drb-hicom berhad - Bursa Malaysia

DRB-HICOM BERHAD ("DRB-HICOM" OR THE "COMPANY") (I) PROPOSED SHARE SUBSCRIPTION OF 547,020,534 ORDINARY SHARES, REPRESENTING 49.9% OF THE ENLARGED ORDINARY SHARE CAPITAL IN PROTON HOLDINGS BERHAD (“PROTON”) BY ZHEJIANG GEELY HOLDING GROUP CO., LTD. (“GEELY”) (“PROPOSED SHARE SUBSCRIPTION”); AND (II)

PROPOSED DIVESTMENT OF 100% EQUITY IN LOTUS ADVANCE TECHNOLOGIES SDN. BHD. BY PROTON HOLDINGS BERHAD TO GEELY AND ETIKA AUTOMOTIVE SDN. BHD. ("ETIKA AUTOMOTIVE") (“PROPOSED DIVESTMENT”)

(COLLECTIVELY REFERRED TO AS THE “PROPOSALS”) 1.

INTRODUCTION We refer to the announcement on 24 May 2017 in relation to the heads of agreement entered into by the Company on the same date. The Board of Directors of the Company ("Board") wishes to announce that the Company has on 23 June 2017 entered into the following agreements: (a)

a conditional share subscription agreement ("SSA") with Geely and PROTON for subscription of 547,020,534 ordinary shares by Geely, representing 49.9% of the enlarged paid-up share capital of PROTON; and

(b)

a conditional share purchase agreement ("SPA") with Geely and Etika Automotive for the sale of 100% of its indirect equity in Lotus Advance Technologies Sdn. Bhd. ("Lotus Advance"), through its subsidiary, PROTON, to Geely and Etika Automotive (collectively referred to as the "Purchasers") for a total sale consideration of Great Britain Pounds (“GBP”)100 million or approximately RM 550 million ("Sale Price").

In addition to the above, a licensing agreement in relation to the Boyue model known as NL3 (“Boyue Model”) was entered into by PROTON and Geely pursuant to the terms of the SSA as the Boyue Model is a significant part of the Subscription Price (as defined under Section 2.2(ii)) payable by Geely for the Proposed Share Subscription (“Boyue Licensing Agreement”) (as detailed in Section 2.3 and 2.4 of this Announcement). Separately, the terms of the SSA stipulate that a shareholders' agreement between the Company, Geely and PROTON to regulate the rights and obligations of the shareholders of PROTON ("SHA"), shall be entered into upon completion of the SSA and SPA. The Proposed Share Subscription and Proposed Divestment are inter-conditional with each other.

1

Further details on the Proposals are set out in Section 2 and 3 of this Announcement. Due to the interest of a certain Director, major shareholder and/or persons connected with them, the Proposed Divestment is deemed as a related party transaction pursuant to Paragraph 10.08 of the Main Market Listing Requirements of Bursa Malaysia Securities Berhad ("Bursa Malaysia") ("Listing Requirements") as explained in Section 12 of this Announcement. Arising from the inter-conditionality of the Proposals, the Proposed Share Subscription is also deemed a related party transaction under Paragraph 10.08 of the Listing Requirements of Bursa Securities. 2.

DETAILS OF THE PROPOSED SHARE SUBSCRIPTION

2.1.

Information on PROTON PROTON was incorporated under the laws of Malaysia on 28 July 2003 as a public limited company. PROTON is principally an investment holding company. As at 31 May 2017, being the latest practicable date prior to the date of this Announcement ("LPD"), the total share capital of PROTON is RM1,899,213,002 comprising of 549,213,002 ordinary shares, 1,000,000 redeemable preference shares and 1,250,000,000 redeemable convertible cumulative preference shares ("RCCPS"). As at the LPD, the Company holds 100% of the entire ordinary shares and redeemable preference shares of PROTON. The RCCPS are entirely held by GovCo Holdings Berhad ("GovCo"). PROTON and its subsidiaries ("PROTON Group") manufacture, assemble and sell motor vehicles and related products such as accessories, spare parts and other components. PROTON Group's business activities span the entire automotive value chain encompassing vehicle engineering, research and development (“R&D”), manufacturing, distribution, sales and after-sales services. Based on the audited consolidated financial statements of PROTON for the financial year end ("FYE") 31 March 2016, the net loss and net assets ("NA") attributable to the owner of PROTON were RM1,455.7 million and RM1,026.4 million respectively. Based on the unaudited consolidated financial statements of PROTON for the FYE 31 March 2017, the net loss and NA attributable to the owner of PROTON were RM975.3 million and RM41.5 million respectively.

2.2.

Salient terms and conditions of the SSA The salient terms and conditions of the SSA include, inter-alia, the following: (i)

Parties to the SSA

2

The scope of the Proposed Share Subscription is set out in Appendix 1A, which excludes non-core automotive business assets set out in Appendix 1B. The parties to the SSA are the Company, Geely and PROTON. Under the SSA, Geely agrees to subscribe for 547,020,534 ordinary shares in PROTON, representing 49.9% of the enlarged paid-up ordinary share capital in PROTON. Upon simultaneous completion of the SSA and the SPA ("SSA Completion"), the Company and Geely will respectively hold 50.1% and 49.9% of the ordinary share capital of PROTON. (ii)

Subscription Price Geely shall, on SSA Completion, subscribe for 547,020,534 new ordinary shares in PROTON (“Subscription Shares”), representing 49.9% of the enlarged paidup ordinary share capital to be satisfied as follows: (a) RM170.3 million in cash ("Cash Subscription"); and (b) the grant of the licence by Geely to PROTON (without the right to sub-licence) to manufacture, sell, market and distribute the Boyue Model under the PROTON brand for the term set out in the Boyue Licensing Agreement within the right-hand drive markets in Brunei, Indonesia, Malaysia, Singapore and Thailand ("Boyue Licence") pursuant to the Boyue Licensing Agreement. The Boyue Licensing Agreement will be effective from the SSA Completion. The management of the Company has ascribed the value to the Boyue Licensing Agreement of RM290 million taking into consideration the range of indicative values for the Boyue Licence of between RM265 million and RM310 million, as appraised by KPMG Corporate Advisory Sdn Bhd (“KPMG”), an independent valuer, appointed by the Company. The Cash Subscription and the Boyue Licence totalling RM460.3 million are collectively referred to as the "Subscription Price". The Subscription Price per share is thus 84.15 sen. The Subscription Shares shall upon issuance rank pari passu in all respects with the existing ordinary shares of PROTON save and except that the Subscription Shares will not be entitled to any dividends, rights, allotments, and/or any other distributions which may be declared, made or paid to the shareholder of PROTON, the entitlement date of which is prior to the date of allotment of the Subscription Shares.

3

(iii)

Conditions Precedent SSA Completion is conditional on the following: (a)

approval of the shareholders of the Company, at an extraordinary general meeting, in respect of the Proposed Share Subscription;

(b)

approval of the shareholders of PROTON, at an extraordinary general meeting, in respect of the issuance of the Subscription Shares to Geely;

(c)

approvals or consents from the relevant financial institutions of the Company and PROTON Group where required;

(d)

approval of or notification to certain regulatory authorities in China, namely the National Development and Reform Commission, the Ministry of Commerce and the State Administration of Foreign Exchange, wherever relevant; and

(e)

the SPA becoming unconditional.

The conditions precedent under the SSA are to be fulfilled within a period of five calendar months from the date of the SSA ("Initial Period"). The Initial Period may be extended by one calendar month after the expiry of the Initial Period subject to the agreement of the parties (which shall not be unreasonably withheld), or such other date as may be mutually agreed by the parties in writing. (iv)

Post-completion obligations Following the SSA Completion, the Company, PROTON and Geely agree that:

(v)

(a)

PROTON can produce Geely and/or Volvo badged cars in the Tanjung Malim Facility on terms to be agreed;

(b)

PROTON Group shall not unilaterally terminate any existing supplier agreement entered into between the PROTON Group and the DRB-HICOM Group, for a period of twelve (12) months from the Completion Date.

Geely Models Licensing Agreement Upon signing of the SSA, PROTON and Geely will negotiate in good faith and enter into the Geely Models Licensing Agreement on or prior to the SSA Completion. This involves the grant of the licence (without the right to sub-licence) to manufacture, sell, market and distribute of any 4 of the current and future Geely platform vehicles under the PROTON brand in the right hand drive markets in Brunei, Indonesia, Malaysia, Singapore and Thailand for 5 years from the licence date and subject to renewal.

4

(vi)

Lease of Properties The Company shall enter into a lease to allow PROTON Group to utilise any of the landed properties and/or buildings within the Excluded Assets, as defined in Appendix 1B (except for landed properties pertaining to the lands and properties at PROTON’s Shah Alam office and R&D and production facilities) at a nominal rental of RM1 per month for a period of 10 years from the date of the SSA (“Leased Assets”). Upon expiry of the 10-year period, an amount equivalent to 50% of the then prevailing market monthly rental rate will be charged on the any of the Leased Assets still in use by PROTON.

2.3.

Basis and justification for arriving at the Subscription Price The Subscription Price for the Proposed Share Subscription was arrived at from the implied equity valuation of PROTON which was derived by deducting net debt from the derived enterprise value ("EV") (using an EV multiplier) on PROTON Group’s sales for the FYE 31 March 2017. The EV multiplier is derived from a range of selected trading peers and a review of similar transactions throughout the region. In determining the value to be ascribed by the management for the Boyue Licence, KPMG an independent valuer, estimated the value of the Boyue Licence to be at a range of between RM265 million and RM310 million in its valuation report dated 23 June 2017 based on a discounted cash flow valuation of the contribution of the Boyue model to the free cash flow of PROTON. The Board (other than TMKJ (as defined below) who abstained from deliberations and voting at the Board meeting) is of the view that the Subscription Price is reasonable and justified, and represents the best value proposition for PROTON and the Company, obtained after an international bidding process and unbiased evaluation criteria focusing on strategic, operational and cultural fit.

2.4.

Mode of satisfaction of the Subscription Price The Subscription Price is to be satisfied on SSA Completion as follows: (a) by way of cash, of the Cash Subscription; and (b) by the grant of the Boyue Licence which shall be effected by the delivery by Geely of the duly executed Boyue Licensing Agreement.

2.5.

Source of funding for the Subscription Price Geely is financing the Subscription Price for the Proposed Share Subscription through internally generated funds and /or bank borrowings.

5

2.6.

Liabilities to be assumed There are no liabilities, including contingent liabilities and guarantees to be assumed by Geely and the Company arising from the Proposed Share Subscription except for the following to be assumed by the Company: (a) defend, indemnify and hold harmless Perusahaan Otomobil Nasional Sdn. Bhd. (“PONSB”), in respect of the provisions: (i) relating to warranties for which PONSB is liable to customers, up to RM152 million, which is equivalent to the provisions made in the unaudited consolidated balance sheet of PROTON as at 31 March 2017 in respect of such warranties; and (ii) in relation to claims by its suppliers for the balance of unamortised tooling costs, up to RM179 million, an amount equal to the provisions made in the unaudited consolidated balance sheet of PROTON as at 31 March 2017 in respect of the unamortised tooling costs. (b) bear all costs and expenses in respect of and arising from the rehabilitation of lands affected after the completion of the relocation of the manufacturing, engineering, testing related R&D and administrative activities based at PROTON Group’s manufacturing plant in Shah Alam to the Tanjung Malim facility owned by the PROTON Group (“Tanjung Malim Facility”) after the 6th anniversary of SSA Completion; and (c) subject to certain condition(s), the Company shall bear the following costs of up to RM 180 million: (i) construction of a medium speed test track (up to 130km/h) in Tanjung Malim for the PROTON Group based on the specifications of the existing test track of PROTON Group in Shah Alam; (ii) relocation of R&D activities from Shah Alam to Tanjung Malim including relevant R&D testing equipment, R&D personnel and the preparation of a suitable R&D facility at Tanjung Malim. (d) The Company has an effective non-claimable cumulative threshold of RM30 million (‘Threshold'), for any effected claims against warranties made by the Company, pertaining to the assets, liablilities or activities of the PROTON Group. If total cumulative claims fall below this Threshold, then there is no further cost to the Company, as PROTON GROUP would absorb it. If total cumulative claims are above this Threshold, then the Company is liable to compensate PROTON or the PROTON GROUP for all excess claim amounts above the threshold.

6

(i) Certain potential claim items which are already provided for, such as those highlighted in paragraph 2.6(a) and (b) above, are excluded from the above arrangement (e) The Company has a similar threshold of RM5 million for any effected claims pertaining to fraud, criminal breach of trust or malfeasance at PROTON 2.7.

Utilisation of the proceeds of the Subscription Price The proceeds of the Subscription Price shall be applied towards capital expenditure, production operations of PROTON in accordance with the Business Plan. The proceeds of the Subscription Price are expected to be utilised within 12 months from the receipt of the said proceeds.

3.

DETAILS OF THE PROPOSED DIVESTMENT

3.1.

Information on Lotus Advance Lotus Advance was incorporated under the laws of Malaysia on 27 December 2003 as a private limited company. Lotus Advance is a wholly-owned subsidiary of PROTON, and is principally an investment holding company. As at the LPD, the total share capital of Lotus Advance is RM1,960,286,803 comprising 1,560,497,396 ordinary shares, 327,651,127 redeemable convertible preference shares (”RCPS”) and 780,000 preference shares. Lotus Advance and its group of companies (the "Lotus Group") are principally engaged in the business of automotive design, manufacturing, assembling and distribution under the brand name of "Lotus". Based on the audited financial statements of Lotus Advance for the FYE 31 March 2016, the net loss Lotus Advance and NA of Lotus Advance were RM69.5 million and RM449.2 million respectively. Based on the unaudited financial statements of Lotus Advance for the FYE 31 March 2017, the net loss of Lotus Advance and shareholders’ deficit of Lotus Advance were RM474.8 million and RM25.7 million, respectively.

3.2.

Salient Terms and Conditions of the SPA The salient terms and conditions of the SPA include, inter-alia, the following: (i)

Parties to the SPA

7

The Parties to the SPA are the Company, Geely and Etika Automotive. Under the SPA, Geely and Etika Automotive will acquire 51% and 49% of the following shares in Lotus Advance from PROTON: Purchaser

Type of shares

Number of shares

Geely

Ordinary shares

795,853,672

RCPS

167,102,075

Preference shares Etika Automotive

397,800

Ordinary shares

764,643,724

RCPS

160,549,052

Preference shares

382,200

Upon simultaneous completion of the Proposed Divestment and the Proposed Share Subscription ("SPA Completion"), Geely and Etika Automotive will, respectively hold 51% and 49% of the issued and paid-up share capital of Lotus Advance. (ii)

Sale Price The Sale Price payable to the Company in cash is as follows: (a)

(b)

(iii)

upon execution of the SPA, Geely and Etika Automotive shall pay GBP2,550,000 and GBP2,450,000 in cash respectively to the Company representing a 5% deposit ("Deposit"); on the SPA Completion: (I) Geely and Etika Automotive shall pay GBP10,200,000 and GBP9,800,000 in cash representing a total of 20% of the Sale Price into an escrow account which will be released to PROTON subject to satisfaction of certain conditions over a period of up to 12 months after the SPA Completion ("Escrow Sum"); and (II) Geely and Etika Automotive shall pay the balance of GBP38,250,000 and GBP36,750,000 in cash respectively representing a total of 75% of the Sale Price to the Company in cash ("Completion Amount").

Conditions Precedent The Proposed Divestment is subject to the fulfilment of the conditions precedent as set out in the SPA, as follows:

8

3.3.

(a)

approval from the shareholders of the Company, at an extraordinary general meeting, for the Proposed Divestment;

(b)

approvals or consents from the relevant financial institutions of the Company and PROTON Group where required;

(c)

approval of or notification to certain regulatory authorities in China, namely the National Development and Reform Commission, the Ministry of Commerce and the State Administration of Foreign Exchange, wherever relevant; and

(d)

the SSA becoming unconditional.

Basis and justification for arriving at the consideration The Sale Price for the Proposed Divestment was arrived at from the implied equity valuation of Lotus Advance which was derived by deducting net debt from the derived EV (using an EV multiplier) on Lotus Group’s sales for the FYE 31 March 2017. The EV multiplier is derived from a range of selected trading peers and a review of similar transactions throughout the region. The Board (other than TMKJ who abstained from deliberations and voting at the Board meeting) is of the view that the Sale Price is reasonable and justified, and represents the best value proposition for PROTON and the Company. The Sale Price represents substantial value for an entity which requires substantial continuing capital expenditure commitments and which has, throughout the Company's ownership of it, yielded continuing losses.

3.4.

Original cost and date of investment in Lotus Advance As at LPD, the date of investment in Lotus Advance by PROTON are as follows: Date 14 Apr 2014 Prior to 2014 Total

Number of Preference Shares^ 780,000 327,651,127 328,431,127

Number of Ordinary Shares 438,866,534 1,121,630,862 1,560,497,396

^ Comprises of 780,000 of redeemable preference shares and 327,651,127 of preference shares

As at LPD, the cost of investment in Lotus Advance by PROTON is as follows: No. of shares in Lotus Advance Cost of investment (RM) 1,560,497,396 ordinary shares 1,560,497,396 328,431,127 preference shares (including share 399,789,407 premium) Total cost of investment 1,960,286,803 9

3.5.

Utilisation of proceeds of the Sale Price The proceeds from the Sale Price will be utilised to meet working capital requirements of the Company. The Sale Price is expected to be utilised within 12 months from receipt of the said proceeds.

3.6.

Liabilities to be assumed by the Purchasers (a) The Company has an effective non-claimable cumulative threshold of GBP2 million (‘Threshold'), for any effected claims against warranties made by the Company, pertaining to the assets, liablilities or activities of the Lotus Advance. If total cumulative claims fall below this Threshold, then there is no further cost to the Company, as Lotus Advance GROUP would absorb it. If total cumulative claims are above this Threshold, then the Company is liable to compensate Lotus Advance or the Lotus Advance GROUP for all excess claim amounts above the threshold. (i) Certain potential claim items which are already provided for, are excluded from the above arrangement (b) The Company has a similar threshold of GBP1 million for any effected claims pertaining to fraud, criminal breach of trust or malfeasance at Lotus Advance

4.

DETAILS OF THE SHA On SSA Completion, the Company, PROTON and Geely will enter into the SHA to regulate the relationship of the shareholders of PROTON and to set out the rights and obligations of the shareholders with respect to PROTON and the members of the PROTON Group.

4.1.

Salient Terms of the SHA (i)

Effective date, term and termination The SHA shall become effective on the date of the SHA, which shall be the date of the SSA Completion and SPA Completion. The SHA shall continue in full force until either the Company or Geely ceases to hold any shares in PROTON or where a shareholders' resolution is passed or an order made by a court that will lead to PROTON being wound up and its assets being distributed among its creditors, shareholders or other contributors.

(ii)

Shareholding structure The ordinary share capital of PROTON shall be held by DRB-HICOM and Geely in the respective equity proportion of 50.1% and 49.9%. In the event PROTON 10

issues new shares and any shareholder fails to subscribe for its portion, the other shareholder shall have the right but not the obligation to subscribe for the unsubscribed shares. Any unsubscribed shares shall not be offered to any person other than the Company and Geely unless the Company and Geely have given their written consent. (iii)

Business of PROTON Group PROTON Group shall carry on and maintain the automotive business and all ancillary activities relating to the automotive business with a view to achieve the business objectives as set out in Section 2.7 of this Announcement.

(iv)

Business Plan The Company, Geely and PROTON shall implement the Business Plan which is approved by the Board of PROTON. This Business Plan may be amended from time to time taking into account the market conditions. Each subsidiary of PROTON including PONSB shall be entitled to develop their own business plan which shall be approved by their respective boards.

(v)

Board of directors and management The business and affairs of each company in the PROTON Group shall be managed under the direction of its board. The board of each company in the PROTON Group shall consist a maximum of five directors of which the Company shall be entitled to nominate up to three directors while Geely shall be entitled to nominate up to two directors. For PONSB, the Company shall appoint as one of its nominated directors on the board of PONSB a person who has relevant international experience in the automotive industry. The chairman of the board of each company in the PROTON Group shall be a director nominated by the Company except for the chairman of PONSB which shall be nominated by the Board of PONSB. The chairman will not have a casting vote in the event of equality of votes. The chief executive officer and chief financial officer of PONSB shall be nominated by Geely and appointed by the Board of PONSB.

(vi)

Reserved Matters Certain reserved matters have been set out in the SHA and can only be carried out by the board and management of the relevant group company with the prior written approval of the Company and Geely.

11

5.

INFORMATION ON GEELY AND ETIKA AUTOMOTIVE

5.1.

Zhejiang Geely Holding Group Co., Ltd. Geely was incorporated under the laws of the People's Republic of China on March 24, 2003 as a private limited company. Geely is principally an investment holding company. As at the LPD, Geely's entire share capital is held by Mr. Li Shufu and his family.

5.2.

Etika Automotive Sdn. Bhd. Etika Automotive was incorporated under the laws of Malaysia on 9 June 2016 as a private limited company. Etika Automotive is principally engaged in the business of manufacturing of bodies (coachwork) for motor vehicles, manufacturing of trailers and semi-trailers, manufacturing of engines and turbines, expect aircraft, vehicle and cycle engines, other business support service activities. As at the LPD, Etika Automotive has a total issued and paid up share capital of RM1,000,000 comprising 1,000,000 shares, and it is wholly-owned by Albukhary Corporation Sdn. Bhd. ("Albukhary Corporation"). Albukhary Corporation was, in turn, incorporated under the laws of Malaysia on 19 March 1984 as a private limited company under the name of Ketapang Equity Corporation Sdn. Bhd.. It adopted its current name on 27 January 2000. Albukhary Corporation is principally an investment holding company. As at the LPD, Albukhary Corporation has a total issued and paid up share capital of RM100,000,000 comprising 100,000,000 shares. Tan Sri Syed Mokhtar Shah bin Syed Nor ("TSSM") and his spouse, Puan Sri Sharifah Zarah bte Syed Kechik Al Bukhary, respectively holds 99.9% and 0.01% of the entire issued and paid up share capital of Albukhary Corporation.

6.

RATIONALE FOR THE PROPOSALS

6.1.

Proposed Share Subscription The requirement for PROTON to seek a foreign strategic partner ("FSP") is stipulated in the agreements entered into by PROTON and GovCo on 6 June 2016 and 5 September 2016 in relation to GovCo’s subscription of 1,250,000,000 RCCPS and 250,000,000 RCCPS in PROTON respectively. PROTON accordingly commenced a structured process to identify and select the FSP in June 2016 which ultimately resulted in the selection of Geely as the FSP for PROTON. The Proposed Share Subscription, when implemented, is intended to enable the PROTON

12

Group to increase its manufacturing capacity, elevate brand confidence, penetrate global markets especially in South East Asia, and leverage on Geely's advanced technology, extensive business network and global best practices. Armed with a wealth of knowledge and an extensive network of partnership derived from collaborations and joint ventures in the automotive industry over many years, Geely is in a position to assist the PROTON Group in its drive to improve its market position. In particular, the participation of Geely, a fast growing automotive player, as the FSP of PROTON is expected to further strengthen and improve PROTON Group's operations in terms of improved manufacturing systems and effective distribution networks, and more importantly, enhance its presence in regional markets. Furthermore, the Proposed Share Subscription is expected to create business synergies and opportunities for the Company, Geely and the PROTON Group. The Company intends to safeguard the recognition of PROTON as Malaysia's original national car company while building and enhancing Malaysia's national automotive industry and facilitating the goal of making Malaysia a preferred automotive hub in South East Asia capable of rivalling neighbouring countries in the region. Finally, the Proposed Share Subscription allows DRB-HICOM to obtain an immediate financial benefit moving forward. PROTON as an automotive original equipment manufacturer (‘Auto OEM’), continuously needs to invest heavily in capital expenditure; especially in R&D to be able to produce new and relevant products, just to remain competitive in the marketplace. And in recent times, PROTON has not been able to produce and sell enough volume to justify such levels of high capital expenditures required and have consequently suffered heavy losses. With the Proposed Share Subscription, DRB-HICOM can effectively halve the heavy capital expenditure commitments of PROTON, with Geely, and yet enjoy positive returns on capital given the possibility of not only a turnaround in financial health, but crucially a sustainable future of steady growth in revenues and profits 6.2.

Proposed Divestment In light of its historical losses and future capital needs, the disposal of Lotus Group allows the Company to relieve itself and PROTON from the burden of incurring additional capital expenditure, additional losses in the future and enables it to partly recoup its investment in Lotus Advance based on a valuation which is more favourable than generally accepted market valuation norms.

7.

RISK FACTORS The Board does not foresee any material inherent risks relating to the automotive industry arising from the Proposals given that both the DRB-HICOM Group and the Geely group of companies are currently operating in the automotive industry. However, in addition to

13

the normal global, market and economic risks, there may be additional risks arising from the Proposals, as set out below, which are non-exhaustive: (a)

Integration risk The various synergistic benefits to be enjoyed by PROTON Group upon completion of the Proposed Share Subscription will to a certain extent depend on the successful integration of the shareholders of the PROTON Group. The Proposed Share Subscription may expose the PROTON Group to new risks arising from the introduction of new corporate culture, operation processes and personnel by Geely as well as breaches and non-performance of obligations under the SHA. Nevertheless, the Company will endeavour to take reasonable and necessary steps to mitigate any integration risks, and breaches and non-performance of obligations under the SHA that may arise.

(b)

Political, economic and environmental considerations PROTON Group's operations and profitability may be affected by new developments in the political, economic and regulatory environment in Malaysia and United Kingdom. Such uncertainties include but are not limited to changes in political leadership, downturn in the Malaysian or United Kingdom economy, new policies and regulations which may reduce the free movement of goods, services, capital and labour, changes in interest rates and the Government's budget and spending policies. Any change to political, economic and regulatory environment may materially affect PROTON Group's businesses, results of operations, financial condition and future prospects.

(c)

Business risk associated with R&D PROTON Group's performance and ability to compete with its competitors will depend on its ability to improve and enhance the functions and reliability of its products and services through continuous R&D. R&D allows PROTON Group to adapt to new industry standards and address changing customer preferences. Any inability to keep up with critical changes in technology advancement may materially affect PROTON Group's businesses, results of operations and financial condition. The success of R&D also depends on technological innovations in design, engineering and manufacturing, all of which requires extensive capital investment. Such capital investment can be funded by way of cash flow from operations and/or via additional debt financing.

14

(d)

Non-completion of the Proposals The Proposals are inter-conditional upon each other, and the completion of Proposed Share Subscription and Proposed Divestment is conditional upon the satisfaction of conditions precedent set out in Sections 2.2 and 3.2 above in this Announcement. Hence, the completion of the Proposals may be subject to risks beyond the control of the Company including, among others, obtaining the approvals from the relevant authorities, financial institutions and shareholders of the Company. Nevertheless, the management will use its best endeavours to ensure such risks are mitigated through, inter alia, closely monitoring the status of the Proposals and taking all reasonable steps to ensure that such conditions precedent are met within the stipulated timeframe including to obtain all the necessary approvals for the Proposals.

9.

EFFECTS OF THE PROPOSALS 9.1

Share capital and substantial shareholders' shareholdings The Proposals will not have any effect on the share capital and the substantial shareholders’ shareholdings of the Company.

9.2

NA and Gearing For illustrative purposes only, based on the audited consolidated statement of financial position of DRB-HICOM Group as at 31 March 2016 and on the assumption that the Proposed Divestment and Proposed Share Subscription had been effected on that date, the effects of these proforma transactions on the NA and gearing of the Group are as follows: Audited (RM’000) 31 March 2016

Proforma (RM’000) After the Proposals

Share Capital

1,719,601

1,719,601

Reserves

4,823,487

(1)4,525,254

NA attributable to owners of the Company

6,543,088

6,244,855

Perpetual Sukuk

1,051,859

(2)1,051,859

908,342

1,651,104

8,503,289

8,947,818

Non-controlling interest Total Equity 15

Number of DRB-HICOM shares in issue (‘000)

1,933,237

1,933,237

NA attributable to owners of the Company per DRB-HICOM share (RM)

3.38

3.23

6,864,745

6,864,745

0.81

0.77

Total Borrowings (RM’000) Gearing (times)

Notes: (1) The movement in Reserves is the result of the loss on dilution from the Proposed Share Subscription amounting to RM 282 million, an estimated transaction cost of RM25.26 million, net off against the gain from the Proposed Divestment amounting to RM9.3 million; (2) DRB-HICOM provides up to 2.5% of total consideration value as transaction costs for this complex merger and acquisitions (“M&A”) exercises which are the Proposals. These costs encompass many activities which include consulting advisory during the protracted foreign strategic partner selection exercise, legal advisory on multiple transactions and various agreements, Independent Adviser, independent valuation of consideration component and the M&A deal advisory. The total consideration value of the Proposals is RM1,010 million constituting of the Sale Price and the Subscription Price. DRB-HICOM will use its best endeavours to ensure the actual transaction costs payable are fair, reasonable & commensurate with the scale and complexity of the Proposals, clear benefits which accrue to PROTON and the substantial anticipated shareholder value-add to all DRBHICOM shareholders, as a result of the Proposals. (3) The movement is arising from the allocation to the Non-Controlling Interest, pursuant to the Proposed Share Subscription.

9.3

Earnings and earnings per share (“EPS”) For illustrative purposes only, the proforma effects of the Proposals on the earnings of the DRB-HICOM Group based on the assumption that the Proposals had been completed on 1 April 2015, being the beginning of the 31 March 2016, are as follows: Audited (RM’000) 31 March 2016

Proforma (RM’000) After the Proposals (1)

Net loss attributable to owners of the Company

(991,900)

Number of DRB-HICOM shares in issue (‘000)

1,933,237

1,933,237

(51.31)

(29.45)

Loss Per Share (sen)

(569,424)

Note: (1) The proforma net loss attributable to owners of the Company is arrived after making the following adjustments:

16

(ii) (iii) (iv)

10.

Lower net loss of the DRB-HICOM Group amounting to RM766 million due to 49.9% of PROTON’ net loss allocated to Non-Controlling interest, and Non-Consolidation of Lotus Group’s net loss Recognition of loss on disposal from the Proposed Divestment amounting to RM 318 million Estimated transaction cost of RM25.26 million

PERCENTAGE RATIO Based on DRB-HICOM’s audited consolidated financial statements for the FYE 31 March 2016 (which is the latest available audited consolidated financial statements upon this Announcement) the highest percentage ratio under Paragraph 10.02(g) of the Listing Requirements applicable to the Proposed Share Subscription and Proposed Divestment is 7.0% and 8.3% respectively. Paragraph 10.12(2) of the Listing Requirements sets out transactions which may be aggregated and treated as if they were one transaction, including transactions entered into with the same party. Geely is a party involved in both the Proposed Share Subscription and Proposed Divestment. Accordingly, the aggregated highest percentage ratio for the Proposed Subscription and Proposed Divestment is 15.3%.

11.

APPROVALS REQUIRED The Proposals are subject to and conditional upon, among others, approvals and consents being obtained from the parties as set out in Sections 2.2 (iii) and 3.3 (iii) of this Announcement. The Proposed Share Subscription and Proposed Divestment are inter-conditional upon each other and are not conditional upon any other corporate exercise/scheme of the Company. Barring unforeseen circumstances, the application to the relevant authorities in relation to the Proposals are expected to be submitted within 2 months from the date of this Announcement.

12.

INTERESTS OF DIRECTORS, CONNECTED WITH THEM

MAJOR

SHAREHOLDERS

AND

PERSONS

Save as disclosed below, none of the directors and major shareholders of the Company as well as persons connected with them have any interest, direct or indirect, in the Proposals. 12.1.

Tan Sri Syed Mokhtar Shah bin Syed Nor As at the LPD, TSSM holds indirectly 100% equity interest in Etika Automotive via his 99.99% equity shareholdings in Albukhary Corporation and 0.01% in Albukhary 17

Corporation via his spouse Puan Sri Sharifah Zarah bte Syed Kechik Al Bukhary. Albukhary Corporation, in turn, holds 100% equity interest in Etika Automotive. TSSM is also an indirect substantial shareholder of the Company by virtue of his major shareholding of 90% in Etika Strategi Sdn Bhd ("Etika Strategi") which, in turn, holds 55.92% equity interest in the Company. Etika Strategi is deemed interested in the Proposed Divestment by virtue of TSSM’s shareholdings in Etika Automotive. Accordingly, TSSM shall procure that Etika Strategi abstains from deliberating and voting on the resolutions pertaining to the Proposals at the extraordinary general meeting of the Company ("EGM"). Etika Strategi will also ensure that persons connected to it abstain from voting on the resolutions pertaining to the Proposals at the EGM. 12.2.

Brig. Gen. (K) Tan Sri Dato’ Sri (Dr) Mohd Khamil Jamil Brig. Gen. (K) Tan Sri Dato’ Sri (Dr) Mohd Khamil Jamil ("TMKJ") holds 10% equity interest in Etika Strategi and is a person connected to TSSM. TMKJ is also a director on the Board. TMKJ has abstained and will continue to abstain from deliberations and voting at the relevant Board meetings in respect of the Proposals. TMKJ will also ensure that persons connected to him, if any, abstain from voting on the resolutions pertaining to the Proposals at the EGM.

12.3.

Azman Hanafi bin Abdullah Azman Hanafi bin Abdullah ("AHA") is a director of Etika Automotive and a person connected to TSSM. AHA will ensure that persons connected to him, if any, abstain from voting on the resolutions pertaining to the Proposals at the EGM.

13.

ADVISERS As set out in Section 1 of this announcement, the Proposals are deemed related party transactions pursuant to Paragraph 10.8 of the Listing Requirements. As such, in accordance with paragraph 10.08(2)(c) of the Listing Requirements, Affin Hwang Investment Bank Berhad has been appointed as the Independent Adviser to advise the non-interested directors and the non-interested shareholders of the Company on the fairness and the reasonableness of the Proposals, and whether the Proposals are detrimental to the non-interested shareholders of the Company and to advise the noninterested shareholders on whether they should vote in favour of the Proposals. The Company has appointed QuantePhi Sdn. Bhd. as the Lead Adviser for the Proposals.

18

14.

AUDIT COMMITTEE'S STATEMENT The Audit Committee, after careful deliberation and having considered all aspects of the Proposals (including but not limited to the rationale, future prospects, risks, effects and evaluation of the Independent Adviser) is of the view that the Proposals are: (i) (ii) (iii)

15.

in the best interest of the Company; fair, reasonable and on normal commercial terms; and not detrimental to the interests of the non-interested shareholders of the Company.

DIRECTORS' STATEMENTS After having considered all aspects of the Proposals, the Board, (except for TMKJ due to his abstention from deliberations and voting at the Board meeting), is of the opinion that the Proposals, are in the best interest of the Company.

16.

TOTAL AMOUNT TRANSACTED WITH THE SAME RELATED PARTY FOR THE PAST TWELVE (12) MONTHS Save for the Proposed Divestment, there are no other related party transactions with Etika Automotive for the past 12 months preceding the date of the announcement.

17.

ESTIMATED TIMEFRAME FOR COMPLETION Barring any unforeseen circumstances, the Proposals are expected to be completed by the fourth quarter of 2017.

18.

DOCUMENTS AVAILABLE FOR INSPECTION Copies of the SSA, SPA and valuation report from KPMG are available for inspection at the Company's registered office at Level 5, Wisma DRB-HICOM, 2 Jalan Usahawan U1/8, Seksyen U1, Shah Alam, 40150 Shah Alam, Selangor, Malaysia during normal business hours from Mondays to Fridays (except public holidays) for a period of three (3) months from the date of this announcement.

This announcement is dated 23 June 2017.

Approved for release : ________________________________ Group Managing Director

19

APPENDIX 1A SCOPE OF PROPOSED SHARE SUBSCRIPTION PROTON Berhad

PROTON Marketing Sdn Bhd

Perusahaan Otomobil Nasional Sdn Bhd 50%

PROTON Commerce Sdn Bhd

99.9%

PT PROTON Edar Indonesia

PROTON Edar Sdn Bhd

PROTON Parts Centre Sdn Bhd

PROTON Cars (UK) Ltd

PROTON Motors (Thailand) Co. Ltd

PROTON Cars Australia Pty. Ltd

PROTON Tanjung Malim Sdn Bhd

Lotus Cars Malaysia Sdn Bhd

Automotive Conversion Engineering Sdn Bhd

Note: Inclusive of dormant companies & companies under liquidation: Under Liquidation a. HICOM-Potenza Sports Sdn. Bhd b. PT PROTON Cikarang Indonesia c. PROTON Motor Pars Co. (Iran) Dormant a. b. c. d.

PROTON Automobile (China) Limited Goldstar PROTON Automobiles Co. Ltd.(49%) Lotus Cars Australia Pty Ltd. PROTON Singapore Pte Ltd

40% Goldstar Lotus Automobile Co Limited*

66%

Miyazu (Malaysia) Sdn Bhd

* Post transaction all economic interest of Goldstar Lotus will accrue to DRB-HICOM All stakes are 100%, unless stated otherwise

20

APPENDIX 1B EXCLUDED ASSETS 1.

LIST OF IDENTIFIED SUBSIDIARIES / ASSOCIATED COMPANIES / INVESTMENT COMPANIES TO BE PURCHASED BY DRB-HICOM

No.

Companies

1.

All of PROTON Hartanah Sdn. Bhd.1 shares held by the PROTON Group2

100%

2.

All of EON Properties Sdn. Bhd. shares held by the PROTON Group

100%

3.

All of Yayasan PROTON membership held by the PROTON Group

100%

4.

All of PHN Industries Sdn. Bhd. shares held by the PROTON Group

37.5%

5.

All of Exedy Malaysia Sdn. Bhd. shares held by the PROTON Group

45.0%

6.

All of Aluminium Alloy Industries Sdn. Bhd. shares held by the PROTON Group

16.0%

7.

All of Marutech Elastomer Industries Sdn. Bhd. shares held by the PROTON Group

25.0%

8.

All of Ara Borgstena Sdn. Bhd. shares held by the PROTON Group

6.7%

9.

All of PROTON Finance Limited shares held by the PROTON Group

49.9%

2.

% Stake in respective entities acquired

DRB TO OBTAIN BENEFICIAL INTEREST IN THE FOLLOWING COMPANIES:

No.

Company

Legal Owner

1.

Lotus Advance Technologies Sdn. PONSB Bhd.

2.

Goldstar Lotus Automobile Co. Ltd

PHB and LGIL3

Beneficial Shareholding 100% 50%

PROTON Hartanah is also the legal owner of: (a) 100% of PROTON Properties Sdn. Bhd.; and (b) 40% of PROTON City Development Corporation Sdn. Bhd. 2 PROTON Group can be defined as PROTON and all of its Subsidiaries / Associate Companies 3 PROTON owns 40% of Goldstar Lotus Automotive Co. Ltd and Lotus Group International Limited owns 10% of Goldstar Lotus Automotive Co. Ltd. As such, DRB will hold 50% of the beneficial interest in Goldstar Lotus. 1

21

3. THE FOLLOWING REAL PROPERTIES HELD BY THE RELEVANT SUBSIDIARIES

No

1

2

3

Entity

PONSB

PONSB

PONSB

District / State

Area

Description

Excluded Assets

Shah Alam, Selangor

Lot No 39619, Pekan Hicom, Batu 3, Shah Alam, Selangor

Industrial premises with a land area approximately 222,654 sqm

Land Only

Shah Alam, Selangor


A parcel of land approximately 14,681 sqm

Land Only

Shah Alam, Selangor



Land Only

4

PESB

Subang Jaya, Selangor

PT 258 & 260, Sime UEP Industrial Park, Subang Jaya, Selangor

Industrial premises with a land area approximately 315,553 sqft

Land Building

and

5

PESB


PT 299 & PT 300, Westbound KESAS Highway, Subang Jaya, Selangor


Land building

and

6

PESB


PT 302, Sime UEP Industrial Park, Subang Jaya, Selangor

Land with an area of 123,853 sq. ft.

Land building

and

7

PONSB

Glenmarie, Selangor

Lot No 61821, Hicom-Glenmarie Industrial Park, Shah Alam, Selangor


Land Only

8

PROTON Parts Centre Sdn. Bhd.

Glenmarie, Selangor

Lot No 61801, HICOM Glenmarie Industrial Park, Shah Alam, Selangor


Land Only

22

Description

Excluded Assets

Road,

Sales outlet and service centre with land area of 48,384 sq. ft

Land Building

and

Johor Bahru, Johor

Lot 150115, Taman Perindustrian Plentong, Johor Bharu, Johor


Land building

and

PESB

Seremban, Sembilan

Lot PT 9671, Pusat Senawang, Seremban, Sembilan

Sales outlet, service centre and B&P centre with land area of 79,949 sq.ft

Land building

and

12

PESB

Johor Bahru, Johor

Lot 85647, Mutiara Rini, Johor Bharu, Johor

Vacant Land with an area of 57,267 sq. ft.

Land Only

13

PESB

Langkawi, Kedah

PT 4352, Jalan Padang Mat Sirat, Langkawi, Kedah

Vacant Land with an area of 51,979 sq. ft.

Land Only

14

PESB

Sungai Selangor

Lot 67320, Mutiara Damansara, Petaling Jaya, Selangor


Land building

and

15

PESB

Kota Bharu, Kelantan

Lot 249-253, Langgar, Kota Bharu, Kelantan

Sales outlet and service centre with land area of 7,812.7 sqm

Land building

and

16

PROTON Cars Australia Sdn Bhd

Sydney, Australia

Alfred Road, Chipping, Norton, Sydney, Australia

Office and Storage; Training and Storage

Land building

and

17

PROTON Cars (UK) Ltd

Bristol, England

Crowley Way, Avonmouth, Bristol Avon, England

Parts warehouse buildings

Land building

and

No

Entity

District / State

Area

9

PESB

Kuching, Sarawak

Lot 12004, Penrissen Kuching, Sarawak

10

PESB

11

Negeri

Buloh,

Bandar Negeri

23

APPENDIX 2A SCOPE OF PROPOSED DIVESTMENT Lotus Advance Technologies Sdn Bhd

10% Goldstar LOTUS Automobile Co. Ltd*

Lotus Group International Limited

Symphony Lotus Limited

Group Lotus Plc

PROTON Engineering Research Technology Sdn Bhd

Beijing Lotus Car Sales Co Ltd

49.9%

Lotus Finance Limited

Lotus Youngman UK Automotive Co. Ltd

Lotus Cars Limited

Lotus Body Engineering Ltd

Lotus Motorsports Limited

Lotus Pension Trustees Limited

Lotus Cars Foundation

Lotus Engineering Inc Lotus Lightweight Structures Holdings Limited Lotus Cars USA Inc.

Lotus Engineering Co. Ltd. (Shanghai)

Lotus Engineering Limited

Lotus Holdings Inc.

Dormant Ceased Operation

Lotus Lightweight Structures Limited * Post transaction all economic interest of Goldstar Lotus will accrue to DRBHICOM

Lotus Engineering Malaysia S/B

24

All stakes are 100%, unless stated otherwise