S P SETIA BERHAD (“S P SETIA” OR “COMPANY”)
PROPOSED ACQUISITION BY S P SETIA OF 40% EQUITY INTEREST IN KL ECO CITY SDN BHD
("KLEC") FROM YAYASAN GERAKBAKTI KEBANGSAAN (“YGK”) FOR A TOTAL
CONSIDERATION OF RM75,000,000 TO BE SATISFIED THROUGH THE ISSUANCE OF
19,379,845 NEW ORDINARY SHARES OF RM0.75 EACH IN S P SETIA (“S P SETIA SHARES”) AT
AN ISSUE PRICE OF RM3.87 PER S P SETIA SHARE (“PROPOSED ACQUISITION”)
On behalf of the Board of Directors of S P Setia (“Board”), CIMB Investment Bank Berhad
(“CIMB”) wishes to announce that on 25 July 2011, the Company entered into a conditional
share sale agreement (“SSA”) with YGK in relation to the Proposed Acquisition.
2. DETAILS OF THE PROPOSED ACQUISITION
The Proposed Acquisition will involve the proposed acquisition by S P Setia of 40,000
ordinary shares of RM1.00 each in KLEC (“KLEC Shares”), representing 40% equity
interest in KLEC, from YGK for a total consideration of RM75,000,000 (“Purchase
Price”), to be satisfied through the issuance of 19,379,845 new S P Setia Shares
(“Consideration Shares”) at an issue price of RM3.87 per S P Setia Share.
Currently, KLEC is a 60%-owned subsidiary of S P Setia. Upon completion of the
Proposed Acquisition, KLEC will become a wholly-owned subsidiary of S P Setia.
Further information on KLEC is set out in Table A.
2.2 The purchase consideration
The purchase consideration of RM75,000,000 for the Proposed Acquisition was
arrived at on a willing-buyer willing-seller basis and based on the equity valuation of
KLEC using the discounted cash flow method of valuation after taking into account,
amongst others, the following:
(i) the approved development order for the stratified mixed residential and
commercial developments of the project known as “KL Eco City” (“KL Eco
(ii) the terms of the privatisation agreement to be entered into between KLEC and
Datuk Bandar Kuala Lumpur (“DBKL”) for the purpose of the KL Eco City
Project (“Privatisation Agreement”); and
(iii) KLEC’s cashflow forecasts and projections based on planned launches and
sales by KLEC’s management.
The Company and YGK had also appointed CIMB to appraise the equity value of
KLEC based on the financial forecasts and projections prepared by the management
of KLEC. Based on the valuation report by CIMB dated 1 July 2011 (“Valuation
Report”), the valuation of 40% equity interest in KLEC ranges between RM53 million
and RM73 million.
The premium of the Purchase Price to the above valuation reflects the Board’s
confidence in the prospects of the KL Eco City Project.
The issue price of RM3.87 for the new S P Setia Shares to be issued is based on the
5-day volume weighted average market price (“VWAMP”) of S P Setia Shares up to
and including 22 July 2011, being the last trading day immediately before the signing
of the SSA.
The KLEC Shares will be acquired free from all encumbrances, liens, charges and
with all rights accruing to those KLEC Shares.
2.3 Ranking of the new S P Setia Shares
The Consideration Shares shall, upon allotment and issue, rank pari passu in all
respects with the existing S P Setia Shares save and except that they shall not be
entitled to any dividends, rights, allotments and/or other distributions unless the
allotment and issue of the new S P Setia Shares were made on or prior to the
entitlement date of such dividends, rights, allotments and/or other distributions.
2.4 Net liabilities and assumed liabilities
The audited net liabilities of KLEC as at 31 October 2010 was RM1.95 million.
There are no liabilities, including contingent liabilities and guarantees, to be assumed
by S P Setia pursuant to the Proposed Acquisition.
2.5 Information on YGK
YGK was incorporated in Malaysia under the Companies Act, 1965 (“Act”) as a
company limited by guarantee and has an authorised share capital of RM200,000.
YGK is a foundation established to receive and administer funds for the eradication of
poverty and the enhancement of the welfare of the poor and to conduct studies and
research relevant to the poverty eradication programme.
2.6 Other salient terms of the SSA
The other salient terms of the SSA are as follows:
(a) On the date of completion of the SSA, the Purchase Price shall be satisfied by
the allotment and issuance of the Consideration Shares at an issue price
based on the 5-day VWAMP of S P Setia Shares immediately preceding the
date of the SSA, rounded up to the nearest share;
(b) The SSA is conditional upon the fulfilment of all of the following conditions
precedent within the period of six (6) months from the date of the SSA or such
other period as may be mutually agreed in writing between the parties
(i) the approval of the Economic Planning Unit (“EPU”), Prime Minister’s
Department, if required;
(ii) the approval of Bursa Malaysia Securities Berhad (“Bursa
Securities”) for the listing of and quotation for the Consideration
(iii) the approval of the shareholders of S P Setia being obtained for the
issuance of the Consideration Shares;
(iv) the Privatisation Agreement having been duly executed by KLEC and
(v) the approvals of any other relevant authorities or parties, if required.
The SSA shall become unconditional on the date on which the last of the
conditions precedent has been duly fulfilled or waived; and
(c) In the event that the conditions precedent are not fulfilled within the Approval
Period, S P Setia and YGK may, where legally possible, mutually waive any of
such conditions precedent and proceed with the transfer of the KLEC Shares,
failing which the SSA shall, unless extended by mutual agreement of YGK
and S P Setia, lapse and terminate and be of no further effect whatsoever.
2.7 Salient features of the Valuation Report
CIMB had adopted the discounted cash flow (“DCF”) method to perform the valuation
of the entire equity interest in KLEC given the nature of business of KLEC which is in
the property development sector with a cash flow stream based on the implementation
of the KL Eco City Project in phases over a finite period.
In arriving at the valuation range, CIMB has applied two (2) DCF valuation models,
namely the Free Cash Flow to Firm (“FCFF”) valuation model and Free Cash Flow to
Equity (“FCFE”) valuation model to value the equity of KLEC:
(a) FCFF Valuation Model
The FCFF valuation model discounts the cash flow stream available for
distribution to all the providers of capital of a company comprising
shareholders, lenders and holders of preference shares and loan stocks at an
appropriate discount rate that represents the weighted average cost of capital
of the company (“WACC”). The FCFF is equivalent to the net operating cash
flows after taxation but before financing activities.
The derived discounted value is a value of the company which is subtracted
by a fair value of the outstanding debt plus the availability of cash presently
held by the company in order to arrive at its equity value.
(b) FCFE Valuation Model
The FCFE valuation model on the other hand discounts the net cash flow
stream available for distribution to the shareholders at an appropriate discount
rate that represents the cost of equity or the returns required by the
The FCFE is equivalent to the net operating cash flows after taxation and
financing which is available for distribution to preference and ordinary
shareholders of a company.
3. RATIONALE AND BENEFITS OF THE PROPOSED ACQUISITION
The KL Eco City Project is an integrated commercial and residential development. The
development was master planned by Jerde Partnership, an international award-winning
architect and master planner well-known for integrated mixed-use commercial and residential
The management of S P Setia believes that in addition to the integrated master planning by a
world-renowned planner and its plan for green accreditation, the development’s key
advantages are its strategic location near the affluent Bangsar area and its connectivity to key
roads, highways, the KTM Commuter and the LRT Kelana Jaya lines.
The Proposed Acquisition resulting in KLEC becoming a wholly-owned subsidiary of S P Setia
will enable it to reap the full benefits of the project to be developed. It is also envisaged that a
consolidation of KLEC’s shareholding structure would provide S P Setia and its subsidiaries
(“S P Setia Group”) with greater funding flexibility for the KL Eco City Project.
4. RISKS IN RELATION TO THE PROPOSED ACQUISITION
4.1 Business risks
The Proposed Acquisition is not expected to materially expose the S P Setia Group to
business and operational risks which the S P Setia Group is not familiar with, given
that S P Setia already has a 60% equity interest in KLEC.
These inherent risks include threats from shortages of labour and construction
materials, increase in the cost of labour and construction materials, increase in cost of
operations which may result in cost overrun, delays in projects due to factors beyond
the control of the S P Setia Group, changes in the relevant government policies and
regulations, environmental issues, changes in the general economic, business and
credit conditions, changes in the master layout plan of the projects and the
developments within the vicinity of the development projects.
4.2 Completion risk factor
Completion of the Proposed Acquisition is conditional upon, amongst others, the
fulfilment of the conditions precedent and the performance by the relevant parties of
their respective obligations under the SSA.
5. INDUSTRY OVERVIEW AND PROSPECTS
The S P Setia Group is principally involved in property development in Malaysia. The
prospects of the S P Setia Group are inherently linked to the general domestic and world
economic outlook and the outlook of the property sector.
5.1 Overview and prospects of the Malaysian economy
The Malaysian economy registered a growth of 4.6% in the first quarter of 2011. The
expansion in domestic demand was supported by higher private sector spending while
external demand also recorded a stronger growth during the quarter, mainly as a
result of regional demand for commodities and non electrical and electronic
products. On the supply side, all major economic sectors, with the exception of the
primary commodity sector, continued to expand during the quarter, albeit at a more
The sustained expansion in the first quarter underscores the steady pace of growth of
the Malaysian economy, underpinned by the continued expansion of domestic
demand amid improving external demand arising from higher commodity exports and
stronger regional demand. Going forward, growth is expected to be sustained. Growth
in private consumption will continue to be firm, given the favourable employment
conditions and income growth, while private investment is expected to strengthen
further amid an improving outlook for the domestic economy and the further expansion
of new growth industries. Being a highly open economy however, the domestic
economy may be affected by developments in the global environment. Nevertheless,
Malaysia’s strong economic fundamentals and policy flexibility have increased its
resilience and improved its ability to manage these challenges.
(Source: Economic and Financial Developments in the Malaysian Economy in the First Quarter
of 2011 dated 18 May 2011, Bank Negara Malaysia)
5.2 Overview and prospects of the property sector
The property market recorded an improved performance in the first half of 2010. A
total of 184,666 transactions worth RM50.56 billion were registered. The volume and
value of transactions recorded double-digit growths of 19.0% and 48.0% respectively
from the first half of 2009. Likewise, the volume and value of transactions increased
from the second half of 2009 but at a moderate rate of 1.1% and 7.9% respectively.
On the whole, prices of all property types remained stable with isolated movements
recorded in selected locations. Generally, prices of landed residential property held
firm at last year’s prices, even in the face of the country’s current economic recovery.
On the other hand, stratified residential properties saw some declines even in good
locations. Although the property market has gained momentum, the industry still faced
challenges like the increase in the base lending rate, removal of subsidies and the
high production cost. However, the current monetary and financial conditions, coupled
with the continuous support from the Government of Malaysia through the
accommodative policies are conducive for sustainable growth.
(Source: Property Market Report, First Half of 2010, Valuation and Property Services
Department, Ministry of Finance)
5.3 Prospects of S P Setia Group
The S P Setia Group continued to achieve higher sales, with second quarter sales in
2011 of RM671 million and cumulative 6-months in 2011 of RM1.408 billion. This
represents the S P Setia Group’s highest second quarter and 6-months sales, against
the previous highs achieved in the second quarter of financial year ended (“FYE”)
2010 and 6-months FYE 2009 by 12% and 17% respectively.
Total sales of RM1.9 billion for the first eight months of financial year ending 2011 has
surpassed S P Setia Group’s full year sales achieved in every year of its history except
for the RM2.315 billion recorded in FYE 2010. Based on the sales momentum for
existing projects and upcoming planned launches including the S P Setia Group’s KL
Eco City Project, the management of S P Setia is very confident that, barring
unforeseen external shocks, its sales target of RM3 billion for the financial year ending
2011 will be met.
(Source: S P Setia Interim Financial Report, 30 April 2011; management of S P Setia)
6. EFFECTS OF THE PROPOSED ACQUISITION
6.1 Issued and paid-up share capital
The proforma effects of the Proposed Acquisition on the issued and paid-up share
capital of S P Setia are set out in Table B.
6.2 Net assets (“NA”), NA per share and gearing
The Proposed Acquisition will not have any material effect on the NA, NA per share
and gearing of the S P Setia Group for the financial year ending 31 October 2011.
6.3 Shareholdings of the substantial shareholders
The proforma effects of the Proposed Acquisition on the substantial shareholders’
shareholdings in S P Setia are set out in Table C.
6.4 Earnings and earnings per S P Setia Share (“EPS”)
As the Proposed Acquisition is expected to be completed by the end of 2011, the
Proposed Acquisition will not have any material effect on the earnings of the S P Setia
Group for the financial year ending 31 October 2011. The effects of the Proposed
Acquisition on future earnings and/or EPS of the S P Setia Group would depend on,
amongst others, the future performance of KLEC and the funding costs to be taken for
the KL Eco City Project.
6.5 Convertible securities
Save for the existing options granted pursuant to the employees’ share option scheme
of the Company (“ESOS”) (“ESOS Options”) and existing warrants of the Company
which are constituted by a deed poll dated 19 November 2007 (“Deed Poll”)
(“Warrants”), S P Setia does not have any convertible securities.
The Proposed Acquisition will not give rise to adjustments to the exercise prices
and/or number of outstanding ESOS Options pursuant to the terms of the ESOS
The Proposed Acquisition will not give rise to adjustments to the exercise price and/or
number of outstanding Warrants pursuant to the terms and conditions of the Deed
7. APPROVALS REQUIRED
The Proposed Acquisition is subject to the approvals being obtained from the following:
(i) shareholders of S P Setia at an extraordinary general meeting to be convened for the
issuance of the Consideration Shares;
(ii) Bursa Securities for the listing of and quotation for the Consideration Shares on the
Main Market of Bursa Securities;
(iii) EPU of the Prime Minister’s Department, if required; and
(iv) any other relevant authorities and/or parties, if required.
8. INTERESTS OF DIRECTORS AND MAJOR SHAREHOLDERS AND/OR PERSONS
None of the Directors and/or major shareholders of S P Setia and persons connected to them
has any interests, direct or indirect in the Proposed Acquisition.
9. DIRECTORS’ STATEMENT
After having considered all aspects of the Proposed Acquisition, the Board is of the opinion
that the Proposed Acquisition is in the best interest of the Company.
CIMB has been appointed as the Adviser to the Company for the Proposed Acquisition.
11. ESTIMATED TIMEFRAME FOR COMPLETION
Subject to all the required approvals being obtained, the Proposed Acquisition is expected to
be completed by the end of 2011.
12. HIGHEST PERCENTAGE RATIOS
The highest percentage ratio applicable for the Proposed Acquisition, pursuant to Chapter 10
of the Main Market Listing Requirements of Bursa Securities is 2.5%.
13. APPLICATIONS TO THE RELEVANT AUTHORITIES
The applications to the relevant authorities in relation to the Proposed Acquisition are expected
to be made within three (3) months from the date of this announcement.
14. DOCUMENTS AVAILABLE FOR INSPECTION
The SSA and the Valuation Report are available for inspection at the registered office of S P
Setia at Plaza 138, Suite 18.03, 18th Floor, 138 Jalan Ampang, 50450 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.
This announcement is dated 25 July 2011.
Information on KLEC
1. History and business
KLEC was incorporated in Malaysia under the Act as a private limited company on 7 August
1989. The principal activities of KLEC are property development and property investment
holding. KLEC does not have any subsidiaries.
On 20 December 2000, S P Setia entered into a conditional shareholders’ agreement with
YGP Holdings Sdn Bhd (“YGP”) in relation to, amongst others, the acquisition by KLEC
(formerly known as Pelita Dunia Sdn Bhd) of several pieces of land from DBKL and various
private owners for development into mixed residential and commercial development project
(“Conditional Shareholders’ Agreement”). On 3 March 2011, YGP had via a novation
agreement, novated all of its rights, title, interest, obligations and liabilities pursuant to the
Conditional Shareholders’ Agreement, to YGK.
The KL Eco City Project, which had obtained the development order from DBKL on 21
February 2011, involves the development of leasehold lands measuring about 24.88 acres
located at Abdullah Hukum in the Federal Territory of Kuala Lumpur into an integrated
mixed-use commercial and residential development comprising residential towers, corporate
office towers, serviced apartments, boutique offices, retail podium and strata office towers.
The location is strategic as it is near the affluent Bangsar area and its connectivity to key roads,
highways, the KTM Commuter and LRT Kelana Jaya lines.
The KL Eco City Project is expected to be funded via internally generated funds and bank
borrowings. Subject to all the conditions precedent being met, the KL Eco City Project is
expected to commence in the first half of 2012 and the construction period is expected to
spread over 12 years.
2. Share capital
The authorised and issued and paid-up share capital of KLEC as at 31 October 2010 are as
Type No. of shares Par value Total
Ordinary shares 100,000 1.00 100,000
Issued and paid-up
Ordinary shares 100,000 1.00 100,000
3. Key financial data
The key audited financial data of KLEC is set out below:
FYE 31 FYE 31 FYE 31
October 2008 October 2009 October 2010
RM RM RM
Revenue 6,600 - -
Loss before taxation (167,287) (483,558) (1,223,073)
Taxation (700) 700 -
Loss after taxation (167,987) (482,858) (1,223,073)
Net liabilities (245,993) (728,851) (1,951,924)
Proforma effects of the Proposed Acquisition on the issued and paid-up share capital of S P
No. of S P paid-up share
Setia Shares capital
000 RM 000
As at 8 July 2011 1,777,107 1,332,830
Arising from the Proposed Acquisition 19,380 14,535
Enlarged issued and paid-up share capital 1,796,487 1,347,365
Proforma effects of the Proposed Acquisition on the substantial shareholders’ shareholdings
of S P Setia
As at 8 July 2011 After the Proposed Acquisition
Direct Indirect Direct Indirect
No. of No. of No. of No. of
S P Setia S P Setia S P Setia S P Setia
Substantial Shares Shares Shares Shares
shareholders 000 % 000 % 000 % 000 %
Berhad – Skim Amanah 353,528 19.89 - - 353,528 19.68 - -
256,603 14.44 - - 256,603 14.28 - -
Tan Sri Dato’ Sri Liew Kee (1) (1)
158,196 8.90 42,302 2.38 158,196 8.81 42,302 2.35
114,532 6.44 - - 114,532 6.38 - -
Yayasan Pelaburan (2) (2)
- - 114,532 6.44 - - 114,532 6.38
Deemed interested by virtue of his shareholdings in Sakura Gold Sdn Bhd pursuant to Section 6A of the Act and the
shareholdings held by his spouse.
Deemed interested by virtue of its shareholdings in PNB pursuant to Section 6A of the Act.