| General Announcement Reference No CI-070420-BF0DD |
| Company Name | : | EVERGREEN FIBREBOARD BERHAD |
| Stock Name | : | EVERGRN |
| Date Announced | : | 20/04/2007 |
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| Type | : | Announcement |
| Subject | : | EVERGREEN FIBREBOARD BERHAD JOINT VENTURE BETWEEN THE COMPANY, P.T. HUTRINDO JAYA FIBREBOARD MFG. CO. AND P.T. UFORIN PRAJEN ADHESIVE INDUSTRY |
Contents :
1. INTRODUCTION
We refer to the earlier announcement dated 16 March 2007 in relation to Memorandum of Understanding entered by Evergreen Fibreboard Berhad ("EFB" or "the Company") with P.T. Hutrindo Jaya Fibreboard Mfg. Co. ("HUTRINDO") and P.T. Uforin Prajen Adhesive Industry ("UFORIN").
Further to the above announcement, the Board of Directors of EFB wishes to announce that the Company on 20 April 2007, had entered into a Joint Venture Agreement ("JVA") with HUTRINDO and UFORIN (HUTRINDO and UFORIN hereinafter collectively shall be referred as "LOCAL PARTNER") to form a joint venture limited liability company under the laws of the Republic of Indonesia for the purpose of fibreboard, glue and resin manufacturing in Indonesia and also for the purpose to acquire LOCAL PARTNER Assets.
LOCAL PARTNER and EFB collectively referred to as the "Parties" or, individually, as a "Party". For the purpose of this Agreement, Hutrindo and Uforin shall be regarded as one (1) party.
2. DETAILS OF THE JOINT VENTURE
2.1 Information on the Joint Venture Entity
Under the Joint Venture Agreement, a joint venture entity is to be incorporated in accordance with the Indonesian Foreign Investment Law, Law Number 1 of 1967 of the Republic of Indonesia, as amended by Law Number 11 of 1970 of the Republic of Indonesia.
The Joint Venture Entity will be named PT Hijau Lestari Raya or such other name acceptable to the Indonesia of Law and Human Rights ("New Co"). New Co will be owned by EFB (51%) and LOCAL PARTNER (49%).
New Co will be set up to engage in fibreboard, glue and resin manufacturing; and to engage in any activity or endeavor in pursuit of and in conformity with such fibreboard, glue and resin manufacturing, for its own account or in conjunction with other persons or legal entities, in such a manner and form as may be appropriate or required, without prejudice to applicable laws and regula-tions.
Subject to the final figure as approved by Investment Coordinating Board (Badan Koordinasi Penanaman Modal or BKPM), the authorized capital of New Co shall be the Rupiah equivalent of USD$ 8,000,000 (Eight Million United States Dollars), divided into 8,000 (Eight Thousand) ordinary shares, each of nominal value equivalent to USD$ 1,000 (One Thousand United States Dollars). The issued and paid up share capital of New Co would be USD$ 4,200,000.
2.2 Salient Terms of the JVA
2.2.1 Essential Conditions Precedent
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- The JVA is subject to the fulfillment of the following Essential Conditions Precedent within four (4) weeks from the date of this Agreement: -
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(a) Shareholding of fifty one percent (51%) by EFB is legally permitted by BKPM;
(b) Required licenses and certificates from BKPM for New Co to operate in the Company's location are permitted;
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- (c) The licenses for New Co to engage in fibreboard, glue and resin manufacturing are granted by BKPM;
(d) LOCAL PARTNER shall arrange to obtain necessary approval from BKPM for New Co, other approvals required for the establishment of New Co (including the approval of Minister of Law and Human Rights ("MOLHR"), the licenses for the Company to engage in fibreboard, glue and resin manufacturing, and permit to employ the expatriates;
(e) Discharge letters/certificate(s) and redemption statement(s) from the holder(s) of mortgage and security over LOCAL PARTNER Assets shall be obtained.
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2.2.2 Subsequent Matters To Essential Conditions Precedent
Subsequent to the Essential Conditions Precedent being fulfilled the LOCAL PARTNER and the New Co shall enter into the Sale and Purchase Agreement of assets on terms to be agreed ("Sale and Purchase Agreement") for the purchase of LOCAL PARTNER Assets which shall be free from all encumbrances.
2.2.3 Legal Completion of JVA
The legal completion of this Agreement shall comprise of the followings: -
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- (a) the fulfillment of the Essential Conditions Precedent as set in the JVA;
(b) the fulfillment of the Subsequent Matters to Essential Conditions Precedent as set in the JVA;
(c) LOCAL PARTNER shall have obtained registration or evidences of ownership of LOCAL PARTNER Assets in favor of the Company;
(d) EFB shall pay Second Payment to LOCAL PARTNER.
2.2.4 Purchase Price and Terms of Payment -
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- The purchase price for LOCAL PARTNER Assets is USD$ 21,000,000.00 (United States Dollars Twenty-One Million) ("Purchase Price") shall be proportionately divided between both Parties according to percentage of shareholding in the Company and shall be satisfied by bank borrowings.
3. INDUSTRY PROSPECT
The Board of Directors of EFB are of the opinion that there is a strong demand for MDF, other building applications and furnitures such as mouldings, panels and cabinets. These products tend to have higher margins and have also benefited from a general growth in the global building and furniture industries. With the Join Venture, EFB would be able to penetrate into new markets and which will help strengthen and consolidate the EFB Group's objective of becoming one of the most comprehensive producers of MDF in this region.
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The Joint Venture will allow EFB to broaden its market share with its extra capacity available from New Co would provide EFB with immediate access into other markets/ countries.
4. RATIONALE FOR THE JOINT VENTURE
The Joint Venture will allow EFB to broaden its market share with its extra capacity available from New Co would provide EFB with immediate access into other markets/ countries.
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- The Joint Venture is therefore expected to contribute positively to the earnings and growth of the EFB Group.
The production plant of New Co with a designed capacity of 110,000 cubic metres of MDF will increase the production capacity of MDF in EFB Group by approximately 16% to 810,000 cubic metres.
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- The business of New Co is subject to similar business and commercial risk experienced by the EFB Group given that both are in the reconstituted wood-based panel board industry. However, entering into a new foreign country and market will definitely exposed the Group to new sovereign risks such as changes in government etc. There is no assurance that EFB will be able to maintain the same presence as EFB in the new country.
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- New Co has yet to commence operations. Notwithstanding this, it is expected to commence operation in the 4th quarter.
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- There are no material effect on share capital and substantial shareholders' shareholding, net assets and gearing of EFB Group for the year ending 31 December 2007.
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5. RISK FACTORS
6. COMMENCEMENT OF OPERATIONS
7. FINANCIAL EFFECTS
However, the Joint Venture is therefore expected to contribute positively to the earnings of the EFB Group for the financial year ending 31 December 2007.
8. DIRECTORS' AND SUBSTANTIAL SHAREHOLDERS' INTEREST
None of the Directors or substantial shareholders of EFB or persons connected to them have any interest, direct or indirect, in the JVA.
9. DIRECTORS' RECOMMENDATION
The Directors, after careful deliberation, are of the opinion that the Joint Venture is in the best interest of the Company.
10. ESTIMATED TIME FRAME FOR COMPLETION
Completion of this JVA, incorporation of New Co and subsequent SPA is expected to be completed by the 4th quarter of 2007.
11. COMPLIANCE WITH SECURITIES COMMISSION ("SC") GUIDELINES
The Joint Venture is in compliance with and there has been no departure from the Policies and Guidelines on Issue/Offer of Securities by the SC.
12. APPROVALS REQUIRED
The Joint Venture is not subject to any other approvals including approval from shareholders of the Company.
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