PROPOSED LEASE OF LAND IN LANGKAWI MEASURING APPROXIMATELY 36.7 ACRES 1. Introduction The Board of Directors of Tradewinds Corporation Berhad (“TCB” or “the Company”) wishes to announce that Benua Mahsuri Sdn Bhd (“BMSB”), an indirect wholly-owned subsidiary of TCB has on 28 March 2012 entered into a Lease Agreement with Langkawi Development Authority (“LADA”) for a cash consideration of RM34,714,285 (“the Proposal”). 2. Salient Terms of the Lease Agreement The Lease Agreement pertains to the lease over 36.7 acres of Malay Reserved Land (“ Leasehold Land”) located in Mukim Padang Matsirat, Langkawi for a lease period of 81 years from January 2013 to 2093 for a consideration of RM34,714,285 (“Lease Consideration”). The Lease Agreement is subject to BMSB obtaining declaration from the relevant state authority for it to be deemed a Malay pursuant to the Kedah Malay Reservations Enactment. The Lease Consideration is to be settled over 3 payments. The first payment representing 10% of the Lease Consideration was paid upon signing of the Lease Agreement. The second payment representing 40% of the Lease Consideration is payable within 12 months from the execution of the Lease Agreement. The final payment representing the balance of the Lease Consideration is payable within 12 months from the second payment. In the event of default by BMSB, LADA is entitled to terminate the Lease Agreement and 20% of the Lease Consideration paid shall be forfeited as penalty. The Leasehold Land is to be handed over as vacant possession to BMSB on 1 January 2013 or such other date as may be mutually agreed. BMSB shall commence construction of a new hotel within 3 years from the date of the Lease Agreement. 3. Basis of the consideration for the Lease Consideration The Lease Consideration is arrived at on a willing buyer willing seller basis after taking into account the lease period and after considering the market value of the property determined by Jabatan Penilaian da n P er k hi d mat an Ha rta La ng k aw i ’ s (“ J P P H ”) v al uat io n . The Lease Consideration is to be financed by a combination of internal funds and external borrowings. The final breakdown of which will only be determined at a later stage. No liabilities will be assumed by BMSB pursuant to the Proposal. 4. Particulars of Leasehold Land The Leasehold Land is a Malay Reserved leasehold land measuring approximately 36.7 acres. The land is held under HS(D) 3/96, Lot 1718 Mukim Padang Matsirat, Daerah Langkawi, Kedah on a leasehold basis expiring on 21 May 2095. The Leasehold Land is presently used as a resort under the name of Mutiara Burau Bay Beach Resort (“MBBBR”). MBBBR is a 150-room resort complete with swimming pool, restaurants, meeting rooms and other facilities. It is currently managed by TCB subsidiary, Mutiara – TCB Hotel Management Sdn Bhd. The Leasehold Land is free from any encumbrance. 5. Information about LADA LADA is a statutory body incorporated under Langkawi Development Authority Act 1990 (Act 423) in 1990 to plan, promote and carry out development on the island of Langkawi. It is under the Ministry of Finance. 6. Proposed Use of Leasehold Land The Leasehold Land will be developed into a world class international hotel and resort. Construction of the hotel/resort will commence within 3 years from the date of the Lease Agreement. Construction cost will be in line with acceptable industry standards. The construction of the hotel will be funded from a combination of internally generated funds and external borrowings. 7. Rationale of the Proposal The Proposal will enable the Group to develop a luxury resort in the stunning Teluk Burau area to complement the TCB’s existing luxury hotel, The Danna and Perdana Quay development. This is expected to enhance the Western hub of Langkawi Island and it is in line with the Langkawi Tourism Blueprint. The development will also enable the Group to expand its asset base in line with its aspiration to be a premier hotel and resort developer. 8. Financial Effects on the Proposal (i) Issued and Paid-up Share Capital The Proposal has no impact on the issued and paid-up share capital of the Company; (ii) Net Assets The Proposal will not have any material impact to the net assets per share of the Group; (iii) Earnings The Proposal will not have any material impact on the earnings per share of the Group; (iv) Gearing The Proposal will not have material effect on the Group gearing although future gearing may be affected depending on the funding structure of the future development; and (v) Substantial Shareholder’s Shareholding The Proposal will not have any effect on TCB’s substantial shareholders’ shareholding. 9. Approvals from the relevant authorities The Leasehold Agreement is subject to BMSB obtaining declaration from the relevant state authority for it to be deemed a Malay pursuant to the Kedah Malay Reservations Enactment prior to the registration of the Lease. 10. Prospects and Risk Factors 10.1 Political, Economic and Regulatory Considerations Adverse developments in political, economic and regulatory conditions in Malaysia could materially and adversely affect the financial prospects of the TCB Group. Political and economic uncertainties including but are not limited to changes in labour laws, availability of labour, a switch in political leadership and/or changes in the government’s policies on interest rates, methods of taxation and licensing regulations. These factors affect all players in the property and hotel industry and are generally beyond the management’s control. As Langkawi is a premier tourist destination in Malaysia, hotel players are increasingly positive that Langkawi hotel market is poised for further growth. Langkawi rebranded as Langkawi Geo Park has been successfully marketed internationally as an eco destination. There are many international and local events continuously being held in Langkawi to promote its natural attractions. One of the most prominent events is the bi-annual Langkawi International Maritime and Aerospace (“LIMA”) exhibition showcasing the latest maritime and aerospace technology. Whilst sharing this optimism on the prospects in Langkawi, the Group will continue to take reasonable steps to mitigate the risks mentioned above and to respond and adapt to the ever-changing economic and regulatory environment in order to alleviate any difficulties arising from the changes in the political, economic and regulatory circumstances should they arise in the future. 10.2. Business Risk As TCB Group is principally involved in hotel business, the Group is subject to certain business risks inherent in the hotel and tourism industry. These business risks may include but not limited to changes in general economic conditions, global economic conditions, availability of flights and connectivity into Langkawi, government regulations, inflation, competition from existing players and new entrants, shortage of labour, disruption in the supply of building materials and non-renewal of licenses. Despite the fact that management continuously seeks to limit and mitigate these risks through the implementation of prudent business strategies, continuous review of the operations and marketing strategies, efforts to improve efficiency, as well as close monitoring of the Group’s hotels refurbishment and new projects and the Group’s cash flows, there can be no assurance that any change to these risks would not have any material adverse impact on TCB Group’s business. 10.3. Competition TCB Group business faces competition from various competitors including local and foreign branded hotel investors and operators. The Group believes that the location of the Leasehold Land is conducive for a hotel/resort. However, no assurance is given that the Group will be able to maintain its competitive advantage in the hotel market in the future. 11. Directors and/or Major Shareholders’ Interest None of the Directors and/or major shareholders or persons connected with the Directors and/or major shareholders have any direct or indirect interest in the Proposals. 12. Statement by the Board of Directors The Board of Directors is of the opinion that the Proposal is in the best interest of the Group. 13. The Highest Percentage Ratio The highest percentage ratio applicable to the Proposal pursuant to Paragraph 10.02(g) of the Main Market Listing Requirement is 1.8%. 14.Documents Available for Inspection The Lease Agreement will be available for inspection at the registered office of TCB at 21st Floor, Wisma Zelan, No. 1, Jalan Tasik Permaisuri 2, Bandar Tun Razak, Cheras, 56000 Kuala Lumpur, during normal business hours from Mondays to Fridays (except public holidays) for a period of one (1) month from the date of this announcement. This Announcement is dated 28 March 2012.
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