Introduction

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On behalf of the Board of Directors of the Company, we wish to make an announcement pertaining to a transaction made between Kein Hing Industry Vietnam Co., Ltd (“KHIV”) and Kein Hing Muramoto (Vietnam) Co., Ltd (“KHMV”). On 22 February 2020, KHIV has entered into a Transfer of Assets attached to the Land Contract with KHMV for the proposed transfer of its land use rights and factory to KHMV for a total cash consideration of VND 112,888,000,000 (Vietnam Dong One Hundred and Twelve Billion Eight Hundred and Eighty-eight Million) only or equivalent to RM 20.0 million approximately (the “Transfer Price”) (hereinafter referred to as the “Proposed Transfer”).

Information on KHIV

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KHIV is a corporation incorporated in Vietnam and is principally engaged in sheet metal forming, precision machining, manufacturing and fabrication of tools and dies and assembly of components, and sub-leasing of unused factory and warehouses. KHIV is a wholly-owned subsidiary of the Company.

Information on KHMV

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KHMV is a corporation incorporated in Vietnam and is principally engaged in sheet metal forming, precision machining and assembly of components for electronic, automotive and other industries.

The Company owns 75% of KHMV equity while the balance of 25% equity is owned by Mr Shingo Muramoto. Mr Shingo Muramoto is a Director and major shareholder of KHMV.

Information on the Land Use Rights and Factory

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The original costs of investment of the land use rights and factory were as follows:-

In conjunction with the Proposed Transfer, KHIV and KHMV will enter into various agreements with VSIP Hai Phong Co., Ltd (the “Lessor”) respectively as detailed below:

1. Tri-Party Agreement (between KHIV, KHMV and the Lessor)
2. Termination Agreement (between KHIV and the Lessor)
3.  Land Sublease Agreement (between KHMV and the Lessor)

In accordance with the above agreements, KHIV will also terminate the land sublease for the second vacant industrial land as detailed in the following table (the “2nd Land”) and surrender it back to the Lessor, and in turn the Lessor will sub lease and hand over the 2nd Land to KHMV. The Lessor will refund KHIV the balance prepaid lease payment which were fully paid by KHIV in previous years up to the signing date of the Termination Agreement, and KHMV will pay the exact same amount of prepaid lease payment to the Lessor upon signing of the new Land Sublease Agreement for the land use rights of the 2nd Land up to 2058.

Rationale

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KHMV’s branch namely KHMV Hai Phong Branch currently rents the factory of KHIV for its manufacturing business. In view of KHMV Hai Phong Branch’s business expansion plan, it will require additional production floors and warehouse space in the next 5-years. On the other hand, KHIV has decided to pull out from its manufacturing projects which it has not commenced yet in order not to directly compete with KHMV as both KHIV and KHMV are subsidiary companies of the Company and they are engaged in the same manufacturing business with common customers.

Percentage ratio of the Proposed Transfer

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Not applicable.

Financial Effect

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The Proposed Transfer does not have any effect on the issued and paid-up share capital of KHIB or the shareholdings of its major shareholders, and does not have any material effect on earnings per share, gearing and net assets per share of the Group.

Additional financial information at KHIV company level:-

(Note: The gain on disposal of the land use rights and factory will be eliminated on consolidation at the Group level.)

Approvals Required

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The Proposed Transfer is not subject to the approval of the shareholders of KHIB or any regulatory authorities.

Source of Funding and the Expected Completion Date

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The consideration was based on fair value which is determined by an external, independent and qualified valuer in Vietnam. The Proposed Transfer would be financed by internally generated funds and/or borrowings of KHMV.

The Proposed Transfer shall be completed upon fulfillment of all the following conditions precedent (the “Completion Date”):

1. KHIV has obtained necessary approvals and/or consents allowing KHIV to execute the Transfer of Assets attached to the Land Contract, including without limitation to approvals and/or consents from the bank, the Lessor and KHIV;
2. KHMV has obtained necessary internal approvals and/or consents allowing KHMV to execute the Transfer of Assets attached to the Land Contract; and
3. The following agreements have been duly signed:

              (i)   Tri-Party Agreement between KHIV, KHMV and the Lessor;

              (ii)  Termination Agreement to the Land Sublease Agreement between KHIV and the Lessor; and 

              (iii)  Land Sublease Agreement between KHMV and the Lessor.

The payment of the Transfer Price shall be made by KHMV to KHIV in two (2) instalments as follows:

• First (1st) instalment: 10% of the Transfer Price, VND 11,288,800,000 or equivalent to RM 2.0 million approximately shall be paid within seven (7) working days from the signing date of the Transfer of Assets attached to the Land Contract.
• Second (2nd) instalment: 90% of the Transfer Price, VND 101,599,200,000 or equivalent to RM 18.0 million approximately shall be paid within ninety (90) working days from the Completion Date.

No liability will be assumed by the Company arising from the Proposed Transfer.

Interest of Directors, Major Shareholders and Persons Connected to Them

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To the best of the knowledge of the Directors of KHIB, none of the Directors and/or Major Shareholders of KHIB or persons connected with them, have any interest, direct or indirect, in the Proposed Transfer.

Statement by Audit and Risk Management Committee and Board of Directors  

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The Audit and Risk Management Committee has considered all aspects of the Proposed Transfer and is of the opinion that the transaction is fair, reasonable, on normal commercial terms and not detrimental to the interest of the minority shareholders and that the Proposed Transfer is in the best interest of the Group.

The Board of Directors concurred with the Audit and Risk Management Committee's opinion and agreed that the Proposed Transfer is in the best interest of the Group.

This Announcement is dated 24 February 2020.