1. INTRODUCTION
We refer to our earlier announcements dated 3 March 2015, 3 June 2015 and 31 July 2015 in relation to the signing of a Memorandum of Understanding (“MOU”) with TT dotCom Sdn Bhd (“TTdC”), a wholly-owned subsidiary of Time dotCom Berhad (“TIME”) for the development and construction of a new submarine cable system, called the “Sistem Kabel Rakyat 1 Malaysia (“SKR1M”)”.
Pursuant to the said MOU, TM has today entered into a Construction and Maintenance Agreement (“C&MA”) with TTdC for the development and construction of SKR1M. This C&MA is to establish the rules which shall govern the implementation and management of SKR1M.
2. PARTICULARS OF THE TRANSACTION
Upon the signing of the C&MA, TM and TTdC are now ready to move to the next step of the project implementation of the SKR1M cable system.
a) Terms of the C&MA
The C&MA defines the terms and conditions, upon which TM and TTdC will cooperate with each other to provide, construct, operate and maintain SKR1M cable system. This includes rules which shall govern the investment principles, voting rights, use of capacity, operation and maintenance obligations as well as the implementation and management of SKR1M.
b) Duration of the C&MA
The duration of the C&MA is twenty (20) years or it will expire upon retirement of SKR1M, whichever is earlier.
c) Ownership Interest
The capital expenditure to construct the SKR1M cable system will be shared based on ownership interest of the respective parties, estimated for TM and TTdC at 83.63% and 16.37% respectively. Upgrade, operation and maintenance costs will be shared based on ownership interest or utilization, as deemed appropriate by the parties. There is no element of profit sharing and all transactions between the parties will be on a cost reimbursement basis.
d) Source of funding
The capital expenditure will be funded from internally generated funds.
TM and TTdC will also commit to operate and maintain the SKR1M network for the lifetime of the cable system including funding the cable fault repairs so as to ensure that there will be no service disruptions.
3. RATIONALE OF THE C&MA
The signing of the C&MA will pave the way towards realising the Government’s aspiration and Entry Point Project (“EPP”) initiative entitled “Regional Network” under the Economic Transformation Plan (“ETP”) which aims to increase capacity of submarine cable network in lowering international IP and Domestic connectivity costs.
Following this agreement, TM and TTdC will play an integral role in constructing the SKR1M cable system that will allow TM and TTdC to continue to play its role in providing connectivity services from Peninsular to Sabah and Sarawak. This will also address the immediate and future need for capacity demand across the geographical locations.
4. BRIEF INFORMATION ON THE PARTIES
4.1 TM
TM, a public listed company duly incorporated in Malaysia on 12 October 1984, with an authorised share capital of RM3,528,003,015 divided into 5,040,000,020 ordinary shares of RM0.70 each, 1 Special Rights Redeemable Preference Share of RM1.00, 2,000 Class C Non-Convertible Redeemable Preference Shares (“NCRPS”) of RM1.00 each and 1,000 Class D NCRPS of RM1.00 each. The issued and paid-up share capital of the Company is RM2,630,557,302.10 comprising 3,757,934,823 ordinary shares of RM0.70 each, 1 Special Rights Redeemable Preference Share of RM1.00, 2,000 Class C NCRPS of RM1.00 each and 925 Class D NCRPS of RM1.00 each.
The principal activities of TM are the establishment, maintenance and provision of telecommunications and related services.
4.2 TTdC
TTdC was incorporated as a private limited company in Malaysia on 17 November 1979. The present authorised share capital of TTdC is 2,800,000,000 ordinary shares of RM1.00 each, of which 466,308,000 ordinary shares are fully issued and paid-up. TTdC is a wholly-owned subsidiary of TIME.
The principal activities of TTdC are the provision of voice and data communication services through its domestic and international network.
5. FINANCIAL EFFECT
5.1 Share capital and substantial shareholders’ shareholdings
The C&MA will not have any effect on the issued and paid-up share capital as well as the substantial shareholders’ shareholdings of TM.
5.2 Earnings and Net Assets
The C&MA is not expected to have any material effect to the earnings and net assets of TM Group for the financial year ending 31 December 2015.
However, the C&MA is expected to contribute positively to the future earnings of TM.
6. APPROVALS REQUIRED
The C&MA is not subject to shareholders’ or any government authorities’ approval.
7. DIRECTORS’ AND MAJOR SHAREHOLDERS’ INTEREST
Save as disclosed below, none of the Directors and other major shareholders of TM and/or persons connected to them has any interest, whether direct or indirect, in the C&MA:-
a) Khazanah Nasional Berhad (“Khazanah”), a common major shareholder in TM and TIME;
b) Tunku Dato’ Mahmood Fawzy Tunku Muhiyiddin, as an Interested Director by virtue of his position as the nominee director of Khazanah; and
c) Nik Rizal Kamil Tan Sri Nik Ibrahim Kamil, alternate director to Tunku Dato’ Mahmood Fawzy Tunku Muhiyiddin.
8. AUDIT COMMITTEE STATEMENT
The Board Audit Committee of TM, (save for Tunku Dato’ Mahmood Fawzy Tunku Muhiyiddin an Interested Director by virtue of his position as a nominee director of Khazanah, a common major shareholder), having considered all aspects of the C&MA between TM and TIME is of the view that the C&MA is in the best interest of TM, fair and reasonable and on normal commercial terms, and is not detrimental to the interest of the minority shareholders of TM.
The above view is arrived at after having considered that the C&MA is comparable with other existing submarine cable consortium partnership of TM.
9. BOARD OF DIRECTORS’ STATEMENT
The Board of Directors of TM having considered the recommendations of the Board Audit Committee and the rationale of the C&MA, is of the view that the transaction is in the best interest of TM, fair and reasonable and on normal commercial terms and not detrimental to TM minority shareholders’ interest.
10. TOTAL AMOUNT TRANSACTED WITH THE SAME RELATED PARTY FOR THE PRECEDING 12 MONTHS
In the preceding 12 months, apart from the provision of telecommunication related services amounting to RM19.5 million, there were no other transactions with TTdC.
This announcement is dated 27 August 2015.
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