nikko - ra - Bursa Malaysia

PERWAJA HOLDINGS BERHAD (“PHB” OR “COMPANY”) PROPOSED REGULARISATION SCHEME OF PHB AND ITS SUBSIDIARIES (“PHB GROUP” OR “GROUP”)

(In this announcement, certain amounts quoted in Chinese Yuan Renminbi (“RMB”) have been translated into Ringgit Malaysia (“RM”) based on the exchange rate of RMB1 = RM0.6126 representing the middle exchange rate at 5:00 p.m. on 13 July 2015 as quoted by Bank Negara Malaysia) 1.

INTRODUCTION On 26 November 2013, the Board of Directors of PHB (“Board”) announced that the Company has been classified as an affected listed issuer under Practice Note 17 (“PN17”) of the Main Market Listing Requirements (“MMLR”) of Bursa Malaysia Securities Berhad (“Bursa Securities”). The PN17 criterion was the result of the Company having triggered the following prescribed criteria under paragraph 2.1 of PN17: (a)

the auditors have expressed an emphasis of matter on PHB and its subsidiaries‟ ability to continue as a going concern in the audited consolidated financial statements for the financial year ended 31 December 2012 and the shareholders‟ equity of PHB based on a consolidated basis as at 30 September 2013 is less than 50% of the issued and paid-up capital of the Company; and

(b)

a default in payment by Perwaja Steel Sdn Bhd (“PSSB”), a major subsidiary of PHB, pursuant to Practice Note 1 of the MMLR and PHB is unable to provide a solvency declaration to Bursa Securities.

On 16 July 2014, M&A Securities Sdn Bhd (“M&A Securities”) announced that it has been appointed as principal adviser in respect of the proposed regularisation of PHB. On 11 February 2015, PHB entered into a memorandum of agreement with Tianjin Zhi Yuan Investment Group Co Ltd (“Tianjin Zhiyuan”) (“MOA”) to explore the possibility of Tianjin Zhiyuan‟s participation in PHB and/or via other business cooperation model to revive PHB and to transform and/or operate PSSB‟s steel manufacturing plant at Kawasan Perindustrian Telok Kalung, Kemaman, Terengganu Darul Iman (“Kemaman Plant”) into a profitable metal-steel related manufacturing plant as part of the proposed regularisation of PHB. Subsequently, on 29 April 2015, PHB and Tianjin Zhiyuan entered into a second memorandum of agreement (“2nd MOA”), and PSSB and Tianjin Zhiyuan entered into a lease agreement (“Lease Agreement”) to further formalise the parties‟ agreement to revamp and restart the Kemaman Plant. On behalf of the Board, M&A Securities wishes to announce that on 15 July 2015, PHB, PSSB and Zhiyuan International Investment & Holding Group (Hong Kong) Co., Limited (“Zhiyuan”) (a company wholly-owned by Tianjin Zhiyuan) have entered into a conditional master framework agreement to formalise the parties‟ intention and understanding in relation to the proposed regularisation of PHB Group (“MFA”). The MFA will supersede the MOA, 2nd MOA and Lease Agreement, all of which are deemed to have been mutually terminated upon the execution of the MFA. On completion of the proposed regularisation of PHB, Zhiyuan will emerge as the new strategic shareholder of PHB. Zhiyuan proposes to revamp PSSB‟s business from traditional steelmaking to the production of stainless steel and steel alloy and Zhiyuan will transfer innovative, energy efficient and green technology to revamp the production and product lines of Kemaman Plant. 1

Pursuant to the MFA, the proposed regularisation of PHB Group shall comprise the following components: (a)

Proposed Balance Sheet Restructuring comprising the Proposed Par Value Reduction and Proposed Share Premium Reduction;

(b)

Proposed Recapitalisation comprising the Proposed Special Issue and Proposed Rights Issue with Warrants;

(c)

Proposed Debt Restructuring;

(d)

Proposed Exemption;

(e)

Proposed Amendment; and

(f)

Proposed IASC.

(collectively known as the “Proposed Regularisation Scheme”)

Proposed Regularisation Scheme Proposed Balance Sheet Restructuring

Proposed Recapitalisation

Proposed Par Value Reduction

Proposed Special Issue

Proposed Share Premium Reduction

Proposed Rights Issue with Warrants

Proposed Debt Restructuring

Proposed Exemption

Proposed Amendment

Proposed IASC

Further details of each of the component of the Proposed Regularisation Scheme are set out in Section 2 below. Further details of Zhiyuan are set out in Section 3 below. The salient terms of the MFA are set out in Section 4 below.

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2.

DETAILS OF THE PROPOSED REGULARISATION SCHEME

2.1

Proposed Balance Sheet Restructuring The Proposed Balance Sheet Restructuring comprises the Proposed Par Value Reduction (as hereinafter defined) and Proposed Share Premium Reduction (as hereinafter defined), both of which are intended to strengthen and regularise PHB‟s balance sheet to reduce its accumulated losses and to better reflect its financial position and continuing operations post implementation of the Proposed Regularisation Scheme.

2.1.1

Proposed Par Value Reduction PHB proposes to reduce its existing issued and paid-up share capital comprising ordinary shares of RM1.00 each in PHB via the cancellation of RM0.95 from the existing par value of RM1.00 pursuant to Section 64(1) of the Companies Act, 1965 (“Act”) (“Proposed Par Value Reduction”). The present issued and paid-up share capital of PHB is RM560.0 million comprising 560,000,000 ordinary shares of RM1.00 each. On completion of the Proposed Par Value Reduction, the issued and paid-up share capital of PHB will be reduced to RM28.0 million comprising 560,000,000 ordinary shares of RM0.05 each (“PHB Shares” or “Shares”), each credited as fully paid-up. The Proposed Par Value Reduction will result in a credit of RM532.0 million which will be utilised to set off against PHB‟s accumulated losses. Based on PHB‟s latest audited balance sheet as at 30 June 2014, PHB Group has accumulated losses of RM1,783.8 million.

Company level Accumulated losses Credit arising from the Proposed Par Value Reduction Remaining accumulated losses

Group level Accumulated losses Credit arising from the Proposed Par Value Reduction Remaining accumulated losses

Audited as at 30.06.2014 (RM‟000)

Unaudited as at 31.03.2015 (RM‟000)

(957,375) 532,000 (425,375)

(971,456) 532,000 (439,456)

Audited as at 30.06.2014 (RM‟000)

Unaudited as at 31.03.2015 (RM‟000)

(1,783,844) 532,000 (1,251,844)

(2,017,560) 532,000 (1,485,560)

The Proposed Par Value Reduction will not result in any adjustment to the share price of the Company or the number of shares held by the shareholders.

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2.1.2

Proposed Share Premium Reduction Based on PHB‟s latest audited balance sheet as at 30 June 2014, PHB Group has share premium of RM101.5 million. Pursuant to Section 60(2) of the Act, the share premium account shall be treated as paid-up share capital of the company. Accordingly, the company may, pursuant to Section 64(1) of the Act, reduce its share premium account. PHB proposes to reduce: (a)

its existing share premium account and utilising the credit arising therefrom towards setting-off against its accumulated losses; and

(b)

the new share premium to be created from the issuance of new PHB Shares under the Proposed Regularisation Scheme to further set-off against any balance accumulated losses,

pursuant to Section 64(1) of the Act (“Proposed Share Premium Reduction”). The final amount of the share premium to be reduced will be determined at a later date based on the Company‟s accumulated losses position. In this regard, the Proposed Share Premium Reduction will be implemented as the last step of the Proposed Regularisation Scheme so that the Company‟s accumulated losses will be reduced to the extent possible by the amount of share premium available. 2.2

Proposed Recapitalisation The Proposed Recapitalisation comprises the Proposed Special Issue (as hereinafter defined) and Proposed Rights Issue with Warrants (as hereinafter defined). The Proposed Recapitalisation will raise gross proceeds of at least RM1,944.8 million, mainly to finance the purchase of new equipment and machineries to modify and upgrade the Kemaman Plant to enhance the production facilities of the Kemaman Plant as well as for PHB Group‟s working capital purposes.

2.2.1

Proposed Special Issue Upon completion of the Proposed Par Value Reduction, PHB proposes to undertake an issuance of 8,500,000,000 new PHB Shares to Zhiyuan at an issue price of RM0.20 per PHB Share (“Subscription Shares”) with 4,250,000,000 free detachable warrants (“Warrants-B”) on the basis of one (1) Warrant-B for every two (2) Subscription Shares subscribed (“Proposed Special Issue”). The Proposed Special Issue will see the introduction of Zhiyuan as new strategic investor PHB who will bring about new business discipline via new management and introduction higher grade special steel products and innovative, energy efficient and green technologies PSSB and the Kemaman Plant. In this respect, under the MFA, Zhiyuan has agreed subscribe for the entire Subscription Shares to be issued hereunder.

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in of to to

The Proposed Special Issue will be implemented in the following tranches: No. of Subscription Shares

Proceeds to be raised (RM‟000)

Timing for subscription

Subscription Tranche 1

2,500,000,000

500,000

The date which is the 6th business day after the last of the conditions precedent in the MFA is fulfilled or waived


2,000,000,000

400,000

No later than 12 months from the completion of Subscription Tranche 1


2,000,000,000

400,000



2,000,000,000

400,000


8,500,000,000

1,700,000

The issue price of RM0.20 per Subscription Share was arrived at after taking into account: (a)

The historical market prices of PHB Shares of between RM0.05 to RM0.34 from 26 November 2013 (the day on which PHB was classified as an affected listed issuer under PN17 of MMLR up to 14 July 2015 (the market day immediately preceding the date of this announcement);

(b)

PHB Group‟s shareholders‟ deficit of RM821.0 million, and net liabilities (“NL”) per share of RM1.47 based on its latest audited balance sheet as at 30 June 2014;

(c)

The pro forma net asset (“NA”) per share of RM0.17 after the Proposed Regularisation Scheme (before the exercise of any Warrants-A and Warrants-B); and

(d)

The par value of the PHB Shares (after the Proposed Par Value Reduction) of RM0.05 per Share.

The issue price of RM0.20 per Subscription Share represent a discount of 21.8% over the theoretical ex-rights price (“TERP”) of RM0.2557 calculated using the five (5) day volume weighted average market price (“5D-VWAMP”) of PHB Shares up to 14 July 2015 of RM0.3002, being the market day immediately preceding the date of this announcement. The exercise price of Warrant-B is further explained in Section 2.2.2 below. The Board is of the opinion that the pricing of the PHB Shares is fair after taking into account the existing financial condition of the Group and the Proposed Regularisation Scheme. The Subscription Shares shall, upon allotment and issue, rank pari passu in all respects with the then existing PHB Shares except that they will not be entitled to any dividends, rights, allotments and/or other distributions, the entitlement date of which is prior to the date of allotment of the Subscription Shares. For the avoidance of doubt, the Subscription Shares to be issued under the Subscription Tranche 1 of the Proposed Special Issue shall be entitled to participate in the Proposed Rights Issue with Warrants. 5

An application will be made to Bursa Securities for the listing of and quotation for the Subscription Shares and Warrants-B to be issued pursuant to the Proposed Special Issue on the Main Market of Bursa Securities and the new PHB Shares to be issued from the exercise of Warrants-B on the Main Market of Bursa Securities. The utilisation of the proceeds raised from the Proposed Special Issue is set out in Section 5 below. Please refer to Section 6 for the salient terms of the Warrants-B. 2.2.2

Proposed Rights Issue with Warrants As at the date of this announcement, the issued and paid-up share capital of PHB comprises 560,000,000 ordinary shares of RM1.00 each. Upon completion of the Proposed Par Value Reduction and Subscription Tranche 1 of the Proposed Special Issue, the issued and paid-up share capital of PHB will comprise 3,060,000,000 PHB Shares. In addition, PHB also has 280,000,000 outstanding warrants expiring on 28 February 2022 (“Warrants-A”) which may be exercisable into 280,000,000 new PHB Shares. PHB proposes to undertake a renounceable rights issue of up to 2,672,000,000 new PHB Shares (“Rights Shares”) together with up to 1,336,000,000 free detachable Warrants-B at an issue price of RM0.20 per Rights Share on the basis of four (4) Rights Shares for every five (5) PHB Shares held after completion of the Proposed Par Value Reduction and Subscription Tranche 1 of the Proposed Special Issue together with one (1) Warrant-B for every two (2) Rights Shares subscribed (“Proposed Rights Issue with Warrants”) (“Maximum Scenario”). The maximum number of Rights Shares and Warrants-B to be issued under the Maximum Scenario was arrived at assuming the full exercise of all the 280,000,000 Warrants-A before the Entitlement Date (as hereinafter defined). Assuming none of the Warrants-A are exercised prior to the Entitlement Date, the number of Rights Shares and Warrants-B to be issued is 2,448,000,000 Rights Shares and 1,224,000,000 Warrants-B (“Minimum Scenario”). Nevertheless, the actual number of Rights Shares and Warrants-B to be issued under the Proposed Rights Issue with Warrants will be determined on the Entitlement Date. The Rights Shares and Warrants-B will be offered to the shareholders of PHB whose names appear in the Record of Depositors of PHB (“Entitled Shareholders”) as at the close of business on the entitlement date to be determined after obtaining the approvals from all relevant authorities and the shareholders of the Company (“Entitlement Date”). The Warrants-B will be issued for free to each Entitled Shareholder based on his/her entitlements to the Proposed Rights Issue with Warrants and subject to the acceptance of his/her rights entitlements. The Proposed Rights Issue with Warrants is renounceable in full or in part. Accordingly, Entitled Shareholders can subscribe for and/or renounce their entitlements to the Rights Shares in full or in part. Rights Shares which are not taken up shall be made available for excess applications by the Entitled Shareholders and/or their renouncee(s). It is the intention of the Board to allocate the excess Rights Shares in a fair and equitable manner.

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The issue price of the Rights Shares and exercise price of the Warrants-B of RM0.20 each was arrived at after taking into account: (a)


(b)

PHB Group‟s shareholders‟ deficit of RM821.0 million, and NL per share of RM1.47 based on its latest audited balance sheet as at 30 June 2014;

(c)

The pro forma NA per share of RM0.17 after the Proposed Regularisation Scheme (before the exercise of any Warrants-A and Warrants-B); and

(d)


The issue price and exercise price of RM0.20 per Rights Share/Warrant-B represent a discount of 21.8% over the TERP of RM0.2557 calculated using the 5D-VWAMP of PHB Shares up to 14 July 2015 of RM0.3002, being the market day immediately preceding the date of this announcement. The Rights Shares shall, upon allotment and issue, rank pari passu in all respects with the then existing PHB Shares except that they will not be entitled to any dividends, rights, allotments and/or other distributions, the entitlement date of which is before the date of allotment of the Rights Shares. An application will be made to Bursa Securities for the listing of and quotation for the Rights Shares and Warrants-B to be issued pursuant to the Proposed Rights Issue with Warrants and the new PHB Shares to be issued from the exercise of Warrants-B on the Main Market of Bursa Securities. The utilisation of the proceeds raised from the Proposed Rights Issue is set out in Section 5 below. Please refer to Section 6 for the salient terms of the Warrants-B. Based on its shareholdings in PHB after the Subscription Tranche 1 of the Proposed Special Issue, Zhiyuan shall be entitled to subscribe for 2,000,000,000 Rights Shares under the Proposed Rights Issue with Warrants. Taking into account the funding requirements of PHB Group, the Proposed Rights Issue with Warrants will be implemented on a minimum subscription level to raise minimum gross proceeds of at least RM244.8 million (“Minimum Subscription Level”). To achieve the Minimum Subscription Level: (a)

Zhiyuan has under the MFA, agreed to provide irrevocable written undertaking to PHB to subscribe for part of its entitlement of up to RM100.0 million worth of Rights Shares (equivalent to 500,000,000 Rights Shares) under the Proposed Rights Issue with Warrants (“Undertaking”); and

(b)

PHB will endeavor to procure irrevocable undertakings from the other shareholders of PHB to subscribe for the Rights Shares. The balance Rights Shares to achieve the Minimum Subscription Level for which there are no irrevocable undertakings will be underwritten. The underwriting commission and all associated costs will be borne by PHB.

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2.3

Proposed Debt Restructuring The Proposed Debt Restructuring involves the scheme of arrangement and compromise with five (5) categories of creditors of PHB Group (“Scheme Creditors”). Subject to a proof of debt exercise to be carried out, the liabilities of PHB Group to be compromised and settled pursuant to the Proposed Debt Restructuring amounts to approximately RM2,238.4 million (“Scheme Liabilities”). In the event a Scheme Creditor shall have an amount owing to PHB Group, the Scheme Liabilities due to the said Scheme Creditor shall be net of the amount owing to PHB Group. Unless otherwise expressly mentioned, the proposed cut-off date to determine the Scheme Liabilities is 30 June 2014 (“Cut-Off Date”). In the event of any further contingent or undisclosed liabilities being discovered as a result of Zhiyuan‟s due diligence or creditors‟ claims being surfaced at a date subsequent to the CutOff Date but prior to the settlement under the Proposed Debt Restructuring, such liabilities shall be ranked accordingly under the category of Group 4 Creditors, and settled as part of the Proposed Debt Restructuring subject to proof of debt to the satisfaction of PHB/PSSB and Zhiyuan. The category of the Scheme Creditors has been arrived at, based on the nature of the creditors, treatment of their debts by operation of law, and whether these debts are secured or otherwise. The categories of Scheme Creditors are as follows:

Group Group Group Group Group

1 2 3 4 5

Scheme Liabilities RM‟000 910,006 28,519 653,985 590,492 55,419 2,238,422

Creditors Creditor Creditors Creditors Creditors

% 40.65 1.27 29.22 26.38 2.48 100.00

The Proposed Debt Restructuring involves a combination of: (a)

Partial waiver of the Scheme Liabilities;

(b)

Partial debt to equity conversion via the issuance of new PHB Shares (“Settlement Shares”) at an issue price of RM0.20 per Settlement Share; and

(c)

Partial rescheduling of the remaining Scheme Liabilities into longer tenure repayments.

The issue price of the Settlement Shares of RM0.20 each was arrived at after taking into account: (a)


(b)

PHB Group‟s shareholders‟ deficit of RM821.0 million, and NL per share of RM1.47 based on its latest audited balance sheet as at 30 June 2014;

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(c)

The pro forma NA per share of RM0.17 after the Proposed Regularisation Scheme (before the exercise of any Warrants-A and Warrants-B); and

(d)


The issue price of RM0.20 per Settlement Share represent a discount of 21.8% over the TERP of RM0.2557 calculated using the 5D-VWAMP of PHB Shares up to 14 July 2015 of RM0.3002, being the market day immediately preceding the date of this announcement. The Settlement Shares to be issued pursuant to the Proposed Debt Restructuring shall rank pari passu in all respects with the then existing PHB Shares except that they will not be entitled to any dividends, rights, allotments and/or other distributions for which the relevant entitlement date precedes the date of allotment of the Settlement Shares. For the avoidance of doubt, the Settlement Shares will not be subject to the Proposed Par Value Reduction nor entitled to participate in the Proposed Rights Issue with Warrants. (a)

Group 1 Creditors On 26 September 2013, the Corporate Debt Restructuring Committee (“CDRC”) approved the application by PSSB seeking CDRC‟s assistance to mediate between PSSB and its financial institution (“FI”) lenders. Group 1 Creditors represents those FI lenders and bondholders under the CDRC purview. Group 1 Creditors or Secured FI Lenders also represent secured creditors of PHB Group, which credit facilities are secured by inter-alia, a fixed legal charge over the Kemaman Plant. The Scheme Liabilities owing to the Group 1 Creditors are proposed to be compromised and settled in the following manner: (i)

Proposed waiver of 20% of the Scheme Liabilities;

(ii)

Proposed rescheduling of 60% of the Scheme Liabilities into an eight (8)-year restructured term loan (“RTL”); and

(iii)

Proposed settlement of the balance 20% of the Scheme Liabilities via the issuance of such number of Settlement Shares at an issue price of RM0.20 per Settlement Share.

Principal repayment of the RTL will commence on the fourth (4th) anniversary date of the completion of the Proposed Regularisation Scheme (“Completion Date”), and will be paid from the fourth (4th) to the eight (8th) anniversary dates of the Completion Date. Debt restructuring agreement(s) will be executed between PSSB and the Group 1 Creditors to reflect the terms of the scheme of arrangement and compromise with the Group 1 Creditors.

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(b)

Group 2 Creditor Group 2 Creditor or Unsecured FI Lender relates to a FI creditor of PHB Group which is not secured against any assets of PHB Group but is secured by way of personal guarantees from certain Directors of PHB, namely Tan Sri Dato‟ Sri Pheng Yin Huah and Dato‟ Pheng Chin Guan (collectively referred to as “Personal Guarantors”). The Group 2 Creditor has in 2014 obtained judgement from the High Court of Malaya (“High Court”) against the Personal Guarantors for the outstanding amount owing to the Group 2 Creditor. As such, the Personal Guarantors have agreed to settle the amount owing to the Group 2 Creditor. It is proposed for PHB to settle the amount owing to the Personal Guarantors via the issuance of such number of Settlement Shares at an issue price of RM0.20 per Settlement Share. The final Scheme Liabilities to be settled herein will depend on the final settlement sum made by the Personal Guarantors to the Group 2 Creditor.

(c)

Group 3 Creditors Group 3 Creditors or Essential Creditors comprise creditors such as the Government of Malaysia (“GOM”), Tenaga Nasional Berhad (“TNB”) and Petroliam Nasional Berhad (“Petronas”) who are unsecured creditors but are deemed to have priority of payments over the other unsecured creditors: (i)

Under Section 10(1) of the Government Proceedings Act 1956, all debts due to the GOM shall be entitled to a preference of payment over all debts, with the exception of debts which are secured;

(ii)

TNB has on various dates in 2012 and 2013 obtained judgment from the High Court against PSSB for the outstanding electricity bills; and

(iii)

Petronas has on various dates in 2013 obtained judgment from the High Court against PSSB for the outstanding dry gas supply bills.

The Scheme Liabilities owing to the Group 3 Creditors are proposed to be compromised and settled in the following manner: (i)

Proposed waiver of 30% of the Scheme Liabilities;

(ii)

Proposed rescheduling of 60% of the Scheme Liabilities to be settled via an instalment plan over an instalment period of five (5) years (“Instalment”); and

(iii)


The Instalment will commence on the fourth (4th) anniversary date of the Completion Date, and will be paid from the fourth (4th) to the eight (8th) anniversary dates of the Completion Date. The Scheme Liabilities of GOM will be based on the amount outstanding as at the CutOff Date. On 10 February 2014 and 18 February 2014, PSSB had executed separate settlement agreements with Petronas and TNB. The Scheme Liabilities of TNB and Petronas will be as per the existing settlement agreements executed. New settlement agreements will be executed between PSSB with GOM, TNB and Petronas to reflect the terms of the scheme of arrangement and compromise with the Group 3 Creditors.

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(d)

Group 4 Creditors On 29 October 2013, PSSB was granted an order pursuant to Section 176(1) and Section 176(10) of the Act by the High Court to restrain all proceedings and actions against PSSB for a period of ninety (90) days from 29 October 2013 (“Order”). The Order was subsequently extended on 27 January 2014, 25 July 2014 and 21 January 2015 and will now expire on 21 August 2015. The Order was applied to facilitate PSSB to convene a meeting with its creditors pursuant to Section 176(10) of the Act for the purpose of considering and if thought fit, to approve with or without any alteration or modification, a proposed scheme of arrangement and compromise of PSSB. The Group 4 Creditors or Unsecured Creditors represent those unsecured creditors of PSSB under the Order. The Scheme Liabilities owing to the Group 4 Creditors are proposed to be compromised and settled in the following manner: (i)

Proposed waiver of 30% of the Scheme Liabilities; and

(ii)


The scheme of arrangement and compromise with the Group 4 Creditors will be undertaken pursuant to Section 176 of the Act. (e)

Group 5 Creditors In November 2014, PHB had undertaken a group-wide retrenchment programme for approximately 1,000 employees due to cessation of the Kemaman Plant. Group 5 Creditors or Scheme Employees comprise those employees of PHB and/or PSSB under the retrenchment programme. The amount owing to the Group 5 Creditors which represents payment of outstanding salaries, claims, allowances and retrenchment benefit will be settled via the issuance of such number of Settlement Shares at an issue price of RM0.20 per Settlement Share. Zhiyuan will provide a guarantee to the Group 5 Creditors that the minimum exit price of the Settlement Shares issued to the Group 5 Creditors shall be RM0.20 per share. The scheme of arrangement and compromise with the Group 5 Creditors will be undertaken pursuant to Section 176 of the Act.

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The mode of settlement to the Scheme Creditors (Group 1 Creditors to Group 5 Creditors) is summarised as follows: Scheme Liabilities

Debt waiver

RM‟000 RM‟000 910,006 182,001

Group 1 Creditors Group 2 Creditor 28,519 Group 3 653,985 196,196 Creditors Group 4 590,492 177,148 Creditors Group 5 55,419 Creditors Total 2,238,422 555,344

Settlement sum

(1)

% 20.0

RM‟000 728,005

30.0

Mode of settlement InstallPHB RTL ment Shares

(1)

% 80.0

546,003

-

182,001

28,519 457,790

100.0 70.0

-

392,391

28,519 65,399

30.0

413,345

70.0

-

-

413,345

-

55,419

100.0

-

-

55,419

24.8 1,683,077

RM‟000

75.2 546,003 392,391 744,682

Note: (1)

As a percentage of the Scheme Liabilities

Pursuant to the MFA, Zhiyuan shall have the option to request for PHB and/or PSSB to undertake the following:

2.4

(a)

Incorporate a new private limited company to be incorporated in Malaysia which will be wholly-owned by PHB (“Newco”), and take all steps to seek the Group 1 Creditors‟ approval and if applicable, the Group 3 Creditors to permit the transfer of PSSB‟s assets (including the Kemaman Plant and the four (4) parcels of land on which the Kemaman Plant is situated on (“Kemaman Land”)) to Newco subject however to the Group 1 Creditors‟ security remaining intact (“PSSB Asset Transfer”); and

(b)

Upon the Group 1 Creditors‟ approval being obtained and if applicable, the Group 3 Creditors, to implement the PSSB Asset Transfer on the basis that the consideration for such transfer shall be the assumption by Newco of PSSB‟s liabilities after the implementation of the Proposed Debt Restructuring then owing to the Group 1 Creditors and if applicable, the Group 3 Creditors and upon such other terms as the parties and the Group 1 Creditors and if applicable, the Group 3 Creditors may mutually agree upon.

Proposed Exemption Zhiyuan‟s shareholdings will increase from zero to more than 33% pursuant to the Proposed Special Issue and Proposed Rights Issue with Warrants. Pursuant to Part III of the Malaysian Code on Take-overs and Mergers, 2010 (“Code”), Zhiyuan and parties acting in concert with it (“PACs”) (if any) shall have an obligation to undertake a general offer for all the remaining PHB Shares, Warrants-A and Warrants-B that it does not already own after the Proposed Regularisation Scheme.

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Zhiyuan does not intend to undertake a take-over offer for all the remaining PHB Shares, Warrants-A and Warrants-B that it does not already own after the Proposed Regularisation Scheme. An application will be submitted to the Securities Commission (“SC”) for the proposed exemption to Zhiyuan and PACs from the obligation to undertake a mandatory takeover offer for all the remaining PHB Shares, Warrants-A and Warrants-B not already owned by Zhiyuan and PACs under paragraph 16.1 of Practice Note 9 of the Code (“Proposed Exemption”). 2.5

Proposed Amendment The proposed amendment entails the amendment to relevant clauses of the Memorandum and/or Articles of Association of PHB to facilitate the reduction in the par value of the shares in PHB from RM1.00 per share to RM0.05 per share resulting from the Proposed Par Value Reduction (“Proposed Amendment”).

2.6

Proposed IASC PHB proposes to increase its authorised share capital from RM2,000,000,000 comprising 2,000,000,000 ordinary shares of RM1.00 each to RM2,000,000,000 comprising 40,000,000,000 ordinary shares of RM0.05 each in order to accommodate the increase in the number of PHB Shares arising from the Proposed Regularisation Scheme (“Proposed IASC”).

3.

BACKGROUND INFORMATION OF ZHIYUAN Zhiyuan is a private limited company incorporated under the laws of the People‟s Republic of China (“PRC”) under its present name. Zhiyuan is an investment holding company, wholly-owned by Tianjin Zhiyuan (天津致远投资集团有限公司), also an investment holding company, whose ultimate shareholders are Zhang Zong and Liu Rui, holding respectively 42.22% and 57.78% of the entire equity interest in Tianjin Zhiyuan. As at the date hereof, Tianjin Zhiyuan‟s registered capital is RMB495.0 million (RM303.2 million). Tianjin Zhiyuan‟s shareholders who are based in Tianjin, PRC have diversified businesses in various industries including chemicals, alloys, ceramics, ferroalloy, titanium and stainless steel. Zhiyuan is a strategic investor who wishes to inject new capital into PHB by subscribing for shares in PHB with the aim of taking control of PSSB and transforming PSSB into a leading manufacturer of stainless steel, steel alloy and titanium-based products in the South East Asian region, using innovative, energy efficient and green technology. This transformation will entail significant investment by PSSB of additional plant and equipment to manufacture new products as well as upgrading and modifying its existing plant. Tianjin Zhiyuan group has more than 2,000 employees over 50 branches and subsidiaries mainly located in PRC, Hong Kong, Singapore, Australia, South Africa, Mexico and Canada.

(Source: Zhiyuan)

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4.

SALIENT TERMS OF THE MFA

4.1

Obligations after execution of the MFA

4.1.1

Zhiyuan shall procure the following: (a)

(b)

4.1.2

Tianjin Chenbin Law Firm, Zhiyuan‟s PRC counsel (“PRC Counsel”) to confirm to Christopher & Lee Ong, Zhiyuan‟s Malaysian counsel (“Malaysian Counsel”) within 10 business days from the date of the MFA (“PRC Confirmation”): (i)

that a sum of RMB equivalent of RM30 million has been deposited by Zhiyuan with PRC Counsel;

(ii)

that PRC Counsel has been authorised by Zhiyuan to remit the said sum of RMB equivalent of RM30 million to Malaysian Counsel within 30 days from the date the approvals of the Group 4 Creditors and Group 5 Creditors have been obtained and all the debt restructuring agreements with the Group 1 Creditors, Group 2 Creditor and Group 3 Creditors have been executed, whichever is later; and

Malaysian Counsel to confirm to PHB within 10 business days from the date of Malaysian Counsel‟s receipt of the PRC Confirmation: (i)

that Malaysian Counsel has received the PRC Confirmation and the terms of the PRC Confirmation;

(ii)

that Malaysian Counsel has been authorised by Zhiyuan to: (A)

place the monies which Malaysian Counsel received from PRC Counsel (“Part Payment”) into an interest bearing account;

(B)

release the Part Payment together with all interest accrued thereon (“Part Payment Plus”) to: a.

PHB within 10 business days from the date of announcement by PHB that its shareholders‟ approval for the Proposed Regularisation Scheme has been obtained; or

b.

to Zhiyuan within 10 business days from 15 July 2016 or such later date as the parties may mutually agree (“Long Stop Date”) if on or before the Long Stop Date, Malaysian Counsel does not receive any notice from either PHB or Zhiyuan that all the conditions precedent of the MFA have been fulfilled and/or waived.

The parties agree that the Part Payment Plus released by Malaysian Counsel to PHB shall be an advance (“Zhiyuan Advance”) to PHB upon terms to be agreed between PHB and Zhiyuan as to its utilisation, repayment and interest. The parties shall set up a committee comprised of representatives the majority of whom are from Zhiyuan and remainder from PHB as soon as possible to consider the utilisation of the Zhiyuan Advance and to jointly manage the bank account opened by PHB for the sole purpose of crediting the Zhiyuan Advance and for other terms of reference as the parties may mutually agree upon. The Zhiyuan Advance shall be set-off by PHB against Zhiyuan‟s obligation to pay the Subscription Tranche 1 under the Proposed Special Issue.

14

4.2

Conditions precedent

4.2.1

Zhiyuan‟s participation in the Proposed Regularisation Scheme and PHB‟s and PSSB‟s obligation to allow Zhiyuan to participate in the Proposed Regularisation Scheme shall be conditional upon the fulfilment of all the conditions precedent in the MFA, which include amongst others: (a)

The grant of SC‟s approval to any aspect of the Proposed Regularisation Scheme requiring SC‟s approval including the Proposed Exemption;

(b)

Bursa Securities‟ approval to the Proposed Regularisation Scheme and to the listing and quotation of the new PHB shares and Warrants-B to be issued pursuant to the Proposed Regularisation Scheme;

(c)

the approval of PHB‟s shareholders at an extraordinary general meeting (“EGM”) of PHB for the Proposed Regularisation Scheme and for PSSB‟s or if applicable, Newco‟s, entry into agreements with equipment suppliers identified by Zhiyuan for the purchase of new plant and equipment required by Zhiyuan to enable PSSB to produce stainless steel and steel alloy (“New Products”) (“Equipment Purchase Agreement(s)”);

(d)

the approval of the Group 4 Creditors and Group 5 Creditors at a court convened meeting of the creditors pursuant to Section 176(1) of the Act;

(e)

the sanction of the High Court, for the Proposed Balance Sheet Restructuring under Section 64 of the Act and Proposed Scheme of Arrangement for the Group 4 Creditors and Group 5 Creditors under Section 176 of the Act;

(f)

the subscription agreement for the Proposed Special Issue between PHB and Zhiyuan being executed (“Subscription Agreement”);

(g)

the debt restructuring agreements between as applicable, PHB and/or PSSB with the Group 1 Creditors, Group 2 Creditor and Group 3 Creditors being executed and if subject to conditions precedent, becoming unconditional in accordance with their respective terms;

(h)

the Equipment Purchase Agreement(s) being executed upon terms acceptable to Zhiyuan and PHB provided the approval of PHB‟s shareholders at an EGM of PHB for PSSB‟s or if applicable, Newco‟s, entry into such Equipment Purchase Agreement(s) has been obtained;

(i)

PSSB and if applicable, Newco, obtaining all requisite new approvals from Ministry of International Trade and Industry, Malaysia (“MITI”) / Malaysian Investment Development Authority (“MIDA”) for the manufacture of the New Products and renewed manufacturing licences from MITI/MIDA for the manufacture of current steel products and from any other relevant authority, all licences, permits, consents and approvals which are required for the re-commencement of the business and operations at the Kemaman Plant for the manufacture of steel products and upon terms that no such licences, permits, consents and approvals shall contain any equity condition (whether for minimum Malaysian or Bumiputera equity or for a maximum foreign equity) or any minimum Bumiputera directors‟ or employees‟ requirement, whether at PSSB‟s/Newco‟s level or at PHB‟s level;

15

(j)

the receipt of a legal opinion from a reputable PRC counsel opining that Zhiyuan and if applicable, Zhiyuan‟s related entities had obtained all requisite licences, permits, consents and approvals required under the laws of PRC for its investment in PHB upon the terms as contemplated under the MFA and the Proposed Regularisation Scheme;

(k)

the results of the on-going legal, financial, tax and technical due diligence conducted by Zhiyuan over PHB and its subsidiaries being satisfactory to Zhiyuan (“Due Diligence”); and

(l)

Zhiyuan‟s approval to any resultant adjustment to the Proposed Regularisation Scheme subsequent to the inclusion of any contingent liabilities and unrecorded liabilities as Scheme Creditors in the Proposed Regularisation Scheme, such liabilities discovered during the due diligence or discovered by PHB or PSSB and with evidence furnished to Zhiyuan to Zhiyuan‟s satisfaction.

4.2.2

PHB and PSSB and if applicable, Zhiyuan, shall fulfil the conditions precedent during the period of nine (9) months from the date of the MFA with an automatic extension of three (3) months from the date of expiry of the initial nine (9) months or such other later date as the parties may mutually agree upon.

4.2.3

Zhiyuan shall complete the Due Diligence fourteen (14) days before the deadline for PHB‟s submission of the Proposed Regularisation Scheme to Bursa Securities on condition that the submission shall be no earlier than 30 September 2015, and notify PHB whether the results of such Due Diligence are satisfactory to Zhiyuan.

4.3

Salient terms of the Subscription Agreement

4.3.1

Zhiyuan shall subscribe for the entire Subscription Shares wholly in cash in four (4) tranches;

4.3.2

Zhiyuan irrevocably undertakes to PHB that conditional upon Zhiyuan‟s subscription of the Subscription Tranche 1, Zhiyuan shall subscribe for not less than 500 million Rights Shares at an issue price of RM0.20 per Rights Share, for an aggregate subscription price of not less than RM100.0 million under the Proposed Rights Issue with Warrants; and

4.3.3

Zhiyuan represents to PHB that it has sufficient financial capability to undertake the entire 4 tranches of the Subscription Shares.

5.

UTILISATION OF PROCEEDS

5.1

Proceeds from the Proposed Special Issue and Proposed Rights Issue with Warrants

The Proposed Special Issue and Proposed Rights Issue with Warrants are expected to raise gross proceeds of between RM1,944.8 million (under the Minimum Subscription Level) up to RM2,234.4 million (under the Maximum Scenario) respectively, to be utilised in the following manner: Minimum Scenario (1) (2) Minimum Full Subscription Subscription Maximum Details Level Level Scenario RM‟000 Proposed Special Issue 1,700,000 1,700,000 1,700,000 Proposed Rights Issue with Warrants 244,800 489,600 534,400 Total 1,944,800 2,189,600 2,234,400 16

(3)

Timeframe for utilisation

Minimum Scenario (2) Minimum Full Subscription Subscription Level Level RM‟000 1,700,000 1,700,000 (1)

Maximum Scenario

Details

Ref

Purchase of plant and equipment for the upgrade and modification of the Kemaman Plant

(a)

Within 36 months

Payment to statutory creditors

(b)

Within 3 months

25,000

25,000

25,000

Working capital

(c)

Within 36 months

214,800

459,600

504,400

Estimated expenses in relation to the Proposed Regularisation Scheme

(d)

Within 3 months

5,000

5,000

5,000

1,944,800

2,189,600

2,234,400

Total

1,700,000

Notes: (1)

Based on the minimum subscription level to raise gross proceeds of at least RM244.8 million under the Proposed Rights Issue with Warrants

(2)

Based on the assumption that all Entitled Shareholders including Zhiyuan will subscribe for their entire entitlements under the Proposed Rights Issue with Warrants

(3)

From the date of listing of the Subscription Shares under Subscription Tranche 1 and Rights Shares

Further details of the utilisation of proceeds are as follows: (a)

Purchase of plant and equipment for the upgrade and modification of the Kemaman Plant As part of its value proposition for PHB Group, Zhiyuan proposes to undertake a full revamp of PSSB‟s business from traditional steelmaking to the production of stainless steel and steel alloy. This shall involve substantial modification and upgrading of the Kemaman Plant over a period of 3 financial years from the Completion Date, including the purchase of new plant and equipment such as coking ovens, argon oxygen decarburization refining furnaces, rotary kilns, steel rolling mill and pickling machinery.

17

(b)

Payment to statutory creditors The statutory creditors relates to employees‟ tax contribution and other contributions to various employees‟ fund such as Employees Provident Fund, Social Security Organization and Lembaga Tabung Haji. If the actual payment to statutory creditors is higher than the amount budgeted, the deficit will be funded out of the portion allocated for working capital. Conversely, if the actual expenses are lower than the amount budgeted, the excess will be utilised for working capital.

(c)

Working capital The general working capital requirement of PHB Group includes but is not limited to plant overheads and operating expenditure such as staff salaries, purchase of raw materials, payment for utilities such as gas and electricity, project management and technical consultancy cost in relation to the modification works at the Kemaman Plant and other day-to-day expenses.

(d)

Estimated expenses in relation to the Proposed Regularisation Scheme The estimated expenses comprise professional fees, fees to be paid to the relevant authorities, printing and advertising charges and miscellaneous charges which are estimated at RM5.0 million for the Proposed Regularisation Scheme. If the actual expenses incurred pursuant to the Proposed Regularisation Scheme are higher than the amount budgeted, the deficit will be funded out of the portion allocated for working capital. Conversely, if the actual expenses are lower than the amount budgeted, the excess will be utilised for working capital.

5.2

Proceeds from the exercise of Warrants-B Up to 5,586,000,000 Warrants-B may be issued pursuant to the Proposed Regularisation Scheme. The proceeds arising from the exercise of Warrants-B are dependent on the total number of Warrants-B exercised during the tenure of the Warrants-B. The proceeds from the exercise of the Warrants-B will be received on an “as and when basis” over the tenure of the Warrants-B. For illustrative purposes, based on the exercise price of the Warrants-B of RM0.20, the gross proceeds expected to be raised from the full exercise of Warrants-B is up to RM1,117.2 million. Such proceeds shall be utilised for PHB Group‟s future working capital requirements, business expansion and/or other investments.

18

6.

SALIENT TERMS OF THE WARRANTS-B The indicative salient terms of the Warrants-B are set out below: Terms

Details

Number of Warrants

:

Up to 5,586,000,000 Warrants-B to subscribe for up to 5,586,000,000 new PHB Shares to be issued for free as follows: (a)

4,250,000,000 Warrants-B to Zhiyuan pursuant to the Proposed Special Issue; and

(b)

Up to 1,336,000,000 Warrants-B to the Entitled Shareholders pursuant to the Proposed Rights Issue with Warrants.

Detachability

:

The Warrants-B are immediately detachable from the PHB Shares upon their allotment and issuance. The Warrants-B will be traded separately.

Exercise Price

:

The exercise price of the Warrants-B has been fixed at RM0.20 each. The exercise price and the number of outstanding Warrants-B shall however be subject to the adjustments in accordance with the terms and provisions of the Deed Poll during the Exercise Period.

Exercise Period

:

The Warrants-B may be exercised any time during the tenure of the Warrants-B of ten (10) years including and commencing from the issue date of the Warrants-B. Warrants-B not exercised during the Exercise Period will thereafter become lapse and void.

Exercise Rights

:

Each Warrant-B entitles the registered holder to subscribe for one (1) new PHB Share at the Exercise Price during the Exercise Period and shall be subject to adjustments in accordance with the Deed Poll.

Deed Poll

:

The Warrants-B will be constituted by a Deed Poll to be executed by PHB.

Board Lot

:

The Warrants-B are tradeable upon listing in board lots of 100 units carrying rights to subscribe for 100 new PHB Shares at any time during the Exercise Period or such other number of units as may be prescribed by Bursa Securities.

:

All new PHB Shares to be issued arising from the exercise of the Warrants-B shall, upon allotment and issue, rank pari passu in all respects with the then existing PHB Shares except that they will not be entitled to any dividends, rights, allotments and/or other distributions, the entitlement date of which is before the date of allotment of the new PHB Shares arising from the exercise of the Warrants-B.

Status of Shares to pursuant exercise Warrants-B

new PHB be issued to the of the

19

Listing

:

An application will be made for the admission of the Warrants-B to the Official List of Bursa Securities and the listing of and quotation for the Warrants-B and the new PHB Shares to be issued arising from the exercise of the Warrants-B on the Main Board of Bursa Securities.

Adjustment in the Exercise Price and/or the number of Warrants-B held by warrant holders in the event of alteration to the share capital

:

Subject to the provisions in the Deed Poll, the Exercise Price and the number of Warrants-B held by each Warrant-B holder shall be adjusted by the Board in consultation with the adviser and certification of the external auditors, in the event of alteration to the share capital of PHB.

Transferability

:

The Warrants-B shall be transferable in the manner in accordance with the Deed Poll subject always to the provisions of the Securities Industry (Central Depositories) Act, 1991, and the Rules of Bursa Malaysia Depository Sdn Bhd and any appendices thereto.

Rights in the Event of Winding Up, Liquidation, Compromise and/or Arrangement

:

Where a resolution has been passed for a members‟ voluntary winding-up of PHB, or where there is a compromise or arrangement, whether or not for the purpose of or in connection with a scheme for the reconstruction of PHB or the amalgamation of PHB with one or more companies, then: (a) for the purpose of such a winding up, compromise or arrangement (other than a consolidation, amalgamation or merger in which PHB is the continuing corporation) to which the warrant holders, or some persons designated by them for such purposes by a special resolution, will be a party, the terms of such winding-up, compromise or arrangement will be binding on all the Warrant holders; and (b) in any other cases, every warrant holder shall be entitled at any time within six (6) weeks after the passing of such resolution for a members‟ voluntary winding up of PHB or within six (6) weeks after the granting of the court order approving the winding-up, compromise or arrangement, elect to be treated as if he had immediately prior to the commencement of such winding-up, compromise or arrangement exercised the Exercise Rights represented by his Warrants-B and be entitled to receive out of the assets of PHB which would be available in liquidation as if he had on such date been the holder of the new PHB Shares to which he would have become entitled pursuant to such exercise.

Governing Law

:

Laws of Malaysia.

20

7.

RATIONALE FOR THE PROPOSED REGULARISATION SCHEME PSSB was forced to cease operations in August 2013 due to curtailment of its gas and electricity supplies arising from non-payment of outstanding dry gas and electricity bills to Petronas and TNB. The distressed situation in PSSB was primarily a result of the following: (a)

High interest expense and high conversion cost due to out-dated steel making technology resulting in PSSB being unable to compete in the market place; and

(b)

High debt and liabilities level of around RM2.2 billion giving rise to short term liquidity pressures as a result of PSSB‟s declining operating performance.

Overall, the Proposed Regularisation Scheme is intended to restore the position of PHB Group as a financially viable going concern and avoid a distressed sale of assets for the benefit of all stakeholders. The Proposed Regularisation Scheme is expected to improve PHB Group‟s financial profile in terms of gearing and other important balance sheet ratios, and provide PHB Group with new business and product lines for greater pricing power and correspondingly better margins and earnings potential in the future. The sub-rationale for each of the component of the Proposed Regularisation Scheme is set out below. 7.1

Proposed Balance Sheet Restructuring The Proposed Balance Sheet Restructuring seeks to rationalise the balance sheet of the Company by the reduction of the par value of each existing ordinary share of RM1.00 and the reduction of the share premium amount to reduce the Company‟s accumulated losses. In addition, the Proposed Par Value Reduction will also enable the Company greater flexibility to raise funds and to implement future corporate exercise involving the issuance of new shares as the Company‟s shares have consistently traded below the existing par value of RM1.00 over the last three (3) years. The Board is of the view that as part of the initiatives to rebuild the Company, it is imperative that the accumulated losses be significantly reduced to the extent possible by the Proposed Balance Sheet Restructuring. The resulting reduction of the accumulated losses will better reflect the Company‟s actual financial position and facilitates its objective to attain a stronger financial position moving forward.

7.2

Proposed Recapitalisation The Proposed Recapitalisation will result in the introduction of Zhiyuan as new strategic shareholder of PHB and raise the necessary funds to execute Zhiyuan‟s business plans, which involve substantial modification and upgrading of the Kemaman Plant. The substantial upgrade of the Kemaman Plant will enable the Group to steer away from the over supplied and intensely competitive markets for its traditional product lines to produce high grade steel, alloy and titanium based products thereby providing the Group with greater pricing power and correspondingly better margins and earnings potential in the future. Pursuant to the terms of the MFA, Zhiyuan will subscribe for the entire Proposed Special Issue amounting to RM1,700.0 million, and provide irrevocable written undertaking to PHB to subscribe for its entitlement of up to RM100.0 million under the Proposed Rights Issue with Warrants. These demonstrate Zhiyuan‟s confidence to revamp the Kemaman Plant and turnaround PHB Group post completion of the Proposed Regularisation Scheme.

21

The Proposed Rights Issue with Warrants is undertaken primarily to provide an opportunity to PHB‟s existing shareholders to further participate in the equity of PHB and the Proposed Regularisation Scheme, which is expected to contribute positively to the future earnings potential of PHB. After due consideration of the various funding options available, the Board is of the view that the Proposed Recapitalisation is the most appropriate avenue for PHB as it will: (a)

Enable PHB to raise funds without incurring interest cost and to minimise any potential cash outflow in respect of interest servicing cost given that PHB Group had only deleveraged its balance sheet as part of the Proposed Debt Restructuring; and

(b)

Allow the PHB Group to be recapitalised and to strengthen PHB Group‟s net asset base as part of the Proposed Regularisation Scheme.

The Warrants-B attached to the Subscription Shares and Rights Shares will further increase the attractiveness of the Proposed Recapitalisation as they provide Zhiyuan and the Entitled Shareholders with the opportunity to increase their equity participation in PHB at a predetermined price during the tenure of the Warrants-B. In addition, the Warrants-B will enable PHB to raise further proceeds from the equity market as and when any of the Warrants-B is exercised. 7.3

Proposed Debt Restructuring The Proposed Debt Restructuring is aimed at resuscitating the financial and operational viability of PHB Group by comprehensively addressing the debts of PHB Group through partial debt waiver, partial rescheduling of the debt into longer tenure repayments and partial debt to equity conversion via the Settlement Shares. The Proposed Debt Restructuring will reduce PHB Group‟s debts to a more manageable level, reschedule the remaining debts to better match the projected cash flows of the business and to avoid a distressed sale of the group‟s assets. This will alleviate near-term pressure on cash flow to enable Zhiyuan and the management of PHB Group to focus on transforming and turning around the business of PHB Group.

7.4

Proposed Exemption The capital participation by Zhiyuan in the Proposed Special Issue and Proposed Rights Issue with Warrants of RM1,800.0 million (representing 92.6% of the total gross proceeds of RM1,944.8 million under the Minimum Subscription Level pursuant to the Proposed Recapitalisation) demonstrates Zhiyuan‟s confidence to revamp the Kemaman Plant and turnaround PHB Group post completion of the Proposed Regularisation Scheme. As a result of the substantial capital infusion, Zhiyuan‟s shareholdings in PHB will increase from zero to more than 33%. The Proposed Exemption is sought as Zhiyuan does not intend to undertake a take-over offer for all the remaining PHB Shares, Warrants-A and Warrants-B that it does not already own after the Proposed Regularisation Scheme.

7.5

Proposed Amendment and Proposed IASC The Proposed Amendment is intended to facilitate the implementation of the Proposed Par Value Reduction. The Proposed IASC is to accommodate the increase in the number of PHB Shares arising from the Proposed Regularisation Scheme.

22

8.

INDUSTRY OUTLOOK AND PROSPECTS

8.1

The global economy The global economic activity expanded with divergent growth momentum across economies in the first quarter of 2015. While the economy of the United States (“US”) registered broader improvements, the economic recovery in the euro area and Japan progressed at a more gradual pace. In Asia, growth was sustained by the continued expansion of domestic demand. Most major and regional equity markets ended the quarter higher. In the first half of the quarter, global equity markets initially declined as market sentiments were affected by the sharp decline in oil prices, the downward revision to the International Monetary Fund and World Bank global growth forecasts, as well as uncertainty over the outcome of the Greek debt negotiations. Nevertheless, most equity markets trended higher from February onwards, which more than offset the initial decline. This was underpinned by policy actions in a few major economies, namely, the commencement of the European Central Bank‟s expanded asset purchase programme and the announcement of monetary easing measures by the PRC, which lifted market sentiments. Moving forward, the global economy is projected to be on a moderate growth path, but with diverging growth momentum across major economies. While lower oil prices will have varying impact on economies, overall global growth is expected to benefit from this development. Nevertheless, downside to the growth outlook continue to persist, arising from the prolonged weakness in domestic demand and the low inflation in a number of major economies, concerns on the growth prospects of several net commodity-exporting emerging economies and the re-emergence of geopolitical tensions, which could result in heightened financial market volatility.

(Source: Quarterly Bulletin, First Quarter 2015, Bank Negara Malaysia) 8.2

The Malaysian economy The Malaysian economy registered a growth of 5.6% in the first quarter of 2015 (4Q 2014: 5.7%). Private sector expenditure remained the key driver of growth (9.6%; 4Q 2014: 8.3%). This contributed towards a strong domestic demand performance, which offset the negative contribution from net exports during the quarter. On a quarter-on-quarter seasonallyadjusted basis, the economy recorded a growth of 1.2% (4Q 2014: 1.8%). Domestic demand expanded by 7.9% in the first quarter of 2015 (4Q 2014: 5.7%), driven mainly by private sector expenditure. Investment activity, particularly in the manufacturing and services sectors, is expected to remain robust as reflected by the record-high level of investment approvals reported by the Malaysian Investment Development Authority. Investment in the manufacturing sector will be supported by capital spending in the export-oriented industries and in new growth areas such as renewable energy (e.g. solar and energy-efficient vehicles), semiconductors and medical devices. In the services sector, spending will be channelled into higher value-added activities, such as information technology services (e.g. cloud computing), education and medical tourism. Investment by new and existing businesses in Malaysia and the continued implementation of long-gestation projects will also support investment growth in 2015-2016.

23

Additionally, the incentives announced by the Government in April 2015 to promote investment in automation and principal hub activity are also expected to lift capital spending and to attract more firms to set up their global or regional bases in Malaysia.

(Source: Quarterly Bulletin, First Quarter 2015, Bank Negara Malaysia) 8.3

The steel industry in Malaysia The Malaysian iron and steel industries sector covers primary steel products like direct reduced iron, hot briquetted iron, blooms/slabs and steel billets and a very wide range of downstream flat and long products like hot rolled coils, cold rolled coils, coated steel coils, roofing sheets, steel pipes and sections, steel billets, steel bars, wire rods, wire mesh, hard drawn wires, galvanised wires, steel wire ropes, steel wire products, stainless steel pipes/pipes fittings and stainless steel wire and fasteners. The iron and steel industries provide an important linkage for the supply of basic raw materials and components to other sectors of the Malaysian economy, especially the construction industry, electrical/electronic industry, automotive industry, furniture industry, machinery industry and engineering fabrication industry. The Third Industrial Master Plan 2006-2020 had identified six strategic thrusts to further enhance the development of the iron and steel industry: (a)

Enhancing the competitiveness of the iron and steel industry to support the growth of the manufacturing and construction sectors;

(b)

Sustaining and expanding the exports of iron and steel products for existing and new markets;

(c)

Promoting new applications of steel in selected industries;

(d)

Encouraging collaborations between producers and users of steel, and upstream and downstream manufacturers;

(e)

Attracting new investments in niche areas in the iron and steel industry; and

(f)

Developing a skilled and qualified workforce for the iron and steel industry.

(Source: http://www.mida.gov.my/home/basic-metal-products/posts/) The Government will continue to promote investments in the production of iron and steel products with growth potential. The products include steel tyre cords, alloy structural steel, high pressure reinforced hose wires, specialised steel for tools and dies, seamless steel pipes, structural hollow sections, fine steel wires, oil and gas pipes, cold formed heavy gauge sections and stainless steel coils.

(Source: Third Industrial Master Plan 2006-2020, Ministry of International Trade and Industry)

24

8.4

Future prospects of PHB Upon completion of the Proposed Regularisation Scheme, Zhiyuan will bring about new technology and revamp the existing Kemaman Plant. PHB will still be involved in the steel industry but will be producing specialised higher value-added stainless steel products. Stainless steel has a vast range of diverse uses. It is used in making cutlery, kitchenware, garden equipment, surgical instruments, industrial equipment, automotive and aerospace structural alloy and construction materials. Stainless steel has one of the lightest impacts on earth of all known engineering materials. At the end of its long life, all stainless steel can be recycled to create new stainless steel that is as strong and long lasting as the original. The chart below shows the compound annual growth rate of world stainless melt shop production from 1950 to 2014 in million metric tonnes (“Mt”):

The world stainless steel production had been growing over the years as it was realised that the material had many more valuable properties which make it suitable for a vast range of diverse uses. While the original form of stainless steel, (iron with around 12% chromium) is still in widespread use, engineers now have a wide choice of different types (grades). In all, there are more than 100 different grades of stainless steel which caters for usage in different industries. Each particular grade of stainless steel has its own unique mechanical and physical properties and will usually be produced in accordance with an established national or international specification or standard.

25

The chart below shows the stainless steel demand versus real stainless steel use in Asia (excluding China) for first quarter 2014 to projected fourth quarter 2014:

(Source: Stainless Steel in Figures 2015, International Stainless Steel Forum) As shown in the chart above, the demand for stainless steel in the first half of 2014 exceeds the usage of stainless steel. With the new technology and equipment for the production of stainless steel and steel alloy, PHB Group is envisaged to transform and turnaround its business. PHB Group will be able to steer away from the over supplied and intensely competitive markets for its traditional product lines to produce stainless steel and steel alloy which provides the Group with greater pricing power and correspondingly better margins and earnings potential in the future. 9.

RISK FACTORS PHB Group is one of the largest integrated producers of primary steel products in Malaysia. Upon completion of the Proposed Regularisation Scheme, PHB Group will still be involved in the steel industry but will be transformed into a major producer of stainless steel products in Malaysia. As such, the PHB Group is exposed to certain risks which include: (a)

The business regularisation plan to revamp, modify and upgrade the machineries and equipment of the Kemaman Plant is subject to risks of delay, non-completion, costs overruns which can adversely affect PHB Group‟s business regularisation;

(b)

Unanticipated increased costs for planned capital expenditure;

(c)

Disruption in the supply of raw materials and fluctuation of raw material prices;

(d)

Fluctuation in the demand and prices for stainless steel products; and

(e)

High costs of compliance with environmental regulations. 26

In mitigating these risk factors, Zhiyuan has conducted the due diligence work necessary to account for their possible effects across the lifecycle of its future operations in the Kemaman Plant, as well as to ensure that the returns of its operations substantially outweigh the effects of these risks by leveraging on the technical expertise it possesses. The completion of the Proposed Regularisation Scheme is further subject to fulfilment of all the conditions precedent of the MFA. In the event that the conditions precedent are not satisfied and subsequently not waived by the relevant parties, the Proposed Regularisation Scheme will not be completed and PHB will not be able to meet its objectives as stated in Section 7 of this announcement. The Board will however take all reasonable steps to ensure the fulfilment of all conditions precedent of the MFA. 10.

EFFECTS OF THE PROPOSED REGULARISATION SCHEME The Proposed Exemption, Proposed Amendment and Proposed IASC will not have a financial effect to the Company. The pro forma effects of the Proposed Balance Sheet Restructuring, Proposed Recapitalisation and Proposed Debt Restructuring, where relevant are set out in the preceding sections. For illustrative purposes, we have assumed that all the outstanding 280,000,000 Warrants-A will not be exercised into new PHB Shares prior to the implementation of the Proposed Regularisation Scheme given that the exercise price of the Warrants-A is RM1.00 vis-à-vis the current market price of PHB Shares of between RM0.05 to RM0.27 from January to June 2015. As such, it is assumed that the Proposed Rights Issue with Warrants will be implemented based on the Minimum Scenario. Under the Minimum Scenario, the pro forma effects of the Proposed Balance Sheet Restructuring, Proposed Recapitalisation and Proposed Debt Restructuring, where relevant is further presented based on 2 scenarios: (a)

Minimum Subscription Level – Based on the minimum subscription level to raise gross proceeds of at least RM244.8 million under the Proposed Rights Issue with Warrants, whereby Zhiyuan will subscribe for RM100.0 million worth of Rights Shares and the balance are assumed to be underwritten; and

(b)

Full Subscription Level – Based on the assumption that all Entitled Shareholders including Zhiyuan will subscribe for their entire entitlements under the Proposed Rights Issue with Warrants.

27

10.1

Share capital The effects of the Proposed Regularisation Scheme on the issued and paid-up share capital of PHB are shown below:

Existing Proposed Par Value Reduction After the Proposed Par Value Reduction Proposed Special Issue – Subscription Tranche 1 Proposed Rights Issue with Warrants Proposed Debt Restructuring Proposed Special Issue – Subscription Tranche 2 Proposed Special Issue – Subscription Tranche 3 Proposed Special Issue – Subscription Tranche 4 Assuming full exercise of Warrants-A Assuming full exercise of Warrants-B Total enlarged issued and paidup share capital

Minimum Subscription Level No. of Share shares capital „000 RM‟000 560,000 560,000 (532,000)

Full Subscription Level No. of Share shares capital „000 RM‟000 560,000 560,000 (532,000)

560,000

28,000

560,000

28,000

2,500,000 3,060,000

125,000 153,000

2,500,000 3,060,000

125,000 153,000

1,224,000 4,284,000

61,200 214,200

2,448,000 5,508,000

122,400 275,400

3,723,412 8,007,412

186,171 400,371

3,723,412 9,231,412

186,171 461,571

2,000,000

100,000

2,000,000

100,000

2,000,000

100,000

2,000,000

100,000

2,000,000 14,007,412

100,000 700,371

2,000,000 15,231,412

100,000 761,571

280,000

14,000

280,000

14,000

4,862,000

243,100

5,474,000

273,700

19,149,412

957,471

20,985,412

1,049,271

28

10.2

Substantial shareholders The pro forma effects of the Proposed Regularisation Scheme on the shareholdings of the substantial shareholders of PHB are shown below: Existing Direct No. of shares „000

%

After Proposed Special Issue Subscription Tranche 1

After Proposed Par Value Reduction

Indirect No. of shares „000

%

Direct No. of shares „000

%


%

Direct No. of shares „000

%


%

Tan Sri Abu Sahid bin Mohamed (1) Tan Sri Dato‟ Sri Pheng Yin Huah (2) Kinsteel Bhd

500

0.09

353,164

63.07

500

0.09

353,164

63.07

500

0.02

353,164

11.54

3,061 175,000

0.55 31.25

177,956 -

31.78 -

3,061 175,000

0.55 31.25

177,956 -

31.78 -

3,061 175,000

0.10 5.72

177,956 -

5.82 -

Equal Concept Sdn Bhd

155,900

27.84

-

-

155,900

27.84

-

-

155,900

5.09

-

-

21,684

3.87

330,930

59.09

21,684

3.87

330,930

59.09

21,684

0.71

330,930

10.81

2,133

0.38

175,000

31.25

2,133

0.38

175,000

31.25

2,133

0.07

175,000

5.72

357 524

0.06 0.09

177,469 178,061

31.69 31.80

357 524

0.06 0.09

177,469 178,061

31.69 31.80

357 524

0.01 0.02

177,469 178,061

5.80 5.82

-

-

-

-

-

-

-

- 2,500,000

81.70

-

-

Maju Holdings Sdn Bhd(3) Kin Kee Holdings Sdn Bhd(4) Perniagaan Kin Kee Sdn Bhd(5) Dato‟ Hong Thian Hock(6) Zhiyuan

29

Minimum Subscription Level After Proposed Rights Issue with Warrants Direct No. of shares „000 500

% 0.01

Indirect No. of shares „000 353,164

(7)


After Proposed Debt Restructuring

% 8.24

Direct No. of shares „000 500

% 0.01

Indirect No. of shares „000 % 1,673,469 20.90


Indirect No. of shares % „000 % 0.00 1,673,469 16.72

4.15

147,057

1.84

1,609,566

147,057

1.47 1,609,566

17.29

-

- 1,384,663


3,061

0.07

177,956

175,000

4.08

-

- 1,384,663


20.10

16.08

13.84

-

-

155,900

3.64

-

-

155,900

1.95

-

-

155,900

1.56

-

-

(3)

21,684

0.51

330,930

7.72

132,326

1.65

1,540,593

19.24

132,326

1.32 1,540,593

15.39

Kin Kee Holdings Sdn Bhd(4) Perniagaan Kin Kee Sdn Bhd(5) Dato‟ Hong Thian Hock(6)

2,133

0.05

175,000

4.08

224,080

2.80

1,384,663

17.29

224,080

2.24 1,384,663

13.84

357

0.01

177,469

4.14

357

0.00

1,387,132

17.32

357

0.00 1,387,132

13.86

524

0.01

178,061

4.16

524

0.01

1,609,671

20.10

524

0.01 1,609,671

16.08

3,000,000

70.03

-

- 3,000,000

37.47

-

Maju Holdings Sdn Bhd

Zhiyuan

30

- 5,000,000

49.96

-

-

Minimum Subscription Level After Proposed Special Issue Subscription Tranche 4


Tan Sri Abu Sahid bin Mohamed (1) Tan Sri Dato‟ Sri Pheng Yin Huah (2) Kinsteel Bhd Equal Concept Sdn Bhd


% 0.00



147,057

1.22

1,609,566

1,384,663

11.53

Assuming full exercise of Warrants-A and Warrants-B

% 0.00



147,057

1.05

1,609,566

11.49

-

- 1,384,663

9.89

-

13.40

% 0.00

Indirect No. of shares „000 1,673,469

% 8.74

147,057

0.77

1,609,566

8.41

-

1,384,663

7.23

-

-

155,900

1.30

-

-

155,900

1.11

-

-

155,900

0.81

-

-

(3)

132,326

1.10

1,540,593

12.83

132,326

0.94

1,540,593

11.00

132,326

0.69

1,540,593

8.05


224,080

1.87

1,384,663

11.53

224,080

1.60

1,384,663

9.89

224,080

1.17

1,384,663

7.23

357

0.00

1,387,132

11.55

357

0.00

1,387,132

9.90

357

0.00

1,387,132

7.24

524

0.00

1,609,671

13.41

524

0.00

1,609,671

11.49

524

0.00

1,609,671

8.41

7,000,000

58.30

-

- 9,000,000

64.25

-

-

13,500,000

70.50

-

-


Zhiyuan

31

Full Subscription Level After Proposed Rights Issue with Warrants Direct No. of shares „000 900

(7)

% 0.02

Indirect No. of shares „000 % 635,696 11.54


% 0.01



Indirect No. of shares % „000 % 0.01 1,956,000 17.42

149,506

1.62

1,751,930

149,506

1.33 1,751,930

16.52

-

- 1,524,663


5,510

0.10

320,320

315,000

5.72

-

- 1,524,663


5.82


After Proposed Debt Restructuring

18.98

15.60

13.57

-

-

280,620

5.09

-

-

280,620

3.04

-

-

280,620

2.50

-

-

(3)

39,032

0.71

595,674

10.81

149,674

1.62

1,805,337

19.56

149,674

1.33 1,805,337

16.07


3,839

0.07

315,000

5.72

225,786

2.45

1,524,663

16.52

225,786

2.01 1,524,663

13.57

642

0.01

319,444

5.80

642

0.01

1,529,107

16.56

642

0.01 1,529,107

13.61

943

0.02

320,509

5.82

943

0.01

1,752,119

18.98

943

0.01 1,752,119

15.60

4,500,000

81.70

-

- 4,500,000

48.75

-


Zhiyuan

32

- 6,500,000

57.87

-

-

Full Subscription Level After Proposed Special Issue Subscription Tranche 4


Tan Sri Abu Sahid bin Mohamed (1) Tan Sri Dato‟ Sri Pheng Yin Huah (2) Kinsteel Bhd Equal Concept Sdn Bhd


% 0.01



149,506

1.13

1,751,930

13.24

1,524,663

11.52

-

Assuming full exercise of Warrants-A and Warrants-B

% 0.01


Direct No. of shares „000 1,100

% 0.01

Indirect No. of shares „000 2,097,266

% 9.99

149,506

0.98

1,751,930

11.50

150,731

0.72

1,823,112

8.69

-

1,524,663

10.01

-

-

1,594,663

7.60

-

-

280,620

2.12

-

-

280,620

1.84

-

-

342,980

1.63

-

-

(3)

149,674

1.13

1,805,337

13.64

149,674

0.98

1,805,337

11.85

158,347

0.75

1,937,709

9.23


225,786

1.71

1,524,663

11.52

225,786

1.48

1,524,663

10.01

226,639

1.08

1,594,663

7.60

642

0.00

1,529,107

11.56

642

0.00

1,529,107

10.04

784

0.00

1,600,094

7.62

943

0.01

1,752,119

13.24

943

0.01

1,752,119

11.50

1,153

0.01

1,823,343

8.69

8,500,000

64.24

-

- 10,500,000

68.94

-

-

15,750,000

75.05

-

-


Zhiyuan

Notes: (1)

Deemed interested by virtue of his shareholdings in Kinsteel Bhd, Maju Holdings Sdn Bhd, Equal Concept Sdn Bhd, ASM Properties Sdn Bhd, SPTJ Development Sdn Bhd and MH Consultancy Services Sdn Bhd pursuant to Section 6A of the Act

(2)

Deemed interested by virtue of his shareholdings in Kinsteel Bhd, Perniagaan Kin Kee Sdn Bhd, Kin Kee Holdings Sdn Bhd, Kin Kee Transport Sdn Bhd, Kin Kee Hardware Sdn Bhd, Kin Kee Metal Sdn Bhd and Kien San Metal Sdn Bhd pursuant to Section 6A of the Act.

(3)

Deemed interested by virtue of its shareholdings in Equal Concept Sdn Bhd, Kinsteel Bhd and MH Consultancy Services Sdn Bhd pursuant to Section 6A of the Act.

(4)

Deemed interested by virtue of its shareholding in Kinsteel Bhd pursuant to Section 6A of the Act.

(5)

Deemed interested by virtue of its shareholdings in Kinsteel Bhd, Kin Kee Holdings Sdn Bhd, Kin Kee Transport Sdn Bhd and Kin Kee Hardware Sdn Bhd pursuant to Section 6A of the Act.

33

(6)

Deemed interested by virtue of his shareholdings in Kinsteel Bhd, Perniagaan Kin Kee Sdn Bhd, Kin Kee Holdings Sdn Bhd, Kuantan Metal & Machinery Parts Sdn Bhd, Kin Kee Transport Sdn Bhd, Kin Kee Hardware Sdn Bhd, Kin Kee Metal Sdn Bhd and Kien San Metal Sdn Bhd pursuant to Section 6A of the Act.

(7)

After taking into account the settlement of amounts owing to certain substantial shareholders pursuant to the Proposed Debt Restructuring.

[ The rest of this page is intentionally left blank ]

34

10.3

NA and gearing Based on the latest audited financial statements of PHB Group as at 30 June 2014, the pro forma effects of the Proposed Regularisation Scheme on the consolidated NA and gearing of PHB Group are shown below: Minimum Subscription Level (I)

Audited as at 30 June 2014 Share capital Share premium ICULS RCULS Merger reserve Accumulated losses NA/(NL)/ Shareholders‟ equity (deficit) No. of shares („000) NA/(NL) per share (RM) Total Scheme Liabilities (RM‟000) Gearing (times)

(II) (III) After (I) and (1) Proposed Special After (II) and After Proposed Par Issue- Subscription Proposed Rights Value Reduction Tranche 1 Issue with Warrants RM‟000 (unless stated otherwise)

(IV) (2)

After (III) and Proposed Debt Restructuring

560,000 101,502 10,748 2,798 287,776 (1,783,844)

28,000 101,502 10,748 2,798 287,776 (1,251,844)

153,000 476,502 10,748 2,798 287,776 (1,251,844)

214,200 655,102 10,748 2,798 287,776 (1,251,844)

400,371 1,172,050 287,776 (696,500)

(821,020)

(821,020)

(321,020)

(81,220)

1,163,697

560,000 (1.47)

560,000 (1.47)

3,060,000 (0.10)

4,284,000 (0.02)

8,007,412 0.15

2,238,422 N/A

2,238,422 N/A

2,238,422 N/A

2,238,422 N/A

938,395 0.81

35

Minimum Subscription Level (V) After (IV) and Proposed Share Premium Reduction Share capital Share premium ICULS RCULS Merger reserve Accumulated losses NA/(NL)/ Shareholders‟ equity (deficit) No. of shares („000) NA/(NL) per share (RM) Total Scheme Liabilities (RM‟000) Gearing (times)

(VI) (VII) (VIII) After (V) and After (VI) and After (VII) and (3) Proposed Special Proposed Special Proposed Special Assuming full Issue – Subscription Issue - Subscription Issue – Subscription exercise of WarrantsTranche 2 Tranche 3 Tranche 4 A and Warrants-B RM‟000 (unless stated otherwise)

400,371 475,550 287,776 -

500,371 775,550 287,776 -

600,371 1,075,550 287,776 -

700,371 1,375,550 287,776 -

957,471 2,370,850 287,776 -

1,163,697

1,563,697

1,963,697

2,363,697

3,616,097

8,007,412 0.15

10,007,412 0.16

12,007,412 0.16

14,007,412 0.17

19,149,412 0.19

938,395 0.81

938,395 0.60

938,395 0.48

938,395 0.40

938,395 0.26

36

Full Subscription Level (I)

Audited as at 30 June 2014 Share capital Share premium ICULS RCULS Merger reserve Accumulated losses NA/(NL)/ Shareholders‟ equity (deficit) No. of shares („000) NA/(NL) per share (RM) Total Scheme Liabilities (RM‟000) Gearing (times)

(II) (III) After (I) and (1) Proposed Special After (II) and After Proposed Par Issue- Subscription Proposed Rights Value Reduction Tranche 1 Issue with Warrants RM‟000 (unless stated otherwise)

(IV) (2)

After (III) and Proposed Debt Restructuring

560,000 101,502 10,748 2,798 287,776 (1,783,844)

28,000 101,502 10,748 2,798 287,776 (1,251,844)

153,000 476,502 10,748 2,798 287,776 (1,251,844)

275,400 838,702 10,748 2,798 287,776 (1,251,844)

461,571 1,355,650 287,776 (696,500)

(821,020)

(821,020)

(321,020)

163,580

1,408,497

560,000 (1.47)

560,000 (1.47)

3,060,000 (0.10)

5,508,000 0.03

9,231,412 0.15

2,238,422 N/A

2,238,422 N/A

2,238,422 N/A

2,238,422 13.68

938,395 0.67

37

Full Subscription Level (V) After (IV) and Proposed Share Premium Reduction Share capital Share premium ICULS RCULS Merger reserve Accumulated losses NA/(NL)/ Shareholders‟ equity (deficit) No. of shares („000) NA/(NL) per share (RM) Total Scheme Liabilities (RM‟000) Gearing (times)

(VI) (VII) (VIII) After (V) and After (VI) and After (VII) and (3) Proposed Special Proposed Special Proposed Special Assuming full Issue – Subscription Issue - Subscription Issue – Subscription exercise of WarrantsTranche 2 Tranche 3 Tranche 4 A and Warrants-B RM‟000 (unless stated otherwise)

461,571 659,150 287,776 -

561,571 959,150 287,776 -

661,571 1,259,150 287,776 -

761,571 1,559,150 287,776 -

1,049,271 2,646,250 287,776 -

1,408,497

1,808,497

2,208,497

2,608,497

3,983,297

9,231,412 0.15

11,231,412 0.16

13,231,412 0.17

15,231,412 0.17

20,985,412 0.19

938,395 0.67

938,395 0.52

938,395 0.42

938,395 0.36

938,395 0.24

Notes: (1)

After deducting estimated expenses of the Proposed Regularisation Scheme of RM5.0 million.

(2)

After incorporating gain on debt waiver of RM555.3 million arising from the Proposed Debt Restructuring.

(3)

Assuming full exercise of Warrants-A and Warrants-B at an exercise price of RM1.00 per share and RM0.20 per share respectively.

38

10.4

Earnings The Proposed Regularisation Scheme is expected to contribute positively to the long-term future earnings (and consequently, earnings per share) of PHB Group and put PHB Group back onto stronger financial footing.

10.5

Dividends Any potential effect of the Proposed Regularisation Scheme on the dividends to be declared for the future financial years will be dependent on the future financial performance of PHB Group and cash availability of PHB Group taking into consideration its working capital requirements, capital expenditure and business expansion plans.

10.6

Convertible Securities As at the date of this announcement, PHB has:

11.

(a)

280,000,000 outstanding Warrants-A which may be exercisable into 280,000,000 new PHB Shares at an exercise price of RM1.00 each. Upon completion of the Proposed Rights Issue with Warrants, the number/exercise price of the outstanding Warrants-A may be adjusted in accordance with the deed poll governing the Warrants-A dated 15 December 2011; and

(b)

RM280,000,000 outstanding 7% 7-year redeemable convertible unsecured loan stocks which will mature on 26 March 2019 (“RCULS”) and RM15,612,000 outstanding 4% 10year irredeemable convertible unsecured loan stocks which will mature on 8 August 2018 (“ICULS”). Such RCULS and ICULS will be settled under the scheme of arrangement and compromise for the Group 4 Creditors as part of the Proposed Debt Restructuring.

CONDITIONS OF THE PROPOSED REGULARISATION SCHEME The Proposed Regularisation Scheme is subject to, amongst others, the following approvals being obtained: (a)

Bursa Securities for the Proposed Regularisation Scheme;

(b)

SC for any aspect of the Proposed Regularisation Scheme requiring SC‟s approval, including the Proposed Exemption;

(c)

shareholders of PHB at an EGM for the Proposed Regularisation Scheme, including the execution of the Equipment Purchase Agreement(s) between PSSB and equipment suppliers identified by Zhiyuan for the purchase of new plant and equipment required by Zhiyuan to enable PSSB to produce the New Products;

(d)

Scheme Creditors for the Proposed Debt Restructuring;

(e)

the order from the High Court sanctioning the Proposed Balance Sheet Restructuring and Proposed Debt Restructuring (where relevant) pursuant to Sections 64(1) and 176 of the Act, respectively;

(f)

approval-in-principle of Bursa Securities, for the admission of the Warrants-B to the Official List and the listing of and quotation for the Subscription Shares, Rights Shares, Settlement Shares, Warrants-B and new PHB Shares arising from the exercise of Warrants-B on the Main Board of Bursa Securities;

39

(g)

other relevant parties/authorities, if any.

The components of the Proposed Regularisation Scheme are all inter-conditional upon each other, as such, all requisite approvals required for the Proposed Regularisation Scheme must be obtained before the MFA can become unconditional. The Proposed Regularisation Scheme is not conditional upon any other corporate proposals being undertaken by PHB, if any. 12.

DIRECTORS‟ AND MAJOR SHAREHOLDERS‟ INTERESTS Save as disclosed below, none of the Directors or major shareholders of PHB and any persons connected with them have any interest, direct or indirect in the Proposed Regularisation Scheme beyond their respective entitlements under the Proposed Rights Issue with Warrants and their right to apply for any excess Rights Shares with Warrants, which are also available to other shareholders of PHB: (a)

Kinsteel Bhd (“Kinsteel”), Equal Concept Sdn Bhd (“Equal Concept”), Maju Holdings Sdn Bhd (“Maju Holdings”) and Kin Kee Holdings Sdn Bhd (“Kin Kee Holdings”) are major shareholders of the Company. The debts owing by PHB Group to Kinsteel, Equal Concept, Maju Holdings, Kin Kee Holdings and their related companies will be settled under the Proposed Debt Restructuring;

(b)

Tan Sri Dato‟ Sri Pheng Yin Huah is a Non Independent Non-Executive Director of PHB and Managing Director of Kinsteel. He is also a substantial shareholder of PHB and Kinsteel. Tan Sri Dato‟ Sri Pheng Yin Huah is one of the Personal Guarantors of the credit facilities granted to the Group 2 Creditor. As part of the Proposed Debt Restructuring, the Personal Guarantors have agreed to settle the amount owing to the Group 2 Creditor and PHB will consequently settle the amount owing to the Personal Guarantors via the issuance of Settlement Shares;

(c)

Dato‟ Pheng Chin Guan is a Non-Independent Non-Executive Director of PHB and Chief Executive Officer of Kinsteel. Dato‟ Pheng Chin Guan is one of the Personal Guarantors of the credit facilities granted to the Group 2 Creditor. As part of the Proposed Debt Restructuring, the Personal Guarantors have agreed to settle the amount owing to the Group 2 Creditor and PHB will consequently settle the amount owing to the Personal Guarantors via the issuance of Settlement Shares; and

(d)

Dato‟ Ong Tee Thong was nominated by Maju Holdings as its representative on the board of directors of both PHB and Kinsteel. He is a Non Independent Non-Executive Director of PHB and Group Executive Chairman of Kinsteel.

Kinsteel, Equal Concept, Maju Holdings, Kin Kee Holdings, Tan Sri Dato‟ Sri Pheng Yin Huah, Dato‟ Pheng Chin Guan and Dato‟ Ong Tee Thong (collectively referred to as “Interested Parties”) are therefore deemed interested in the Proposed Regularisation Scheme. Tan Sri Dato‟ Sri Pheng Yin Huah, Dato‟ Pheng Chin Guan and Dato‟ Ong Tee Thong (collectively referred to as “Interested Directors”) have abstained and will continue to abstain from deliberation in the Board meetings in relation to the Proposed Regularisation Scheme. The Interested Parties as well as persons connected with them (if any) shall also abstain from exercising their voting rights (if any) on the resolutions pertaining to the Proposed Regularisation Scheme at the EGM to be convened.

40

13.

DIRECTORS‟ STATEMENT The total liabilities of PHB Group based on the latest financial statements of PHB as at 30 June 2014 is RM2,211.7 million, as compared to the group‟s total assets of RM1,390.6 million. As such, PHB Group‟s assets on the break-up basis are inadequate to repay all its outstanding liabilities. Furthermore, the major assets of PHB Group, being the Kemaman Plant and Kemaman Land are charged to Group 1 Creditors as securities for credit facilities granted to PSSB. Based on the foregoing, and having considered all aspects of the Proposed Regularisation Scheme, the Directors of PHB (save for the Interested Directors) are of the opinion that the Proposed Regularisation Scheme is in the best interest of PHB, as the Proposed Regularisation Scheme is expected to enhance all stakeholders‟ value as compared to a liquidation scenario.

14.

ADVISERS M&A Securities has been appointed as the principal adviser to PHB for the Proposed Regularisation Scheme. The Independent Adviser to advise the non-interested Directors and non-interested shareholders of PHB on the Proposed Exemption will be appointed in due course.

15.

ESTIMATED TIME FRAME FOR SUBMISSION AND COMPLETION The tentative timeline in relation to the implementation of the Proposed Regularisation Scheme is as follows: Tentative Date

Events

September 2015(1)

Submission of the Proposed Regularisation Scheme to Bursa Securities

December 2015

Approval obtained from Bursa Securities

January 2016

EGM/Court Convened Meeting

March 2016

High Court sanction for the Proposed Par Value Reduction, Proposed Share Premium Reduction and Proposed Debt Restructuring (where relevant)

April 2016

Announcement of books closure date Books closure date

June 2016

Listing of and quotation for the new securities to be issued pursuant to the Proposed Regularisation Scheme

Note: (1)

In conjunction with the terms of the MFA, the Company will seek for an extension of the deadline of 31 July 2015 to submit the Proposed Regularisation Scheme to Bursa Securities by 30 September 2015.

41

16.

OUTSTANDING PROPOSALS ANNOUNCED BUT PENDING IMPLEMENTATION Save for the Proposed Regularisation Scheme, there are no other proposals which have been announced but pending implementation.

17.

DOCUMENTS FOR INSPECTION The MFA is available for inspection at the registered office of PHB at Level 31, Maju Tower 1001 Jalan Sultan Ismail, 50250 Kuala Lumpur during normal business hours on Mondays to Fridays (except public holidays) for a period of three (3) months from the date of this announcement.

This announcement is dated 15 July 2015.

42