ACQUISITION OF
MONTANA MADENCiLiK
INSAAT SANAYi VE
TiCARET LiMiTED SiRKETi
Announcement
Acquisition of ("MTN")
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General Announcement Reference No: CC-070312-47190 |
| Company Name | : | GEFUNG HOLDINGS BERHAD |
| Stock Name | : | GEFUNG |
| Date Announced | : | 13/03/2007 |
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| Type | : | Announcement |
| Subject | : | ACQUISITION OF THE ENTIRE ISSUED AND PAID-UP SHARE CAPITAL OF MONTANA MADENCiLiK INSAAT SANAYi VE TiCARET LiMiTED SiRKETi ("MTN") BY SYARIKAT BUKIT GRANITE SDN BHD ("SBG") |
Contents :
1. Introduction
The Board of Directors of Gefung Holdings Bhd ("GHB") wishes to announce that on 13 March 2007, Syarikat Bukit Granite Sdn Bhd("SBG"), its wholly owned subsidiary entered into a Sale & Purchase Agreement ("SPA") to acquire the entire issued and paid-up capital of MONTANA MADENCiLiK INSAAT SANAYi VE TiCARET LiMiTED SiRKETi ("MTN"), a company incorporated in Turkey, (registered office : Sirinyali Mah 1533 Sok Kocum Apt Kat 1 Daire 3, Postcode 07160, Antalya Turkey) comprising to 25,000 ordinary shares of Turkish Lira 1 each ("the Acquisition"), from Murat Van, Passport No L292349 and Lin Hong-Wei, Passport No. 210614760 (collectively hereinafter referred to as "the Vendors") for a purchase consideration of USD4,500,000 ("Consideration").
Presently, Lin Hong-Wei and Murat Van own 95% and 5% of the issued and paid-up capital of MTN respectively.
Information on MTN
MTN is a company incorporated in Turkey. The principal activities of MTN are the extraction and trading of marbles blocks from Turkey.
On 27 October 2006, MTN had entered into an extraction rights and rental agreement pursuant to quarry (license no: AR20055316) with an area of 99.82 hectares in the village of Sutculer, Isparta, Turkey for 30 years. In the agreement, MTN is obliged to pay rental fee equivalent to 3% of its production to the quarry owner.
On 8 December 2006, MTN had also entered into an exclusive right to purchase quarry materials from a quarry (license no: IR 7221) in Burdur, Turkey. MTN is obliged to pay USD200,000 as an advance payment to the quarry owner for the quarry owner to increase the quarry extraction and production.
MTN has not initiated any extraction activities on these agreements yet.
The summary of MTN's financial information as at 31 December 2006 as attached in Appendix 1.
Information on the Vendors
The Vendors, who are directors of MTN, and their respective direct shareholdings in MTN as at the date of this announcement, are as follows:
| Name | No. of shares | % held |
|
|
|
| Lin Hong-Wei |
23,750
|
95
|
| Murat Van |
1,250
|
5
|
| Total |
25,000
|
100
|
The Purchase Consideration for the Acquisition will be USD4,500,000 (approximately RM15.75 million) to be satisfied in cash. The Acquisition will be funded from borrowings and the timing of payment is as follow:
(a) upon the execution of this Agreement, ten per cent (10%) of the Purchase Consideration, equivalent to a sum of United States Dollar Four Hundred and Fifty Thousand (USD450,000/) (hereinafter referred to as "the Deposit"), and it shall be treated as part payment towards the account of the Purchase Consideration in the event that this Agreement has been rendered unconditional. The Deposit shall be refundable in the event of non-fulfilment of the Conditions Precedent as set out in Note 4 below;
(b) within three (3) months from the fulfilment of Conditions Precedent, thirty per cent (30%) of the Purchase Consideration, equivalent to a sum of United States Dollar One Million Three Hundred and Fifty Thousand (USD1,350,000/-);
(c) within six (6) months from the fulfilment of Conditions Precedent, thirty per cent (30%) of the Purchase Consideration, equivalent to a sum of United States Dollar One Million Three Hundred and Fifty Thousand (USD1,350,000/-); and
(d) within twelve (12) months from the fulfilment of Conditions Precedent, thirty per cent (30%) of the Purchase Consideration, equivalent to a sum of United States Dollar One Million Three Hundred and Fifty Thousand (USD1,350,000/-).
In the event that this Agreement is terminated due to no fault of SBG, the Vendors shall refund the Deposit to SBG immediately. In the event that this Agreement is terminated due to the default of SBG, the Vendors shall be entitled to forfeit the Deposit as liquidated damages and thereafter this Agreement shall be forthwith terminated immediately.
The Consideration is arrived at on a willing-seller willing-buyer basis after taking into consideration the Valuation Report done by an independent registered under the Capital Market Board of Turkey stipulated that the value for quarry(license no: AR20055316) at USD5.83million, net asset value of MTN as at 31 December 2006 and the future earnings potential of MTN.
In the Sale & Purchase Agreement it has been agreed that SBG will assume the liabilities of MTN upon the completion of the Acquisition, which mainly relates supplier and other creditors in relation to its trading sale in 2006 amounting to approximately RM144,000 as at 31 December 2006.
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The Acquisition is subject to inter-alia the following conditions precedent:-
i. Approval from Bank Negara Malaysia in respect of the Acquisition; and
ii. such other consents or approvals as may be required from any third party or or governmental or regulatory body or competent authority having jurisdiction over the acquisition of the said Shares or the transaction contemplated under this Agreement
The Acquisition will not have any effect on the issued and paid-up share capital of GHB.
Barring any unforeseen circumstances, upon the completion of the Acquisition, the Acquisition is expected to contribute positively to the GHB Group's future earnings.
The Acquisition will not have a material effect on the NA of GHB.
Substantial Shareholders
The Acquisition will not have any effect on the shareholdings of the substantial shareholders of GHB.
Having developed its marketing and sales network both in Malaysia and in China, GHB hopes to build on its success by expanding into upstream activities, i.e. quarrying activities. The Directors of GHB are of the opinion that the direct access to raw materials will allow the Group to better control the pricing and also more importantly, the quality of the raw materials for its stone production. Raw materials contribute more than 50% of cost of production.
Premised on the above, the current business of MTN in marble up stream acitivities is synergistic to GHB Group's core business and fits well with the GHB Group's longer-term strategic objectives. Notwithstanding the above, the acquisition of MTN is also hoped to 'open' further avenues/potential to GHB for future acquisition of further quarry licences, and accordingly, towards the production of a more diversified range of marble stones.
Prospects
As set out in the earlier paragraphs, the Directors are of the opinion that the Acquisition will contribute positively to the GHB Group given the operational synergies and economies of scale to be achieved from the said Acquisition, on the basis of better cost and quality management of stone productions.
In terms of natural stones, in particular marble, Turkey is one of the richest resources since it is located in the Alp's mountain range. Turkey has immense reserves of marble, travertine, onyx, breccia and magmatic rocks. Turkey's total probable marble reserves is estimated to be approximate 5.2 billion m3, or as much as 40% of the world's total marble reserves.
Accordingly, Turkey is among the world's most important natural stone manufacturers with its huge reserves and well-developed processing industry.
Production of natural stones in Turkey faced a rapid growth during the recent years. Turkey has taken its place among the world's seven large natural stone manufacturers. The production capacity of natural stones in Turkish market for marble is 6.5 million m2 and for granite 10,5 million m2. The increase in production, the vitality of the construction sector in the domestic market and the presence of new technologies have contributed to widespread use of natural stone as a construction material. Parallel to the increase, both domestic and foreign/international demand, the Turkish marble industry has shown very good performance in terms of quality and production capacity. Today Turkish natural stone products are highly competitive n international markets, particularly in terms of exclusivity and quality.
Natural stone exports have developed rapidly in the last ten years. The total value of natural stone exports reached USD801 million in 2005. The most value-added-product in exports is processed marble, which is cut and polished marble. Processed marble ranks first with a USD603 million. In 2005, the main countries that Turkey exported processed marble were the USA, the United Kingdom, Spain, Israel, Saudi Arabia and the Canada.
Block marble is in the second place with USD159 million in 2005. China, Syria, Greece, Italy, and Spain are the major buyers of block marble from Turkey.
Granite and hard rock exports reached 12 million dollars in 2005. The most important markets for these items are Germany, Italy, Belgium and SwitzerIand.
(Source : Export Promotion Center of Turkey (IGEME), 2006)
Risk Factors
In addition to the general risk factors applicable to the trading, processing and exporting of marble and granite, the additional factors to consider in the Acquisition may include but not limited to political risk as MTN operates in a foreign jurisdiction, adverse currency movements, potential disruption in the production of the stones due to natural circumstances which are uncertain and drop of demand of such stone, and the loss of key personnel.
(i) Economic, Political and Regulatory Risks
A business of an international nature would also be subject to changes in economic, political and regulatory conditions in the various countries in which the business is operating like any other industries. Such economic, political and regulatory uncertainties include but not limited to changes in political leadership, legislative and regulatory policy changes, changes in rates of interest, methods of taxation and foreign exchange regulations, and financial crises.
However, the management of GHB believes the structural reforms and macroeconomics policies implemented by Turkey Government have allowed Turkey to sustain a vigorous pace of economic growth in the last three years. The prudent monetary and fiscal policies safeguard the impetus underlying this performance. In fact, Malaysia had entered into bilateral investment treaties with turkey since 25 February 1998.
The Foreign Direct Investment (FDIs) inflows for the last 3 years had gathered pace. According to the Central Bank of Turkey, FDIs increased by 62.9% in 2004 to USD2,837 from USD1,752mil in 2003. In 2005, FDIs has increased by 240% to USD9,667 million. This indicates the strong support from the government to encourage FDIs.
(Source : Export Promotion Center of Turkey (IGEME), 2006)
(ii) Operating Risks
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The success of MTN relies on the expertise of experienced quarry master and the contributions its group of skilled personnel workers in marble quarrying work activities. Recruitment and Sub contract arrangements will be made with qualified and experienced personnel to operate the quarries. Furthermore, the operating conditions and risks specifically associated with MTN are well-known to GHB as the GHB has vast experience in the upstream activities from its dealings and visits to the quarry sites while selecting and purchasing blocks for the past few years.
Heavy machinery required will be financed via leasing programs to be utilized in the extraction works.
(b) Mining Risks
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There could be mining risk where extraction activities may not provide good production result of marble stones. The risk has been mitigated as the quarries testing results has proven that these chosen quarries had provided good quarry results in the past and there is demand for this type of marble material in the market.
Approval is required from Bank Negara Malaysia for SBG to remit the Consideration to the Vendors and to provide additional working capital for MTN.
Save as stated above the Acquisition does not require the approval of shareholders or other authorities.
None of the directors or major shareholders or persons connected with them have any interest, direct or indirect, in the Acquisition.
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The Board of Directors of GHB, after taking into consideration the relevant factors and after careful deliberations, is of the opinion that the Acquisition is in the best interest of the GHB Group.
It is estimated that the Acquisition will be completed by 2nd Quarter of 2007.
The Acquisition has not departed from the SC's Policies and Guidelines on issue or offer of securities.
The Sale & Purchase Agreement will be available for inspection at the registered office of SBG at Suite 11.1A, Level 11, Menara Weld, 76 Jalan Raja Chulan, 50200 Kuala Lumpur, during normal business hours from Mondays to Fridays (except for public holidays) for a period of three (3) months from the date of this announcement.
Summary of the audited financial information of MTN
For the period ended 31 December 2006, MTN achieved a turnover of USD50,030 with profit before tax of 9,873. A summary of MTN's financial information from the date of incorporation is as follows:
| Actual |
Turnover
|
Pre-tax profit/ (loss)
|
Post-tax profit/ (loss)
|
Shareholders' Funds
|
Total Borrowings
|
| Year |
USD
|
USD
|
USD
|
USD
|
USD
|
| 2006 |
50,030
|
9,873
|
8.882
|
72,419
|
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|
Bursa Malaysia
