1. INTRODUCTION
The Board of Directors (“the Board”) of the Company wishes to announce that the Company has on 30 July 2016 entered into a binding Memorandum of Understanding (“MOU”) with PT. JAYA SAMUDRA KARUNIA INTERNASIONAL (“JSK”), PT. JAYA SAMUDRA KARUNIA GAS (“JSK Gas”) and Mr Yudha Kurniawan Tanos (“Yudha”). According to the MOU, CCB will acquire 215 ordinary shares in JSK Gas from JSK and Yudha (“the Sellers”), for a purchase consideration of USD6,552,428 or USD30,476 per share (“Purchase Consideration”). On completion date, JSK Gas will issue 1,500 new ordinary shares at an issue price of USD14,197,572 or USD9,465 per share to the Company or its subsidiary (“Shares Consideration”) (collectively “the Proposed Joint Venture”). The Purchase Consideration and Shares Consideration (“Total Consideration”) shall be subject to adjustment on completion. A Conditional Share Purchase Agreement, Shareholders Agreement, Deed of Transfer and all other necessary documents pertaining to the Proposed Joint Venture will be entered subsequently. Upon completion, the Company will hold 1,715 ordinary shares of Rp. 1,000,000 each in JSK Gas, representing 49% of JSK Gas’ eventual issued and paid-up share capital and JSK Gas shall be recognised as a Jointly Controlled Entity of CCB.
2. DETAILS OF THE PROPOSED JOINT VENTURE
The Proposed Joint Venture entails the acquisition of 49% ordinary equity interest in JSK Gas, subject to the terms and conditions of the MOU.
2.1 Basis of Total Consideration and mode of payment
The Total Consideration were arrived at on a ‘willing buyer-willing seller’ basis after taking into consideration, among others, the following:
(a) An expected Internal Rate of Return (“IRR”) to be generated from the charter contracts for vessels of JSK Gas’ subsidiaries;
(b) Commercial negotiations carried out on an arm’s length basis at the relevant point in time; and
(c) Potential benefits to accrue from the Proposed Joint Venture.
The Total Consideration shall be satisfied by cash in accordance with the terms of the MOU.
2.2 Information on JSK, JSK Gas and its subsidiaries:
PT JSK Internasional | 99% →→ | PT JSK Gas | 99% →→ | PT Benoa Gas Terminal | 99% →→ | PT Jaya Transportasi LNG |
Established in October 2004, JSK has a core business in coal transportation sector in Indonesia. It is headquartered in Jakarta, with domestic branch operations in Surabaya-West Java and Satui-South Kalimantan, Tanah Grogot, East Kalimantan, and affiliate companies in South Korea and Singapore. JSK’s key business segments include drybulk shipping, transshipment, gas, mining, and valves manufacturing.
In recent years, given the huge potential in Indonesia LNG market, JSK has ventured into the LNG supply chain. Recently, it was awarded the LNG Regasification and LNG Storage contracts to support 200 MWh gas-fired power plant in Bali, Indonesia by Indonesian state-owned company.
JSK Gas is a 99% owned subsidiary of PT JSK Internasional and was incorporated on 5th September 2013 in Indonesia with its registered address at Menara Standard Chartered 9th Fl, Jl. Prof. Dr. Satrio No. 164, Jakarta 12930, Indonesia. The principal activity of JSK Gas is investment holding.
JSK Gas owns 99% of PT Benoa Gas Terminal (“BGT”) with LNG regasification service provider as its principal activity. BGT is the owner of a Floating LNG Regasification Unit (“FRU”) with a maximum production capacity of 50 mmscfd which has commenced its operations in second quarter of 2016. The FRU is a crucial part of the infrastructure which is built to supply natural gas to the 200MWh power plant operated by PT Indonesia Power in Bali, Indonesia.
BGT has been awarded a 5-year Build, Operate and Transfer Agreement (“BOT”) by PT Pelindo Energy Logistik (“PEL”). Under the contract, the FRU will produce regasified natural gas for PEL, for the delivery to the gas-fired power plant.
BGT in turn owns 99% of PT Jaya Transportasi LNG (“JTL”), where the principal activity is to provide LNG storage service, with its Floating Storage Unit (“FSU”), to support the 200MWh power plant. JTL has been awarded a 10-year firm charter contract with an extension option of 13 years from PT JSK Abadi Lines, the party awarded with the charter contract from PEL. Under the contract, FSU serves as a storage vessel to receive LNG from the LNG carrier on a scheduled basis, and will provide LNG to the FRU for regasification.
PEL is a subsidiary of PT Pelindo Marine Services (“PMS”), which is one of the subsidiaries of PT Pelabuhan Indonesia III (“Pelindo III”), one of the biggest state-owned ports service companies in Indonesia. PEL has a separate contract with PT Indonesia Power for the supply of natural gas to its 200MWh power plant.
Based on the latest unaudited consolidated Financial Statements of JSK Gas for the Financial Year End (“FYE”) 31 December 2015, the consolidated Net Liabilities (“NL”) and consolidated Loss After Tax (“LAT”) of JSK Gas were Rp. 5,481,425,640 and Rp. 7,481,425,640 respectively.
Based on the latest unaudited Financial Statements of BGT for the FYE 31 December 2015, the Net Liabilities (“NL”) and Loss After Tax (“LAT”) of BGT were Rp. 5,400,346,013 and Rp. 7,400,346,013 respectively.
Based on the latest unaudited Financial Statements of JTL for the FYE 31 December 2015, the Net Assets (“NA”) and Loss After Tax (“LAT”) of JTL were Rp.1,960,000,000 and Rp. 40,000,000 respectively.
2.3 Source of Funding
The Total Consideration to be paid by CCB will be funded by internally generated funds.
2.4 Liabilities to be assumed
There are no liabilities, including contingent liabilities or guarantees to be assumed by CCB pursuant to the Proposed Joint Venture.
2.5 Salient terms of the MOU
The salient terms of the MOU are as follows:
2.5.1 Acquisition of shares
2.5.1.1 Subject to the terms and conditions of the MOU, CCB shall purchase, and the Sellers shall sell with full legal and beneficial title free and clear from any dispute and encumbrance to CCB, the 215 ordinary shares in JSK Gas at a Purchase Consideration of USD6,552,428, which shall be subject to adjustment on completion.
2.5.1.2 Subsequently, JSK Gas will issue 1,500 new ordinary shares to CCB at a Shares Consideration of USD14,197,572, which shall be subject to adjustment on completion.
2.5.2 Payment of Deposit
A deposit payment of USD6 million is to be made by CCB to the Sellers upon fulfilment of the relevant Conditions Precedent under the Sellers.
2.5.3 Profit Guarantee
JSK and JSK Gas shall severally and jointly, unconditionally and irrevocably represents, guarantees and warrants to CCB that JSK Gas shall attain CCB’s desired IRR for its investment in JSK Gas.
2.5.4 Completion
The completion of the Proposed Joint Venture is conditional upon all Conditions Precedent for completion being fulfilled.
The Proposed Joint Venture is expected to be completed by the fourth quarter of 2016.
2.5.5 Termination
The MOU will be automatically terminated on 90th day of the signing of the MOU and may be terminated earlier upon a written notice submitted by CCB to the Sellers.
2.5.6 Issued and paid-up capital of JSK Gas
The issued and paid-up capital of JSK Gas as at 29 July 2016 is Rp.2,000,000,000 comprising 2,000 ordinary shares of Rp.1,000,000 each.
The eventual issued and paid-up capital of JSK Gas is Rp.3,500,000,000 comprising 3,500 ordinary shares of Rp.1,000,000 each.
2.5.7 Board of Comissioners and Directors in JSK, BGT and JTL
Upon completion, CCB and JSK shall have equal seats in the Board of Commisioners and the Board of Directors in JSK Gas, BGT and JTL.
3. RATIONALE FOR THE PROPOSED JOINT VENTURE
The Proposed Joint Venture is in line with the initiative of the CCB Board of Directors to tap into the growing LNG supply chain and to further expand its business activities in the LNG downstream sector. With this acquisition, together with JSK, as the owner of FRU and FSU that form essential part of the infrastructure to support the 200MWh power plant, CCB will be able to build a new portfolio of LNG related business which is core to the LNG downstream sector, especially for small-scale Floating Storage Regasification Unit (“FSRU”) which is suitable for archipelagic region, less capital intensive and requires shorter construction period.
The gain of expertise and experience in the new field from its participation in the Bali Project enables CCB to effectively leverage competitive advantage and strong foothold in this sector. Driven by the need to diversify energy mix and switch away from crude and coal to cleaner fuels such as natural gas, CCB foresees high potential for development in the FSRU market as FSRU solution is the fastest gateway among all gas procurement options.
Apart from the above, this Proposed Joint Venture also fits with CCB’s long-term strategy of increasing its geographical spread as well as product spread. The enlarged client base offers cross-selling opportunities and magnifies CCB’s presence in the Oil and Gas industry, thus enhancing its profitability profile.
In addition, it also allows CCB to diversify its earnings stream while simultaneously, diverging CCB’s risk profile from the Oil and Gas upstream sector.
4. INDONESIA LNG AND FSRU MARKET OUTLOOK
Indonesia is one of Asia’s most buoyant economies and may soon need to import LNG to meet the soaring domestic demand for gas. The scale of projected demand has put Indonesia under intense pressure to secure its future energy supply and to invest in the infrastructure to deliver it as the lack of infrastructure for gas distribution has curbed the supply of gas to meet their domestic needs. In addressing this issue, the FSRU development is playing a significant role. FSRU is a vital component for transiting and transferring LNG through the oceanic channels. With the FSRU development, LNG can be transmitted in a more cost-efficient way. Moreover, FSRU is typically less capital intensive, requires shorter construction period and more suitable for archipelagic region as compared to that of a land-based LNG receiving terminal. In addition, the reluctance to commit to long-term facilities and the flexibility of FSRU have popularized the use of FSRU as an alternative.
Major opportunities are foreseen in Indonesia’s small-scale LNG ambitions as there is requirement for flexible and cost-efficient LNG distribution solutions as well as request for cryogenic competence and technologies given its archipelagic nature. Indonesia’s power-generation plans are positioning the country to become one of the fastest-growing markets for LNG and a regional first-mover in small-scale LNG market in Asia. The government is also looking for project partners to develop floating import units and infrastructure. Considering the above, the prospect for Indonesia LNG and FSRU market looks positive.
5. RISK FACTORS IN RELATION TO THE PROPOSED JOINT VENTURE
(i) Business risks
Market risks
 Potential fuel-on-fuel competition derived from low oil price may negatively impact the success of the business;
 Growth in the number of FSRU players may present a threat to the business’ profit margin;
 Further changes to existing environmental legislation that is applicable to national maritime trade may have an adverse effect on the business;
 Climate change and greenhouse gas restrictions may adversely impact the business’ markets; and
 Changes to existing safety and other vessel requirements imposed by classification societies may adversely affect the business.
JSK Gas will continue to closely monitor the market evolution in the different segments in which it operates in order to assess whether a deterioration of the market conditions would impact the book value of its fleet.
Operational risks
 Disaster at sea;
 Piracy;
 Environmental accidents;
 Work interruptions caused by mechanical defects, human error, war, terrorism, political actions in various countries, strikes and bad weather;
 An increased shortage of qualified officers and crew could have an adverse effect on the business and its financial condition;
 The LNG storage and regasification business is subject to substantial environmental and other regulations, compliance with which may significantly limit the operations of the business or increase its expenses;
 It may be unable to obtain, maintain and/or renew permits necessary for the operations of FRU and FSU or experience delays in obtaining such permits, which could have a material effect on its operations;
 Increased operating expenses; and
 The business may be unable to attract or retain key management personnel in the LNG industry, which may negatively impact the effectiveness of its management and its results of operations.
JSK Gas will continue to ensure effective business management to prevent any issue arising from management failure. As for the force majeure events, it is unavoidable.
(ii) Financial risks
Counterparty risks
JSK Gas receives a considerable part of its income from a limited number of clients and the loss of a client, a time charter or other revenues can lead to a significant loss of income and cash flows. In the LNG segment, JSK Gas is particularly dependent on the performance of its sole client, PEL.
Given the fact that PEL is an Indonesian state-owned company, JSK Gas’ exposure to counterparty risk shall be minimal.
Financing risks
With a view to fund future projects, to enhance working capital or other capital expenditure, JSK Gas may be obliged to utilize its available cash, to contract new loans or generate cash by selling assets.
The use of cash from operational activities for future investments may reduce the amount available for dividends. JSK Gas’ capacity to obtain funds from financial institutions or their access to the financial markets for any future debts could be limited by adverse market conditions as a result, among other things, of general economic conditions and risks and uncertainties beyond JSK Gas’ control.
JSK Gas is of the view that financing risk arising from the Proposed Joint Venture is minimal since there will be steady recurring income from the long-term contracts secured from PEL. Further, loan for the FRU has been secured while the financing for FSU will be secured upon commencement of the construction.
Interest rates and foreign exchange risks
The long-term vision that is typical to JSK Gas’ activities is accompanied by long-term financing and therefore also exposure to underlying rates of interest. JSK Gas shall consider to manage this exposure by means of various instruments such as the interest rate swap. As for the foreign exchange risk, there is a natural hedge as JSK Gas’ income and expenses are more on USD.
(iii) Global economic, financial and political conditions
The financial performance of JSK Gas is dependent on worldwide LNG prices as well as import and export volumes for LNG in the region JSK Gas is operating. The volumes are significantly affected by changes in economic, financial and political conditions that are beyond JSK Gas’ control, including sanctions, boycotts and other measures as a result of import and export barriers, disputes and acts of war, hostilities, terrorism, natural disasters and/or epidemic.
(iv) Joint venture risks
The lack of common vision on the exit strategy from the investment or having different objectives for the joint venture might result in deadlock or litigation. There is also an imbalance in levels of expertise as well as different management brought into the venture which might give rise to poor integration and cooperation and further result in disputes. Cultural differences have also severely undermined joint efforts within a joint venture. Uneven division of work and resources can also lead to conflicts between joint venture partners.
To mitigate joint venture risks, due diligence has been conducted by CCB on JSK to enable CCB to determine whether JSK is the right fit with the right ethical and governance background for CCB. The enforcement of contracts can also prevent some of the major problems in a joint venture.
6. FINANCIAL EFFECTS FROM THE PROPOSED JOINT VENTURE
i. Share Capital and Substantial Shareholders’ Shareholdings
The Proposed Joint Venture will not have any effect on the issued and paid-up
share capital and the shareholdings of the substantial shareholders of CCB.
ii. Earnings and Earnings Per Share (“EPS”)
The Proposed Joint Venture is expected to contribute positively to the consolidated earnings and EPS of CCB for the financial year ending 30 June 2017 onwards.
iii. Net Assets (“NA”) and Gearing
The Proposed Joint Venture is not expected to have any material effect on the NA per share and consolidated gearing of CCB as it will be satisfied entirely in cash.
7. APPROVALS REQUIRED
The Proposed Joint Venture is not subject to the approval of CCB’s shareholders or any regulatory authorities in Malaysia. However, the Proposed Joint Venture is subject to the approvals of relevant authorities in Indonesia.
8. MAJOR SHAREHOLDERS’ AND DIRECTORS’ INTEREST
None of the major shareholders and Directors of CCB and/or persons connected with them have any interest, direct or indirect in the Proposed Joint Venture.
9. STATEMENT BY THE BOARD OF DIRECTORS
The Board of Directors, after having considered all aspects of the Proposed Joint Venture, is of the opinion that the Proposed Joint Venture is in the best interest of the Company.
10. HIGHEST PERCENTAGE RATIO
The highest percentage ratio applicable to the Proposed Joint Venture pursuant to Paragraph 10.02(g) of the Main Market Listing Requirements of Bursa Securities is 5.89% based on the Audited Financial Statements for the FYE 31 December 2014 of the Company.
11. DOCUMENTS FOR INSPECTION
The MOU in the relation to the Proposed Joint Venture is available for inspection at the Company’s registered office at Block G, Lot 3B, Bandar Leila, W.D.T. 259, 90009 Sandakan, Sabah, Malaysia during normal business hours (from 8:00a.m. to 5:30p.m.), from Mondays to Fridays (except public holidays) for a period of three (3) months from the date of this announcement.
This Announcement is dated 1 August 2016.
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