1. INTRODUCTION

The Board of Directors of Kossan Rubber Industries Bhd. (“Kossan” or “Company”) (“Board”) wishes to announce that IQ had on 15 January 2020 entered into a conditional sale and purchase agreement (“SPA”) with LSP for the disposal of the vacant freehold industrial land measuring approximately 390,397 sq. metres (4,202,194.27 sq.ft) (“Land”) in the District of Kuala Langat, State of Selangor for a total cash consideration of RM 147,749,148.00.

2. DETAILS OF THE PROPOSED DISPOSAL

2.1 Proposed disposal

The proposed disposal involves the disposal by the Vendor to the Purchaser of the Land on a “as is where is basis” free from all encumbrances with vacant possession and subject to the category of land use and all restrictions and conditions of title to the Land, whether expressed or implied, in the document of title and upon the terms and conditions of the SPA.

2.2 Information on the Land

2.3 Method of valuation

In arriving at the Market Value of the Land, the Valuer used the Comparison Approach of Valuation.

2.4 Salient terms of the SPA

2.4.1   Special Condition

a) In consideration of the Purchaser entering into the SPA, the Vendor grants the Purchaser an exclusive and irrevocable option to elect whether to proceed with the SPA (“Option”). The Option is exercisable in writing within a period of 10 months (“Election Period”) from the date of the SPA.

b) In the event the Purchaser elects to proceed with the SPA, the date the Vendor’s solicitor receives the notice of election is the Election Date.

c) The Purchaser shall as soon as reasonably practicable after the Election Date proceed to apply for section 433B Consent.

d) In the event the Purchaser elects not to proceed with the SPA, the Vendor shall be entitled to forfeit absolutely a sum of RM5 million from the Deposit Sum as agreed liquidated damages.

2.4.2 Conditions Precedent

The completion of the SPA is subject to the following conditions precedent being fulfilled within 3 months or such extended period as the parties may agree from the Election Date:-

a) the Purchaser having obtained the written approval of the State Authority of Selangor (“Section 433B Consent”); and

b) if required, the Purchaser having obtained the Government of Malaysia’s Economic Planning Unit’s (“EPU”) approval pursuant to the “Guidelines on the Acquisition of Properties 2014” for the acquisition of the Land or the letter from EPU confirming that EPU’s approval is not required (“EPU Confirmation”).

c) The SPA shall become unconditional upon fulfillment of the conditions precedent.

2.4.3 Payment of the Purchase Price

2.4.3.1 The Purchase Price shall be paid by the Purchaser in the following manner:-

a) a sum of RM2,000,000.00, being the earnest deposit (“Earnest Deposit”) shall be paid to the Vendor within 3 working days from the execution of the SPA;

b) a sum of RM12,774,914.80, being the balance deposit sum (“Balance Deposit Sum”) shall be paid within 7 working days from the execution of the SPA;

c) a sum of RM132,974,233.20, being the balance purchase price (“Balance Purchase Price”) shall be paid within 2 months from the Election Date “Completion Period”).

2.4.3.2   In the event that the Purchaser fails to pay the Earnest Deposit within 3 working days from the execution of the SPA, the Vendor shall be entitled to terminate the SPA with neither party having any claims against each other.

2.4.3.3   In the event the Purchaser is unable to pay the Balance Deposit Sum, the Vendor shall grant the Purchaser an extension of 7 working days with interest at 6% per annum, calculated daily. If the Purchaser fails to pay the Balance Deposit Sum and the late payment interest within 14 working days from the date of execution of SPA, the Vendor is entitled to terminate the SPA and forfeit the Earnest Deposit.

2.4.3.4   In the event the Purchaser is unable to pay the Balance Purchase Price by the expiry of the Completion Period, the Vendor shall grant the Purchaser an extension of 1 month (“Extended Completion Period”) subject to the Purchaser paying an interest at 6% per annum, calculated daily for the whole of the Extended Completion Period. If the Purchaser fails to pay the Balance Purchase Price by the expiry of the Completion Period or Extended Completion Period, as the case may be, the Vendor shall be entitled to terminate the SPA and forfeit the Deposit as agreed liquidated damages.

2.4.4      Application for transfer

a) In the event the conditions precedent cannot be fulfilled within 3 months from the Election Date or within such extension period mutually agreed by both the Vendor and the Purchaser, the SPA shall automatically be terminated and of no effect and neither party shall have any claims whatsoever nature against each other except for antecedent breaches.

b) In the event the conditions precedent cannot be fulfilled solely and directly as a result of the Purchaser not obtaining the requisite approval from the Department of Environment and/or the issue of manufacturing licence, a sum of RM5 million shall be forfeited by the Vendor as agreed liquidated damages.

2.4.5 Completion of SPA

The completion of the SPA shall take place upon the receipt of the Balance Purchase Price and the late payment interest, if any, by the Vendor’s solicitor, provided all conditions precedent have been fulfilled (“Completion”).

2.5 Basis of Disposal

The disposal consideration was arrived at on a willing buyer willing seller basis after taking into account the following:

a) the Net Book Value of the Land of RM 96,697,695 based on the latest audited consolidated financial statements of Kossan at 31 December 2018; and

b) the market valuation of the land carried out by Raine & Horne International Zaki + Partners Sdn. Bhd. (“Valuer”), an independent firm of registered valuer appointed by the Vendor. The Valuer had vide its valuation certificate dated 3 January 2020 (“Valuation Certificate”) assessed the market value of the land at RM145,000,000.

2.6 Information on the Vendor

IQ was incorporated as a private limited company in Malaysia under the Companies Act 1965 on 7 October 1996. IQ is principally involved in the manufacture and sale of examination gloves.

IQ has an issued share capital of RM500,000.00 comprising 500,000 ordinary shares.

The directors of IQ are Messrs. Lim Kuang Yong and Lim Leng Bung.

2.7 Information on the Purchaser

Liansheng Paper (Malaysia) Sdn. Bhd. (“LSP”) was incorporated as a private limited company in Malaysia under the Companies Act 2016 on 19 December 2019. LSP is principally involved in the manufacture of pulp, paper and paperboard.

As at 14 January 2020, being the latest practicable date prior to this announcement (“LPD”) its issued share capital is RM 1.00 comprising of 1 ordinary share hold by Fan Lele.

As at the LPD the directors of LSP are Lee Shuk Yee and Fan Lele.

2.8 Original cost and date of investment

The Land was acquired on 30/8/2017 for RM95,987,817.

2.9 Liabilities to be assumed by Purchaser

The Purchaser shall not be liable for and all liabilities in connection with the Proposed Disposal.

3. RATIONALE FOR THE DISPOSAL

The Board is constantly evaluating the long term strategies of the gloves business of the Company and its subsidiaries. This includes assessing the ways which the Company can maximize its business operations with a view to improve efficiency, reduce duplicating operating expenses and achieving synergistic savings.

Towards this objective the Group had on 12/3/2018 acquired 2 pieces of leasehold industrial land measuring about 824 acres in Bidor, Perak with a view to consolidate/centralise all future business expansion to this site.

The Proposed Disposal provides an opportunity for Kossan to unlock and realize the value of the Land, which is currently not economically utilised and the funds so raised will be utilised to hasten the development of the Bidor land. The Proposed Disposal appears to be an attractive offer, the acceptance is in line with the Company’s objective to enhance shareholders value.

4. PROPOSED UTILISATION OF PROCEEDS

The disposal proceeds to be generated from the Proposed Disposal will be utilised for working capital purposes and defray expenses incidental to the Proposed Disposal including real property gains tax and professional fees.

5. RISKS  FACTORS

5.1 Completion Risk                                                              

The completion of the Proposed Disposal is subject to fulfillment of the conditions precedent to the SPA. In the event any of these conditions is not fulfilled, the SPA will terminate and Kossan will not be able to complete the Proposed Disposal. Notwithstanding this, the Company will take all reasonable steps to ensure the fulfillment of the conditions precedent for the purpose of completing the Proposed Disposal.

6. EFFECTS OF THE PROPOSED DISPOSAL

6.1 Issued share capital and substantial shareholders’ shareholding

The Proposed Disposal will not have any effect on the issued share capital and substantial shareholders’ shareholding of Kossan.

6.2  Net Assets (“NA”), Gearing and Earnings

Upon the completion of the Proposed Disposal, it is expected to result a net gain of approximately RM 35.4 million. The proforma effects of the Proposed Disposal on the NA per share, gearing and earnings per share of Kossan, based on the latest audited consolidated financial statements as at 31 December 2018 are set out below:-

7. APPROVALS REQUIRED

The Proposed Disposal is subject to the following approval being obtained by:

a) Purchaser

i) Selangor State Authority pursuant to Section 433B of the National Land Code 1965 for the acquisition and transfer of the Land.

ii) the approval of the EPU for the acquisition of the Land, if required.

b) Vendor and Purchaser

i) any other relevant authority and/or parties, if required.

8. INTEREST OF DIRECTORS, MAJOR SHAREHOLDINGS AND/OR OTHER PERONS CONNECTED TO THEM

None of the Directors, major shareholders of the Company and or persons connected to them has any interest, directly or indirectly in the Proposed Disposal.

9. DIRECTORS’ STATEMENT

The Board, having considered all aspects of the Proposed Disposal, including but not limited to the certain terms of the SPA, the valuation of the land, the basis of the Proposed Consideration, rationale of the Proposed Disposal and the financial effects of the Proposed Disposal, is of the opinion that the Proposed Disposal is in the best interest of the Company and is not detrimental to the interest of the shareholders of the Company.

10. HIGHEST PERCENTAGE RATIO

Based on the Disposal Consideration and Kossan’s audited consolidated financial statements for year end 31 December 2018, the highest ratio applicable to the Proposed Disposal pursuant to Paragraph 10.02(g) is 11.01%. The Proposed Disposal does not required the approval of Kossan’s shareholders.

11. ESTIMATED TIME FRAME FOR SUBMISSION TO RELEVANT AUTHORITIES AND COMPLETION

The applications to the relevant authorities in relation to the Proposed Disposal are expected to be made after the Purchaser has elected to proceed with the SPA.

Baring unforeseen circumstances, the Proposed Disposal is expected to be completed by the first quarter of 2021.

12. DOCUMENTS AVAILABLE FOR INSPECTION

The following documents are available for inspection at the Registered Office of the company at Wisma Kossan, Lot 782, Jalan Sungai Putus, Off Batu 3 3/4, 42100 Klang, Selangor Darul Ehsan during normal business hours from Monday to Friday (except public holidays) for a period of 3 months from the date of the announcement.

a) SPA for the Proposed Disposal dated 15 January 2020; and

b) Valuation Certificate dated 3 January 2020 prepared by Raine & Horne International Zaki + Partners Sdn. Bhd. in relations to the valuation of the Land.

This announcement is dated 16 January 2020.