, in
November 2020 for the assets located in Tungkul, and in May 2024 for the assets located in
Kawengan, on the assumption that the agreements are extended.
Each of PT SPJ and KUD SP has signed Cooperation Agreements with PT Cepu. Pursuant to
the Dandangilo Agreement and the Tungkul Agreement, PT Cepu has been granted exclusive
rights to cooperate to conduct the operation for extracting oil from old wells in the DandangiloWonocolo and Tungkul Oil Fields under the names of these entities in return for the rights to
80% of the revenues arising from the oil production. Pursuant to the Kawengan Agreement,
PT Cepu has been granted the right to manage at least 91 old oil wells located in the Village
Kawengan, District Kedewan, Bojonegoro in return for the rights to 80% of the revenues arising
from the oil production. Each of the Cooperation Agreements are valid for a period of 10 years,
and will be automatically extended for another five (5) years upon the expiry of the Cooperation
Agreements.
19
LETTER TO SHAREHOLDERS
PT Cepu has been operating several wells in the Dandangilo-Wonocolo and Tungkul Oil Fields
since April 2013. According to the QPR, PEP is aware of the operations conducted by PT Cepu
on the oil wells.
Figure 1: Extracted from “The Geology of the Oilfield in NE Java, presented at IPA73”
2.4.4.2 History of the Oil Fields
The Oil Fields are located onshore in North-East Java and Central Java, approximately 75 km
west of the city of Surabaya.
Figure 2: Location of the Fields in the Cepu Area, N.E. and Central Java & Structure Map of the Dandangilo-Wonocolo
Field
20
LETTER TO SHAREHOLDERS
Production occurred from 1900 to 1920. PT Cepu commenced its operations in these areas in
2013. Historically, a total of 160 wells had been drilled in Dandangilo, 50 wells in Wonocolo and
41 wells in the Tungkul field.
2.4.4.3 Key Findings of the QPR
Based on the QPR, a summary of the estimated oil reserves for the PT Cepu-operated areas in
the Dandangilo-Wonocolo and Tungkul fields is as follows:
Summary of Oil Reserves
Dandangilo-Wonocolo and Tungkul Fields (Operated Wells only), Java
As of 30 April 2014
Oil (MMstb)(1)
Gross attributable to License
Net (80%) Attributable to Issuer
5.6
4.4
1P(2)
(2)
9.6
7.6
3P(2)
13.2
10.4
2P
Notes:
(1)
MMstb means millions of stock tank barrels.
(2)
1P: Proved Reserve; 2P: Proved Reserve + Probable Reserve; 3P: Proved Reserve + Probable Reserve +
Possible Reserve.
Based on the QPR, the project net present value using a discount rate of 10% (“NPV10”) for the
low, best and high cases is as follows:
NPV10 (Million US$) through to
PT SPJ and 1st KUD SP Mother
Agreements expiry(1) in 2020/2022
NPV10 (Million US$) through to
Tungkul Agreement and Dandangilo
Agreement expiry(1) in March 2028
Low
96
101
Best
195
222
High
281
335
Note:
(1)
2.4.5
On assumption that the PT SPJ and 1st KUD SP Mother Agreements are extended. Please refer to Section 2.4.4.1
for more information relating to the renewal of the PT SPJ and 1st KUD SP Mother Agreements.
Moratorium Undertakings
JPEL has undertaken not to (directly or indirectly), inter alia, offer, pledge, sell, contract to sell,
grant any option, right or warrant to purchase, lend, hypothecate or encumber or otherwise
transfer or dispose of, any of its Consideration Shares for the period commencing from the
Completion Date and up to the later of (i) one (1) year from the Completion Date; or (ii) 30
November 2015 (the “Moratorium Period”).
Each of the JPEL Shareholders will on Completion be giving a moratorium undertaking not to
(directly or indirectly), inter alia, offer, pledge, sell, contract to sell, grant any option, right or
warrant to purchase, lend, hypothecate or encumber or otherwise transfer or dispose of, any of
its shares in JPEL during the Moratorium Period (the “JPEL Shares Moratorium”).
Each of the Blue Water Shareholders will on Completion be giving a moratorium undertaking not
to (directly or indirectly), inter alia, offer, pledge, sell, contract to sell, grant any option, right or
warrant to purchase, lend, hypothecate or encumber or otherwise transfer or dispose of, any of
its shares in Blue Water during the Moratorium Period (the “Blue Water Shares Moratorium”).
21
LETTER TO SHAREHOLDERS
The Introducer will on Completion be giving a moratorium undertaking not to (directly or
indirectly), inter alia, offer, pledge, sell, contract to sell, grant any option, right or warrant to
purchase, lend, hypothecate or encumber or otherwise transfer or dispose of, any of her
Introducer Shares during the Moratorium Period (the “Introducer Moratorium”).
The JPEL Shares Moratorium, the Blue Water Shares Moratorium and the Introducer
Moratorium shall not apply to any transfer made during the Moratorium Period by the relevant
entity to its immediate family member or to a wholly-owned company (the “Permitted
Transferee”) provided that such Permitted Transferee executes a deed of undertaking in favour
of the Company and GSIHL to abide by the relevant moratorium prior to the completion of such
transfer.
2.4.6
Adjustment Mechanism
The relative shareholding of JPEL and GSIHL in the Target shall be adjusted in the event that
any one of the PT SPJ and 1st KUD SP Mother Agreements, is (a) not renewed beyond its
current term for another five (5) years; or (b) terminated prior to the expiry of the current term
(each, an “Adjustment Event”).
Upon the occurrence of an Adjustment Event, the shareholding proportion of JPEL and GSIHL
in the Target shall be adjusted such that the value of the GSIHL’s shareholding in the Target
after such adjustment, as measured by its proportion of the Target Group’s consolidated net
tangible assets on the relevant date of such Adjustment Event is equivalent to an aggregate
of not less than: the Cash Consideration already paid by GSIHL to JPEL plus S$22,800,000
plus 10% internal rate of return on such amount of the Cash Consideration already paid (the
“Benchmark”). In the event the value of GSIHL’s shareholding in the Target is less than the
Benchmark, JPEL undertakes and agrees to transfer such number of shares in the Target to
GSIHL such that the Benchmark is satisfied, or to GSIHL seeking additional recourse from JPEL
to cover the shortfall. For the avoidance of doubt, no adjustments to the shareholding proportion
of JPEL and GSIHL in the Target is required if the Benchmark is satisfied.
As security for the obligations of JPEL in respect of the Adjustment Event, JPEL agrees to grant
a first priority interest over all of the shares owned by it in the Target, which total an aggregate
of 538,421 shares (the “Pledged Shares”) in favour of GSIHL, and to enter into a share pledge
(in a form acceptable to GSIHL) to effect this on the Completion Date. In the event that (a) the
Pledged Shares are insufficient to discharge JPEL’s obligations; and (b) the Target issues new
shares which are subscribed for by JPEL, such shares in the Target will similarly be subject
to a share pledge in favour of GSIHL, as security for the obligations of JPEL in respect of the
Adjustment Event.
2.4.7
Right to Appoint Directors
On or after Completion:
(a)
the Company shall have the right to appoint directors (and if applicable, commissioners)
in all the Target Group companies, and shall have control of the Target Group in a manner
that allows the Company to consolidate the Target Group’s financials in accordance with
Singapore Financial Reporting Standards; and
(b)
for so long as JPEL holds not less than 15% of the issued share capital of the Company,
JPEL shall have the right to nominate two (2) directors to the board of directors of the
Company for the nominating committee’s consideration (such consideration shall be in
good faith), and in the event that the nominating committee does not recommend the
appointment of any of the nominees of JPEL to the board of directors of the Company,
JPEL shall have the right to continue nominating alternative individuals for the nominating
committee’s consideration. Lee Kok Wah has been nominated by JPEL as its nominee,
and has been appointed as a Director; and
(c)
the remuneration of the directors and commissioners of the companies within the Target
Group shall be subject to the prior approval of GSIHL.
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LETTER TO SHAREHOLDERS
2.4.8
Service Agreements
As disclosed in Section 2.4.3(m) of this Circular, a condition precedent to completion of the
Acquisition is the entry by each of Charles Madhavan, Muhammad Saleh and Ario Djoko Damar
into a service agreement with the Company, the Target or PT Cepu, on terms satisfactory to
GSIHL. JPEL intends to appoint two (2) directors to the board of directors of the Company. The
Company will provide details of any service agreement(s) entered into with a director nominated
by JPEL and appointed to the Board in compliance with the requirements of the Listing Manual
in due course.
2.4.9
Transfer of Target’s Shares
For so long as any of the PT SPJ and 1st KUD SP Mother Agreements have not been renewed
for an additional 5-year term from each of their respective expiry dates, JPEL shall not (directly
or indirectly) offer, sell, transfer or otherwise dispose of any or all of its remaining shares in the
Target.
On or after the date of renewal of both the PT SPJ and 1st KUD SP Mother Agreements for an
additional 5-year term from each of their respective expiry dates, if JPEL intends to (directly or
indirectly) offer, sell, transfer or otherwise dispose of any or all of its remaining shares in the
Target, JPEL shall first offer such shares to GSIHL by notifying GSIHL according to the terms
set out in the SPA.
2.4.10
Shareholder’s Loan
On the Completion Date, GSIHL shall extend to the Target a shareholder’s loan of S$6,250,000
for a period of three (3) years at an interest rate of 5% per annum (subject to withholding tax
gross-up if applicable) (the “Shareholder’s Loan”) in order that the Target may extend to PT
Cepu the equivalent amount as the shareholder’s loan to be applied by PT Cepu as working
capital.
The Shareholder’s Loan is immediately repayable to GSIHL upon demand if either of the PT SPJ
and 1st KUD SP Mother Agreements is not renewed beyond its current term for another five (5)
years. Please refer to Section 6 of this Circular for more information relating to the funding of the
Shareholder’s Loan.
The Shareholder’s Loan will be used by the Target in the following estimated proportions:
2.4.11
Use of Proceeds
Percentage Allocation (%)
Repayment of temporary loan extended from JPEL to Target
Approximately 15% to 40%
General working capital of the Target Group (e.g. salaries,
operational expenses and general administrative expenses)
Approximately 60% to 85%
Source of Funds
On 11 July 2014, the Company entered into a Placement Agreement with the Placement Agent
to place up to 80,000,000 Placement Shares at a Placement Price of not less than S$0.30
per Placement Share amounting to an aggregate amount of up to S$24,000,000 (assuming
80,000,000 Placement Shares are placed at the minimum Placement Price of S$0.30 per
Placement Share. The Company intends to use the proceeds from the Placement primarily to
fund the First Tranche of the Cash Consideration and the Shareholder’s Loan (to be extended
by the Purchaser to the Target). Please refer to Section 5 of this Circular for more information
relating to the Placement.
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LETTER TO SHAREHOLDERS
2.4.12
Relative Figures Under Rule 1006 of the Listing Manual
Based on the latest announced consolidated financial results of the Group for the period ending
28 February 2014, the relative figures in respect of the Acquisition, as computed on the bases
set out in Rule 1006 of the Listing Manual, are as follows:
Bases in Rule 1006
(a)
Net asset value of the assets to be disposed
Not applicable(1)
Net asset value of the Group
–
Size of relative figure
–
Net loss(2) attributable to the 624,079 shares in the Target to be
acquired (S$’000)
(b)
(331)(3)
740(4)
Net profits of the Group (S$’000)
Size of relative figure
(c)
(d)
(44.73)%
Aggregate value of the consideration (S$’000) (comprising of the
Consideration and the Shareholder’s Loan)
54,250
Market capitalisation(5) of the Company (S$’000)
119,487
Size of relative figure
45.40%
Number of equity securities issued for the Acquisition (comprising of the
Consideration Shares and the Introducer Shares)
77,600,000
Number of shares of the Company in issue
315,018,657
Size of relative figure
(e)
24.63%
Aggregate volume or amount of proved and probable reserves to be
disposed of
Not applicable(6)
Aggregate of the group’s proved and probable reserves
–
Size of relative figure
–
Notes:
(1)
This is not applicable to an acquisition of assets.
(2)
“Net profits” means profit or loss before income tax, minority interests and extraordinary items.
(3)
Based on the unaudited consolidated financial statements of the Target for the financial year ended 31 December
2013.
(4)
Based on the half-year consolidated financial statements of the Group for the period ended 28 February 2014.
(5)
“Market capitalisation” is determined by multiplying the number of shares of the Company in issue by the VWAP of
such shares transacted on 30 May 2014 (being the market day preceding the date of the Agreement).
(6)
This is not applicable as it is not an acquisition of mineral, oil or gas assets.
Paragraph 3 of Practice Note 10A of the Listing Manual states that a major transaction
is one that will result in a fundamental change in the issuer’s business, or where any of the
relative figures as computed on the bases set out in Rule 1006 exceeds 75%, but is less than
100%. Rule 1014 requires that a major transaction be made conditional upon the approval of
shareholders in general meeting.
Although none of the figures as computed on the bases set out in Rule 1006 exceeds 75%, as
the Acquisition will bring about a fundamental change in the Company’s business model, the
Company proposes to seek the approval of the Shareholders for the Acquisition at the EGM.
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LETTER TO SHAREHOLDERS
3.
TRANSFER OF CONTROLLING INTEREST IN THE COMPANY PURSUANT TO THE
ISSUANCE OF THE CONSIDERATION SHARES TO JPEL
Rule 803 of the Listing Manual provides that an issuer must not issue securities to transfer a
Controlling Interest without prior approval of shareholders in general meeting. Under the Listing
Manual, a Controlling Shareholder is a person who directly or indirectly holds 15% or more
of the nominal amount of all voting shares in the Company, or a person who in fact exercises
control over the Company.
As at the Latest Practicable Date, JPEL does not hold any Shares. Assuming that all the
Transactions have been completed, and that the maximum number of 80,000,000 Placement
Shares is placed out by the Placement Agent, JPEL will hold approximately 16.1% of the
enlarged and issued share capital of the Company (excluding treasury shares) immediately after
completion of the Transactions.
In addition, as disclosed in Section 2.4.7(b) of this Circular, for as long as JPEL holds not less
than 15% of the Shares, JPEL shall have the right to nominate two (2) directors to the board
of directors of the Company for the nominating committee’s consideration (such consideration
shall be in good faith), and in the event that the nominating committee does not recommend the
appointment of any of the nominees of JPEL to the board of directors of the Company, JPEL
shall have the right to continue nominating alternative individuals for the nominating committee’s
consideration.
Accordingly, the Transactions would constitute a transfer of a Controlling Interest in the Company
and is subject to the approval of the Shareholders for the purposes of Rule 803 of the Listing
Manual. Further, as the issue price of S$0.30 per Consideration Share represents a discount of
approximately 20.9% to the VWAP of S$0.3793 of the Shares for trades done on the SGX-ST
on 30 May 2014 (being the last full market day on which the Shares were traded prior to the
date the SPA was signed), the Company will also be obtaining the Shareholders approval in
accordance with Rule 811 of the Listing Manual.
4.
THE PROPOSED DIVERSIFICATION INTO THE NEW BUSINESS
4.1
The New Business
In conjunction with the Acquisition, the Group will diversify its business to include the
exploration, exploitation and production of oil and gas as well as the provision of services to
the upstream oil and gas sector. This includes the business of the Target Group, which involves
the operation and production of oil in the Dandangilo-Wonocolo and Tungkul Oil Fields and
the management of the Kawengan Oil Field. Pursuant to the Tungkul Agreement and the
Dandangilo Agreement, PT Cepu is responsible for the operations of the old wells, including the
procurement of equipment, transportation of the oil, manpower and injecting working capital,
and for funding the drilling and the operational costs of the old oil wells and bearing the costs
incurred for deepening wells. In return for its operational services, it has the right to acquire
a substantial proportion of the revenues arising from the oil that is produced. Please refer to
Sections 2.1.1 and 2.4.4 of this Circular for more information on the business of the Target
Group.
Business Scope
The New Business of exploration, exploitation and production of oil and gas may be broadly
classified into two (2) phases, being (a) the exploration phase; and (b) the exploitation and
production phase.
(a)
Exploration phase
The exploration phase includes, but is not limited to, some or all of the following activities
to locate and determine the commercial viability of oil and gas reserves:

obtaining the relevant licences and concessions to undertake exploratory activities;
25
LETTER TO SHAREHOLDERS


gathering and interpreting, inter alia, seismic, geological and metallurgical
information; and


undertaking exploration and appraisal drilling to verify the existence of the oil and
gas reserves and to determine the extent and commercial viability of the oil and gas
reserves.
(b)
Exploitation and Production Phase
The exploitation and production phase includes, but is not limited to, some or all of the
following activities:

obtaining the relevant licences and concessions to undertake extraction and
production activities;

preparing the relevant production and development plans;

site preparation, and the installing and/or operating the required equipment to drill,
extract, separate, store and/or transport the oil and gas;

entry into off-take agreements with third parties for the supply of oil and gas
produced;

refining of extracted oil and gas into various products such as gasoline or diesel for
further sale and distribution; and

maintenance of related plant and equipment.
The Group does not intend for the New Business to be restricted to any geographical area or to
any particular phase or activity of the New Business.
The Diversification into the New Business may be effected through investments or acquisitions of
other entities or other investment structures in the New Business, joint ventures and/or directly
undertaking the New Business, as and when the opportunity arises.
The Company will assess and consider factors such as whether it has the necessary financing
and technical expertise for the investment, acquisition and/or direct undertaking, the then
existing market conditions and timing of the investment, acquisition and/or direct undertaking,
the revenue which the opportunity may generate, and the standing and contribution of its
business or joint venture partner, if any, before proceeding with such investment, acquisition and/
or direct undertaking.
Rationale and Benefits
The rationale and benefits of the Acquisition and the Diversification are set out in Sections 2.3
and 6 of this Circular.
4.2
Risk Factors
The Board believes that the Diversification constitutes a fundamental change of the Company’s
business and will materially change the risk profile of the Company.
Any of the risks described below could materially and adversely affect the Company’s ability to
comply with its obligations, including those under the Listing Manual, and could have a material
adverse effect on the Company’s or the Group’s business, financial condition, operations and
prospects. In that event, the market price of the Shares could decline, and Shareholders may
lose all or part of their investments in the Shares. The risks and uncertainties described below
are not intended to be exhaustive and are not the only risks and uncertainties that the Group
may face. The Group could be affected by a number of risks which relate to the industries and
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LETTER TO SHAREHOLDERS
countries in which the Group intends to operate as well as those which may generally arise
from, inter alia, economic, business, market and political factors, including the risks set out
herein. Additional risks and uncertainties not presently known to the Company or the Group or
that the Company or the Group currently deem immaterial may also impair the Company’s or the
Group’s business, financial condition, operations and prospects. The risks discussed below also
include forward-looking statements and the Company’s and the Group’s actual results may differ
substantially from those discussed in these forward-looking statements.
Subheadings are for convenience only and risk factors that appear under a particular subheading may also apply to one or more other sub-headings.
4.2.1
Risks Relating to the Group
(a)
The New Business is dependent on the oil and gas industry
The New Business will be largely dependent on the oil and gas industry, in particular
the level of activities in the exploration, development and production of oil and gas. Such
activities are affected by factors such as fluctuations in oil and gas prices and by other
general economic factors, as well as by the industry’s view of future economic growth
and the resulting impact on demand for oil and gas and the expectations of potential
customers in respect of changes in oil and gas prices and the related changes in their
capital spending.
The prices of oil and gas are volatile and affected by supply and demand. They in turn
will affect the level of capital spending by companies in the oil and gas industry. Low oil
and gas prices tend to reduce the amount of oil and gas that producers can produce
economically. When this occurs, major oil and gas companies generally reduce their
spending budgets for drilling, exploration and development. Any decline in the level
of activities in the oil and gas industry may result in a decrease in demand for the New
Business.
The above are factors beyond the control of the Group. As a result, the timing, nature
and degree of changes in industry conditions are unpredictable. In addition, there can
be no assurance that the Group will be able to obtain the financing necessary in time
to develop relevant opportunities for the New Business that may arise. There can be no
assurance that the activity levels of exploration, development and production activities of
the Oil Fields will remain at their current levels or continue to increase. Any prolonged
period of low exploration, development and production activity or decrease in demand for
oil and gas would be likely to have an adverse effect on the Group’s business, financial
performance, financial condition and operating cash flow.
(b)
The Mother Agreements may not be renewed
The Target Group has entered into the Tungkul Agreement and the Dandangilo Agreement
under which PT Cepu holds the exclusive rights to cooperate in conducting operations
for extracting oil from the Dandangilo-Wonocolo and Tungkul Oil Fields. The Tungkul
Agreement took effect from 28 February 2013 and is expected to expire in February 2023.
The Dandangilo Agreement took effect from 25 March 2013 and is expected to expire in
March 2023. The Target Group has also entered into the Kawengan Agreement pursuant
to which PT Cepu has been granted the right to manage at least 91 old oil wells located
in the Village Kawengan, District Kedewan, Bojonegoro. The Kawengan Agreement was
entered into on 20 June 2014 and is expected to expire in June 2024.
However, the Mother Agreements, which underlie the Tungkul Agreement, the Dandangilo
Agreement and the Kawengan Agreement are valid for a five (5) year period and may be
renewed for a period of five (5) years upon prior written application by PT SPJ or KUD
SP (as the case may be) to PEP. The agreement between PEP and PT SPJ is due to
expire in November 2015 while the agreement between PEP and KUD SP is due to expire
in October 2017. The renewal of the Mother Agreements is subject to the discretion of
27
LETTER TO SHAREHOLDERS
the PEP to further request approval from the Ministry of Energy and Mineral Resources
to renew the Concessions granted in respect of the Oil Fields. Therefore, the validity of
the Tungkul Agreement, the Dandangilo Agreement and the Kawengan Agreement
is also subject to such approvals. Please refer to Section 2.4.4 of this Circular for more
information.
The non-renewal of the relevant Mother Agreements would impact the Group’s operation
of the Oil Fields, and the Group’s results of operations and financial conditions could be
materially and adversely affected.
(c)
The Mother Agreements may not be renewed on similar terms
Assuming the Mother Agreements are renewed, there is no guarantee that the Mother
Agreements will be renewed on the terms as favourable as those in the expired
agreements. If the Mother Agreements are renewed on less favourable terms, the Group’s
results of operations and financial conditions could be materially and adversely affected.
(d)
The Group will have no control over oil prices which is fixed by PEP
The New Business is currently dependent upon PEP as the Target’s only customer. PEP
has the right to fix the price and the exchange rate at which the oil extracted is sold, and
has on occasion, sold oil below market prices. The Group will therefore have no control
over the pricing of the oil extracted and sold. Unfavourable terms in pricing may have an
adverse effect on the Group’s operating results.
(e)
The rights and obligations under the Mother Agreements cannot be assigned to
third parties
It is a term of the Mother Agreements that each of PT SPJ and KUD SP is prohibited
from assigning part or all of its rights and obligations under the respective agreements.
Pursuant to the Mother Agreements, each of PT SPJ and KUD SP is responsible for the
operation of the oil wells and the delivery of oil from the oil wells within the DandangiloWonocolo and Tungkul Oil Fields. There is a risk that the Cooperation Agreements signed
between each of PT SPJ and KUD SP with the Target may be viewed as an assignment
of PT SPJ and KUD SP’s obligations and may be taken to be a breach of the Mother
Agreements, as the Tungkul Agreement and the Dandangilo Agreement each provide that
the Target is obliged to operate the oil wells and to deliver the oil on behalf of each of PT
SPJ and KUD SP while the Kawengan Agreement provides that the Target is responsible
for the funding the drilling and the operational costs of the old oil wells.
(f)
The Group may be subject to risks arising from foreign exchange fluctuations
The business of the Group is denominated in Singapore Dollars while the business of the
Target Group, its cost of sales and operating expenses are denominated in Indonesian
Rupiah. Any significant unfavourable fluctuations in foreign currency exchange rates
against the Company’s functional currency may have an adverse effect on its operating
results.
(g)
The Group has no prior track record in the New Business and the New Business
may not be viable or successful
As the Group does not have a proven track record in the exploration, exploitation and
production of oil and gas or in the business of cooperating to conduct operations
for extracting oil, the New Business may not be commercially viable or successful.
Unsuccessful attempts to undertake the New Business may have an adverse effect on the
Group’s business, financial condition and results of operations.
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LETTER TO SHAREHOLDERS
The exploration, exploitation and production of oil and gas may require substantial capital
expenditure and investment costs before they reach a revenue producing stage. Hence,
in the event that the Group engages in such activities pursuant to the New Business, the
Group may not be able to generate positive cash flows from such activities immediately.
A cash flow deficit may have a negative impact on the working capital and the financial
position of the Group. Furthermore, as such business activities may need time to generate
profits, to the extent that the Group is unable to generate sufficient profits from its existing
business and the New Business to cover its operating costs, the Group will suffer an
adverse effect on its business, financial performance, financial condition and operating
cash flow.
(h)
Current management may not have the expertise to ensure success
As the New Business is a new area of business to the Group, the Group will face the
usual risks, uncertainties and problems associated with the entry into any new business
which it has no prior track record in. These risks, uncertainties and problems include,
among other things, the inability to find the right joint venture, strategic or other business
partnerships, the inability to manage expanding operations and costs, failure to attract and
retain customers, difficulty in establishing a database of suppliers, failure to provide the
results, level of revenue and margins the Group is expecting and failure to identify, attract,
retain and motivate qualified personnel.
In addition, the Group’s current management may not have the relevant expertise to
ensure success in these areas. The Group may also face difficulties in recruiting skilled
and qualified personnel in the New Business due to its specialised nature. If the Group is
unable to attract and retain a sufficient number of suitably skilled and qualified personnel,
the Group’s business, results of operations and financial conditions being materially
adversely affected.
(i)
The success of the New Business is dependent on the Key Management Team
The success of the New Business is dependent, to a large extent, on the continued
efforts, skills and services of the Key Management Team of the Target, who are
responsible for formulating and implementing the Target Group’s business plans and
driving its growth and corporate development. In particular, Charles Madhavan, the
Managing Director of the Target has overall responsibility for the operations of the Target
Group. He is supported by Muhammad Saleh, the President Director of the Target, and
other members of the Key Management Team. There is no assurance that the Group will
be able to retain their services. Please refer to Section 2.1.2 of the Circular for details of
their qualifications and working experience. The loss of services of one or more of these
individuals without suitable and/or timely replacements and an inability to attract or retain
new qualified personnel will have a material adverse impact on the Group’s operations
and financial performance.
(j)
Inability to complete the Placement
There is no assurance that the Placement will be completed. As disclosed in Section
2.4.3(c) of the Circular, the completion of the Acquisition is conditional upon the
completion of the Placement. The Company intends to use the proceeds from the
Placement to fund the First Tranche of the Cash Consideration and the Shareholders’
Loan. If the Company is unable to complete the Placement, the Company will not be
able to complete the Acquisition. The Group could suffer a material adverse effect on its
business, financial performance, financial condition, results of operations and prospects
due to the amount of resources spent on the Acquisition, the loss of the business
opportunities which would have been available to the Group as a result of the acquisition
of the Target Group, and the negative impact on the Company’s brand image.
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LETTER TO SHAREHOLDERS
(k)
The Target Group has a limited operating history as a company and has incurred
losses in certain years since incorporation
The Target Group has a limited operating history upon which the Company based
its evaluation of the Target Group’s business and prospects. As a company in the
early stages of development, there are substantial risks, uncertainties, expenses and
difficulties to which the business of the Target Group is subject. To address these risks
and uncertainties, the Target Group must successfully develop and execute its business
strategy and respond to competitive developments. There can be no assurance that it will
be able to manage effectively the expansion of its operations through organic growth or
acquisitions.
The Target Group has incurred losses in each of FY2011, FY2012 and FY2013. Please
refer to Section 2.1.3 of this Circular for more information on the Target Group’s financial
information. There can be no assurance that it will earn significant profits or any profits
from operations at all, which could impact its ability to sustain operations, bring operations
to a point where it is able to make full use of its rights to cost recovery petroleum, or
obtain any additional funds it may require in the future to satisfy requirements beyond its
current committed capital expenditure. The Group cannot be certain that the Target Group
will successfully develop and implement its business strategy or that it will successfully
address the risks that face its business. In the event that the Target Group does not
successfully address these risks, the Group’s business, financial condition, prospects,
results of operations, could be materially and adversely affected.
(l)
Certain financial information of the Target Group is unaudited
The financial information of the Target Group for each of FY2011, FY2013 and 3M2014
included in this Circular has not been audited. Please refer to Sections 2.1.3 and 7 of
this Circular for the financial information of the Target Group. In particular, the financial
effects of the Acquisition set out in Section 7 have been calculated based on the
unaudited consolidated statements of the Target for FY2013. There can be no assurance
that, had an audit been conducted in respect of such financial information, the information
presented therein would not have been materially different, and Shareholders should not
place undue reliance on them.
(m)
Future acquisitions, joint ventures or other arrangements may expose the Group to
increased business and operating risks
The Group may, as a matter of business strategy, invest in or acquire other entities
engaged in the New Business, or enter into joint ventures or other investment structures
in connection with the New Business. Acquisitions that the Group may make, along
with potential joint ventures and other investments, may expose the Group to additional
business and operating risks and uncertainties, including:

direct and indirect costs in connection with the transaction;

the inability to effectively integrate and manage acquired business;

the inability or unwillingness of joint venture partners to fulfil their obligations under
the relevant joint venture agreements;

the inability of the Group to exert control over strategic decisions made by these
companies;

time and resources expended to coordinate internal systems, controls, procedures
and policies;

disruption in ongoing business and the diversion of management’s time and
attention from other business concerns;
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LETTER TO SHAREHOLDERS

the risk of entering markets in which the Group may have no or limited prior
experience;

the potential loss of key employees and customers of the acquired businesses;

the risk that an investment or acquisition may reduce the Group’s future earnings;
and

exposure to unknown liabilities.
If the Group is unable to successfully implement the Group’s acquisition or expansion
strategy or address the risks associated with acquisitions or expansions, or if the
Group encounters unforeseen expenses, difficulties, complications or delays frequently
encountered in connection with the integration of acquired entities and the expansion of
operations, the Group’s growth and ability to compete may be impaired, the Group may
fail to achieve acquisition synergies and the Group may be required to focus resources on
integration of operations rather than on the Group’s primary business.
Should these occur, the Group’s business, financial performance, financial condition and
operating cash flow may be adversely affected.
(n)
Dilutive effect on the Company’s Shares
The Group may make future acquisitions or enter into financings or other transactions
involving the issuance of securities of the Company which may have a dilutive effect on
the Company’s Shares. For example, the Company may issue further Shares in the future
to finance the Second Tranche of the Cash Consideration.
4.2.2
Risks Relating to the New Business and the Oil and Gas Industry
(a)
Reserve and resource estimates depend on several assumptions that may turn out
to be inaccurate
This Circular includes estimates of the reserves and contingent and prospective resources
for the Target-operated areas in the Dandangilo-Wonocolo and Tungkul fields. The process
of estimating hydrocarbon quantities is complex, requiring interpretations of available
technical data and many assumptions made in a particular price environment. Any
significant deviations from these interpretations, prices or assumptions could materially
affect the estimated quantities of hydrocarbons reported. The uncertainties inherent in
estimating quantities of hydrocarbons include, inter alia, the following:

variable factors and assumptions such as historical production from the Oil Fields;

the quality and quantity of technical and economic data;

the prevailing oil and natural gas prices applicable to production;

drilling and operating expenses, capital expenditures, taxes and the availability of
funds;

debt and equity;

the assumed effects of regulations by governmental agencies and future operating
costs;

the production performance of the reserves; and

extensive engineering, geological and geophysical judgments.
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LETTER TO SHAREHOLDERS
Understanding of the subsurface conditions is based on the Group’s interpretation of the
best data available but due to the inherent uncertainty of such interpretation, it may reach
incorrect conclusions. The reserves and contingent and prospective resources data set
out in this Circular represents estimates only and represents quantities estimated at a
given point in time. Many of the factors, assumptions and variables involved in estimating
hydrocarbon volumes are beyond the Group’s control and may prove incorrect over time.
Estimates of the commercially recoverable hydrocarbon volumes attributable to any
particular contract area, classification of such hydrocarbons volumes based on risk of
recovery and estimates of future net revenues expected, prepared by different persons at
different times, may vary substantially. In the event that actual production with respect to
these hydrocarbons volumes is lower than these estimates and/or actual future prices are
materially lower, the Group’s revenue and therefore its results of operations and financial
condition will be adversely affected.
The uncertainties inherent in estimating oil and gas resources and reserves are generally
greater for areas where there has been limited historic hydrocarbon exploration, such
as in the case of contingent, and in particular, prospective resource estimates, which
are derived from the interpretation of seismic and other geoscientific data and where
appropriate, drilling results. Such interpretation and estimates of the amounts of oil and
gas resources are subjective and the production results subsequent to the date of any
particular estimate may result in substantial revisions to the original interpretation and
estimates, including the recoverability and commerciality of the reserves and resources.
(b)
Fluctuations in the Group’s turnover due to unfavourable environmental conditions
A key factor that may lead to the fluctuations in turnover for the New Business is
the environmental changes in the areas in which the Group proposes to conduct its
exploration, exploitation and production of oil and gas. In the event where there are drastic
changes in the climate and extreme weather conditions, it may be more difficult or not
feasible to conduct the New Business, and actual revenue may be significantly lower than
expected. The Group will be unable to mitigate the impact of environmental conditions on
its results of operations. Negative environmental conditions may impact the production of
oil and gas, as it may entail work stoppages and the suspension of operations, thus the
Group’s results of operations and financial conditions could be materially and adversely
affected.
(c)
Uncertainties on securing additional funding for business development
The Group’s growth strategy to undertake the New Business is capital intensive and
requires substantial funding. The ability of the Group to arrange financing and the cost
of such financing are dependent on global economic conditions, capital and debt market
conditions, lending policies of the government and banks, and other factors. The Group’s
business may not be able to generate sufficient cash flows to fund investment and/or
expansion opportunities. Unless the Group can do so through internal sources, it will be
required to finance the cash needs through public or private equity offerings, bank loans
and/or other debt financing. There can be no assurance that international or domestic
financing for the New Business and necessary equipment that the Group may acquire or
develop will be available on terms favourable to the Group or at all. The Group may have
to delay, adjust, reduce or abandon its planned growth strategies. In the event that the
Company does obtain bank loans or debt financing but is unable to meet the financing
expenses of such, its business performance may be adversely affected.
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LETTER TO SHAREHOLDERS
(d)
Disruptions to business caused by factors, such as natural disasters and human
fault
The oil and gas fields that the Group conducts its operations for extracting oil or that
the Group may acquire and develop may be damaged by flooding, drought, debris
flow, landslide, earthquake, other natural disasters, human error, fault or negligence or
the operations may have to be suspended during repair of the damaged plants and/or
equipment or when there is a drought. The pipelines used to carry the oil and gas are
vulnerable to natural disasters such as earthquakes, debris flow, landslide, storms and
floods, as well as disasters caused by human actions such as terrorist attacks, military
conflicts and other deliberate or inadvertent actions which may affect the smooth
transportation of the oil and gas mined. The operations of the New Business may be
seriously disrupted by such disasters which may materially and adversely affect the
Group’s results of operations.
(e)
Inadequate insurance coverage to cover all liabilities
The Group’s involvement in the New Business may result in the Group becoming subject
to liability for pollution, blowouts, property damage, personal injury or other hazards.
Although the Group intends to obtain insurance in accordance with industry standards to
address such risks, such insurance has limitations on liability that may not be sufficient to
cover the full extent of such liabilities. In addition, such risks may not in all circumstances
be insurable or, in certain circumstances, the Group may elect not to obtain insurance to
deal with specific risks due to the high premiums associated with such insurance or other
reasons. The payment of such uninsured liabilities would reduce the funds available to the
Group. The occurrence of a significant event that the Group is not fully insured against, or
the insolvency of the insurer of such event, could have a material adverse effect on the
Group’s financial position, results of operations or prospects.
(f)
Health, safety, operational and environmental hazards
The ownership and/or the operation of the oil and gas fields carry an inherent risk of
liability related to worker health and safety and the environment, including the risk of
government imposed orders to remedy unsafe conditions and/or to remediate or otherwise
address environmental contamination, potential penalties for contravention of health,
safety and environmental laws, licenses, permits and other approvals, and potential civil
liability. Environmental legislation may also provide for, among other things, restrictions
and prohibitions on spills, releases or emissions of various substances produced in
association with oil and gas operations. Legislation may also require that wells and
facility sites be operated, maintained, abandoned and reclaimed to the satisfaction of
applicable regulatory authorities. Furthermore, environmental legislation is evolving in a
manner expected to result in stricter standards and enforcement, larger fines and liability
and potentially increased capital expenditures and operating costs. The discharge of
oil, natural gas or other pollutants into the air, soil or water may give rise to liabilities to
governments and third parties and may require the Group to incur costs to remedy such
discharge.
Compliance with health, safety and environmental laws (and any future changes) and the
requirements of licenses, permits and other approvals will remain material to the New
Business. The Group will incur significant capital and operating expenditures to comply
with health, safety and environmental laws and to obtain and comply with licenses,
permits and other approvals and to assess and manage its potential liability exposure.
Nevertheless, the Group may become subject to government orders, investigations,
inquiries or other proceedings (including civil claims) relating to health, safety and
environmental matters.
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LETTER TO SHAREHOLDERS
The occurrence of any of these events or any changes, additions to or more rigorous
enforcement of, health, safety and environmental laws, licenses, permits or other
approvals could have a significant impact on operations and/or result in additional
material expenditures. As a consequence, no assurances can be given that additional
environmental and workers’ health and safety issues relating to presently known or
unknown matters will not require unanticipated expenditures, or result in fines, penalties
or other consequences (including changes to operations) material to the Group’s business
and operations.
(g)
Changes in tax regulations
The Group’s operations in the oil and gas exploration, exploitation and production
business are subject to taxation in the countries which the Group may operate in,
including Indonesia, and it could be faced with increasingly complex tax laws. The amount
of tax the Group pays could increase substantially as a result of changes in or new
interpretations of these laws, which could have a material adverse effect on the Group’s
liquidity and results of operations.
During periods of high profitability, there may be calls for increased or windfall taxes on
the revenue of energy resources. Taxes may increase or be imposed consequently. In
addition, taxing authorities could review and question the Group’s tax returns leading to
additional taxes and penalties which could have a material adverse effect on the financial
position of the Group.
(h)
Fluctuations in interest rates and refinancing risks
Interest rate fluctuations are of particular concern to a capital-intensive industry such as
that of exploration, exploitation and production of oil and gas. The Group faces interest
rate and debt refinancing risk in respect of floating-rate bank credit facilities and long-term
financings. The Group’s ability to refinance debt on favourable terms is dependent on debt
capital market conditions, which are inherently variable and difficult to predict.
(i)
Failure of major counterparties to perform contractual obligations
The Group may enter into contracts with third-party counterparties, such as suppliers and
contractors, to supply equipment or services for the New Business. Should one or more of
these counterparties, such as the Group’s suppliers and/or contractors, be unable to meet
their obligations under the contracts, this would result in possible loss of revenue, delay in
production and increase in costs for the Group. Failure of any supplier and/or contractors
to meet its obligations to the Group may result in the Group not being able to meet its
commitments and thus lead to potential defaults of contracts with its customers.
(j)
Reliance on access to necessary equipment from independent third-party providers
Part of PT Cepu’s obligations pursuant to the Tungkul Agreement and the Dandangilo
Agreement is to procure equipment for the operation and management of the DandangiloWonocolo and Tungkul Oil Fields, as well as to deliver the crude oil produced to PEP.
The fulfilment of these obligations is dependent upon the availability of drilling and related
equipment in the particular areas where the production and extraction of crude oil is
conducted. Demand for limited equipment such as drilling rigs, or access restrictions on
such equipment, may affect the availability of, and the Target Group’s access to, such
equipment. In the areas in which it operates there is significant demand for drilling rigs
and other related equipment and even if it is successful in obtaining access to drilling rigs
and other equipment, it may only be after significant delay. Failure by the Target Group or
its contractors to secure necessary equipment could have a material and adverse effect
on its business, results of operations, financial condition and prospects.
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LETTER TO SHAREHOLDERS
PT Cepu contracts or leases services and capital equipment from third-party providers
and will continue to do so. Such equipment and services may be scarce and not readily
available. In addition, costs of third-party services and equipment have increased
significantly over recent years and may continue to rise. Scarcity of equipment and
services and increased prices may in particular result from any significant increase in
exploration and development activities on a region by region basis. In the regions in which
the Target Group operates, there is significant demand for capital equipment and services.
The unavailability and high costs of such equipment and services could result in a delay
or non-completion of its projects and adversely affect the feasibility and profitability of
such projects, and therefore have a material and adverse effect on the Group’s business,
results of operations, financial condition and prospects.
PT Cepu and its offtaker, PEP, rely upon transportation systems, including systems
owned and operated by third parties for the transport of oil and gas. It may be unable to
access the transportation systems used currently or face difficulty sourcing for alternative
transportation systems. Further, PEP could become subject to increased tariffs imposed
by government regulators or the third-party operators or owners of the transportation
systems which could result in an increase in costs and a decrease in the profit margins.
Additionally, importation of certain equipment and chemicals for drilling, exploration and
production requires licenses of the relevant governmental agencies and the process of
obtaining such licences may cause unexpected delay and substantial costs.
(k)
Reliance on the discovery and development of additional reserves to replace
produced reserves
The success of the New Business is dependent upon the continual acquisition, exploration
or development of new oil and gas reserves to replace those produced and sold. If the
Group is unsuccessful in locating and developing or acquiring new reserves, its ability
to exploit and produce will decline over time due to depletion by production. The Group’s
ability to achieve this objective of continual replacement of oil and gas reserves depends,
in part, on its level of success in acquiring additional oil and gas reserves, and further
exploration and development of the existing reserves base. Such exploration and
development activities would expose the Group to a number of risks, including competition
from other interested purchasers who may have larger financial resources than it does;
unidentified historical or future liabilities of the operations that it may acquire; the inability
to receive accurate and timely information about these operations in order to make
informed investment decisions; problems in integrating acquired operations; problems in
hiring and retaining qualified personnel; as well as the geological risk that commercially
recoverable reserves will not be discovered.
Exploration, development and the acquisition of reserves are capital intensive. If the Group
is not successful in exploring for or developing new reserves, or acquiring contract areas
containing proved plus probable reserves, its total proved plus probable reserves will
decline, which will adversely affect its business, results of operations, financial condition
and prospects.
(l)
Unanticipated increased or incremental risks
The oil and gas industry is capital intensive. To implement the business strategy for the
New Business, the Group will invest in drilling and exploration activities and infrastructure.
The Group’s current and planned expenditures on such projects may be subject to
unexpected problems, costs and delays, and the economic results and the actual costs of
these projects may differ significantly from its current estimates.
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LETTER TO SHAREHOLDERS
The Group relies on suppliers and contractors to provide materials and services in
conducting its exploration and production activities. Any competitive pressures on its
suppliers and contractors, or substantial increases in the worldwide prices of commodities,
such as steel, could result in a material increase of costs for the materials and services
required to conduct its business. The cost increases may be the result of inflationary
pressures. For example, due to high global demand and a limited number of suppliers,
the cost of oil and gas services and goods has increased significantly in recent years and
could continue to increase. Future increases could have a material adverse effect on the
Group’s operating income, cash flows and borrowing capacity and may require a reduction
in the carrying value of its contract areas and its planned level of spending for exploration
and development, which depends upon its ability to commercially exploit any underlying
petroleum quantities. Prices for the materials and services it depends on to conduct its
business may not be sustained at levels that enable the Group to operate profitably. The
Group may also need to incur various unanticipated costs, such as those associated with
personnel, transportation, government taxes and compliance with environmental and
safety requirements. Personnel costs, including salaries, are increasing as the standard
of living rises in the countries in which the Group operates, and as demand for suitably
qualified personnel in the oil and gas industry increases. An increase in any of these costs
could have a material and adverse effect on the Group’s business, results of operations,
financial condition and prospects.
(m)
Exposure to foreign exchange risks
The revenue from the New Business will be generated from sales to markets, which
may include overseas markets. To the extent that the Group’s revenue, purchases and
operating costs are not matched in the same currency, such as the Indonesian Rupiah,
and to the extent there are timing differences between invoicing and collection of payment,
as the case may be, the Group will be exposed to any adverse fluctuations of the currency
of the jurisdiction in which the Group will be engaging in to conduct its business, and the
Group’s operating results may be materially or adversely affected.
(n)
The New Business is subject to general risks associated with operating businesses
outside Singapore
There are risks inherent in operating businesses overseas, which include unexpected
changes in regulatory requirements, difficulties in staffing and managing foreign
operations, social and political instability, fluctuations in currency exchange rates,
potentially adverse tax consequences, legal uncertainties regarding the Group’s liability
and enforcement, changes in local laws and controls on the repatriation of capital or
profits. Any of these risks could adversely affect the Group’s overseas operations and
consequently, its business, financial performance, financial condition and operating cash
flow.
In addition, if the governments of countries in which the Group operates, such as
Indonesia, tightens or otherwise adversely changes their laws and regulations relating to
the repatriation of their local currencies, it may affect the ability of the Group’s overseas
operations to repatriate profits to the Group and, accordingly, the cash flow of the Group
will be adversely affected.
(o)
The Group’s ability to borrow in the bank or capital markets may be adversely
affected by a financial crisis
The Group’s ability to borrow from banks or the capital markets to meet its financial
requirements is dependent on favourable market conditions. Financial crises in particular
geographic regions, industries or economic sectors for example, the United States subprime mortgage crisis and the sovereign debt crisis in Europe and the United States,
have, in the recent past, led and could in the future lead to sharp declines in the
currencies, stock markets and other asset prices in those geographic regions, industries
or economic sectors, in turn threatening affected companies, financial systems and
economies.
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LETTER TO SHAREHOLDERS
(p)
Inability to locate, acquire, develop or produce oil and gas reserves
The Group’s long-term commercial success will depend on its ability to locate, acquire,
develop and commercially produce oil and gas reserves. Without the continual addition
of new reserves, any existing reserves that the Group may have at any particular time
and the production therefrom will decline over time as existing reserves are exploited. A
future increase in the Group’s reserves will depend not only on its ability to explore and
develop any existing assets it may have from time to time, but also on its ability to select
and acquire suitable production fields or prospects. No assurance can be given that the
Group will be able to continue to locate satisfactory production fields for its acquisition or
participation. Moreover, even if such acquisitions or participations are identified, the Group
may determine that the current market, terms of acquisition and participation or pricing
conditions make such acquisitions or participations uneconomic. There is no assurance
that further commercial quantities of oil and gas will be discovered or acquired by the
Group.
(q)
Inability to predict future oil and gas revenues
Future oil and gas exploration may prove to be unprofitable, as wells may be dry or
may be productive but produce insufficient net revenues to return a profit after drilling,
operating and other costs. Completion of a well does not assure a profit on the investment
or recovery of drilling, completion and operating costs. Furthermore, drilling hazards
or environmental damage could greatly increase the cost of operations, and various
field operating conditions may adversely affect the production from successful wells.
These conditions include delays in obtaining governmental approvals or consents,
shut-ins of connected wells resulting from extreme weather conditions, insufficient
storage or transportation capacity or other geological and mechanical conditions. While
diligent supervision of the wells and effective maintenance operations can contribute to
maximising production rates over time, production delays and declines from normal
field operating conditions cannot be eliminated and can be expected to adversely affect
revenue and cash flow levels on the Group’s financials to varying degrees.
(r)
Volatility of markets, prices and marketing
The marketability and price of oil and gas that may be produced, acquired or discovered
by the Group will be affected by numerous factors beyond its control. Although not
currently applicable in relation to the proposed Acquisition, in the future, depending on
the future activities of the Group, the Group’s ability to market its oil and gas may depend
upon its ability to acquire space on pipelines that deliver oil and gas to commercial
markets. Depending on the future activities of the Group, the Group may also be affected
by deliverability uncertainties related to the proximity of its reserves to pipelines and
processing facilities and related to operational problems with such pipelines and facilities
and extensive government regulation relating to price, taxes, royalties, land tenure,
allowable production, the export of oil and gas and many other aspects of the oil and gas
business.
Both oil and gas prices are unstable and are subject to fluctuation. Any material decline in
prices could result in a reduction of the Group’s net production revenue. The economics
of producing from some wells may change as a result of lower prices, which could result
in a reduction in the volumes of the Group’s reserves. The Group might also elect not to
produce from certain wells at lower prices. All of these factors could result in a material
decrease in the Group’s net production revenue causing a reduction in its oil and gas
acquisition, development and exploration activities.
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LETTER TO SHAREHOLDERS
(s)
Decreased productivity resulting from operational hazards
Oil and gas exploration, development and production operations are subject to all the
risks and hazards typically associated with these operations. Such hazards would include
fire, explosion, blowouts, cratering, sour gas releases and spills, each of which may result
in substantial damage to oil and gas wells, production facilities, other property and the
environment or in personal injury to employees.
Oil and gas production operations are also subject to all the risks typically associated with
such operations, including encountering unexpected formations or pressures, premature
decline of reservoirs and the invasion of water into producing formations. Losses resulting
from the occurrence of any of these risks could have a materially adverse effect on future
results of operations, liquidity and financial condition.
(t)
Competition from major oil and gas players
All phases of the petroleum industry are competitive. Key areas in respect of which the
Group faces competition include:

acquisition of exploration and production licenses through bidding processes run by
governmental authorities;

alternative energy sources that may compete with or reduce demand for oil and
gas;

acquisition of other companies that may already own licenses or existing
hydrocarbon assets;

engagement of third-party service providers whose capacity to provide key services
may be limited;

entering into commercial arrangements with customers;

purchase of capital equipment that may be scarce; and

employment of highly skilled personnel and professional staff.
The Group will inevitably compete with numerous other participants in the search for
the acquisition of oil and gas production sites and, depending on future activities, in the
marketing of oil and gas. Its competitors include established oil and gas companies with
superior operating track records and who have substantially greater financial resources,
staff and facilities than those of the Group, as the case may be. Many of these competitors
not only explore for and produce oil and gas, but also carry on refining operations and
market hydrocarbon and other products on an international basis. These competitors may
be able to pay more for producing oil and gas contract areas and exploratory prospects
and to evaluate, bid for and purchase a greater number of contract areas and prospects
than the Group’s financial or personnel resources permit. This may result in higher than
anticipated prices for the acquisition of licenses or assets, the hiring by competitors of key
management or operatives, restrictions on the availability of equipment or services.
If the Group is unsuccessful in identifying suitable contract areas or continuing satisfactory
relationships with existing partners and competing against other companies, its business,
results of operations, financial condition and prospects could be materially adversely
affected.
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LETTER TO SHAREHOLDERS
(u)
Title to assets may be defective
Although title reviews will generally be conducted prior to the purchase of most oil and
gas producing properties or the commencement of drilling wells, such reviews do not
guarantee or certify that an unforeseen defect in the chain of titles will not arise to defeat
the Group’s claim which could result in a reduction or elimination of the revenue received
by the Group.
(v)
Assessments of the value of acquisitions
Acquisitions of oil and gas issuers and oil and gas assets are typically based on
engineering and economic assessments made by independent engineers and the Group’s
internal assessments. These assessments both will include a series of assumptions
regarding such factors and recoverability and marketability of oil and gas, future prices
of oil and gas and operating costs, future capital expenditures and royalties and other
government levies which will be imposed over the producing life of the reserves. Many of
these factors are subject to change and are beyond the Group’s control. In particular, the
prices of and markets for oil and gas products may change from those anticipated at the
time of making such assessment. In addition, all such assessments involve a measure of
geologic and engineering uncertainty which could result in lower production and reserves
than anticipated. Initial assessments of acquisitions may be based on reports by a firm of
independent engineers that are not the same as the firm the Group uses for its year end
reserve evaluations. Because each of these firms may have different evaluation methods
and approaches, these initial assessments may differ significantly from the assessments
of the firm used by the Group. Any such instance may offset the return on and value of the
Company’s shares.
(w)
Delays in business operations
In addition to the usual delays in payments by purchasers of oil and gas to the Group or
to the operator, and the delays by operators in remitting payment to the Group, payments
between these parties may be delayed due to restrictions imposed by lenders, accounting
delays, delays in the sale or delivery of products, delays in the connections of wells to a
gathering system, adjustment for prior periods, or recovery by the operator of expenses
incurred in the New Business. Any of these delays could reduce the amount of cash
flow available for the business of the Group in a given period and expose the Group to
additional third party credit risks.
(x)
Alternatives to and changing demands for petroleum products
Full conservation measures, alternative fuel requirements, increasing consumer demand
for alternatives to oil and gas, and technological advances in fuel economy and energy
generation devices could reduce the demand for crude oil and other liquid hydrocarbons.
The Group cannot predict the impact of changing demand for oil and gas products, and
any major changes may have a material adverse effect on its business, financial condition,
results of operations and cash flows.
4.2.3
Risks Relating to Conducting Operations in Indonesia
(a)
The business and operations of the Group may be affected by the political,
economic and social environment in Indonesia
The New Business is mainly located in Indonesia and the Group’s main markets pursuant
to the New Business will be in Indonesia. Accordingly, the Group’s business and future
growth is highly dependent on the political, economic and social environment in Indonesia.
Adverse changes in the political, economic and social conditions in Indonesia such as
changes in labour conditions, import and export regulations, tariffs, non-trade tariffs,
barriers, custom restrictions, fluctuations in exchange rates, economic recession and
inflation may adversely affect the Group’s business, operations and financial performance.
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LETTER TO SHAREHOLDERS
The laws and regulations in Indonesia or the interpretation and implementation of the
same may be subject to change. Unfavourable changes in Indonesia laws, the Indonesia
legal system or any changes in the policies implemented by the government of the
Indonesia or the implementation of existing laws and policies which may result in currency
and interest rate fluctuations, capital restrictions, changes in treatment of land use
rights and other property rights and changes in duties and taxes detrimental to the New
Business may materially affect the Group’s operations, financial performance and future
growth.
From time to time, changes in law and regulations in Indonesia or the implementation
thereof may also require the Group to obtain additional approvals and licences from the
Indonesia authorities for the conduct of the New Business in Indonesia. In such event, the
Group may need to incur additional expenses in order to comply with such requirements.
This will in turn affect its financial performance as its business costs will increase.
Furthermore, there can be no assurance that such approvals or licences will be granted
to the Group promptly or at all. If the Group experiences delay in obtaining or is unable to
obtain such required approvals of licences, its operations and business in Indonesia and
its overall financial performance will be adversely affected.
(b)
Government regulations relating to the New Business and the procurement of
government licences and approvals in Indonesia
The Group’s operations in the oil and gas exploration, exploitation and production
business will be subject to licenses, regulations and approvals for, inter alia, the
exploration, development, construction, operation, production, marketing, pricing,
transportation and storage of such resources. Similar licenses, regulations and approvals
are also applicable to the Group in its capacity as an operator cooperating in production or
to the service providers it engages. The governments of the countries in which the Group
and/or the service providers may operate may exercise significant influence over the oil
and gas sector.
Any government action which affects the Group (such as a change in pricing policy or
taxation rules or practice, or renegotiation or nullification of existing concession contracts
or exploration policy, laws or practice) could have a material adverse effect on the Group.
In addition, the Indonesian government could also require the Company to grant to them
revenues or shares of the relevant portions of the New Business, as equity participation
by such governments might be a pre-condition for the grant of the necessary licences,
or postpone or review projects, nationalise assets, or make changes to laws, rules,
regulations or policies, which in each case, could adversely affect the Group’s business,
prospects, financial condition and results of operations. Possible future changes in the
government, major policy shifts or increased security arrangements in Indonesia could
have to varying degrees an adverse effect on the value of the Group. These factors could
have a material adverse effect on the Group’s business, results of operations, financial
condition and prospects.
(c)
Risk of non-compliance with governmental and regulatory requirements
Notwithstanding the adoption of any measures that are put in place by the Group, there
is no assurance that the Group will be able to meet all the regulatory requirements and
guidelines, or comply with all the applicable regulations at all times, or that it will not be
subject to sanctions, fines or other penalties in the future as a result of non-compliance.
If sanctions, fines and other penalties are imposed on the Group for failing to comply
with applicable requirements, guidelines or regulations, its business, reputation, financial
condition and results of operations may be materially and adversely affected.
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LETTER TO SHAREHOLDERS
(d)
Terrorism and militant activity
Indonesia, where the Group primarily operates and conducts the New Business has
experienced terrorist and militant activity. There can be no assurance that further terrorist
acts will not occur in the future. The fear of terrorist actions, either against the Group’s
properties or generally, could have an adverse effect on the Group’s ability to adequately
staff and/or manage the Group’s operations or could substantially increase the costs of
doing so.
Any future terrorist acts in Indonesia, or countries neighbouring thereto, could destabilise
the economy and increase internal divisions within the Indonesian government, and might
result in concerns about stability in the region and negatively affect investors’ confidence.
Violent acts arising from and leading to instability and unrest have in the past had, and
could continue to have, a material adverse effect on investment and confidence in, and
the performance of, the economies of Indonesia, and in turn, on the Group’s business.
Any terrorist attack, including those targeting the Group’s properties, could interrupt parts
of the Group’s business and materially and adversely affect the Group’s business, results
of operations, financial condition and prospects.
(e)
Lack of infrastructure / poorly maintained infrastructure
Physical infrastructure in some areas in which the Group operates or intends to operate
in the New Business, is obsolete or non-existent and in certain respects have not been
adequately funded and maintained. Breakdowns or failures of any part of the physical
infrastructure in such areas may disrupt the Group’s normal business activity, cause
the Group to suspend operations or result in environmental damage to the surrounding
areas. Further deterioration of the physical infrastructure in such areas may disrupt the
transportation of goods and supplies, increase operational costs of doing business in
these areas and generally interrupt business operations, any or all of which could have a
material adverse effect on the Group’s business, results of operations, financial condition
and prospects.
(f)
Uncertainty in the interpretation and application of laws and regulations
The courts in the jurisdiction in which the Group operates in the New Business, such
as Indonesia, may offer less certainty as to the judicial outcome or a more protracted
judicial process than is the case in more established economies. Businesses can become
involved in lengthy court cases over simple issues when rulings are not clearly defined,
and the poor drafting of laws and excessive delays in the legal process for resolving
issues or disputes compound such problems.
Accordingly, the Group could face risks such as: (i) effective legal redress in the courts
of such jurisdictions being more difficult to obtain, whether in respect of a breach
of law or regulation, or in an ownership dispute; (ii) a higher degree of discretion
on the part of governmental authorities and therefore less certainty; (iii) the lack of
judicial or administrative guidance on interpreting applicable rules and regulations; (iv)
inconsistencies or conflicts between and within various laws, regulations, decrees, orders
and resolutions; or (v) relative inexperience or unpredictability of the judiciary and courts
in such matters.
Enforcement of laws in Indonesia may depend on and be subject to the interpretation
placed upon such laws by the relevant local authority, and such authority may adopt an
interpretation of an aspect of local law which differs from the advice that has been given
to the Group by local lawyers or even by the relevant local authority itself previously.
Furthermore, there is limited or no relevant case law providing guidance on how courts
would interpret such laws and the application of such laws to the Group’s contracts, joint
operations, licenses, license applications or other arrangements.
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LETTER TO SHAREHOLDERS
There can be no assurance that an unfavorable interpretation or application of the laws in
Indonesia will not adversely affect the Group’s contracts, joint operations, licenses, license
applications or other legal arrangements. In certain jurisdictions, the commitment of local
businesses, government officials and agencies and the judicial system to abide by legal
requirements and negotiated agreements may be less certain and more susceptible to
revision or cancellation, and legal redress may be uncertain or delayed. If the existing
body of laws and regulations in the countries in which the Group operates are interpreted
or applied, or relevant discretions exercised, in an inconsistent manner by the courts
or applicable regulatory bodies, this could result in ambiguities, inconsistencies and
anomalies in the enforcement of such laws and regulations, which in turn could hinder the
Group’s long-term planning efforts and may create uncertainties in the Group’s operating
environment.
5.
THE PLACEMENT OF SHARES
5.1
Introduction to the Placement
Subject to the terms and conditions of the Placement Agreement, the Company has agreed
to issue, and the Placement Agent has agreed, subject to the lodgement by the Company of
an Offer Information Statement for the Placement, to procure subscriptions on a commercially
reasonable efforts basis for up to 80,000,000 Placement Shares at not less than S$0.30 for each
Placement Share.
Section 161 of the Companies Act requires a company to obtain the approval of its shareholders
in a general meeting for the issue of shares by the company, except where such issue is
undertaken pursuant a general mandate granted by shareholders in a general meeting.
Rule 805(1) of the Listing Manual requires an issuer to obtain the prior specific approval of
shareholders in a general meeting for the issue of shares, save where such issue is undertaken
pursuant to a general mandate granted by shareholders in a general meeting.
In addition, as the Placement Price represents a discount of approximately 13.32% to the VWAP
of S$0.3461 for trades done on the Catalist on 10 July 2014 (being the full market day on which
the Shares were traded prior to the signing of the Placement Agreement), the Company is
required under Rule 811(3) of the Listing Manual to seek the specific approval of Shareholders
for the issuance of the Placement Shares.
The Company intends to seek the specific approval of Shareholders for the allotment and issue
of the Placement Shares at the EGM in accordance with Rules 805(1) and 811(3) of the Listing
Manual and Section 161 of the Companies Act.
The Placement is not underwritten and will be undertaken pursuant to Section 277 of the SFA.
5.2
Placement Price
The minimum Placement Price of S$0.30 for each of the Placement Shares represents a
discount of approximately 13.32% to the VWAP of S$0.3461 for trades done on the Shares on
the Catalist on 10 July 2014 (being the full market day on which Shares were traded prior to the
signing of the Placement Agreement).
The Placement Price was commercially agreed between the Company and the Placement
Agent, after taking into consideration, inter alia, the historical trading prices and volume of the
Shares on the Catalist. The Company and the Placement Agent will determine the Placement
Price based on a bookbuilding process. If there is a strong investor demand for the Placement
Price to be higher than S$0.30, the Company and the Placement Agent may agree on a
higher price, taking into account factors including quality of demand and possible aftermarket
performance.
42
LETTER TO SHAREHOLDERS
As the Placement Price represents a discount of more than 10% to the VWAP, the Company is
required under Rule 811(3) of the Listing Manual to seek the specific approval of Shareholders
for the issuance of the Placement Shares.
5.3
Terms of the Placement
The Placement Shares represent approximately 25.4% of the issued share capital of the
Company comprising 315,018,657 Shares as at the Latest Practicable Date and will represent
approximately 16.9% of the enlarged issued share capital of the Company comprising
472,618,657 Shares on Completion (assuming 80,000,000 Placement Shares, 76,000,000
Consideration Shares and 1,600,000 Introducer Shares are issued).
The Placement Shares shall be sold free from any and all mortgages, charges, claims,
securities, pledges, liens, equities, encumbrances or any other interests whatsoever and shall
rank in all respects pari passu with the Shares existing at the date of issue of the Placement
Shares, save that they shall not rank for any entitlements, distributions, dividends or rights (if
any), the record date in respect of which falls prior to the date of issue of the Placement Shares.
The Placement Shares will not be offered for sale to, nor will subscriptions be procured from, nor
will any invitation be made for subscription for or sale of the Placement Shares to, any person
who is a director or substantial shareholder of the Company or other persons specified in Rule
812(1) of the Listing Manual save for such persons falling within the exceptions specified in Rule
812(3).
The Company shall pay to the Placement Agent a commission of 4.0% of the aggregate
Placement Price for the Placement Shares for which the Placement Agent has procured
subscribers (as determined in the pricing supplement to the Placement Agreement which sets
out the number of Placement Shares placed and the Placement Price).
The Company will be making an application to the SGX-ST through the Sponsor for the listing
of and quotation for the Placement Shares on the Catalist, and will make the necessary
announcement upon receipt of the listing and quotation notice from the SGX-ST.
5.4
Conditions Precedent
Completion of the Placement is conditional upon the fulfillment of, inter alia, the following
conditions:
(a)
the SPA not having been terminated and no fact, circumstance, event or situation having
arisen that would cause the Company to reasonably believe that the Acquisition could not
be completed;
(b)
the listing and quotation notice being obtained from the SGX-ST for the dealing in, listing
of and quotation for the Placement Shares on the Catalist in accordance with the terms
of the Placement Agreement, and not having been revoked or amended and where such
approval is subject to conditions, such conditions being reasonably acceptable to the
Placement Agent and to the extent that any conditions to such approval are required to be
fulfilled on or before the completion date, they are so fulfilled;
(c)
the allotment and issuance of the Placement Shares not being prohibited by law or
regulation or interpretation thereof (including without limitation, any statute, order, rule,
regulation, request, judgement or directive promulgated or issued by any legislative,
executive, judicial or regulatory body or authority (including without limitation, the
Monetary Authority of Singapore and the SGX-ST)) in Singapore or other jurisdictions
which are applicable to the Company or the Placement Agent;
43
LETTER TO SHAREHOLDERS
(d)
the determination of the number of Placement Shares for which the Placement Agent
has procured subscription and the Placement Price, and the entry into of the pricing
supplement on or before the cut-off date of 31 August 2014 (or such other date as the
Company and the Placement Agent may agree);
(e)
as of the completion date, the trading of the issued Shares on the SGX-ST not being
suspended by the SGX-ST (other than a suspension or trading halt on a temporary basis
requested by the Company) and the issued Shares not having been delisted from the
SGX-ST;
(f)
Shareholders’ approval for the following being obtained at an extraordinary general
meeting of the Company to be convened:
(i)
the Placement;
(ii)
the proposed Acquisition;
(iii)
the proposed issue and allotment of 1,600,000 new Shares to Tam Siew Foong; and
(iv)
the proposed diversification by the Company into the business of operating and
producing oil in the oil fields;
(g)
the representations, warranties and undertakings by the Company in the Placement
Agreement remaining true and accurate in all material respects (or where already qualified
by materiality, in all respects) from the date of the Placement Agreement up to the
completion date;
(h)
the Company having performed in all material respects (or where already qualified by
materiality, in all respects) all of its relevant obligations to be performed under the
Placement Agreement on or before the completion date;
(i)
there having been, from the date of the Placement Agreement up to the completion date,
no occurrence of any event nor the discovery of any fact rendering untrue or incorrect in
any material respect (or where already qualified by materiality, in any respect) any of the
representations, warranties and undertakings contained in the Placement Agreement;
(j)
the delivery to the Placement Agent on the completion date of a certificate in the form set
out in the Placement Agreement; and
(k)
an offer information statement in relation to the Placement in a form and substance
reasonably satisfactory to the Placement Agent and which complies as to form and
content with the Sixteenth Schedule of the Securities and Futures (Offers of Investment)
(Shares and Debentures) Regulations 2005, having been lodged with and accepted by the
SGX-ST, acting as agent on behalf of the Monetary Authority of Singapore.
If any of the conditions set forth above is not satisfied on or before 31 August 2014 or such
other date as the Company and the Placement Agent may agree, the obligations of the
Placement Agent and the Company under the Placement Agreement shall ipso facto cease
and determine thereafter and in that event the Company and the Placement Agent shall be
released and discharged from their respective obligations under the Placement Agreement
(except for any liability accruing before or in relation to such termination) and the parties to the
Placement Agreement shall (except for Clauses 9, 17, 18 and 20 of the Placement Agreement
relating to indemnities, notices, governing law and jurisdiction and the Contracts (Rights of Third
Parties) Act respectively) be under no further liability or obligation arising out of the Placement
Agreement (except for any liability accruing before or in relation to such termination).
44
LETTER TO SHAREHOLDERS
6.
RATIONALE AND USE OF PROCEEDS
The rationale for the Transactions is as follows:
(a)
The Target Group is in the growing business of enhancing the production of existing
oil wells. The Acquisition presents a unique opportunity for the Company to prudently
diversify into the upstream oil and gas sector.
(b)
The strategic shareholding by JPEL as a Controlling Shareholder of the Company and
its continued indirect equity participation in the Target Group pursuant to the Acquisition
will be instrumental in ensuring the alignment of JPEL’s interest with that of the Company
and the Target Group as a whole in the long term, and will incentivise JPEL to assist the
Company in the development of the New Business.
(c)
PT Cepu holds the exclusive rights to cooperate in conducting operations for extracting oil
from the Dandangilo-Wonocolo and Tungkul Oil Fields.
(d)
The cash proceeds raised from the Placement will be primarily used to fund the First
Tranche of the Cash Consideration and the Shareholder’s Loan (to be extended by the
Purchaser to the Target).
Please refer to Sections 2.4.1 and 2.3 of this Circular for more information on the Consideration
payable to JPEL in respect of the Acquisition and the rationale and benefits of the Acquisition
respectively.
The net cash proceeds from the Placement (after deducting expenses relating to the Placement)
will be approximately S$22,700,000 (the “Net Proceeds”). The Net Proceeds will be used by the
Company in the following estimated proportions:
Use of Proceeds
Percentage Allocation (%)
First Tranche of the Cash Consideration in respect of the
Acquisition
Approximately 60% to 66%
Shareholder’s Loan
Approximately 20% to 28%
General working capital of the Group
Approximately 6% to 20%
The Company will make periodic announcements on the use of the Net Proceeds as and when
they are materially disbursed, and provide a status report on the use of the Net Proceeds in the
Company’s annual report. The Company will disclose a breakdown with specific details on the
use of the Net Proceeds for working capital in such announcements and annual reports. Where
there is any material deviation from the stated use of Net Proceeds, the Company will announce
the reasons for such deviation.
Pending the deployment of the Net Proceeds, such proceeds may be deposited with banks or
financial institutions, invested in short-term money market instruments or marketable securities,
and/or used for any other purpose on a short-term basis, as the Directors may, in their absolute
discretion, deem fit from time to time.
The Net Proceeds from the Placement will be used (i) to fund the First Tranche of the Cash
Consideration in respect of the Acquisition, (ii) to fund the Shareholder’s Loan and (iii) as
general working capital of the Group. The Directors are of the opinion that after taking into
consideration (a) the present bank facilities, the working capital available to the Group is
sufficient to meet its present requirements; and (b) the present bank facilities and Net Proceeds,
the working capital available to the Group is sufficient to meet its present requirements.
45
LETTER TO SHAREHOLDERS
7.
FINANCIAL EFFECTS OF THE TRANSACTIONS
The pro forma financial effects of the Transactions set out below are based on the audited
consolidated financial statements of the Company and the Group for the financial year ended
31 August 2013 and the unaudited consolidated statements of the Target for the financial year
ended 31 December 2013, and are subject to the following assumptions:
(a)
that the Transactions were completed on 1 September 2012 for the purpose of calculating
the pro forma EPS;
(b)
that the Transactions were completed on 31 August 2013 for the purpose of calculating
the pro forma NTA per Share;
(c)
the maximum number of 80,000,000 Placement Shares is placed out by the Placement
Agent at the Placement Price of S$0.30 per Placement Share; and
(d)
the Second Tranche is not funded by an issuance of new Shares.
The financial effects are only presented for illustration purposes, and are not intended to reflect
the actual future financial situation of the Company or the Group after Completion.
7.1
Net Tangible Assets
Assuming that the Transactions were completed on 31 August 2013, the effect on the NTA per
Share of the Group will be as follows:
Before the Transactions
Consolidated NTA attributable to
Shareholders (S$’000)
Number of Shares
Consolidated NTA per Share attributable
to Shareholders (cents)
7.2
After the Transactions
8,268
57,522
131,509,657
289,109,657
6.29
19.90
Earnings per Share
Assuming that the Transactions were completed on 1 September 2012, the effect on the
earnings per Share of the Group will be as follows:
Before the Transactions
Consolidated earnings after tax and
minority interests (S$’000)
Weighted average number of Shares
Consolidated earnings per Share (cents)
46
After the Transactions
450
119
131,509,657
289,109,657
0.34
0.04
LETTER TO SHAREHOLDERS
7.3
Gearing
Assuming that the Transactions were completed on 31 August 2013, the effect on the gearing of
the Group as at 31 August 2013 will be as follows:
Before the Transactions
After the Transactions
Net debt(1) / (cash) (S$’000)
(1,644)
(4,007)
Total capital (S$’000)
21,332
68,612
Gearing (times)(2)
(0.08)
(0.06)
Notes:
(1)
Net debt is calculated as borrowings (excluding trade and other payables, due to holding company, due to related
companies and provisions) less cash and cash equivalents. Total capital is calculated as total equity plus net debt.
(2)
Gearing is determined based on net debt divided by total capital.
8.
NEW SHARE ISSUE MANDATE
8.1
New Share Issue Mandate
At the last general meeting of the Company held on 26 December 2013 (the “2013 AGM”),
the Shareholders passed a resolution to authorise the Directors to allot and issue new shares
and convertible securities in the capital of the Company (whether by rights issue or otherwise),
provided that the aggregate number of Shares to be issued pursuant to such authority does not
exceed fifty per centum (50%) of the Company’s total issued share capital at the time of passing
of the resolution (the “2013 General Mandate”).
The number of issued Shares as at the date of the 2013 AGM was 263,018,657 Shares, and the
maximum number of new Shares that may be issued pursuant to the 2013 General Mandate is
52,603,731 Shares.
On 18 February 2014, the Company entered into a subscription agreement, pursuant to which
the subscribers agreed to subscribe for 52,000,000 Shares (“2014 Subscription”).
As the 2013 General Mandate has been substantially exhausted by the 2014 Subscription, the
Company is seeking Shareholders’ approval at the EGM for a mandate (the “New Share Issue
Mandate”) to be given to the Directors to issue shares and convertible securities in the capital of
the Company (whether by way of rights, bonus or otherwise) at any time and upon such terms
and conditions and for such purposes as the Directors may, in their absolute discretion, deem fit.
The aggregate number of shares to be issued pursuant to the New Share Issue Mandate,
including shares to be issued in pursuance of any convertible securities made or granted
pursuant to this authority, shall not exceed hundred per centum (100%) of the total number
of issued shares in the capital of the Company (excluding treasury shares) at the time of
the passing of the New Share Issue Mandate, of which the aggregate number of shares and
convertible securities to be issued other than on a pro-rata basis to existing Shareholders shall
not exceed fifty per centum (50%) of the total number of issued shares in the capital of the
Company (excluding treasury shares).
47
LETTER TO SHAREHOLDERS
Subject to such manner of calculation as may be prescribed by the SGX-ST, for the purpose of
determining the aggregate number of shares that may be issued under the paragraph above,
the percentage of the total number of issued shares (excluding treasury shares) shall be based
on the Company’s total number of issued shares (excluding treasury shares) at the time such
authority is given, after adjusting for:
(i)
new shares arising from the conversion or exercise of any convertible securities;
(ii)
new shares arising from exercising share options or vesting of share awards which are
outstanding or subsisting at the time such authority is given, provided the options or
awards were granted in compliance with Part VIII of Chapter 8 of the Listing Manual; and
(iii)
any subsequent bonus issue, consolidation or sub-division of shares.
If approved, the New Share Issue Mandate will take effect from the date of the EGM and
continue in force (i) until the Company’s next annual general meeting or the date by which the
next annual general meeting of the Company is required by the law to be held, whichever is
earlier, or (ii) in the case of shares to be issued in accordance with the terms of convertible
securities issued, made or granted pursuant to the New Share Issue Mandate, until the issuance
of such shares in accordance with the terms of such convertible securities unless prior thereto,
issues of shares are made to the full extent permitted by the New Share Issue Mandate or the
New Share Issue Mandate is revoked or varied by the Company in general meeting.
8.2
Compliance with Listing Manual
In exercising the authority conferred under the New Share Issue Mandate, the Company
will comply with the provisions of the Listing Manual for the time being in force, unless such
compliance has been waived by the SGX-ST and the Articles of Association for the time being of
the Company.
8.3
Rationale
The Directors believe that the proposed New Share Issue Mandate is in the best interests of the
Company and its Shareholders. It will enable the Company to act quickly and take advantage
of market conditions, in issuing shares or convertible securities, within the limits specified,
and avoid the delay and the expense of otherwise having to convene general meetings of the
Company to approve each share issue or the making or granting of each specific convertible
security.
8.4
Risks of the New Share Issue Mandate
(a)
Dilution of shareholding
The proposed New Share Issue Mandate, once approved will empower the Directors to
issue new Shares or convertible securities in the capital of the Company (whether by
way of bonus issue, rights issue or otherwise), subject to the limitations set out in Section
8.1 above. This will allow the Company to undertake additional capital raisings and/
or acquisitions by way of issuance of new Shares under the proposed New Share Issue
Mandate provided the terms of the share issuances and/or acquisitions do not require
Shareholders’ approval. In such instances, Shareholders’ shareholding in the Company will
be diluted.
However, despite the proposed New Share Issue Mandate, the Company will still be
subject to the Listing Manual, including but not limited to the relevant rules under Chapters
8 and 10 of the Listing Manual. Shareholders’ approval would still have to be sought if the
terms of the share issuances pursuant to the additional capital raising and/or acquisition
exceed certain thresholds. In such an instance, the Company will seek the approval of
Shareholders for the issuance of Shares and details relating to the additional capital
raising and/or acquisition will be detailed in a circular to be despatched to Shareholders
allowing them to make an informed decision.
48
LETTER TO SHAREHOLDERS
(b)
Shareholders may not have the opportunity to consider terms of corporate actions
If the proposed New Share Issue Mandate is approved by Shareholders at the EGM,
the Company will not need to seek specific Shareholder’s approval for certain corporate
actions that the Company may undertake, including additional capital raising and/
or acquisitions if the terms of such corporate actions do not exceed the thresholds as
stated in the Listing Manual. In such cases, Shareholders will not have the opportunity to
consider the terms of the corporate actions.
9.
DIRECTORS’ OPINION ON WORKING CAPITAL
The Directors are of the opinion that after taking into consideration:
(a)
the Group’s present bank facilities, the working capital available to the Group is sufficient
to meet its present requirements; and
(b)
the Group’s present internal resources and bank facilities and the net proceeds of the
Placement, the working capital available to the Group is sufficient to meet its present
requirements,
excluding its obligations in connection with the Transactions.
The Company has decided to undertake the Placement to fund the First Tranche of the Cash
Consideration, the Shareholder’s Loan (to be extended by the Purchaser to the Target) and the
fees and expenses in connection with the Acquisition and the Placement.
10.
UNDERTAKING
Roots Capital Asia Limited has given an undertaking to the Company that it will vote in favour of
the Ordinary Resolutions to be proposed at the EGM.
11.
RECOMMENDATION BY DIRECTORS
Having reviewed the terms, inter alia, the rationale and financial effects of the Transactions, the
Directors (save for Lee Kok Wah, who has abstained from making any recommendations due to
his position as director of the Target, and a shareholder of JPEL) are unanimously of the view
that the Transactions are in the best interests of the Company, and they recommend that the
Shareholders vote in favour of the Transactions at the EGM.
The Directors are of the opinion that the New Share Issue Mandate is in the best interest of the
Company. Accordingly, the Directors recommend that Shareholders vote in favour of the ordinary
resolution relating to the New Share Issue Mandate, at the EGM.
12.
INTERESTS OF DIRECTORS AND SUBSTANTIAL SHAREHOLDERS
Save as disclosed in Sections 2.1.2 and 2.2 above, none of the Directors or the Substantial
Shareholders of the Company has any interest, direct or indirect, in the Acquisition and the
Placement, save for their respective shareholdings in the Company.
49
LETTER TO SHAREHOLDERS
13.
SHAREHOLDING STRUCTURE OF THE COMPANY
The shareholding structure of the Company (including the interest of each of the Directors
and Substantial Shareholders in the Shares) as at the Latest Practicable Date before the
Transactions and immediately after the Transactions is set out below:
As at the Latest Practicable Date and
before the Transactions
Direct Interest
Number of
Shares
Immediately after the Transactions
Deemed Interest
Number of
Shares
%
Direct Interest
Number of
Shares
%
Deemed Interest
Number of
Shares
%
%
Directors
Chin Siew Gim
–
–
–
–
–
–
–
–
Tan Kay Guan
652,000
0.21
–
–
652,000
0.14
–
–
Ng Say Tiong
–
–
–
–
–
–
–
–
Yeung Kin Bond,
Sydney(1)
–
–
76,275,000
24.21
–
–
76,275,000
16.14
Chee Sanford
–
–
–
–
–
–
–
–
Valentin Schillo
–
–
–
–
–
–
–
–
Lee Kok Wah
–
–
–
–
–
–
–
–
76,275,000
24.21
–
–
76,275,000
16.14
–
–
–
–
–
–
76,000,000
16.08
–
Substantial
Shareholders
(excluding Directors)
Roots Capital Asia
Limited
JPEL
–
(3)
16.08
Blue Water
–
–
–
–
–
–
76,000,000
Anthony Clive
Reudavey
–
–
–
–
–
–
76,000,000(4)
16.08
Charles Madhavan
–
–
–
–
–
–
76,000,000(4)
16.08
Placees(2)
–
–
–
–
80,000,000
16.92
–
–
Tam Siew Foong
–
–
–
–
1,600,000
0.34
–
–
Other Shareholders
238,091,657
75.58
238,091,657
50.38
Total
315,018,657
100.00
472,618,657
100.00
Notes:
(1)
Yeung Kin Bond, Sydney holds 100.00% of the shares in the capital of Roots Capital Asia Limited and is deemed
interested in the 76,275,000 Shares held by Roots Capital Asia Limited by virtue of Section 7 of the Companies
Act.
(2)
Presented for illustrative purposes only and on the assumptions that (a) none of the Placees has any interest in
Shares as at the Latest Practicable Date and prior to the Placement and the Acquisition; and (b) the maximum
number of 80,000,000 Placement Shares is placed out by the Placement Agent.
(3)
Blue Water holds 30.4% of the shares in the capital of JPEL and is deemed interested in the 76,000,000 Shares to
be held by JPEL by virtue of Section 7 of the Companies Act.
(4)
Each of Charles Madhavan and Anthony Clive Reudavey holds 50% of the shares in the capital of Blue Water.
Each of Charles Madhavan and Anthony Clive Reudavey is deemed interested in the 76,000,000 Shares to be
held by JPEL by virtue of Section 7 of the Companies Act.
50
LETTER TO SHAREHOLDERS
14.
EXTRAORDINARY GENERAL MEETING
The EGM will be held on 22 August 2014 at 10.00 a.m. at The Grassroots’ Club, 190 Ang Mo
Kio Avenue 8, Singapore 568046 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 page N-1 of this
Circular.
15.
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 Introducer Consideration (“Ordinary Resolution 2”), the ordinary
resolution to approve the Diversification (“Ordinary Resolution 3”), and the ordinary resolution
to approve the Placement (“Ordinary Resolution 4”) are inter-conditional upon each other
and in the event that Ordinary Resolution 1, Ordinary Resolution 2, Ordinary Resolution 3 or
Ordinary Resolution 4 is not approved by Shareholders, the proposed Acquisition, the issuance
and allotment of the Introducer Shares and the proposed Diversification will not be proceeded
with.
For the avoidance of doubt, the ordinary resolution to approve the New Share Issue Mandate
(“Ordinary Resolution 5”) is not inter-conditional upon the other Ordinary Resolutions.
16.
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 50 Raffles Place, #32-01, Singapore Land
Tower, Singapore 048623 not later than 48 hours before the time fixed for holding 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 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.
17.
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 Transactions and the New Share Issue Mandate, 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 this 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 this Circular in its proper form and context.
51
LETTER TO SHAREHOLDERS
18.
DOCUMENTS AVAILABLE FOR INSPECTION
Copies of the following documents may be inspected at the registered office of the Company
at 50 Raffles Place, #32-01, Singapore Land Tower, Singapore 048623 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 Supplemental Agreement;
(d)
the QPR;
(e)
the annual report of the Company for FY2013; and
(f)
the Placement Agreement.
Yours faithfully
For and on behalf of the Board of Directors of
GIKEN SAKATA (S) LIMITED
Tan Kay Guan
Chief Executive Officer
52
NOTICE OF EXTRAORDINARY GENERAL MEETING
GIKEN SAKATA (S) LIMITED
(Incorporated in the Republic of Singapore)
(Company Registration No. 197903879W)
NOTICE OF EXTRAORDINARY GENERAL MEETING
Unless otherwise defined or the context otherwise requires, all capitalised terms herein shall bear the
same meanings as used in the circular dated 7 August 2014 issued by the Company (the “Circular”).
NOTICE IS HEREBY GIVEN that an Extraordinary General Meeting of Giken Sakata (S) Limited (the
“Company”) will be held on 22 August 2014 at 10.00 a.m. at The Grassroots’ Club, 190 Ang Mo Kio
Avenue 8, Singapore 568046 for the purpose of considering and, if thought fit, passing with or without
any modifications the following Resolutions:
SHAREHOLDERS SHOULD NOTE THAT THE ORDINARY RESOLUTIONS 1, 2, 3 AND 4 ARE
INTER-CONDITIONAL. ACCORDINGLY, THE APPROVAL OF A TRANSACTION OF AN ORDINARY
RESOLUTION IS INTER-CONDITIONAL WITH THE APPROVAL OF EACH OF THE OTHER
TRANSACTIONS TO BE APPROVED IN THE OTHER ORDINARY RESOLUTIONS. ORDINARY
RESOLUTION 5 IS NOT INTER-CONDITIONAL WITH THE OTHER RESOLUTIONS.
ORDINARY RESOLUTION 1: THE PROPOSED ACQUISITION
That:
(a)
approval be and is hereby given for the proposed acquisition of 624,079 shares in the capital
of Cepu Sakti Energy Pte. Ltd. (the “Target“) from Java Petral Energy Pte. Ltd. (“JPEL”) for the
consideration of up to S$48.0 million as a major transaction (the “Acquisition”), subject to the
terms and conditions of the sale and purchase agreement entered into between the Company
and JPEL dated 31 May 2014 as amended by the supplemental agreement with GSIHL and JPEL
dated 2 July 2014 (the “SPA”);
(b)
approval be and is hereby given for the proposed issue and allotment of 76,000,000 new ordinary
shares in the capital of the Company (“Shares”) at the issue price of S$0.30, subject to the terms
and conditions of the SPA (the “Consideration Shares”);
(c)
approval be and is hereby given for the transfer of a controlling interest in the Company to JPEL
arising from the allotment and issuance of the Consideration Shares pursuant to Rule 803 of the
Listing Manual; and
(d)
any of the directors of the Company (“Directors”) be and is hereby authorised to complete and
to do all acts and things as he may consider necessary or expedient for the purposes of or in
connection with the Acquisition and to give effect to this Ordinary Resolution 1 (including any
amendment to the SPA, execution of any other agreements or documents and procurement of third
party consents) as he shall think fit and in the interests of the Company.
ORDINARY RESOLUTION 2: THE PROPOSED ISSUE AND ALLOTMENT OF 1,600,000
INTRODUCER SHARES TO TAM SIEW FOONG
That:
(a)
and subject to and on completion of the Acquisition, approval be and is hereby given for the
Company to issue 1,600,000 new ordinary Shares (the “Introducer Shares”) at the issue price of
$0.30 per Introducer Share to Tam Siew Foong, as consideration for her services for introducing
the Company to the Target in respect of the Acquisition; and
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NOTICE OF EXTRAORDINARY GENERAL MEETING
(b)
any of the Directors be and is hereby authorised to complete and to do all acts and things as
he may consider desirable, necessary or expedient to give effect to the matters referred to in
paragraph (a) above as he shall think fit and in the interests of the Company.
ORDINARY RESOLUTION 3: THE PROPOSED ALLOTMENT AND ISSUE OF UP TO 80,000,000
PLACEMENT SHARES
That:
(a)
approval be and is hereby given for the allotment and issuance by the Company of up to
80,000,000 new ordinary Shares (the “Placement Shares”), at the issue price of not less than
S$0.30 per Placement Share, on the terms and subject to the conditions of the Placement
Agreement, pursuant to Rule 805(1) of the Listing Manual; and
(b)
any of the Directors be and is hereby authorised to complete and to do all acts and things as
he may consider desirable, necessary or expedient to give effect to the matters referred to in
paragraph (a) above (including any amendment to the Placement Agreement, execution of any
other agreements or documents or procurement of third party consents) as he shall think fit and in
the interests of the Company.
ORDINARY RESOLUTION 4: THE PROPOSED DIVERSIFICATION
That:
(a)
approval be and is hereby given for the Company to undertake the diversification of the Company
and its subsidiaries’ business scope to include the business of exploration, exploitation and
production of oil and gas as well as the provision of services to the upstream oil and gas sector
(the “Diversification”), and the entry by the Company into such contracts, agreements, and
undertakings as the Directors may deem desirable, necessary or expedient to undertake the
Diversification;
(b)
the Company be and is hereby authorised to invest in, purchase or otherwise acquire or dispose of,
from time to time any such assets, investments and shares/interests in any entity pursuant to the
Diversification on such terms and conditions as the Directors deem fit, and such Directors be and
are hereby authorised to take such steps and exercise such discretion and do all such acts and
things as they or he deem desirable, necessary or expedient or give effect to any such investment,
purchase, or acquisition, disposition; and
(c)
the Directors and each of them be and are hereby authorised to do all acts and things as they or
each of them deem desirable, necessary, or expedient to give effect to the matters referred to in
the above paragraphs of this Ordinary Resolution 4 as they or each of them may in their or each of
their absolute discretion deem fit in the interests of the Group.
ORDINARY RESOLUTION 5: THE PROPOSED NEW SHARE ISSUE MANDATE
That pursuant to Section 161 of the Companies Act, Cap. 50 and Rule 806 of Section B of the Singapore
Exchange Securities Trading Limited Listing Manual: Rules of Catalist (the “SGX-ST”), the Directors
be authorised and empowered to allot and issue shares and convertible securities in the capital of
the Company (whether by way of rights, bonus or otherwise) at any time and upon such terms and
conditions and for such purposes as the Directors may, in their absolute discretion, deem fit provided
that the aggregate number of the shares to be allotted and issued pursuant to this Ordinary Resolution
5 shall not exceed hundred per centum (100%) of the total number of issued shares in the capital of
the Company (excluding treasury shares) at the time of the passing of this Ordinary Resolution 5, of
which the aggregate number of shares and convertible securities to be issued other than on a pro-rata
basis to all shareholders of the Company shall not exceed fifty per centum (50%) of the total number of
issued shares in the capital of the Company (excluding treasury shares) and that such authority shall,
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NOTICE OF EXTRAORDINARY GENERAL MEETING
unless revoked or varied by the Company in general meeting, continue in force (i) until the conclusion
of the Company’s next annual general meeting or the date by which the next annual general meeting
of the Company is required by the law to be held, whichever is earlier or (ii) in the case of shares to be
issued in accordance with the terms of convertible securities issued, made or granted pursuant to this
Ordinary Resolution 5, until the issuance of such shares in accordance with the terms of such convertible
securities.
See Explanatory Note (i)
By Order of the Board
Giken Sakata (S) Limited
Ng Say Tiong
Company Secretary
7 August 2014
EXPLANATORY NOTE:
(i)
Ordinary Resolution 5 above, if passed, will empower the Directors from the date of this EGM until the date of the next
annual general meeting or the date by which the next annual general meeting is required by law to be held or when varied
or revoked by the Company in general meeting, whichever is the earlier, to allot and issue shares and convertible securities
in the Company. The number of shares and convertible securities that the Directors may allot and issue under Ordinary
Resolution 5 would not exceed hundred per centum (100%) of the total number of issued shares of the Company at the
time of passing Ordinary Resolution 5. For issue of shares and convertible securities other than on a pro-rata basis to all
shareholders, the aggregate number of shares and convertible securities to be issued shall not exceed fifty per centum (50%)
of the total number of issued shares of the Company.
For the purpose of Ordinary Resolution 5, the percentage of issued shares is based on the total number of issued shares
at the time Ordinary Resolution 5 is passed after adjusting for (a) new shares arising from the conversion or exercise of
convertible securities, (b) new shares arising from the exercise of share options or the vesting of share awards outstanding or
subsisting at the time when Ordinary Resolution 5 is passed, provided the options or awards were granted in compliance with
Part VIII of Chapter 8 of the Listing Manual and (c) any subsequent bonus issue, consolidation or subdivision of shares.
Notes:
1.
A member entitled to attend and vote at this meeting is entitled to appoint a proxy or proxies to attend and vote instead of
him. A proxy need not be a member of the Company.
2.
The form of proxy in the case of an individual shall be signed by the appointor or his attorney, and in the case of a
corporation, either under its common seal or under the hand of an officer or attorney duly authorised.
3.
If the form of proxy is returned without any indication as to how the proxy shall vote, the proxy will vote or abstain as he thinks
fit.
4.
If no name is inserted in the space for the name of your proxy on the form of proxy, the Chairman of the Meeting will act as
your proxy.
5.
The form of proxy or other instruments of appointment shall not be treated as valid unless deposited at the Company’s
business office at 50 Raffles Place, #32-01, Singapore Land Tower, Singapore 048623 not less than 48 hours before the time
appointed for holding the meeting and at any adjournment thereof.
6.
For depositors holding their shares through The Central Depository (Pte) Limited in Singapore, the Directors have determined
that it is more practicable for the depositor proxy form to be delivered to, collected, collated, reviewed and checked at the
Company’s business office at 50 Raffles Place, #32-01, Singapore Land Tower, Singapore 048623 and as such will be
counted as valid in regards to this meeting pursuant to the Company’s Articles of Association. The depositor proxy form,
duly completed, must be deposited by the depositor(s) at the abovementioned office of the Company’s Share Registrar in
Singapore not less than 48 hours before the commencement of the EGM.
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PROXY FORM
GIKEN SAKATA (S) LIMITED
IMPORTANT:
(Incorporated in the Republic of Singapore)
(Company Registration Number: 197903879W)
PROXY FORM
1.
For investors who have used their CPF money to buy Shares in
Giken Sakata (S) Limited, this Circular is forwarded to them at
the request of their CPF Approved Nominees and is sent solely
FOR INFORMATION ONLY.
2.
This Proxy Form is not valid for use by CPF investors and shall
be ineffective for all intents and purposes if used or purported to
be used by them.
*I/We (Name)
of (Address)
being *a member/members of GIKEN SAKATA (S) LIMITED (the “Company”), hereby appoint:
Name
Address
*NRIC / Passport
Number
Proportion of shareholdings
to be represented by proxy
Number of
Shares
%
*and/or
or failing *him/them the Chairman of the Meeting as my/our proxy/proxies to vote for me/us on my/our
behalf and, if necessary, to demand a poll, at the Extraordinary General Meeting of the Company to be
held on 22 August 2014 at 10.00 a.m. at The Grassroots’ Club, 190 Ang Mo Kio Avenue 8, Singapore
568046 and at any adjournment thereof.
*I/We direct *my/our *proxy/proxies to vote for or against the Ordinary Resolutions to be proposed at the
Extraordinary General Meeting as indicated with an “X” in the spaces provided hereunder. If no specified
directions as to voting are given, the *proxy/proxies will vote or abstain from voting at *his/their discretion.
To be used on a
show of hands
For(1)
No.
Ordinary Resolution
1.
To approve the Acquisition
2.
To approve the proposed issue and
allotment of 1,600,000 Introducer Shares
to the Introducer
3.
To approve the Placement
4.
To approve the Diversification
5.
Proposed New Share Issue Mandate
(1)
(2)
To be used in the
event of a poll
Against(1)
Number of
votes for(2)
Number
of votes
against(2)
Please indicate your vote “For” or “Against” the Resolution.
If you wish to use all your votes “For” or “Against”, please indicate with an “X” within the box provided. Otherwise, please
indicate the number of votes.
day of

Dated this
2014
Total Number of Shares in:
(a) CDP Register
(b) Register of Members
Signature(s) of Member(s) or Common Seal of
Corporate Shareholder
*Please delete accordingly
Important: Please read notes overleaf.
PROXY FORM
Notes:
1.
A member of the Company entitled to attend and vote at the EGM is entitled to appoint one or two proxies to attend and vote
in his stead.
2.
Where a member appoints more than one proxy, he/she should specify the proportion of his/her shareholding (expressed as
a percentage of the whole) to be represented by each proxy and if no percentage is specified, the first named proxy shall be
treated as representing 100 per cent of the shareholding and the second named proxy shall be deemed to be an alternate to
the first named.
3.
A proxy need not be a member of the Company.
4.
Please insert the total number of Shares held by you. If you have Shares entered against your name in the Depository
Register (as defined in Section 130A of the Companies Act, Cap. 50 of Singapore), you should insert that number of Shares.
If you have Shares registered in your name in the Register of Members of the Company, you should insert that number of
Shares. If you have Shares entered against your name in the Depository Register and registered in your name in the Register
of Members, you should insert the aggregate number of Shares. If no number is inserted, this form of proxy will be deemed to
relate to all the Shares held by you.
5.
The instrument appointing a proxy or proxies must be deposited at the Company’s business office at 50 Raffles Place #32-01
Singapore Land Tower, Singapore 048623 not less than 48 hours before the time set for the EGM.
6.
The instrument appointing a proxy or proxies must be under the hand of the appointor or by his/her attorney duly authorised
in writing. Where the instrument appointing a proxy or proxies is executed by a corporation, it must be executed either under
its common seal or under the hand of its attorney or a duly authorised officer.
7.
Where an instrument appointing a proxy or proxies is signed on behalf of the appointor by an attorney, the letter or power of
attorney or a duly certified copy thereof must (failing previous registration with the Company) be lodged with the instrument of
proxy, failing which the instrument may be treated as invalid.
8.
A corporation which is a shareholder of the Company may, in accordance with Section 179 of the Companies Act, Cap.
50 of Singapore, authorise by resolution of its directors or other governing body such person as it thinks fit to act as its
representative at the EGM.
9.
The Company shall be entitled to reject the instrument appointing a proxy or proxies, if it is incomplete, improperly completed,
illegible or where the true intentions of the appointor are not ascertainable from the instructions of the appointor specified
on the instrument appointing a proxy or proxies. In addition, in the case of shares entered in the Depository Register, the
Company may reject any instrument appointing a proxy or proxies if a shareholder of the Company, being the appointor, is not
shown to have shares entered against his/her name in the Depository Register as at 48 hours (being two (2) Business Days)
before the time appointed for holding the EGM, as certified by The Central Depository (Pte) Limited to the Company.

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