ES CERAMICS TECHNOLOGY BHD ( ES CERAMICS OR THE COMPANY ) PROPOSED ISSUANCE OF SHARES TO THE BUMIPUTERA INVESTORS TO COMPLY WITH THE BUMIPUTERA EQUITY CONDITION ( PROPOSED BUMIPUTERA ISSUE ) 1. INTRODUCTION On behalf of the Board of Directors of ES ( Board ), TA Securities Holdings Berhad ( TA Securities ) wishes to announce that the Company proposes to undertake a Bumiputera issue of up to 24,208,000 new ordinary shares of RM0.10 each in ES ( ES ) ( Bumiputera ), representing approximately 10% of the enlarged issued and paid-up share capital of the Company, to Bumiputera investors to be nominated or recognised by the Ministry of International Trade and Industry ( MITI ) ( MITI Nominated Bumiputera ), taking into consideration of the following: (i) (ii) (iii) ES existing issued and paid-up share capital of RM16,980,800 comprising 169,808,000 ES as at 25 October 2013 (being the latest practicable date prior to the date of this announcement ( LPD )); 15,684,526 options granted pursuant to the Company s employees share options Scheme ( ESOS Options ) which are currently vested and are exercisable into 15,684,526 ES Ceramic ; and new (that may be issued prior to the implementation of the Proposed Bumiputera Issue) arising from the exercise of 56,596,000 warrants ( Warrants 2010/2013 ) as at the LPD. (collectively known as Maximum Scenario ) Based on the minimum scenario, the size of the Proposed Bumiputera Issue is 16,980,000 Bumiputera, representing not more than ten percent (10%) of the existing issued and paid up share capital of ES of RM16,980,800 comprising 169,808,000 ES as at the LPD and assuming none of the existing ESOS Option and Warrant 2010/2013 are exercised into new prior to the implementation of the Proposed Bumiputera Issue ( Minimum Scenario ). ES was listed on the MESDAQ Market (now known as ACE Market) of the Bursa Malaysia Securities Berhad ( Bursa Securities ) on 25 January 2005 and had up to 26 September 2010, being five (5) years from its listing on the MESDAQ Market of Bursa Securities to increase its Bumiputera equity participation to at least thirty percent (30%). Subsequently, a revision was made to the Bumiputera equity requirement that all companies seeking listing on the ACE Market are required to allocate twelve point five percent (12.5%) of their enlarged issued and paid-up share capital to MITI recognised Bumiputera investors within one (1) year after achieving the profit track record required for listing on the Main Market of Bursa Securities or within five (5) years after listed on the ACE Market of Bursa Securities, whichever is earlier ( Bumiputera Equity Requirement ). The Bumiputera Equity Requirement applies to all companies currently listed on the ACE Market of Bursa Securities that have yet to comply with the Bumiputera Equity Requirements. Therefore, this requirement is also applicable to ES. 1
ES had on 19 September 2013 obtained MITI s recognition for 4,638,575 ES Ceramic representing approximately 2.73% of ES issued and paid-up share capital as at the LPD as Bumiputera investors ( Existing MITI Recognised Bumiputera Investors ). The Securities Commission Malaysia ( SC ) had vide its letter dated 17 October 2013, granted ES with an extension of time of up to 27 September 2014 to comply with the Bumiputera Equity Requirement. Further details on the Proposed Bumiputera Issue are set out in the ensuing sections. 2. DETAILS OF THE PROPOSED BUMIPUTERA ISSUE 2.1 Size of the Proposed Bumiputera Issue The Proposed Bumiputera Issue will involve issuance of up to 24,208,000 Bumiputera representing approximately 10% of the enlarged issued and paid-up share capital of the Company at an issue price to be determine later to the MITI Nominated Bumiputera. The up to 24,208,000 Bumiputera to be issued and the existing 4,638,575 number of ES held by the Existing MITI Recognised Bumiputera Investors will aggregate up to 21,618,575 ES and 28,846,575 ES, representing up to 11.57% and 10.83% of the enlarged issued and paid-up share capital of the Company of 186,788,000 ES and 266,296,526 ES upon the completion of the Proposed Bumiputera Issue under the Minimum Scenario and Maximum Scenario, respectively. The existing major shareholder and director of the Company, namely Dato Kamal YP Tan has undertaken to place out at least 4,440,491 or 1,729,925 of his ES to Bumiputera investors recognised by MITI in order for ES to have at least 12.5% of Bumiputera shareholdings to comply with the Bumiputera Equity Requirements under the Minimum Scenario and Maximum Scenario respectively, if required ( Proposed Placement of from the Existing Major Shareholder ). The Company intends to issue up to 24,208,000 new ES pursuant to the Proposed Bumiputera Issue under Section 132D of the Companies Act 1965 ( Act ). The shareholders of the Company had passed the resolution on the Section 132D at the last Annual General Meeting ( AGM ) held on 26 November 2012 which authorised the Directors to issue new ES at any time until the conclusion of the next AGM of the Company and upon such terms and conditions and for such purpose as the Directors may, in their absolute discretion, deem fit provided that the aggregate number of shares to be issued does not exceed ten percent (10%) of the existing issued and paid-up share capital of the Company. In the event the Proposed Bumiputera Issue is implemented after the next AGM, the Proposed Bumiputera Issue is subject to the approval of the shareholders of the Company at the following AGM pursuant to Section 132D. The Proposed Bumiputera Issue may be implemented in tranches depending on the prevailing equity market conditions and interest from the Bumiputera investors. 2.2 Placees The Bumiputera will be issued to third party Bumiputera investors approved by the MITI. The Bumiputera investors shall also be class of persons or corporations listed in Schedule 6 and 7 of the Capital Markets and Services Act, 2007 to be nominated by MITI, and no prospectus will be issued in respect of the Proposed Bumiputera Issue. 2
2.3 Ranking of the Bumiputera The Bumiputera shall, upon allotment and issue, rank pari passu in all respects with the then existing ES except that they shall not be entitled to any rights, allotments, dividends and/or any other distribution, the entitlement date of which is prior to the date of issuance and allotment of the Bumiputera. 2.4 Pricing of the Bumiputera The issue price of the Bumiputera shall be determined by the Board at a later date in the following manner: (i) (ii) at a discount of not more than ten percent (10%) to the five (5)-day weighted average market price ( 5D-VWAP ) of ES immediately preceding the price fixing date, if deemed appropriate by the Board; or the par value of the ES of RM0.10 each; whichever is higher. For illustrative purpose only, the indicative issue price of ES of RM0.10 represent a discount of RM0.0012 or approximately 1.19% from the 5D-VWAP up to the LPD of RM0.1012. 2.5 Listing and quotation An application will be made to Bursa Securities for the listing of and quotation for the Bumiputera on the ACE Market of Bursa Securities. 2.6 Utilisation of proceeds Based on the indicative issue price of RM0.10 per ES, the Proposed Bumiputera Issue is expected to raise gross proceeds of up to RM2.42 million. However, the exact amount of gross proceeds to be raised from the Proposed Bumiputera Issue would depend on the actual issue price and the actual number of Bumiputera to be issued, which will be determined at a later date. The proceeds raised from the Proposed Bumiputera Issue will be utilised in the following manner based on the scenarios as illustrated below: Proposed utilisation Minimum Scenario RM ( 000) Maximum Scenario RM ( 000) Expected time frame for utilisation of proceeds from the date of listing of the Bumiputera Working capital (1) 1,643 2,366 Within twelve (12) months Estimated expenses for the Proposed Bumiputera Issue (2) 55 55 Within two (2) weeks TOTAL 1,698 2,421 3
Notes: (1) The working capital requirements for ES and its subsidiaries ( ES Group ) are as follows: Minimum Scenario RM 000 Maximum Scenario RM 000 Purchase of raw materials 1,133 1,641 Wages and staff benefit 450 640 Other operating expenses such as, water, 60 85 electricity and sundry expenses Total 1,643 2,366 (2) The estimated expenses consist of professional fees and fees payable to the relevant authorities. Any variation in the actual amount of the expenses will be adjusted proportionately for working capital purposes. 3. RATIONALE FOR THE PROPOSED BUMIPUTERA ISSUE The Proposed Bumiputera Issue is to facilitate the Company to comply with the Bumiputera Equity Requirements which are applicable to all companies currently listed on the ACE Market of Bursa Securities. 4. EFFECTS OF THE PROPOSED BUMIPUTERA ISSUE 4.1 Issued and paid-up share capital The effects of the Proposed Bumiputera Issue on the issued and paid-up share capital of ES are as follows: Minimum Scenario Maximum Scenario RM RM ( 000) ( 000) ( 000) ( 000) Issued and paid-up share capital as at the LPD 169,808 16,981 169,808 16,981 To be issued pursuant to the full exercise of - - 15,685 1,568 ESOS Options 169,808 16,981 185,493 18,549 To be issued pursuant to the full exercise of - - 56,596 5,660 Warrants 2010/2013 169,808 16,981 242,089 24,209 To be issued pursuant to the Proposed 16,980 1,698 24,208 2,421 Bumiputera Issue Enlarged issued and paid-up share capital 186,788 18,679 266,297 26,630 4
4.2 Net assets ( NA ) and gearing The pro-forma effects of the Proposed Bumiputera Issue on the NA and gearing of the ES Group based on the audited consolidated financial statements of ES as at 31 May 2013 are as follows: Minimum Scenario (Audited) (I) (II) As at 31 May 2013 After exercise of ESOS Options up to the LPD (1) After the Proposed Bumiputera Issue Share capital 16,979 16,981 18,679 Share premium - 1 1 Foreign exchange translation reserve 1,242 1,242 1,242 Share option reserve 535 534 534 Warrant reserve 464 464 464 Capital reserves 716 716 716 Retained profit 898 898 843 (2) Shareholders funds / NA 20,834 20,836 22,479 in issue ( 000) 169,788 169,808 186,789 NA per ES Share (RM) 0.12 0.12 0.12 Total borrowings 8,110 8,110 8,110 Gearing (times) 0.39 0.39 0.36 Notes: (1) Adjustment of 20,000 new ES issued pursuant to the exercise of vested ESOS Options up to the LPD. The adjustment to be made to the ESOS Options is subject to the auditors review. (2) After deducting the estimated expenses of RM55,000 for the Proposed Bumiputera Issue. [The rest of this page has been intentionally left blank] 5
Maximum Scenario (Audited) (I) (II) (III) (IV) As at 31 May 2013 After exercise of ESOS Options up to the LPD (1) Assuming full exercise of ESOS Options (2) Assuming full exercise of Warrants 2010/2013 (3) After the Proposed Bumiputera Issue Share capital 16,979 16,981 18,549 24,209 26,630 Share premium - 1 545 2,141 2,086 (4) Foreign exchange translation reserve 1,242 1,242 1,242 1,242 1,242 Share option reserve 535 534 - - - Warrant reserve 464 464 464 - - Capital reserves 716 716 716 716 716 Retained profit 898 898 898 898 898 Shareholders funds / NA 20,834 20,836 22,414 29,206 31,572 in issue 169,788 169,808 185,493 242,089 266,297 ( 000) NA per ES Share (RM) 0.12 0.12 0.12 0.12 0.12 Total borrowings 8,110 8,110 8,110 8,110 8,110 Gearing (times) 0.39 0.39 0.36 0.28 0.26 Notes: (1) Adjustment of 20,000 new ES issued pursuant to the exercise of vested ESOS Options up to the LPD. The adjustment to be made to the ESOS Options is subject to the auditors review. (2) Assuming full exercise of 15,684,526 ESOS Options. (3) Assuming full exercise of 56,596,000 Warrants 2010/2013. (4) After deducting the estimated expenses of RM55,000 for the Proposed Bumiputera Issue. 6
4.3 Earnings and earnings per share ( EPS ) The Proposed Bumiputera Issue is not expected to have an immediate material effect on the consolidated earnings and EPS of ES for the financial year ending 31 May 2014 as the proceeds to be raised are expected to be utilised within twelve (12) months from the date of the listing of the Bumiputera. However, it is expected to contribute positively to the future earnings of the Group in the future financial years. Upon implementation of the Proposed Bumiputera Issue, the EPS of the ES Group may be diluted as a result of the increase number of ES. ES future earnings and EPS would depend on, among others, the return generated from the utilisation of the proceeds arising from the Proposed Bumiputera Issue. 4.4 Substantial shareholders shareholdings The pro-forma effects of the Proposed Bumiputera Issue on the direct and indirect shareholdings of the substantial shareholders of ES as at the LPD are as follows: Minimum Scenario fdfd As at the LPD (I) After Proposed Bumiputera Issue Direct Indirect Direct Indirect Name Dato Kamal YP Tan 39,935 23.52 - - 38,205 (1) 20.45 - - Wong Fook Lin 14,522 8.55 - - 14,522 7.77 - - Choy Swee Lan 8,670 5.11 - - 8,670 4.64 - - Note: (1) Assuming 1,729,925 ES were placed out by the existing director and major shareholder of ES to Bumiputera investors recognised by MITI. Maximum Scenario fdfd As at the LPD (I) Assuming full exercise of the ESOS Options Direct Indirect Direct Indirect Name Dato Kamal YP Tan 39,935 23.52 - - 40,435 (1) 21.80 - - Wong Fook Lin 14,522 8.55 - - 15,522 (2) 8.37 - - Choy Swee Lan 8,670 5.11 - - 10,158 (3) 5.48 - - 7
fdfd (II) After (I) and assuming full exercise of Warrant 2010/2013 (III) After (II) and the Proposed Bumiputera Issue Direct Indirect Direct Indirect Name Dato Kamal YP Tan 40,835 (4) 16.87 - - 36,395 (6) 13.67 - - Wong Fook Lin 15,522 (5) 6.41 - - 15,522 5.83 - - Choy Swee Lan 10,158 4.20 - - 10,158 3.81 - - Notes: (1) The number of ESOS Options held by Dato Kamal YP Tan is 500,000. (2) The number of ESOS Options held by Wong Fook Lin is 1,000,000. (3) The number of ESOS Options held by Choy Swee Lan is 1,488,064. (4) The number of Warrants 2010/2013 held by Dato Kamal YP Tan is 400,000. (5) The number of Warrants 2010/2013 held by Wong Fook Lin is 15. (6) Assuming 4,440,491 ES were placed out by the existing director and major shareholder of ES to Bumiputera investors recognised by MITI. 4.5 Convertible securities Save for the ESOS Options and Warrants 2010/2013, ES does not have any other existing convertible securities as at the LPD. The Proposed Bumiputera Issue will not give rise to the adjustments to the exercise price and the number of outstanding Warrants 2010/2013 pursuant to the provisions of deed poll constituting Warrants 2010/2013 dated 28 September 2010. 5. APPROVALS REQUIRED The Proposed Bumiputera Issue is subject to the following approvals being obtained: (i) (ii) (iii) (iv) Bursa Securities for the listing of and quotation for the Bumiputera to be issued pursuant to the Proposed Bumiputera Issue; MITI for the approval on the proposals to meet the Bumiputera Equity Requirement via the Proposed Bumiputera Issue and Proposed Placement of from the Existing Major Shareholder. ES will also seek the assistance of MITI to identify Bumiputera investors for the Company to implement the Proposed Bumiputera Issue and Proposed Placement of from the Existing Major Shareholder; SC for the approval on the proposals to meet the Bumiputera Equity Requirement via the Proposed Bumiputera Issue and Proposed Placement of from the Existing Major Shareholder; and any other relevant authorities, if required. 8
The Proposed Bumiputera Issue is not conditional upon any other corporate proposals undertaken or to be undertaken by ES. 6. INTERESTS OF DIRECTORS, MAJOR SHAREHOLDERS AND/OR PERSONS CONNECTED WITH THEM None of the Directors, major shareholders and/or persons connected with them, as defined in ACE Market Listing Requirements of Bursa Securities, have any interest, direct or indirect, in the Proposed Bumiputera Issue. 7. DIRECTORS STATEMENT The Board, after having considered all aspects of the Proposed Bumiputera Issue including its rationale and effects, is of the opinion that the Proposed Bumiputera Issue are in the best interest of the Company. 8. ADVISER TA Securities has been appointed as the Adviser in relation to the Proposed Bumiputera Issue. 9. ESTIMATED TIME FRAME FOR COMPLETION Barring any unforeseen circumstances and subject to the approvals of the relevant authorities being obtained, the Board expects the Proposed Bumiputera Issue to be completed in the second (2 nd ) quarter of 2014. 10. APPLICATIONS TO THE RELEVANT AUTHORITIES Applications to the relevant authorities in respect of the Proposed Bumiputera Issue are expected to be submitted within one (1) month from the date of this announcement. This announcement is dated 28 October 2013. 9