Boustead Heavy Industries Corporation Berhad Circular 12-03...BOUSTEAD HEAVY INDUSTRIES CORPORATION BERHAD (Company No. 11106-V) (Incorporated in Malaysia) BOUSTEAD HEAVY INDUSTRIES

(Company No. 11106-V)

(Incorporated in Malaysia under the Companies Act, 1965)

CIRCULAR TO SHAREHOLDERS

IN RELATION TO THE

PART A

PROPOSED RENEWAL OF THE 2011 SHAREHOLDERS’ MANDATE AND PROPOSED ADDITIONAL SHAREHOLDERS’ MANDATE FOR RECURRENT RELATED PARTY TRANSACTIONS OF A REVENUE OR TRADING NATURE

PART B

PROPOSED PROVISION OF FINANCIAL ASSISTANCE BY BOUSTEAD HEAVY

INDUSTRIES CORPORATION BERHAD GROUP TO PYROTECHNICAL ORDNANCE MALAYSIA SDN BHD, A NEWLY INCORPORATED ASSOCIATE

COMPANY THAT WILL BE 49% OWNED BY BHIC DEFENCE TECHNOLOGIES SDN BHD

The resolutions pertaining to the above proposals are set out in the Notice of the Company’s Fortieth Annual General Meeting which is attached in the enclosed Annual Report. The Fortieth Annual General Meeting is to be held at 4th Floor, Menara Boustead, 69 Jalan Raja Chulan, 50200 Kuala Lumpur on Thursday, 5 April 2012 at 10.00 a.m. A Form of Proxy is set out in the Annual Report of Boustead Heavy Industries Corporation Berhad for the financial year ended 31 December 2011. You are urged to complete and deposit the Form of Proxy at the Company’s Registered Office at 17th Floor, Menara Boustead, 69 Jalan Raja Chulan, 50200 Kuala Lumpur, not later than 48 hours before the time of the meeting. The return of the completed Form of Proxy will not preclude you from attending and voting in person at the meeting should you subsequently wish to do so. Last date and time for lodging the Form of Proxy : 3 April 2012 at 10.00 a.m. Date and Time of the Fortieth Annual General Meeting : 5 April 2012 at 10.00 a.m.

This Circular is dated 12 March 2012

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION If you are in any doubt as to the course of action you should take, you should consult your stockbroker, bank manager, solicitor, accountant or other professional adviser immediately. Bursa Malaysia Securities Berhad takes no responsibility for the contents of this Circular, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this Circular.




IN RELATION TO THE

PART A


PART B










IN RELATION TO THE

PART A


PART B










IN RELATION TO THE

PART A


PART B










IN RELATION TO THE

PART A


PART B







Boustead Heavy Industries Corporation Berhad

i

DEFINITIONS:

Except where the context otherwise requires, the following definitions shall apply throughout this Circular:- (Words importing the singular shall, where applicable, include the plural and vice versa and words importing the masculine gender shall, where applicable, include the feminine and neuter genders and vice versa. Reference to persons shall include corporations.)

“The Act” : Companies Act, 1965 as amended from time to time and any re-enactment thereof.

“AGM” : Annual General Meeting.

“BDT” : BHIC Defence Techservices Sdn Bhd (456291-H), a wholly-owned subsidiary of BHICDT, involved in maintenance and services for arsenal, missiles and other defence related products.

“BEAT” : BHIC Electronics and Technologies Sdn Bhd (623530-W), a wholly owned subsidiary of BHICDT, involved in maintenance and services for defence weapons and related products.

“BHB” or “Boustead” : Boustead Holdings Berhad (3871-H).

“BHIC” or “the Company” : Boustead Heavy Industries Corporation Berhad (11106-V)

“BHICDT” : BHIC Defence Technologies Sdn Bhd (392096-U), a wholly-owned subsidiary of BP Shipyard, which is an investment holding company.

“BHIC Group” or “Group” : BHIC and its subsidiaries and associate companies.

“BHIC Navaltech” : BHIC Navaltech Sdn Bhd (424968-A), a wholly owned subsidiary of BP Shipyard, involved in the in-service support of vessels including maintenance, services and supply of spare parts.

“BHIC Petroleum” : BHIC Petroleum Sdn Bhd (641207-V), a wholly-owned subsidiary of BHIC, involved in engineering services for the oil and gas industry and ship chartering.

“Board” : The Board of Directors of BHIC.

“BP Shipyard” : Boustead Penang Shipyard Sdn Bhd (11795-W), a wholly-owned subsidiary of BHIC, involved in heavy engineering, ship repair and shipbuilding, fabrication of steel structures and platforms, marine engineering, oil and gas fabrication, hook up and commissioning.

“Bursa Securities” : Bursa Malaysia Securities Berhad.

“CCM” : Companies Commission of Malaysia.

“DDI” : Dominion Defence & Industries Sdn Bhd (192736-W), a wholly-owned subsidiary of BP Shipyard, involved in supply and services of marine and naval defence related products.

i

ii

DEFINITIONS (cont’d):

“Director” : Shall have the meaning given in Section 4 of the Act and for the purpose of the Proposals includes any person who is or was within the preceding 6 months of the date on which the terms of the transaction were agreed upon, a Director of BHIC (or any other company which is its subsidiary or holding company or a Chief Executive Officer of BHIC, its subsidiary, or holding company).

“Listing Requirements” : Listing Requirements of Bursa Securities as amended from time to time and any re-enactment thereof.

“LTAT” : Lembaga Tabung Angkatan Tentera, a statutory body established under the Tabung Angkatan Tentera Act, 1973.

“Major Shareholder” : A person who has an interest or interests in one or more voting shares in a company and the nominal amount of that share, or the aggregate of the nominal amounts of those shares, is :-

a) equal to or more than 10% of the aggregate of the nominal amounts of all the voting shares in the company; or equal to or more than 5% of the aggregate of the nominal amounts of all the voting shares in the company where such person is the largest shareholder of the company.

For the purpose of this definition, “interest in shares” shall have the meaning given in section 6A of the Companies Act 1965.

“PMSB” : Prokhas Managers Sdn Bhd (848467-U)

“POM” : Pyrotechnical Ordnance Malaysia Sdn Bhd (946525-W).

“Proposals” : Proposed Renewal of Shareholders’ Mandate and Proposed Additional Shareholders’ Mandate.

“Proposed Additional Shareholders’ Mandate”

: Proposed new shareholders’ mandate for the BHIC Group to enter into Recurrent Related Party Transactions.

“Proposed Provision of Financial Assistance”

: Proposed provision of financial assistance by BHIC Group to POM

“Proposed Renewal of Shareholders’ Mandate”

: Proposed renewal of the 2011 Shareholders’ Mandate.

“Person Connected ” : Shall be as defined in Chapter 1 of the Listing Requirements.

“Recurrent Related Party Transaction”

: A recurrent related party transaction of a revenue or trading nature which is necessary for day to day operations and is entered into by the Company or its subsidiaries in the ordinary course of business which involves the interest, direct or indirect, of a Related Party.

“Related Party ” : A Director, Major Shareholder or a Person Connected with such Director or Major Shareholder.

“RM” and “sen” : Ringgit Malaysia and sen, respectively.

“2011 Shareholders’ Mandate” : The shareholders’ mandate obtained on 6 April 2011 for the BHIC Group to enter into Recurrent Related Party Transactions.

ii

iii

CONTENTS PART A - CIRCULAR TO SHAREHOLDERS IN RELATION TO THE PROPOSED RENEWAL OF THE 2011 SHAREHOLDERS’ MANDATE AND PROPOSED ADDITIONAL SHAREHOLDERS’ MANDATE FOR RECURRENT RELATED PARTY TRANSACTIONS OF A REVENUE OR TRADING NATURE Page 1. INTRODUCTION 22. PROPOSED SHAREHOLDERS’ MANDATE 33. STATEMENT BY AUDIT COMMITTEE 164. RATIONALE AND BENEFIT 165. CONDITION OF THE PROPOSALS 176. FINANCIAL EFFECT OF THE PROPOSALS 177. DIRECTORS’ AND MAJOR SHAREHOLDERS’ INTEREST 178. DIRECTORS’ RECOMMENDATION 189. AGM 1810. FURTHER INFORMATION 18

PART B - CIRCULAR TO SHAREHOLDERS IN RELATION TO THE PROPOSED PROVISION OF FINANCIAL ASSISTANCE Page 1. INTRODUCTION 202. DETAILS OF THE PROPOSED PROVISION OF FINANCIAL ASSISTANCE 203. RATIONALE AND BENEFITS 234. MALAYSIA DEFENCE INDUSTRY 235. RISK FACTORS OF THE PROPOSED PROVISION OF FINANCIAL

ASSISTANCE 24

6. APPROVAL REQUIRED 247. FINANCIAL EFFECTS OF THE PROPOSED PROVISION OF FINANCIAL

ASSISTANCE 24

8. OUTSTANDING CORPORATE EXERCISES 259. DIRECTORS’ AND/OR MAJOR SHAREHOLDERS’ INTERESTS 2510. DIRECTORS’ RECOMMENDATION 2511. ESTIMATED TIME FRAME FOR COMPLETION 2612. AGM 2613. FURTHER INFORMATION 26 APPENDIX I – INFORMATION ON POM APPENDIX II – FURTHER INFORMATION

27 28

iii

1

PART A

PROPOSED RENEWAL OF THE 2011 SHAREHOLDERS’ MANDATE AND PROPOSED

ADDITIONAL SHAREHOLDERS’ MANDATE FOR RECURRENT RELATED PARTY

TRANSACTIONS OF A REVENUE OR TRADING NATURE

1

2

BOUSTEAD HEAVY INDUSTRIES CORPORATION BERHAD (Company No. 11106-V)

(Incorporated in Malaysia)

Registered Office: 17th Floor, Menara Boustead

69 Jalan Raja Chulan 50200 Kuala Lumpur

12 March 2012

Board of Directors: Y. Bhg Tan Sri Dato’ Che Lodin Bin Wok Kamaruddin (Chairman) Y. Bhg Laksamana Madya Tan Sri Dato’ Seri Ahmad Ramli Bin Haji Mohd Nor (B) (Executive Deputy Chairman/Managing Director) Mr. David William Berry (Non-Independent/Executive Director) Y. Bhg Datuk Azzat Bin Kamaludin (Non-Independent/Non-Executive Director) Y. Bhg Dato’ Ishak Bin Osman (Independent/Non-Executive Director) En. Abd Malik Bin A Rahman (Independent/Non-Executive Director) To: The Shareholders of BOUSTEAD HEAVY INDUSTRIES CORPORATION BERHAD Dear Sir/Madam BOUSTEAD HEAVY INDUSTRIES CORPORATION BERHAD PROPOSED RENEWAL OF THE 2011 SHAREHOLDERS’ MANDATE AND PROPOSED ADDITIONAL SHAREHOLDERS’ MANDATE FOR RECURRENT RELATED PARTY TRANSACTIONS OF A REVENUE OR TRADING NATURE 1. INTRODUCTION

In accordance with Part E, Chapter 10.09 of the Listing Requirements, the Company has obtained the 2011 Shareholders’ Mandate to enter into Recurrent Related Party Transactions at the Company’s Annual General Meeting on 6 April 2011.

The 2011 Shareholders’ Mandate shall, in accordance with the Listing Requirements, lapse at the conclusion of the forthcoming AGM unless authority for its renewal is obtained from the shareholders of the Company at the AGM. Accordingly, on 23 February 2012 the Company announced to the Bursa Securities its intention to seek shareholders’ approval on the Proposals at the forthcoming AGM. The purpose of this Circular is to provide you with the relevant information pertaining to the Proposals and to seek shareholders’ approval on the ordinary resolution thereto to be tabled at the forthcoming AGM, which will be held on 5 April 2012 at 10.00 a.m. or any adjournment thereof. The notice of the AGM is enclosed in the 2011 Annual Report of the Company.

2

3

2. PROPOSED SHAREHOLDERS’ MANDATE

2.1 Details Of The Proposals

Provisions under the Listing Requirements Pursuant to Part E, Chapter 10.09 of the Listing Requirements, a listed issuer with an issued and paid-up capital of RM60 million and above must immediately announce a Recurrent Related Party Transaction as follows:- i) the consideration, value of assets, capital outlay or costs of the Recurrent Related

Party Transactions is RM1 million or more; or

ii) the percentage ratio of such Recurrent Related Party Transaction is 1% or more, whichever is the higher. Transactions entered between a listed issuer (or any of its wholly-owned subsidiaries) and its wholly-owned subsidiary is excluded from the requirements of Part E, Chapter 10.09 of the Listing Requirements. Paragraph 2.4 of Practice Note 12 states that where a listed issuer has obtained a shareholders’ mandate in respect of any Recurrent Related Party Transaction, the above disclosure obligation will not apply to the Recurrent Related Party Transactions which are comprised in the mandate. Accordingly, the Company proposes to seek approval on the Proposed Renewal of Shareholders’ Mandate from its shareholders for BHIC Group to enter into transactions with the Related Parties which are of a revenue or trading nature and necessary for its day to day operations, on terms not more favourable to the Related Parties than those generally available to the public and are not detrimental to the minority shareholders. Paragraph 3.1.4 of Practice Note 12 states that a shareholders’ mandate is subject to annual renewal and any authority conferred by a shareholders’ mandate will continue to be in force until:- (a) the conclusion of the first AGM of the listed issuer following the general meeting at

which such shareholders’ mandate was passed, at which time it will lapse, unless by a resolution passed at the meeting, the authority is renewed; or

(b) the expiration of the period within which the next AGM after that date is required to

be held pursuant to Section 143(1) of the Act (but must not extend to such extension as may be allowed pursuant to Section 143(2) of the Act); or

(c) revoked or varied by a resolution passed by the shareholders in a general meeting; whichever is the earlier. In addition to the Proposed Renewal of Shareholders’ Mandate of which the applicable Recurrent Related Party Transactions are specified in Section 2.3.1 herein, the Company will be entering into new Recurrent Related Party Transactions as set out in Section 2.3.2. Accordingly, the Company proposes to seek approval on the Proposed Additional Shareholders’ Mandate at the forthcoming AGM.

3

4

The Proposals, if approved, shall take effect from the date of the passing of the Ordinary Resolution relating thereto at the AGM and will continue to be in force until the conclusion of the next AGM of the Company or until the expiration of the period within which the next AGM is required by law to be held unless revoked or varied by the Company in a general meeting, whichever is the earlier.

2.2 Classes of Related Party The principal activity of the Company is investment holding. The holding company of BHIC is Boustead Holdings Berhad, a conglomerate with diverse

business operations and listed on the Bursa Securities’ Main Board. BHB has interest in plantations including plantation management, financial services and investment, property development and construction, heavy industries, trading, manufacturing and services, pharmaceutical and education services. BHB owns 65% equity interest in the Company as at 29 February 2012.

The holding corporation of BHB is Lembaga Tabung Angkatan Tentera, a local statutory

body established by the Tabung Angkatan Tentera Act, 1973, which owns 61.36% of the issued and paid-up share capital of BHB as at 29 February 2012. LTAT also owns 8.15% of the issued and paid-up capital of BHIC as at 29 February 2012. The Proposals will apply to the following Related Parties (the effective interest is as at 29 February 2012):- I. SUBSIDIARIES NOT WHOLLY OWNED BY BHIC Related Party

Principal Activities

BHIC’s Effective Interest (%)

1. Atlas Defence Technology

Sdn Bhd (“ADT”)

Supply of electronics and

systems technology to defence related industry

70

(a subsidiary of BHICDT)

2. BHIC Bofors Asia Sdn Bhd

(“BHIC Bofors”)

Providing, supplying and

servicing BOFORS weapons systems

51


3. BYO Marine Sdn Bhd

(“BYO Marine”)

Construction of vessels

51


4. Contraves Advanced

Devices Sdn Bhd (“CAD”)

Manufacturing of electronic

products

51


4

5

II. BHIC’S ASSOCIATES Related Party


BHIC’s Effective Interest (%)

1. Boustead Naval Shipyard

Sdn Bhd (“BN Shipyard”)

Construction, repair and

maintenance of naval ships, weapons and electronics, design and engineering,

fabrication of steel structures and commercial shipbuilding.

20.76

2. Boustead Yachts Sdn Bhd

(“Boustead Yachts”)

Repair and maintenance of vessels, boats and yachts

20.76

(a wholly-owned subsidiary of BN Shipyard)

3. Boustead Langkawi

Shipyard Sdn Bhd (“BL Shipyard”)

Repair and maintenance of

boats and yachts

20.76

(99.99% owned by BN Shipyard)

III. BHB’S SUBSIDIARY Related Party


BHB’s Effective Interest (%)

1. Boustead Engineering Sdn

Bhd (“BESB”)

Engineering equipment &

chemical distributor

100

2.3 Nature of Recurrent Related Party Transactions and Estimated Values It is anticipated that the Group would, in the normal course of business, enter into transactions

with the Related Party set out in section 2.2 above. The shareholdings of BHIC and other interested parties in the Related Party are also set out in section 2.2 above. It is likely that such transactions will occur with some degree of frequency and could arise at any time.

For transactions with a Related Party where office rental is paid or received, the transactions

are in compliance with Paragraph 3.2(c) of Practice Note 12 of the Listing Requirements, that is the lease period does not exceed three years and does not involve payments of rental on a lump sum basis.

5

6

2.3.1 Existing Recurrent Related Party Transactions Existing Recurrent Related Party Transactions for which approval is now being sought for the Proposed Renewal of Shareholders’ Mandate at the forthcoming AGM are as follows : - Related Party

Nature of Transactions

Interested Directors

(I-Dir) /Persons

Connected (P-C) /Interested

Major Shareholders

(IMS)

2012 Mandate

2011 Mandate

(A) Estimated value of

transaction pursuant to

2012 Mandate

(RM’000)

(B) Estimated value of

transaction disclosed in

2011 Mandate

(RM’000)

(C) Actual

value of transaction conducted

pursuant to 2011

Mandate [as at 29 February

2012] (RM’000)

Deviation between values in (B) and

(C)

(%)

I. BHIC’S ASSOCIATES - BHB has direct and indirect (via BHIC) interest - LTAT has direct and indirect (via BHB and BHIC) interest 1.

BN Shipyard

a) Provision of

ship building, ship repair works and provision of related services by BP Shipyard

b) Provision of ship repair works and related services by BDT

c) Provision of ship repair works and related services by ADT

d) Sale of equipment and machinery for ship related activities by DDI

I-Dir

LWK (Note 1) ARMN (Note 2) AK (Note 3) IMS BHB#A LTAT#B

300,000

5,000

5,000

5,000

300,000

7,000

10,000

20,000

89,634.8

1,333.9

1,980.3

15,374.8

-70.1

-80.9

-80.2

-23.1

#A BHB holds 68.85% direct shareholding in BN Shipyard. BHB is deemed to have an interest in BN

Shipyard via its substantial shareholding in BHIC. BHB is deemed to have an interest in all subsidiaries of BHIC by virtue of its substantial shareholding in BHIC.

#B LTAT holds 10.38% direct interest in BN Shipyard. LTAT is indirectly interested in BN Shipyard via its substantial shareholding in BHB and BHIC. LTAT is deemed to have an interest in all subsidiaries of BHIC via its direct shareholding in BHB and direct and indirect shareholding in BHIC.

6




(I-Dir) /Persons


Major Shareholders

(IMS)

2012 Mandate

2011 Mandate



2012 Mandate

(RM’000)



2011 Mandate

(RM’000)

(C) Actual


pursuant to 2011


2012] (RM’000)


(C)

(%)


BN Shipyard

a) Provision of





I-Dir


300,000

5,000

5,000

5,000

300,000

7,000

10,000

20,000

89,634.8

1,333.9

1,980.3

15,374.8

-70.1

-80.9

-80.2

-23.1




6




(I-Dir) /Persons


Major Shareholders

(IMS)

2012 Mandate

2011 Mandate



2012 Mandate

(RM’000)



2011 Mandate

(RM’000)

(C) Actual


pursuant to 2011


2012] (RM’000)


(C)

(%)


BN Shipyard

a) Provision of





I-Dir


300,000

5,000

5,000

5,000

300,000

7,000

10,000

20,000

89,634.8

1,333.9

1,980.3

15,374.8

-70.1

-80.9

-80.2

-23.1




6

7

Existing Recurrent Related Party Transactions (cont’d) Related Party



(I-Dir) /Persons


Major Shareholders

(IMS)

2012 Mandate

2011 Mandate



2012 Mandate

(RM’000)



2011 Mandate

(RM’000)

(C) Actual


pursuant to 2011


2012] (RM’000)


(C)

(%) e) Provision of

ship repair works and related services by BHIC Bofors

f) Provision of ship repair works and related services by BHIC Navaltech

g) Provision of ship repair works and related services by BEAT

h) Purchase of materials/ consumables in relation to ship repair works and related services by BDT

i) Purchase of materials/ consumables in relation to ship repair works and related services by BHIC Navaltech

j) Purchase of materials/ consumables in relation to ship repair works and related services by BEAT

4,000

50,000

15,000

(2,500)

(25,000)

(7,500)

4,000

60,000

20,000

(3,000)

(25,000)

(7,000)

1,404.3

15,285.1

18,761.1 - -

-

-64.9

-74.5

-6.2

-100

-100

-100

7




(I-Dir) /Persons


Major Shareholders

(IMS)

2012 Mandate

2011 Mandate



2012 Mandate

(RM’000)



2011 Mandate

(RM’000)

(C) Actual


pursuant to 2011


2012] (RM’000)


(C)

(%) e) Provision of

ship repair works and related services by BHIC Bofors

f) Provision of ship repair works and related services by BHIC Navaltech

g) Provision of ship repair works and related services by BEAT

h) Purchase of materials/ consumables in relation to ship repair works and related services by BDT

i) Purchase of materials/ consumables in relation to ship repair works and related services by BHIC Navaltech

j) Purchase of materials/ consumables in relation to ship repair works and related services by BEAT

4,000

50,000

15,000

(2,500)

(25,000)

(7,500)

4,000

60,000

20,000

(3,000)

(25,000)

(7,000)

1,404.3

15,285.1

18,761.1 - -

-

-64.9

-74.5

-6.2

-100

-100

-100

7

8

Existing Recurrent Related Party Transactions (cont’d)

Related Party



(I-Dir) /Persons


Major Shareholders

(IMS)

2012 Mandate

2011 Mandate



2012 Mandate

(RM’000)



2011 Mandate

(RM’000)

(C) Actual


pursuant to 2011


2012] (RM’000)


(C)

(%) k) Provision of

ship building, ship repair works and provision of related services to BP Shipyard

l) Provision of ship repair works and provision of related services from CAD

(6,500)

8,000

(10,000)

5,000

(8,442.4)

2,939

-15.6

-41.2

2.

Boustead Yachts

Provision of services for construction of vessels to BYO Marine

I-Dir

LWK (Note 1) ARMN (Note 2) AK (Note 3) IMS BHB#C LTAT#D

-

(5,000)

-

-100

TOTAL

350,500

376,000

138,270.9

-63.2

#C BHB is deemed to have an interest in Boustead Yachts, a wholly- owned subsidiary of BN Shipyard via its

substantial shareholding in BN Shipyard and BHIC. BHB is deemed to have an interest in BYO Marine, via its substantial shareholding in BHIC.

#D LTAT is indirectly interested in Boustead Yachts via its direct shareholding in BHB and direct and indirect shareholding in BN Shipyard and BHIC. LTAT is deemed to have an interest in BYO Marine via its direct shareholding in BHB and direct and indirect shareholding in BHIC.

8


Related Party



(I-Dir) /Persons


Major Shareholders

(IMS)

2012 Mandate

2011 Mandate



2012 Mandate

(RM’000)



2011 Mandate

(RM’000)

(C) Actual


pursuant to 2011


2012] (RM’000)


(C)

(%) k) Provision of



(6,500)

8,000

(10,000)

5,000

(8,442.4)

2,939

-15.6

-41.2

2.

Boustead Yachts


I-Dir


-

(5,000)

-

-100

TOTAL

350,500

376,000

138,270.9

-63.2




8


Related Party



(I-Dir) /Persons


Major Shareholders

(IMS)

2012 Mandate

2011 Mandate



2012 Mandate

(RM’000)



2011 Mandate

(RM’000)

(C) Actual


pursuant to 2011


2012] (RM’000)


(C)

(%) k) Provision of



(6,500)

8,000

(10,000)

5,000

(8,442.4)

2,939

-15.6

-41.2

2.

Boustead Yachts


I-Dir


-

(5,000)

-

-100

TOTAL

350,500

376,000

138,270.9

-63.2




8

9




(I-Dir) /Persons


Major Shareholders

(IMS)

2012 Mandate

2011 Mandate



2012 Mandate

(RM’000)



2011 Mandate

(RM’000)

(C) Actual


pursuant to 2011


2012] (RM’000)


(C)

(%) II. BHB’S SUBSIDIARIES

- LTAT has indirect (via BHB) interest 1.

BESB

Provision of engineering services to BHIC Petroleum

I-Dir

LWK (Note 1) ARMN (Note 2) AK (Note 3) IMS BHB#E LTAT#F

-

(1,000)

-

-100

TOTAL

-

(1,000)

-

-100

GRAND TOTAL

350,500

375,000

138,270.9

-63.2

#E BESB is a wholly-owned subsidiary of BHB.

BHB is deemed to have an interest in BHIC Petroleum, a wholly-owned subsidiary of BHIC via its substantial shareholding in BHIC.

#F LTAT is indirectly interested in BESB via its substantial shareholding in BHB. LTAT is deemed to have an interest in BHIC Petroleum via its direct shareholding in BHB and direct and indirect shareholding in BHIC.

9




(I-Dir) /Persons


Major Shareholders

(IMS)

2012 Mandate

2011 Mandate



2012 Mandate

(RM’000)



2011 Mandate

(RM’000)

(C) Actual


pursuant to 2011


2012] (RM’000)


(C)



BESB


I-Dir


-

(1,000)

-

-100

TOTAL

-

(1,000)

-

-100

GRAND TOTAL

350,500

375,000

138,270.9

-63.2




9




(I-Dir) /Persons


Major Shareholders

(IMS)

2012 Mandate

2011 Mandate



2012 Mandate

(RM’000)



2011 Mandate

(RM’000)

(C) Actual


pursuant to 2011


2012] (RM’000)


(C)



BESB


I-Dir


-

(1,000)

-

-100

TOTAL

-

(1,000)

-

-100

GRAND TOTAL

350,500

375,000

138,270.9

-63.2




9

10

2.3.2 Additional Recurrent Related Party Transactions

Additional Recurrent Related Party Transactions for which approval is now being sought for the Proposed Additional Shareholders’ mandate at the forthcoming AGM are as follows:-

Related Party


Interested Directors (I-Dir) /Persons Connected (P-C) /Interested Major

Shareholders (IMS)

Estimated Income/ (Expenditure) during the validity of the Proposals

(RM’000) I. BHIC’S ASSOCIATES - BHB has direct and indirect (via BHIC) interest - LTAT has direct and indirect (via BHB and BHIC) interest 1.

BN Shipyard

Provision of subcontracting work on engineering of SETIS combat management system and integration of combat system equipment by CAD

I-Dir

LWK (Note 1) ARMN (Note 2) AK (Note 3) IMS BHB#G LTAT#H

500,000

2.

BL Shipyard

Provision of services for the construction of vessels to BYO Marine

(2,000)

TOTAL

498,000

#G BHB is deemed to have an interest in BN Shipyard and BL Shipyard, a subsidiary of BN Shipyard via its

substantial shareholding in BN Shipyard and BHIC. BHB is deemed to have an interest in BYO Marine and CAD, via its substantial shareholding in BHIC.

#H LTAT is indirectly interested in BN Shipyard and BL Shipyard via its direct shareholding in BHB and direct and indirect shareholding in BN Shipyard and BHIC. LTAT is deemed to have an interest in BYO Marine and CAD via its direct shareholding in BHB and direct and indirect shareholding in BHIC.

10



Related Party



Shareholders (IMS)



BN Shipyard


I-Dir


500,000

2.

BL Shipyard


(2,000)

TOTAL

498,000




10



Related Party



Shareholders (IMS)



BN Shipyard


I-Dir


500,000

2.

BL Shipyard


(2,000)

TOTAL

498,000




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Notes: 1. LWK - Y. Bhg Tan Sri Dato’ Che Lodin Bin Wok Kamaruddin. He is the Chief Executive of

LTAT, Deputy Chairman and Group Managing Director of BHB. He is also the Chairman of BHIC and BN Shipyard. As at 29 February 2012, he owns 28,612,758 BHB shares and 2,000,000 BHIC shares.

2. ARMN - Y. Bhg Laksamana Madya Tan Sri Dato’ Seri Ahmad Ramli Bin Haji Mohd Nor (B). He is the Executive Deputy Chairman and Managing Director of BHIC. He is also a director of BN Shipyard, BL Shipyard and CAD. As at 29 February 2012, he does not hold any shares in these companies except for 2,002,100 shares in BHIC.

3. AK - Y. Bhg Datuk Azzat Bin Kamaludin. He is a director of BHIC, BP Shipyard, BN Shipyard, BL Shipyard and BHB. As at 29 February 2012, he owns 44,000 BHB shares and 495,300 BHIC shares.

The abovementioned values of transactions are based on accounting records, and the estimated figures during the validity of the Proposals are based on management’s estimate (on the assumption that the current level of operations will continue and all external conditions remain constant) and are subject to changes, and that the next AGM will be held in April 2012. In view of the time-sensitive and frequent nature of such Recurrent Related Party Transactions, the Board is seeking the approvals on the Proposals which would allow the Group, in their normal course of business, to enter into Recurrent Related Party Transactions with the classes of Related Party set out above, provided such transactions are made at arm’s length and on normal commercial terms and are on terms not more favourable to the Related Party than those generally available to the public and are not to the detriment of the minority shareholders. Such Recurrent Related Party Transactions will be subject to the review procedures as set out in section 2.5 below.

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2.4 Outstanding Amount Due under the Recurrent Related Party Transactions

The breakdown of the principal sum (without interest) for the total outstanding amount due to the BHIC Group under the Recurrent Related Party Transactions which exceeded the credit term as at 31 December 2011 are as follows:- Related Party

Nature of

Transactions

Outstanding Amount (RM’000)

1 year or less More than 1 to 3 years

More than 3 to 5 years

More than 5 years

BN Shipyard

a) Provision of


b) Provision of ship repair works and related services by ADT

c) Provision of ship repair works and related services by BHIC Bofors


e) Provision of ship repair works and provision of related services from CAD

f) Provision of ship repair works and related services by BEAT

g) Provision of ship repair works and related services by BDT

h) Provision of ship repair works and related services by BHIC Navaltech

81,917

1,182

1,133

15,536

432

10,529

879

2,237

- - - - - - - -

- - - - - - - -

- - - - - - - -

TOTAL

113,845

-

-

-

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There were no late payment charges imposed by the Group on the above outstanding amounts as they were trade in nature. The Management has and will continuously meet and discuss with the debtor for early settlement of the outstanding amounts. The Board of Directors is of the opinion that there will be no recoverability issues as the debtor is a related party with a long-standing business relationship with the Group and has proven to be a creditworthy debtor with a good payment record.

2.5 Guidelines and Review Procedures for Recurrent Related Party Transactions To ensure that Recurrent Related Party Transactions are undertaken on the BHIC Group’s normal commercial terms, and to supplement the existing internal control procedures of the Group, the Audit Committee will be tasked with the review of the procedures of such transactions. The Audit Committee currently comprises:- - En. Abd Malik Bin A Rahman (Chairman) - Y. Bhg Datuk Azzat Bin Kamaludin - Y. Bhg Dato’ Ishak Bin Osman The following guidelines will apply to the review and approval of Recurrent Related Party Transactions to ensure that the terms of the Recurrent Related Party Transactions are fair, reasonable and on normal commercial terms; are not more favourable to the Related Party than those generally available to the public; are not detrimental to minority shareholders and are in the best interest of the Group:- o The Related Parties and interested Directors will be advised that they are subject to

the shareholders’ mandate and will also be advised of the review and disclosure procedures.

o Records will be maintained by the Company to capture all Recurrent Related Party

Transactions, which are entered into pursuant to the Proposals.

o The annual internal audit plan shall incorporate a review of the sufficiency and compliance of the guidelines and reviews procedures established to monitor Recurrent Related Party Transactions.

o The Board and the Audit Committee shall review the internal audit reports to ascertain that the guidelines and procedures established to monitor Recurrent Related Party Transactions have been complied with.

o Any member of the Audit Committee may, as he deem fit, request for additional

information pertaining to the transaction from independent sources or advisers, including obtaining of valuations from professional valuers.

o If a member of the Board or Audit Committee has an interest (direct or indirect) in

any Recurrent Related Party Transactions, he shall abstain from any decision making by the Board or Audit Committee in respect of such transactions and continue to abstain from voting on the resolutions approving the transactions.

o Should the Audit Committee during its review form an opinion that the Recurrent

Related Party Transactions are not being conducted in accordance with established terms and procedures and/or are not being conducted on an arm’s length basis and on normal commercial terms, or are detrimental to the interests of shareholders, it will advise the Board to convene a General Meeting of shareholders to seek a fresh shareholders’ mandate for the Recurrent Related Party Transactions.

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o The interested Director or interested Major Shareholder shall also ensure that the persons connected with him abstain from voting on the resolutions approving the transactions.

o At least 2 other contemporaneous transactions with unrelated third parties for similar

products/services and/or quantities will be used as comparison, wherever possible, to determine whether the price and terms offered to/by the related parties are fair and reasonable and comparable to those offered to/by other unrelated third parties for the same or substantially similar types of products/services and/or quantities. In the event the quotation or comparative pricing from unrelated third parties cannot be obtained (for instance, if there are no unrelated third party vendors/customers of similar products or services, or if the product/service is a proprietary item), the transaction price will be determined based on quotations, tenders and prices guided by the Original Equipments Manufacturers (OEMs) to ensure that the Recurrent Related Party Transactions are not detrimental to the BHIC Group. The management of BHIC shall retain a proper documentation to support the basis in arriving at the relevant transaction prices.

o There is no specific threshold for approval of the Recurrent Related Party

Transactions within the BHIC Group. All Recurrent Related Party Transactions are reviewed and approved by personnel of at least senior managerial level, provided always that such personnel has no interest in the transaction and the said transaction has been approved pursuant to shareholders’ mandate obtained in the general meeting for the Recurrent Related Party Transactions.

o All Recurrent Related Party Transactions which are not within the proposed mandate

and have a value of not less than RM1,000,000 or 1% of the percentage ratio (as defined under the paragraph 10.02(g) of the Listing Requirements), whichever is the higher, shall be reviewed by the Audit Committee and approved by the Board before the transactions are entered into.

The following are the commercial considerations which the BHIC Group takes into account before entering into transactions for the sale/supply of goods and provision of services, in the ordinary course of business:- The ability and track record of the purchaser to pay for the goods supplied or services

provided; and Whether past experience and the working relationship with the purchaser has been

satisfactory.

The following are the commercial considerations which the BHIC Group takes into account before entering into transactions for the purchase of goods or services from a vendor/service provider, in the ordinary course of business:-

The BHIC Group’s pricing for the goods to be provided or supplied and/or received

or purchased is negotiated between the BHIC Group and the Related Party based on the prevailing market prices as agreed with unrelated third parties;

The terms are no more favourable to the Related Party than those extended to

unrelated third parties and available to the public, and the Recurrent Related Party Transactions are not detrimental to minority shareholders;

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The transactions are provided after taking into account factors such as pricing, quality, delivery schedules and, where applicable, preferential rates, rebates or discounts accorded for bulk purchases, the terms offered are fair and reasonable and in the BHIC Group’s commercial interest;

The competitiveness in pricing; The standard and quality of the goods/services and whether it meets the requirements

of the BHIC Group; The responsiveness and level of services provided by the goods or service providers

and whether past experience and working relationship has been satisfactory; and The track record and competence of the goods or service provider and whether the

goods or service provider has sufficient resources to perform its obligations.

The BHIC Group would only enter into transactions with relevant parties based on the above criteria, regardless of whether or not the party is related.

2.6 Validity Period of the Proposals

If approved at the forthcoming AGM, the Proposals will take effect from the passing of the Ordinary Resolution relating thereto at the AGM and will continue to be in force until:-

(a) The conclusion of the next AGM of the Company following the general meeting at

which the authorisation is obtained, at which time it will lapse, unless by an Ordinary Resolution passed at the meeting, the authority is renewed either unconditionally or subject to conditions; or

(b) The expiration of the period within which the next AGM of the Company after this

date is required to be held pursuant to Section 143(1) of the Act (but must not extend to such extension as may be allowed pursuant to Section 143(2) of the Act); or

(c) Revoked or varied by resolution passed by the shareholders in a general meeting;

whichever is the earlier.

In view of the foregoing, at the next AGM following the AGM in which approval for the Proposals are obtained, and at each subsequent AGM the Board will seek shareholders’ approval for the renewal of the same, subject to satisfactory review by the Audit Committee of its continued application to the Recurrent Related Party Transactions. Transactions with any Related Parties which do not fall within the ambit of the Proposals will be subject to other applicable provisions of the Listing Requirements, the Act and/or any applicable law.

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2.7 Disclosure Disclosure has been made in the 2011 Annual Report of the Company of the aggregate value of transactions conducted pursuant to the 2011 Shareholders’ Mandate during the financial year ended 31 December 2011. Similar disclosure will be made in the Annual Report for the subsequent financial year during which the Proposals are in force by providing amongst others, the following:-

(a) The type of Recurrent Related Party Transactions made; and (b) The names of the Related Parties involved in each type of Recurrent Related Party

Transactions made and their relationship with the Company. 3. STATEMENT BY THE AUDIT COMMITTEE

The Audit Committee of the Company has seen and reviewed the procedures mentioned in section 2.5 above and is of the view that: 1. The procedures above are sufficient to ensure the terms of the Recurrent Related

Party Transactions are not more favourable to the Related Party than those generally available to the public and the Recurrent Related Party Transactions are not detrimental to minority shareholders and are in the best interest of the Group.

2. The BHIC Group has in place adequate procedures to monitor, track and identify the Recurrent Related Party Transactions in timely and orderly manner, and such procedures are reviewed on a yearly basis or whenever the need arises.

4. RATIONALE AND BENEFIT 4.1 The Proposals

The Proposals are intended to enhance the Group’s ability to pursue business opportunities, which are time-sensitive in nature, and will eliminate the need to announce, or to announce and convene separate general meetings on each occasion to seek shareholders’ prior approval for the entry, by the relevant company in the Group into such transactions. This will substantially reduce the expenses associated with the convening of general meetings on an ad hoc basis, considerably improve administrative efficacy, and allow manpower resources and time to be channelled towards attaining other corporate objectives.

4.2 The Benefit to the BHIC Group from Transacting With the Related Parties

The Recurrent Related Party Transactions entered into by the BHIC Group are intended to meet business needs at the best possible terms. The BHIC Group should be able to have access to all available markets and products and services provided by all vendors including its Related Parties. Transacting with its Related Parties also enhances the ability to explore beneficial business opportunities within the BHIC Group, which will be of benefit to all the companies within the BHIC Group. In most instances, companies within the BHIC Group have a better understanding of each other’s business needs, thus providing a platform where all parties can benefit from timely provision of products/services.

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5. CONDITION OF THE PROPOSALS

The Proposals are conditional upon the approval being obtained from the shareholders of BHIC at the forthcoming AGM.

6. FINANCIAL EFFECT OF THE PROPOSALS

The Proposals are not expected to have any effect on the issued and paid-up capital, earnings and net tangible assets of the BHIC Group.

7. DIRECTORS’ AND MAJOR SHAREHOLDERS’ INTEREST

The direct and indirect shareholding of the interested Major Shareholders, interested Directors of the Company and Persons Connected to them as at 29 February 2012, being the last practicable date prior to the Circular are as follows:- Name Direct Shareholding Indirect Shareholding

No of Shares

% No of Shares %

Interested Major Shareholders Boustead Holdings Berhad Lembaga Tabung Angkatan Tentera

161,497,448 20,250,000

65

8.15

-

161,497,448

-

65*1

Interested Directors Y. Bhg Tan Sri Dato’ Che Lodin Bin Wok Kamaruddin Y. Bhg Laksamana Madya Tan Sri Dato’ Seri Ahmad Ramli Bin Haji Mohd Nor (B) Y. Bhg Datuk Azzat Bin Kamaludin

2,000,000

2,002,100

495,300

0.8

0.8

0.2

-

25,200 -

-

0.01*2 -

*1 Deemed interest by virtue of its substantial shareholding in BHB *2 Deemed interest by virtue of his daughter, Rinnie Nor Ahmad Ramli who owns 11,200 shares in BHIC and

his son-in-law, Emil Renaldi Bin Sjaiful who owns 14,000 shares in BHIC Y. Bhg Tan Sri Dato’ Che Lodin Bin Wok Kamaruddin, Y. Bhg Laksamana Madya Tan Sri Dato’ Seri Ahmad Ramli Bin Haji Mohd Nor (B) and Y. Bhg Datuk Azzat Bin Kamaludin (“the Interested Directors”), being the interested directors as mentioned in section 2.3 above have abstained and will continue to abstain from deliberations and voting at the board meetings with regards to the Proposals. The Interested Directors together with BHB and LTAT will also abstain from voting on the resolution pertaining to the Proposals in respect of their direct and indirect interests in BHIC at the AGM. The Interested Directors, BHB and LTAT have undertaken that they will ensure that the Persons Connected with them as disclosed above will abstain from voting on the resolution relating to the Proposals at the AGM to be convened. Save as disclosed above, none of the other Directors and/or Major Shareholders of BHIC and/or persons connected to them have any interest, direct or indirect in the Proposals.

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8. DIRECTORS’ RECOMMENDATION

The Board of Directors (except the Interested Directors), after careful deliberations on the Proposals, is of the opinion that the Proposals are in the best interests of the Company and therefore recommends that you vote in favour of the resolution pertaining to the Proposals to be tabled at the forthcoming AGM.

9. AGM The Fortieth AGM of the Company which will be held at 4th Floor, Menara Boustead, 69 Jalan Raja Chulan, 50200 Kuala Lumpur on Thursday, 5 April 2012 at 10.00 a.m. for the purpose of considering and if thought fit, passing the Ordinary Resolution as set out in the Notice of AGM to approve the Proposals. If you are unable to attend and vote in person at the AGM, you are requested to complete, sign, and return the enclosed Form of Proxy in accordance with the instructions therein as soon as possible and in any event so as to arrive at the registered office of BHIC not later than forty-eight (48) hours before the time set for the AGM. The lodging of the Form of Proxy does not preclude you from attending and voting in person at the meeting should you subsequently wish to do so.

10. FURTHER INFORMATION

Shareholders are advised to refer to Appendix II of this Circular for further information.

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PART B

PROPOSED PROVISION OF FINANCIAL ASSISTANCE BY BHIC GROUP TO POM, A

NEWLY INCORPORATED ASSOCIATE COMPANY THAT WILL BE 49% OWNED BY

BHICDT

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PROPOSED PROVISION OF FINANCIAL ASSISTANCE 1. INTRODUCTION

On 28 February 2012, the Company announced to the Bursa Securities its intention to seek shareholders’ approval for the Proposed Provision of Financial Assistance at the forthcoming AGM. The purpose of this Circular is to provide you with the relevant details on the Proposed Provision of Financial Assistance, to set out the recommendation of the Board and to seek your approval for the resolution pertaining to the Proposed Provision of Financial Assistance to be tabled at the forthcoming AGM, which will be held on 5 April 2012 at 10.00 a.m or any adjournment thereof. The notice of the AGM is enclosed in the 2011 Annual Report of the Company.

2. DETAILS OF THE PROPOSED PROVISION OF FINANCIAL ASSISTANCE

2.1 Implications of Paragraph 8.23 of the Listing Requirements Pursuant to Paragraph 8.23(1) of the Listing Requirements, the provision of advances by a listed issuer or its subsidiaries in favour of the subsidiaries or associated companies of the listed issuer, the listed issuer (in case of the subsidiaries providing financial assistance) or its immediate holding company which is listed, is deemed to be a provision of financial assistance. Further to the above, pursuant to Paragraph 8.23(2)(c) of the Listing Requirements, where the provision of financial assistance is to an associated company, and the aggregate amount provided or to be provided at any time to each associated company compared to the net tangible assets (“NTA”) of the Group is equal to or exceeds 5%, the listed issuer must issue a circular to its shareholders and seek its shareholders’ approval in general meeting of such provision of financial assistance. In this respect, the details of the financial assistance to be provided by BHIC Group in favour of POM, a company incorporated on 27 May 2011, which will eventually be an associate company of BHICDT, are as follows:

Details Financial Assistance Amount

Provided by Provided to RM %* Proposed Provision of Financial Assistance Estimated aggregate amount of advances for POM in relation to the operations of the factory located in Bentong, Pahang Darul Makmur

BHIC Group,

including BP Shipyard (100%

owned by BHIC) and BHICDT

(100% owned by BP

Shipyard)

POM Up to 60,000,000

Up to 14.2%

Note:- *Percentage of financial assistance valued against latest audited consolidated NTA of BHIC Group as at 31 December 2011 of approximately RM423,208,000.

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In light of the above and pursuant to paragraph 8.23(2)(c) of the Listing Requirements, as the value of the Proposed Provision of Financial Assistance will exceed 5% of BHIC Group’s latest audited consolidated NTA as at 31 December 2011, the Proposed Provision of Financial Assistance is subject to the Company’s shareholders’ approval at an AGM to be convened. At the time of preparation of this document, the paid-up capital of POM is RM2 consisting of two (2) units of ordinary shares of RM1 each, of which one share is currently held by each of BHICDT and PMSB respectively. Pursuant to the Joint Venture Agreement between BHICDT and PMSB signed on 30 May 2011, the paid-up capital of POM shall be increased eventually to RM35,294,120 with the shareholding structure being 49% BHICDT and 51% PMSB respectively. The increase in the paid up capital may only take effect once the conditions precedent as per the Joint Venture Agreement between both shareholders have been fulfilled, which is expected to be completed by the second or third quarter of this year. The salient terms of the Joint Venture Agreement signed between BHICDT and PMSB on 30 May 2011 are as follows: (a) The incorporation of the Joint Venture Company (which refers to POM) shall be on

or before the date falling six (6) months after the date of signing of the Joint Venture Agreement, or such later date as the Parties may agree;

(b) The Joint Venture Company shall upon incorporation have an initial authorised share

capital of RM50,000,000 divided into 49,999,999 ordinary shares of RM1.00 each and 1 preference share of RM1.00 each. At the completion of the Joint Venture Agreement the Joint Venture Company shall have a paid-up capital of RM35,294,120;

(c) The equity structure of the Joint Venture Company shall be 49% BHICDT and 51%

PMSB respectively; (d) PMSB also holds one Golden Share (preference share) in the Joint Venture Company;

and (e) BHICDT's subscription of the 49% equity in the Joint Venture Company is funded

wholly in cash from internally generated funds.

The Joint Venture Agreement was executed between BHICDT and PMSB with the objective of establishing a long term relationship through the creation of a Joint Venture Company to jointly carry on the following business:- (a) To manufacture, market and sell propellant and related products; and (b) Any other business which parties would agree by unanimous resolution and to enter

into contracts pertaining to such unanimous resolution. The paid-up capital of POM shall be increased to RM35,294,120 after taking into consideration the level of commitment required from BHICDT and PMSB for POM to carry out its business activities. The provision of financial assistance shall be in the form of advances for POM’s working capital and capital expenditure, which includes payments made on behalf of POM by BHIC Group.

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The breakdown of the utilisation of the financial assistance is as follows:

Details Estimated Amount(1)

(RM) Estimated Time Frame

for utilisation(2) Land & Building(3) 44,000,000(4)

12 months Consultants Fee(5) 5,400,000Fixed Assets(6) 6,600,000Other Expenses(7) 4,000,000Total 60,000,000

Notes:- (1) The estimated amounts are based on the Management’s estimate of the value of working capital and capital

expenditure to be incurred, and as such may be subject to change. (2) From the date of the shareholders’ approval for the Proposed Provision of Financial Assistance. (3) The land size is 21.21 acres which was already purchased in 2007 by BHIC on leasehold for 99 years. The

construction of the building has already started and undertaken by BP Shipyard. The building (built up area of 36,494 sq. ft.) is expected to be completed and ready to commence operations in the third quarter of 2012.

(4) Based on the total purchase price of the land by BHIC and the construction cost incurred by BP Shipyard. (5) Includes the construction’s project management consultant, land surveyor, legal consultant, human resource

consultant and land valuer. (6) Includes conveyor and hoisting works (RM632,000), office equipment, furniture, fittings and vehicles

(RM150,000) and Bi-Modular Charge System (RM5,818,000). (7) Includes forwarding and storage (RM1,010,000), insurance (RM222,000), tax agent (RM8,000), security

services (RM356,000), staff cost (RM1,120,000) and operating expenses (RM1,284,000). The financial assistance to be provided to POM is without any specific repayment time frame or interest. Based on mutual understanding and co-operation, POM will repay any amount due to BHIC Group once it has sufficient financial capability to do so. The main source of repayment shall be from the cashflow generated from its operations. As a newly incorporated company, POM is currently on track to ensure the operationalisation of its factory in Bentong, Pahang Darul Makmur in 2012, and will eventually work towards generating its own cashflow for self-sustenance. Based on the assumptions that contracts to manufacture and supply the propellants can be secured in the second half of this year, POM is expected to register profits from the third year of operations onwards. The Proposed Provision of Financial Assistance will be funded via BHIC Group’s internally generated funds and will not exceed RM60,000,000 at any point of time during the period of the Proposed Provision of Financial Assistance. Any further financial assistance to be provided exceeding RM60,000,000 or subsequent to the next AGM following the AGM in which approval for this proposal is obtained, will require a separate shareholders’ approval.

2.2 Validity Period of the Proposed Provision of Financial Assistance

In view of the above, the Board is seeking the shareholders’ approval for the Proposed Provision of Financial Assistance by BHIC Group in favour of POM in respect of the period from the forthcoming AGM to the next AGM.

2.3 Information on POM

Please refer to Appendix I of this Circular for the background information on POM.

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3. RATIONALE AND BENEFITS POM was incorporated on 27 May 2011 as a Joint Venture Company between PMSB (a company 50% owned by the Minister of Finance Incorporated) and BHICDT (a 100% subsidiary of BP Shipyard). The manufacturing plant is located at Kawasan Perindustrian Bentong Fasa 2B, Bentong, Pahang. POM will produce and sell Double Base Propellants for locally-used artillery shells and rockets in the defence sector, with the Ministry of Defence (MinDef) as the main customer.

Propellant is a generic name for explosives (with its own oxygen for combustion) that burns controllably and is used for propelling projectiles for artilleries, rockets, missiles and other firearms. This distinguishes propellants from the more violent explosives used in shells and mines to produce a blasting effect. There are various types of propellants that are commonly identified as Single Base, Double Base and Triple Base propellants. The manufacturing process of propellants is carried out in a facility called KLP-100 production plant (KLP-100 plant). A KLP-100 plant has a maximum capacity of 100kg/hour. The raw material to be processed in the production plant takes the form of a wet paste that consists of nitro-glycerin and nitro-cellulose. The wet paste is then processed into semi-finished products with various sizes and shapes. The final product to be produced and supplied by POM is known as a “Bi Modular Charge System” or BMCS. The output from the KLP-100 plant will go through a loading, assembling and packing process using the BMCS assembly equipment. At the moment, the BMCS will be used with the G5 155mm 45 Calibre Gun-Howitzer which is currently being used by the Malaysian Armed Forces. Technically, the BMCS fully combusts inside the gun barrel and creates a sufficient amount of pressure to push the ammunition from the gun to the desired target. The Double Base propellants will be the main components of the BMCS. At the date of this Circular, POM has yet to start its operations. In view of the fact that POM will be involved in an industry that is considered “new” in the country, local financial institutions are hesitant to grant financing facilities to POM. For a newly established company like POM, the availability of financial assistance is crucial from the pre-operationalisation stage until revenues are generated. The Proposed Provision of Financial Assistance will allow POM to meet its necessary expenses, including capital expenditures and overheads. The financial assistance will be fully utilised to ensure that POM can commence its operations as per the scheduled timeline.

4. MALAYSIA DEFENCE INDUSTRY

The Malaysia defence industry is a strategic component that forms an integral part in the development of the country’s defence capability. A well developed defence industry would contribute significantly to the supply chain from availing indigenous state of the art technology for platform and payload systems and other military solutions to the through life support. Such supply chain would have direct bearing on the availability and readiness of the armed services inventory of equipment.

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The roles of the defence industry in maintaining, repairing and overhauling as well respecifying, upgrading and modernising military equipment have become increasingly critical and significant. A capable local defence industry would enhance the country’s self reliance for defence, which is one of the major pillars of the National Defence Policy. The contributions of the local defence industry to the socio-economic development of a country could be very significant in terms of employment opportunities, savings from foreign exchange, foreign direct investments (FDIs) as well as economic activities in the local economies. The local defence industry would also generate spin-offs to other sectors of the economy with the research, development and commercialisation of dual use technology. The spillover effects will accelerate the development of other supporting and ancillary industries. The local defence industry in Malaysia has evolved quite significantly with capabilities in manufacturing of military assault rifles, small caliber ammunitions, aerial reconnaissance vehicle (ARV), patrol vessels, information and communications technology-based solutions and military gears and apparels. The industry has also developed significant capabilities in maintenance, repair and overhaul (MRO), upgrades and modernisation for land, sea and aerospace equipments. In addition, the industry has also established the capability to manufacture parts and components for military equipment for domestic and export markets. The market outlook for the local defence industry is always positive and dynamic, in view that it is required to support the National Defence Policy.

The demand for propellants to be produced by POM is expected to increase in line with the evolution of the local defence industry. Apart from the existing targeted usage, the propellants to be produced by POM will also serve as the important component for any new related products developed in the industry for MinDef.

5. RISK FACTORS OF THE PROPOSED PROVISION OF FINANCIAL ASSISTANCE

Apart from the normal business risks, the Board does not envisage any specific risks associated with the Proposed Provision of Financial Assistance as MinDef will require the supply of propellants for the nation’s defence. At present, the supply of propellants to MinDef is sourced from overseas through a local party. As the PMSB is 50% owned by the Minister of Finance Incorporated, POM can be considered as a company with holdings by Government’s interest. Taking this into consideration, the risks in relation to the effect on BHIC Group’s cashflow arising from the provision of financial assistance and the collectability of the advances from POM is very low.

6. APPROVAL REQUIRED

The Proposed Provision of Financial Assistance is subject to the approval by the shareholders of BHIC Group at the forthcoming AGM.

7. FINANCIAL EFFECTS OF THE PROPOSED PROVISION OF FINANCIAL ASSISTANCE 7.1 Share Capital

The Proposed Provision of Financial Assistance will not have any effect on the issued and paid-up share capital of the BHIC Group.

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7.2 Substantial shareholders’ shareholdings

The Proposed Provision of Financial Assistance will not have any effect on the shareholdings of the substantial shareholders of BHIC Group.

7.3 Net Assets and Net Assets per share

The Proposed Provision of Financial Assistance will not have a material effect on the consolidated net assets and net assets per share of BHIC Group for the financial year ending 31 December 2012.

7.4 Earnings per share (EPS)

The Proposed Provision of Financial assistance will not and is not expected to have a material effect on the earnings and earnings per share of BHIC Group for the financial year ending 31 December 2012.

7.5 BHIC Group Cashflow

The Proposed Provision of Financial Assistance will not result in major cash outflow from BHIC Group to POM, as most of the expenses up to present have already been paid and undertaken by BHIC Group in their books. Following the approval from shareholders on this Proposed Provision of Financial Assistance and the increase in paid-up capital for POM to RM35,294,120, the expenses incurred by BHIC Group will be transferred to POM where it will be classified by BHIC Group as the amount owing by an associate company.

8. OUTSTANDING CORPORATE EXERCISES Save for the Proposed Provision of Financial Assistance, the Board confirms that as at the date of this circular, there is no other intended related corporate exercise which has been announced but yet to be completed.

9. DIRECTORS’ AND/OR MAJOR SHAREHOLDERS’ INTERESTS

None of the Directors and/or Major Shareholders of the BHIC Group and/or persons connected with such Directors and/or major shareholders of the BHIC Group have any interest, direct or indirect, in the Proposed Provision of Financial Assistance. However, for information purposes only, Laksamana Madya Tan Sri Dato’ Seri Ahmad Ramli Bin Haji Mohd Nor (B), who is a director of BHIC also serves as a director of POM. He has no shareholding in POM. In view of the above, the Proposed Provision of Financial Assistance is not regarded as a related party transaction pursuant to Chapter 10 of the Listing Requirements.

10. DIRECTORS’ RECOMMENDATION

The Board, having considered all aspects of the Proposed Provision of Financial Assistance, is of the opinion that the Proposed Provision of Financial Assistance is in the best interest of the Company. The Board has also considered the role of the Minister of Finance Incorporated through its 50% shareholdings in PMSB, particularly its role in looking after the interest of the Government of Malaysia, in coming up with opinion and recommendation.

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The Board is also of the opinion that the Proposed Provision of Financial Assistance is fair and reasonable to and is not expected to be detrimental to the BHIC Group and its shareholders. Accordingly, the Board recommends that you vote in favour of the resolution in relation to the Proposed Provision of Financial Assistance to be tabled at the forthcoming AGM.

11. ESTIMATED TIME FRAME FOR COMPLETION Barring any unforeseen circumstances and subject to the receipt of the shareholders’ approval, the estimated time frame for completion of the Proposed Provision of Financial Assistance is by 31 December 2012. The financial assistance of up to RM60,000,000 will be disbursed at the discretion of the Management as and when POM requires such funding from time to time until the POM has sufficient fund to support its own working capital. As the Proposed Provision of Financial Assistance is without any specific repayment time frame or interest, any request from POM will be thoroughly assessed before any disbursement is made.

12. AGM

The Fortieth AGM of the Company will be held at 4th Floor, Menara Boustead, 69 Jalan Raja Chulan, 50200 Kuala Lumpur on Thursday, 5 April 2012 at 10.00 a.m. for the purpose of considering and if thought fit, passing the ordinary resolution as set out in the Notice of AGM with or without modifications, to give effect to the Proposed Provision of Financial Assistance. If you are unable to attend and vote in person at the AGM, you are requested to complete, sign, and return the enclosed Form of Proxy in accordance with the instructions therein as soon as possible and in any event so as to arrive at the registered office of BHIC not later than forty-eight (48) hours before the time set for the AGM. The lodging of the Form of Proxy does not preclude you from attending and voting in person at the meeting should you subsequently wish to do so.

13. FURTHER INFORMATION Shareholders are advised to refer to the attached appendices for further information.

Yours faithfully For and on behalf of the Board BOUSTEAD HEAVY INDUSTRIES CORPORATION BERHAD ABD MALIK BIN A RAHMAN Independent Non-Executive Director

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APPENDIX I INFORMATION ON POM 1. HISTORY AND BUSINESS

POM is a private limited company incorporated in Malaysia under the Companies Act, 1965 on 27 May 2011. The company’s registered office is at the 12th Floor, Bangunan Setia 1, 15 Lorong Dungun, Bukit Damansara, 50490 Kuala Lumpur. The principal activity of POM is to manufacture, market and sell propellants and related products.

2. SHARE CAPITAL

The current authorised and paid-up capital of POM is RM2 comprising of 2 ordinary shares of RM1 each.

3. SHAREHOLDERS

The shareholders of POM and their respective shareholdings as at 29 February 2012 are as follows:

Shareholders Nationality No. of Ordinary Shares

Direct Indirect BHICDT Incorporated in Malaysia 1 (50%) - PMSB Incorporated in Malaysia 1 (50%) -

4. BOARD OF DIRECTORS

The Board of Directors of POM and their respective shareholdings as at 29 February 2012 are as follows:

Name Designation Nationality No. of Ordinary

Shares Direct Indirect Laksamana Madya Tan Sri Dato’ Seri Ahmad Ramli Haji Mohd Nor (B)

Director Malaysian - -

Eshah Meor Suleiman Director Malaysian - - Anuar Murad Director Malaysian - - Datuk Dr. Abdul Ghaffar Ramli Director Malaysian - -

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APPENDIX II

FURTHER INFORMATION 1. DIRECTORS’ RESPONSIBILITIY STATEMENT

This Circular has been seen and approved by the Directors of BHIC and they individually and collectively accept full responsibility for the accuracy of the information given, and confirm that, after making all enquiries as are reasonable in the circumstances and that to the best of their knowledge and belief, there are no other facts and information the omission of which, would make any statement herein misleading.

2. MATERIAL LITIGATION

BHIC Neither BHIC nor its subsidiary companies are engaged in any material litigation, claims and arbitration either as plaintiff or defendant or otherwise, nor are the Directors of BHIC aware of any proceedings pending or threatened against, or of any facts likely to give rise to any proceeding which might materially or adversely affect the position or business of BHIC and/or its subsidiary companies. POM As at the date of the circular, POM is not engaged in any material litigation, arbitration or claims either as plaintiff or defendant, and the Directors of POM does not have any knowledge or any proceedings pending or threatened against POM, or of any facts likely to give rise to any proceedings which might materially and adversely affect the financial position or business of POM.

3. MATERIAL CONTRACT

BHIC There is no material contracts (not being contracts entered into in the ordinary course of business) entered into by the BHIC Group within the past two (2) years preceding the date of this Circular. POM POM has not entered into contracts which are or may be material (not being contracts entered into in the ordinary course business of POM) within the past two (2) years immediately preceding to the date of this Circular.

4. MATERIAL COMMITMENTS AND CONTINGENT LIABILITIES

BHIC As at the date of this Circular, the status of the contingent liabilities disclosed in the 2010 Annual Report remains unchanged for BHIC Group. No other contingent liability has arisen since the financial year end.

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BHIC Group has the following commitments as at 31 December 2011: Approved but not

contracted forRM’000

Approved and contracted for

RM’000 Total

RM’000 Property, plant and equipment

23,722

2,038

25,760

POM As at the date of this Circular, POM has no material commitments and contingent liabilities incurred or known to be incurred.

5. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the registered office of BHIC at 17th Floor, Menara Boustead, 69 Jalan Raja Chulan, 50200 Kuala Lumpur, during normal business hours on any weekday (except public holidays) from the date of this Circular up to and including the date of the AGM:- (a) The Memorandum and Articles of Association of BHIC and POM; and (b) The audited financial statements of BHIC for the last three (3) financial years ended 31

December 2011, 31 December 2010 and 31 December 2009.

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Boustead Heavy Industries Corporation Berhad Circular 12-03...BOUSTEAD HEAVY INDUSTRIES CORPORATION BERHAD (Company No. 11106-V) (Incorporated in Malaysia) BOUSTEAD HEAVY INDUSTRIES

Documents