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Menara ABS (Telekom Malaysia Berhad) Sukuk RM1.1 Billion - Information Memorandum

IM Insights
By IM Insights
4 years ago
Menara ABS (Telekom Malaysia Berhad) Sukuk RM1.1 Billion - Information Memorandum

Amanah, Islamic banking, Shariah, Shariah compliant, Sukuk, Takaful, Credit Risk, Net Assets, Participation, Provision, Receivables, Reserves, Sales

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  1. No : Strictly Private and confidential INFORMATION MEMORANDUM MENARA ABS BERHAD (C OMPANY NO. 6 69 4 99 - X ) ISSUANCE OF UP TO RM1,100 MILLION ISLAMIC ASSET BACKED SUKUK IJARAH PRINCIPAL ADVISER AND LEAD ARRANGER CITIBANK BERHAD (COMPANY NO. 297089-M) 12 December 2007
  2. REGISTERED OFFICE OF THE ISSUER MENARA ABS BERHAD (Company No: 669499-X.) 10th Floor, Wisma Havela Thakardas, No. 1, Jalan Tiong Nam, Off Jalan Raja Laut, 50350 Kuala Lumpur. PRINCIPAL ADVISER / LEAD ARRANGER FACILITY AGENT CITIBANK BERHAD (Company No: 297089-M) 45th Floor Menara Citibank 165 Jalan Ampang 50450 Kuala Lumpur CITIBANK BERHAD (Company No: 297089-M) 45th Floor Menara Citibank 165 Jalan Ampang 50450 Kuala Lumpur TRUSTEE SHARE TRUSTEE AMANAH RAYA BERHAD (Company No. 344986-V) Wisma AmanahRaya, Tingkat 10, Wisma Amanah Raya, No. 2, Jalan Ampang, 50450 Kuala Lumpur PB TRUSTEE SERVICES BERHAD (Company No. 7968-T) 17th Floor, Menara Public Bank, 146, Jalan Ampang, 50450 Kuala Lumpur SOLICITORS DEPOSITORY AND PAYING AGENT MESSRS MOHAMED RIDZA & CO Unit No 50-10-9, Level 10, Wisma UOA Damansara, No. 50, Jalan Dungun, Damansara Heights, 50490 Kuala Lumpur BANK NEGARA MALAYSIA Jalan Dato’ Onn, 50480 Kuala Lumpur SYARIAH ADVISOR TRANSACTION ADMINISTRATOR SYARIAH COMMITTEE OF CITIBANK BERHAD (Company No: 297089-M) 45th Floor Menara Citibank 165 Jalan Ampang 50450 Kuala Lumpur CITIBANK BERHAD (Company No: 297089-M) 45th Floor Menara Citibank 165 Jalan Ampang 50450 Kuala Lumpur VALUER PROPERTY MANAGER HENRY BUTCHER MALAYSIA SDN BHD (Company No: 160636-P) No. 25, Jalan Yap Ah Sak, Off Jalan Dang Wangi, 50300 Kuala Lumpur, Malaysia TELEKOM MALAYSIA BERHAD (Company No : 128740-P) Level 51, North Wing, Menara TM, Jalan Pantai Baharu 50672 Kuala Lumpur Mohamed Ridza & Co. Page | i
  3. Contents RESPONSIBILITY STATEMENT ................................................................................................................ 2 IMPORTANT NOTICE AND GENERAL STATEMENTS OF DISCLAIMER ................................................ 2 DOCUMENTS INCORPORATED BY REFERENCE.................................................................................. 5 CONFIDENTIALITY ............................................................................................................................... 5 1. DEFINITIONS OF KEY TERMS AND ABBREVIATIONS .................................................................. 7 2. EXECUTIVE SUMMARY ........................................................................................................... 14 2.1 Introduction ........................................................................................................................ 14 3. THE ISLAMIC ASSET-BACKED SUKUK IJARAH ISSUANCE............................................... 18 3.1 Introduction ........................................................................................................................ 18 3.2 Brief Description of Properties........................................................................................... 18 3.3 Notes relating to the Sukuk Ijarah.................................................................................... 21 3.4 Principal Terms and Conditions of the Transactions ...................................................... 21 4. RATINGS ................................................................................................................................... 22 5. UTILISATION OF PROCEEDS .................................................................................................. 23 6. INFORMATION ON THE ISSUER AND THE ORIGINATOR ................................................. 24 6.1 Description on the Issuer................................................................................................... 24 6.2 Description of The Originator............................................................................................ 25 6.3 BRIEF DESCRIPTION OF TM .................................................................................................. 47 6.4 INFORMATION ON KEY SUBSIDIARY COMPANIES ............................................................ 48 6.5 GENERAL INFORMATION..................................................................................................... 50 6.5.1 Material Contracts ............................................................................................................. 50 6.5.2 Material Insurance Policies .............................................................................................. 53 6.5.3 Material Litigation .............................................................................................................. 53 6.5.4 Material Contingent Liabilities.......................................................................................... 74 6.5.5 Conflict of Interests ............................................................................................................ 74 6.5.6 Related Party Transactions ............................................................................................... 74 7. INVESTMENT CONSIDERATIONS.......................................................................................... 76 8. BUSINESS OVERVIEW ............................................................................................................. 90 8.1 Economic and Financial Developments in Malaysia in the Third Quarter of 2007 .... 90 8.2 The Malaysian Telecommunications Industry ................................................................ 93 8.3 The Property Market .......................................................................................................... 95 9. CASHFLOW FORECAST AND PROJECTIONS .................................................................... 97 10. SUMMARY OF SIGNIFICANT TRANSACTION DOCUMENTS...................................... 98 11. DOCUMENTS AVAILABLE FOR INSPECTION .............................................................. 101 APPENDIX 1 ................................................................................................................................... 102 PRINCIPAL TERMS AND CONDITIONS OF THE SUKUK ISSUANCE............................................. 102 APPENDIX 2 ................................................................................................................................... 191 CASHFLOW FORECAST AND PROJECTIONS.............................................................................. 191 APPENDIX 3 ................................................................................................................................... 196 CORPORATE PROFILE OF THE PROPERTY MANAGER................................................................ 196 APPENDIX 4 ................................................................................................................................... 198 THE PROPERTIES ........................................................................................................................... 198 APPENDIX 4(A) ............................................................................................................................. 199 MENARA TM ................................................................................................................................ 199 APPENDIX 4(B) .............................................................................................................................. 205 MENARA CELCOM...................................................................................................................... 205 APPENDIX 4(C) ............................................................................................................................. 211 CYBERJAYA COMPLEX............................................................................................................... 211
  4. APPENDIX 4 (D) ............................................................................................................................. 215 WISMA TM TAMAN DESA............................................................................................................ 215 APPENDIX 5 ................................................................................................................................... 219 THE PROPOSED DEMERGER ........................................................................................................ 219 APPENDIX 6 ................................................................................................................................... 228 LATEST UNAUDITED QUARTERLY RESULTS ................................................................................... 228 APPENDIX 7 ................................................................................................................................... 231 AUDITED FINANCIAL STATEMENTS OF TM FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 ……………………………………………………………………………………………………...231 APPENDIX 8 ................................................................................................................................... 232 ANNOUNCEMENT ON THE PROPOSED DEMERGER DATED 10 DECEMBER 2007..................... 232
  6. RESPONSIBILITY STATEMENT This Information Memorandum has been approved by the directors of Menara ABS Berhad (the “Issuer”) and Telekom Malaysia Berhad (“TM” or the “Originator”) and they collectively and individually accept full responsibility for the accuracy of the information given and confirm that, after having made all reasonable enquiries, and to the best of their knowledge, information and belief, there are no false or misleading statements or other material facts the omission of which would make any statement in this Information Memorandum false or misleading and that there are no material omissions in this Information Memorandum. IMPORTANT NOTICE AND GENERAL STATEMENTS OF DISCLAIMER TM has mandated Citibank Berhad (“Citibank” or the “Principal Adviser/Lead Arranger”) to structure and arrange an Islamic asset-backed securitisation transaction involving the sale of TM owned properties to the Issuer, with the objective of implementing an assets securitisation exercise. Subsequent to the sale, the properties will then be leased back to TM, under the Ijarah principle, for a period of fifteen (15) years. To fund the purchase of the properties, the Issuer will issue up to RM1,100 Million Islamic Asset-Backed Sukuk Ijarah (“Sukuk”). The Issuer and the Originator have authorised the Principal Adviser/Lead Arranger to distribute this Information Memorandum, which is now being provided by the Principal Adviser/Lead Arranger on a confidential basis to potential investors to whom an issue, offer or invitation to subscribe or purchase the Sukuk (as defined in this Information Memorandum) for the sole purpose of assisting them to decide whether to subscribe for or purchase the Sukuk. This Information Memorandum may not be, in whole or in part, reproduced or used for any other purpose, or shown, given, copied to or filed with any other person including, without limitation, any government or regulatory authority except with the prior consent of the Issuer and/or the Originator or as required under Malaysian laws, regulations or guidelines. No representation or warranty, express or implied, is given or assumed by the Principal Adviser/Lead Arranger as to the authenticity, origin, validity, accuracy or completeness of such information and data or that the information or data remains unchanged in any respect after the relevant date shown in this Information Memorandum. The Principal Adviser/Lead Arranger has not accepted and will not accept any responsibility for the information and data contained in this Information Memorandum or otherwise in relation to the Sukuk and shall not be liable for any consequences of reliance on any of the information or data in this Information Memorandum. No person is authorised to give any information or data or to make any representation or warranty other than as contained in this Information Memorandum and, if given or made, any such information, data, representation or warranty must not be relied upon as having been authorised by the Issuer, the Originator, the Principal Adviser/Lead Arranger or any other person. This Information Memorandum has not been and will not be made to comply with the laws of any country (including its territories, all jurisdictions within that country and any possession areas subject to its jurisdiction), other than Malaysia (“Foreign Jurisdiction”), and has not been and will not be lodged, registered or approved pursuant to or under any legislation (or with or by any regulatory authorities or other relevant bodies) of any Foreign Jurisdiction and it does not constitute an issue or offer of, or an invitation to apply for the Sukuk or any other securities of any kind by any party in any Foreign Jurisdiction. Mohamed Ridza & Co. Page | 2
  7. This Information Memorandum is not and is not intended to be a prospectus . Unless otherwise specified in this Information Memorandum, the information contained in this Information Memorandum is current as at the date hereof. The distribution or possession of this Information Memorandum in or from certain Foreign Jurisdictions may be restricted or prohibited by law. Each recipient is required by the Issuer, the Originator and the Principal Adviser/Lead Arranger to seek appropriate professional advice regarding, and to observe, any such restriction or prohibition. None of the Issuer, the Originator or the Principal Adviser/Lead Arranger accepts any responsibility or liability to any person in relation to the distribution or possession of this Information Memorandum in or from any Foreign Jurisdiction. By accepting delivery of this Information Memorandum, each recipient agrees to the terms upon which this Information Memorandum is provided to such recipient as set out in this Information Memorandum, and further agrees and confirms that (a) it is lawful for the recipient to subscribe for or purchase the Sukuk under all jurisdictions to which the recipient is subject, (b) the recipient has complied with all applicable laws in connection with such subscription or purchase of the Sukuk, (c) the Issuer, the Originator, the Principal Adviser/Lead Arranger and their respective directors, officers, employees and professional advisers are not and will not be in breach of the laws of any jurisdiction to which the recipient is subject as a result of such subscription or purchase of the Sukuk, and they shall not have any responsibility or liability in the event that such subscription or purchase of the Sukuk is or shall become unlawful, unenforceable, voidable or void, (d) it is aware that the Sukuk can only be offered, sold, transferred or otherwise disposed of directly or indirectly in accordance with the relevant selling restrictions and all applicable laws, (e) it has sufficient knowledge and experience in financial and business matters to be capable of evaluating the merits and risks of subscribing or purchasing the Sukuk, and is able and is prepared to bear the economic and financial risks of investing in or holding the Sukuk, and (f) it is subscribing or accepting the Sukuk for its own account. Each recipient is solely responsible for seeking all appropriate expert advice as to the laws of all jurisdictions to which it is subject. This Information Memorandum is not, and should not be construed as, a recommendation by the Issuer, the Originator, the Principal Adviser/Lead Arranger or any other party to the recipient to subscribe for or purchase the Sukuk. This Information Memorandum is not a substitute for, and should not be regarded as, an independent evaluation and analysis and does not purport to be all inclusive. Each recipient should perform and is deemed to have made its own independent investigation and analysis of the Issuer, the Originator, the Sukuk and all other relevant matters, and each recipient should consult its own professional advisers. Neither the delivery of this Information Memorandum nor the offering, sale or delivery of any Sukuk shall in any circumstance imply that the information contained herein concerning the Issuer and the Originator is correct at any time subsequent to the date hereof or that any other information supplied in connection with the Sukuk is correct as of any time subsequent to the date indicated in the document containing the same. The Principal Adviser/Lead Arranger expressly does not undertake to review the financial condition or affairs of the Issuer and the Originator during the life of the Sukuk or to advise any investor in the Sukuk of any information coming to their attention. The recipient of this Information Memorandum or the potential investors should review, inter alia, the most recently published documents incorporated by reference into this Information Memorandum when deciding whether or not to purchase any Sukuk. This Information Memorandum includes certain historical information, estimates, or reports thereon derived from sources mentioned in this Information Memorandum and other parties Mohamed Ridza & Co. Page | 3
  8. with respect to the Malaysian economy , the material businesses in which the Issuer or the Originator operates and certain other matters. Such information, estimates, or reports have been included solely for illustrative purposes. No representation or warranty is made as to the accuracy or completeness of any information, estimate and or report thereon derived from such and other third party sources. This Information Memorandum includes “forward looking statements”. These statements include, among other things, discussions of the Issuer’s and the Originator’s business strategy and expectation concerning its position in the Malaysian economy, future operations, profitability, liquidity, capital resources and/or financial position. All these statements are based on estimates and assumptions made by the Issuer and third party consultants that, although believed to be reasonable, are subject to risks and uncertainties that may cause actual events and the future results of the Issuer and/or the Originator to be materially different from that expected or indicated by such statements and estimates and no assurance can be given that any of such statements or estimates will be realised. In light of these and other uncertainties, the inclusion of a forward looking statement in this Information Memorandum should not be regarded as a representation or warranty by the Issuer or the Originator or any other person that the plans and objectives of the Issuer and/or the Originator will be achieved. All discrepancies (if any) in the tables included in this Information Memorandum between the listed amounts and totals thereof are due to, and certain numbers appearing in this Information Memorandum are shown after, rounding. SHARIAH DISCLAIMER The Principal Terms and Conditions have been reviewed by the Shariah Advisor to Lead Arranger, namely the independent Shariah Advisors in the Shariah Committee of the Lead Arranger who believe that the Principal Terms and Conditions are in compliance with Shariah as per their interpretation. However, each investor must make his own investigation, in conjunction with its own INDEPENDENT Shariah advisors on the Shariah permissibility of the structure, the issue and the trading of the Sukuk when determining whether the Sukuk are an appropriate investment for it and shall not rely on the approval provided by the Shariah advisors to the Lead Arranger. The Shariah Committee of the Lead Arranger comprises the following independent Shariah Advisors: 1) Professor Dr. Abd Ghaffar Ismail 2) Associate Professor Dr Haji Hashim Mehat 3) Associate Professor Dr Norhashimah Mohd Yassin STATEMENTS OF DISCLAIMER – SECURITIES COMMISSION A copy of this Information Memorandum will be deposited in accordance with the Capital Markets and Services Act, 2007 with the Securities Commission, who takes no responsibility for its contents. The issue, offer or invitation in relation to the Sukuk in this Information Memorandum or otherwise are subject to the fulfillment of various conditions precedent including without limitation the applicable approval from the Securities Commission and each recipient of this Information Memorandum acknowledges and agrees that the approval of the Securities Mohamed Ridza & Co. Page | 4
  9. Commission shall not be taken to indicate that the Securities Commission recommends the subscription or purchase of the Sukuk . The Securities Commission shall not be liable for any non-disclosure on the part of the Issuer and/or the Originator and assumes no responsibility for the correctness of any statements made or opinions or reports expressed in this Information Memorandum. DOCUMENTS INCORPORATED BY REFERENCE The following documents published or issued from time to time after the date hereof shall be deemed to be incorporated in, and to form part of, this Information Memorandum: (a) the most recently audited annual financial statements of the Originator; and (b) all supplements or amendments to this Information Memorandum circulated by the Issuer, if any, save that any statement contained herein or in a document which is deemed to be incorporated by reference herein shall be deemed to be modified or superseded for the purpose of this Information Memorandum to the extent that a statement contained in any such subsequent document which is deemed to be incorporated by reference herein modifies or supersedes such earlier statement (whether expressly, by implication or otherwise). Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Information Memorandum. The Issuer will provide, without charge, to each person to whom a copy of this Information Memorandum has been delivered, upon the request of such person, a copy of any or all of the documents deemed to be incorporated herein by reference unless such documents have been modified or superseded as specified above. Requests for such documents should be directed to the Issuer at its registered office set out at the end of this Information Memorandum. CONFIDENTIALITY This Information Memorandum and its contents are strictly confidential and the information herein contained is given to the recipient strictly on the basis that the recipient shall ensure the same remains confidential. Accordingly, this Information Memorandum and its contents, or any information, which are made available to the recipient in connection with any further enquiries, must be held in complete confidence. In the event that there is any contravention of this confidentiality undertaking or there is reasonable likelihood that this confidentiality undertaking may be contravened, the Issuer and/or the Originator may, at its discretion, apply for any remedy available to the Issuer and/or the Originator whether at law or equity, including without limitation, injunctions. The Issuer and/or the Originator are entitled to fully recover from the contravening party all costs, expenses and losses incurred and/or suffered, in this regard. For the avoidance of doubt, it is hereby deemed that this confidentiality undertaking shall be imposed upon the recipient, the recipient’s professional advisors, directors, employees and any other persons who may receive this Information Memorandum (or any part of it) from the recipient. Mohamed Ridza & Co. Page | 5
  10. The recipient must return this Information Memorandum and all reproductions thereof whether in whole or in part and any other information in connection therewith to the Principal Adviser /Lead Arranger promptly upon the Principal Adviser/Lead Arranger’ request, unless that recipient provides proof of a written undertaking satisfactory to the Principal Adviser/Lead Arranger with respect to destroying these documents as soon as reasonably practicable after the said request from the Principal Adviser/Lead Arranger. THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK Mohamed Ridza & Co. Page | 6
  11. 1 . DEFINITIONS OF KEY TERMS AND ABBREVIATIONS 1.1 Except where the context otherwise requires and save as specifically defined in this Information Memorandum, words and expressions defined and/or set out in Appendix 1 hereto shall have the same meanings when used in this Information Memorandum: ABC Sukuk means collectively the following:(i) Class A Sukuk or A Tranche Sukuk comprising, A1, A2, A3 and A4 Tranches; (ii) Class B Sukuk or B Tranche Sukuk comprising B1, B2 and B3 Tranches; and (iii) Class C Sukuk or C Tranche Sukuk comprising single C Tranche; ABS Guidelines means the Guidelines on the Offering of Asset Backed Securities issued by the SC; Additional Rental means the additional rental (if any) to be paid by TM (as the Lessee) to the Issuer (as the Lessor) under the Master Ijarah Agreement, and which is more particularly described in Annexure B to Attachment B of Appendix 1; BNM means Bank Negara Malaysia, a body corporate established under the Central Bank of Malaysia Act, 1958 of Jalan Dato’ Onn, 50480 Kuala Lumpur; Business Day means a day on which commercial banks are open for business in Kuala Lumpur for general business; Central Depository means Bank Negara Malaysia; Commencement Date means the date on which the Sale and Purchase Agreements are completed; Companies Act means the Companies Act, 1965, as amended from time to time and any re-enactment thereof; Completion Date means the date on which the Transfer Documents are presented at the relevant land offices (in the case of Menara TM, Menara Celcom and Wisma TM Taman Desa) and perfected (in the case of Cyberjaya Complex) and full payment of the Purchase Price for the purchase of the Properties pursuant to the Sale and Purchase Agreements are made by the Issuer (as Purchaser) either in cash to the Seller’s bank account as advised in writing by the Seller to the Purchaser or the Purchaser’s Solicitors or in accordance with the Seller’s written instructions, which date shall coincide with the Issue Date; Mohamed Ridza & Co. Page | 7
  12. Citibank means Citibank Berhad (Company No. 297089-M), a company incorporated in Malaysia under the Companies Act, 1965 and having its registered address at 45th Floor, Menara Citibank, 165, Jalan Ampang, 50450 Kuala Lumpur; Conditions means the terms and conditions relating to the Sukuk as set out in the Trust Deed; Cyberjaya Complex means the property as described in detail in Appendix 4C of this Information Memorandum; Declaration of Trust means the declaration of trust by the Issuer that it holds the Trust Asset upon trust absolutely for the Trustee (on behalf of the Sukuk Holders) pro rata according to the nominal amount of the Sukuk held by each Sukuk Holder; Depository and Paying Agency Agreement means the depository and paying agency agreement of even date between the Issuer, the Trustee, the Principal Adviser/Lead Arranger and BNM wherein BNM is appointed as the Central Depository for the Global Sukuk and as Paying Agent with respect to payments on the Sukuk; Dissolution Event means any of the events described in herein; Facility Agent means Citibank; Facility Agency Agreement means the facility agency agreement between the Facility Agent and the Issuer wherein the Facility Agent is appointed by the Issuer to provide such services related to the issuance of the Sukuk on the terms and subject to the conditions as set out therein; FAST Rules means the rules for the Fully Automated System for Tendering being an electronic issuing/tendering system operated by BNM whereby persons approved by BNM to participate in such system may submit their tenders electronically; Final Distribution Amount means the amount equal to the Face Amount of the Sukuk issued, such amount to be distributed to the respective Sukuk Holders on the Final Distribution Date and/or such other earlier date pursuant to the occurrence of any event as set out in the Trust Deed which leads to early redemption of any of the Sukuk; Final Distribution Date means the date falling on the relevant Legal Maturity Date, whereupon the Final Distribution Amount (and the Special Funding and the Additional Distribution in respect of the C Tranche Sukuk) is to be paid in respect of such Sukuk; Fixed Rental means the fixed rental which is payable by TM (as the Mohamed Ridza & Co. Appendix 1 Page | 8
  13. Lessee ) to the Issuer (as the Lessor) for each of the Lease under the Master Ijarah Agreement, and which is more particularly set out in Annexure B to Attachment B in Appendix 1; Fixed Rental Account means the fixed rental account as described in Appendix 1 herein; Foreign Jurisdiction means any country (including its territories, all jurisdictions within that country and any possession areas subject to its jurisdiction) other than Malaysia; Ijarah Documents means the following agreements: (i) Sale and Celcom); Purchase Agreement (ii) Supplemental Agreement (Sale and Purchase Agreement-Menara Celcom); (iii) Sale and Properties); (iv) Master Ijarah Agreement; (iv) Transfer Documents; and (vi) Property Management Agreement. Purchase Agreement (Menara (Other IS Guidelines means the Guidelines on the Offering of Islamic Securities issued by the SC; Issuer or MAB means Menara ABS Berhad (Company No. 669499-X) of 10th Floor, Wisma Havela Thakardas, No. 1, Jalan Tiong Nam, Off Jalan Raja Laut, 50350 Kuala Lumpur and includes its successors in title and assigns; Issue Date means in relation to any Sukuk the date of issue of such Sukuk; Issue Price means 100% of the aggregate principal amount of the Sukuk; Lead Arranger or Principal Adviser means Citibank; Lease means collectively the eight (8) lease arrangements for the Properties in the Portfolio between the Issuer (as the Lessor) and TM (as the Lessee) pursuant to the Master Ijarah Agreement; Lease Term means a term of fifteen (15) years commencing from the Commencement Date; Legal Maturity Date means in respect of each Tranche, the Legal Maturity Date corresponding to that Tranche as set out in the Mohamed Ridza & Co. Page | 9
  14. third column of the Table in Item 2 (f)(ii) of Appendix 1 herein; Lessee means Telekom Malaysia Berhad (Company No. 128740-P) of Level 51, North Wing, Menara TM, Jalan Pantai Baharu, 50672 Kuala Lumpur and includes its successors in title and assigns; Lessor means the Issuer; Master Ijarah Agreement means the agreement between the Issuer and the Seller (in the capacity of “Lessee”) under which leases of the Properties will be taken by the Seller (as Lessee); Menara Celcom means the property as described in detail in Appendix 4B of this Information Memorandum; Menara TM means the property as described in detail in Appendix 4A of this Information Memorandum; Paying Agent means Bank Negara Malaysia; Periodic Amount Distribution means the profit to be distributed semi annually to the Sukuk Holders in accordance with the provisions of the Trust Deed; Periodic Distribution Date means the last day of each six (6) months period commencing from the Issue Date and being the date on which a Periodic Distribution Amount is distributable; Periodic Distribution Rate means the rate of return on the Sukuk as set out Appendix 1 hereto and calculated on the Final Distirbution Amount; Properties means the properties as more particularly described in Appendix 4 of this Information Memorandum; Property Manager means TM and/or such other party appointed by the Lessor to act as the property manager in relation to the management and maintenance of the Properties throughout the Lease Term; Property Agreement means the agreement to be executed between the Issuer and the Property Manager under which the Property Manager will provide, inter alia, maintenance services to the Issuer in relation to the Properties; Management Purchase Price means the purchase price as set out in the Sale and Purchase Agreements payable by the Issuer for the purchase of the Properties from the Seller; Rating Agency means RAM Rating Services Berhad (Company No. 763588-T) of No. 19-G, The Boulevard, Mid Valley City, Lingkaran Syed Putra, 59200 Kuala Lumpur; Rent means the Fixed Rental and Additional Rental payable Mohamed Ridza & Co. Page | 10
  15. by the Lessee throughout the Lease Term ; Rental Account means a Shariah compliant income-generating account opened and maintained or to be opened and maintained by the Issuer (as the Lessor) under the Master Ijarah Agreement into which the Rent shall be credited into or caused to be credited into by TM (as the Lessee); Reserve Account means the Reserve Account to be opened by the Issuer in accordance with the provisions of the Trust Deed; RM or Ringgit Malaysia means the lawful currency of Malaysia; Sak means the singular of Sukuk; Sale and Agreements Purchase means the following agreements: (i) Sale and Purchase Agreement (Menara Celcom) dated 28th August, 2007; and (ii) Sale and Properties); Purchase Agreement (Other and shall include all amendments, supplemental and/or amendments made thereto; Sale and Purchase Agreement (Menara Celcom) means the Sale and Purchase Agreement (Menara Celcom) dated 28th August, 2007 entered into between the Issuer and Telekom Malaysia Berhad as supplemented or to be supplemented by a supplemental agreement for the purchase of Menara Celcom by the Issuer; Sale and Purchase Agreement (Other Properties) means the Sale and Purchase Agreement (Other Properties) entered or to be entered into between the Issuer and Telekom Malaysia Berhad for the purchase of Menara TM, Wisma TM Taman Desa and Cyberjaya Complex; SC means the Securities Commission, Malaysia; Seller means TM; Share Trustee means PB Trustee Services Berhad (Company No. 7968T), a corporation established under the Public Trust Corporation Act, 1995 and incorporated under the Companies Act, 1965 and having its registered address at 17th Floor, Menara Public Bank, 146, Jalan Ampang, 50450 Kuala Lumpur; Share Trustee Agreement means the share trustee agreement between the Share Trustee, the Issuer and the Trustee in relation to the holding of shares of the Issuer; Solicitors means M/s Mohamed Ridza & Co, Advocates & Mohamed Ridza & Co. Page | 11
  16. Solicitors of Unit No 50-10-9 , Level 10, Wisma UOA Damansara, No 50, Jalan Dungun, Damansara Heights, 50490 Kuala Lumpur; Sukuk / Sukuk Ijarah means the Islamic Securities of up to RM1,100 million issued or to be issued under the principle of Al-Ijarah by the Issuer in accordance with the Sukuk Issuance Agreement and the Trust Deed; Sukuk Holders means the holders of the Sukuk; Sukuk Issuance means the issue of Sukuk in series up to an aggregate nominal amount of RM1,100 million and is in connection with the purchase by the Issuer of the legal/beneficial ownership of the Properties; The Trust means the trust constituted over the Trust Assets upon the terms set out in the Declaration of Trust; Transaction Accounts means the following accounts: (a) (b) (c) (d) (e) (f) (g) (h) (i) Transaction Documents Fixed Rental Account; Additional Rental Account; Operations Account; Final Distribution Account I; Final Distribution Account II; Reserve Account; Sub-Rental Account; Deposit Account; and Wadiah Account refers collectively to the following: (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) (l) Sale and Purchase Agreements; Master Ijarah Agreement; Transfer Documents; Property Management Agreement; Declaration of Trust; Trust Deed; Transaction Administration Agreement; Facility Agency Agreement; Sukuk Issuance Agreement; Depository and Paying Agency Agreement; Share Trustee Agreement; and Sukuk. Transaction Administration Agreement means the transaction administration agreement of even date between the Transaction Administrator and the Issuer in relation to the administration of the Transaction Accounts; Transfer Documents means the valid and registrable Memorandum of Transfer in Form 14A of the National Land Code 1965 with respect to each of the Properties; Mohamed Ridza & Co. Page | 12
  17. TM or Originator means Telekom Malaysia Berhad (Company No. 128740-P), a company incorporated in Malaysia under the Companies Act, 1965 and having its registered address at Level 51, North Wing, Menara TM, Jalan Pantai Baharu, 50672 Kuala Lumpur; TM Group means TM, Celcom (Malaysia) Berhad, a company incorporated in Malaysia with its registered address at 15th Floor, Menara Celcom, No. 82, Jalan Raja Muda Abdul Aziz, 50300 Kuala Lumpur and TM International Berhad, a company incorporated in Malaysia with its registered address at Level 51, North Wing, Menara TM, Jalan Pantai Baharu, 50672 Kuala Lumpur; Total Loss Event total loss or destruction of or damage to the whole of the Properties or any part(s) thereof, as the case may be or any event or occurrence that renders the whole of the Properties or any part(s) thereof permanently unfit for any economic use; Trust Assets means the Issuer’s legal and beneficial title to the Properties, all of the Issuer’s rights, title, interest and benefit, present and future, in to and under the Ijarah Documents to which it is a party and all monies standing to the credit of the Transaction Accounts and all proceeds from or realization of the foregoing; Trustee means Amanah Raya Berhad (Company No. 344986-V), a corporation established under the Public Trust Corporation Act, 1995 and incorporated under the Companies Act, 1965 and having its registered address at Tingkat 15, Wisma AmanahRaya, No. 2, Jalan Ampang, 50450 Kuala Lumpur, being the trustee for the Sukuk Holders (who is not, for the avoidance of doubt, the holder of the Trust Assets, which function is undertaken by the Issuer); Trigger Event means those events described as such in item (z) of Appendix I being events which trigger a repossession and sale of the Properties by the Issuer; Trust Deed means the trust deed between the Issuer and the Trustee in relation to the Sukuk Ijarah; Valuer means Henry Butcher Malaysia Sdn Bhd (Company No. 160636-P), a company incorporated in Malaysia and having its registered address at No. 25, Jalan Yap Ah Shak, 50300 Kuala Lumpur; Wisma TM Taman Desa means the property as described in detail in Appendix 4D of this Information Memorandum. THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK Mohamed Ridza & Co. Page | 13
  18. 2 . EXECUTIVE SUMMARY This summary highlights information contained elsewhere in this Information Memorandum. This summary is qualified by, and must be read in conjunction with, the more detailed information appearing elsewhere in this Information Memorandum. Prospective investors should read this entire Information Memorandum carefully, including the section title “Investment Considerations” and the audited financial statements and related notes of the Originator. 2.1 Introduction The Issuer proposes to raise funds by issuing Sukuk based on the Shariah principle of Al-Ijarah under an Islamic asset-backed sukuk ijarah issuance (“the Sukuk Issuance”). The Sukuk Issuance comprises of a series of transactions (which is further described in detail below) and the Properties as herein identified shall form the subject matter of the transactions. 2.2 Description of the Transaction Structure A schematic diagram of the transaction is set out below:- Class A Sells Property TM (Seller / Master Lessee) Lease Agreement Menara ABS Berhad (Lessor) Sub-lease Agreement Issues Sukuk Certificates Class B Class C Tenants 2.2.1 Description of the Transaction (a) The Sale and Purchase Transaction Prior to the Sukuk Issuance, the Issuer shall enter into two (2) sale and purchase agreements with TM (as the Seller), namely the Sale and Purchase Agreement (Menara Celcom) and the Sale and Purchase Agreement (Other Properties) wherein the Seller shall sell and transfer the legal / beneficial title to the Properties to the Issuer in consideration of the Purchase Price as set out in the respective Sale and Purchase Agreements. The Purchase Price which shall be in reference to the appraised fair market value of the Properties, shall be determined at least five (5) days prior to execution of the Sale and Purchase Mohamed Ridza & Co. Page | 14
  19. Agreements (other Properties) shall at all times comply with the Securities Commission’s Syariah Advisory Council Pricing Guidelines. (b) The Lease Transaction Following the execution of the Sale and Purchase Agreement, the Issuer will enter into a Master Ijarah Agreement whereby the Issuer (as the Lessor) shall immediately lease the Properties back to TM (as Lessee) for a 15-year period under the Ijarah principles in consideration of periodic lease rentals being paid by TM (with the sub-tenant’s existing lease arrangements with TM remaining unchanged) TM shall pay the Fixed Rental for each of the Leases by crediting the same into the Rental Account monthly in advance, the first of such Fixed Rental to commence on the Commencement Date and thereafter on or before the seventh (7th) day of each and every succeeding calendar month. The Additional Rental (if any) shall be paid on the next Fixed Rental payment date upon its incurrence. By end of Year 12 from the issue Date the Issuer (as Lessor) shall offer TM (as Lessee) the right of first refusal to renew the lease over all the Properties on market terms (Lease Option) which is exercisable by TM within three (3) months. The Issuer may at any time during the period thirty-three (33) months prior to expiration of the Lease Term under the Master Ijarah Agreement, at its discretion, offer TM the right of first refusal to purchase all or any one of the Properties with the purchase price determined in reference to the then fair market value as determined by an independent property appraiser appointed by the Issuer in consultation with TM (Purchase Option). Upon TM choosing not to exercise the right to purchase such Properties or if exercised but for whatever reason TM fails to complete the purchase, the Issuer shall have the right to sell such Properties to interested third party(ies) on the condition that such sale is subject to TM’s lease over such Properties and its rights over such Properties as set out in the Master Ijarah Agreement remaining intact. In the event the Lessee does not exercise the Lease Option or the Lessee decides not to proceed with the Purchase Option (when offered) in relation to all or any of the Properties within the specified time frame, the Lessee shall have to vacate and return the relevant Properties to the Lessor on expiry of the Lease Term. (c) Declaration of Trust Concurrently with the above transactions, the Issuer will declare by way of a Declaration of Trust that it will hold the Trust Assets upon trust absolutely for the Sukuk Holders. Depending on the class and tranche of Sukuk held by each Sukuk Holder, the Sukuk Holders will have a percentage of the undivided beneficial ownership of the Trust Assets. For the avoidance of doubt, the Issuer shall be a bare trustee holding only the Trust Assets on trust for the Sukuk Holders. Save as otherwise specified in the Transaction Documents, the Issuer shall not exercise any agency or administrative function in relation to the Sukuk Holders and the Sukuk Holders’ rights under the Transaction Documents. All Mohamed Ridza & Co. Page | 15
  20. such agency or administrative functions in relation to inter alia convening meetings of Sukuk Holders , enforcement of the Transaction Documents, receiving on behalf of the Sukuk Holders all documents as are required to be delivered by the Issuer and all other functions pertaining to the administration, preservation and enforcement of the Sukuk Holders rights shall be carried out by the Trustee only. (d) Issuance of the Sukuk The Issuer will issue Sukuk to investors and the proceeds from the sale of the Sukuk will be utilised by the Issuer to settle the purchase price of the Properties pursuant to the Sale and Purchase Agreements. The Sukuk will be issued in three (3) classes of Sukuk, namely A Tranche Sukuk, B Tranche Sukuk and C Tranche Sukuk from Class A, Class B and Class C respectively. The breakdown amount for the different Sukuk tranches and their respective tenors are as follows: Sukuk Tranches Issue size (RM million) Up to A1 A2 A3 A4 B1 B2 B3 C 240 55 40 10 30 40 85 650 Total 1,100 Expected Maturity Date (Years from Issuance) 13 13 13 13 7 10 13 13 Legal Maturity Date (Years from Issuance) 15 15 15 15 7 10 13 15 Each issue of Sukuk will be represented by a global certificate at the time of issuance. The global certificate for the ABC Sukuk will be deposited with Bank Negara Malaysia, as Central Depository. Each issuance of Sukuk shall be issued in the denomination of Ringgit Malaysia One Million (RM1,000,000-00) and multiples thereof. The global certificate may be exchanged for definitive bearer form certificate only in certain limited circumstances. During the tenor of the Sukuk, the Issuer will distribute the Rent received from the Lessee to the Sukuk Holders on each Periodic Distribution Date. The Sukuk do not represent debt obligations of the Issuer, but will represent the following undivided beneficial ownership of the respective Sukuk Holders in the Properties and the right to the cashflow therefrom and each Sak will rank pari passu with all other Sukuk only within each of the respective Tranches. Mohamed Ridza & Co. Page | 16
  21. Sukuk Holders 1 . 2. 3. 4. 5. 6. 7. 8. A1 Tranche Sukuk Holders A2 Tranche Sukuk Holders A3 Tranche Sukuk Holders A4 Tranche Sukuk Holders B1 Tranche Sukuk Holders B2 Tranche Sukuk Holders B3 Tranche Sukuk Holders C Tranche Sukuk Holders Total % of undivided beneficial ownership in the Properties Up to 20 6.0 5.0 2.0 2.0 3.0 5.0 57.0 100% There are no credit enhancement and/or liquidity facilities to be provided by any party. The Periodic Distribution Rate and the proceeds of the Properties are the sole source of payments for the periodic distribution and redemption of the Sukuk at maturity. The Sukuk do not represent an interest or obligation of any of the Issuer, the Originator or any of their affiliates. Accordingly Sukuk Holders will have no recourse to any assets of the Issuer, the Originator (to the extent it fulfils all of its obligations under the Master Ijarah Agreement) or any of their affiliates in respect of any shortfall in the expected amounts from the Trust Assets. (e) Subscription of the Sukuk by TM TM may at any time and from time to time during the duration of the Sukuk purchase any of the A Tranche Sukuk and/or B Tranche Sukuk issued by the Issuer up to ten per centum (10%) of the original amount of the A Tranche Sukuk and B Tranche Sukuk issued by the Issuer at market value prior to their respective Final Distribution Date. If TM is the only primary subscriber resulting in TM holding more than ten per centum (10%) of the A Tranche Sukuk and B Tranche Sukuk issued, TM must endeavour to place out such excess A Tranche Sukuk and B Tranche Sukuk within a period of not more than three (3) months from the date of issuance of such A Tranche Sukuk and B Tranche Sukuk. For the avoidance of doubt, the C Tranche Sukuk may not be purchased as it is non-tradeable. (f) Description of the respective classes of Sukuk A detailed description of each of the respective classes of Sukuk is set out in Appendix 1 herein. An important point to note for potential investors for the Class A Sukuk and the Class C Sukuk (which point is elaborated in detail under Appendix 1 and Section 7 hereto) is that redemption of the Class A Sukuk and (if the redemption is in cash and not in kind) the Class C Sukuk shall be from the proceeds of sale of the Properties whenever any such sale occurs. Any sale of the Properties whether pursuant to a Trigger Event or otherwise will be subject to the directions of the Sukuk Holders (in accordance with their relative voting rights). Both the Class A Sukuk and the Class C Sukuk are expected to be redeemed on the Expected Maturity Date i.e on the thirteenth anniversary of the Issue Date although the Legal Maturity Date (i.e. the date upon which a failure to redeem would constitute a Dissolution Event) is only on the fifteenth anniversary of the Issue Date. Mohamed Ridza & Co. Page | 17
  22. 3 . 3.1 THE ISLAMIC ASSET-BACKED SUKUK IJARAH ISSUANCE Introduction The Islamic Asset-Backed Sukuk Ijarah Issuance (“the Sukuk Issuance”) comprises of the following transactions:(i) (ii) (iii) 3.2 sale and purchase of the Properties; Lease back of the Properties; Issuance of Sukuk of up to RM1,100 Million based on the Shariah principle of Al-Ijarah. Brief Description of Properties The Properties which are the subject matter of the sale and purchase transaction, the lease arrangement and the Sukuk issuance are identified as follows:- (A) MENARA TM Menara TM is a 55-storey, 310 meter (equivalent to 77-storeys) tall office tower located at Jalan Pantai Baharu, 50672 Kuala Lumpur which is approximately 5 kilometers due southwest from the centre of Malaysia’ capital city Kuala Lumpur. The tower is erected on 30,708 sq. m. (approx. 330,549 sq. ft.) of land held under HSM 3885, Lot PT 3901, Jalan Pantai Baru, Mukim Kuala Lumpur, Daerah Kuala Lumpur and is complemented with a podium block comprising of:(i) (ii) (iii) (iv) (v) (vi) four-level 1,600 lot basement car park; multi-purpose hall; two-storey surau / childcare centre; medical centre; sports centre; and five storey auditorium (undergoing fitting-out works). Menara TM is the headquarters of TM and is able to house 7,000 occupants with an accumulative Net Lettable Area of 1,084,146.29 sq. ft. (comprising of office tower of 992,169 sq. ft. and podium block (ancillary building) of 91,977 sq. ft) It is conveniently situated in the immediate vicinity of an established commercial and residential development that is decentralized from Kuala Lumpur city and is efficiently served by public road and rail transportation. The issue document of title of the land on which Menara TM is located has the following description:Title No Lot No. Place Mukim Mohamed Ridza & Co. : : : : HS(M) 3885 P.T. 3901 Jalan Pantai Baru Kuala Lumpur Page | 18
  23. District State Tenure Land Area Annual Land Rent Category of Land Use Express Condition Restriction In Interest Registered Owner Encumbrances Endorsement : : : : : : : : : : : Kuala Lumpur Wilayah Persekutuan Freehold 30,708 sq.m. RM105,943.00 Nil Nil Not stated Telekom Malaysia Berhad Nil Nil [*Note: The particulars above are as at the date of this Information Memorandum] The appraised value on a long term lease is RM817,530,000 based on a valuation report dated 18th May 2007 and an update letter dated 5th December 2007 prepared and issued by the Valuer. A more detailed description of Menara TM is attached hereto as Appendix 4(A). (B) MENARA CELCOM Menara Celcom is a 22-storey tall office tower located at No. 82, Jalan Raja Muda Abdul Aziz, 50300 Kuala Lumpur which is at the intersection of Jalan Raja Muda Abdul Aziz, approximately 3 kilometres due east of the Kuala Lumpur city centre. The tower is erected on 9,107.823 sq.m. of land held under HS(D) 64439, Lot PT 24 Seksyen 87A, Jalan Semarak, Bandar and Daerah Kuala Lumpur and comprises of a 6-storey exchange building annex and a 593 bay, 5-level basement car park. The buildings of Menara Celcom have an estimated total Net Lettable Area of 311,604 sq. ft. (comprising of office tower of 304,348 sq. ft and exchange building annex of 7,256 sq. ft.) Menara Celcom is located within an area designated for commercial purposes and is accessible via Jalan Raja Muda Aziz or Jalan Tun Razak, an important arterial distributor road, linking the northern and southern suburbs bypassing the City’s Central Business District (CBD). Public transportation in the form of buses, taxis and rail are easily available in the vicinity. The issue document of title of the land on which Menara Celcom is located has the following description:Title No Lot No. Section Locality Town District State Tenure : : : : : : : : Provisional Land Area Annual Land Rent Category of Land Use Express Condition : : : : Restriction In Interest : Mohamed Ridza & Co. HS(D) 64439 P.T. 24 087A Jalan Semarak Kuala Lumpur Kuala Lumpur Wilayah Persekutuan Leasehold for a term of 99 years expiring on 10th December, 2087 9,107.823 sq.m. RM41,897.00 Bangunan Tanah ini hendaklah digunakan untuk bangunan perdagangan bagi tujuan pejabat sahaja Tanah ini tidak boleh dipindahmilik, dipajak Page | 19
  24. Registered Owner Encumbrances Endorsement : : : dan dicagar melainkan dengan kebenaran Jawatankuasa Kerja Tanah Wilayah Persekutuan Kuala Lumpur Telekom Malaysia Berhad Nil No. Pers. 198/1997 Kelulusan serahbalik sebahagian tanah No. Pers.564/1996 seluas lebih kurang 2517 meter persegi dan cukai dipinda kepada RM26,368.00 didaftarkan pada 22 April, 1997. [*Note: The particulars above are as at the date of this Information Memorandum] The appraised value on a long term lease is RM147,920,000.00 based on a valuation report dated 18th May 2007 and an update letter dated 5th December 2007 prepared and issued by the Valuer. A more detailed escription of Menara Celcom is attached hereto as Appendix 4(B). (C) CYBERJAYA COMPLEX The Cyberjaya Complex is a 4-storey office building located at 3300, Lingkaran Usahawan 1 Timur, 63000 Cyberjaya, Selangor which is situated approximately 9 km and 37 km due southwest of Putrajaya and Kuala Lumpur City Centre respectively. The building is erected on part of land held under HS(D) 7791, Lot PT 12056, Mukim of Dengkil, District of Sepang and State of Selangor and comprises of a 1-level basement car park. The net lettable area of the building is approximately 94,710 sq. ft. On 26th March 2007 approval was obtained by Telekom Malaysia Berhad to subdivide the master title of the land on which Cyberjaya Complex is erected. The original master title has since been surrendered to the land authorities for sub-division and is pending issuance of the individual sub-divided issued documents of title. The appraised value on a long term lease is RM33,525,000.00 based on a valuation report dated 18th May 2007 and an update letter dated 5th December 2007 prepared and issued by the Valuer. A more detailed description of the Cyberjaya Complex is attached hereto as Appendix 4(C). (D) WISMA TM TAMAN DESA Wisma TM Taman Desa is a 12½ storey building located at Jalan Desa Utama, 58100 Kuala Lumpur which is about 7km southwest from Kuala Lumpur City Centre. The building is erected on land held under HS(D) 71280, PT No 3569, Mukim and Daerah of Kuala Lumpur and State of Wilayah Persekutuan and comprises of a 2-level basement car park. The net lettable area of the building is approximately 81,761 sq. ft. The issue document of title of the land on which Menara TM Taman Desa is located has the following description:Title No Lot No. Town District Mohamed Ridza & Co. : : : : HS(D) 71280 P.T. 3569 Kuala Lumpur Kuala Lumpur Page | 20
  25. State Tenure Land Area Annual Land Rent Category of Land Use Express Condition : : : : : : Restriction In Interest Registered Owner Encumbrances Endorsement : : : : Wilayah Persekutuan Freehold 4,230 sq.m. RM14,594.00 Bangunan Tanah yang di maksudkan ini hendaklah digunakan untuk maksud perdagangan NIL Telekom Malaysia Berhad Nil Nil [*Note: The particulars above are as at the date of this Information Memorandum] The appraised value on a long term lease is RM30,440,000.00 based on a valuation report dated 18th May 2007 and an update letter dated 5th December 2007 prepared and issued by the Valuer. A more detailed description of Wisma TM Taman Desa is attached hereto as Appendix 4(D). 3.3 Notes relating to the Sukuk Ijarah 3.3.1 Voting Rights The Sukuk Holders have voting rights with respect to the Properties in the following situations:(i) On the occurrence of a Trigger Event whereby the Sukuk Holders shall make a determination on such sale of the Properties; or (ii) For the declaration of a Termination Event under the Master Ijarah Agreement; or (iii) On the occurrence of a Total Loss Event whereby the Sukuk Holders shall make a determination on whether to reconstruct the affected Property(ies) or to utilise the Takaful proceeds to redeem the outstanding Sukuk; Details of the respective Sukuk Holders’ voting rights are as set out in Appendix 1 hereto. 3.3.2 Gross-up Withholding Tax The Rent payable by the Lessee pursuant to the Master Ijarah Agreement shall be grossed-up to cater for any value added tax/good and services tax or consumption tax imposed (if applicable). 3.3.3 Risk inherent to the ABC Sukuk The risk involved in investing in the Sukuk are set out in Section 7 of this Information Memorandum. 3.4 Principal Terms and Conditions of the Transactions The principal terms and conditions of the transactions are set out in detail in Appendix 1 hereto. Mohamed Ridza & Co. Page | 21
  26. 4 . RATINGS As at the date of this Information Memorandum, RAM has assigned the following rating for the Sukuk: A1 Tranche A2 Tranche A3 Tranche A4 Tranche B1 Tranche B2 Tranche B3 Tranche C Tranche AAA * AA2 ** A1*** A2*** AAA - rating watch (developing outlook) AAA – rating watch (developing outlook) AAA – rating watch (developing outlook) Not rated • The rating of B Tranche Sukuk is under rating watch and is subject to changes at any time before issuance of the Sukuk. The B Tranche Sukuk will carry rating equal to that of TM. * An AAA rating is judged by RAM to be of the best quality and offer the highest safety for timely payment of financial commitments under the Sukuk. ** An AA rating is judged by RAM to be of high safety for timely payment of financial commitments under the Sukuk. The subscript 2 indicates that the Sukuk is at a mid-ranking end of its generic rating category. *** An A rating is judged by RAM to be more susceptible to changes in circumstances and economic conditions than the Sukuk in the higher-rated categories. The subscript 1 indicates that the Sukuk ranks at the higher end of its generic rating category and the subscript 2 indicates a mid-ranking. A rating is not a recommendation to buy, sell or hold securities and may be subject to revision, suspension or withdrawal at any time by the assigning rating organisation. THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK Mohamed Ridza & Co. Page | 22
  27. 5 . UTILISATION OF PROCEEDS The Issuer shall first utilise the proceeds towards payment into the Reserve Account to satisfy the reserve requirement and upfront expenses, if any, and the balance thereof towards payment of the Purchase Price to TM, as Seller. TM intends in turn to utilise the Purchase Price for the following purposes:1. 2. 3. 4. capital management; investment; capital expenditure; and/or working capital. At this juncture, TM is not able to determine the specific amount to be allocated for each of the above purposes. The utilisation of the proceeds of the Sukuk will be used for Shariah compliant purposes. Neither the Trustee nor the Principal Adviser/Lead Arranger shall be obliged nor be deemed to assume any responsibility to ensure that the proceeds of the Sukuk are utilised as indicated above. THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK Mohamed Ridza & Co. Page | 23
  28. 6 . INFORMATION ON THE ISSUER AND THE ORIGINATOR 6.1 Description on the Issuer 6.1.1 Corporate Information The Issuer was incorporated under the Companies Act as a public company limited by shares on 15 October 2004 for the special purpose of issuing the Sukuk under the proposed Sukuk Issuance. The Issuer is a special purpose company whose principal activities are limited to implementing asset securitisation programmes, including raising funds through issuance of the Sukuk to purchase several properties from TM and entering into a long-term lease arrangement with TM. 6.1.2 Share Capital The authorised, issued and paid up share capital of the Issuer as at 30 September 2007 are as follows: 6.1.3 • Authorised share capital • Issued and fully paid-up RM100,000.00 divided into 100,000 shares of RM1.00 each. RM2.00 divided into 2 ordinary shares of RM1.00 each. Subsidiaries and Associated Companies The Issuer does not have any subsidiaries or associated companies. 6.1.4 Substantial Shareholders of the Issuer The substantial shareholder of the Issuer and its shareholding in the Issuer based on the Register of Substantial Shareholders as at 30 September 2007 are as follows:Shareholders PB Trustee Services Berhad Country of incorporation Malaysian ---------------------No. of shares held--------------Direct % Indirect % 2 100 - - The Issuer is a non- bumiputra controlled company. The shares of the Issuer are wholly owned and registered in the name of PB Trustee Services Sdn Bhd (the “Share Trustee”). 6.1.5 Board of Directors As at 30 September 2007 the Board of Directors of the Issuer consists of two (2) Directors. Sets out below are brief biographies of each of the Directors. Johan Nor Zaimi Bin Johari Director Mohamed Ridza & Co. Page | 24
  29. 35 years of age – Malaysian Encik Johan Nor Zaimi bin Johari graduated with LLB (Hons) from Universiti Kebangsaan Malaysia in 1996. He then pursued the Certificate of Occupational Safety and Hazards in 1999. Johan read in Chambers of Messrs. Majid & Chen and Messrs Baharuddin Ali & Co. in 1996 and was called to the Malaysian Bar as an Advocate & Solicitor of the High Court of Malaya in April 1997. He joined Messrs. Lim Kean Siew & Co. as a legal assistant in 1997 until March 1998. Subsequently he set up Messrs Johan & Co, Shah Alam and practised there for a year plus as a sole proprietor. He later joined Ho Hup Construction Berhad as a Legal Manager at the end of 1999 and was in charged of the legal affairs of Ho Hup Construction Berhad until October 2002. Thereafter, he re-opened Messrs Johan & Co. and practised as a sole proprietor in Pandan Indah, Kuala Lumpur. He ceased practice in 2005. Currently he is doing legal consultancy for Selangor Youth Council and other Selangor State Companies or Organization. Mahadi bin Nordin Director 35 years of age – Malaysian Encik Mahadi Nordin is an Advocate & Solicitor of the High Court of Malaya and is a registered Trademark Agent with Perbadanan Harta Intelek Malaysia. He graduated with LLB (Hons) from Universiti Kebangsaan Malaysia in 1995. He then pursued the Syariah Law Study under the DSLP programme in Islamic University of Malaysia (IIUM) in 2003. Mahadi read in Chambers of Messrs. Azman Davidson & Co. in 1995 and later, joined C.C. Lim & Co. as a partner in 1996. He then rejoined Messrs Azman Davidson & Co. in 1997 and was attached thereof for 7 years as Legal Assistant where he worked very closely with the Managing Partner of the firm, Mr. Francis Tan. Currently he is the principal partner of Messrs Nizam Haswira & Partners in its Ampang branch. 6.2 Description of The Originator 6.2.1 Corporate Information TM was incorporated under the Companies Act as a public company limited by shares on 12 October 1984 in Malaysia. TM was incorporated under the name of Syarikat Telekom Malaysia Berhad as a successor to Jabatan Telekom Malaysia. On 7 November 1990, TM’s shares were listed on the Main Board of the Bursa Malaysia Securities Berhad (previously known as the Kuala Lumpur Stock Exchange). TM changed to its present name on 6 June 1991. TM’s principal activities are the establishment, maintenance and provision of telecommunication and related services under the licence issued by the Ministry of Energy, Water and Communications. 6.2.2 Share Capital Mohamed Ridza & Co. Page | 25
  30. The authorised , issued and paid up share capital of the Originator as at 30 September, 2007 are as follows: Share capital as at 30 September 2007 Description RM Authorised Share Capital 5,000,000,000 ordinary shares of RM1.00 each 1 Special Rights Redeemable Preference Share of RM1.00*1 1,000 Class A Redeemable Preference Shares (“RPS”) of RM0.01 each*2 1,000 Class B RPS of RM0.01 each*2 2,000 Class C Non-Convertible RPS (“NCRPS”)of RM1.00 each 1,000 Class D NCRPS of RM1.00 each Total Issued and fully paid-up 3,439,809,680 ordinary shares of RM1.00 each 1 Special Rights Redeemable Preference Share of RM1.00*1 2,000 Class C NCRPS of RM1.00 each 925 Class D NCRPS of RM1.00 each Total 5,000,000,000 1 10 10 2,000 1,000 5,000,003,021 3,439,809,680 1 2,000 925 3,439,812,606 Note :*1 On 11 September 1990, one (1) Special Rights Redeemable Preference Share was issued to the MoF Inc. The Special Rights Redeemable Preference Share enables the Government of Malaysia through the MoF to ensure that certain major decisions affecting the operations of TM are consistent with Government policies. The shareholder to this Redeemable Preference Share (“Special Shareholder”), which may only be the Government or any representative or person acting on its behalf, is entitled to receive notices of meetings but not to vote at such meetings of TM. However, the Special Shareholder is entitled to attend and speak at such meetings. The Special Shareholder has the right to appoint any person, but not more than six (6) at any time, to be Government Appointed Directors. Certain matters, in particular the alteration of the Articles of Association of TM relating to the rights of the Special Shareholder, creations and issues of additional shares which carry different voting rights, the dissolution of TM, substantial disposals of assets, amalgamations, mergers and takeovers, require the prior consent of the Special Shareholder. The Special Shareholder does not have any right to participate in the capital or profits of TM but the Special Shareholder has the right to require TM to redeem the Special Rights Redeemable Preference Share at par at any time. *2. TM had on 12 December 2003 issued 1,000 Class A RPS and 1,000 Class B RPS to Rebung Utama Sdn Bhd (“RUSB”) pursuant to the terms of the TM Subscription Agreement dated 9 December 2003 entered into between TM as the issuer, CIMB and Deutcshe Bank (Malaysia) Berhad as the lead arrangers and lead managers and RUSB as the subscriber. On 20 July 2007, TM fully redeemed the Class A RPS and Class B RPS Mohamed Ridza & Co. Page | 26
  31. and in consideration , issued 2,000 Class C NCRPS of RM1.00 each and 925 Class D NCRPS of RM1.00 each. 6.2.3 Financial Information Kindly refer to Appendix 6 and 7 hereto. 6.2.4 Subsidiaries, Jointly-Controlled Entities and Associated Companies TM’s subsidiaries, jointly-controlled entities and associated companies as at 30 September 2007 are as follows: Name of company Date and place of incorporation Group’s effective equity interest % Fiberail Sdn Bhd 17.12.1989 Malaysia 54 Installation and maintenance of optic fibre telecommunication system along the railway corridor in Peninsular Malaysia GITN Sdn Berhad 13.03.1996 Malaysia 100 Provision of managed network services and enhanced value added telecommunication and information technology services Hijrah Pertama Berhad (formerly known as Hijrah Pertama Sdn Bhd, formerly known as Malaysian Logistics Sdn Bhd) 25.03.1996 Malaysia 100 Special purpose vehicle Intelsec Sdn Bhd 06.10.1995 Malaysia 100 Dormant Mediatel (Malaysia) Sdn Bhd 06.06.1995 Malaysia 100 Investment holding Menara Kuala Lumpur Sdn Bhd 25.10.1989 Malaysia 100 Management and operation of the telecommunication and tourism tower of Menara Kuala Lumpur Mobikom Sdn Bhd 11.12.1989 Malaysia 100 Provision/transmission of voice and data through the cellular system Parkside Properties Sdn Bhd 23.11.1993 Malaysia 100 Dormant Rebung Utama Sdn Bhd 28.06.2003 Malaysia 100 Special purpose entity Tekad Mercu Berhad 03.07.2003 Malaysia 100 Special purpose entity Principal activities Subsidiaries Mohamed Ridza & Co. Page | 27
  32. Name of company Date and place of incorporation Group ’s effective equity interest % Telekom Applied Business Sdn Bhd 16.12.1997 Malaysia 100 Provision of software development and sale of software products Telekom Consultancy Sdn Bhd 21.01.1989 Malaysia 51 Dormant Telekom Enterprise Sdn Bhd (“TESB”) 11.12.1989 Malaysia 100 Investment holding Telekom Malaysia-Africa Sdn Bhd 16.02.1994 Malaysia 100 Investment holding Telekom Malaysia (Hong Kong) Limited 18.10.2000 Hong Kong 100 Provision of international telecommunication services Telekom Malaysia (S) Pte Ltd 10.04.2002 Singapore 100 Provision of international telecommunication services Telekom Malaysia (UK) Limited 11.08.2000 United Kingdom 100 Provision of international telecommunication services Telekom Malaysia (USA) Inc 26.05.2000 USA 100 Provision of international telecommunication services Telekom Multi-Media Sdn Bhd 06.06.1995 Malaysia 100 Investment holding and provision of interactive multimedia communication services and solutions Telekom Payphone Sdn Bhd 21.01.1989 Malaysia 100 Investment holding Telekom Research & Development Sdn Bhd 01.07.1997 Malaysia 100 Provision of research and development activities in the areas of telecommunication and multimedia, hitech applications and products and services in related business Telekom Sales and Services Sdn Bhd 11.12.1989 Malaysia 100 Trading in customer premises equipment and maintaining telecommunication equipment Telekom Technology Sdn Bhd 17.10.1997 Malaysia 100 Dormant Telesafe Sdn Bhd 07.09.1995 Malaysia 100 Dormant TM Cellular (Holdings) Sdn Bhd 22.07.1994 Malaysia 100 Dormant TM Global Incorporated 22.04.1999 Federal Territory, Labuan 100 Investment holding Mohamed Ridza & Co. Principal activities Page | 28
  33. Name of company Date and place of incorporation Group ’s effective equity interest % TM Facilities Sdn Bhd 02.11.1995 Malaysia 100 Provision of facilities management services and property development activities TM Info-Media Sdn Bhd 21.01.1989 Malaysia 100 Provision of printing and publications services TM International (Cayman) Ltd 22.09.1998 British West Indies, USA 100 Dormant TM International Sdn Bhd (“TM International”) 12.06.1992 Malaysia 100 Investment holding and provision of telecommunication and consultancy services on an international scale TM Net Sdn Bhd 25.10.1997 Malaysia 100 Provision of Internet related services TM Payphone Sdn Bhd*1 15.07.1993 Malaysia 100 Provision of national payphone network and related services Universiti Telekom Sdn Bhd 26.06.1997 Malaysia 100 Managing and administering a private university known as Multimedia University VADS Berhad 29.11.1990 Malaysia 65.12 Provision of international and national managed network services for businesses and organisations Principal activities Subsidiaries held through Telekom Enterprise Sdn Bhd Celcom (Malaysia) Berhad (“Celcom”) 05.01.1988 Malaysia 100 Provision of network capacity and services Mobitel Sdn Bhd 22.01.1993 Malaysia 100 Dormant Subsidiary held through Telekom Multi-Media Sdn Bhd Telekom Smart School Sdn Bhd 22.06.1999 Malaysia 51 Implementation of government smart school project, provision of multimedia education systems and software, portal services and other related services 100 Dormant 100 Dormant / Property development activities Subsidiary held through TM Info-Media Sdn Bhd Cybermall Sdn Bhd 05.09.1995 Malaysia Subsidiaries held through TM Facilities Sdn Bhd TM Land Sdn Bhd Mohamed Ridza & Co. 24.10.1996 Malaysia Page | 29
  34. Name of company Date and place of incorporation Group ’s effective equity interest % TMF Autolease Sdn Bhd 15.07.1993 Malaysia 100 Provision of fleet management and services TMF Services Sdn Bhd 28.11.1995 Malaysia 100 Provision of facilities management services Principal activities Subsidiaries held through TM International TM International (L) Limited 21.02.1997 Federal Territory, Labuan 100 Investment holding Telekom Management Services Sdn Bhd 16.11.1994 Malaysia 100 Provision of consultancy and engineering services in telecommunication and related area TMI Mauritius Ltd 03.06.1997 Republic of Mauritius 100 Investment holding G-Com Limited 20.11.1996 Ghana 100 Investment holding Telekom Malaysia International (Cambodia) Company Limited (formerly known as Cambodia Samart Communication Company Limited) 04.08.1994 Cambodia 100 Provision of mobile telecommunication services in Cambodia 100 Investment holding Subsidiary held through TMI Mauritius Ltd TMI India Ltd 03.01.1996 Republic of Mauritius Subsidiaries held through TM International (L) Limited Dialog Telekom PLC 27.08.1993 Sri Lanka 84.83 TESS International Ltd 18.11.1998 Republic of Mauritius 100 Dormant TM International (Bangladesh) Limited 22.06.1995 Bangladesh 70 Provision of mobile telecommunication services in Bangladesh TM International Lanka (Private) Limited 22.03.1996 Sri Lanka 100 Investment holding Indocel Holding Sdn Bhd 25.10.1995 Malaysia 100 Investment holding Mohamed Ridza & Co. Provision of mobile telecommunication services in Sri Lanka Page | 30
  35. Name of company Multinet Pakistan (Private) Limited Date and place of incorporation Group’s effective equity interest % 04.11.1996 Pakistan 89 Principal activities Provision of cable television services, information technology (including software development), telecommunication and multimedia services in Pakistan Subsidiary held through Indocel Holding Sdn Bhd PT Excelcomindo Pratama Tbk 06.10.1989 Indonesia 67.02 Provision of mobile telecommunication services in Republic of Indonesia Subsidiaries held through PT Excelcomindo Pratama Tbk Excel Phoneloan 818 BV 12.05.1997 Netherlands 100 Dormant Excelcomindo Finance Company BV 23.12.2003 Netherlands 100 Dormant GSM One (L) Limited 17.12.1996 Federal Territory, Labuan 100 Dormant GSM Two (L) Limited 24.11.1997 Federal Territory, Labuan 100 Dormant Subsidiaries held through Dialog Telekom PLC Dialog Broadband Networks (Private) Limited 27.08.1993 Sri Lanka 100 Provision of voice and data communication systems, radio and television broadcasting systems and mobile radio communication systems in Sri Lanka Dialog Television (Private) Limited (formerly known as Asset Media (Private) Limited) 09.01.2004 Sri Lanka 100 Provision of information technology including data, content transmission services, audio visual services and television programmes services Subsidiaries held through Dialog Television (Private) Limited (formerly known Asset Media (Private) Limited) Communiq Broadband Network (Private) Limited 13.09.2004 Sri Lanka 100 Provision of information technology including data, content transmission services, audio visual services and television programmes services CBN Sat (Private) Limited 29.06.2005 Sri Lanka 100 Provision of manufacturing, assembling, importing and exporting of electronic consumer products and audio visual goods Mohamed Ridza & Co. Page | 31
  36. Name of company Date and place of incorporation Group ’s effective equity interest % Principal activities Subsidiary held through Universiti Telekom Sdn Bhd Unitele Multimedia Sdn Bhd 25.01.1999 Malaysia 100 Adopting research ideas from Multimedia University for further development and prototyping, directing consultancy project to faculties and centres at Multimedia University and collaborating with other business partners in joint exercise Subsidiary held through Unitele Multimedia Sdn Bhd MMU Creativista Sdn Bhd 23.01.2002 Malaysia 100 Business of digital video and film production and post production utilising technology made available in the related industry Subsidiaries held through VADS Berhad Meganet Communications Sdn Bhd 06.10.1995 Malaysia 100 Provision of interactive multimedia communication services and solution VADS e-Services Sdn Bhd 17.08.1995 Malaysia 100 Contact centre and related services VADS Professional Services Sdn Bhd 29.09.2004 Malaysia 100 Provision of personnel for contact centre services VADS Solutions Sdn Bhd 22.08.1995 Malaysia 100 Provision of system integration services Subsidiary held through VADS e-Services Sdn Bhd VADS Contact Centre Services Sdn Bhd 16.01.2006 Malaysia 100 Provision of managed contact centre services Subsidiaries held through Celcom Celcom Multimedia (Malaysia) Sdn Bhd 22.06.1999 Malaysia 100 Dormant Celcom Technology (M) Sdn Bhd 21.05.1992 Malaysia 100 Provision of telecommunication value added services through cellular or other forms of telecommunication network Celcom Timur (Sabah) Sdn Bhd 17.01.1995 Malaysia 80 Provision of fibre optic transmission network Celcom Transmission (M) Sdn Bhd 30.03.1990 Malaysia 100 Provision of network transmission related services Mohamed Ridza & Co. Page | 32
  37. Name of company Date and place of incorporation Group ’s effective equity interest % Principal activities Celcom Trunk Radio (M) Sdn Bhd 04.10.1989 Malaysia 100 Ceased operation CT Paging Sdn Bhd 04.08.1988 Malaysia 100 Provision of strategic and business development, management, administrative and support services and investment holding Technology Resources Industries Berhad 01.12.1966 Malaysia 100 Investment holding Celcom Mobile Sdn Bhd 15.07.1976 Malaysia 100 Provision of mobile communication services, network services, application services and content Alpha Canggih Sdn Bhd 24.08.1994 Malaysia 100 Property investment Subsidiary held through Celcom Transmission (M) Sdn Bhd Fibrecomm Network (M) Sdn Bhd 21.05.1992 Malaysia 51 Provision of fibre optic transmission network services Subsidiaries held through Technology Resources Industries Berhad Alpine Resources Sdn Bhd 08.09.1987 Malaysia 100 Inactive Rego Multi-Trades Sdn Bhd 01.11.1983 Malaysia 100 Dealing in marketable securities Technology Resources Management Services Sdn Bhd 20.12.1985 Malaysia 100 Inactive Technology Resources (Nominees) Sdn Bhd 30.05.1991 Malaysia 100 Dormant TR Components Sdn Bhd 18.04.1991 Malaysia 100 Investment holding TR International Limited 19.08.1993 Hong Kong 100 Investment holding Aseania Plastics Sdn Bhd 04.08.1989 Malaysia 98.99 *2 Inactive Jointly-controlled entity held through TM International SunShare Investments Ltd*3 07.06.2005 Federal Territory, Labuan 51 Investment holding company Jointly-controlled entity held through TMI India Ltd Mohamed Ridza & Co. Page | 33
  38. Name of company Spice Communications Ltd (formerly known as Spice Communications Private Limited) Date and place of incorporation Group’s effective equity interest % 28.03.1995 India 39.2 27.01.1995 Malaysia 40 Principal activities Licensed Mobile Cellular Telecommunications Service Provider in the state of Punjab and Karnataka in India Associate Sistem Iridium Malaysia Sdn Bhd Dormant Associates held through Telekom Multi-Media Sdn Bhd Mahirnet Sdn Bhd 25.08.1997 Malaysia 49 Development, management and marketing of educational products offered by local and overseas educational institutions electronically Mutiara.Com Sdn Bhd 26.10.1999 Malaysia 30 Provision and promotion of Internet-based communication services Associates held through TM International Samart Corporation Public Company Limited (“Samart”) 07.03.1989 Thailand 18.97 Design, implementation and installation of telecommunication systems and the sale and distribution of telecommunication equipment in Thailand Samart I-Mobile Public Company Limited (“SIM”) *4 27.10.1995 Thailand 35.31 Mobile phone distributor accessories and bundled with content and administration of the distribution channels for and management of customer care and billing system of 1900MHz mobile phone Associate held through TM International (L) Limited Mobile Telecommunications Company of Esfahan 06.04.1998 Iran 49 Planning, designing, installing, operating and maintaining a GSM cellular telecommunication network to customer in the province of Esfahan, Iran 20 Trade or business of a telecommunications infrastructure and services company 49 Setting up a ditribution network of dealers and concept retail stores based on intellectual property rights owned by Celcom Associate held through Celcom Sacofa Sdn Bhd 11.07.2001 Malaysia Associate held through CT Paging Sdn Bhd C-Mobile Sdn Bhd Mohamed Ridza & Co. 09.01.2007 Malaysia Page | 34
  39. Note :*1* On 14 August, 2007, TM entered into a Sale and Purchase Agreement to dispose off its entire equity interest in TM Payphone Sdn Bhd to Pernec Corporation Berhad. The proposed disposal is expected to be completed by end of 2007. *2 The company was dissolved on 12 November 2007. *3 The TM Group holds 80% interest in SunShare Shares but 51% of the economic benefit. *4 Samart and TM International owns 57.43% and 24.42% in SIM, respectively The following corporations in which the TM Group owns more than one half of the voting power, which, due to permanent loss of control or significant influence, have been accounted as investments and written down to recoverable amounts of RM1.00 each: (i) Societe Des Telecommunications De Guinee s.a.; (ii) TRI Telecommunication Tanzania Limited (On 12 June 2003, the High Court of Tanzania had endorsed a petition by 4 creditors of the company, namely Tanzania Communications Commission, Tanzania Telecommunications Company Limited, Tanzania Revenue Authority and VIP Engineering and Marketing Limited to wind up the company); (iii) TRI Telecommunication Zanzibar Limited (On 13 March 2006, Celcom’s wholly-owned subsidiary had obtained an order from the High Court of Zanzibar to wind up the company); and (iv) Tripoly Communication Technology Corporation Ltd (in the process of commencing special liquidation). In view of the above, the financial statements of the respective companies have not been consolidated nor equity accounted for. 6.2.5 Substantial Shareholders of TM The substantial shareholders of TM and their respective shareholdings in TM based on the Register of Substantial Shareholders as at 30 September 2007 are as follows:Shareholders Khazanah Nasional Berhad Employees Provident Fund Board (“EPF”) Skim Amanah Saham Bumiputera Bank Negara Malaysia Mohamed Ridza & Co. Country of incorporation ---------------------No. of shares held--------------Direct % Indirect % Malaysia 1,242,000,773 36.11 162,455,300*1 4.72 Malaysia 398,089,300 11.57 33,623,400*2 0.98 Malaysia 318,944,400*3 9.27 - - Malaysia 251,680,000 7.32 - - Page | 35
  40. Notes : 6.2.6 *1 Deemed interest by virtue of TM Shares held via CIMSEC Nominees (Tempatan) Sdn Bhd under Section 6A of the Companies Act. *2 Deemed interest by virtue of TM Shares managed by other portfolio managers on behalf of EPF under Section 6A of the Companies Act. *3 Held via Amanah Raya Nominees (Tempatan) Sdn Bhd. Board of Directors As at 30 September 2007, TM’s Board of Directors consists of ten (10) Directors. Set out below are brief biographies of each of the Directors. Tan Sri Dato’ Ir Muhammad Radzi Haji Mansor NON-INDEPENDENT NON-EXECUTIVE CHAIRMAN 66 YEARS OF AGE – MALAYSIAN Tan Sri Dato’ Ir Muhammad Radzi was appointed Chairman and Director of TM on 12 July 1999. He graduated with a Diploma in Electrical Engineering in 1962 from Faraday House Engineering College, London and a Masters in Science (Technological Economics) from the University of Stirling, Scotland in 1975. A Chartered Professional Engineer registered with the Board of Engineers, Malaysia and Engineering Council, United Kingdom, he is a corporate member of the Institution of Engineers, Malaysia, the Institution of Engineering and Technology, United Kingdom and the Institute of Management, United Kingdom. He was appointed Board Member, Board of Engineers Malaysia, effective from 23 August 2002. He served in various engineering and management capacities in the former Jabatan Telekom Malaysia (JTM) over 22-year period, including a three-year secondment as Technical Adviser to the Ministry of Energy, Telecommunications and Post. Tan Sri Radzi retired as Director General of Telecommunications upon corporatisation of JTM on 1 January 1987 and was subsequently appointed as Director of Operations of TM. He served as Director of Marketing and Customer Services from 1989 to 1995 and later as Director of Regulatory Management and External Affairs before retiring in July 1996. From 1997 to 1999, he was retained as a Consultant/Adviser on multimedia flagship application projects for the Multimedia Development Corporation Sdn Bhd (MDeC), a company established by the Malaysian Government to oversee the development and implementation of multimedia projects. He was appointed a Director of MDeC on 1 May 2005 in his capacity as Chairman of TM. Apart from his directorship in several companies in TM Group, Tan Sri Radzi is currently the Chairman of Celcom (Malaysia) Berhad, Dialog Telekom PLC, Menara Kuala Lumpur Sdn Bhd and TM International Sdn Bhd and President Commissioner of PT Excelcomindo Pratama Tbk. He is co-chairman of the Malaysian Industry-Government Group for High Technology (MIGHT). Tan Sri Radzi currently serves as Chairman of TM’s Board Employees’ Share Option Scheme Committee and Board Dispute Resolution Committee. Tan Sri Mohamed Ridza & Co. Page | 36
  41. Radzi is a Non-Executive Director nominated by the Minister of Finance (Inc), the Special Shareholder of TM. He has never been charged for any offence. He has no family relationship with any Director or major shareholder of the Company nor any conflict of interest with the Company. Dato’ Sri Abdul Wahid Omar GROUP CHIEF EXECUTIVE OFFICER NON-INDEPENDENT EXECUTIVE DIRECTOR 43 YEARS OF AGE – MALAYSIAN Dato’ Sri Abdul Wahid Omar was appointed Group Chief Executive Officer (Group CEO) of TM on 1 July 2004. He was formerly the Managing Director/Chief Executive Officer of UEM Group Berhad (formerly known as United Engineers (Malaysia) Berhad) and UEM World Berhad. He was also the Executive Vice Chairman of PLUS Expressways Berhad. Prior to his stint at UEM Group, Dato’ Sri Abdul Wahid served TM as the Chief Financial Officer in 2001. A qualified accountant by training, Dato’ Sri Abdul Wahid is a Fellow of the Association of Chartered Certified Accountants (ACCA), United Kingdom and a member of the Malaysian Institute of Accountants. He previously served as a Director of Group Corporate Services cum Divisional Director, Capital Market & Securities of Amanah Capital Partners Berhad, Chairman of Amanah Short Deposits Berhad as well as a Director of Amanah Merchant Bank Berhad and several other companies in the financial services sector. He is also currently a Director of Bursa Malaysia Berhad and member of the Financial Reporting Foundation of Malaysia and the Investment Panel of Lembaga Tabung Haji. Dato’ Sri Abdul Wahid was the recipient of the Malaysia’s CEO of the Year Award 2006 from Business Times and Maybank/American Express. As the Group CEO, Dato’ Sri Abdul Wahid sits on various Board committees including the Board Tender Committee, Board Employees’ Share Option Scheme Committee and Board Dispute Resolution Committee. He is also the Deputy Chairman of Celcom (Malaysia) Berhad and Director of VADS Berhad and several other companies in the TM Group. He was appointed an Alternate Director to Tan Sri Dato’ Ir Muhammad Radzi Haji Mansor on the Board of the Multimedia Development Corporation Sdn Bhd on 1 May 2005. Dato’ Sri Abdul Wahid is an Executive Director nominated by the Minister of Finance (Inc), the Special Shareholder of TM. He has never been charged for any offence. He has no family relationship with any Director or major shareholder of the Company nor any conflict of interest with the Company. Dato’ Ahmad Haji Hashim NON-INDEPENDENT NON-EXECUTIVE DIRECTOR 55 YEARS OF AGE – MALAYSIAN Dato’ Ahmad Haji Hashim was appointed Director of TM on 14 September 2005. He graduated from the University of Malaya with a Bachelor of Economics (Hons) in 1974 and obtained his Master in Business Administration from City University, Washington State, USA in 1983. He has also attended the Mohamed Ridza & Co. Page | 37
  42. Oxford Advanced Management Programme , University of Oxford, United Kingdom conducted in 2004. Dato’ Ahmad began his career in 1974, as an Assistant Secretary, Implementation and Coordination Unit, in the Prime Minister’s Department and has served numerous Ministries including the Ministry of Finance (“MoF) between 1977 and 1984, holding various positions, before joining the Ministry of International Trade and Industry as the Principal Assistant Secretary in 1985. In 1992, he joined the Foreign Investment Committee, EPU, Prime Minister's Department as Principal Assistant Secretary. In 1996, Dato’ Ahmad was appointed as Deputy Secretary, Economic and International Division, Treasury in the MoF. He was later appointed as Secretary in the Loan Management and Financial Policy Division, Treasury, MoF in 2000. He served in the Ministry of Health as Deputy Secretary General (Finance) in 2003 until he assumed his present position as the Deputy Secretary General (Operation), Treasury, MoF in September 2005. Dato’ Ahmad has previously held directorships and memberships in several organisation between 1999 to 2004, such as Institut Jantung Negara, Islamic Development Bank in Jeddah, Bank Simpanan Nasional, Lembaga Tabung Haji, Perbadanan Labuan, Employees Provident Fund, Johor Corporation, Malaysian Timber Industry Board, Klang Port Management Sdn Bhd and Penang Regional Development Authority. Throughout his illustrious career with the Malaysian civil service, he has also represented Malaysia in APEC Economic Committee, APEC Finance Ministers/Leaders meetings, Islamic Development Bank Board of Governors meetings, Commonwealth Finance Ministers meetings, Asia-Europe (ASEM) Leaders meeting, WTO meetings among others. Dato’ Ahmad is also a Director of Proton Holdings Berhad and Keretapi Tanah Melayu Berhad. Dato’ Ahmad serves as Chairman of TM’s Board Tender Committee, a Member of the Board Audit Committee and Board Employees’ Share Option Scheme Committee. Dato’ Ahmad is a Non-Executive Director nominated by the Minister of Finance (Inc), the Special Shareholder of TM and has never been charged for any offence. He has no family relationship with any Director or major shareholder of the Company nor any conflict of interest with the Company. Dato’ Azman Mokhtar NON-INDEPENDENT NON-EXECUTIVE DIRECTOR 46 YEARS OF AGE – MALAYSIAN Dato’ Azman was appointed Director of TM on 1 June 2004. Dato’ Azman is the Managing Director of Khazanah Nasional Berhad (Khazanah) with effect from 1 June 2004. Until May 2004, he was the Managing Director of BinaFikir Sdn Bhd. Prior to that, he was the Director, Head of Country Research, Salomon Smith Barney (SSB) in Malaysia and Director, Head of Research, the Union Bank of Switzerland (UBS) in Malaysia. Prior to that, he was with the then National Electricity Board (LLN) and Tenaga Nasional Berhad (TNB). He obtained his Master of Philosophy in Development Studies from Darwin College, Cambridge University as a British Chevening Scholar. Dato’ Azman is Mohamed Ridza & Co. Page | 38
  43. a Fellow of the Association of Chartered Certified Accountants (ACCA) and a Chartered Financial Analyst (CFA) of the Association of Investment Management and Research (AIMR). He also holds a postgraduate diploma in Islamic Studies from the International Islamic University, Malaysia. Dato’ Azman is a Director of UEM Group Berhad (formerly known as United Engineers (Malaysia) Berhad), UEM World Berhad and Malaysian Agrifood Corporation Berhad (MAFC). He is also the Chairman of ValueCap Sdn Bhd and South Johor Investment Corporation Berhad (SJIC). He also serves as Chairman of TM’s Board Nomination and Remuneration Committee. Dato’ Azman is a Non-Executive Director nominated by the Company’s major Shareholder, Khazanah and has never been charged for any offence and has no family relationship with any Director or major shareholder of the Company nor any conflict of interest with the Company. Dato’ Dr Abdul Rahim Haji Daud INDEPENDENT NON-EXECUTIVE DIRECTOR 59 YEARS OF AGE – MALAYSIAN Dato’ Dr Abdul Rahim Haji Daud was appointed to the Board of TM on 7 July 1998. He obtained a Bachelor of Engineering (Hons.) in Electronics from the University of Liverpool, United Kingdom, Masters in Science (Telecommunications Engineering) from University of Birmingham, United Kingdom and Doctorate in Engineering (Telecommunication) from the University of Bath, United Kingdom. He also obtained a Masters in Business Administration from University of Ohio, USA. He has completed the Harvard Business School’s Advanced Management Program (AMP) and the Senior Executive Development Program at the Wharton School of Business, University of Pennsylvania, USA. He joined JTM as a Telecommunications Engineer in 1973. He has wide experience in managing business of Telecommunications and Information Technology. In 1988, he was appointed General Manager, Information Systems and became the Senior General Manager, National Network Operations in 1993. In July 1995, he was made Senior Vice President, Network Services before his appointment to head TM’s telecommunications business group (TelCo) as its Chief Operating Officer in 1996. Upon his appointment as Executive Director of TM Group in July 1998, he remained as the Chief Operating Officer TelCo until 1 February 2001 when he assumed the position of Executive Director, Corporate Strategy and Development. He was then appointed as the Deputy Chief Executive/Executive Director of TM from 29 May 2001 until his retirement on 30 June 2004. He remained on the Board as a Non-Independent Non-Executive Director of TM for a period of two (2) years until 1 July 2006 when he attained his status as an Independent Non-Executive Director pursuant to the Listing Requirements of Bursa Malaysia Securities Berhad. He was the first Malaysian to be elected as Chairman of Commonwealth Telecommunications Organisation (CTO) comprising 35 countries for three terms from September 1999 to November 2002. He is a Member of the Board of Engineers, Malaysia and a Fellow of the Institution of Engineers, Malaysia. Dato’ Dr Abdul Rahim serves as a Member of the Board Employees’ Share Option Scheme Committee, Board Tender Committee and also as Mohamed Ridza & Co. Page | 39
  44. Chairman /Board Member of a number of subsidiaries of TM. Dato’ Dr Abdul Rahim has never been charged for any offence and has no family relationship with any Director or major shareholder of the Company nor any conflict of interest with the Company. Dato’ Lim Kheng Guan SENIOR INDEPENDENT NON-EXECUTIVE DIRECTOR 64 YEARS OF AGE – MALAYSIAN Dato’ Lim Kheng Guan was appointed to the Board of TM on 23 June 2000. He is a Chartered Accountant by profession and an Associate Member of the Malaysian Institute of Accountants, Associate of the Malaysian Institute of Certified Public Accountants, Fellow of Australian Society of Certified Practicing Accountants, Associate of the Australian Institute of Bankers and a Member of the Malaysian Institute of Management. He has also attended Advanced Management Programs at Manchester Business School, INSEAD and London Business School. He has more than 40 years of experience in accounting, management consulting and senior managerial positions in local and multinational public listed companies. Currently, he is the Executive Director of Malaysian Management Consultants Sdn Bhd. Dato’ Lim Kheng Guan currently serves as the Independent Non-Executive Chairman of TM’s Board Audit Committee and a Member of the Nomination and Remuneration Committee and Board Dispute Resolution Committee of TM. He is also a Board Member of a number of subsidiaries and associate companies of TM. Dato’ Lim Kheng Guan has never been charged for any offence and has no family relationship with any Director or major shareholder of the Company nor any conflict of interest with the Company. YB Datuk Nur Jazlan Tan Sri Mohamed INDEPENDENT NON-EXECUTIVE DIRECTOR 41 YEARS OF AGE – MALAYSIAN YB Datuk Nur Jazlan was appointed to the Board of TM on 1 June 2004. He is a Fellow of the Association of Chartered Certified Accountants (FCCA), United Kingdom. He was a Council Member and Chairman of Public Relations Committee of Malaysian Institute of Accountants as well as a Council Member of the Asean Federation of Accountants until September 2005. He was appointed as a Member of Malaysian Institute of Accountants by the Accountant General’s Department, Malaysia on 16 July 2007. In addition to his corporate experience in the financial arena, YB Datuk Nur Jazlan is also active in politics. He is the Head of UMNO Pulai, Johor and also Chairman of Barisan Nasional for the division. He was an Exco Member of UMNO Youth from 1996 until 2004. He was elected in the last General Election, as Member of Parliament for Pulai parliamentary constituency, Johor. YB Datuk Nur Jazlan is also a Director of United Malayan Land Bhd, Prinsiptek Corporation Berhad, Penang Port Sdn Bhd and Jaycorp Berhad. YB Datuk Nur Jazlan is a Member of TM’s Board Tender Committee. He is also a Member of Board of Commissioners of PT Excelcomindo Pratama Tbk, Mohamed Ridza & Co. Page | 40
  45. Indonesia and Chairman of Multinet Pakistan (Private) Limited, subsidiaries of TM. He has never been charged for any offence and has no family relationship with any Director or major shareholder of the Company nor any conflict of interest with the Company. Ir Prabahar NK Singam INDEPENDENT NON-EXECUTIVE DIRECTOR 45 YEARS OF AGE – MALAYSIAN Ir Prabahar was appointed Director of TM on 23 June 2000. He is an engineer by profession and obtained his Bachelor of Science (Civil Engineering) Degree from Portsmouth Polytechnic, United Kingdom in 1985. A member of the Board of Engineers Malaysia and the Institute of Engineers Malaysia, he is a professional engineer who has wide experience in the engineering sector, especially in the areas of consultancy, contracting, project management and project financing. Ir Prabahar currently serves as a Member of the Board Nomination and Remuneration Committee and Board Audit Committee of TM. He is also a Board Member of a number of subsidiaries and associate companies of TM. Ir Prabahar has never been charged for any offence and has no family relationship with any Director or major shareholder of the Company nor any conflict of interest with the Company. Rosli Man INDEPENDENT NON-EXECUTIVE DIRECTOR 54 YEARS OF AGE – MALAYSIAN Rosli Man was appointed to the Board of TM on 15 July 2000. He has more than 26 years of experience in the telecommunications industry. Rosli holds a Bachelor in Science in Electrical and Electronic Engineering (Electrical Design and Instrumentation) from University of Glasgow, United Kingdom and a Diploma in Electrical and Electronic Engineering (Communications) from Technical College, Kuala Lumpur. He joined JTM in 1976 as Assistant Controller where he gained wide exposure in telecommunication services including the task to implement the country’s first mobile telecommunication service i.e. ATUR 450. In 1985, he made a career move to the private sector by joining the Fleet group as its Group Manager, Technical Services where he was part of the team responsible in overseeing the roll-out and operations of the nation’s first privately operated terrestrial television station namely Sistem Televisyen Malaysia Berhad (TV3). From 1988 to 1996, he was instrumental in setting up the first privately owned telecommunications company in Malaysia i.e. Celcom (Malaysia) Sdn Bhd (CELCOM), catering for the cellular telecommunication business. He left CELCOM as its President in 1996 to join Prismanet Sdn Bhd as Managing Director and held the position until November 1998. In July 2000, he joined Natrindo Telpon Sellular (NTS), the GSM 1800 cellular operator in East Java, Indonesia. As the Chief Operating Officer, he was responsible for the planning, development, successful roll-out of the network and the day-to-day operations of the business. He was then appointed as Deputy Chief Operating Officer of Lippo Telecom to oversee NTS planning, roll-out and operation of NTS National Cellular Operation. He left NTS in January 2002. Mohamed Ridza & Co. Page | 41
  46. Rosli currently serves as an Independent Non-Executive Member of the Board Audit Committee of TM . He is also a Member of Board of Commissioners of PT Excelcomindo Pratama Tbk, Indonesia, a subsidiary of TM. Rosli has never been charged for any offence and has no family relationship with any Director or major shareholder of the Company nor any conflict of interest with the Company. Dyg Sadiah Abg Bohan NON-INDEPENDENT NON-EXECUTIVE ALTERNATE DIRECTOR 45 YEARS OF AGE – MALAYSIAN Dyg Sadiah Abg Bohan was appointed as Alternate Director to Dato’ Ahmad Haji Hashim on 8 February 2007. She graduated from the University of Malaya with a Bachelor of Science (Hons) in 1986 and holds a Diploma in Public Administration from the National Institute of Public Administration (INTAN) in 1989. She obtained her Master in Business Administration from Universiti Kebangsaan Malaysia in 1998. Dyg Sadiah began her career in the Malaysian Civil Service in 1989 as an Assistant Secretary in the Ministry of Agriculture. Thereafter, she was assigned to INTAN and subsequently in 1999, was transferred to the Ministry of Finance. She is currently the Deputy Under Secretary of the Investment, MOF (Inc) and Privatisation Division. Dyg Sadiah is a Director of Penang Port Holdings Berhad and an Alternate Director of Malaysia Airports Holdings Berhad. She is also the Alternate Member to Dato’ Ahmad Haji Hashim on TM’s Board Employees’ Share Option Scheme Committee and Board Tender Committee. She has never been charged for any offence and has no family relationship with any Director or major shareholder of the Company nor any conflict of interest with the Company. 6.2.7 Profile of Key Management Team (as at 30 September, 2007) DATO’ SRI ABDUL WAHID OMAR GROUP CHIEF EXECUTIVE OFFICER Dato’ Sri Abdul Wahid, 43, is a qualified accountant by training. He is a Fellow of the Association of Chartered Certified Accountants (ACCA), United Kingdom and a member of the Malaysian Institute of Accountants. He has vast experience in the financial services sector and was the Managing Director/Chief Executive Officer of UEM Group, an infrastructure development conglomerate, prior to his appointment as Group Chief Executive Officer of TM on 1 July 2004. He is currently a Director of Bursa Malaysia Berhad, VADS Berhad and a member of the Financial Reporting Foundation of Malaysia and the Investment Panel of Lembaga Tabung Haji. Dato’ Sri Abdul Wahid was the recipient of the Malaysia’s CEO of the Year Award 2006 from Business Times and Maybank/American Express. DATUK BAZLAN OSMAN GROUP CHIEF FINANCIAL OFFICER Mohamed Ridza & Co. Page | 42
  47. Datuk Bazlan , 43, is a Fellow of the Association of Chartered Certified Accountants (UK) and also a Chartered Accountant of the Malaysian Institute of Accountants. He began his career as an auditor with a public accounting firm from 1986 to 1989 and subsequently served the Sime Darby Group, holding various positions in its corporate office, Singapore and Melaka. He later had a brief stint in American Express in 1993 before joining Kumpulan FIMA Berhad in 1994 where he was subsequently appointed Senior Vice President, Finance/Company Secretary. He joined Celcom in 2001 and his last position there was that of Chief Financial Officer (CFO) prior to his appointment to TM Group CFO on 1 May 2005. He sits on the Board of Commissioners of PT Excelcomindo Pratama Tbk, a public listed company on the Jakarta Stock Exchange. He is also a member of the Issues Committee of the Malaysian Accounting Standards Board. DATO’ ZAMZAMZAIRANI MOHD ISA CHIEF EXECUTIVE OFFICER, MALAYSIA BUSINESS Dato’ Zamzamzairani, 47, holds a Bachelor of Science Degree in Communication Engineering from Plymouth Polytechnic, United Kingdom and has attended the Kellog School of Management’s programme in ‘Corporate Finance, Strategies for Creating Shareholder Value’. He was appointed CEO of Malaysia Business, overseeing TM Retail, TM Wholesale, TM Net Sdn Bhd and several other related subsidiaries. Prior to the appointment, he was the Senior Vice President, Group Strategy and Technology of TM. He has over 22 years of telecommunications industry experience, starting his career with the then Jabatan Telekom Malaysia in 1984, progressing to General Manager, Global Business, prior to his move to a local mobile operator in 1997. There on, Dato’ Zamzamzairani held senior positions in several multinational companies within the industry, such as CEO of Global One and Lucent Technologies (Malaysia). In addition to his executive responsibilities, Dato’ Zamzamzairani also sits on the Board of TM Group subsidiaries, including VADS Berhad. DATO’ SRI MOHAMMED SHAZALLI RAMLY CHIEF EXECUTIVE OFFICER, CELCOM (MALAYSIA) BERHAD Dato’ Sri Mohammed Shazalli, 45, holds a Bachelor of Science (Marketing) from Indiana University, Bloomington, Indiana and a Master of Business Administration from St. Louis University, Missouri, USA. He was appointed as Chief Executive Officer and Director of Celcom (Malaysia) Berhad (CELCOM) on 1 September 2005. Prior to joining CELCOM, Dato’ Sri Shazalli was CEO of ntv7, Malaysia’s 7th terrestrial TV station, a position he held for 8 years since its launch in 1998. He also has vast experience in the Fast Moving Consumer Group Industry, working for the Lever Brothers from 1987 to 1993, followed by Malaysian Tobacco Company (MTC) and Britich American Tobacco (BAT) from 1993 until 1996 both in Malaysia and the United Kingdom. DATO’ YUSOF ANNUAR YAACOB CHIEF EXECUTIVE OFFICER, TM INTERNATIONAL SDN BHD Dato’ Yusof Annuar, 42, is an Accountant by profession and a member of the Chartered Institute of Management Accountants and the Malaysian Institute of Accountants. Dato’ Yusof has both investment banking and corporate management experience. His investment banking career included stints at S.G. Warburg & Co (now known as UBS Warburg), ING Barings Securities Mohamed Ridza & Co. Page | 43
  48. Singapore and the Merrill Lynch & Co affiliate in Malaysia. Prior to his appointment as Chief Executive Officer of TM International Sdn Bhd on 1 June 2005, he was an Executive Director at OCB Berhad and a Board member of a number of other public listed companies in Malaysia. Currently, he is also a Board member of several public listed and private companies, locally and internationally. KHAIRUSSALEH RAMLI CHIEF EXECUTIVE OFFICER, TM VENTURES Khairussaleh, 39, was appointed CEO of TM Ventures in September 2006 to manage all the non-core businesses and activities of TM Group. He has more than 16 years’ experience, primarily in financial services. He graduated from Washington University, St Louis, Missouri, in 1989 with a degree in Business Administration. He served the Public Bank Group for 7 years and gained experience in corporate banking, equity research and futures broking, where his last position was Executive Director of PB Futures. Prior to his current appointment in TM, he spent 8 years at Bursa Malaysia Berhad, his last position there being the Chief Financial Officer. DATO’ ADNAN ROFIEE CHIEF OPERATING OFFICER, TM RETAIL Dato’ Adnan Rofiee, 52, holds a Bachelor Degree in Electronic Engineering from Brighton Polytechnic, United Kingdom. He has almost 30 years experience in the telecommunications industry where he began his career with JTM in 1977 as a Planning Engineer, Customer Access Network for the Central Region. He was later appointed as the General Manager of the Sarawak Operations Area in 1994. He was the Managing Director of Ghana Telecommunications Co Ltd, an associate company of TM, in 2000 and subsequently appointed as the CEO of TM Cellular Sdn Bhd in February 2001. He was the Senior Vice President of Major Business & Government before assuming his current position as the Chief Operating Officer of TM Retail since 1 July 2004. DATUK HAMZAH YACOB CHIEF EXECUTIVE OFFICER, TM FACILITIES SDN BHD Datuk Hamzah, 53, holds a Bachelor of Electronics degree from University Technology Malaysia (UTM). He has almost 30 years of experience in the telecommunications industry and has served TM in various positions since 1978 including as the Head of Specialised Network Services, General Manager of TM Mobile Services, Customer Network Operations and State General Manager of Johor. He was the CEO of Fiberail Sdn Bhd, a subsidiary of TM, in year 2000 and subsequently, the General Manager, Supply Services & Contract Management in 2001. He was appointed to his current position as Chief Executive Officer of TM Facilities Sdn Bhd on 1 April 2002. Datuk Hamzah is also the Commanding Officer of “Rejimen Semboyan DiRaja Pakar Telekom (AW)” that will take charge of TM’s operations in the event of national Emergency declared by the Government. DENNIS KOH SENG HUAT CHIEF EXECUTIVE OFFICER, VADS BERHAD Mohamed Ridza & Co. Page | 44
  49. Dennis Koh , 46, graduated with a Bachelor of Science (Engineering) degree in Computer Science from the Imperial College of Science & Technology, University of London, United Kingdom in 1984. He began his career in computer networking in 1985 with Malaysian Airlines Systems Berhad (MAS). In 1990, he moved to Paris to join Societe Internationale de Telecommunications Aeronautiques (SITA) as a Project Manager. After 2 years, he joined a new start-up company, VADS Berhad which was a joint-venture between IBM (Malaysia) Sdn Bhd and TM then. Over the following 13 years, he held various senior positions before assuming his current position as the Chief Executive Officer of VADS Berhad on 1 June 2005. DATO’ ABDUL AZIZ ABU BAKAR SENIOR VICE PRESIDENT, GROUP HUMAN RESOURCE Dato’ Abdul Aziz, 54, holds a Bachelor of Economics (Hons) degree from the University of Malaya. He began his career in 1977 as a Fleet Planning Coordinator with Malaysian Airlines Systems Berhad. He subsequently joined Shell in 1979 where he spent the next 20 years holding several management positions in Internal Audit, Marketing Economics, Sales & Marketing, Supply/Distribution Logistics (joint-venture companies with Petronas) and Human Resource, where his last position was the General Manager for Human Resource and Transformation for ASEAN countries. He left for an international assignment in 1991-1994 with the Shell Group based in London, where he was the shareholders’ representative, overseeing Shell’s business interests in Hong Kong and China. He was the Executive Vice President, Human Resource of RHB Bank Berhad, responsible for setting the direction, formulating and overseeing the implementation of HR Strategies before joining TM in October 2004 as Senior Vice President, Group Human Resource. DATO’ RANBIR SINGH NANRA SENIOR VICE PRESIDENT, GROUP MARKETING Dato’ Ranbir, 45, holds a Bachelor of Science degree from Australian National University, Canberra, a Diploma in Applied Finance and Investment from Securities Institute of Australia and a Master of Business Administration from Macquarie University, Sydney. He has extensive experience in telecommunications in the Asia-Pacific region, including sales and marketing, market/business development, strategy and line of business management, in both wireless and wire-line segments of the industry. He was appointed Senior Vice President, Group Marketing of TM on 1 February 2003. ZAID HAMZAH SENIOR VICE PRESIDENT, GROUP REGULATORY, LEGAL & COMPLIANCE Zaid, 48, a qualified lawyer with a Bachelor of Law from National University of Singapore, he completed his Masters from Fletcher School of Law & Diplomacy, Tufts University, USA on a Fulbright Scholarship. He was appointed as the Senior Vice President, Group Regulatory, Legal & Compliance TM effective 2 April 2007. He has over 21 years of professional work experience spanning government service, legal practice and in-house counsel work with a MNC. Prior to joining TM, Zaid was a consultant to Microsoft’s Legal & Corporate Affairs, Asia Pacific, based in Singapore. A Law & Technology Strategist and author of five books on Law, Technology and Strategy, Zaid’s specialises in strategic value creation and risk management in the technology Mohamed Ridza & Co. Page | 45
  50. sector . He started his career with a stint with the Singapore Ministry of Foreign Affairs, where he spent almost 10 years as the Senior Assistant Director. His career achievements include the development of a strategic intellectual property initiative for Microsoft, acting as a consultant to the Malaysian Government on the development of the Malaysian National Intellectual Property policy in 2003, advising the Malaysian National ICT Security & Emergency Response Centre (NISER) on the development of their E-Security Legal Risk Management Framework and MAMPU on the commercialisation of e-government applications. AHMAD AZHAR YAHYA GROUP CHIEF INFORMATION OFFICER Ahmad Azhar, 43, holds a Bachelor of Science in Electrical Engineering from Oklahoma State University. He began his career as an engineer in Agilent Technologies (formerly known as Hewlett Packard) in 1987. He then joined Accenture in 1990 servicing clients in Malaysia, Asia and Middle East in various industries namely communications, high technology, oil and gas and government agencies. His industry experiences include strategic planning and change management, business and operations support systems, enterprise resource management, revenue and customer relationship management. He became a Partner at Accenture in 2000 before joining TM as Group Chief Information Officer on 2 August 2004. HASHIM MOHAMMED GROUP CHIEF AUDITOR Hashim, 48, has been the Group Chief Auditor since October 2002. He is also the secretary to the Board Audit Committee. He graduated with a Bachelor of Science degree from Queen Elizabeth College, University of London and holds a Masters in Business Administration (MBA) in International Management from RMIT University in Melbourne, Australia. Hashim is the former Vice President and current Chartered Fellow of The Institute of Internal Auditors Malaysia, and a member of the Malaysian Institute of Management. He is a member of the Investigation Tribunal, Advocates and Solicitors Disciplinary Board, Bar Council Malaysia since 2004. He is a Chartered Chemist and member of the Royal Society of Chemistry, United Kingdom. Hashim spent 21 years in Shell holding various management positions spanning marketing, sales, manufacturing, operations, logistics, information technology and internal audit. His responsibilities included managing internal audit services and teams across the Asia Pacific region. GAZALI HARUN GROUP CHIEF PROCUREMENT OFFICER Gazali, 49, holds a Bachelor of Science (Finance) degree from Northern Illinois University, and in 1982 obtained a Masters in Business Administration (MBA) from Governors State University. He gained vast experience in corporate banking and corporate finance while serving at a local merchant bank prior to joining TM in 1990. In TM, he was actively involved in treasury management, fund raising activities, mergers and acquisitions, investor relations and overseeing the Enterprise Risk Management Programme for the Group. Prior to his appointment as Group Chief Procurement Officer of TM on 1 June 2005, he was the Vice President, Finance of TM Wholesale. Mohamed Ridza & Co. Page | 46
  51. MOHD NOOR OMAR VICE PRESIDENT , GROUP PROGRAM IMPROVEMENT MANAGEMENT OFFICE Mohd Noor, 53, holds an MBA degree from the University of Wales, United Kingdom. He is also a chartered accountant and a member of the Malaysian Institute of Accountants. He was the General Manager of Strategy & Business Analysis of TM International Sdn Bhd (TM International) before assuming his current position as Vice President, Group Program Improvement Management Office of TM. Mohd Noor has contributed significantly to the development of TM International since 2004, particularly during the acquisitions in Pakistan, Indonesia, Singapore, India, Cambodia and Thailand. He started his career with PETRONAS where he spent a total of 18 years. Later, he joined Kumpulan Guthrie Berhad and was based in Indonesia. Prior to joining TM International, he was the CEO of an IT consultancy company in Singapore for 3 years. MARIAM BEVI BATCHA GENERAL MANAGER, GROUP CORPORATE COMMUNICATIONS Mariam, 44, holds a Bachelor of Business (Business Administration) with Distinction from RMIT University in Melbourne, Australia and a Diploma in Public Relations from the Institute of Public Relations Malaysia (IPRM). She is a member of IPRM and is among the first batch of PR practitioners to be accredited by IPRM in 2005. Prior to joining TM in September 2004 as General Manager, Group Corporate Communications, she served as the Head of Group Corporate Communications in Amanah Capital Partners Berhad, and later as the General Manager of Group Corporate Communications in UEM Group Berhad (formerly known as United Engineers (Malaysia) Berhad)/UEM World Berhad. WANG CHENG YONG COMPANY SECRETARY Yong, 52, has been the Company Secretary of TM since 1998. A qualified Company Secretary by training, she is an Associate member of the Institute of Chartered Secretaries and Administrators. She gained accounting and secretarial experience in Postel Investment Management Ltd in the United Kingdom in 1980 and subsequently, upon her return to Malaysia in 1984, as an Accountant/Company Secretary in a stock/share broking company and Corporate Secretary in the secretarial company, affiliated to the then Arthur Young International. She joined BHL Bank Berhad in 1988 and left as the Senior Secretarial Officer in 1991 to join TM’s Company Secretarial Division. 6.3 BRIEF DESCRIPTION OF TM TM, a leading regional information and communications group, offers a comprehensive range of communication services and solutions in fixed-line, mobile, data and broadband. As one of the largest listed companies on Bursa Malaysia with an operating revenue of more than RM16 billion, TM is driven to deliver value to its stakeholders in a highly competitive environment. The Group places emphasis on continuing customer service quality enhancements and innovations. Currently, with investments and operations in Mohamed Ridza & Co. Page | 47
  52. 13 countries around Asia and globally , TM is focused on sustainable growth in both the local and international markets. 6.4 INFORMATION ON KEY SUBSIDIARY COMPANIES 6.4.1 Celcom 6.4.1.1 History and Business Celcom was incorporated under the Companies Act as a private limited company on 5 January 1988 in Malaysia, under the name of STM Cellular Communications Sdn Bhd. On 24 January 1990, it changed its name to Celcom Sdn Bhd. The company changed its name to Cellular Communication Network (Malaysia) Sdn Bhd and then to Celcom (Malaysia) Sdn Bhd on 12 November 1991 and 2 December 1997 respectively. On 28 January 2002, the company was converted into a public company and assumed its present name. Celcom became the new listed holding company of a restructured Technology Resources Industries Berhad (“TRI”) Group pursuant to the completion of the Internal Restructuring to reorganise the corporate structure of the TRI Group. The Internal Restructuring was completed on 10 October 2002 upon which TRI was delisted and Celcom was listed in its place on the Main Board of Bursa Malaysia Securities Berhad (“Bursa Securities”). Celcom was delisted from the Main Board of Bursa Securities effective 15 August 2003 pursuant to para 11.09 of the Bursa Securities Listing Requirements. The Company is principally involved in the provision of network capacity and services. The principal activities in the Group consist of the provision of mobile communication services and network transmission related services. 6.4.1.2 Substantial Shareholders (as at 30 September 2007) Name % shareholding Direct No. of Shares % No. of Shares Indirect % Telekom Enterprise Sdn Bhd (“TESB”) 1,237,534,681 100 - - TM Khazanah Nasional Berhad - - 1,237,534,681*1 1,237,534,681*2 100 100 Notes: *1 Deemed interest through TESB under Section 6A of the Companies Act. *2 Deemed interest through TM under Section 6A of the Companies Act. 6.4.1.3 Share Capital (as at 30 September 2007) No. of shares Mohamed Ridza & Co. Nominal Value RM Amount RM Page | 48
  53. No . of shares Authorised:Ordinary shares 4,000,000,000 Issued and fully paid up:- 236,250,000 Cash Nominal Value RM 1.00 Amount RM 4,000,000,000.00 1.00 1,237,534,681.00 1,001,284,691 Other than Cash 6.4.1.4 Subsidiaries, Jointly-controlled Entities and Associated Companies (as at 30 September, 2007) Kindly refer to Section 6.2.4 on the subsidiaries, jointly-controlled entities and associated companies of Celcom. 6.4.2 TM International 6.4.2.1 History and Business TM International was incorporated under the Companies Act as a private limited company on 12 June 1992 in Malaysia under the name of Telekom Malaysia International Sdn. Bhd. TM International changed name to TM International Sdn Bhd on 16 October 2001. It was converted into a public company on 12 December 2007 and known as TM International Berhad. The principal activities of TM International are investment holding and provision of telecommunication and consultancy services on an international scale. TM International, the emerging emerging leader in Asian communications, has operations and financial interests in nine regional countries, namely Sri Lanka, Bangladesh, Pakistan, India, Iran, Indonesia, Singapore, Cambodia and Thailand. The company, incorporated in 1992, was formerly TM’s vehicle overseeing and managing the overseas ventures. TM International’s investments have contributed significantly to the TM Group’s overall revenue. For the 9-months ended September 2007, the TM International Group contributed to 26.9% to the TM Group revenue. TM International’s success is due to its clear strategy of investing closer to home in markets with low penetration and high growth potential. The company’s regional mobile expansion is also geared towards markets with potential synergies on its operations and product innovation, with particular focus on Indochina. TM International’s cellular presence in Sri Lanka, Bangladesh, Indonesia, Cambodia, India, Singapore and Iran provided access to a combined subscriber base of some 35.7 million subscribers as at 30 September 2007. Mohamed Ridza & Co. Page | 49
  54. 6 .4.2.2 Substantial Shareholders (as at 30 September, 2007) Name TM % shareholding Direct No. of Shares % No. of Shares 35,693,116 100 - - - - 35,693,116*1 100 Khazanah Nasional Berhad Indirect % Note: *1 Deemed interest through TM under Section 6A of the Companies Act. 6.4.2.3 Share Capital (as at 30 September, 2007) No. of shares Authorised:Ordinary shares Issued and fully paid up:- 500,000,000 16,250,000 Cash Nominal Value RM 1.00 Amount RM 500,000,000.00 1.00 35,693,116.00 19,443,116 Other than Cash 6.4.2.4 Subsidiaries, Jointly-controlled Entities and Associated Companies (as at 30 September, 2007) Kindly refer to Section 6.2.4 on the subsidiaries, jointly-controlled entities and associated companies of TM International. 6.5 GENERAL INFORMATION 6.5.1 Material Contracts Save as disclosed below, neither TM nor its subsidiaries have entered into any contracts which are or may be material, not being contracts entered into in the ordinary course of business, during the 2 years preceding 30 September, 2007: (a) Settlement Agreement dated 7 May 2005 between the Government of Ghana (“GoG”), G-Com Limited (“G-Com”), TMI, Ghana Telecommunications Company Limited (“GT”) and TM for the purposes of full and final settlement of all claims between GoG and TM in international arbitration proceedings under UNCITRAL Arbitration Rules (referred to in Section 4(b) in Appendix III of this Circular) which includes payment of more than approximately USD100.0 million by the Mohamed Ridza & Co. Page | 50
  55. GoG to TM including all interest accrued , as well as the transfer of the 30% equity interest in GT held by G-Com to the GoG; (b) The Deed of Trust dated 11 July 2005 between Dialog Telekom Limited (“Dialog”) and Ir. Prabahar N. K. Singam, Moksevi Rasingh Prelis and Arittha Rahula Wikramanayake or their successors appointed in accordance with the Deed of Trust (collectively referred to as the “Trustees”), governing up to 199,892,741 Dialog shares held in trust by the Trustees for the benefit of the eligible employees of the Dialog group under the employee share option scheme of Dialog (“Dialog ESOS”); (c) Loan Agreement dated 11 July 2005 between the Trustees and Dialog where Dialog granted an interest-free loan amounting to Sri Lanka Rupees 2,398,712,892 to the Trustees for the subscription of 199,892,741 Dialog shares to facilitate the Dialog ESOS; (d) Joint Venture and Shareholders’ Agreement dated 17 August 2005 between Khazanah and TMI to form SunShare Investments Ltd (“SunShare”), a joint venture company for the acquisition of shares in MobileOne Limited (“M1”); (e) Sale and Purchase Agreement dated 17 August 2005 between SunShare and Great Eastern Telecommunications Ltd (“GET”) on the acquisition of 118,526,670 fully paid-up ordinary shares of Singapore Dollar (“SGD”) 0.20 each in M1, representing approximately 12.1% of the issued and paid-up share capital of M1 by SunShare from GET for a consideration of SGD260.8 million; (f) Term Loan Facility Agreement dated 23 September 2005 between SunShare and Bank of Tokyo-Mitsubishi Ltd, Labuan Branch for the provision of a term loan facility of up to a maximum aggregate principal amount of SGD540 million for the purpose of financing the acquisition of 29.99% equity stake in M1 by SunShare; (g) Restated Joint Venture and Shareholders’ Agreement dated 23 September 2005 between Khazanah, TMI and TM which amended and replaced the Joint Venture and Shareholders’ Agreement described in paragraph (d) above, to set out TM Group’s and Khazanah’s investments in SunShare and to regulate the affairs of SunShare as a special purpose vehicle for the acquisition of shares in M1; (h) Subscription Agreement dated 23 September 2005 between SunShare, Khazanah and TM for the subscription of redeemable convertible preference shares of USD0.01 each in SunShare at the issue price of USD1.00 each by Khazanah and TM for a consideration of USD35,965,998 and USD37,433,992, respectively; (i) Sale of Business and Business Assets of Petrofibre Networks (M) Sdn Bhd (“Petrofibre”) Contract dated 12 December 2005 between Fiberail Sdn Bhd (“Fiberail”) and Petrofibre (“Sale of Business Agreement”) on the acquisition by Fiberail from Petrofibre of the business of Petrofibre being the provision of telecommunications services in Peninsula Malaysia (“Business”) and all the property and rights of Petrofibre used in the conduct of the Business comprising of assets which include Mohamed Ridza & Co. Page | 51
  56. property , plant and equipment, receivables and liabilities at a total consideration of RM100.5 million to be satisfied in cash and the issuance of 1,580,000 ordinary shares of RM1.00 each in Fiberail valued at an issue price of RM8.08 each, representing 10% of the enlarged issued and paid-up share capital of Fiberail; (j) Joint Venture Agreement dated 9 February 2006 between us, Keretapi Tanah Melayu Berhad (“KTMB”) and Petrofibre to regulate the relationship between the parties as shareholders of Fiberail and also to regulate and conduct the affairs and business of Fiberail; (k) Put Option Agreement dated 9 February 2006 between us, KTMB and Petrofibre where in consideration of the completion of the Sale of Business Agreement described in paragraph (i) above and payment of RM1.00 by Petrofibre to TM and KTMB, TM and KTMB grant an option to Petrofibre or its nominee(s) to require TM and KTMB to purchase (in the proportion of 60% by TM and 40% by KTMB) up to 10% of Fiberail’s enlarged issued and paid-up share capital (1,580,000 ordinary shares of RM1.00 each), being part of the consideration payable by Fiberail to Petrofibre under the Sale of Business Agreement described in paragraph (i) above (“Option Shares”) at an exercise price of RM8.08 per share. If KTMB declines to purchase any or all of its portion of the Option Shares, TM shall purchase such Option Shares within the period commencing 1 year from 9 February 2006 and ending on the 5th anniversary of that date or 30 days from the date of receipt of notice from Fiberail of the engagement of the lead adviser for an initial public offering of Fiberail, whichever is earlier; (l) Call Option Agreement dated 9 February 2006 between TM and KTMB where in consideration of KTMB paying RM1.00 to us, TM grant an option to KTMB to require TM to sell to KTMB Fiberail shares (“Fiberail Call Option”) which were acquired by TM due to KTMB declining to acquire those Fiberail shares under the Put Option Agreement. The Fiberail Call Option may be exercised within the following period: (i) in the case where Fiberail has appointed the lead adviser for an initial public offering of Fiberail and TM have acquired the Option Shares under the Put Option Agreement, the period of 1 month from the date of registration of the Option Shares in TM’s name or from the date the Put Option was exercised by Petrofibre, whichever is later; or (ii) in any other case, the period of 12 months commencing from the date of registration of the Option Shares in TM’s name; (m) Agreement dated 17 February 2006 between Samart Corporation Public Company Limited (“Samart”) and TMI for the acquisition by TMI from Samart of the 105,000,000 issued and outstanding ordinary shares of Thailand Baht (“Baht”) 1 each, representing 24.42% of the total issued and outstanding shares in Samart I-Mobile Public Company Limited (“Samart I-Mobile”) for a consideration of Baht1,312.5 million; (n) Shareholders’ Agreement dated 17 February 2006 between Samart and TMI to regulate the relationship between the parties as shareholders of Samart I-Mobile and to regulate the operation and management of Samart I-Mobile; Mohamed Ridza & Co. Page | 52
  57. 6 .5.2 (o) Agreement dated 17 February 2006 between Samart and TMI for the acquisition by TMI from Samart of 1,038,700 ordinary shares with par value of USD4.00 each representing 49% of the total issued and outstanding shares in Cambodia Samart Communication Company Limited for a total consideration of USD29 million; (p) Share Sale and Purchase Agreement dated 10 March 2006 between Distacom India Holdings Limited (“DIHL”), Dai (Mauritius) Company Limited (“Dai”), Deutsche Bank AG, Ashmore Cayman SPC Limited (“Ashmore”), the Ashmore funds, namely Ashmore Global Special Situations Fund Limited, Ashmore Global Special Situations Fund 2 Limited, Asset Holder PCC No. 2 Limited Re Ashmore Asian Recovery Fund, EMDCD Ltd, Asset Holder PCC Limited Re Ashmore Emerging Markets Liquid Investment Portfolio and Ashmore Emerging Markets Debt Fund and TMI on the acquisition of the entire issued and paid-up share capital of Distacom Communications (India) Limited (“DCIL”) by TMI from DIHL and Dai for a cash consideration of USD178.8 million; and (q) Shareholders’ Agreement dated 10 March 2006 between TMI, Modi Wellvest Private Limited, Super Infosys Private Limited, MCorpglobal Private Limited, India Televentures Private Limited, MCorp Telecom Limited and Spice Communications Private Limited (now known as Spice Communications Limited) (“Spice”), as amended by supplemental agreements dated 28 April 2006 and 10 January 2007, which sets out their respective rights and obligations as shareholders of Spice in relation to the acquisition of the entire issued and paid-up share capital of DCIL. (r) Sale and Purchase Agreement dated 14 August 2007 between TM and Pernec Corporation Berhad (14075-M) (“Pernec”) for the disposal of 65,000,000 ordinary shares of TM Payphone Sdn Bhd (270080-U) which represents 100% of the issued and paid up share capital held by TM in the company at a consideration sum of RM22 million only. Todate Pernec has paid a deposit of RM2.2 million towards the purchase price and the balance thereof shall be payable upon fulfillment of the conditions precedent and other terms and conditions as stated in the agreement. Material Insurance Policies TM has taken various insurance policy to cover various insurable risks related to its fixed assets. As at 30 September, 2007 TM is not aware of any dispute, claim or proceedings related to the insurance taken which are material exceeding Ringgit Malaysia One Hundred Million (RM100,000,000.00) in the context of this Proposed Issuance. 6.5.3 Material Litigation Save as disclosed below, as at 30 September, 2007, neither TM, Celcom nor TMI, are engaged in any material litigation, claims or arbitration, either as plaintiff or defendant, which has a material effect on TM’s financial position or business, and TM is not aware of any proceedings, pending or threatened, or of any facts likely to give rise to any proceedings which may materially affect TM’s financial position or business: Mohamed Ridza & Co. Page | 53
  58. (a) TM v. Business Focus Sdn Bhd (Kuala Lumpur High Court Suit No. D6-2214884-2002) In accordance with the agreement dated 20 February 1997, Business Focus Sdn Bhd (“Business Focus” or “Defendant”) had agreed to procure a third party to purchase TM’s shares in Penang Shipbuilding and Construction Industries Berhad (“PSCI”). If Business Focus fails to procure a purchaser, Business Focus agreed to purchase TM’s shares in PSCI. TM entered into a Supplementary Agreement with Business Focus on 1 December 1997 where Business Focus agreed to purchase TM’s shares in PSCI to be satisfied by the transfer of certain properties and cash (“Consideration”). However, only part of the Consideration was settled on 28 August 1998 via the transfer of Johor land only. On 21 October 2002, TM has served a sealed copy of Writ of Summons and Statement of Claim to the Defendant for a liquidated sum of RM174.7 million together with interests and other costs until the date of realisation. On 26 April 2004, TM’s application for Summary Judgment was heard and the Kuala Lumpur High Court allowed TM’s application for Summary Judgment with costs. On 17 January 2005, Business Focus’ Notice of Appeal for the Summary Judgment’s decision was dismissed with costs. Business Focus had filed a Notice of Appeal against the said decision in the Court of Appeal on 24 January 2005. The Court of Appeal has yet to fix the hearing date for the appeal filed by Business Focus. On 27 January 2005, Business Focus filed an application for Stay of Execution pending Appeal to the Court of Appeal against the Summary Judgment. On 26 May 2005, the Learned Judge had dismissed Business Focus’ application for Stay of Execution pending appeal to the Court of Appeal for the Summary Judgment Order granted to TM on 26 April 2004 with costs. On 29 July 2005, TM served a notice under Section 218 of the Act (“Section 218 Notice”) against Business Focus and in response to the Section 218 Notice, Business Focus had on 4 August 2005 disputed the entire allegation made in the Section 218 Notice. Business Focus demanded that TM cease any further action under the Section 218 Notice within 48 hours from the date of the reply letter, failing which Business Focus will seek further and necessary legal redress against TM. On 9 August 2005, TM replied, through its solicitors by indicating that its action under the Section 218 Notice is in accordance with TM’s rights and interest afforded under the law and reiterated its firm position to proceed with the intended execution proceeding in the event that Business Focus fails, refuses or neglects to comply with the demand under the Section 218 Notice. Meanwhile, a Notice of Petition filed by Export-Import Bank Malaysia Berhad (“EXIM”) to wind-up Business Focus appeared in an Mohamed Ridza & Co. Page | 54
  59. advertisement in The Star dated 10 August 2005 . The said winding-up petition filed by EXIM was heard on 27 September 2005 and on 21 November 2005, the Learned Judge has granted the said winding-up order against Business Focus. On 17 January 2006, TM filed the proof of debt against Business Focus for the recovery of the amount due and payable to TM. During the second creditors’ meeting held on 25 January 2006, Business Focus’ creditors had unanimously agreed to appoint O & M Corporate Advisory Sdn Bhd as the private liquidator for this matter. Pursuant to an application by the Official Receiver, the Kuala Lumpur High Court ordered the appointment of Mr. Wong Cham Mew and Mr. Ong Kong Lai, both from O & M Corporate Advisory Sdn Bhd, as liquidators of Business Focus on 6 March 2006 and the sealed Court Order was extracted on 20 April 2006. The liquidators discovered during their visit on 24 April 2006, that Business Focus’ registered and principal place of business have been vacated about 6 months earlier. The liquidators’ notice of appointment was sent on 26 April 2006 to the directors and company secretary of Business Focus requesting, amongst others, a statement of affairs of Business Focus and other information of Business Focus. The liquidators did not receive any reply from the directors or company secretary of Business Focus. The liquidators also sent their notice of appointment on 26 April 2006 to the accountants and auditors of Business Focus and Bursa Malaysia Depository Sdn Bhd requesting, amongst others, information on Business Focus. Further, the liquidators issued on 26 April 2006 the said notice of appointment to banking and financial institutions operating in Malaysia instructing, amongst others, the freezing of Business Focus’ bank accounts, bank statements dating 6 months back from the date of the winding up petition to present and other information on Business Focus. Certain banking institutions responded and advised that Business Focus does not maintain any accounts with them or that there is no balance standing to the credit of Business Focus’ account maintained with them, while certain other banking institutions had advised that Business Focus is indebted to them in respect of unsettled credit facilities. On 14 August 2006, the liquidators wrote to the directors and company secretary of Business Focus’ subsidiaries for a report on the affairs of these companies. However, the liquidators did not receive any reply. The liquidators are considering instructing its solicitors to commence necessary action to remove the current board of directors of Business Focus’ subsidiaries to enable the liquidators to assume control and decide the companies’ future direction in the best interest of Business Focus. The liquidators have identified shares in Business Focus’ name, which have been recovered. The liquidators had also discovered from publicly available information that Business Focus had previously divested its investments in other companies. No other assets have been identified from the liquidators’ investigations. Mohamed Ridza & Co. Page | 55
  60. At the creditors ’ meeting held on 21 March 2007, the creditors had raised concerns and questions about the whereabouts of Business Focus’ assets and the cause of action available to the liquidator. Subsequent to this meeting, the liquidators proposed certain causes of action including investigating past transactions of Business Focus to recover Business Focus’ assets for the benefit of the creditors and seeking the relevant orders from the Court to compel Business Focus’ officers and other parties whom the liquidators had contacted to provide the required information where such information is not forthcoming. As the liquidators have been unable to locate any significant assets of Business Focus, the liquidators highlighted that their proposed cause of action would need to be funded by the stakeholders of Business Focus. The liquidators are currently seeking the decision of the stakeholders of Business Focus. (b) Arbitration proceedings with the Government of Ghana On 7 April 2000, the Government of Ghana (“GoG”) offered to sell to TM an additional 15% equity interest in Ghana Telecommunications Company Limited (“GT”). On 18 August 2000, TM paid a sum of USD50 million as deposit for the proposed acquisition, subject to the terms and conditions as specified in the Heads of Agreement dated 10 August 2000 (“HoA”). The deadline to conclude the transaction lapsed on 19 February 2002. Consequently, the deposit payment of USD50 million became due and payable to TM under the terms and conditions of the HoA. On 18 September 2002, TM issued a Notification of Claim to the GoG for, amongst others, the parties to settle the outstanding issues pertaining to the repayment of the USD50 million deposit on an amicable basis on or before 18 December 2002. In protecting TM’s investment in Ghana, on 10 February 2003, TM, through its counsel in London, sent a Notice of Arbitration to the GoG for the commencement of an arbitration proceeding under the UNCITRAL Arbitration Rules in accordance with the provisions of the Bilateral Investment Treaty dated 11 November 1996 between the Government of Malaysia and the GoG. The GoG and TM have reached an amicable settlement of the international arbitration proceedings and a Settlement Agreement was executed on 7 May 2005 between TM, TMI, G-Com Limited (“GCom”), GT and the GoG (“Settlement Agreement”). According to the settlement terms, KPMG Forensic, a division of KPMG LLP (“KPMG”) acting in its capacity as an independent expert valuer has determined that as at 2 June 2002, the fair market value of GCom’s 30% equity interest in GT was USD52.2 million. The said decision is recorded in a Final Award on Agreed Terms of the UNCITRAL arbitral tribunal on 1 November 2005. The Final Award effectively signified the conclusion of the arbitration process. Mohamed Ridza & Co. Page | 56
  61. In accordance with the settlement terms , the settlement sum due and payable by the GoG to TM in instalments until 2007. As at 31 March 2007, TM received the total settlement sum payable by the GoG to TM pursuant to the Settlement Agreement which amounts to USD119.5 million. TM is liaising with its tax consultant, Ernst & Young, and Ghanaian legal advisors to ensure that TM is absolved from any tax liabilities arising from the settlement as per the settlement documents. With the completion of the final payment and fulfillment of other applicable conditions, G-Com’s 30% equity interest in GT was transferred to the GoG. TM and TM International are currently in the process to wind up GCom. (c) DeTeAsia Holding GmbH v. Celcom (ICC International Court of Arbitration No. 12615/ms) On 10 March 2003, Celcom received a letter from DeTeAsia Holding GmbH (“DeTeAsia”) informing Celcom that it had initiated arbitration on 10 March 2003 with the Secretariat of the International Court of Arbitration of the International Chamber of Commerce in Paris (“ICC”) pursuant to Clause 8.6 of the Amended and Restated Supplemental Agreement dated 4 April 2002 entered into between DeTeAsia, Technology Resources Industries Berhad (“TRI”), Celcom and TR International Limited (“TRIL”) (“Amended and Restated Supplemental Agreement”). The Amended and Restated Supplemental Agreement stipulates that the written consent of DeTeAsia was required prior to TRI and/or Celcom, amongst others: (i) concluding and/or executing any agreement to allot or issue shares to any entity where the shares to be allotted or issued constituted at least 5% of the aggregate number of TRI or Celcom shares in issue at the relevant time; (ii) concluding and/or executing any agreement to acquire shares in an entity whose principal business is in the communication industry; and (iii) concluding and/or executing any agreement to merge with an entity whose principal business is in the communication industry. Further, the Amended and Restated Supplemental Agreement has provided that in the event that prior consent has not been obtained in respect of the matters aforesaid, then DeTeAsia was entitled to an offer to be procured by Celcom for the purchase of DeTeAsia’s Celcom shares at USD1.84 per Celcom share (“Buy-Out Offer”). Mohamed Ridza & Co. Page | 57
  62. DeTeAsia essentially claimed damages for breach of the Amended and Restated Supplemental Agreement . By a letter dated 20 August 2004 to the Arbitral Tribunal, DeTeAsia quantified its principal claim as USD177.2 million (“Principal Claim”). Subsequently DeTeAsia in its Post Hearing Brief dated 29 November 2004 claimed interest in the sum of USD16.3 million for the period between 16 October 2002 to 27 June 2003, and interest at the rate of 8% per annum on the Principal Claim from 28 June 2003 until full settlement. The evidential hearing was held from 12 July 2004 to 16 July 2004 in Geneva. The parties submitted the Post Hearing Briefs on 29 November 2004. The parties presented oral submissions in London on 7 and 8 January 2005. Upon the close of the submissions, the Arbitral Tribunal directed the parties to simultaneously exchange written submissions on the issue of costs by 1 March 2005. Submissions in reply were to be simultaneously exchanged by 15 March 2005. The parties has since then mutually agreed that the submission be filed on 21 March 2005 and the replies on 15 April 2005. Both parties filed their submissions on 21 March 2005. The Arbitral Tribunal via the final award dated 2 August 2005 (“Award”) found that: (i) Celcom, having violated the veto rights and having failed to procure the Buy-Out Offer, is liable to DeTeAsia for the full amount claimed in the arbitration and shall accordingly pay DeTeAsia the Principal Claim of USD177.2 million plus USD16.3 million, being interest at the rate of 8% for the period from 16 October 2002 to 27 June 2003, and interest at the rate of 8% per annum on the Principal Claim from 28 June 2003 until full settlement; (ii) Celcom shall bear all the costs of the arbitration as fixed by the ICC of USD0.8 million and shall accordingly pay DeTeAsia the sum of USD0.4 million (being arbitration costs paid by DeTeAsia); and (iii) Celcom shall pay DeTeAsia the sum of USD1.8 million, being reasonable legal and other costs incurred by DeTeAsia in the arbitration. Declaration proceedings On 17 November 2005, Celcom filed in the High Court of Malaya, an ex parte application for leave to issue and serve an Originating Summons upon DeTeAsia in Germany in the manner required under the Rules of the High Court 1980. Celcom is seeking for, amongst others, the following relieves in the Originating Summons: (i) Mohamed Ridza & Co. a declaration that the Award is contrary to the public policy of Malaysia and is accordingly unenforceable in Malaysia within the meaning of Section 5(2) of the Convention on the Page | 58
  63. Recognition and Enforcement of Foreign Arbitral Awards Act 1985 (“Foreign Arbitral Awards Act”); and (ii) consequent upon (i) above, DeTeAsia whether by itself, its agents, servants or any of them or otherwise, be restrained, directly or indirectly, whether pursuant to the Foreign Arbitral Awards Act or otherwise, from seeking to enforce the Award against Celcom in Malaysia. The cause papers have been served upon DeTeAsia in Germany. On 22 March 2006, DeTeAsia entered a conditional appearance in the matter. On 28 April 2006, DeTeAsia served the sealed copy of its application to set aside the Originating Summons on the ground that the court has no jurisdiction to determine the same. The application is now fixed for mention on 23 November 2007. Meanwhile, Celcom’s Originating Summons which was fixed for hearing on 22 November 2006 has been adjourned to a later date as there is presently no Judge sitting in the Rayuan dan Kuasa-Kuasa Khas Court No.1 (the former Judge, Dato’ Md. Raus Bin Sharif was recently elevated to the Court of Appeal). A hearing date will be fixed after the disposal of DeTeAsia’s application to set aside the Originating Summons. Celcom filed an application to strike out the affidavit of Graham Dunning QC on the grounds that the same contains matter which is scandalous, irrelevant, inadmissible or otherwise oppressive. The application was heard on 14 September 2007 and the Court has fixed the application for decision/clarification on 23 November 2007. Celcom’s solicitor is of the view that due to the fact that this proceeding is unprecedented, Celcom has an even chance of succeeding in this action. (d) Rego Multi-Trades Sdn Bhd v. Aras Capital Sdn Bhd & Tan Sri Dato’ Tajudin Ramli (Kuala Lumpur High Court (Commercial Division) Civil Suit No. D2-22-1411-2005) On 16 February 2005, Rego Multi-Trades Sdn Bhd (“Rego”), a whollyowned subsidiary of TRI, which is also a subsidiary of Celcom, had filed a civil claim in the High Court of Kuala Lumpur against Aras Capital Sdn Bhd (“Aras Capital”) and Tan Sri Dato’ Tajudin Ramli (“TSDTR”). The claim is made for recovery of sums due and owing to Rego from Aras Capital and TSDTR pursuant to: (i) Mohamed Ridza & Co. the Investment Management Agreement dated 10 January 1997 (“Investment Agreement”) and the Supplemental Agreement dated 21 April 1997 (“Supplemental Agreement”) between Rego and Aras Capital; and Page | 59
  64. (ii) the Letter of Indemnity dated 1 April 1998 (“Letter of Indemnity”) given by TSDTR to Rego relating to the investments made by Rego under the Investment Agreement and the Supplemental Agreement. The sum claimed in the proceedings is RM261.8 million as at 30 November 2004 together with interest and cost. On 13 May 2005, TSDTR filed its defence and instituted a counterclaim against Rego, TRI and its directors. In the counterclaim, TSDTR seeks, amongst others: (i) a declaration that the Letter of Indemnity given by TSDTR to Rego relating to the investments made by Rego under the Investment Agreement and the Supplemental Agreement between Rego and Aras Capital is void or alternatively is avoided; (ii) a rescission of the Letter of Indemnity; (iii) the return of the sum of RM100 million as being a sum allegedly paid by TSDTR to Rego; and (iv) general, exemplary and aggravated damages to be assessed. The claim against the Rego/TRI’s directors is for general, exemplary and aggravated damages to be assessed arising from a claim of alleged conspiracy. Rego filed its reply and defence to the counterclaim on 4 July 2005. TRI and the directors concerned have also filed their respective defences to counterclaim on 4 July 2005. Subsequently, Rego, TRI and their directors filed their respective application to strike out TSDTR’s counterclaim on 19 July 2005. The applications to strike out TSDTR’s counterclaim filed by Rego, TRI and their directors have been fixed for hearing on 8 December 2005. However, when the matter was called on the aforesaid date, the Registrar requested the parties to file written submissions and fixed the same for clarification/decision on 18 May 2006. On 18 May 2006, the Registrar dismissed the striking out applications by Rego, TRI and their directors. On 29 May 2006, Rego, TRI and their directors filed their respective appeal against the Registrar’s decision on the striking out application to the Judge in Chambers (“Appeal”) and the same was fixed for hearing on 1 August 2006. On the hearing date, the Appeal was adjourned to 16 October 2006 because the presiding judge, YA Datuk Zainun bte Ali was elevated to the Court of Appeal. On 16 October 2006, the Court directed the parties to file written submissions and fixed the Appeal for hearing on 29 January 2007, which was later adjourned to the following dates: (i) Mohamed Ridza & Co. Rego’s appeal is fixed for hearing on 17 January 2008; Page | 60
  65. (ii) TRI’s appeal is fixed for hearing on 17 January 2008; and (iii) the directors’ appeal is fixed for hearing on 17 January 2008. Rego’s solicitor is of the view that Rego has good prospects of succeeding on the claim and successfully defending the counterclaim if the same were to proceed to trial. (e) TM & Telekom Publications Sdn Bhd v. Buying Guide (M) Sdn Bhd (Kuala Lumpur High Court Suit No. D6-22-1332-2003) On 11 August 2003, TM had, jointly with Telekom Publications Sdn Bhd (now known as TM Info-Media Sdn Bhd) (“TMIM”), TM’s wholly-owned subsidiary, instituted legal proceedings against Buying Guide (M) Sdn Bhd (“BGSB”) relating to the infringement of TMIM’s and TM’s copyright and passing off. BGSB filed their defence and counterclaim on 15 October 2003 for RM114.3 million being their special damages for suspension of BGSB’s corporate exercise. BGSB also claimed for the general, aggravated and exemplary damages, interest and cost against TMIM. On 27 July 2004, BGSB filed their notice of appeal against the Assistant Registrar’s decision in dismissing BGSB’s application for further and better particulars against TM with costs. On 8 April 2005, the Learned Judge has dismissed the said appeal with cost. On 10 June 2005, TMIM and TM filed their reply to BGSB’s statement of defence and defence to BGSB’s counterclaim. The case management of this case was heard on 14 February 2007 and TMIM and TM filed and served the tentative list of witness and tentative list of documents. The parties are to finalise the Agreed and Non-Agreed Bundle of Documents by the next case management date on 11 June 2007. On 11 June 2007, the Court postponed the case to 5 November 2007 and later to 17 March 2008 for further Case Management. TM’s solicitor is of the view that based on the available documents and the various discussions with TM and TMIM, TM has a reasonable chance of success in its claim and defending BGSB’s counterclaim. (f) TM & Telekom Publications Sdn Bhd v. BG Online Sdn Bhd & BG Media Sdn Bhd (Kuala Lumpur High Court Suit No. D7-22-1144-2004) On 10 August 2004, TM had, jointly with TMIM filed an application for an injunction against BG Online Sdn Bhd (“BG Online”) and BG Media Sdn Bhd (“BG Media”) to prevent them from publishing any telephone directories including the Super Pages directory comprising the Yellow Pages mark and/or the Yellow Pages Get-Up as set out in the relevant application papers to the High Court or a mark or get-up which is confusingly similar to TM’s mark or get-up. Mohamed Ridza & Co. Page | 61
  66. On 9 August 2005 , the High Court allowed TM’s application for the Interim Injunction. The approval on the terms of the order was obtained from the High Court on 18 August 2005. The said Interim Injunction would be effective and valid until the full trial of the case. At the current moment, no trial date has been fixed by the High Court. On 29 August 2005, BG Online and BG Media filed an appeal at the Court of Appeal against the decision of the High Court dated 9 August 2005. The Court fixed the hearing date for the said appeal against the Interim Injunction granted to TM and TMIM on 9 August 2006. On 13 July 2006, BG Online and BG Media filed an application to crossexamine the deponent of the plaintiffs’ Affidavit (“Application”). On 15 February 2007, the Court gave directions for the parties to file their written submissions in respect of the Application. On 13 March 2007, TMIM and TM filed the submissions and are awaiting BG Online and BG Media to file their rebuttal submissions. The Application has been fixed for decision on 26 April 2007. Meanwhile, on 25 January 2006, the High Court granted the leave for TMIM and TM to file the committal proceeding against the directors of BG Online and BG Media due to their failure to comply with the Court Order dated 18 August 2005. TMIM and TM filed for Notice of Motion for committal against the said directors on 27 January 2006. On 26 September 2007, the Court has fixed 3 October 2007 for the followings: (i) Mention date for TM/TMIM’s Notice of Motion to commit the directors of BGM and BGO to prison; (ii) Decision on the said directors’ application to cross-examine the deponent of the affidavit in support of the Notice of Motion; and (iii) Mention date for Case Management. On 3 October 2007, the Court has dismissed the BGM/BGO directors’ application to cross-examine the deponent of the affidavit in support of the Notice of Motion. The parties have been further requested to file their respective written submission in court in respect of TM/TMIM’s Notice of Motion to commit the directors of BGM and BGO to prison. The Court has fixed 23 November 2007 for the followings: (i) Decision on TM/TMIM’s Notice of Motion to commit the directors of BGM and BGO to prison; and (ii) Mention date for Case Management. TM’s solicitor is of the view that based on the available documents and the various discussions with the relevant parties, TM has reasonable prospects of success in this action. Mohamed Ridza & Co. Page | 62
  67. (g) (i) MCAT GEN Sdn Bhd v. Celcom (Kuala Lumpur High Court Suit No. D4-22-1682-2005) On 23 November 2005, Celcom was served with a Writ of Summons and Statement of Claim by MCAT GEN Sdn Bhd (“MCAT”). The suit is premised on a cause of action in breach of contract where MCAT alleged that Celcom has breached the terms and conditions of the Reseller Agreement between Celcom and MCAT (“Reseller Agreement”) whereby MCAT was to resell Celcom’s application and network services and to launch a prepaid package using Celcom’s network, name, trade mark, logo and information. MCAT sought, amongst others, specific performance of the alleged Reseller Agreement, damages in the sum of RM609.7 million, damages in lieu or in addition to specific performance, interests and costs. On 24 January 2007, the Court allowed MCAT’s amendment application, primarily to amend its claim for damages from RM609.7 million to RM765.1 million. On 9 January 2006, Celcom filed its Defence where it pleaded that it did not execute a Reseller Agreement with MCAT. Celcom has pleaded that there is no contractual relationship between the parties on a post-paid and/or pre-paid basis for MCAT to resell Celcom’s products. On 1 March 2006, Celcom was served with an application seeking an injunction to restrain Celcom from, amongst others: (aa) entering into, continuing and/or completing any reseller’s agreement with any third party or acting in a manner which contravenes, contradicts and/or causes detriment to MCAT’s alleged rights under its alleged appointment of a reseller of Celcom’s services; and (bb) disclosing MCAT’s confidential information and trade secrets to any third parties. On 20 March 2006, the Court directed the parties to file written submission and fixed the application for decision on 13 April 2006. MCAT’s application for an interim injunctive relief was heard and dismissed with costs on 13 April 2006. Subsequently on 24 April 2006, MCAT filed a Notice of Appeal with the Court of Appeal against the said decision of 13 April 2006. On 29 June 2006, MCAT’s appeal was fixed for mention before the Registrar of the Court of Appeal. The Court of Appeal then fixed 30 August 2006 for the hearing of the appeal. On the hearing date, the Appeal was dismissed with costs. MCAT filed a motion for leave to appeal to the Federal Court. On 31 October 2006, Celcom filed an application for security of costs in the Federal Court seeking RM150,000 for security. The Federal Court fixed MCAT’s motion for leave and Celcom’s application for security for costs both for hearing on 16 April Mohamed Ridza & Co. Page | 63
  68. 2007 . The Federal Court on 16 April 2007 dismissed MCAT’s motion for leave and subsequently, Celcom withdrew its application for security of costs as it was rendered academic. In the High Court, Celcom filed an application for security of costs seeking RM1.5 million as security. On 2 March 2007, the High Court granted security of RM100,000 to be paid by MCAT within 30 days. On 22 March 2007, MCAT has furnished a cheque in the sum of RM100,000 for payment into court. Celcom filed an appeal against the quantum granted by the High Court. On 13 June 2007, the Court allowed Celcom’s appeal and ordered that the amount be increased to RM250,000. MCAT has on 26 July 2007 paid the difference of RM150,000 into Court. Celcom filed an application to strike out certain paragraphs in MCAT’s amended statement of claim due to MCAT’s failure to comply with the High Court’s direction to furnish further and better particulars to Celcom. The High Court has directed parties to file written submission and fixed the same for clarification/decision on 2 March 2007. On 2 March 2007, the High Court dismissed Celcom’s striking out application. The matter commenced for full trial on 13 & 14 June 2007. The Court then vacated the 30 & 31 July 2007 and 1 & 2 August 2007 hearing dates. The Court then fixed the trial to continue on 5 May & 6 May 2008, 12 May & 13 May 2008 and 19 May & 20 May 2008. Celcom’s solicitor is of the view that Celcom has an even chance of defending this action. (ii) MCAT GEN Sdn Bhd v. Celcom (Kuala Lumpur High Court Civil Suit No. S6-23-74-2005) On 24 November 2005, Celcom was served with a Writ of Summons and Statement of Claim by MCAT (“S6 Suit”). In its Statement of Claim, MCAT pleaded a cause of action for libel against Celcom based on official press statements and press releases made by Celcom denying that it had any contractual relationship with MCAT which appeared in the New Straits Times, Utusan Malaysia, Harian Metro and Berita Harian. MCAT sought, amongst other, damages for libel in the sum of RM1.0 billion, aggravated and exemplary damages, an injunction restraining Celcom from further publishing any similar defamatory words, a public apology, interests and costs. On 9 January 2006, Celcom filed its Defence and instituted a Counterclaim against MCAT. The Defence for the S6 Suit was based on the ground that: Mohamed Ridza & Co. Page | 64
  69. (aa) there was no concluded contract between Celcom and MCAT as alleged in the Statement of Claim; and (bb) the alleged defamatory words on which the action was founded were not published by Celcom and are not defamatory of MCAT. Celcom also relied on the defence of justification and qualified privilege. A Counterclaim for the S6 Suit was instituted on an action for passing off by Celcom against MCAT based on advertisements and promotions issued by MCAT. Celcom’s claim was that MCAT had passed off its products and services as those of Celcom or implied a trade association with Celcom when no such association exists. Celcom further claimed that MCAT had represented itself as a reseller of Celcom’s products and services when there is no contractual relationship to this effect. Celcom sought relief by way of an injunction to restrain such acts of passing off and also an order for an inquiry as to damages/an account of profits. Celcom also, on 9 January 2006, filed an application to strike out MCAT’s claim (“S6 Striking Out Application”) on the grounds that MCAT’s Statement of Claim disclosed no cause of action, was frivolous, vexatious and an abuse of process of the Court. The S6 Striking Out Application was premised on, amongst others, the following grounds: (aa) the alleged defamatory words relied on were not expressly pleaded in the Statement of Claim and are not capable of bearing a defamatory meaning; (bb) MCAT has, by its letter dated 13 October 2005, admitted that it was not entitled to launch its prepaid package and/or advertise any association with Celcom and that it had unilaterally advertised its prepaid package without the knowledge and consent of Celcom; and (cc) Celcom also sought, in the alternative, to strike out MCAT’s claim for damages of RM1.0 billion on the grounds that the claim was frivolous, vexatious and an abuse of process of the Court. The S6 Striking Out Application which was fixed for hearing before the Senior Assistant Registrar on 27 March 2006 has been adjourned to 17 April 2006. Upon hearing the solicitors’ submissions, the S6 Striking Out Application was fixed for clarification/decision on 4 May 2006. However, since the Registrar who heard the said application has been transferred to another Court, the S6 Striking Out Application was fixed for Mohamed Ridza & Co. Page | 65
  70. mention on 18 July 2006 pending MCAT ’s application to amend the Statement of Claim. On the hearing date, MCAT’s solicitors informed the Court of an application for extension of time to refer to the written grounds of judgment of Datuk Wahab Patail in dismissing MCAT’s injunction application in the Kuala Lumpur High Court Suit No. D4-22-1682-2005. As this application has yet to be sealed, MCAT’s solicitors requested that the S6 Striking Out Application and the application to amend the Statement of Claim be adjourned to a later date. On 3 August 2006, MCAT’s application for extension of time was allowed with no order as to costs. The Court then fixed both the S6 Striking Out Application for mention and the application to amend the Statement of Claim for hearing on 6 September 2006. Upon hearing submissions by the parties, the Court fixed the application to amend for decision/clarification and S6 Striking Out Application for mention on 10 October 2006 respectively. On the mention date, the Court allowed MCAT’s application to amend with costs in the cause and the S6 Striking Out Application fixed for hearing on 29 January 2007, which was later adjourned to 22 March 2007 in view of MCAT’s appeal against the Court’s decision in favour of Celcom’s consolidation application. On 22 March 2007, having heard arguments from counsel for both parties and having perused the relevant cause papers, the Senior Assistant Registrar ordered that the S6 Striking Out Application be dismissed with costs. Subsequently, on the same day, Celcom filed its Notice of Appeal to the Judge in Chambers against the whole decision handed down by the Senior Assistant Registrar in dismissing the S6 Striking Out Application. Celcom’s appeal to the Judge in Chambers against the dismissal of the S6 Striking Out Application was fixed for mention on 15 August 2007. The Court then directed parties to file written submission and fixed the appeal for decision/clarification on 29 January 2008. On the direction of the Court, Celcom filed an application to consolidate this suit with the S4 Suit (as referred to in subparagraph (g)(iii) below). On 11 December 2006, the Court allowed Celcom’s application to consolidate and ordered that the S4 Suit be transferred to this Court. The S4 Suit will be heard after this suit has been disposed off by this Court. On 29 January 2007, MCAT filed an application for stay pending the outcome of its appeal to the Court of Appeal against the consolidation order. This application was fixed for hearing on 18 April 2007. Upon hearing submissions from the parties, on 16 May 2007 the Court dismissed MCAT’s application for stay. On 15 August 2007, MCAT through its solicitors indicated its intention to withdraw the appeal and seek Celcom’s consent to withdraw the same with no costs. Mohamed Ridza & Co. Page | 66
  71. Celcom agreed and currently awaiting the Court of Appeal to fix a mention date where MCAT will withdraw the appeal with no order as to costs on the said mention date . Celcom’s solicitor is of the view that Celcom has an even chance of defending this action. (iii) Tan Sri Abdul Rashid Bin Abdul Manaf, Danny Ng Siew L’Leong, Datuk Yaacob Bin Md Amin, Ungku Safian Bin Ungku Abdullah & Mohd Razi Bin Adam v. Celcom (Kuala Lumpur High Court Civil Suit No. S4-23-77-2005) On 13 December 2005, Celcom was served with a Writ of Summons, a Statement of Claim and an Amended Statement of Claim in respect of a suit filed against Celcom (“S4 Suit”) by the directors of MCAT, namely, Tan Sri Abdul Rashid Bin Abdul Manaf, Danny Ng Siew L’Leong, Datuk Yaacob Bin Md Amin, Ungku Safian Bin Ungku Abdullah and Mohd Razi Bin Adam, being the First to Fifth Plaintiff respectively. The Plaintiffs’ claim was for alleged libel based on official press statements and press releases made by Celcom denying that it had any contractual relationship with MCAT which appeared in the New Straits Times, Utusan Malaysia, Harian Metro and Berita Harian. The Plaintiffs sought, amongst others, damages for libel, as follows: (aa) the First Plaintiff - RM500 million; (bb) the Second Plaintiff - RM200 million; (cc) the Third Plaintiff - RM100 million; (dd) the Fourth Plaintiff - RM200 million; and (ee) the Fifth Plaintiff - RM10 million. The Plaintiffs also sought aggravated and exemplary damages (which have not been quantified), a retraction of all allegedly defamatory press statements released by Celcom, an injunction restraining Celcom from further publishing any similar allegedly defamatory words, a public apology, interests and costs. On 16 January Counterclaim. 2006, Celcom filed its Defence and The Defence for the S4 Suit was based on the ground that: (aa) there was no concluded contract between Celcom and MCAT as alleged in the Statement of Claim; and Mohamed Ridza & Co. Page | 67
  72. (bb) the alleged defamatory words on which the action was founded were not published by Celcom, do not identify with or bear any reference to the Plaintiffs and are not capable of being defamatory. Celcom also relied on the defence of justification and qualified privilege. A Counterclaim for the S4 Suit was predicated on an action for: (aa) breach of the contract of employment between Celcom and the Fifth Plaintiff; and (bb) breach of fiduciary duties by the Fifth Plaintiff whilst an employee of Celcom before joining MCAT as its Chief Executive Officer upon the cessation of his tenure at Celcom. Celcom sought relief by way of an injunction to restrain the Fifth Plaintiff from disclosing confidential information acquired by him during the course of his employment with Celcom as well as damages for breach of contract and/or breach of fiduciary duties as well as an account of profits. Celcom also, on 16 January 2006, filed an application to strike out this proceeding (“S4 Striking Out Application”) on the grounds that the Statement of Claim disclosed no cause of action, was frivolous, vexatious and an abuse of process of the Court. The S4 Striking Out Application was premised on, amongst others, the following grounds: (aa) the alleged defamatory words relied on were not expressly pleaded in the Statement of Claim and do not identify with or bear any reference to the Plaintiffs and are not capable of bearing a defamatory meaning; (bb) MCAT has, by its letter dated 13 October 2005, admitted that it was not entitled to launch its prepaid package and/or advertise any association with Celcom and that it had unilaterally advertised its prepaid package without the knowledge and consent of Celcom; and Celcom also sought, in the alternative, to strike out the Plaintiffs’ defamatory claim totaling RM1.01 billion on the grounds that the claim was frivolous, vexatious and an abuse of process of the Court. (cc) On 28 February 2006, Celcom filed an application to transfer the S4 Suit to the Kuala Lumpur High Court Civil Division 6 (“S6 Court”) where the S6 Suit as set out in subparagraph (g)(ii) above is currently being tried (“Consolidation Application”). Mohamed Ridza & Co. Page | 68
  73. The grounds in support of the Consolidation Application include : (aa) similarity in subject matter and issues to be tried; (bb) the possibility of conflicting decisions if the S4 Suit and S6 Suit are not heard together; (cc) to promote expediency and uniformity in the conduct of the S4 Suit and S6 Suit; and (dd) to reduce litigation costs. On 9 March 2007, the Court allowed the Consolidation Application on the same terms as the order for consolidation in the S6 Suit above i.e. that this proceeding is to be transferred to the S6 Court. This proceeding will be heard after the S6 Suit has been disposed off by the S6 Court. The S4 Striking Out Application was fixed for hearing before the Senior Assistant Registrar on 4 July 2006. On the hearing date, the S4 Striking Out Application was heard and parties submitted their submissions. The Court then fixed 13 July 2006 for decision. The decision was subsequently fixed for mention on 11 August 2006 and later fixed for mention on 2 November 2006 pending disposal of the Plaintiffs’ application to amend the Statement of Claim. On 2 November 2006, the application to amend the Statement of Claim was allowed with costs to be borne by the Plaintiffs. In light of Celcom’s consolidation application, which was allowed by the Court in the S6 Suit, the Court will inform the parties on the next hearing date for the S4 Striking Out Application. In respect of the Striking Out Application, the Court then instructed the parties to file written submissions and on 12 November 2007, the Court allowed the Striking Out Application with costs. The Plaintiffs filed a notice of appeal to Judge in Chambers on the same day. No date has been fixed for the appeal.. Celcom’s solicitor is of the view that Celcom has more than even chance of defending this action. (h) Celcom & Another v. TSDTR & 8 Others (Kuala Lumpur High Court (Commercial Division) Suit No. D5-22-610-2006) On 28 April 2006, Celcom and TRI filed a Writ of Summons against the former directors of TRI/Celcom, namely: (i) TSDTR; (ii) Dato’ Bistamam bin Ramli (“DBR”); (iii) Dato’ Lim Kheng Yew (“DLKY”); (iv) Dieter Sieber (“DS“); (v) Frank-Reinhard Bartsch (“FRB“); Mohamed Ridza & Co. Page | 69
  74. (vi) Joachim Gronau (”JG”); (vii) Joerg Andreas Boy (”JAB”); (viii) Axel Hass; and (ix) Oliver Tim Axmann (”OTA”). (collectively referred to as “Defendants”). With respect to persons referred to in (iv) to (ix) above, TRI/Celcom filed an ex parte application for leave to issue and serve the Writ of Summons upon those former directors in Germany and/or Singapore in the manner required under the Rules of the High Court 1980. The breaches of duty complained of in the legal proceedings relate mainly to the entry of the Subscription Agreement dated 25 June 1996 (“Subscription Agreement”) between Deutsche Telekom AG (“DTAG”), TRI and Celcom and the Amended and Restated Supplemental Agreement dated 4 April 2002 (“ARSA”) between Celcom, TRI and DeTeAsia. The Defendants were, amongst others, directors of Celcom and TRI at the time of entry into the Subscription Agreement and the ARSA. Celcom and TRI claim that these agreements were entered into by the various directors of Celcom and TRI in breach of their fiduciary duties. In this action, Celcom and TRI are seeking an indemnity in relation to the sums paid out to DeTeAsia pursuant to the Award as well as damages for various breaches of fiduciary duties committed by them in relation to the entry into the Subscription Agreement and the ARSA. The claim against TSDTR also related to unauthorised profits claimed to have been made by him in connection with the entry of TRI/Celcom into the Subscription Agreement and the ARSA. Celcom and TRI are seeking, amongst others, the following relief in the claim: (i) a declaration that the Defendants are liable to indemnify Celcom to the extent of all sums paid by Celcom to DeTeAsia in satisfaction of an Award dated 2 August 2005 handed down by the Arbitral Tribunal in the ICC International Court of Arbitration No. 12615/ms instituted by DeTeAsia against Celcom and all costs incurred thereof; (ii) as against TSDTR, for unauthorised profits made amounting to RM446,038,141.09; (iii) an account of all monies received by the Defendants arising out of such breaches; and (iv) loss and damages to be assessed. TRI/Celcom’s ex parte application for leave to serve out of jurisdiction was granted order in terms on 7 June 2006. The sealed Notices of Writ and Order for Service Out of Jurisdiction have been extracted from Mohamed Ridza & Co. Page | 70
  75. the Court . Service of process will be effected in Singapore/Germany as the relevant directors may be upon procuring certification from the German Embassy. Service of process has already been effected on all the Defendants except for Axel Hass. TSDTR and DBR have entered appearance and have applied to set aside the Writ and Statement of Claim on the basis that the issues which are the subject of this action has been litigated and decided on its merits by reason of the Award. This application is fixed for hearing on 10 December 2007. DLKY has also entered appearance. Celcom and TRI have filed an application to restrain his solicitors from acting for him on the grounds that the partner concerned rendered an advice to us in relation to the agreements with DTAG/DeTeAsia during the acquisition of TRI and Celcom by us. This application is fixed for mention on 2 November 2007. DS, OTA, JG, FRB and JAB have entered conditional appearance and filed their respective application to set aside the issue and service of the Notice of Writ and Statement of Claim. Their applications have been fixed for mention on 10 December 2007. Celcom and TRI’s solicitor is of the view that Celcom and TRI have reasonable prospects of successfully prosecuting these proceedings. (i) Pengurusan Danaharta Nasional Berhad & 2 Others v. TSDTR (By Original Claim), TSDTR v. Danaharta & 23 Others (“By Counterclaim”) (Kuala Lumpur High Court Civil Suit No. D2-22-673-2006) On 29 June 2006, TM, TESB, Celcom and TRI were served with a Defence and Counterclaim by TSDTR. Our Company, TESB, Celcom and TRI were made a party to the above legal proceedings via the counterclaim. Subsequently on 13 July 2006, TSDTR filed and served an Amended Defence and Amended Counterclaim on the solicitors for our Company, TESB, Celcom and TRI (“TM Group’s Solicitors”). TSDTR is seeking from TM, TESB, Celcom, TRI and 9 others jointly and/or severally the following relief in the Amended Counterclaim: (i) the sum of RM6,246,492,000.00 (TRI shares at RM24.00 per share); (ii) general damages to be assessed; (iii) aggravated and exemplary damages to be assessed; (iv) damages for conspiracy to be assessed; (v) an account of all sums paid: (aa) Mohamed Ridza & Co. under the Facility Agreement dated 13 July 1994 between a syndicate of lenders comprising D & C Sakura Merchant Bankers Berhad, Bank Bumiputra Malaysia Berhad, United Malayan Banking Corporation Page | 71
  76. Berhad , Development & Commercial Bank Berhad and Arab-Malaysian Merchant Bank Berhad and TSDTR; and/or (bb) to Pengurusan Danaharta Nasional Berhad, Danaharta Urus Sdn Bhd and Danaharta Managers Sdn Bhd (collectively referred to as “Danaharta”) by TSDTR including all such sums received by Danaharta as a result of the sale of TRI shares and the Naluri Corporation Berhad shares; (vi) an assessment of all sums due to be repaid by Danaharta to TSDTR as a result of overpayment by TSDTR to Danaharta; (vii) an order that Danaharta forthwith pays all sums adjudged to be paid to TSDTR under prayer (vi); (viii) an account of all dividends and/or payments received by our Company and TESB arising out of or in relation to TRI (now Celcom) shares; (ix) an order that our Company forthwith pays all sum adjudged to be paid to TSDTR under prayer (viii); and (x) damages for breach of contract against Danaharta to be assessed. In addition, TSDTR is also seeking, amongst others, from all the 24 Defendants to the Amended Counterclaim the following relief: (i) the sum of RM7,214,909,224.01; (ii) damages for conspiracy to be assessed; (iii) a declaration that the vesting certificates are illegal and ultra vires the Pengurusan Danaharta Nasional Act, 1998 (“Danaharta Act”) and/or unconstitutional against the provisions of the Federal Constitution and/or against public policy and void; (iv) a declaration that the Settlement Agreement dated 8 October 2001 between TSDTR and Danaharta (“Settlement Agreement”) is illegal and ultra vires the Danaharta Act and/or the Federal Constitution and is void and unenforceable pursuant to Section 24 of the Contracts Act, 1950, amongst others as being against public policy; (v) a declaration that all acts and deeds carried out and all agreements executed by Danaharta pursuant to the vesting certificates and/or the Settlement Agreement are illegal and unenforceable; (vi) an order that all contracts, agreements, transfers, conveyances, dealings, acts or deeds whatsoever carried out and executed by Danaharta be declared as null and void and set aside; Mohamed Ridza & Co. Page | 72
  77. (vii) all necessary and fit orders and directions as may be required to give full effect to the aforesaid declarations and orders; (viii) damages to be assessed; (ix) aggravated and exemplary damages to be assessed; (x) interest at the rate of 8% per annum on all sums adjudged to be paid by the respective Defendants to the Counterclaim to TSDTR from the date such loss and damage was incurred to the date of full payment; and (xi) costs. On 20 July 2006, TM Group’s Solicitors filed applications on behalf of our Company/TESB and Celcom/TRI respectively to strike out the Amended Counterclaim. The applications were originally fixed for hearing on 14 September 2006 but were adjourned pending the exchange of affidavits. The Court has fixed our Company/TESB’s striking out application for hearing on 6 June 2007, while Celcom/TRI’s striking out application is fixed for hearing on 11 July 2007. The hearing of TM/TESB’s application to strike out TSDTR’s Amended Counterclaim proceeded before the Senior Assistant Registrar (SAR) on 19 July 2007, 31 July 2007 and 15 August 2007. Meanwhile, the hearing of Celcom/TRI’s application to strike out TSDTR’s Amended Counterclaim proceeded before the SAR on 11 July 2007, 23 July 2007 and 13 August 2007. On 28 August 2007, the SAR dismissed TM/TESB and Celcom/TRI’s respective applications to strike out TSTR’s Amended Counterclaim. TM Group’s solicitors filed an appeal against the decision of the SAR above mentioned on behalf of both TM/TESB and Celcom/TRI. The Court has fixed 27 November 2007 as the hearing date for the above appeal. On 2 February 2007, TSDTR’s solicitors served TM Group’s Solicitors an application to reamend the Amended Defence and Amended Counterclaim to include 14 additional defendants. The proposed additional defendants include the present or former directors/officers of our Company, TESB, Celcom and TRI namely, Tan Sri Dato’ Ir. Muhammad Radzi Haji Mansor, Dato’ Dr. Md Khir Abdul Rahman, Dato’ Dr. Mohd Munir Abdul Majid, Dato’ Lim Kheng Guan, Encik Rosli Man, Encik Tan Poh Keat, Dato’ Abdul Wahid Omar, Encik Bazlan Osman, Datuk Azzat Kamaludin, Encik Ismael Fariz Ali and Dato’ Mohamed Yunus Ramli Abbas. TM Group’s Solicitors will be opposing this application on the grounds that it is, amongst others, frivolous and an abuse of the process of court and calculated to delay and embarrass. The hearing date of TSDTR's application to re-amend his Amended Defence and Counterclaim which was fixed on 6 June 2007 and 5 September 2007 has been postponed to 8 January 2008. Mohamed Ridza & Co. Page | 73
  78. Based on the evidence presently available , TM Group’s Solicitors are of the view that we have a good defence to the Counterclaim. 6.5.4 Material Contingent Liabilities For the purposes of this Information Memorandum, contingent liabilities and commitments of RM100 million and above are considered material. There were no material contingent liabilities of TM as at 31 August 2007 other than the material litigation as set out in Section 3.8 above and the guarantees as set out below:(a) On 6 October 2005, TM International (L) Limited (“TMIL”) had executed a blanket counter indemnity in favour of a financial institution in Labuan for all facilities offered. A summary of the facilities offered by the financial institution is as follows: (i) Issuance of USD10.0 million Standby Letter of Credit (SBLC) to a financial institution in Karachi on behalf of TMIL on 6 October 2005 to counter guarantee a USD10.0 million SBLC to Pakistan Telecommunication Authority (PTA) on behalf of a subsidiary, Multinet Pakistan (Private) Limited (Multinet). This SBLC was part of a requirement in awarding a long distance international licence to Multinet. The tenure of the SBLC is three (3) years and is subject to an annual review. (ii) Issuance of USD20.0 million Standby Letter of Credit (SBLC II) by KRI to Multinet on behalf of TMIL to counter guarantee a Bridging Loan Facility (“BLF”). The tenure of the SBLC II is 1 year from the effective date of SBLC II and is subject to an annual review. (iii) Issuance of USD33.0 million Standby Letter of Credit (SBLC III) by KRI to Telenor Pakistan (Pvt) Ltd (“Telenor”) to counter guarantee Bank Guarantees in connection with the Agreement for Indefeasibility Right of Use (“IRU”) or IRU Cores dated 20 November 2006. The tenure of the SBLC III is one (1) year and is subject to an annual review. 6.5.5 Conflict of Interests Save and except for related party transactions as disclosed by TM, TM has not entered into any transaction that may give rise to a conflict of interest. 6.5.6 Related Party Transactions TM has entered into several related party transactions with its subsidiaries or related companies within TM Group. These transactions have been duly disclosed and necessary approvals from its shareholders have been obtained. Details of these related party transactions may be obtained from the disclosures and/or announcements made by TM to Bursa Malaysia. Mohamed Ridza & Co. Page | 74
  79. As at 30 September , 2007, other than disclosed above, there are no related party transactions which are material in the context of the Proposed Issuance. THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK Mohamed Ridza & Co. Page | 75
  80. 7 . INVESTMENT CONSIDERATIONS Prospective investors of the Sukuk should consider carefully all information set out in this Information Memorandum and, in particular, the following risks involved. The Sukuk is subject to certain risks that could adversely affect the interest of theSukuk Holders. In addition, each Sukuk will carry different risks and all prospective investors are strongly encouragred to evaluate each Sukuk on its own merit. The following section does not purport to be complete or exhaustive. Prospective investors should undertake their own investigations and analysis on the Originator, its business and risks associated with the Sukuk. 7.1 Considerations relating to the Originator 7.1.1 Competition and Deregulation The Government has introduced a number of measures designed to increase competition in the industry, including the granting of licences to various Malaysian telecommunications companies to operate services such as fixed line telephony, mobile services and ISP services, as well as the introduction of equal access, whereby customers can choose their basic telephony provider for long distance and international direct dialling calls. TM also faces competition from other companies offering Voice Over Internet Protocol (“VoIP”) services. In line with trends affecting incumbent telecommunications service providers worldwide, TM’s market share has declined in some key segments and prices for certain products and services have fallen significantly. In addition, TM has experienced a decline in subscriber numbers in its core fixed line sector as customers have opted to utilise mobile and other technologies such as VoIP. In addition, TM’s cellular business faces competition from other cellular operators. Intensified competition from these companies may lead to loss of customers, lower ARPU, slow growth in total customers or increased new subscriber acquisition costs. There can be no assurance that TM Group will respond effectively to the increased competition and deregulation in the Malaysian telecommunications industry. Failure to respond to increased competition and deregulation could have a material effect on the financial condition and results of operations of TM Group. In addition, the TM Group is facing more competition following the award of two new 3G licences during the first half of 2006 coupled with a saturating market place. In addition, mobile number portability scheduled to be implemented in the near future may also lead to higher customer turnover as consumers will be given the option to change networks without the inconvenience of changing their phone numbers. With the recent issuance of four (4) new Wimax licences, TM Group faces increased competition in the broadband space, and its impact is yet to fully materialize. Mohamed Ridza & Co. Page | 76
  81. 7 .1.2 Technological obsolescence The telecommunications industry is subject to rapid and significant changes in technology. Wireless technology, satellite-based personal communications services, private and shared radio networks, Internet telephony and other communications services (which have the technical capacity to handle telephone calls) compete with businesses of TM Group. Emerging and future technological changes may adversely affect the viability or competitiveness of the businesses of TM Group. There can be no assurance that TM Group will be successful in responding in a timely and cost-effective way to these developments. Furthermore, changing market demand may require TM Group to adopt new technologies that could render many of the technologies that it is currently implementing less competitive or obsolete. TM Group may choose new technologies that may prove to be unprofitable, inadequate or incompatible with the technologies of its customers or other carriers. Competitors may implement new technologies before TM Group, allowing these competitors to provide lower priced, enhanced or better quality services than TM provides, which could have a material adverse effect on TM Group’s ability to compete effectively. TM Group would continuously evaluate technologies that may be suitable for its businesses. However, TM Group may not be successful in modifying the network infrastructure in a timely and costeffective manner to facilitate integration, which could have a material adverse effect on the quality of services, business, prospects, results of operations and financial condition of TM Group. 7.1.3 Licensing Requirements TM Group’s telecommunications businesses are subject to Malaysian statutory licensing requirements. Changes to Malaysia’s telecommunications licensing policy may have an adverse effect on TM Group. TM Group currently operates its businesses pursuant to licences and approvals that have been granted by the Minister of Energy, Water and Communications (“Minister”) having due regard to the recommendations of the Malaysian Communications and Multimedia Commission (“MCMC”). The licences held by each of the companies within the TM Group, issued under the Communications and Multimedia Act 588/1998 (the “CMA”), have the expiry dates as set out therein. When these licences expire, the licensees will have to apply for new licence to continue providing telecommunication services. There can also be no assurance that a licence will be renewed after the expiration of its current term or that it will be replaced by a new licence issued under the CMA. The failure of TM Group to maintain or renew its licences could have a material adverse effect on TM Group’s financial condition and results of operations. Mohamed Ridza & Co. Page | 77
  82. 7 .1.4 Regulatory Considerations The ownership, construction, operation and provision of telecommunications systems and services and the allocation of frequency spectrum in Malaysia are subject to extensive regulations and supervisions by the MCMC and the Minister. Changes in laws and regulations or MCMC’s policy affecting TM Group’s business activities and those of the competitors may adversely affect TM Group’s financial condition or results of operations. While the TM Group has consistently complied with regulations imposed by the relevant authorities, there is no assurance that introduction of new regulations or measures in the future will not have material adverse effects on the business and financial performance of TM Group. 7.1.5 Safety & Reliability Risks to the Network TM Group provides fixed line services, cellular and multimedia services over networks that rely to varying degrees on TM’s core fibre-optic network. The provision of services by TM Group depends on the reliability of this integrated network. This network is vulnerable to damage or interruptions in operation due to natural disasters, fire, power loss, telecommunications failures, network software flaws, transmission cable cuts, breaches of security or similar events. Any failure of this integrated network that results in an interruption in operations or provision of any service, whether from operational disruption or otherwise, could reduce TM Group’s ability to attract and retain customers and could have a material adverse effect on its results of operations and financial conditions. TM mitigates core network service disruption by enhancing its diversification circuit to have full redundancy feature. 7.1.6 Capital Requirement TM’s telecommunications businesses are capital intensive in nature. In order to continue to be competitive and to provide services and technology compatible with the more advanced telecommunications providers, TM must continue to expand and modernise its network, which involves substantial capital investment. TM Group expect to require substantial financing to broaden the existing range of telecommunications services and to develop new services and upgrade its network using new technologies. Adequate financing for the expansion and modernisation of its network and for telecommunications-related investments may not be available to TM on acceptable terms, or at all. If adequate financing is not available in a timely manner, TM’s business prospects will be adversely affected. Mohamed Ridza & Co. Page | 78
  83. 7 .1.7 Availability of a Skilled Workforce As telecommunications industries become increasingly competitive and deregulated, TM’s success will depend to a significant extent upon, among other factors, its ability to continue to attract and retain qualified personnel. The competition for qualified employees is intense and the loss of the services of key personnel or the inability to attract new qualified personnel or to retain existing personnel could have a material adverse effect on the businesses, prospects, financial condition and results of operations of TM Group. 7.1.8 Environmental Laws TM’s operations are subject to various environmental laws relating to environmental pollution and exposure of its workers to non-ionizing radiation, such as microwave and radiofrequency radiation at hill stations and release of polluted gas. TM has taken various steps including the conduct of a study to ensure that the radiation levels of these substances would not cause adverse health effects to its workers. Although TM believes that it is in compliance in all respects with these environmental laws, some risk of environmental costs and liabilities is inherent in its operations and there can be no assurance that material costs and liabilities will not be incurred in the future in this regards. 7.1.9 Control by Government The Government, primarily through Khazanah Nasional Berhad and the Ministry of Finance, Incorporated (“MoF”), is the majority shareholder of TM. The MoF also holds the Special Share, which enables the Government to ensure that major decisions made by TM are made with its consent and are consistent with Government policy. The MoF through its ownership of the Special Share, has the right to appoint between two (2) to six (6) of a maximum of twelve (12) members of the Board of Directors of TM. Due to its relationship with the Government and its role as a principal provider of telecommunications services in Malaysia, TM communicates with the Government regularly. Furthermore, the Government has voting control of TM and established, through the Minister, the Commission and other regulatory bodies, the regulatory framework in which the TM Group operate its businesses within Malaysia. Accordingly, the Government’s policies and directives may conflict with TM’s business goal and objectives. 7.1.10 Political and Economic Consideration Like all other business entities, adverse changes in political, economic, business and credit environment both domestically and internationally could materially and adversely affect the financial and business prospects of the TM Group. Political and economic uncertainties include (but are not limited to) risks of war, riots, changes in political Mohamed Ridza & Co. Page | 79
  84. leadership , political and social development, nationalisation, renegotiations or nullification of existing contracts, changes in rates of interest and methods of taxation. While the TM Group continues to take measures such as prudent financial management and efficient operating procedures, there can be no assurance that adverse developments in political and economic conditions will not materially affect the TM Group. 7.1.11 Foreign Exchange Fluctuations Since substantially all of TM Group’s revenue are denominated in RM and certain significant equipment purchases and other costs and liabilities are denominated in foreign currencies, a strengthening of the RM may reduce capital costs to TM Group. The strengthening of the RM may also reduce TM Group’s RM interest expenses on foreign currency denominated indebtedness, as well as reduce in RM terms the principal repayments on outstanding foreign currency loans. In addition, if the RM is strengthened against the local currencies of TM's overseas operations in Indonesia, Sri Lanka and Bangladesh, it will lead to foreign exchange translation losses. However, post demerger as described in 7.1.16, TM will not be exposed to the foreign exchange fluctuation risk of TM International Sdn Bhd. 7.1.12 International Affiliates and Investment The consolidated financial performance of TM has been and is expected to continue to be affected by the performance of TM’s international affiliates and investments. These international investments are exposed to country risks which include macroeconomic risks including currency devaluation, high rates of inflation and difficulties with currency convertibility. Any loss or liability in TM’s international operations could have a material adverse effect on TM’s financial condition and results of operations. However, post demerger as described in 7.1.16, TM will not be exposed to the investment risks of TM International Sdn Bhd. 7.1.13 Non-obtaining of local authority approvals for telecommunications towers and rooftop structures Some of the telecommunications towers and rooftop structures installed and commissioned by TM Group have yet to obtain the necessary approval from the respective local authorities under Section 20 of the Town and Country Planning Act 1976 and Section 70 of the Street, Drainage and Building Act 1974. Failure to obtain the necessary approvals is an offence under the aforesaid legislations. In addition, the local authority may by notice require the owner of the telecommunications towers and rooftop structures to demolish the telecommunications towers and rooftop structures within a specified time. Mohamed Ridza & Co. Page | 80
  85. The TM Group have taken all the necessary steps to obtain the approvals from the local authorities as an ongoing activity . 7.1.14 Business Transformation In responding to the needs to be more competitive, TM Group has gone through phases of business transformation that may result into changes in its products, services, market and culture. As part of the transformation strategy, TM Group has targeted significant growth in new business areas such as data, broadband and cellular. In view of the likely level of competition in these areas and uncertainties regarding the level of economic activity, there can be no certainty that the transformation strategy will assist TM Group to meet its growth targets in these focused areas. These uncertainties may have adverse impact to the future TM Group’s revenue stream and profitability. 7.1.15 Business Continuity Plan Disruption to business operation can occur with or without warning due to adverse events such as natural disaster, technological failure or human error. In view of the uncertainty and in ensuring minimal disruption to services, effective Business Continuity Plan (BCP) is an essential operational tool to be implemented across the TM Group. However, the dynamism of the business direction and its risk factors may cause the existing BCP to be obsolete should there are delays to regularly review and update the preventive and recovery plan. This uncertainty may have adverse impact to customer’s satisfaction and retention program of the TM Group. 7.1.16 Proposed Demerger of the Mobile and Fixed-Line Businesses of the TM Group The Board of Directors of TM has on 10th December, 2007 announced the proposed demerger of the TM Group to create two separate entities with distinct business strategies and aspirations (the “Proposed Demerger”). The Proposed Demerger will accelerate operational improvements and growth efforts through clearer strategic and organizational focus. It is also expected to provide greater transparency on the financial and operational performance of each entity. In addition, the Proposed Demerger is expected to improve the execution capacity of the respective entities. Rating Agency has put TM’s rating on developmental outlook pursuant to its Proposed Demerger. A more detailed description of the Proposed Demerger is attached hereto as Appendix 5 and Appendix 8. 7.2 Considerations Relating to the Issuer 7.2.1 The Issuer has no track record Mohamed Ridza & Co. Page | 81
  86. The Issuer is a newly formed entity and has no operating history . The Issuer will have no material assets other than its legal/beneficial title to the Properties (which will be leased to TM pursuant to the Master Ijarah Agreement) and all of the Issuer’s rights, title, interest and benefit, present and future, in, to and under the Transaction Documents, and all proceeds of the foregoing, all of which will be held on trust for the benefit of the Sukuk Holders. The Issuer will not engage in any business activity other than the issuance of the Sukuk and the acquisition and lease of the Properties as described and other activities incidental or related to the foregoing. The only sources of funds available to make payments of the Periodic Distribution Amount are the payments by TM to the Issuer under the Master Ijarah Agreement. 7.3 Considerations Relating to the Sukuk 7.3.1 Limited Recourse Each Sak represents solely an undivided beneficial interest in the Trust Assets. Recourse in respect of the Sukuk is limited to the Trust Assets and proceeds of the Trust Assets are the sole source of payments on the Sukuk. Sukuk Holders will not have direct recourse to any assets of TM (save and except as stated in 7.3.8 below), the Issuer, Trustee or any of their affiliates in respect of any shortfall in the expected amounts from the Trust Assets. Separate Classes of Sukuk carry different risks and different entitlements in relation to the Trust Assets and the same is further elaborated in Item 7.3.7 below. 7.3.2 No prior market for the Sukuk The Sukuk may be considered a new issue of securities for which there is currently no established secondary market. There can therefore be no assurance that a secondary market will develop or, if a secondary market does develop, as to the liquidity of that market for the Sukuk or that it will continue for the entire tenure of the Sukuk, as to the ability of Sukuk Holders to sell their Sukuk, or the prices at which Sukuk Holders would be able to sell the Sukuk. 7.3.3 The market value of the Sukuk may be subject to fluctuation Trading prices of the Sukuk may be influenced by numerous factors, including the operating results and/or financial condition of TM, political, economic, financial and any other factors that can affect the capital markets, the industry or TM. Adverse economic developments could have a material adverse effect on the market value of the Sukuk. 7.3.4 An investment in the Sukuk is subject to interest rate risk Sukuk Holders may suffer unforeseen losses due to fluctuations in interest rates. Although the Sukuk are Islamic securities which do not pay interest, they are similar to fixed income securities and may therefore see their price fluctuate due to fluctuations in interest rates. Generally, a rise in interest rates may cause a fall in bond prices. The Sukuk may be similarly affected resulting in a capital loss for Sukuk Mohamed Ridza & Co. Page | 82
  87. Holders . Conversely, when interest rates fall, bond prices and the prices at which the Sukuk trade may rise. Sukuk Holders may enjoy a capital gain but profit received may be reinvested for lower returns. 7.3.5 Ratings Save and except for the C Tranche Sukuk, it is a condition of the issuance of the Sukuk that the A Tranche Sukuk and B Tranche Sukuk be rated. As regards to the C Tranche Sukuk, such sukuk shall not be rated and shall not be transferable. Please refer to Section 4 of this Information Memorandum for further details. The rating will address the likelihood of full and timely payment to the Sukuk Holders of the distributions to which they are entitled which in turn is a function of TM’s ability to make payments under the Master Ijarah Agreement. A rating is not a recommendation to buy, sell or hold securities and may be subject to revision, suspension or withdrawal at any time. The A Tranche Sukuk and B Tranche Sukuk are subject to rating reviews by RAM (or any other competent rating agency in Malaysia) annually. As a result, there is no assurance that a rating will remain for any given period of time or that a rating will not be lowered or withdrawn entirely by the relevant rating agency if in its judgment circumstances in the future so warrant. Any revision or withdrawal of the ratings may adversely affect the market prices of the A Tranche Sukuk and B Tranche Sukuk. 7.3.6 An investment in the Sukuk is subject to inflation risk Sukuk Holders may suffer erosion on the return of their investments due to inflation. Sukuk Holders would have an anticipated rate of return based on expected inflation rates on the purchase of the Sukuk. An unexpected increase in inflation could reduce the actual return. 7.3.7 Risk in investment inthe ABC Sukuk Sukuk Holders should be aware that the separate Classes of Sukuk carry different risks and different entitlements in relation to the Properties and the Rent. In particular, the respective voting rights of each Class do not in all circumstances correspond with the outstanding nominal value of such Class. A brief description of the relevant differences is set out below and potential Sukuk Holders should refer to Appendix 1 for the full details of the rights and risks attached to each Class of Sukuk. (i) Class A Sukuk The Class A Sukuk are structured such that the Class A Sukuk Holders have first priority in relation to the right, interests and benefits in the Properties, ahead of Class B and Class C. In relation to the Rent, the Class A Sukuk Holders have second priority after Class B but ahead of Class C. Within Class A, A1 Tranche takes priority over A2 Tranche, which in turn takes priority over A3 Tranche, which in turn takes priority over A4 Tranche. Within each Tranche, all Sukuk Holders rank pari passu. Mohamed Ridza & Co. Page | 83
  88. Class A Sukuk may be redeemed on the Expected Maturity Date either pursuant to a special funding being provided by the Class C Sukuk Holders in the form of a qard facility to the Issuer or on an offer made by the Issuer , TM exercises the option to purchase the Properties (as described in Section 2.2.1 (b) above). Redemption of the Class A Sukuk is as such dependent upon the special funding being provided by the Class C Sukuk Holders or the sales proceeds realized from sales of the Properties. In the event the Class C Sukuk Holders do not offer any special funding to the Issuer and TM does not exercise or complete the Purchase Option, redemption of the Class A Sukuk will be dependent on the ability of the Issuer to sell the Properties in the open market at a price in reference to the fair market value at the point of sale (as determined by an independent appraiser which appointment of such independent appraiser shall be made by the Issuer in consultation with TM). Any such sale by the Issuer shall be carried out upon the instructions of the Sukuk Holders (through the Trustee) and the Sukuk Holders shall have the same relative voting rights in respect of such instruction as they would in the case of a Trigger Event. The Class A Sukuk can also be redeemed prior to the Expected Maturity Date in the following circumstances;(a) non-registration of Menara TM, wherein the redemption proceeds are to be paid by TM pursuant to its undertaking to repurchase all the Properties (as more particularly described in item (j)(iv) of Appendix I); (b) on the occurrence of a Total Loss Event, wherein the redemption proceeds are to be derived from the Takaful proceeds, subject to the approval of the Sukuk Holders, as set out in item (j)(iii) of Appendix I; (c) one (1) Business Day after the declaration of a Termination Event under the Master Ijarah Agreement, wherein the redemption proceeds are dependent upon the qard facility provided by the Class C Sukuk Holders, or (in the absence of such qard facility) the proceeds of sale pursuant to a Trigger Event. The voting rights of the Class A Sukuk Holders (and amongst the Class A Sukuk Holders within each Tranche) in relation to Dissolution Events, Trigger Events and the sale of Properties is as set out under item (z) of Appendix I. Sukuk Holders are advised to read such provisions carefully in order to be fully aware as to their relative voting rights under the Sukuk. (ii) Class B Sukuk The Class B Sukuk are structured such that the Class B Sukuk Holders have first priority over the Rent ahead of Class A and Class C, but last priority over the rights, benefits and interest in the Properties (i.e. after Class A and Class C). Within Class B, each Tranche ranks pari passu with every other Tranche. Mohamed Ridza & Co. Page | 84
  89. There is no Expected Maturity Date in respect of the Class B Sukuk . The Class B Sukuk shall be redeemed on their respective Legal Maturity Dates, and the redemption proceeds shall be derived from payment of Rent by TM. Accordingly, the Class B Sukuk Holders take the risk of any default by TM in the payment of Rent or otherwise under the Master Ijarah Agreement. As to the circumstances in which the Class B Sukuk may be redeemed prior to the Legal Maturity Dates (e.g. upon the occurrence of a Total Loss Event), the potential Sukuk Holders are advised to refer to Appendix I. The voting rights of the Class B Sukuk Holders in relation to Dissolution Events, Trigger Events and the sale of Properties is as set out under item (z) of Appendix I. Sukuk Holders are advised to read such provisions carefully in order to be fully aware as to their relative voting rights under the Sukuk. Potential investors in the Class B Sukuk will have to assess the likelihood of such default taking into account all the information contained herein in relation to TM. Rating Agency has put TM’s rating on developmental outlook pursuant to its Proposed Demerger. (iii) Class C Sukuk The Class C Sukuk are not transferable or tradeable and are not rated. The Class C Sukuk is structured such that the Class C Sukuk Holders take second priority over the rights, benefits and interests in the Properties after the Class A Sukuk Holders and take last priority over the Rent after the Class B Sukuk Holders and the Class A Sukuk Holders. Additionally, the Class C Sukuk Holders shall be entitled to the benefit of any residual value in the Properties after payment of the Final Distribution Amounts in respect of the Class A Sukuk and the Class B Sukuk. The Class C Sukuk may be redeemed in cash or in kind, at the option of the Class C Sukuk Holders. Any cash redemption shall be subject to the proceeds of sale of Properties being sufficient to redeem the Class C Sukuk, after taking into account the full redemption of the Class A Sukuk. Any shortfall in the sales proceeds resulting in a shortfall in redemption shall not constitute a Dissolution Event as the Class C Sukuk Holders essentially bear the risk of any change in the value of the Properties. Similarly, where there are insufficient funds to pay any Periodic Distribution Amount to the Class C Sukuk Holders, the same Periodic Distribution Amount will be accrued, accumulated and deferred (and this will not constitute a Dissolution Event under the Sukuk). Within the Class C Sukuk all Class C Sukuk Holders shall rank pari passu amongst themselves. The voting rights of the Class C Sukuk Holders in relation to Dissolution Events, Trigger Events and the sale of Properties is as set out under item (z) of Appendix I. Sukuk Holders are advised to read such provisions Mohamed Ridza & Co. Page | 85
  90. carefully in order to be fully aware as to their relative voting rights under the Sukuk . 7.3.8 Recourse to TM Whilst the Sukuk constitute trust obligations of the Issuer, the redemption and periodic distributions in respect thereof are to a certain extent dependent upon TM and the performance by TM of its obligations under the Master Ijarah Agreement. As such, to that extent, all Sukuk Holders are subject to the risk of non-performance by TM. The specific recourses against TM under the Sukuk are as follows:- 7.3.9 (a) for payment of Rent and performance of its obligations under the Master Ijarah Agreement; (b) for payment of the relevant purchase price pursuant to TM’s undertaking to buy back any or all of the Properties following a non-registration of transfer; (c) for any failure by TM in its capacity as Property Manager to procure the Loss Insurance Coverage and for any failure by TM in its capacity as Lessee which results in any insurers refusing to effect any pay-outs. No grossing up All payments or distributions by the Issuer in respect of the Sukuk shall be made subject to any withholding or deductions for or on account of any present and future tax, duty, or charge of whatsoever nature imposed or levied by law or on behalf of any authority having power to tax, and the Issuer shall not be required to gross up in connection with such withholding or deduction on these payments or distributions. As such, investors should be aware that in the event of withholding, they may receive less than their stipulated periodic payments or distributions. 7.3.10 Extraordinary Event Sukuk Holders need to be aware of the risk of an occurrence of an Extraordinary Event, which includes compulsory acquisition and illegality. The consequences of such occurrence are as set out in Annexure B of Attachment B of Appendix I. 7.4 Considerations Relating to the Properties 7.4.1 Risk of investment in property assets Real estate assets, particularly high value commercial properties that have sizeable floor space, are illiquid and thus may affect the ability to sell these Properties. Properties are also exposed to the economic and real estate conditions in including the cyclical downturns and oversupply or reduced Mohamed Ridza & Co. Page | 86
  91. demand of commercial and office space and changes in Government policies . 7.4.2 Adequacy of insurance coverage All Properties are covered by insurance and any damages suffered as caused by fire, flood, earthquake or other causes, may result in losses, including loss of rent. Other damages such as war risk and acts of terrorist may be uninsurable or the cost of insurance may be excessive in relation to the risk as exposed to. In the event of any losses which is uninsured or losses incurred are in excess of insurance claims, the Issuer could lose the capital investment in the affected property(ies). 7.4.3 Compulsory acquisition by the government Pursuant to the provisions of the Land Acquisition Act 1960, the State Authority (i.e. the Ruler or the Yang Di-Pertua Negeri of the State, as the case may be) has the power to acquire any land, whether in whole or in part, which is needed: (a) for any public purpose; (b) by any person or corporation for any purpose which in the opinion of the State Authority is beneficial to the economic development of Malaysia or any part thereof or to the public generally or any class of the public; or (c) for the purpose of mining or for residential, agricultural, commercial, industrial or recreational purposes or any combination of such purposes. The amount of compensation assessed to be awarded pursuant to any acquisition is based on the following considerations: (a) the market value as determined in accordance with section 1 of the First Schedule of the Land Acquisition Act 1960; (b) any increase, which shall be deducted from the total compensation, in the value of the other land of the person interested likely to accrue from the use to which the land acquired will be put; (c) the damage, if any, sustained or likely to be sustained by the person interested at the time the Land Administrator takes possession of the land, by reason of the acquisition injuriously affecting his other property, whether movable or immovable, in any other manner; (d) if, in consequence of the acquisition, the person interested is or will be compelled to change his residence or place of business, the reasonable expenses, if any, incidental to such change; and (e) where only part of the land is to be acquired, any undertaking by the State Authority, or by the Government, person or corporation on whose behalf the land is to be acquired, for the construction or erection of roads, drains, walls, fences or other facilities benefiting any part of the land left unacquired provided that the undertaking is clear and enforceable. Mohamed Ridza & Co. Page | 87
  92. The amount of such compensation may be : (a) less than the market price of the Properties upon the sale of the Subject properties in the open market; and (b) less than the purchase consideration of the Properties which was satisfied by the Issuer. The Seller has not received any notice of intended acquisition in relation to the Properties or any part thereof at the time this IM is issued. 7.4.4 Illegality Any illegality which would tantamount to an Extraordinary Event under the Master Ijarah Agreement requiring the Issuer to end the lease arrangement with TM, would result in the Issuer having to dispose of the affected Property(ies) (subject to the lease arrangement) and the Sukuk Holders will be partially redeemed in accordance with the respective interest in the affected Property(ies). The consequences of such occurrence are as set out in Annexure B of Attachment B of Appendix I. 7.4.5 Non-registration of the transfer of the Properties TM would make every effort to ensure that the transfer of the Properties is fit for registration and that there were no evident restraints on dealings with the Properties registration of title on the Properties at the relevant land registry/land office. Currently, the registration process for any type of land dealing at the land registry/land office could take a number of months to complete with the issue documents of title duly returned. However, the date of registration of the change of ownership of the Properties would be the date of presentation of the documents of transfers at the relevant land registry/land office, regardless of when the issue documents of title are eventually returned. 7.4.6 Appraised value of the Properties The appraised values of the Properties determined by the independent valuer do not guarantee a sale for any part or the whole of the Properties at their appraised value at present or in the future. 7.5 Forward-looking Statements Certain statements in this Information Memorandum are based on historical data which may not be reflective of the future results and any forward-looking statements in nature are subject to uncertainties and contingencies. All forward-looking statements are based on forecasts and assumptions made by the Issuer and the Originator where relevant, and although believed to be reasonable, are subject to unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements to differ materially from the future results, performance or achievements expressed or implied in such forward-looking statements. Such factors include, inter-alia, general economic and business conditions, competition and the impact of new laws and regulations affecting the Issuer. In light of these and other Mohamed Ridza & Co. Page | 88
  93. uncertainties , the inclusion of any forward-looking statements in this Information Memorandum should not be regarded as a representation of the Issuer or its advisor that the plans and objectives of the Issuer and the Originator where relevant, will be achieved. No representation is made on the future financial positions of the Issuer and the Originator. Investors are advised to make their own independent assessment of the same. THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK Mohamed Ridza & Co. Page | 89
  94. 8 . 8.1 BUSINESS OVERVIEW Economic and Financial Developments in Malaysia in the Third Quarter of 2007 The Malaysian economy strengthened further in the third quarter of 2007. Sustained strong domestic demand raised real GDP growth to 6.7%. Domestic demand was supported by strong private consumption spending and investment activities. This was reinforced by increased public sector spending. On the supply side, growth was led by the services sector. The expansion in the services sector accelerated to register a double digit growth of 10.5% supported by strong domestic demand, tourism and business activities. Of significance, the finance, insurance, real estate and business services and the wholesale and retail trade, accommodation and restaurant sub-sectors performed well. All other key sectors recorded positive growth in the third quarter. Growth in the manufacturing sector picked up to expand by 3.4% (2Q: 1.5%) reflecting a gradual recovery in the electronics and electrical (E&E) industry and further expansion in the domestic-oriented industries. Production of export-oriented industries expanded by 1.4% (2Q: -1.6%), supported by the turnaround in the E&E sector amidst the increased production of semiconductors mainly to meet the demand from the People’s Republic of China and the European Union. In addition, the computers and parts segment which is closely linked to developments in the US market showed an improvement in the third quarter (0.2%; 2Q: -16.6%). Meanwhile, the domestic-oriented industries continued to expand by 4.6% (2Q: 8.6%) mainly supported by the sustained domestic construction activities and the upturn in sales of new motor vehicles following the release of new models. The construction sector maintained its growth momentum, expanding by 4.7% in the third quarter of 2007 (2Q: 4.8%), mainly supported by the implementation of various infrastructure projects under the Ninth Malaysia Plan. The agriculture sector increased by 0.6% (2Q: -0.9%) following the gradual improvement in crude palm oil output, after the yield downcycle in the first half of the year. There was also a favourable performance in the minor agriculture activities such as vegetables, livestock and cocoa. The mining sector expanded by 2.3% (2Q: 7.7%) supported by the increase in crude oil output amidst the commencement of production of Malaysia’s first deepwater oil field at Kikeh, Sabah in mid-August 2007. The production of natural gas, however, declined marginally due to lower external demand from Korea. Domestic demand strengthened further in the third quarter to expand at an annual growth rate of 12.6% (2Q: 10.8%), on the strength of private sector activities. The increased public sector spending continued to provide support to growth. Private consumption expenditure registered a strong growth of 14% following rising disposable income supported by stable labour market conditions and strong commodity prices. The various promotions held during the nationwide Mega Sales Carnival from mid-June to early September had also encouraged higher household spending. Gross fixed capital formation also increased significantly by 13.5% in the third quarter (2Q: 6.6%) due to investment by both private and public sectors. Private investment indicators, namely loans approved and disbursed to the manufacturing and construction Mohamed Ridza & Co. Page | 90
  95. sectors trended firmly upwards suggesting greater momentum in capital spending by the private sector . Meanwhile, higher disbursement for development expenditure by the Federal Government was channeled towards high-multiplier impact economic activities in the form of projects for upgrading and construction of infrastructure to improve the transportation system as well as improving the provisions for the education services and the enhancement of the public utilities. The headline inflation rate, as measured by the change in the Consumer Price Index (CPI) increased to 1.8% in the third quarter of 2007 (2Q: 1.5%), due mainly to higher prices for food and beverages. On the external front, the trade account recorded a surplus of RM28.2 billion in the third quarter (2Q: RM22.6 billion). Gross exports slowed, with a marginal increase of 0.6% (2Q: 1.3%), led mainly by commodity exports, while exports of manufactured goods declined. Agriculture exports continued on an upward trend, driven mainly by palm oil exports due entirely to record high prices of RM2, 599 per tonne following a rising global demand amidst lower production in Malaysia and Indonesia as well as lower supply of soybean oil and rapeseed oil in the United States and Europe, respectively. Mineral exports also expanded further during the quarter due to higher proceeds from exports of liquefied natural gas, which benefited from the rise in prices to a record high of RM1, 226 per tonne. Meanwhile, manufacturing exports declined due mainly to the decline in exports of E&E products and selected resource-based industries. While there was an improvement in demand for E&E, the continued decline in prices affected exports of the E&E products during the quarter. Growth of gross imports was sustained at 1.7%, reflecting the increase in investment and consumer spending. Imports of capital goods (excluding lumpy items) increased by 7.2% as capacity expansion in the manufacturing sector and upgrading for fuel efficiency led to the strong growth of imports of machinery, generators, turbines and electric motors. Imports of construction and mining equipment were also higher due to increased exploration activities in the oil and gas industry. Imports of consumption goods increased by 1% during the quarter (2Q: 1.1%) due mainly to higher imports of food and beverages for household consumption during the festive season. In line with the slowdown in exports of E&E, imports of intermediate goods declined by 1% during the quarter (2Q: +6.5%). In the financial account, net inflow of foreign direct investment, as captured by Bank Negara Malaysia’s Cash BOP System (not including retained earnings and investment in the form of imported machinery and equipment) amounted to RM6.8 billion in the third quarter (2Q: RM13.6 billion). The bulk of the investment was channelled into the services, manufacturing and oil and gas sectors. Overseas investment recorded a net outflow of RM6.9 billion (2Q: -RM8.5 billion). Meanwhile, portfolio investment recorded a net outflow of RM22.3 billion (2Q: +RM14.3 billion) on account of net liquidation of both equity and debt securities by foreign investors in July and August, following turbulence in the US sub-prime credit and mortgage lending markets. Inflows, however, resumed in September and October. The international reserves of Bank Negara Malaysia amounted to RM335.4 billion (equivalent to USD98.2 billion) as at 28 September 2007. The reserves increased to RM345.3 billion (equivalent to USD101.2 billion) as at 15 November 2007. The reserves position is sufficient to finance 8.9 months of retained imports and is 7.4 times the short-term external debt. Mohamed Ridza & Co. Page | 91
  96. Monetary policy remained supportive of economic activity The OPR was left unchanged at 3 .50% throughout the third quarter of 2007 as the prevailing level of the policy rate was consistent with the medium term outlook of relatively low inflation and sustained economic growth. Reflecting the unchanged OPR, interbank rates for all maturities remained relatively stable during the quarter. In terms of lending rates, the average base lending (BLR) remained unchanged during the quarter, while the average lending rate (ALR) was considerably lower at end-September, largely reflecting the disbursement of lower priced syndicated bridging loans. Deposit rates remained relatively unchanged. Financing to the private sector was higher in the third quarter, with banking system loans and PDS outstanding expanding at a higher combined annual rate of 8.9% at the end of the third quarter of 2007. Banking system loans outstanding increased at an annual growth rate of 9.5% at the end of the third quarter, with loans outstanding to businesses and households expanding at annual rates of 14.8% and 7.3% respectively. Loan applications, approvals and disbursements were also higher on an annual basis across the business and household sectors. M3, or broad money, increased at an annual rate of 12.3% at the end of the third quarter (2Q: 12.6%). The expansion in M3 was driven mainly by higher claims on the private sector, on account of an expansion in bank credit and the holdings of private debt securities by the banking system. Net funds raised in the capital market by the public and private sectors amounted to RM12 billion. This was lower than the RM22 billion raised in the previous quarter on account of a large PDS issuance in the previous quarter for merger and acquisition (M&A) activity. Net funds raised by the public sector amounted to RM13.4 billion, while net funds raised by the private sector through the private debt securities (PDS) market, excluding Cagamas, amounted to RM0.6 billion. Meanwhile, RM383 million in funds was raised through the equity market during the quarter (2Q: RM512 million). In the light of the turmoil in the major financial markets arising from changing investor sentiments regarding losses related to the US subprime mortgages, most currencies, including the ringgit, experienced greater volatility during the quarter. At the beginning of July, the ringgit was on an appreciating trend amid trade and investment flows. Since 25 July, however, the ringgit depreciated against the major currencies following reversals by global investors out of debts and equities triggered by the international financial market turmoil during the period. Regional currencies were similarly affected by the reassessment of risks associated with emerging market assets by global investors. However, this trend reversed in both the ringgit and other regional currencies after the U.S. Federal Open Market Committee (FOMC) first reduced the discount rate on 17 August, and subsequently reduced both the Fed Funds rate and the discount rate by 50 basis points each on 18 September. The interest rate cuts and market expectations of further interest 5 rate reductions by the FOMC restored some degree of investor confidence. During the quarter as a whole, the ringgit strengthened against the US dollar by 1.1%. For the period 1 October – 27 November, the ringgit recorded a mixed performance against major and regional currencies. Banking system continued to exhibit high resilience The banking system continued to demonstrate a high resilience in the third quarter of 2007, supported by strong capitalisation, stable profitability and further improvements in loan quality. The risk-weighted capital ratio (RWCR) Mohamed Ridza & Co. Page | 92
  97. was sustained at 13 .1% throughout the quarter, while the pre-tax profit remained firm at RM4.28 billion (2Q: RM4.32 billion). The level of nonperforming loans (NPLs) continued to improve with the total net NPLs based on the 3month classification declining by 8.6% to RM21.9 billion as at the end of the third quarter (2Q: RM24 billion). This was attributed primarily to higher recoveries and reclassifications of NPLs to performing status as well as continued write-offs. As a result, the net NPL ratio declined further to 3.5% of net total loans (2Q: 4.1%). Growth momentum to continue in the near term Despite increased risks of a sharp slowdown in the US economy, greater uncertainties in global financial market conditions and high oil prices, the global growth outlook remains supported by continued strength in the emerging economies, in particular, in the Asian region. Growth prospects for the large emerging economies, including China, India, Brazil and Russia, remain strong. In the domestic economy, forward looking indicators point to continued strong domestic demand in the near term. The latest six-month smoothed growth rate of the DOSM leading index was 7.4% in August. Consumers continued to remain optimistic on income and employment prospects as reflected in the MIER Consumer Sentiments Index, which rose to 117.5 points in the third quarter of 2007 (2Q: 115.9 points). The Business Conditions Index remained high at 117.5 points, reflecting sustained confidence in the corporate sector as underlying business activity continues to expand with the execution of more Ninth Malaysia Plan projects. Overall, given the strong domestic demand, the potential remains for the economy to continue on a steady growth path. (Source: Bank Negara Malaysia’ press release dated 28 November 2007) 8.2 The Malaysian Telecommunications Industry During the Eighth Plan, concerted efforts were undertaken to provide a stronger platform for the country’s transition towards a knowledge-based economy. Increasingly central to this effort was the promotion of information and communications technology (ICT) as a strategic driver to support and contribute directly to the growth of the economy as well as enhance the quality of life of the population. Substantial investments were made to provide for the communications infrastructure to increase accessibility, as well as to improve the requisite institutional and legal environment. Increasing emphasis was placed on raising the level of ICT usage in the various sectors of the economy, between urban and rural areas and among different segments of society. (Source: Section 5.01 of the Ninth Malaysia Plan 2006-2010) Adequate and reliable ICT infrastructure with extensive capacity to support access and delivery of information will remain a major factor in the support of a knowledge-based economy. A critical component will be the availability of broadband network needed to achieve greater adoption of online multimedia and Internet-based applications. The implementation of the National Broadband Plan (“NBP”) will be accelerated as part of the efforts to ensure rapid expansion and uptake of broadband services to reach 13.0 per cent of the population by 2010, compared to the current 1.9 per cent. (Source: Section 5.34 of the Ninth Malaysia Plan 2006-2010) Mohamed Ridza & Co. Page | 93
  98. Apart from increasing access to communications infrastructure , the greater use of broadband services will be promoted through the provision of innovative packages and competitive tariffs. Innovative last-mile technologies that provide alternative connections for homes and businesses such as wireless broadband and broadband over power lines to areas that lack telephone lines will be considered by the Government. Further downstream, measures will be undertaken to allow service providers to have greater access to infrastructure capacity at satellite and cable landing stations and provide international backhaul and transit services to businesses or third parties. In addition, the provision of Internet exchange in the country will also be further opened up. (Source: Section 5.35 of the Ninth Malaysia Plan 2006-2010) The subscription of cellular telephones in the country is expected to increase from 74.1 per 100 population in 2005 to 85.0 by 2010, largely attributed to convenience, affordability and in keeping with changing lifestyles. To achieve national mobile communications coverage and interoperability, the Third Generation (3G) infrastructure network in terms of service availability, quality and innovative applications, will be expanded in phases. In addition, cooperation amongst mobile operators and local content service providers will be enhanced to ensure extensive provision of mobile Internet to consumers thus further increasing access to Internet-based services such as ecommerce. (Source: Section 5.36 of the Ninth Malaysia Plan 2006-2010) The phased implementation of the Malaysian Information, Communications and Multimedia Services Strategy (“MyICMS”) will further promote the growth of ICT infrastructure, products and services. This will encompass essentially the increased integration of the Internet, mobile telephony and broadcasting services. To ensure optimisation of communications infrastructure investment, services providers will be encouraged to consolidate and share communications facilities as well as coordinate to set up common facilities and interoperable systems for more efficient delivery of services and more affordable broadband access. Towards this end, the private sector will be encouraged to provide integrated infrastructure, where necessary, to ensure adequate access and connectivity. (Source: Section 5.37 of the Ninth Malaysia Plan 2006-2010) In the light of the rising demand for Internet address space, the Government will consider the need to migrate the Malaysian Internet network from Internet Protocol version 4 (IPv4) to Internet Protocol version 6 (IPv6) protocol technology. A National Consultative Council was set up to study, among others, the implications of establishing the IPv6 network in terms of policy, regulatory environment, investments, timelines, manpower requirements and infrastructure deployment. Radio frequency identification (RFID) technologies will also be used to create ubiquitous network. Under this environment, the RFID through sensory, tagging and tracking functionalities will be used to intensify information usage thus generating new value added activities and services within the ICT industry. (Source: Section 5.38 of the Ninth Malaysia Plan 2006-2010) Mohamed Ridza & Co. Page | 94
  99. The emphasis on ICT infrastructural development as well as application usage and adoption will provide the private sector with extensive investment and employment opportunities . Among the new sources of growth within the major segments of the ICT sector, include digital content development, ecommerce, SSO and bioinformatics. The aim is to increase the number of new companies as well as specialists capable of producing customised technological solutions in niche areas. Particular emphasis will also be given to the promotion and usage of local products and services. (Source: Section 5.55 of the Ninth Malaysia Plan 2006-2010) 8.3 The Property Market The Malaysian economy grew steadily at 5.6 % in the first half of 2007 (H1 2006: 6.0 %) led mainly by strong performance in the service, mining and construction sectors. The service sector grew at a significantly higher rate of 9.4 % (H1 2006 : 6.8 %) and the mining sector expanded at 3.5 % (H1 2006 : -2.0 %). Meanwhile, the construction sector expanded at a notable 4.4 % against the construction of 1.2 % recorded in H1 2006. The growth in the construction sector was supported by the implementation of infrastructure projects under the Ninth Malaysia Plan. Notwithstanding this, the residential and nonresidential sectors continued to be the prime mover of the construction industry. Along with the steady economic growth, the Malaysian property market performed favorably. A total of 142,963 transactions worth RM33.34 billion were recorded in the first half of 2007. Compared to H1 2006, the volume of transaction increased by 3.4 % (H1 2006 : 138,311 transactions) and decreased slightly by 1.8 % against H2 2006 (145,586 transactions). Nevertheless, the value of transactions increased by 11.7 % and 5.0 % against H1 2006 and H2 2006 respectively (H1 2006 : RM29.84 billion; H2 2006 : RM 31.76 billion). Compared to H1 2006, all sub-sectors recorded increase in market activities with development land sub-sector registering the highest increase of 16.0 %, followed by industrial and agricultural sub-sectors at 8.3 % and 5.0 % respectively. In terms of value, commercial sub-sector recorded the highest increase of 28.0 %, followed by industrial (15.0 %), residential (10.5 %) and development land sub-sector (9.1 %) except for agricultural sub-sector, which registered a decrease of 6.9 %. Compared to H2 2006, agricultural and development land sub-sectors recorded increases in volume and value of transactions (agricultural : 7.5 % in volume and 18.5 % in value; development land : 15.4 % in volume and 29.0 % in value). Meanwhile, residential and industrial sub-sectors recorded decreases in both volume and value of transactions (residential : -5.3 % in volume and -1.5 % in value ; industrial : -3.7 % in volume and -1.0 % in value). Commercial sub-sector, on the other hand, experienced a 3.7 % decrease in volume and 9.0 % in the value of transactions. However, the performance of the states varied. Compared to H1 2006, most states recorded increased in volume of transactions except Perak and Sabah, each decreased 9.4 %, Pahang (-2.8 %), Kedah (-1.9 %), Melaka (-1.6 %) and Pulau Pinang (-0.9 %). Kelantan recorded a substantial increase of 34.9 % from 2,847 transactions in H1 2006 to 3,841 transactions in H1 2007. The notable increase was due to the increase in demand for residential and agricultural property. Selangor and Johor, the two most active states in the country Mohamed Ridza & Co. Page | 95
  100. registered a 10 .7 % and 8.7 % increase in volume of transactions comparing with H1 2006. Purpose-Built Office The performance of purpose-built office sub-sector was favourable in the review period. The sub-sector registered an improved occupancy rate from 84.3% in H1 2006 and 84.6% in H2 2006 to 84.9%. Hence, the amount of vacant office space in the nation decreased marginally by 0.6% from 2.23 million square metres in H2 2006 to 2.21 million s.m. Kuala Lumpur had the most vacant space (1.04 million square metres) followed by Selangor (294,088 square metres), Pulau Pinang (264,703 square metres) and Johor (224,958 s.m). Combine, the four states accounted for 82.6 % of the nation’s vacant office space. At the end-June 2007, the existing supply in the country stood 14.68 million square metres. The total was contributed by 186,075 square metres of new office space that came on-stream in the review period. By states, Kuala Lumpur saw the entrance of Plot N, KL Sentral Tower 1 and Menara IGB (North and South Wing) with a total space of 89,464 square metres, Sabah had three new office buildings completed (55,442 square metres), Pahang, two new office buildings (11,127 square metres), Johor (10,080 square metres), Negeri Sembilan (9,160 square metres), Melaka (3,894 square metres), Perlis (3,734 square metres) and Kuching (3,174 square metres). Meanwhile, office space that started construction increased by 14.7 % from 155,427 s.m. in H2 2006 to 178,306 s.m in H1 2007. Kuala Lumpur continued to have the most construction starts offering a total space of 108,943 square metres. Similarly, new planned supply recorded notable increases indicating improved market sentiment. New building plan approvals were found in five states namely Johor (99,240 square metres), Kedah (11,333 square metres), Kelantan (6,324 square metres), Negeri Sembilan (3,315 square metres) and Pahang (305 square metres). At the end-June 2007, the total incoming supply of office space in the country stood at 1.62 million square metres. The market had another 2.23 million square metres in the planned supply. (Source: Press Release Property Market Report First Half Of 2007 by Valuation and Property Services Department, Ministry of Finance Malaysia) THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK Mohamed Ridza & Co. Page | 96
  101. 9 . CASHFLOW FORECAST AND PROJECTIONS Please refer to Appendix 2 for the cashflow forecast and projections. THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK Mohamed Ridza & Co. Page | 97
  102. 10 . 10.1 SUMMARY OF SIGNIFICANT TRANSACTION DOCUMENTS All the Transaction Documents will be governed by the laws of Malaysia. A description of each of the significant Transaction Document is set out below: (i) Sale and Purchase Agreements Pursuant to a sale and purchase agreement dated 28th August, 2007 (hereinafter referred to as the “Sale and Purchase Agreement (Menara Celcom)”) TM (as the Seller) has irrevocably sold and the Issuer has irrevocably purchased Menara Celcom upon the terms and subject to conditions therein contained. TM shall enter into another sale and purchase agreement with the Issuer namely Sale and Purchase Agreement (Other Properties) wherein TM (as the Seller) shall sell and transfer to the Issuer the legal / beneficial title to Menara TM, Wisma TM Taman Desa and the Cyberjaya Complex free from all claims and encumbrances but subject to existing conditions, affecting such Properties. The Sale and Purchase Agreement (Menara Celcom) and the Sale and Purchase Agreement (Other Properties) are collectively referred to as the Sale and Purchase Agreements. Under the Sale and Purchase Agreements the beneficial title to the Properties shall pass to the Issuer upon presentation of the Transfer Documents and/or perfection of the Deed of Assignment (where applicable). With respect to Menara TM, Menara Celcom and Wisma TM Taman Desa for which documents of titles have been issued, legal title to the Properties will pass to the Issuer on registration of the Transfer Documents at the relevant land offices. As for Cyberjaya Complex for which document of title has yet to be issued, a deed of assignment will be executed by the Seller in favour of the Issuer for the assignment of all rights, title, benefit and interest in Cyberjaya Complex to the Issuer. Upon issuance of the document of title, both the Seller and the Issuer shall execute the requisite Transfer Documents and present the same for registration at the relevant land office. (ii) Master Ijarah Agreement Subsequent to the Sale and Purchase Agreements, the Issuer (as the Lessor) shall enter into a long term operating Master Ijarah Agreement with TM (as the Lessee) whereby the Issuer (as the Lessor) shall lease to TM (as the Lessee) the respective Properties on portfolio basis for a period of fifteen (15) years in consideration of Rent payments which shall be payable periodically throughout the Lease Term. The Master Ijarah Agreement sets out the terms and conditions under which TM (as the Lessee) will have the right to occupy, use and operate the Properties during the lease term. (iii) Transfer Documents Mohamed Ridza & Co. Page | 98
  103. With respect to Menara TM , Menara Celcom and Wisma TM Taman Desa for which documents of titles have been issued, legal title to the Properties will pass to the Issuer on registration of the memorandum of transfer at the relevant land offices. As for Cyberjaya Complex for which document of title has yet to be issued, a deed of assignment will be executed by TM (as the Seller) in favour of the Issuer for the assignment of all rights, title, benefit and interest in Cyberjaya Complex to the Issuer. Upon issuance of the document of title, both the Seller and the Issuer shall execute the requisite Transfer Documents and present the same for registration at the relevant land office. (iv) Property Management Agreement The Lessor shall enter into a property management agreement with TM (the “Property Manager”) for the provision of services with respect to the major maintenance of the Properties by the Property Manager as property manager for and on behalf of the Issuer during the tenure of the Master Ijarah Agreement. It is part of the terms and conditions of the Property Manager’s appointment that the Property Manager shall receive from the Lessor a fee amounting to Ringgit Malaysia One Hundred And Seventeen Thousand (RM117,000.00) per month, which is payable upon signing of the Property Management Agreement. All fees and actual expenses incurred by the Property Manager in the course of providing its services shall be reimbursed by the Lessor using monies received from the Additional Rental. (v) Declaration of Trust Concurrently with the above transactions, the Issuer will declare by way of a Declaration of Trust that it will hold the Trust Assets upon trust absolutely for the Sukuk Holders. Depending on the class and tranche of Sukuk held by each Sukukholder, the Sukuk Holders will have a percentage of the undivided beneficial ownership of the Trust Assets. (vi) Trust Deed The Issuer shall execute a trust deed with Amanah Raya Berhad wherein Amanah Raya Berhad is appointed as trustee for the Sukuk Holders. The Trust Deed sets out the duties and obligations to be performed by the Trustee and the trust arrangement will be dissolved on the occurrence of a Total Loss Event, a Dissolution Event or at the maturity of the Sukuk. (vii) Transaction Administration Agreement The Issuer shall execute the administration agreement with Citibank wherein Citibank shall be appointed as the transaction administrator to provide the relevant administration services as set out in the transaction administration agreement to the Issuer. Mohamed Ridza & Co. Page | 99
  104. (viii) Depository and Paying Agency Agreement The Issuer, the Trustee, the Principal Adviser/Lead Arranger and BNM shall execute a depository and paying agency agreement wherein BNM shall act as the Central Depository for the Global Sukuk and as Paying Agent with respect to payments on the Sukuk. (ix) Facility Agency Agreement The Issuer shall execute the facility agency agreement with Citibank wherein Citibank shall be appointed as the facility agent to provide the relevant agency services as set out in the facility agency agreement to the Issuer. (x) Sukuk Issuance Agreement The Issuer, Principal Adviser/Lead Arranger, Facility Agent and Transaction Administrator shall execute a sukuk issuance agreement to set out the obligations of the respective parties with regards to the issuance of the sukuk. (xi) Share Trustee Agreement The Share Trustee shall execute a share trustee agreement with the Trustee and the Issuer wherein the Share Trustee shall declare that it holds the shares in the Issuer on trust for the Sukuk Holders throughout the tenure of the Sukuk. THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK Mohamed Ridza & Co. Page | 100
  105. 11 . DOCUMENTS AVAILABLE FOR INSPECTION So long as any of the Sukuk remains outstanding, copies of the following documents will be available for inspection during normal business hours on any weekday (excluding public holidays) from the registered office of the Issuer and from the offices of the Trustee, subject to one (1) day prior notice: (a) the Memorandum and Articles of Association of the Issuer; (b) the Transaction Documents. THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK Mohamed Ridza & Co. Page | 101
  106. APPENDIX 1 PRINCIPAL TERMS AND CONDITIONS OF THE SUKUK ISSUANCE Mohamed Ridza & Co. Page | 102
  107. Principal Terms and Conditions of the Proposal (1) BACKGROUND INFORMATION (a) Issuer (i) Name (ii) Address : Menara ABS Berhad (“SPV” or “Issuer”). : Registered Office: Level 17, Menara Milenium, Jalan Damanlela, Pusat Bandar Damansara, 50490 Kuala Lumpur. (iii) Business Registration No. : Company No. 669499-X (iv) Date/Place of Incorporation : 15 October 2004/ Malaysia (v) Date of Listing (in case of a public listed company) : Not listed (vi) Status : Resident controlled company : Non-Bumiputera controlled company (vii) Principal Activities SPV is a special purpose company incorporated for the sole purpose of undertaking the proposed transaction and has been structured to meet the requirements of the Securities Commission (“SC”)’s Guidelines on the Offering of Asset Backed Securities issued in May 2003 and revised as of 26th July, 2004 and the Guidelines on the Offering of Islamic Securities. (viii) Board of Directors The Board of Directors of SPV as at 30 April, 2007 are as follows:Name Designation Nationality Mahadi bin Nordin Director Malaysian Johan Nor Zaimi bin Johari Director Malaysian Mohamed Ridza & Co. Page | 103
  108. (ix) Structure of shareholdings and names of shareholders or, in the case of a public company, names of all substantial shareholders The shareholder of SPV as at 30 April, 2007 is as follows:----------No. of ordinary shares held--------Name of Shareholder Place of Incorporation/ Nationality Direct % Indirect % Malaysian 2 100 - - PB Trustee Services Berhad (x) Authorised and paid-up capital Share capital as at 30 April, 2007 Description Authorised capital RM100,000 consisting of 100,000 ordinary shares of RM1.00 each ordinary Issued and fully paid-up share RM2.00 consisting of 2 ordinary shares of RM1.00 each (b) Originator (i) Name : Telekom Malaysia Berhad (“TM”). (ii) Address : Level 51, North Wing, Menara TM, Jalan Pantai Baharu, 50672 Kuala Lumpur (iii) Business Registration No. : Company No. 128740-P Date/Place of Incorporation : 12th October, 1984 / Malaysia (iv) (v) Date of Listing (in case of a public listed company) : 7 November 1990 (vi) Status : Resident controlled company : Government controlled company : The establishment, maintenance and provision of telecommunication and related services under the licences issued by the Ministry of Energy, Water and Communications. (vii) Principal Activities Mohamed Ridza & Co. Page | 104
  109. (viii) Board of Directors The Board of Directors of TM as at 30 April, 2007 are as follows:Name Designation Nationality Tan Sri Dato’ Ir Muhammad Radzi Bin Haji Mansor Director/Chairman Malaysian Dato’ Abdul Wahid Bin Omar Director/Group Chief Executive Officer Malaysian Dato’ Dr Abdul Rahim Bin Haji Daud Director Malaysian Dato’ Ahmad Bin Hashim Director Malaysian YB Datuk Nur Jazlan Bin Tan Sri Mohamed Director Malaysian Dato’ Azman Bin Mokhtar Director Malaysian Ir. Prabahar N.K. Singam Director Malaysian Dato’ Lim Kheng Guan Director Malaysian Rosli Bin Man Director Malaysian Dyg Sadiah binti Abg Bohan Alternate Director to Dato’ Ahmad Bin Hashim Malaysian (ix) Structure of shareholdings and names of shareholders or, in the case of a public company, names of all substantial shareholders The shareholder of TM as at 30 April, 2007 is as follows:Name Khazanah Nasional Berhad Employees Provident Fund Board Bank Negara Malaysia Mohamed Ridza & Co. % shareholding Direct No. of Shares % 1,203,141,373 35.20 169,535,600(*) 4.96 431,164,150 12.62 42,319,000(**) 1.24 7.36 - - 251,680,000 Indirect No. of Shares % Page | 105
  110. Amanah Raya Nominees (Tempatan) Sdn Bhd – Skim Amanah Saham Bumiputera 270,847,300 7.93 - - Notes: (*) Khazanah is deemed to have indirect interest by virtue of TM Shares held by Cimsec Nominees (Tempatan) Sdn Bhd on behalf of Khazanah under Section 6A of the Companies Act. (**) EPF is deemed to have indirect interest by virtue of TM Shares managed by other portfolio managers on behalf of EPF under Section 6A of the Companies Act. (***) The Board of Directors of TM has on 28th September, 2007 announced that it has approved a proposed demerger of the mobile and fixed-line business of the TM Group to create two separate entities to serve the different market segments within the telecommunications industry (the “Proposed Demerger”). The Proposed Demerger is expected to involve the following: (i) an internal restructuring whereby Telekom Enterprise Sdn Bhd (a whollyowned subsidiary of TM) transfers Celcom (Malaysia) Berhad to TM International Sdn Bhd (“TM International”), where TM International will become the holding company for all of TM Group’s mobile and non-Malaysian businesses (“RegionCo”); (ii) a demerger of RegionCo from the TM Group through the distribution by TM of all the ordinary shares of RM1.00 each in TM International to its shareholders; and (iii) a listing of TM International on the Main Board of Bursa Malaysia Securities Berhad (“Bursa Securities”). The remaining TM Group after the demerger of RegionCo (“FixedCo”) will comprise the fixedline voice, data and broadband services and other telecommunication and on telecommunication related businesses. FixedCo will remain listed as TM on the Main Board of Bursa Securities. TM Group’s publicly listed subsidiaries, namely PT Excelcomindo Pratama TBK, Dialog Telekom Limited and VADS Berhad will also remain listed on their respective stock exchanges. ----------No. of ordinary shares held--------Name of Shareholder Khazanah Nasional Berhad Employees Provident Fund Berhad Bank Negara Malaysia Mohamed Ridza & Co. Place of Incorporation/ Nationality Direct % Indirect % 1,360,876,67 3 40.05 - - 514,050,000 15.13 - - 251,680,000 7.41 - - Page | 106
  111. Amanah Raya Nominees (Tempatan) Sdn Bhd – Skim Amanah Saham Bumiputera (x) 243,984,700 7.18 - - Authorised and paid-up capital Share capital as at 30 April, 2007 Description Authorised share capital RM5,000,000,021 consisting of 5,000,000,000 ordinary shares of RM1.00 each, 1 special rights redeemable preference share of RM1.00, 1000 class A redeemable preference shares of RM0.01 each and 1000 class B redeemable preference shares of RM0.01 each. Issued and fully paid-up RM3,418,293,101 consisting of RM3,418,293,080 ordinary shares of RM1.00 each, 1 special rights redeemable preference share of RM1.00, 1000 class A redeemable preference shares of RM0.01 each, 1000 class B redeemable preference shares of RM0.01 each. Note: On 8 May, 2007, the shareholders have passed a resolution for the issuance of up to 2,000 Class C Non-Convertible Redeemable Preference Shares and up to 1,000 Class D Non-Convertible Redeemable Preference Shares. The shareholders have also passed a resolution to increase the authorised share capital to RM5,000,003,021 divided into 5,000,000,000 ordinary shares of RM1.00 each, 1 Special Rights RPS of RM1.00, 1000 Class A RPS of RM0.01 each, 1,000 Class B RPS of RM0.01 each, 2,000 Class C NCRPS of RM1.00 each and 1,000 Class D NCRPS of RM1.00 each. (2) PRINCIPAL TERMS AND CONDITIONS (a) Names of parties involved in the proposed transaction (where applicable) (i) Principal Adviser(s)/Lead Arranger(s) Citibank Berhad (“Citibank”). (ii) Arranger(s) Not applicable. (iii) Valuers Henry Butcher Malaysia Sdn Bhd (“Henry Butcher”). Mohamed Ridza & Co. Page | 107
  112. (iv) Solicitors Mohamed Ridza & Co. (v) Financial Adviser Not applicable. (vi) Technical Adviser Not applicable. (vii) Guarantor Not applicable. (viii) Trustee Amanah Raya Berhad – acting as trustee for the ABC Sukuk holders (“Sukuk Trustee”) PB Trustee Services Berhad – acting as share trustee (ix) Facility Agent Citibank. (x) Primary Subscriber(s) and Amount subscribed (where applicable) Not applicable. (xi) Underwriter(s) and amount underwritten Not applicable. (xii) Syariah Adviser Syariah Committee of Citibank (xiii) Central Depository Bank Negara Malaysia (“BNM”). (xiv) Paying Agent BNM. (xv) Reporting Accountant Not applicable (xvi) Others (please specify) Transaction Administrator – Citibank Mohamed Ridza & Co. Page | 108
  113. Lessee – TM Seller – TM Property Manager – TM or any other party appointed by the Lessor which is acceptable to the Lessee. Rating agency – RAM Rating Services Berhad (Company No. 763588-T) (“RAM Ratings”) Joint Lead Managers – Citibank and CIMB Investment Bank (formerly known as Commerce International Merchant Bankers Berhad). (b) Islamic Principle Used Sukuk Al-Ijarah (c) Facility Description (i) Islamic Asset-Backed Sukuk Ijarah Issuance (“Sukuk Issuance”) The Sukuk Issuance is in series up to an aggregate nominal amount of RM1,100 million pursuant to a sequence of transactions commencing with the purchase by the Issuer of the legal/beneficial ownership of the Properties from TM (pursuant to a Sale and Purchase Agreement) and the subsequent lease of such Properties back to TM (pursuant to a Master Ijarah Agreement). A description of the transaction involved is attached hereto as Attachment B. Proceeds from the Sukuk Issuance shall be utilised to pay the purchase consideration due to TM. The details of the proposed Sale and Purchase Agreement and the proposed Master Ijarah Agreement are more particularly described in Attachment B-Annexure A and Attachment B-Annexure B respectively. The Sukuk Issuance will comprise of the following: (1) A1 Tranche Sukuk A2 Tranche Sukuk A3 Tranche Sukuk A4 Tranche Sukuk (collectively referred to as “A Tranche Sukuk”) (2) B1 Tranche Sukuk B2 Tranche Sukuk B3 Tranche Sukuk (collectively referred to as “B Tranche Sukuk”) (3) C Tranche Sukuk The C Tranche Sukuk shall have the following features:• Mohamed Ridza & Co. C Tranche Sukuk are not rated and shall not be transferable. Page | 109
  114. • Redemption of C Tranche Sukuk may be in cash or in kind at the option of the C Tranche Sukuk Holders or may be satisfied by way of a transfer of the shares in Menara ABS Berhad to the C Tranche Sukuk Holders on the condition that A Tranche Sukuk is fully redeemed. Menara ABS Berhad is to be liquidated within twelve (12) months from the date of transfer of the shares in Menara ABS Berhad to C Tranche Sukuk Holders or the redemption of C Tranche Sukuk Holders and during such interim period prior to liquidation, the purpose of Menara ABS Berhad shall not be changed; • The Issuer shall redeem:(a) (b) Mohamed Ridza & Co. the A Tranche Sukuk at face value:(i) subject to the Issuer’s receipt of the monies from C Tranche Sukuk Holders by way of an unsecured qard facility as described in further detail below and Item 2(j)(ii)(b) one (1) business day after the declaration of a Termination Event under the Master Ijarah Agreement. The Issuer shall redeem the A Tranche Sukuk by giving the A Tranche Sukuk Holders seven (7) business days prior written notice of its intention to redeem the A Tranche Sukuk; or (ii) on the Expected Maturity Date of A Tranche Sukuk subject to the Issuer’s receipt of the monies from C Tranche Sukuk Holders by way of an unsecured qard facility as described in further detail below and Item 2(j)(ii)(b) at any time prior to the Expected Maturity Date of A Tranche Sukuk; or (iii) subject to the Issuer’s receipt of the monies from C Tranche Sukuk Holders by way of an unsecured qard facility as described in further detail below and Item 2(j)(ii)(b) at any time upon the occurrence of a Total Loss Event (but prior to the conduct of the meeting of the Sukuk Holders as referred to in item (2)(j)(b)(iii). The Issuer shall redeem the A Tranche Sukuk by giving the A Tranche Sukuk Holders seven (7) business days prior written notice of its intention to redeem the A Tranche Sukuk. the B Tranche Sukuk at face value subject to the Issuer’s receipt of the monies from C Tranche Sukuk Holders by way of an unsecured qard facility as described in further detail below and Item 2(j)(ii)(b) at any time upon the occurrence of a Total Loss Event (but prior to the conduct of the meeting of the Sukuk Holders as referred to in item (2)(j)(iii)(b). The Issuer shall redeem the B Page | 110
  115. Tranche Sukuk by giving the B Tranche Sukuk Holders seven (7) business days prior written notice of its intention to redeem the B Tranche Sukuk. The qard facility as referred to above shall be on an unsecured basis and shall be subordinated to the redemption of all Sukuks but with priority over the distribution of profit share/ additional distribution to C Tranche Sukuk Holders; (the A Tranche Sukuk, B Tranche Sukuk and C Tranche Sukuk are collectively referred to as “ABC Sukuk” and the holders of the ABC Sukuk shall be referred to as the “A Tranche Sukuk Holders”, “B Tranche Sukuk Holders” and “C Tranche Sukuk Holders” respectively and as the “ABC Sukuk Holders” collectively.) The Sukuk will represent the following undivided beneficial ownership of the respective ABC Sukuk Holders in the Properties held on trust in the Portfolio and each Sak (the singular of Sukuk) will rank pari passu with all other Sukuk only within each of the respective Tranches. ABC Sukuk Holders 1. 2. 3. 4. 5. 6. A1 Tranche Sukuk Holders A2 Tranche Sukuk Holders A3 Tranche Sukuk Holders A4 Tranche Sukuk Holders B1 Tranche Sukuk Holders B2 Tranche Sukuk Holders % of undivided beneficial ownership in the Properties Up to 20 6.0 [5.0] [2.0] 2.0 3.0 7. B3 Tranche Sukuk Holders 5.0 8. C Tranche Sukuk Holders Total 57.0 100% (Note: The actual size in the above tranches will be determined on the Sukuk issue date) (ii) The Leases The Leases under the Master Ijarah Agreement forming the basis for the Sukuk will be the result of a purchase of the Properties and lease arrangement entered into between the Issuer and TM. Pursuant to the terms of the Sale and Purchase Agreement, TM, as the Seller, will sell and transfer legal / beneficial title to the Properties to the Issuer in consideration of a purchase price being paid. The purchase price shall be in reference to the appraised fair market value of the Properties and comply with the Securities Commission’s Syariah Advisory Council Pricing Guidelines. Such purchase by the Issuer shall be for the purposes of immediately leasing back the Properties to TM, as the Lessee. Mohamed Ridza & Co. Page | 111
  116. Save and except for the Cyberjaya Complex which is pending issuance of the subdivided Document of Title , the sale of all the other Properties by TM will be of the legal and beneficial ownership and Memorandum of Transfers will be executed by TM in favour of the Issuer to effect the legal and beneficial transfer of the Properties. With regard to the Cyberjaya Complex, pending issuance of the subdivided Document of Title, the beneficial transfer will be effected via a Deed of Assignment and upon issuance of the subdivided Document of Title, legal ownership to the Cyberjaya Complex will be perfected. A detailed description of the principle terms and conditions of the Sale and Purchase Agreement is appended hereto as Attachment B - Annexure A. Subsequent to purchasing the Properties, the Issuer will enter into a Master Ijarah Agreement with TM (as the Lessee) wherein the Issuer (as the Lessor) will lease the Properties to the Lessee for a period of fifteen (15) years in consideration of rental payments to be paid by the Lessee periodically. The Master Ijarah Agreement will inter alia provide that the Lessee shall be responsible for Ordinary Maintenance and Repair and payment of assessment tax for the Properties. TM, as Lessee, will make rental payments to the Issuer in respect of the leases of the Properties in the Portfolio. Such rental payments shall consist of:(a) (b) Fixed Rental as set out for each lease; and Additional Rental which is equal to the Property Management Expenses (if any) incurred by the Lessor. The Fixed Rental will be paid monthly in advance into a Syariah-compliant Rental Account. The Additional Rental (if any) shall be paid on the next Fixed Rental payment date upon its incurrence. Rental payments received from TM will be distributed by the Issuer to the ABC Sukuk Holders on a semi-annual basis (“Periodic Distribution Date”) based on a Periodic Distribution Rate as specified in Item 2(g) hereto. A detailed description of the principle terms and conditions of the Master Ijarah Agreement is appended hereto as Attachment B - Annexure B. (d) Issue Size (RM) The issue size of the ABC Sukuk is as follows: Tranche A1 A2 A3 A4 B1 B2 B3 C Mohamed Ridza & Co. Issue size (RM) Million Up to 240 55 40 [10] 30 40 85 600 ______ Page | 112
  117. Total (e) 1,100 Issue Price (RM) The ABC Sukuk shall be issued at par, premium or discount to face value. The price payable for each ABC Sukuk purchased shall be calculated in accordance with the formula specified in Part III paragraph 5.1 (c) (ii) of the FAST Rules or in the rules governing such issues and approved by BNM. The SC will be notified of the issue price prior to the issue date. (f) Tenor of the facility/issue (i) Issue Launch Date The Sukuk will be issued within six (6) months of receipt of approval from the SC. (ii) Tenor of each Tranche Since there will be [8] lease arrangements in the Master Ijarah Agreement with different terms in respect of the Properties held on an undivided basis under the Portfolio, the terms and tenors of each Tranche below will correspond to the terms and tenors of the respective lease arrangements: Tranche A B C Expected Tenor/ Expected Maturity (yrs) 13 13 Tenor/ Legal Maturity (yrs) 15 7 – 13 15 (iii) Redemption of A Tranche Sukuk and B Tranche Sukuk (a) A Tranche Sukuk On the occurrence of a Total Loss Event, or at the Expected Maturity Date of the A Tranche Sukuk or one (1) business day after the declaration of a Termination Event under the Master Ijarah Agreement, the A Tranche Sukuk may be redeemed by the Issuer via a qard facility provided by the C Tranche Sukuk Holders. Immediately, prior to the redemption of the A Tranche Sukuk, the A Tranche Sukuk Holders will unilaterally, irrevocably and unconditionally transfer all their proportionate share in the undivided beneficial ownership in the Properties held by them and all the interests and benefits thereunder and in and to the Reserve Account to the C Tranche Sukuk Holders without any consideration or performance on the part of the C Sukuk Holders. (b) B Tranche Sukuk On the occurrence of the Legal Maturity Dates for the respective Tranches in Column (i) below and upon the redemption of the respective ABC Sukuk, the ABC Sukuk Holders of the Tranche in Column (i) below will unilaterally, irrevocably and unconditionally transfer all their proportionate share in the undivided beneficial ownership in the Properties held by them on the Legal Maturity Date and all the interests and benefits thereunder to the ABC Sukuk Holders of the Tranche in Column (ii) without any consideration or Mohamed Ridza & Co. Page | 113
  118. performance on the part of the ABC Sukuk Holders of the Tranche in Column (ii). Legal Maturity Date Year 7 Year 10 Year 13 (g) (i) B1 Tranche B2 Tranche B3 Tranche to to to (ii) B2 Tranche B3 Tranche C Tranche Coupon/Profit or equivalent rate (%) (please specify) The return on the ABC Sukuk is based on a Periodic Distribution Rate as specified below calculated on the amount of rental proceeds received in the Rental Account. Tranche (h) A1 Periodic Distribution Rate (% p.a.) (Indicative) [5.00] A2 [5.30] A3 [5.80] A4 [6.30] B1 [4.35] B2 [4.55] B3 [5.00] C [10.00] Coupon/profit payment frequency and basis The holders of A Tranche Sukuk, B Tranche Sukuk and C Tranche Sukuk will receive in arrears, from the rental proceeds received in the Rental Account, a semi-annual periodic distribution (“Periodic Distribution Date”) based on the Periodic Distribution Rate as specified in (g) above. Since there will be [8] lease arrangements in the Master Ijarah Agreement with different terms in respect of the Properties held on an undivided basis under the Portfolio, the distribution of the Periodic Distribution Amount for each of the ABC Sukuk shall be made based on the rentals received from the Lessee under the Master Ijarah Agreement. The ABC Sukuk Holders irrevocably agree that the Periodic Distribution Amount payable to the ABC Sukuk Holders from the rental proceeds received on the Periodic Distribution Date shall be made in the following order of priority. This is based on the understanding between the ABC Sukuk Holders that the Lessee is deemed to have paid the rentals under the [8] lease arrangements strictly in the following order of priority.(i) Firstly, to pay the B Tranche Sukuk Holders, and if there is any surplus; Mohamed Ridza & Co. Page | 114
  119. (ii) to pay the A1 Tranche Sukuk Holders, and if there is any surplus; (iii) to pay the A2 Tranche Sukuk Holders, and if there is any surplus; (iv) to pay the A3 Tranche Sukuk Holders, and if there is any surplus; (v) to pay the A4 Tranche Sukuk Holders, and if there is any surplus; (vi) to pay into the Final Distribution Account I up to an amount sufficient for the redemption of the B Tranche Sukuk, and if there is any surplus; (vii) to pay the C Tranche Sukuk Holders*, and if there is any surplus; (viii) to pay the C Tranche Sukuk Holders any periodic distribution that is accrued, accumulated and deferred. * Where there is insufficient amount in the Fixed Rental Account to pay the periodic distribution for the C Tranche Sukuk Holders, the same periodic distribution will be accrued, accumulated and deferred (and this will not constitute a Dissolution Event). In the event of any shortfall in the rental proceeds, the Issuer shall initiate immediate action to recover such shortfall from the Lessee under the Master Ijarah Agreement or alternatively to procure the Lessee to seek for a replacement lessee (“Replacement Lessee”). Any such substitution must however be first approved by the B Tranche Sukuk Holders through the Trustee. Pending the substitution of the defaulting Lessee with a Replacement Lessee, the Issuer may utilise the monies in the Reserve Account to make full payment to the A Tranche Sukuk Holders in the following order of priority: (i) the A1 Tranche Sukuk Holders; (ii) the A2 Tranche Sukuk Holders; (iii) the A3 Tranche Sukuk Holders; and (iv) the A4 Tranche Sukuk Holders. In the event the Reserve Account is fully utilised to the effect that it affects the Periodic Distribution to the A1 Tranche Sukuk Holders, the A1 Sukuk Tranche Holders, shall have the priority over A2 Tranche Sukuk Holders, A3 Tranche Sukuk Holders and A4 Tranche Sukuk Holders, A2 Tranche Sukuk Holders shall have priority over A3 Tranche Sukuk Holders and A4 Tranche Sukuk Holders, A3 Tranche Sukuk Holders shall have priority over A4 Tranche Sukuk Holders and A4 Tranche Sukuk Holders shall have priority over B Tranche Sukuk Holders in relation to the rights to declare a Dissolution Event. The Reserve Account shall not be utilised to meet any shortfall payments to the B Tranche Sukuk Holders and the C Tranche Sukuk Holders. The C Tranche Sukuk Holders will however be entitled to any surpluses in the Transaction Accounts after all the ABC Sukuk have been fully paid in Mohamed Ridza & Co. Page | 115
  120. accordance with the Cashflow Waterfall which is attached hereto as Attachment A . The Periodic Distributions under the ABC Sukuk shall be on Actual/Actual days basis. Subsequent to the purchase of the Properties by the Issuer from TM, the Issuer will enter into a master lease agreement with TM for the lease of the Properties on portfolio basis using the concept of Shirkat al-Mahassa. The master lease agreement will comprise of [8] lease arrangements as follows: - The Issuer will hold certain percentage^ of the Properties portfolio (under Lease 1) on trust for A1 Sukuk Holders and the said Properties portfolio will be leased for a specific number of years^ at a certain lease rental. The A1 Sukuk Holders will rank pari passu among themselves. - The Issuer will then hold a certain percentage^ of the Properties portfolio (under Lease 2) on trust for A2 Sukuk Holders and the said Properties portfolio will be leased for a specific number of years^ at a certain lease rental. The A2 Sukuk Holders will rank pari passu among themselves. - The Issuer will then hold a certain percentage^ of the Properties portfolio (under Lease 3) on trust for A3 Sukuk Holders and the said Properties portfolio will be leased for a specific number of years^ at a certain lease rental. The A3 Sukuk Holders will rank pari passu among themselves. - [The Issuer will then hold a certain percentage^ of the Properties portfolio (under Lease 4) on trust for A4 Sukuk Holders and the said Properties portfolio will be leased for a specific number of years^ at a certain lease rental. The A4 Sukuk Holders will rank pari passu among themselves.] - The Issuer will then hold a certain percentage^ of the Properties portfolio (under Lease 5) on trust for B1 Sukuk Holders and the said Properties portfolio will be leased for a specific number of years^ at a certain lease rental. The B1 Sukuk Holders will rank pari passu among themselves. - The Issuer will then hold a certain percentage^ of the Properties portfolio (under Lease 6) on trust for B2 Sukuk Holders and the said Properties portfolio will be leased for a specific number of years^ at a certain lease rental. The B2 Sukuk Holders will rank pari passu among themselves. - The Issuer will then hold a certain percentage^ of the Properties portfolio (under Lease 7) on trust for B3 Sukuk Holders and the said Properties portfolio will be leased for a specific number of years^ at a certain lease rental. The B3 Sukuk Holders will rank pari passu among themselves. - The Issuer will then hold a certain percentage^ of the Properties portfolio (under Lease 8) on trust for C Sukuk Holders and the said Properties portfolio will be leased for a specific number of years^ at a certain lease rental. The C Sukuk Holders will rank pari passu among themselves. Each of the [8] classes of Sukuk Holders have beneficial rights and interests in respect of their respective proportion of the assets portfolio only. Whilst the Sukuk Holders rank pari passu among themselves in their respective classes in accordance with the principles of shirkah, they do not however rank pari passu on a inter-class basis. Hence, an A Tranche Sukuk Holder does not rank pari passu with say a B Tranche Mohamed Ridza & Co. Page | 116
  121. Sukuk Holder . From a Fiqhi perspective since each class has been independently established they can have independent rights and interests and do not have to rank pari passu across the [8] classes. Following the above arrangement, each of the [8] classes of Sukuk Holders can validly agree under Shariah on how the rental payments will be distributed by the Trustee who is administrating the trust obligation on behalf of the [8] independent classes. So, A Tranche and C Tranche Sukuk Holders will agree at the outset that when the trustee receives the rental payments, the Trustee will treat them as rentals payable to B Tranche Sukuk Holders. The balance will then be treated as rentals payable to the A Tranche Sukuk Holders. And the remaining balance will be treated as rentals payable to C Tranche Sukuk Holders. Such agreements among independent classes are recognised as valid under Shariah. The Shariah norm in the area of Muamalat is that all terms and conditions agreed among contracting parties are valid unless they violate the Shariah principles of Riba, Maysir, Gharar, etc. None of those principles have been transgressed by these terms and condititions. ^ Please refer to Item C3 of the Master Ijarah Agreement Term Sheet which is attached hereto as Attachment B - Annexure B on the details of the leased percentage and for the lease period. (i) Yield to Maturity (%) To be determined upon Sukuk issue date (j) Security/Collateral (if any) The ABC Sukuk holders shall have recourse to the following trust assets (“Trust Assets”) through the trust created by the Issuer/Trustee for the benefit of the ABC Sukuk Holders, in the ranking and priority as described below:(i) Rental Proceeds - Master Ijarah Agreement The B Tranche Sukuk Holders shall have first priority to the rental proceeds over the A Tranche Sukuk Holders and the C Tranche Sukuk Holders. In the event there is a shortfall in the rental proceeds, and the Lessee is unable to remedy such shortfall within one (1) month of its occurrence, the Issuer shall procure that the Lessee will within three (3) months thereafter look for a Replacement Lessee. Only the B Tranche Sukuk Holders shall have the sole right to approve such substitution of the defaulting Lessee with a Replacement Lessee. In the event the defaulting Lessee is not substituted within the time stipulated as referred in the paragraph above, to the extent that the shortfall affects Tranche A, then A1 Tranche Sukuk Holders shall have the priority over A2 Tranche Sukuk Holders, A3 Tranche Sukuk Holders and A4 Tranche Sukuk Holders, A2 Tranche Sukuk Holders shall have priority over the A3 Tranche Sukuk Holders and A4 Tranche Sukuk Holders, A3 Tranche Sukuk Holders shall have priority over A4 Tranche Sukuk Holders and A4 Tranche Sukuk Holders shall have priority over the B Tranche Sukuk Holders in relation to the rights to declare a Dissolution Event. (ii) Properties - Master Ijarah Agreement Mohamed Ridza & Co. Page | 117
  122. (a) Expiry of Lease Term Thirty-Six (36) months prior to the expiration of the Lease Term under the Master Ijarah Agreement, the Lessee shall be offered the right of first refusal to renew the lease over all the Properties from the Lessor. The Lessee is given three (3) months from the date the offer was made to decide on whether to accept or refuse the offer. Once the offer is made, the Lessee has the option to accept the lease on all or any one of the Properties. If the Lessee accepts the offer, the new lease agreement shall be executed between the Lessor and the Lessee on or before the expiry of the three (3) month period. Failing which the Return Provisions as set out in Section D, Item 14 of Attachment BAnnexure B (Master Ijarah Agreement Term Sheet) shall apply. The new lease offered will have the following terms:(1) a minimum tenor of five (5) years with an option to renew for a further five (5) years. The option to renew the new lease for a further five (5) years shall at least have the terms referred to in paragraph (2), (3) and (4) below; i. rental rates will be in reference to the then market rates; ii. Lessee to be given right of first refusal to purchase such Properties which is subject to the new lease similar to such right under the Master Ijarah Agreement whenever the Lessor decides to sell such Properties; and iii. Lessee to retain existing rights (such as naming rights to building) under the Master Ijarah Agreement. All reasonable costs incurred which are incidental to the offering of the new lease shall be borne by the Lessee. If the Lessee decides not to accept the offer to renew the lease on any one of the Properties, the Lessee will have to vacate such Property and adhere to the Return Provisions on expiry of the Lease Term. If at any time during the period thirty-three (33) months prior to expiration of the Lease Term under the Master Ijarah Agreement, the Lessor decides to sell all or any of the Properties, the Lessor shall offer the Lessee the right of first refusal to purchase such Property(ies). If the Lessee exercises the right to purchase all or any of the Properties (when offered by the Lessor) and prior to full remittance of the purchase consideration, a situation which is not due to the wilful default of the Lessee and which is beyond the control of either parties, occurs and such occurrence results in the impossibility of completion of the sale and transfer of any Mohamed Ridza & Co. Page | 118
  123. of the Properties , the Lessee shall remain obligated to complete the purchase of the remaining unaffected Properties within the stipulated timeframe and based on the individual Purchase Price of each of the Properties. The sale of the affected Property may only be aborted only if there is no remedy or recourse available to rectify the situation. However if the situation preventing the completion of sale of the affected Property is rectifiable, the Lessee’s obligation to complete the purchase of the affected Property shall only lapse with the consent and agreement of the A Tranche Sukuk Holders and the C Tranche Sukuk Holders. (b) Termination Event On the declaration by the Issuer of a Termination Event under the Master Ijarah Agreement, the Issuer shall re-possess all the Properties. One (1) business day after declaration of a Termination Event by the Issuer, the C Tranche Sukuk Holders may proceed with either of the following options:- Mohamed Ridza & Co. (i) to provide an unsecured qard facility to the Issuer in the manner as described in Item 2(c)(3) and Item 2(j)(ii)(b) herein to enable the Issuer to redeem the A Tranche Sukuk at face value. The C Tranche Sukuk Holders shall deposit the monies under such qard facility one (1) business day after the declaration of a Termination Event; or (ii) to provide requisite financing by way of an unsecured qard facility to the Issuer to meet the Issuer’s funding requirements (hereinafter referred to as the “Special Funding”). The terms of the Special Funding are as follows:(aa) the C Tranche Sukuk Holders shall deposit the monies under the Special Funding within one (1) business day after the declaration of a Termination Event; (bb) the Special Funding must be adequate to cover the Issuer’s financial obligations including meeting the (i) Periodic Distribution and the (ii) senior costs (which includes all quit rent, assessments, insurances and any other costs related to the Properties) for the next six (6) months on a rolling basis; and (cc) The Special Funding cannot be exercised by the C Tranche Sukuk Holders at any time after the date falling eleven and a half (11½) years after the Issue Date Page | 119
  124. The qard facility offered in the exercise of either of the options above shall be subordinated to the redemption of all Sukuks but with priority over the distribution of profit share / additional distribution to C Tranche Sukuk Holders. Failure to exercise either options will constitute a Trigger Event; In relation to the B Tranche Sukuk, declaration of a Termination Event would tantamount to an automatic default under the B Tranche Sukuk. However such default under the B Tranche Sukuk would not constitute an Event of Default under Item 2(x) herein. (iii) Properties – Total Loss Events On the occurrence of a Total Loss Event, receipts of any Takaful proceeds shall be utilised in the following manner:(a) Subject to approval of the ABC Sukuk Holders granted pursuant to a vote (with the voting rights of the respective ABC Sukuk Holders similar to that in declaring a Trigger Event as set out in Item 2(z) herein), the Takaful proceeds received may be utilised as follows:(i) to bear the Reconstruction Costs of the affected Property(ies) to its original state, and (ii) to compensate the Issuer for the loss of revenue during the construction period, such sum to equate the outstanding lease rentals payable during the period of construction of the affected Properties to its original state. Reconstruction Costs means all related costs and expenses in relation to the reinstatement of the affected Property(ies) to its original state which shall include and not be limited to removal of debris, engineering, architect consultant fees and other related expenses. The Issuer shall have the discretion to determine the reconstruction of the Property(ies). During such reconstruction period the Lease of the affected Property(ies) shall continue and rental payable shall be recovered by the insurance cover undertaken for loss of revenue by the Issuer. Prior to the conduct of meeting referred to in (a) above, and subject to the Issuer’s receipt of the monies from C Tranche Sukuk Holders by way of an unsecured qard facility as described in further detail in Item 2(j)(ii)(b) at any time upon the occurrence of a Total Loss Event (but prior to the conduct of the meeting of the Sukuk Holders as referred to in this item (2)(j)(iii)(b), the Issuer shall redeem the outstanding A Tranche and B Tranche Sukuk. The Issuer shall redeem the A Tranche Sukuk and the B Tranche Sukuk by giving the A Tranche Sukuk Holders and the B Tranche Sukuk Holders respectively seven (7) business days prior written notice of its intention to redeem the A Tranche Sukuk and B Tranche Sukuk. Mohamed Ridza & Co. Page | 120
  125. (b) In the event the ABC Sukuk Holders decide not to proceed with reconstruction of the affected Property(ies), the Issuer shall offer to the Lessee to purchase the land on which the affected Property(ies) are located at a purchase price based in reference to the then fair market value. In the event the Lessee agrees to purchase such land(s), the purchase price received therefrom shall be utilised to redeem the ABC Tranche Sukuk Holders in the order of priority as set out below. If the Lessee decides not to purchase such land(s), the Issuer may proceed to sell such land(s) to any third party. The Takaful proceeds and the purchase price received from the sale of the land shall be utilised to redeem the ABC Sukuk in the following order of priority: (c) Mohamed Ridza & Co. (i) A1 Tranche Sukuk, and if there is any surplus; (ii) to redeem the A2 Tranche Sukuk, and if there is any surplus; (iii) to redeem the A3 Tranche Sukuk, and if there is any surplus; (iv) to redeem the A4 Tranche Sukuk, and if there is any surplus; (v) to redeem any outstanding B Tranche Sukuk, and if there is any surplus; (vi) To pay the accumulated, accrued and deferred periodic distribution amount due to the C Tranche Sukuk Holders, and if there is any surplus; (vii) to redeem the C Tranche Sukuk, and if there is any surplus; (viii) to pay to the C Tranche Sukuk Holders the balance / profit share / additional distribution. In the event the Takaful proceeds fail to materialise due to the following:(i) failure of the Property Manager to procure the Loss Insurance Coverage, the Property Manager irrevocably undertakes to fully indemnify the Issuer against all losses and damages suffered resulting from a total loss event to any of the Properties throughout the Lease Term up to an amount equivalent to the Loss Insurance Coverage; or (ii) the Malaysian Takaful company goes into liquidation or is unable to fulfil its obligations under the Loss Insurance Coverage, the Property Manager shall not be held Page | 121
  126. responsible for any losses suffered resulting from a total loss event on the Properties or any part thereof and the Issuer shall have full recourse to the takaful company (ies) or its liquidator (as the case may be) up to an amount equivalent to the Loss Insurance Coverage; or (iii) (iv) the total loss event is resulting from the negligence or default of the Lessee which inevitably results in the insurers refusing to effect any payouts, the Lessee shall be liable for such loss, subject however to an amount equivalent to the Reconstruction Costs or the Lease Investment Balance, whichever is higher. Properties – Non-perfection/non-registration of the Transfer Documents In the event that any of the Transfer Documents cannot be registered and/or perfected in favour of the Issuer for whatever reason within the following periods:(i) in relation to all the Properties except for Cyberjaya Complex, within [nine (9) months] from the date of presentation at the relevant land office; and (ii) in relation to the Cyberjaya Complex, within [twelve (12) months] from the date of presentation at the relevant land office, the Seller and/or the Issuer shall be given a period of thirty (30) days to rectify such matters relating to the reason for the non-registration and/or non-perfection. In the event the non-registration and/or nonperfection cannot and/or is not rectified within the thirty (30) day period (“Rectification Period”), the ABC Sukuk Holders shall have the discretion to grant a one-time extension of such period. The voting rights of the respective ABC Sukuk Holders in deciding on the extension period shall be in accordance with the percentage of beneficial ownership of the Properties. Upon the expiry of the Rectification Period and the ABC Sukuk Holders decide not to grant any extension:(a) in the event the non-registration relates to Menara TM, the Seller shall undertake to buy back all the Properties (including Menara TM) at the original Purchase Price; (b) in the event the non-registration relates to Properties other than Menara TM, the Seller shall undertake to buy back the affected Property(ies) at the end of year-13 at a purchase price equivalent to the original purchase price of the affected Property(ies). Such purchase price will be paid by the Seller into an account to be opened by the Issuer (“Wadiah Account”) within three (3) business days of the expiration of the Rectification Period and upon the receipt of such purchase price, will be utilised as set out in Attachment A hereto; Upon the expiry of the Rectification Period if the ABC Sukuk Holders Mohamed Ridza & Co. Page | 122
  127. agree to grant an extension of the period (“Extension Period”), regardless of the non-registration of whichever Property, the Seller shall, within three (3) business days from the expiration of the Rectification Period, pay an amount calculated in accordance with the Formula (as described below) into the Wadiah Account. Upon the expiry of the Extension Period:(a) if Menara TM has yet to be registered, the Seller shall utilise the amount paid into the Wadiah Account to buy back Menara TM and TM shall also buy back all the other Properties at a purchase price calculated according to the Formula; (b) if Property(ies) other than Menara TM have yet to be registered, the Seller shall undertake to buy back the affected Property(ies) at the end of year-13 by utilising the amount paid into the Wadiah Account. Such purchase price will be utilised as set out in Attachment A hereto; The Formula means:Original Purchase Price of the relevant Property x [1 + (y)% (which is determined prior to issuance of the Sukuk)]. For the avoidance of doubt, any registration that takes effect after the Rectification Period or Extension Period (where granted) shall not, have any effect or impair the operation of paragraphs above. In the case where registration is made upon the expiry of the Extension Period (where granted), the Issuer shall refund such monies paid into the Wadiah Account to the Seller. (v) Proceeds from Sub-Tenants/Sub-Leases The Issuer on the declaration of a Termination Event of the Master Ijarah Agreement shall repossess all the Properties. The proceeds received from the sub-tenants/subleases will be transferred into the Sub-Rental Account . (k) Details on utilisation of proceeds The Issuer shall first utilise the proceeds towards payment into the Reserve Account to satisfy the reserve requirement and upfront expenses, if any, and the balance thereof towards payment of the Purchase Price to TM, as Seller. TM intends in turn to utilise the Purchase Price for the following purposes:1. Capital Management; 2. Investment; 3. Capital Expenditure; and/or 4. Working Capital. Mohamed Ridza & Co. Page | 123
  128. At this juncture , TM is not able to determine the specific amount to be allocated for each of the above purposes. The utilisation of the proceeds of the Sukuk will be used for Syariah compliant purposes. (l) Sinking fund (if any) None (m) Rating • Credit rating assigned (indicative): Tranche Rating A1 Tranche A2 Tranche A3 Tranche A4 Tranche B1 Tranche AAA AA2 A1 [A2] [AAA]-rating watch (developing outlook) * [AAA]-rating watch (developing outlook) * [AAA] -rating watch (developing outlook) * Not rated B2 Tranche B3 Tranche C Tranche * • (n) The rating of B Tranche Sukuk is under rating watch and is subject to changes at any time before issuance of the Sukuk. The B Tranche Sukuk will carry rating equal to that of TM Name of rating agency – RAM Ratings Form and Denomination The series of Sukuk shall be represented by a Global Certificate for each tranche to be deposited with BNM and are to be in the denomination of RM1,000,000 each or such other denomination as the Issuer and Facility Agent may agree or as determined by SC. The Global Certificate may be exchanged for definitive certificates only in certain limited circumstances. Each Sak (the singular of Sukuk) represents an undivided beneficial ownership in the Trust Assets and will rank pari passu, without any preference, with all other Sukuk. (o) Mode of Issue The ABC Sukuk would be reported and/or tendered on the Fully Automated System for Issuing/Tendering (“FAST”). Alternatively, the ABC Sukuk could be placed privately without prospectus via the Facility Agent or through a book-building process. Mohamed Ridza & Co. Page | 124
  129. The ABC Sukuk shall be issued in accordance with (1) the “Code of Conduct and Market Practices for the Malaysian Corporate Sukuk Market” issued by the Institut Peniaga Bon Malaysia and approved by BNM, (2) the Rules on FAST and (3) the Rules on Scripless Securities under the Real Time Electronic Transfer of Funds and Securities (“RENTAS”) system issued by BNM, or their replacement thereof (collectively the “Code of Conduct”) applicable from time to time. (p) Selling Restriction The A Tranche Sukuk and B Tranche Sukuk may not be offered or sold, transferred or otherwise disposed, directly or indirectly, nor may any document or other materials in connection therewith be distributed in Malaysia or anywhere else, other than to such persons falling within any one of the categories or persons specified in Schedules 2, 3 and 5 of the Securities Commission Act, 1993 subject to any law, order, regulation or official directive of BNM, SC and/or any other regulatory authority from time to time. Throughout the tenure of the C Tranche Sukuk, the C Tranche Sukuk shall not be offered or sold, transferred or otherwise disposed by the C Tranche Sukuk Holders to any person. (q) Listing Status The ABC Sukuk will not be listed. (r) Minimum Level of Subscription (RM or %) An amount equal to the Purchase Price to be paid on the issue date of a series of the Sukuk. (s) Other regulatory approvals required in relation to the issue, offer or invitation and whether or not obtained (please specify) Other than the approval of the SC for the issuance of the ABC Sukuk, no other regulatory approval is required in respect of the issuance of the ABC Sukuk. (t) Identified Assets The Properties. (Please refer to paragraph (z) for details). The Purchase Price of the Properties will be in compliance with SC Syariah Advisory Council Pricing Guidelines dated 31 December 2003 and 30 April 2004. (u) Purchase and selling price/rental (where applicable) (i) Purchase Price The Purchase Price refers to the total price payable by the Issuer for the purchase of the Properties from the Seller, such price to be determined at least five (5) days prior to execution of the Sale and Purchase Agreement. Determination of the Purchase Price shall be in reference to the valuation by Henry Butcher at least five (5) days prior to the execution of the Sale and Mohamed Ridza & Co. Page | 125
  130. Purchase Agreement . The combined appraised market value of the Properties with a long term lease attached as of 22 May 2007 is expected to be RM1,029.4 Million, with the individual market value for each of the Properties being as follows :(a) (b) (c) (d) (ii) Menara TM Menara Celcom Cyberjaya Complex Wisma TM RM817.53 million; RM147.92 million; RM33.52 million; RM30.44 million. Rent Rent shall be paid by TM, as the Lessee, to the Lessor monthly in advance commencing on the date of issuance of the Sukuk and thereafter on or before the 7th day of each and every succeeding calendar month. (v) Conditions Precedent The issuance of the ABC Sukuk is subject to compliance with, inter alia, the following conditions:a) All regulatory approval(s) (including but not limited to the approval of the SC and the Syariah Adviser and such other relevant authorities, if applicable or necessary) and consents and/or waivers having been obtained in writing or, if conditional, such conditions having been fulfilled (to the extent that they have to be fulfilled prior to the issuance of the Sukuk); b) Execution of the sale and purchase agreements between the Issuer and the Originator in respect of the Properties; c) Execution of the Master Ijarah Agreement between the Issuer and the Lessee in respect of the Properties; d) All documents in respect of the transaction shall have been duly executed by all the parties thereto; e) Receipt of Valuation reports on the Properties prepared by the Valuers; f) Evidence that the Issuer has opened the transaction accounts with an acceptable financial institution; g) The results of a company search conducted on the Issuer; h) A legal opinion from the solicitors for the Principal Adviser/Lead Arranger as to (i) the validity and enforceability of all legal documentation and (ii) that the conditions precedent to the issue of the ABC Sukuk have been met; i) Receipt of certified true copies of the Issuer’s and the Originator’s Memorandum and Articles of Association together with Forms 24 and 49 respectively; Mohamed Ridza & Co. Page | 126
  131. j ) Receipt of a certified true copy of the Board of Directors’ Resolution of the Issuer authorising inter alia:The issuance of the Sukuk; The execution of and carrying out of all its obligations under the Issue Documents to which it is a party; and The opening of all requisite accounts related to the issuance of the Sukuk. k) Receipt of written legal opinions and auditors’ comfort letter, if any, in form and substance acceptable to the Facility Agent; l) Evidence that the Sukuk has achieved the following minimum rating:A1 A2 A3 A4 B1 B2 B3 C AAA AA2 A1 [A2] [AAA]- rating watch (developing outlook)* [AAA] -rating watch (developing outlook) * [AAA] -rating watch (developing outlook) * Not rated * The rating of B Tranche Sukuk is under rating watch and is subject to changes at any time before issuance of the Sukuk. The B Tranche Sukuk will carry rating equal to that of TM. (w) m) Satisfactory due diligence having been conducted as required under the Islamic Securities Guidelines and the Guidelines on the Offering of Asset-Backed Securities in respect of the submission to the SC and the preparation of the Information Memorandum; n) Receipt of resolution of the Originator authorising the execution of the documentation / agreement to which it is a party; o) Opening of any other transaction accounts by the relevant parties; and p) Such other conditions as may be advised by the Principal Adviser/Lead Arranger’s solicitors. Representations and Warranties Representations and warranties typical of such issues including but not limited to the following:a) Each of the Issuer and the Originator is a company with limited liability duly established and existing under Malaysian law and it has the power Mohamed Ridza & Co. Page | 127
  132. and authority to enter into the business in which it is or proposes to be engaged ; b) Each of the Issuer and the Originator has the power under its Memorandum and Articles of Association to enter into, exercise its rights under and perform its obligations under the transaction; c) Each of the Issuer and the Originator is not the subject of any winding-up, liquidation or other similar proceedings; d) The Issuer’s entry into, exercise of its rights under and performance of the agreements for the issuance of the ABC Sukuk do not and will not violate: i) ii) (x) any existing law to which it is subject; or agreements to which it is a party which will have a material adverse effect on the Issuer; e) The ABC Sukuk create valid and binding obligations which are enforceable on and against the Issuer; f) All necessary actions, authorisations and consents required by that due date under the Transaction Documents have been taken, fulfilled and obtained and remain in full force and effect; g) The Transaction Documents create valid and binding obligations which are enforceable on and against the Issuer and the Originator as the case may be; h) The Trust Assets are free of all security interests; i) Each of the Issuer’s and the Originator’s audited accounts are prepared in accordance with approved accounting standards and such accounts fairly represent the relevant party’s financial position as at the date of the accounts; j) To the best of the Issuer’s knowledge, no litigation or arbitration is current or threatened, which if adversely determined would have a material adverse effect on the ability of the Issuer and/or the Originator to comply with the Transaction Documents to which they are a party; and k) Such other representations and warranties as may be advised by the Principal Adviser/Lead Arranger’s solicitors. Events of Default (otherwise referred to as “Dissolution Events”) 1) The Trustee will (subject to any grace periods provided in the legal documentation for remedying any act or omission – seven (7) business days) have the right to declare an Event of Default following the occurrence of, inter-alia:(a) Mohamed Ridza & Co. Failure of the Issuer to pay Periodic Distribution Amount and Final Distribution Amount under the A Tranche Sukuk on the due dates or such dates as the parties may agree; Page | 128
  133. (b) A scheme of arrangement under s.176 of the Companies Act, 1965 has been entered into with the Issuer among its creditors; (c) A trustee, liquidator, receiver or similar officer has been appointed over the whole or a substantial part of the business or assets of the Issuer or the Originator; (d) Breach by the Issuer of any term or condition of the ABC Sukuk or provisions of the trust deed or of any other document relating to the issue, offer or invitation in respect of the ABC Sukuk; (e) Any other indebtedness of the Issuer (save and except for the failure of the Issuer to pay the Periodic Distribution Amount and the Final Distribution Amount under the B Tranche Sukuk and the Periodic Distribution Amount under the C Tranche Sukuk on the due dates) becomes due and payable prior to its stated maturity or where the security created for any other indebtedness becomes enforceable; (f) There is a revocation, withholding or modification of a licence, authorization or approval that impairs or prejudices the Issuer’s ability to comply with the terms and conditions of the ABC Sukuk or the provisions of the trust deed or any document relating to the issue, offer or invitation in respect of the ABC Sukuk; (g) Insolvency or administration or presentation of winding up petition against the Issuer; (h) It becomes unlawful for the Issuer or the Originator to perform its obligations under any of the Transaction Documents to which it is a party; (i) Any provision of the Transaction Documents becomes, for any reason, invalid, illegal, void or unenforceable or is terminated (save and except for the termination of the Master Ijarah Agreement) and which would prevent the Issuer from performing any of its obligations; (j) The Issuer changes the nature or scope of its business or the Issuer or Originator suspends or ceases a substantial part of its present business operations; (k) All or a substantial part of the property or assets of the Issuer shall be condemned, seized or otherwise expropriated or nationalized by any person acting under the authority of the Government of Malaysia; and (l) Such other events of default as may be advised by the Principal Adviser/Lead Arrangers’ solicitors. In the event the Issuer fails to remedy the Events of Default within the prescribed time the Sukuk shall be redeemed and the Issuer shall re- Mohamed Ridza & Co. Page | 129
  134. possess all the Properties from the Lessee under the Master Agreement . Ijarah In the event where such declaration of Events of Default is attributable to the Originator, the Issuer shall be entitled to deal with the Properties in any manner whatsoever including to sell the Properties to third parties. In the event where the declaration of an Event of Default is not attributable to the Originator, the Issuer shall offer the right of first refusal to purchase the Properties to the Originator (as the Lessee) at the then market value of the Properties. The Lessee shall be given three (3) months to accept the offer of right of first refusal to purchase the Properties and execute the respective sale and purchase agreements. The Lessee shall thereafter be given a further three (3) months from the date of the sale agreement to fully remit the purchase consideration for the purchase of the Properties. In the event the Lessee declines to exercise such right to purchase the Properties or fails to fully remit the purchase consideration of the purchase of the Properties within the specified time frame, the Issuer shall be entitled to deal with the Properties in any manner whatsoever including to sell the Properties to third parties. (y) Principal terms and conditions for warrants (where applicable) Not applicable. (z) Other principal terms and conditions for the issue 1. The Properties : (i) Menara TM Description : HSM 3885, Lot PT 3901, Jalan Pantai Baru, Mukim Kuala Lumpur, Daerah of Title Kuala Lumpur. Postal Address (ii) Mohamed Ridza & Co. : Menara TM, Jalan Pantai Baharu, 50672 Kuala Lumpur, Malaysia. Menara Celcom Description of Title : HSD 64439, Lot PT 24 Seksyen 87A, Jalan Semarak, Bandar dan Daerah Kuala Lumpur. Postal Address : Menara Celcom, 82, Jalan Raja Muda Abdul Aziz, 50300 Kuala Lumpur Page | 130
  135. (iii) Cyberjaya Complex Description of Title : A portion of the Cyberjaya Complex land situated on master title HSD 7791, Lot PT 12056, Mukim Dengkil, Daerah Sepang. Postal Address : Komplek TM Cyberjaya, 3300, Lingkaran Usahawan 1 Timur, 63000 Cyberjaya, Selangor (iv) Wisma TM Taman Desa Description of Title : HSD 71280, Lot PT 3569, Mukim Kuala Lumpur, Daerah Kuala Lumpur. Postal Address : Wisma TM Taman Desa, Jalan Desa Utama, 58100 Kuala Lumpur. Replacement lessee and rent adjustment : The Trustee shall have absolute discretion in ensuring that any Replacement Lessee is of no lesser credit quality than the Lessee. The Property Manager on behalf of the Lessor will renegotiate the Rent with the Lessee. The consent of the Trustee must be obtained to any changes in Rent. Status : The ABC Sukuk shall constitute irrevocable trust obligations of the Issuer in accordance with the terms of the trust deed. Consequence Following Failure to Perfect Registration : In the event that any of the Transfer Documents cannot be registered and/or perfected in favour of the Issuer for whatever reason within the following periods:(i) in relation to all the Properties except the Cyberjaya Complex, within [nine (9) months] from the date of presentation at the relevant land office; and (ii) in relation to the Cyberjaya Complex, within [twelve (12) months] from the date of presentation at the relevant land office, the Seller shall be given a period of thirty (30) days to rectify such matters relating to the reason for the nonregistration and/or non-perfection (“Rectification Period”). In the event the non-registration and/or nonperfection cannot and/or is not rectified within the Rectification Period, the ABC Sukuk Holders shall have the discretion to grant a one-time extension of such period. The voting rights of the respective ABC Sukuk Holders in deciding on the extension period shall be in Mohamed Ridza & Co. Page | 131
  136. accordance with the percentage of beneficial ownership of the Properties . Upon the expiry of the Rectification Period and the ABC Sukuk Holders decide not to grant any extension:(a) in the event the non-registration relates to Menara TM, the Seller shall undertake to buy back all the Properties (including Menara TM) at the original Purchase Price; (b) in the event the non-registration relates to Properties other than Menara TM, the Seller shall undertake to buy back the affected Property(ies) at the end of year-13 at a purchase price equivalent to the original purchase price of the affected Property(ies). Such purchase price will be paid by the Seller into an account to be opened by the Issuer (“Wadiah Account”) within three (3) business days of the expiration of the Rectification Period and upon the receipt of such purchase price, will be utilised as set out in Attachment A hereto; Upon the expiry of the Rectification Period if the ABC Sukuk Holders agree to grant an extension of the period (“Extension Period”), regardless of the nonregistration of whichever Property, the Seller shall, within three (3) business days from the expiration of the Rectification Period, pay an amount calculated in accordance with the Formula (as described below) into the Wadiah Account. Upon the expiry of the Extension Period:(a) if Menara TM has yet to be registered, the Seller shall utilise the amount paid into the Wadiah Account to buy back Menara TM and TM shall also buy back all the other Properties at a purchase price calculated according to the Formula; (b) if Property(ies) other than Menara TM have yet to be registered, the Seller shall undertake to buy back the affected Property(ies) at the end of year-13 by utilising the amount paid into the Wadiah Account. Such purchase price will be utilised as set out in Attachment A hereto; The Formula means:Original Purchase Price of the relevant Property x [1 + (y)% (which is determined prior to issuance of the Sukuk)]. Mohamed Ridza & Co. Page | 132
  137. For the avoidance of doubt , any registration that takes effect after the Rectification Period or Extension Period (where granted) shall not have any effect or impair the operations of the paragraph above. In the case where the registration is made upon the expiry of the Extension Period (where granted), the Issuer shall refund the monies paid into the Wadiah Account to the Seller. Redemption on maturity : The ABC Sukuk, unless previously redeemed or cancelled, shall be redeemed at the price of 100% of their face amount on the maturity date. Redemption Following an Event of Default (“Dissolution Event”) : The same process as in item 2(x) shall apply. Redemption Following a Termination Event under the Master Ijarah Agreement : Same as above. Financial Accounts : The Issuer shall provide the Trustee with its audited financial statements within 120 days of the end of each financial year, and the interim financial statements on a half-yearly basis within 90 days of the end of such half-year period. Property Manager : The Property Manager shall be appointed by the Issuer/Lessor which is acceptable to the Lessee. The Property Manager shall be responsible for the following: Mohamed Ridza & Co. (a) Maintenance of the Properties, including overseeing and supervising the maintenance work and the appointed contractors, and ensuring that the Properties are kept in good repair and to arrange for any replacement of any parts as and when necessary (b) Maintaining an up-to-date accounts, information, records relating to the Properties, and preparing annual operating budget in relation to the Properties; Page | 133
  138. (c) Ensuring compliance with provisions of all regulations and laws, licences, permissions and consents provided under such regulations and laws It shall be part of the terms and conditions of the Property Manager’s appointment that a management fee shall be payable by the Lessor to the Property Manager. In addition, the Property Manager shall also be paid an amount equal to all out of pocket and other expenses incurred in the management of the Properties. Positive Covenants : a) The Issuer will exercise reasonable diligence in carrying out its business in a proper and efficient manner which should ensure, amongst others, that all necessary approvals or relevant licences are obtained; b) The Issuer will undertake to perform all its obligations under: - the Master Ijarah Agreement to be entered into between the Issuer and the Lessee; and - the Sale and Purchase Agreement to be entered into between the Issuer and the Seller; Mohamed Ridza & Co. c) The Issuer will appoint a Trustee to discharge some of the trust functions set out in the trust deed and provide all information and assistance which the Trustee may require in order to discharge its duties and obligations as a Security Trustee under the trust deed relating to the Issuer’s affairs to the extent permitted by law; d) The Issuer will maintain a paying agent in Malaysia; e) The Issuer will procure that the paying agent shall notify the Trustee in the event that the paying agent does not receive payment from the Issuer on the due dates as required under the trust deed and the terms and conditions of the ABC Sukuk; f) The Issuer will keep proper books and accounts at all times and will after receipt of reasonable notice provide the Trustee and any person appointed by it (e.g. auditors) access to such books and accounts during office hours; Page | 134
  139. Mohamed Ridza & Co. g) At all time exercise its rights and discretions under the Sale and Purchase Agreement and the Master Ijarah Agreement in the best interests of the ABC Sukuk holders; h) The Issuer will ensure continuous compliance with the SC’s requirements and conditions for the Sukuk; i) The Issuer will obtain and promptly renew from time to time and comply with the terms and conditions of all consents and authorisations which may be required under any applicable law or regulation; j) Inform the Trustee of any change in its directors or shareholders and any other changes that may materially and adversely affect its business condition (financial or otherwise) or operating results; k) Give notice to the Trustee and the rating agency promptly on becoming aware of any of the following:a. directive, ruling or condition imposed by the relevant authorities on the Issuer which would materially and adversely affect its business condition (financial or otherwise) or operating results; b. default or event of default (actual or imminent) under any contractual obligation of the Issuer which would materially and adversely affect its business condition (financial or otherwise), or operating results; c. litigation, dispute, action, investigation or proceeding which may exist at any time before the court or any governmental regulatory agency which would materially and adversely affect its business condition (financial or otherwise), or operating results or its ability to carry on its business as is now conducted or its ability to perform its obligations under the Transaction Documents and will defend itself against such litigation, dispute, action or proceeding and will not settle such litigation, action or proceeding except with the prior consent of the Trustee; and Page | 135
  140. d . l) Claims against the Issuer which would have a material adverse effect upon the ability of the Issuer to perform its obligations under the Transaction Documents, will defend itself against such claims and will not settle such claims except with the prior consent of the Trustee Take such steps as may have been notified by the Trustee following the occurrence of a Dissolution Event to remedy or mitigate the effect of the Dissolution Event or any other step as the Trustee may reasonably request; m) To conduct periodic valuation at least once every three (3) years; and n) Negative Covenants : a) Such other positive covenants as may be advised by the Principal Adviser/Lead Arranger’s solicitors shall also apply. The Issuer shall not enter into a transaction, whether directly or indirectly with interested persons (including a director, substantial shareholder or persons connected with them) unless:(i) such transaction shall be on terms that are no less favourable to the Issuer than those which could have been obtained in a comparable transaction from persons who are not interested persons; and (ii) with respect to transactions involving an aggregate payment or value equal to or greater than an agreed sum, the Issuer obtains certification from an independent adviser that the transaction is carried out on fair and reasonable terms; PROVIDED that the Issuer certifies to the Trustee that the transaction complies with paragraph (i), that the Issuer has received the certification referred to in paragraph (ii) (where applicable) and that the transaction has been approved by the majority of the board of directors or shareholders in a general meeting as the case may require; and b) Mohamed Ridza & Co. The Issuer shall not reduce its authorised and/or issued share capital; Page | 136
  141. Mohamed Ridza & Co. c) The Issuer shall not add to, delete, vary or amend its Memorandum and/or Articles of Association in any manner which may be prejudicial to the interest of the ABC Sukuk Holders or may affect its ability to perform its obligations under the Transaction Documents; d) The Issuer shall not create or permit to exist over all or any part of the Trust Assets any security interest; e) The Issuer shall not change the nature of its business nor carry on any business or engage in any activities not specifically authorised under its Memorandum of Association nor have any subsidiary; f) The Issuer shall not amalgamate, consolidate or merge with any other person or convey or transfer its properties or assets substantially as an entirety to any person; g) The Issuer shall not enter into any scheme of arrangement or reconstruction or apply for any restraining order pursuant to section 176 of the Companies Act, 1965; h) The Issuer shall not propose any resolution for its winding up or liquidation or take any action towards its winding up or liquidation; i) The Issuer shall not agree to any change to the terms and conditions of the Transaction Documents or agree to the exercise by TM, as Seller or Lessee, of any rights thereunder which may be prejudicial to the interest of the ABC Sukuk Holders or may affect TM’s ability to perform its obligations under the Transaction Documents; j) The Issuer shall not terminate, revoke, replace or suspend any of the Transaction Documents; k) The Issuer shall not vary or waive any terms or conditions of any of the Transaction Documents or grant any time or indulgence to or release or vary the liability of any person from time to time liable there under in any manner which may be prejudicial to the interest of the ABC Sukuk Holders or may affect its ability to perform its obligations under the Transaction Documents; l) The Issuer shall not transfer, assign, relinquish or otherwise dispose of any of its rights and interest under the Transaction Documents; or Page | 137
  142. m ) Reserve Amount : Such other negative covenants as may be advised by the Principal Adviser/Lead Arranger’s solicitors shall also apply. The Reserve Amount shall be an amount sufficient to provide cover for 18 months Periodic Distribution on the A Tranche Sukuk and 18 months cover on insurance, quit rent, assessment charges on the Property. The Reserve Account shall be fully funded to provide cover for 18 months Periodic Distribution on the A Tranche Sukuk and 18 months cover on insurance, quit rent, assessment charges on the Property upon declaration of a Termination Event and/or a Trigger Event. Transaction Accounts : The Issuer shall open transaction accounts comprising of a Fixed Rental Account, Additional Rental Account, Final Distribution Account I, Final Distribution Account II, Operations Account, Sub-Rental Account, Deposit Account, Wadiah Account and Reserve Account (“Transaction Accounts”) in an Islamic Bank under the Islamic Banking Act, 1983 or in an Islamic Deposit / Wadiah Account with a financial institution rated at least A3/P1 by Rating Agency Malaysia Berhad. The Transaction Accounts will be managed by the Transaction Administrator in accordance with the transaction documents and Cashflow Waterfall. Permitted Investments : Any surplus fund standing to the credit of the Transaction Accounts may be invested in Permitted Investments provided that the Permitted Investments shall mature at least 5 business days before the next ABC Sukuk Periodic Distribution payment date. Permitted Investments shall comprise investment in any one of the following: - any Islamic securities denominated in ringgit Malaysia which is rated a minimum of AA3/P1 by RAM; - any Islamic securities denominated in ringgit Malaysia issued by the Federal Government, BNM, Khazanah Nasional Berhad; - any Islamic securities denominated in ringgit Malaysia guaranteed by the Federal Government or BNM; - Cagamas Islamic securities and notes as long as they are rated at least AA3 or P1 by RAM; - short term Islamic securities which are rated P1 by RAM; Mohamed Ridza & Co. Page | 138
  143. - Islamic deposits , negotiable certificates of deposits issued by financial institutions and rated at least AA3 or P1 by RAM; - any other Islamic investments as approved by RAM. Trigger Events : Trigger Events shall comprise of any of the followings: a) one (1) business day after declaration of a Termination Event under the Master Ijarah Agreement in the event the C Tranche Sukuk Holders do not exercise either of the options as set out in Item 2(j)(ii)(b) herein one (1) business day after the declaration of a Termination Event; or b) twelve (12) months after declaration of a Termination Event if the Special Funding option as set out in Item 2(j)(ii)(b)(ii) is exercised; or c) if any one of the options as set out in Item 2(j)(ii)(b) is exercised and the C Tranche Sukuk Holders fails to comply with the terms and conditions as set out thereto; or d) failure to maintain at all times in the Reserve Account the required Reserve Amount , net of Security and Utility Deposits. On the occurrence of a Trigger Event, the Issuer shall repossess all the Properties. The ABC Sukuk Holders shall make a determination on such sale of the Properties in accordance with the following voting rights of each of the ABC Sukuk Holders as follows:- Mohamed Ridza & Co. (i) A1 Tranche Sukuk Holders will have 51% share of the voting rights; (ii) A2 Tranche Sukuk Holders will have [18%] share of the voting rights; (iii) A3 Tranche Sukuk Holders will have [10%] share of the voting rights; (iv) A4 Tranche Sukuk Holders will have [7%] share of the voting rights; (v) B Tranche Sukuk Holders will have [5%] share of the voting rights; (vi) C Tranche Sukuk Holders will have [9%] share of the voting rights. Page | 139
  144. Upon the A1 Tranche Sukuk being fully redeemed , the voting rights of the A1 Tranche Sukuk Holders shall be assumed by the A2 Tranche Sukuk Holders. Upon the A2 Tranche Sukuk being fully redeemed, the voting rights of the A2 Tranche Sukuk Holders shall be assumed by the A3 Tranche Sukuk Holders. Upon the A3 Tranche Sukuk being fully redeemed, the voting rights of the A3 Tranche Sukuk Holders shall be assumed by the A4 Tranche Sukuk Holders. In the event all of A Tranche Sukuk being fully redeemed pursuant to item 2(c)(3), the ABC Sukuk Holders shall make a determination on such sale of the Properties in accordance with the following voting rights:(i) B Tranche Sukuk Holders will have 5% share of the voting rights; (ii) C Tranche Sukuk Holders will have 95% share of the voting rights. Proceeds from the sale of the Properties shall be utilised in the following order of priority: (a) Firstly, towards expenses related to the sale of the Properties; (b) Secondly, towards redemption of A1, A2 A3 and A4 Tranche Sukuk on a sequential basis; (c) Thirdly, towards payment of the accumulated, accrued and deferred periodic distribution amount due to the C Tranche Sukuk Holders; (d) Fourthly, towards redemption of C Tranche Sukuk on pari passu basis; (e) Fifthly, towards redemption of any outstanding B Tranche Sukuk on pari passu basis; (f) Sixthly, towards repayment of any qard facility provided by the C Tranche Sukuk Holders in the exercise of any of the options under Item 2(j)(ii)(b); and (g) Seventhly, towards profit share/additional distribution to C Tranche Sukuk Holders. Any of the Properties not sold, subject to full redemption of A Tranche Sukuk, will be dealt with in a manner to be decided by C Tranche Sukuk Holders. Mohamed Ridza & Co. Page | 140
  145. Voting Rights of the ABC Sukuk Holders : The voting rights of the respective ABC Sukuk holders shall be as set out below:(i) On the occurrence of a Trigger Event whereby the ABC Sukuk Holders shall make a determination on such sale of the Properties; or (ii) For the declaration of a Termination Event under the Master Ijarah Agreement; or (ii) On the occurrence of a Total Loss Event whereby the ABC Sukuk Holders shall make a determination on whether to reconstructed the affected Property(ies) or to utilise the Takaful proceeds to redeem the outstanding Sukuk the respective ABC Sukuk Holders’ voting rights shall be as follows: (a) A1 Tranche Sukuk Holders will have 51% share of the voting rights; (b) A2 Tranche Sukuk Holders will have [18%] share of the voting rights; (c) A3 Tranche Sukuk Holders will have [10%] share of the voting rights; (d) A4 Tranche Sukuk Holders will have [7%] share of the voting rights; (e) B Tranche Sukuk Holders will have [5%] share of the voting rights; (f) C Tranche Sukuk Holders will have [9%] share of the voting rights. In any other circumstances, unless otherwise specified in the Transaction Documents, the voting rights of the ABC Sukuk Holders shall be in accordance with the percentage of beneficial ownership held by the respective Sukuk Holders. Each Tranche of Sukuk Holders will vote as a class ie the majority within the respective Tranche will be the decision of the particular Tranche of Sukuk Holders. The B Tranche Sukuk Holders shall have the sole discretion to approve the appointment of the Replacement Lessee. Mohamed Ridza & Co. Page | 141
  146. Cashflow Waterfall : Please refer to Attachment A. Any surplus in the Transaction Accounts after, inter-alia, paying taxes, Costs, Periodic Distribution on the ABC Tranche Sukuk, Final Distribution on the ABC Tranche Sukuk, maintenance, quit rent, assessment and insurance on the Property shall be distributed as profit share to C Tranche Sukuk Holders Limited Recourse : The recourse of the ABC Sukuk Holders to the Issuer shall be limited to the amount realizable from the trust assets determined in the manner provided in paragraph (2)(h) above, in accordance with the ranking and priority between the ABC Sukuk Holders set out therein. In the event that there is any shortfall between the amounts payable to the ABC Sukuk Holders and the realizable value of the trust assets, such shortfall shall be extinguished upon the liquidation of the trust assets and the ABC Sukuk Holders shall have no further claims against the Issuer in respect thereof. In line with such limited recourse, the ABC Sukuk Holders shall not be entitled to present a petition for the winding-up of the Issuer and shall only be entitled to seek recourse from the trust assets. Terms and conditions of the sale and purchase of the property : Please refer to the attached Sale and Purchase Agreement term sheet. Terms and conditions of the lease : Please refer to the attached Master Ijarah Agreement term sheet. Transaction Documents : 1. Sale and Purchase Agreement; 2. Master Ijarah Agreement; 3. Transfer Documents; 4. Property Management Agreement; 5. Declaration of Trust; 6. Trust Deed; 7. Sukuk Issuance Agreement; 8. Transaction Administration Agreement; 9. Security Documents; Mohamed Ridza & Co. Page | 142
  147. 10 . Depository and Paying Agency Agreement; 11. Sukuk; 12. Share Trustee Agreement. Jurisdiction : The Issuer shall unconditionally and irrevocably submit to the exclusive jurisdiction of the courts of Malaysia. Governing Law : Laws of Malaysia. Enforcement : The Trustee shall not be obliged to take any action against the Issuer or the Originator under the Transaction Documents following the occurrence of a Trigger Event or a Termination Event under the Lease or a Dissolution Event under the Sukuk unless so directed by the ABC Sukuk Holders and then only if and to the extent indemnified to its satisfaction. Purchase and Cancellation : Except as may otherwise be prohibited by any law, regulations or guidelines, the Issuer may at any time purchase the Sukuk in the open market and if it does so it may hold such Sukuk, sell such Sukuk or cancel such Sukuk at its discretion. Such Sukuk while held by or on behalf of the Issuer shall not entitle the holder(s) to vote at any meeting of the holders of the Sukuk but shall be included for the purposes of calculating the required quorum at meetings of holders of the Sukuk. Taxation : All payments or distributions by the Issuer in respect of the Sukuk shall be made subject to any withholding or deductions for or on account of any present and future tax, duty, or charge of whatsoever nature imposed or levied by law or on behalf of any authority having power to tax, and the Issuer shall not be required to gross up in connection with such withholding or deduction on these payments or distributions. Incidental Expenses and Legal Fees : TM, as Seller, will undertake to bear all legal costs, consultant/professional fees, taxes and out of pocket expenses (including the fees of the Trustee, the Facility Agent, the SC, rating agencies and BNM) in connection with the issue of the Sukuk and for the duration of the tenor of the Sukuk. Mohamed Ridza & Co. Page | 143
  148. 2FINAL Information Memorandum - 13 Dec 07 (clean) ATTACHMENT A - Cashflow Waterfall Scenario Fixed Rental Account Additional Rental Account Final Distribution Account I (for redemption of B Tranche Sukuk) Final Distribution Account II (for redemption of A and C Tranche Sukuk or Reconstruction of the Properties) Operations Account Reserve Account Deposit Account Wadiah Account Normal operatio ns Inflow: • Rent Inflow: Rent (if any) • Inflow: • Transfer from Fixed Rental Account • [Transfer from Wadiah Account] Inflow: • Proceeds from sale of properties • Insurance proceeds (if any) • Any excess from Fixed Rental, Additional Rental and Reserve Accounts • Transfer from Wadiah Account Inflow: • Reimbursement of maintenance charges and assessment • Transfer from Reserve Account • Transfer from Additional Rental Account • Monies from C Tranche Sukuk Holders in the exercise of any of the options as set out in Item 2(j)(ii)(b) herein for the purpose of paying the Senior Costs Inflow: • [Proceeds from issuance] • Monies from C Tranche Sukuk Holders in the exercise of any of the options as set out in Item 2(j)(ii)(b) herein for the purpose of paying the Periodic Distribution Inflow: Deposit • from Lessee Inflow: o Monies paid the Seller pursuant to item 2(j)(iv) herein Outflow: On Periodic Distribution payment date • First, payment of taxes and/or the Issuer’s running costs, if any Outflow: • Transfer to Operations Account • Excess, if any, at end of lease is transferred to Final Outflow (on Periodic Distribution payment date): • Final Distribution of B Tranche Sukuk Outflow (as and when due): • Final Distribution of A1 A2, A3 and A4 Tranche Sukuk on sequential basis • Payment of any accrued Periodic Distribution on C Outflow: Outflow: • Transfer to Operations Account to pay senior costs • Excess, if any, at end of lease is Outflow: • Return to Lessee at end of lease term Outflow: • If nonregistration relates to Menara TM, transfer to [Final Distribution Account I Mohamed Ridza & Co. Monthly: • Maintenance charges • Quit rent, assessment, insurance Page | 144
  149. 2FINAL Information Memorandum - 13 Dec 07 (clean) • Second, Periodic Distribution on B Tranche Sukuk on pari passu basis and A1 A2, A3 and A4 Tranche Sukuk on sequential basis • Third, transfer to Final Distribution Account I, in accordance with Table A • Fourth, Periodic Distribution on C Tranche Sukuk on pari passu basis • Fifth, payment of any accrued Periodic Distribution on C Tranche Sukuk, if any, on parri pasu basis • Excess, if any, at end of lease is transferred to Final Distribution Account II Mohamed Ridza & Co. Distribution Account II Tranche Sukuk, if any, on parri pasu basis • Final Distribution on C Tranche Sukuk • Repayment of any financing offered to the Issuer by the C Tranche Sukuk Holders pursuant to the exercise of the options as set out in Item 2(j)(ii)(b) • Profit share to C Tranche Sukuk (whenever due) On Periodic Distribution payment date transferred to Final Distribution Account II • Senior costs • Any other expenses • Page | 145 and] Final Distribution Account II upon the expiry of the Rectificatio n Period or the Extension Period (where granted) for purposes of redemption of A, B and C Tranche Sukuk only If nonregistration relates to Properties other than Menara TM, transfer the amount as set out in Column 2, Table B below to Final Distribution Account II five (5) business days before the Expected Maturity Date of A Tranche Sukuk for purposes of
  150. 2FINAL Information Memorandum - 13 Dec 07 (clean) • • Mohamed Ridza & Co. Page | 146 redemption of A Tranche Sukuk only; such monies to be transferred upon the expiry of the Rectificatio n Period or Extension Period (where granted) If nonregistration relates to Properties other than Menara TM, to redeem C Tranche Sukuk at the end of the Rectificatio n Period or Extension Period (where granted) and upon receipt of monies in the Wadiah Account If registration is perfected within the Rectificatio
  151. 2FINAL Information Memorandum - 13 Dec 07 (clean) n Period or the Extension Period (where granted), the monies will be refunded to the Seller. Mohamed Ridza & Co. Page | 147
  152. 2FINAL Information Memorandum - 13 Dec 07 (clean) Scenario Upon occurrenc e of Trigger Event, sale of Property and Event of Default Rental Account Final Distribution Account I (for redemption of B Tranche Sukuk) Final Distribution Account II Operations Account Reserve Account Deposit Account Sub-Rental Account Wadiah Account (for redemption of A and C Tranche Sukuk) Inflow: • Transfer from Reserve Account to pay Periodic Distribution on A Sukuk Inflow: • Transfer from SubRental Account • Transfer from Final Distribution Account II • All monies received from TM (as Lessee) pursuant to the Issuer’s exercise of remedies available to it under the Master Ijarah Agreement • [Transfer from Wadiah Account] Inflow: • Sale of Property • Transfer from Final Distribution Account I • Transfer from Wadiah Account Inflow: • Transfer from Reserve Account • All monies received pursuant to any claims made under the Property Managem ent Agreemen t Inflow: • Transfer from Deposit Account Inflow: • Deposit from Lessee Inflow: • Rental from sublessee Inflow: o Monies paid the Seller pursuant to item 2(j)(iv) herein Outflow: • Periodic Distribution on A1, A2, A3 and A4 Tranche Sukuk on sequential basis Outflow: • • Firstly, Periodic Distribution on B Tranche Sukuk (where applicable) • Secondly, redemption of B Tranche Sukuk on a pari passu basis (if not previously redeemed) • Excess, if any, is transferred to Final Distribution Account II Outflow: • Firstly, expenses related to sale of Property • Secondly, redemption of A1, A2 A3 and A4 Tranche Sukuk on a sequential basis • Thirdly, payment of accumulated, accrued and deferred periodic distribution amount due to the A and C Sukuk Holders Outflow: • Senior costs, quit rent, assessment , insurance Outflow: • Firstly, transfer to Operation Account to pay senior costs, quit rent, assessment and insurance • Secondly, transfer to Rental Account to pay Periodic Distribution on A Tranche Sukuk Outflow: • Transfer to Reserve Accou nt Outflow: • Transfer to Final Distribution Account I Outflow: • Transfer to Final Distribution Account [I and] II Mohamed Ridza & Co. Page | 148
  153. 2FINAL Information Memorandum - 13 Dec 07 (clean) • Fourthly, redemption of C Tranche Sukuk on pari passu basis • Fifthly, transfer surplus to Final Distribution Account I • Sixthly, profit share to C Tranche Sukuk Holders Note: All the accounts are to be Syariah-compliant non-interest bearing accounts opened and maintained by the Issuer. Mohamed Ridza & Co. Page | 149
  154. 2FINAL Information Memorandum - 13 Dec 07 (clean) Table A: RM (million) Year 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 [0] [2.0] [2.0] [2.0] [2.0] [2.0] [12.0] [12.0] [13.0] [13.5] [13.5] [26.0] [27.0] [28.0] [0] [0] Table B: (1) AFFECTED PROPERTIES (i) Menara Celcom (ii) Cyberjaya Complex (iii) Wisma TM Taman Desa (2) Amount to be utilised for redemption of A Tranche Sukuk on its Expected Maturity Date [RM (million)] [72.9] [12.7] [14.5] Note : The amount shall be determined prior to issuance of the Sukuk. Mohamed Ridza & Co. Page | 150
  155. ATTACHMENT B Description of the structure of the securitisation transaction Class A Sells Property TM (Seller / Master Lessee) Lease Agreement Menara ABS Berhad (Lessor) Sub-lease Agreement Issues Sukuk Certificates Class B Class C Tenants A. Transaction Structure Transaction Parties Issuer – Menara ABS Berhad 1. Menara ABS Berhad is a special purpose company with an issued and paidup share capital of RM2.00. It was incorporated under the Companies Act, 1965 to act as the Issuer in relation to the issuance of the Sukuk, holder of the Properties on trust for the Sukuk holders, and Lessor in relation to the properties leased to TM, in the securitisation transaction. The shares of Menara ABS Berhad are held by PB Trustee Services Berhad on a discretionary trust for the benefit of Malaysian charities. 2. Menara ABS Berhad has been structured to meet the requirements of the Securities Commission’s Guidelines on Asset-Backed Securities. Originator – Telekom Malaysia Berhad 3. Telekom Malaysia Berhad (“TM”) was incorporated under the Companies Act, 1965 as a public company limited by shares on 12 October 1984 in Malaysia. TM was incorporated under the name of Syarikat Telekom Malaysia Berhad as a successor to Jabatan Telekom Malaysia. TM changed to its present name on 6 June 1991 4. TM’s principal activities are the establishment, maintenance and provision of telecommunication and related services under the licence issued by the Ministry of Energy, Water and Communications. Mohamed Ridza & Co. Page | 151
  156. Lease Term Year 12 Year 0 Lease Commence Year 12 Mth 3 Year 13 Lease Expiry (Vacate if TM did not purchase properties or renew lease) Offer TM the rights of first refusal to renew lease TM’s decision to accept lease renewal offer. If no decision is made, continue until expiry and vacate. Lessor could offer rights of first refusal to sell properties to TM. Year 15 • • If purchase, remit payment 5 days before year 13. • Option to renew lease lapsed. If renew lease, refinancing scheme should be in place by end yr-13. Description of the Properties 1. The description of the underlying Properties for the securitisation transaction is as follows: (i) Menara TM - located at Jalan Pantai Baharu, 50672 Kuala Lumpur, Malaysia. Menara TM has a freehold tenure status. (ii) Menara Celcom - located at Jalan Raja Muda Abdul Aziz, 50300 Kuala Lumpur. Menara Celcom has a leasehold tenure status for a term of 99 years expiring on December 10, 2087. (iii) Cyberjaya Complex - located at Lingkaran Usahawan 1 Timur, 63000 Cyberjaya, Selangor. Cyberjaya Complex has a freehold tenure status. (iv) Wisma TM Taman Desa - located at Taman Desa, Jalan Desa Utama, 58100 Kuala Lumpur. Wisma TM has a freehold tenure status. Description of the Structure A. The Sale and Purchase Transaction 1. Menara ABS Berhad buys the Properties from TM at an aggregate appraised fair market value of up to RM1,100 million in reference to a valuation performed by Henry Butcher Sdn Bhd. The terms and conditions of the sale and purchase agreements in relation to the Properties are attached as Annexure A of Attachment B (Sale and Purchase Agreement term sheet) 2. Menara ABS Berhad, under the Declaration of Trust, creates a Trust in favour of 3 classes of beneficiaries, namely A Tranche, B Tranche and C Tranche. These 3 classes of beneficiaries are essentially the A, B and C Tranche Sukuk (Trust Certificates) (collectively the “ABC Sukuk”) holders. Mohamed Ridza & Co. Page | 152
  157. B . The Lease Transaction 1. Following the purchase of the Properties, Menara ABS Berhad will enter into a Master Ijarah Agreement whereby Menara ABS Berhad (as Lessor) shall immediately lease the Properties back to TM (as Lessee) for a 15-year period under the Ijarah principles in consideration of periodic lease rentals being paid by TM. (The sub-tenants’ existing lease arrangements with TM remain unchanged). 2. The pertinent terms of the lease is a follows: (i) 15 year operating lease between Menara ABS Berhad (as Lessor) and TM (as Lessee). (ii) Lease agreement will set out the terms and conditions under which the Lessee will have the right to possess, use and operate the Properties during the Lease term. (iii) Lease rental will be set at arms length and based on commercial terms. (iv) The Properties will be managed and maintained by a property manager whose duties and functions include overseeing and supervising the maintenance work and ensuring that the Properties are kept in good repair, and ensuring compliance with provisions of all regulations and laws, licences, permissions and consents provided under such regulations and laws. 3. By end of Year 12 Menara ABS Berhad (as Lessor) shall offer TM (as Lessee) the right of first refusal to renew the lease over all the Properties on market terms (Lease Option). This Lease Option is exercisable by TM within three (3) months. 4. Menara ABS Berhad may at any time during the period thirty-three (33) months prior to expiration of the Lease Term under the Master Ijarah Agreement, at its discretion, offer TM the right of first refusal to purchase all or any one of the Properties with the purchase price determined in reference to the then fair market value (Purchase Option). Upon TM choosing not to exercise or if exercised but do not materialized, the right to purchase such Properties, Menara ABS Berhad shall have the right to sell such Properties to interested third party(ies) on the condition that such sale is subject to TM’s lease over such Properties and its rights over such Properties as set out in the Master Ijarah Agreement remaining intact. 5. Where the Lease Option or the Purchase Option (when offered) is not exercised or if exercised, but do not materialised, TM will have to vacate the Properties. 6. The terms and conditions of the Master Ijarah Agreement is attached as Annexure B of Attachment B (Master Ijarah Agreement term sheet). C. The Sukuk Issuance 1. To fund the purchase of the Properties from TM, Menara ABS Berhad issues the ABC Sukuk amounting to up to RM1,100 million. Mohamed Ridza & Co. Page | 153
  158. 2 . Menara ABS Berhad utilises rental proceeds received from TM to pay periodic distribution (coupon) to the ABC Sukuk Holders. Any surplus rentals after the periodic distribution payment are used to redeem B Tranche Sukuk. The B Tranche Sukuk are redeemed at end of Year 7, Year 10 and Year 13. 3. Menara ABS Berhad is expected to redeem the Sukuk from A Tranche and C Tranche Sukuk Holders at end of Year 13 from the proceeds from sale of the Properties, otherwise the Sukuk would be redeemed no later than end of Year 15. 4. Any surplus in the trust account after the ABC Sukuk redemption will be distributed to the C Tranche Sukuk Holders as profit share/additional distribution. Description of the Classes of Sukuk 1. The Sukuk issued by Menara ABS Berhad comprises of the following classes and tranches: (i) (ii) (iii) 2. A Tranche Sukuk comprising A1, A2, A3 and A4 Tranches; B Tranche Sukuk comprising B1, B2 and B3 Tranches; and C Tranche Sukuk comprising a single C Tranche. The description of the Sukuk are as follows: (i) A Tranche Sukuk - - - Has first priority in the rights, benefits and interests in the Properties over B Tranche and C Tranche Sukuk. Has second priority over the lease rentals, after B Tranche Sukuk. Within A Tranche Sukuk, A1 Tranche Sukuk will have priority in the rights, benefits and interests in the Properties and lease rentals over A2 Tranche Sukuk. A2 Tranche Sukuk will have priority in the rights, benefits and interests in the Properties and lease rentals over A3 Tranche Sukuk. A3 Tranche Sukuk will have priority in the rights, benefits and interests in the Properties and lease rentals over A4 Tranche Sukuk. Within each of the A Tranche, the rights shall rank pari passu. A1 Tranche Sukuk achieve an indicative rating of AAA, A2 Tranche Sukuk an indicative rating of AA2, A3 Tranche Sukuk an indicative rating of [A1] and A4 Tranche Sukuk an indicative rating of [A2]. The periodic distribution amount (coupon) comes from lease rentals. A Tranche Sukuk Holders take refinancing risk or sale of Properties at the end of the lease term for their Final Distribution (principal repayment). The A Tranche Sukuk shall be redeemed at face value:(i) Mohamed Ridza & Co. subject to the Issuer’s receipt of the monies from C Tranche Sukuk Holders by way of an unsecured qard facility as described in further detail below and Item 2(j)(ii)(b) one (1) business day after the declaration of a Termination Event under the Master Ijarah Agreement. The Issuer shall redeem the A Tranche Sukuk by giving the A Tranche Sukuk Holders seven (7) business days prior written notice of its intention to redeem the A Tranche Sukuk; or Page | 154
  159. (ii) (iii) (ii) B Tranche Sukuk - - - - (iii) on the Expected Maturity Date of A Tranche Sukuk subject to the Issuer’s receipt of the monies from C Tranche Sukuk Holders by way of an unsecured qard facility as described in further detail below and Item 2(j)(ii)(b) at any time prior to the Expected Maturity Date of A Tranche Sukuk; or subject to the Issuer’s receipt of the monies from C Tranche Sukuk Holders by way of an unsecured qard facility as described in further detail below and Item 2(j)(ii)(b) at any time upon the occurrence of a Total Loss Event (but prior to the conduct of the meeting of the Sukuk Holders as referred to in item (2)(j)(b)(iii). The Issuer shall redeem the A Tranche Sukuk by giving the A Tranche Sukuk Holders seven (7) business days prior written notice of its intention to redeem the A Tranche Sukuk. Has first priority over the lease rentals and the right to claim through the Lessor for the loss payable by TM pursuant to the remedies provision under Section D, Item 19 of Attachment B-Annexure BMaster Ijarah Agreement Term Sheet. Has last priority after A Tranche and C Tranche Sukuk Holders in the rights, benefits and interests in the Properties (i.e. subordinated to A Tranche Sukuk and C Tranche Sukuk) Within B Tranche Sukuk, B1, B2 and B3 Tranche Sukuk rank pari passu in the rights, benefits and interests in the Properties and the lease rentals. B Tranche Sukuk achieve an indicative rating of AAA. The B Tranche Sukuk shall be redeemed at face value subject to the Issuer’s receipt of the monies from C Tranche Sukuk Holders by way of an unsecured qard facility as described in further detail below and Item 2(j)(ii)(b) at any time upon the occurrence of a Total Loss Event (but prior to the conduct of the meeting of the Sukuk Holders as referred to in item (2)(j)(iii)(b). The Issuer shall redeem the B Tranche Sukuk by giving the B Tranche Sukuk Holders seven (7) business days prior written notice of its intention to redeem the B Tranche Sukuk. The periodic distribution amount (coupon) and Final Distribution (amortisation amount) comes from lease rentals. C Tranche Sukuk - - Takes second priority over the rights, benefits and interests in the Properties after A Tranche Sukuk, and last priority over the lease rentals after B Tranche and A Tranche Sukuk. Enjoys any upside in the value of the Properties after redemption of the A Tranche and B Tranche Sukuk. Within C Tranche Sukuk, the C Tranche Sukuk Holders shall rank pari passu amongst themselves. Redemption of C Tranche Sukuk may be in cash or in kind at the option of the C Tranche Sukuk Holders or may be satisfied by way of a transfer of the shares in Menara ABS Berhad to the C Tranche Sukuk Holders on the condition that A Tranche Sukuk is fully redeemed. Menara ABS Berhad is to be liquidated within twelve (12) months from the date of transfer of the shares in Menara ABS Berhad to C Tranche Sukuk Holders or the redemption of C Tranche Mohamed Ridza & Co. Page | 155
  160. - Sukuk Holders and during such interim period prior to liquidation , the purpose of Menara ABS Berhad shall not be changed. C Tranche Sukuk are not rated and shall not be transferable. C Tranche Sukuk are held by Sukuk Holders who will take a view on the future market value of the Properties. Subject to the Issuer’s receipt of the monies from C Tranche Sukuk Holders by way of an unsecured qard facility as described in further detail below and Item 2(j)(ii)(b), the Issuer shall redeem:(a) the A Tranche Sukuk at face value on the following events:(i) one (1) business day after declaration of a Termination Event under the Master Ijarah Agreement; or (ii) at the Expected Maturity Date of the A Tranche Sukuk; and (iii) on the occurrence of a Total Loss Event. (b) the B Tranche Sukuk at face value on the occurrence of a Total Loss Event. The monies shall be deposited by the C Tranche Sukuk Holders by way of an unsecured qard facility which will be subordinated to the redemption of all Sukuks but with priority over the distribution of profit share/ additional distribution to C Tranche Sukuk Holders; 3. The breakdown amount for the different Sukuk tranches is as follows: Sukuk Tranches Mohamed Ridza & Co. A1 A2 A3 A4 B1 B2 B3 C Issue size (RM million) Up to 240 55 40 10 30 40 85 600 Total 1,100 Legal Maturity (Years) 15 15 15 [15] 7 10 13 15 Page | 156
  161. ATTACHMENT B - ANNEXURE A Sale and Purchase Agreement Term Sheet Principal Terms and Conditions A . PARTIES TO THE TRANSACTION 1. Seller / Originator : Telekom Malaysia Berhad (the “Seller” or “TM”). 2. Issuer : Menara ABS Berhad 3. Valuer : Henry Butcher Malaysia Sdn Bhd. : (i) Menara TM Description : HSM 3885, Lot PT 3901, Jalan of Title Pantai Baru, Mukim Kuala Lumpur, Daerah Kuala Lumpur. B. 1. THE PROPERTIES The Properties Postal Address (ii) Menara TM, Jalan Pantai Baharu, 50672 Kuala Lumpur, Malaysia. Menara Celcom Description of Title : HSD 64439, Lot PT 24 Seksyen 87A, Jalan Semarak, Bandar dan Daerah Kuala Lumpur. Postal Address : Menara Celcom, 82, Jalan Raja Muda Abdul Aziz, 50300 Kuala Lumpur (iii) Cyberjaya Complex Description of Title : A portion of the Cyberjaya Complex land situated on master title HSD 7791, Lot PT 12056, Mukim Dengkil, Daerah Sepang. Postal Address : Komplek TM Cyberjaya, 3300, Lingkaran Usahawan 1 Timur, 63000 Cyberjaya, Selangor (iv) Mohamed Ridza & Co. : Wisma TM Taman Desa Description of Title : HSD 71280, Lot PT 3569, Mukim Kuala Lumpur, Daerah Kuala Lumpur. Postal Address : Wisma TM Taman Desa, Jalan Desa Utama, 58100 Kuala Lumpur. Page | 157
  162. 2 . Property Value : The combined appraised fair market value of the Properties with a long term lease in reference to a valuation conducted by the valuer as at 22, May, 2007 is expected to be RM1,029.4 Million, with the individual market value for each of the Properties being as follows:(a) (b) (c) (d) 3. C. 1. D. 1. Valuation Menara TM RM817.53 million; Menara Celcom RM147.92 million; Cyberjaya Complex RM33.52 million; Wisma TM RM30.44 million. : The Valuer will perform, on behalf of the Seller and for the benefit of the Issuer, a valuation of all the Properties and will issue a report (the “Valuation”) at least five (5) days prior to the execution of the Sale and Purchase Agreement, The Valuation shall be used as a reference for determining the Purchase Price of all the Properties. : The date on which the Memorandum of Transfer is presented at the relevant land offices and/or Deed of Assignment is perfected (where applicable) and full payment of the Purchase Price is paid by the Issuer to the Seller, which date will coincide with the Issue Date under the Sukuk. KEY DATES AND TENORS Completion Date TERMS RELATED TO THE TRANSACTION Purchase Price : The Purchase Price refers to the total price payable by the Issuer for the purchase of the Properties from the Seller, such price to be determined at least five (5) days prior to execution of the Sale and Purchase Agreement. The Purchase Price shall at all times comply with the Securities Commission’s Syariah Advisory Council Pricing Guidelines. 2. Apportionment of quit rent and assessment : All quit rent, assessment and other outgoings pertaining to each of the Properties shall be borne by the Seller prior to the Completion Date and thereafter shall be borne by the Issuer. 3. Conditions Precedent : Conditions and clauses standard for transactions of this nature but not limited to the following are to be fulfilled within a period of six (6) months from the date Mohamed Ridza & Co. Page | 158
  163. of the Sale and Purchase Agreement :(a) submission by both the Seller and the Issuer to the Principal Adviser/Lead Arranger of the following:(i) certified true copy of the resolution of their respective Board of Directors (and shareholders’ resolution (if applicable) authorizing the execution of and carrying out of all the respective obligations of the Seller and the Issuer under the Sale and Purchase Agreement; and (ii) 4. Representations Warranties Mohamed Ridza & Co. and : certified true copies of their respective certificate of incorporation, memorandum and articles of association together with Forms 24, 44 and 49. (b) in relation to Menara Celcom, consent from Jawatankuasa Kerja Tanah Wilayah Persekutuan Kuala Lumpur to the transfer of Menara Celcom by the Seller to the Issuer upon such terms and conditions as may be imposed by the relevant authorities (hereinafter referred to as the “Consent to Transfer”); (c) in relation to the Cyberjaya Complex, approval from the relevant authorities for the subdivision of the land and the surrendering of the Master Title on which the Cyberjaya Complex is located to the relevant authorities for sub-division purposes. Standard representations and warranties for a transaction of this nature which shall include, but not be limited to: (i) each of Issuer/ Seller is a company duly established and existing under Malaysian law and it has the power and authority to enter into the business in which it is or proposes to be engaged; (ii) each of Issuer/ Seller has the power to enter into, exercise their rights under and perform its obligations under the Sale and Purchase Agreement; (iii) all the necessary corporate approvals or authorisations to enter into the Sale and Purchase Agreement have been obtained and are in full force and effect; Page | 159
  164. 5 . Seller’s Covenants Mohamed Ridza & Co. : (iv) each of Issuer’s/ Seller’s entry into, exercise of their rights under and performance of the Sale and Purchase Agreement do not and will not violate any existing law or documents to which they are parties; (v) the Sale and Purchase Agreement and the Transfer Documents create valid and binding obligations which are enforceable on and against the Issuer and the Seller as the case may be; (vi) to the best of the Seller’s knowledge, no litigation or arbitration is current or threatened, which if adversely determined would have a material adverse effect on the ability of the Seller to comply with the provisions of the Sale and Purchase Agreement. (vii) All statements and/or information furnished by the Seller to the Issuer in relation to any of the Properties (including all mechanical and electrical equipments and services located on the Properties) shall be true and accurate. The Seller covenants to the Issuer that as at the date of the Sale and Purchase Agreement and at the Completion Date: (i) it has not received any notices, from any federal, state or local government authority or statutory board which remain outstanding and which will or may prejudice or adversely affect the present or continued use and enjoyment by the Seller and, after the sale, by the Issuer of the legal/beneficial ownership in the Properties or which will or may subject the Properties to any onerous charge or liability, and that the Seller shall immediately give notice to the Issuer of any such notices orders or requirements it receives from any federal, state, local government authority or statutory board at any time after the date of the Sale and Purchase Agreement; (ii) there are and will be no claims adversely affecting the Seller’s title or rights to possession of the Properties; (iii) at the request of the Issuer, in the case of any proceedings prior to or on the Completion Date relating to the Issuer’s legal and/or beneficial title, rights and/or interest in and to the Properties, the Seller shall, at its own expense if such arises by reason of its breach of any term of the Sale and Purchase Page | 160
  165. Agreement , but otherwise at the Issuer’s expense, participate in any such legal proceedings in respect of the Properties and defend any right of the Issuer in respect of the Properties, to the full extent permitted under the laws of Malaysia; 6. Non-perfection of legal transfer : (iv) it shall indemnify the Issuer from and against any and all damages, losses, claims, liabilities, costs and expenses, including attorneys' fees and disbursements awarded against or incurred by the Issuer in any action or proceeding prior to or on the Completion Date between the Seller and the Issuer or between the Issuer and any third party or otherwise arising out of or as a result of the Sale and Purchase Agreement and/or the legal / beneficial ownership of the Properties prior to or on the Completion Date; and (v) it shall be capable of vesting in the Issuer a perfected legal / beneficial ownership of the Properties, free and clear of any encumbrances and shall not attempt to avoid, rescind or set-aside any transfer of ownership to the Issuer of any of the Properties. (vi) it shall one (1) day prior to the Completion Date (but not earlier) provide the original Document of Titles to the Properties and any other necessary documents to the Issuer for the presentation of the same at the relevant land offices on the Completion Date; (vii) it is not in breach of any of the express or implied conditions of title to the respective Properties; (viii) there are no restrictions contained in any agreements to which the Seller is a party thereto to the sale and transfer of the Properties to a third party; (ix) all quit rent, assessment, charges, rates and other outgoings in respect of the Properties have been duly paid up to Completion Date. In the event that any of the Transfer Documents cannot be registered and/or perfected in favour of the Issuer for whatever reason within the following periods:(iii) Mohamed Ridza & Co. in relation to all the Properties except the Cyberjaya Complex, within [nine (9) months] from the date of presentation at the relevant Page | 161
  166. land office ; and (iv) in relation to the Cyberjaya Complex, within [twelve (12) months] from the date of presentation at the relevant land office, the Seller and/or the Issuer shall be given a period of thirty (30) days to rectify such matters relating to the reason for the non-registration and/or non-perfection (“Rectification Period”). In the event the non-registration and/or nonperfection cannot and/or is not rectified within the Rectification Period, the ABC Sukuk Holders shall have the discretion to grant a one-time extension of such period. The voting rights of the respective ABC Sukuk Holders in deciding on the extension period shall be in accordance with the percentage of beneficial ownership of the Properties. Upon the expiry of the Rectification Period and the ABC Sukuk Holders decide not to grant any extension:(a) in the event the non-registration relates to Menara TM, the Seller shall undertake to buy back all the Properties (including Menara TM) at the original Purchase Price; (b) in the event the non-registration relates to Properties other than Menara TM, the Seller shall undertake to buy back the affected Property(ies) at the end of year-13 at a purchase price equivalent to the original purchase price of the affected Property(ies). Such purchase price will be paid by the Seller into an account to be opened by the Issuer (“Wadiah Account”) within three (3) business days of the expiration of the Rectification Period and upon the receipt of such purchase price, will be utilised as set out in Attachment A hereto; Upon the expiry of the Rectification Period if the ABC Sukuk Holders agree to grant an extension of the period (“Extension Period”), regardless of the nonregistration of whichever Property, the Seller shall, within three (3) business days from the expiration of the Rectification Period, pay an amount calculated in accordance with the Formula (as described below) into the Wadiah Account. Upon the expiry of the Extension Period:(a) Mohamed Ridza & Co. if Menara TM has yet to be registered, the Seller shall utilise the amount paid into the Wadiah Account to buy back Menara TM Page | 162
  167. and TM shall also buy back all the other Properties at a purchase price calculated according to the Formula ; (b) if Property(ies) other than Menara TM have yet to be registered, the Seller shall undertake to buy back the affected Property(ies) at the end of year-13 by utilising the amount paid into the Wadiah Account. Such purchase price will be utilised as set out in Attachment A hereto; The Formula means:Original Purchase Price of the relevant Property x [1 + (y)% (which is determined prior to issuance of the Sukuk)]. For the avoidance of doubt, any registration that takes effect after the Rectification Period or the Extension Period (where granted) shall not, unless otherwise agreed by the ABC Sukuk Holders, have any effect or impair the operations of the paragraphs above. In the case where the registration is made upon the expiry of the Extension Period (where granted), the Issuer shall refund the monies paid into the Wadiah Account to the Seller. In addition to the above, the Seller shall be liable for any costs and expenses incurred as a result of nonregistration and/or non-perfection of the Properties in favour of the Issuer . For avoidance of doubt, the terms “non-perfection” shall refer to non-registration of the Memorandum of Transfer for Properties with title and non-perfection of the Deed of Assignment for Properties without title. 7. Assignment 8. Sale and Documents E. 1. Purchase : The Seller shall not assign any of its rights and benefits in or under the Sale and Purchase Agreement without the prior written consent of the Issuer; : (i) Sale and Purchase Agreement; (iii) Transfer Documents comprising of the Memorandum of Transfer and/or Deed of Assignment (where applicable). OPERATIVE DOCUMENTS Sale and Agreement Mohamed Ridza & Co. Purchase : The Seller and the Issuer shall enter into a sale and purchase agreement wherein the Seller will sell and transfer to the Issuer the legal and/or beneficial title to Page | 163
  168. the Properties free from all claims and encumbrances but subject to existing conditions , affecting the Properties. The proceeds received by the Issuer from the issuance of the Sukuk will be used to pay the purchase price to the Seller for the acquisition of the Properties. Beneficial title to the Properties shall pass to the Issuer upon presentation of the Transfer Documents and/or perfection of the Deed of Assignment (where applicable), which will be on the Completion Date. With respect to the Properties for which documents of titles have been issued, legal title to the Properties will pass to the Issuer on registration of the Transfer Documents at the relevant land offices. As for Properties for which documents of titles have yet to be issued, a deed of assignment will be executed by the Seller in favour of the Issuer for the assignment of all rights, title, benefit and interest in such Properties to the Issuer. In the event that any of the Transfer Documents cannot for any reason whatsoever be perfected in favour of the Issuer, the Seller and/or the Issuer shall be given a period of thirty (30) days to rectify such matters relating to the reason for the non-perfection. In the event the non-registration and/or nonperfection cannot and/or is not rectified within the thirty (30) day period, the ABC Sukuk Holders shall have the discretion to grant a one-time extension of such period. The voting rights of the respective ABC Sukuk Holders in deciding on the extension period shall be in accordance with the percentage of beneficial ownership of the Properties. Upon the expiry of the Rectification Period and the ABC Sukuk Holders decide not to grant any extension:- Mohamed Ridza & Co. (a) in the event the non-registration relates to Menara TM, the Seller shall undertake to buy back all the Properties (including Menara TM) at the original Purchase Price; (b) in the event the non-registration relates to Properties other than Menara TM, the Seller shall undertake to buy back the affected Property(ies) at the end of year-13 at a purchase price equivalent to the original purchase price of the affected Property(ies). Such purchase price will be paid by the Seller into an account to be opened by the Issuer (“Wadiah Account”) within three (3) business Page | 164
  169. days of the expiration of the Rectification Period and upon the receipt of such purchase price , will be utilised as set out in Attachment A hereto; Upon the expiry of the Rectification Period if the ABC Sukuk Holders agree to grant an extension of the period (“Extension Period”), regardless of the nonregistration of whichever Property, the Seller shall, within three (3) business days from the expiration of the Rectification Period, pay an amount calculated in accordance with the Formula (as described below) into the Wadiah Account. Upon the expiry of the Extension Period:(a) if Menara TM has yet to be registered, the Seller shall utilise the amount paid into the Wadiah Account to buy back Menara TM and TM shall also buy back all the other Properties at a purchase price calculated according to the Formula; (b) if Property(ies) other than Menara TM have yet to be registered, the Seller shall undertake to buy back the affected Property(ies) at the end of year-13 by utilising the amount paid into the Wadiah Account. Such purchase price will be utilised as set out in Attachment A hereto; The Formula means:Original Purchase Price of the relevant Property x [1 + (y)% (which is determined prior to issuance of the Sukuk)]. For the avoidance of doubt, any registration that takes effect after the Rectification Period or the Extension Period (where granted) shall not have any effect on the application of the paragraphs above. In the case where the registration is made upon the expiry of the Extension Period (where granted), the Issuer shall refund the monies paid into the Wadiah Account to the Seller. In addition to the above, the Seller shall be liable for any reasonable costs and expenses incurred as a result of non-perfection of the Properties in favour of the Issuer. Mohamed Ridza & Co. Page | 165
  170. ATTACHMENT B - ANNEXURE B Master Ijarah Agreement Term Sheet A . PARTIES TO THE TRANSACTION 1. Lessee : Telekom Malaysia Berhad (the “Seller” or “TM”). 2. Lessor : Menara ABS Berhad 3. Property Manager : TM or any other party appointed by the Lessor which is acceptable to the Lessee. B. THE PROPERTIES : (i) 1. The Properties Description of Title : HSM 3885, Lot PT 3901, Jalan Pantai Baru, Mukim Kuala Lumpur, Daerah Kuala Lumpur. Postal Address : Menara TM, Jalan Pantai Baharu, 50672 Kuala Lumpur, Malaysia. (ii) : HSD 64439, Lot PT 24 Seksyen 87A, Jalan Semarak, Bandar dan Daerah Kuala Lumpur. Postal Address : Menara Celcom, 82, Jalan Raja Muda Abdul Aziz, 50300 Kuala Lumpur Mohamed Ridza & Co. : Cyberjaya Complex Description of Title : A portion of the Cyberjaya Complex land situated on master title HSD 7791, Lot PT 12056, Mukim Dengkil, Daerah Sepang. Postal Address : Komplek TM Cyberjaya, 3300, Lingkaran Usahawan 1 Timur, 63000 Cyberjaya, Selangor (iv) Property Value Menara Celcom Description of Title (iii) 2. Menara TM Wisma TM Taman Desa Description of Title : HSD 71280, Lot PT 3569, Mukim Kuala Lumpur, Daerah Kuala Lumpur. Postal Address : Wisma TM Taman Desa, Jalan Desa Utama, 58100 Kuala Lumpur. All the above properties will be held by the Lessor in an undivided portfolio (“Portfolio”) and the Page | 166
  171. combined appraised fair market value of the Portfolio with a long term lease attached is RM1 ,029.4 million. C. KEY DATES AND TENORS 1. Lease Commencement Date : The date on which the Sale and Purchase Agreement is completed. 2. Extension Term : Any renewal or extension of the Lease Term in respect of the Properties as provided for in this term sheet. 3. Lease Term : The Properties will be leased by the Lessor to the Lessee on the Commencement Date on the Portfolio basis as follows: For year 1 – 5: Lease % of Portfolio Leased Up to 1 [18.35] 2 [4.46] 3 [3.55] 4 [0.96] 5 [7.95] 6 [2.78] 7 [6.50] 8 [55.44] Total 100.0 For year 6 - 10: Lease % of Portfolio Leased Up to 1 [15.96] 2 [3.88] 3 [3.09] 4 [0.84] 5 [19.97] 6 [2.42] 7 [5.65] 8 [48.20] Total 100.0 For year 11 - 15: Lease % of Portfolio Leased Up to 1 [13.88] 2 [3.37] Mohamed Ridza & Co. Rent (p.a.) (RM million) Up to [12.00] [2.92] [2.32] [0.63] [5.20] [1.82] [4.25] [36.25] [65.39] Rent (p.a.) (RM million) Up to [12.00] [2.92] [2.32] [0.63] [15.02] [1.82] [4.25] [36.25] [75.20] Rent (p.a.) (RM million) Up to [12.00] [2.92] Page | 167
  172. 3 4 5 6 7 8 [2.68] [0.73] [30.41] [2.10] [4.91] [41.92] [2.32] [0.63] [26.30] [1.82] [4.25] [36.25] Total 100.0 [86.48] Each will be individually called a “Lease” and collectively “Leases”. The Leases will commence on the Lease Commencement Date and will expire on the fifteenth (15th) anniversary of the Lease Commencement Date. 4. Extraordinary Event Extraordinary Event, means an event, other than a Termination Event, where the Lessor has to end the lease arrangement with the Lessee due to illegality or other events. Following an Extraordinary Event which may require the Lessor to dispose any of the Properties (subject however to the lease arrangements), the Properties will no longer be leased based on Portfolio basis. Upon commencement of the Extraordinary Event, the Lessee irrevocably agrees that the Properties will be leased on individual basis as follows: Leased Property (i) Menara TM (ii) Menara Celcom (iii) Cyberjaya Complex (iv) Wisma TM Taman Desa Total Leased Property (i) Menara TM (ii) Menara Celcom (iii) Cyberjaya Complex (iv) Wisma TM Taman Desa Mohamed Ridza & Co. Rental (p.a.) (RM million) Year (1-5) 51.39 9.72 2.27 Year (6-10) 59.10 11.18 2.61 Year (11-15) 67.96 12.86 3.00 2.01 2.31 2.66 65.39 75.20 86.48 Rental (psf/month) (RM) Year (1-5) 4.32 2.66 2.00 Year (6-10) 4.96 3.06 2.30 Year (11-15) 5.70 3.52 2.65 2.05 2.36 2.71 Page | 168
  173. The aggregate amount of the Rent payable by the Lessee for each of the several leases leased on individual basis will be identical to the aggregate amount of Rent paid under the lease of the entire Portfolio prior to such Extraordinary Event . For the avoidance of doubt, such substitution exercise i.e. the attribution of separate rental amount for each of the Properties is done to facilitate the Trustee to dispose each of the Properties in the Portfolio independently. The tenor of leases will match the remaining tenor of the original lease of the Portfolio. The Lessee will irrevocably agree to enter into a novation agreement with the purchaser(s) of each of the properties or such other agreements to effectively transfer the rights of the Lessor to such purchaser(s) upon an Extraordinary Event date (subject however to the lease arrangements). Notwithstanding the above, following an Extraordinary Event the Lessor shall offer the right of first refusal to purchase the affected Properties to the Lessee at the then fair market value of the affected Properties. The Lessee shall be given three (3) months from the date of the Extraordinary Event to accept the offer of right of first refusal to purchase the affected Properties and execute the respective sale and purchase agreements. The Lessee shall thereafter be given a further three (3) months from the date of the sale and purchase agreement to fully remit the purchase consideration for the purchase of the affected Properties. In the event the Lessee declines to exercise such right to purchase the affected Properties or fails to fully remit the purchase consideration for the purchase of the affected Properties within the specified time frame, the Lessor shall be entitled to deal with the affected Properties in any manner whatsoever including to sell the affected Properties to third parties. The aforementioned right of first refusal shall not apply in the event of non-registration of the memorandum of transfer of the Properties. D. 1. TERMS RELATED TO THE TRANSACTIONS Rent : The amount of rent payable by the Lessee in respect of each of the Leases during the respective Lease Terms will be set forth in the Master Ijarah Agreement. Fixed Rental for each of the Leases shall be paid by the Lessee into a Rental Account monthly in advance Mohamed Ridza & Co. Page | 169
  174. commencing on the Commencement Date and thereafter on or before the 7th day of each and every succeeding calendar month . The Additional Rental (if any) shall be paid on the next Fixed Rental payment date upon its incurrence. The amount of Rent payable for each of the Leases would include: (i) (ii) a Fixed Rental as set out for each Lease; and an Additional Rental which is equal to the Property Management Expenses (if any) incurred by the Lessor. Property Management Expenses mean, in respect of a Lease Term, all payments made by the Property Manager in respect of the services provided under the Property Management Agreement and is reimbursable by the Lessor. For avoidance of doubt, the Rent shall be grossed-up to cater for any VAT/GST or consumption tax imposed (if applicable). 2. Security Deposit : The Lessee is required to make a deposit of minimum three (3) months of Fixed Rental on the Commencement Date for the due observance and performance of its obligations under the Master Ijarah Agreement. This deposit cannot be utilised to off-set any outstanding rent due from the Lessee during the tenure of the Lease Term and will be refunded to the Lessee upon expiry of the Lease Term (subject to there being no default by the Lessee). The deposit monies shall be paid into a Syariah-compliant income-generating account (“Deposit Account”) and any income earned from such Deposit Account shall be for the benefit of the Lessee (subject to there being no default by the Lessee). In the event of a shortfall in the payment of Rent, and the Lessee fails or is unable to remedy such shortfall within one (1) month of the due date, the Security Deposit in the Deposit Account will be forfeited and the Lessor shall be entitled to deal with the monies in the Deposit Account in any manner whatsoever. In the event the Lessee finds a replacement lessee which credit rating is equal to or better than the Lessee and is acceptable to the Lessor (“Replacement Lessee”) within three (3) months thereafter, the Security Deposit forfeited will be refunded to the Lessee less any monies required from the shortfall (if any) of the Security Deposit paid by the Replacement Lessee. Provided always that the Security Deposit will only be refunded if the Replacement Lessee agrees to the terms and conditions similar to those of the lease Mohamed Ridza & Co. Page | 170
  175. agreement with the Lessee . The Security Deposit shall only be refunded once the new lease agreement with the Replacement Lessee comes into effect and the security deposit monies have been paid by the Replacement Lessee into the Deposit Account. For the avoidance of doubt, the Lessee shall only be refunded the amount equivalent to that deposited by the Replacement Lessee in the Deposit Account. 3. Utility Deposit : The Lessee is required to make a deposit of minimum one (1) month of Fixed Rental on the Commencement Date. This deposit cannot be utilised to off-set any outstanding utility bills from the Lessee during the tenure of the Lease Term and will together with the income earned thereon be refunded to the Lessee on expiry of the Lease Term after the Lessor is satisfied that there are no outstanding utility bills unsettled. The deposit monies shall be paid into a Syariah-compliant income-generating account (“Deposit Account”) and any income earned on the deposit shall be for the benefit of the Lessee(subject to there being no default by the Lessee). In the event of a shortfall in the payment of Rent and the Lessee fails or is unable to remedy such shortfall within one (1) month of the due date, the Utility Deposit in the Deposit Account will be forfeited and the Lessor shall be entitled to deal with the monies in the Deposit Account in any manner whatsoever. In the event the Lessee finds a Replacement Lessee which credit rating is equal to or better than the Lessee and is acceptable to the Lessor within three (3) months thereafter, the Utility Deposit forfeited will be refunded to the Lessee less any monies required from the shortfall (if any) of the Utility Deposit paid by the Replacement Lessee. 4. Rights of First Refusal : The Lessor shall thirty-six (36) months prior to expiration of each of the Lease Terms, offer the right of first refusal to the Lessee or its nominee to renew the Lease over all the Properties (Lease Option). The Lessee is given three (3) months from the date the offer was made to decide on whether to accept or refuse the offer. Once the offer is made, the Lessee has the option to accept the lease on all or any one of the Properties. . If the Lessee accepts the offer, the new lease agreement shall be executed between the Lessor and the Lessee on or before the expiry of the three (3) month period. Failing which the Return Provisions as set out in Section D, Item 14 herein shall apply Mohamed Ridza & Co. Page | 171
  176. The new lease offered will have the following terms :(i) a minimum tenor of five (5) years with an option to renew for a further five (5) years. The option to renew the new lease for a further five (5) years shall at least have the terms referred to in paragraph (2), (3) and (4) below; (ii) rental rates will be in reference to the then market rates; (iii) Lessee to be given right of first refusal to purchase such Properties which is the subject of the new lease similar to such right under the Master Ijarah Agreement whenever the Lessor decides to sell such Properties; and (iv) Lessee to retain existing rights (such as naming rights to building) under the Master Ijarah Agreement. All costs incidental to the offering of the Lease Option shall be borne by the Lessee. If the Lessee decides not to accept the offer to renew the lease on any one of the Properties, the Lessee will have to vacate such Property and adhere to the Return Provisions on expiry of the Lease Term. If at any time during the period thirty-three (33) months prior to expiration of the Lease Term under the Master Ijarah Agreement, the Lessor decides to sell all or any one of the Properties, the Lessor shall offer the Lessee the right of first refusal to purchase such Property(ies) based in reference to the then fair market value of the Properties (Purchase Option). The Lessee shall notify the Lessor of its decision to accept or refuse the offer within three (3) months from receipt of the offer. The option to the Lessee to exercise the aforementioned right of first refusal to purchase the Properties shall also be made available on the occurrence of the following: Mohamed Ridza & Co. (a) a Dissolution Event under the Sukuk subject to such Dissolution Event not being an event of default committed by the Lessee and that such Dissolution Event occurring before thirty three (33) months prior to expiration of each Lease terms; and (b) an Extraordinary Event, as described under item C.4. Page | 172
  177. 5 . Lease : Lease refers to non-cancellable operating lease of the respective Properties granted by the Lessor to the Lessee pursuant to the Master Ijarah Agreement on the Lease Commencement Date. 6. Ordinary Maintenance and Repair : Ordinary Maintenance and Repair means all repairs, replacements, acts, maintenance and upkeep works required for the general use and operation of the Properties and to keep, repair, maintain and preserve the Properties in good order, state and condition and in compliance with such maintenance, repair and upkeep standards and procedures generally expected in the ordinary course of business including the payment of assessment tax for the Properties. 7. Major Maintenance : Major Maintenance means all structural repair, replacements, acts and major maintenance, including doing such acts or things and taking such steps to ensure that the Properties suffer no damage, loss or diminution in value (excluding Ordinary Maintenance) without which the Properties could not be reasonably and properly used by the Lessee including but not limited to insurance cover for the Properties and payment of ownership-related taxes. 8. Undertaking to donate : In the event of late payments of Rent, the Lessee has irrevocably undertaken to donate directly to charitable organisations as determined by independent Syariah advisers, in accordance with Syariah principles and the donation sum to be determined in the Master Ijarah Agreement. 9. Loss Coverage : The Lessor shall during the Lease Term engage the Property Manager to take up a panel of reputable Malaysian takaful companies as agreed by the Trustee: Insurance (a) a comprehensive insurance policy on the Properties against loss, destruction, damage by fire, storm or tempest for a value which amounts to at least the Reconstruction Costs (as defined below) of the Properties or the Lease Investment Balance, whichever is higher; and (b) an insurance policy to cover the loss of revenue i.e. for the outstanding lease rentals during the period of reinstatement of the affected Properties to its original state. Reconstruction Costs means all related costs and expenses in relation to the reinstatement of the affected Property(ies) to its original state which shall include and not be limited to removal of debris, engineering, architect consultant fees and other related expenses. Mohamed Ridza & Co. Page | 173
  178. The Lessor shall have the discretion to determine the reconstruction of the Property (ies). During such reconstruction period the Lease of the affected Property(ies) shall continue and rental payable shall be recovered by the insurance cover undertaken for loss of revenue by the Issuer. Subject to the agreement of the takaful company providing the insurance policy, the insurance policy shall include a provision of waiver of subrogation against TM, TM’s Group of Companies and its employees. The Lessee shall not do anything whereby the insurance policy or policies on the Properties may be rendered void or voidable or whereby the premium of such insurance policy or policies may be liable to be increased and shall make good all damages suffered by the Lessor as a consequence of the insurance being rendered void or voidable. 10. Lease Balance Investment 11. Improvements Modifications 12. Lease Expiry Options Mohamed Ridza & Co. and : Year 1-7 [RM1,100 million] Year 8-10 [RM1,070 million] Year 11-13 [RM1,030 million] Year 13-15 [RM945 million] : The Lessee, at its own expense, shall have the right to make modifications, alterations or improvements to the Properties or any part thereof (the “Modifications”) so long as such Modifications do not reduce the fair market value or useful life of the Properties and are performed in accordance with applicable law. The Lessee will indemnify the Lessor for any reduction in the fair market value (as determined by an independent appraiser) of the Properties as a result of the Modifications. The Lessee shall also be required to make any Modifications that are required by law or by governmental or regulatory authority having jurisdiction over the Properties. : The Lessor shall thirty-six (36) months prior to the expiration of each of the Lease Terms, offer the right of first refusal to the Lessee or its nominee to renew the Lease on all the Properties (Lease Option). The Lessee is given three (3) months from the date the offer was made to decide on whether to accept or refuse the offer. Once the offer is made, the Lessee has the option to accept the lease on all or any one of the Properties. . If the Lessee accepts the offer, the new lease agreement shall be executed between the Lessor and the Lessee on or before the expiry of the three (3) month period. Failing which the Return Provisions as set out in Section D, Item 14 herein shall apply Page | 174
  179. The new lease offered will have the following terms :(i) a minimum tenor of five (5) years with an option to renew for a further five (5) years. The option to renew the new lease for a further five (5) years shall at least have the terms referred to in paragraph (2), (3) and (4) below; (ii) rental rates will be in reference to the then market rates; (iii) Lessee to be given right of first refusal to purchase such Properties which is subject to the new lease similar to such right under the Master Ijarah Agreement whenever the Lessor decides to sell such Properties; and (iv) Lessee to retain existing rights (such as naming rights to building) under the Master Ijarah Agreement. All costs incidental to the offering of the Lease Option shall be borne by the Lessee. If the Lessee decides not to accept the offer to renew the lease on any one of the Properties, the Lessee will have to vacate such Property and adhere to the Return Provisions on expiry of the Lease Term. If at any time during the period thirty-three (33) months prior to expiration of the Lease Term under the Master Ijarah Agreement, the Lessor decides to sell all or any one of the Properties, the Lessor shall offer the Lessee the right of first refusal to purchase such Property(ies) in reference to the then fair market value of the Properties (Purchase Option). 13. Purchase Option The Lessor may offer the right of first refusal to the Lessee or its nominee to purchase all or any one of the Properties, collectively or individually in reference to the then fair market value of the Properties (“Purchase Option”). The Lessee shall be given three (3) months to accept the Purchase Option and execute the sale and purchase agreement (“Acceptance Date”). Notwithstanding the above, the Lessee undertakes to the Lessor that in the event the Lessee opts to purchase the Properties individually, the Lessee shall immediately inform the Lessor of such decision and thereafter the Lessor shall proceed to deal with the Properties not bought by the Lessee in any manner it deems fit. The Lessee shall thereafter be given a further six (6) months from the date of the sale and purchase Mohamed Ridza & Co. Page | 175
  180. agreement to fully remit the purchase consideration for the purchase of the Properties . In the event the Lessee or its nominee fails to fully remit the purchase consideration for the purchase of the Properties within the specified time frame, the Lessor shall be entitled to deal with the Properties in any manner whatsoever. If prior to full remittance of the purchase consideration, a situation which is not due to the wilful default of the Lessee and which is beyond the control of either parties, occurs and such occurrence results in the impossibility of completion of the sale and transfer of any of the Properties, the Lessee shall remain obligated to complete the purchase of the remaining unaffected Properties within the stipulated timeframe and based on the individual Purchase Price of each of the Properties. The sale of the affected Property may only be aborted only if there is no remedy or recourse available to rectify the situation. However if the situation preventing the completion of sale of the affected Property is rectifiable, the Lessee’s obligation to complete the purchase of the affected Property shall only lapse with the consent and agreement of the Lessor. In the event the Lessee fails to exercise the Purchase Option within the specified time frame or decides not to exercise the Purchase Option and/or the Lease Option in relation to all or any of the Properties, the Lessee shall upon satisfaction of the Return Provisions described below, return the relevant Properties to the Lessor (“Return Option”) on expiry of the Lease Term. 14. Return Provisions : In relation to the Return Provisions, the Lessee undertakes the following to the Lessor on expiry of the Lease Term (the “Return Provisions”): (i) (ii) Mohamed Ridza & Co. to provide a report of an independent appraiser or engineer appointed by the Lessor, satisfactory in scope and content to the Lessor, to the effect that: (a) the Properties have been maintained in accordance with the standards specified in the Comprehensive Facility Maintenance Contract, and (b) the Properties meet or exceed the original design specifications and functionality requirements as provided under the Uniform Building By-Laws 1984; to furnish evidence that the Lessee has not created any liens or any other encumbrances under the National Land Code, 1965 on the Properties or any part thereof; Page | 176
  181. (iii) to provide contracts, permits and manuals entered into, owned or licensed by the Lessee that are required to operate the Properties for their intended use; (iv) to assure that Rent shall have been paid in full through the Lease Term; (v) to remove from the Properties or cause the removal there from any fixtures, or other asset belonging to the Lessee or third parties; (vi) to provide a certificate of an officer of the Lessee to the effect that there have been no Modifications to any of the Properties save and except: such Modifications to any of the Properties which in the opinion of the Lessor would not result in the reduction of the fair market value or useful life of the Properties and that such Modifications were performed in accordance with applicable law; and such Modifications which were performed pursuant to any laws or order by regulatory authorities having jurisdiction over the Properties. Mohamed Ridza & Co. (vii) Upon the Lessor’s request, to execute and deliver any and all further instruments, agreements and documents as may, in the reasonable opinion of the Lessor, be necessary to confirm the termination of the Lease and to acknowledge that the Lessee ceases to have any interest in the Properties or any part thereof and to confirm the Lessor’s interest in the Properties; (viii) to confirm that the Lessor has sufficient rights to operate the Properties and sell, lease, encumber or otherwise dispose of the Properties; (ix) to issue an indemnity in the form and content satisfactory to the Lessor regarding satisfaction of the Return Provisions set forth above; (x) to cooperate with the Lessor to obtain all necessary consents from any and all governmental authorities in relation to termination of the Lease and return of the Properties; and (xi) to comply with such other conditions as may be required in the ordinary course of business. Page | 177
  182. 15 . 16. Conditions Precedent Representations Warranties Mohamed Ridza & Co. and : : Conditions and clauses standard for transactions of this nature but not limited to the following:(i) receipt of a certified true copy of the Board of Directors’ Resolution and shareholders’ resolution (if applicable) of the Lessor and the Lessee authorising the execution of and carrying out of all their obligations under the Master Ijarah Agreement; (ii) receipt of certified true copies of the Lessor’s and the Lessee’s Memorandum and Articles of Association together with Forms 24 and 49, respectively; (iii) the Master Ijarah Agreement having been duly executed by the Lessor and the Lessee. Standard representations and warranties for a transaction of this nature which shall include, but not be limited to: (i) each of Lessor and the Lessee is a company duly established and existing under Malaysian law and it has the power and authority to enter into the business in which it is or proposes to be engaged; (ii) each of Lessor and the Lessee has the power to enter into, exercise their rights under and perform its obligations under the Master Ijarah Agreement; (iii) all necessary actions, authorisations and consents required by that date under the Master Ijarah Agreement have been taken, fulfilled and obtained and remain in full force and effect; (iv) each of Lessor’s/ Lessee’s entry into, exercise of their rights under and performance of the Lease Agreement do not and will not violate any existing law or documents to which they are parties; (v) the Master Ijarah Agreement creates valid and binding obligations which are enforceable on and against the Lessor and the Lessee as the case may be; (vi) each of the Lessor and the Lessee shall prepare their respective annual operating budget for the Ordinary Maintenance and Repair and/or Major Maintenance of the Properties and forward a copy of the said budget to RAM Ratings; Page | 178
  183. (vii) 17. Lessee’s Affirmative Covenants Mohamed Ridza & Co. : All statements and/or information furnished by the Lessee to the Lessor in relation to any of the Properties (including all mechanical and electrical equipments and services located on the Properties) shall be true and accurate. The Lessee expressly covenants and undertakes with the Lessor that during the Lease Term, it shall: (i) comply with, perform and observe the relevant provisions of the Companies Act, 1965 relating to the Lessee’s performance of its obligations under the Master Ijarah Agreement and all of the provisions of the Master Ijarah Agreement expressed to be binding on it; (ii) do all things necessary to remain duly incorporated, validly existing and in good standing as a company in Malaysia and maintain all requisite authority and licences to conduct its business in each jurisdiction in which its business is conducted; (iii) take, fulfil or do or procure to be taken, fulfilled or done, all relevant consents and other actions, conditions or things (including the obtaining or effecting of any necessary consents, approvals, authorisations, exemptions, filings, licences, orders, recordings or registrations at any time required to be taken, fulfilled or done) in order (i) to enable the Lessee lawfully to enter into, exercise its rights and perform and comply with its obligations under the Master Ijarah Agreement (ii) to ensure that those obligations are legally binding and enforceable and (iii) to enable the Master Ijarah Agreement to be admissible in evidence in the courts of Malaysia; (iv) effect and maintain all insurances necessary for its business, and insure for a reasonable amount all of its assets which are of an insurable nature against such risks as would usually be insured against by a reasonably prudent company owning property similar to its assets or carrying on a business similar to its business; (v) file all relevant tax returns and pay all taxes promptly upon the same becoming due except to the extent that the taxes being contested in good faith and by appropriate means and an adequate reserve has been set aside with respect thereto; (vi) at all times carry on and conduct its business in Page | 179
  184. a proper and efficient manner with due diligence including but not limited to ensuring that all relevant consents are obtained and kept in full force and effect and any conditions thereunder complied with and comply in all material respects with all legal and regulatory requirements relative to its business ; (vii) promptly inform the Lessor of the occurrence of any Termination Event or prospective Termination Event; (viii) ensure that its payment obligations under the Master Ijarah Agreement are met at all times; (ix) as soon as the same become available, but in any event within one hundred and eighty days (180) days after the end of each of its financial years, lodge with the Companies Commission of Malaysia and deliver to the Lessor, its audited financial statements for such financial year comprising, inter alia, a profit and loss statement for and a balance sheet as at the end of such financial year and any other accounts, report, statement or circular issued to the its shareholders; (x) as soon as the same become available, but in any event within eighty (80) days after the end of each half year of each of its financial years lodge with the Companies Commission of Malaysia (if so required by law) and deliver to the Lessor its unaudited financial statements for such period comprising a profit and loss statement for, and a balance sheet as at the end of, such half year period; (xi) ensure that: (a) each set of financial statements delivered by it is prepared in accordance with approved accounting standards in Malaysia and consistently applied; (b) each set of financial statements delivered by it is certified by the principal financial officer of the Lessee as giving a true and fair view of its financial condition as at the end of the period to which those financial statements relate and of the results of its operations during such period; and (c) each set of its financial statements for any financial year end delivered by it has been audited. Mohamed Ridza & Co. Page | 180
  185. 18 . Lessee’s Covenants Negative : The Lessee expressly covenants and undertakes with the Lessor that during the Lease Term, it shall: (i) not make any substantial change in the nature of the business it is currently engaged in and promptly inform the Lessor of any substantial changes affecting the business of the Lessee; (ii) not cancel, surrender, abandon or otherwise amend any relevant consent or agreements to which it is a party in any way which has a material adverse effect on the lease; (iii) not to expose the Properties to any risk of damage or loss; (iv) not make any replacement, alteration or addition which could potentially render the Properties or any part thereof not readily identifiable or which may lead to a reduction in the value of the Properties; (v) not to create any encumbrances on the Properties. 19. Remedies : The Lessor will have customary remedies including, without limitation, taking possession of the Properties or any part thereof and to deal with the Properties in any manner as it deems fit including but not limited to selling to any third party. In addition, if the Termination Event is resulting from the breach of the Lessee Undertaking, (a) the Lessee will indemnify the Lessor for any loss in Rent due to the Lessee’s inability to find a Replacement Lessee, (b) if a Replacement Lessee has assumed the lease any shortfall between the originally scheduled Rent and the Rent received by the Lessor from the Replacement Lessee after a Termination Event shall be the responsibility of the Lessee, and the Lessee shall remit the shortfall to the Lessor by instalments over the remaining period of the Lease Term and (c) should the Lessee default on its financial obligations pursuant to clauses (a) and/or (b) in this paragraph, and the Lessor is forced to sell the Properties and therefore will no longer have the Properties from which to obtain rental income, then the Lessee will be responsible for any loss that the Lessor incurs, provided that, the Lessee’s responsibility shall not exceed the Lessee’s remaining lease obligations on net present value basis. 20. Lessee’s Undertaking : In the event of a shortfall in the payment of Rent and the Lessee is unable to remedy such shortfall within one (1) month of its occurrence, the Lessor shall immediately initiate action to source for a Replacement Lessee. Nonetheless the Lessee irrevocably undertakes that in the event of such a shortfall in the payment of Rent and the Lessee is Mohamed Ridza & Co. Page | 181
  186. unable to remedy such shortfall within one (1) month of its occurrence, it will within three (3) months thereafter look for a Replacement Lessee which credit rating is equal to or better than the Lessee and is acceptable to the Lessor for the remaining life of the Lease on the same terms and conditions comparable to this Lease. If the Lessee breaches the Lessee’s Undertaking, it would tantamount to an automatic declaration of a Termination Event. 21. Proceeds from Sub– tenants/Sub-leases : On the execution of the Master Ijarah Agreement, (i) the Lessor shall open a Syariah-compliant SubRental Account into which all proceeds received from the sub-tenant/sub-leases subsequent to a Termination Event shall be paid into such Sub-Rental Account; (ii) the Lessee shall issue a letter to the sub-tenants notifying the sub-tenants of the following:- (a) the lease arrangement entered into between the Lessee and the Lessor pursuant to the purchase of the Properties by the Lessor; (b) that all sub-rentals due and payable by the sub-tenants shall continue to be paid to the Lessee until such time the Lessor makes a declaration of a Termination Event of the Master Ijarah Agreement, in which event the sub-rental proceeds shall be paid into the Sub-Rental Account; and (c) that on occurrence of a Termination Event under the Master Ijarah Agreement, the sub-tenants shall be required to execute a fresh lease agreement with the Lessor on terms and conditions similar to its existing lease arrangement with the Lessee in order to continue enjoying its rights as a subtenant. On the declaration of a Termination Event of the Master Ijarah Agreement, the Lessor shall, 22. Lessee’s Rights to Name the Properties Mohamed Ridza & Co. (i) repossess all the Properties; and (ii) enter into a new lease agreement with the subtenants. The Lessor shall, during the Lease Period allow the Lessee to name the Properties and to affix such Page | 182
  187. and Affix Signage 23 . Total Loss Events signage, its corporate logo and/or branding directly related to or in connection with the Lessee’s and/or the Lessee’s group of companies’ business or in promotion of the Lessee’s and/or the Lessee’s group of companies’ business on the external area of the Properties as well as within the Properties provided that: : (i) all laws, rules, regulations and/or approval of the relevant authority or governmental bodies have been duly complied with and/or obtained by the Lessee; and (ii) in the event of damage to the Properties as a result of affixing or removing the signage, the Lessee shall make good such damage. (i) In the event the Property Manager fails to procure the Loss Insurance Coverage from a Malaysian takaful company(ies) in respect of all the Properties in the Portfolio, the Property Manager irrevocably undertakes to fully indemnify the Lessor against all losses and damages suffered resulting from a total loss event to any of the Properties throughout the Lease Term. (ii) However if for whatever reason the Malaysian takaful company(ies) goes into liquidation or is unable to fulfill its obligations under the Loss Insurance Coverage, the Property Manager shall not be held responsible for any losses suffered resulting from a total loss event on the Properties or any part thereof and the Lessor shall have full recourse to the takaful company(ies) or its liquidator (as the case may be) . (iii) In the event the total loss of any of the Properties is caused by the negligence or default of the Lessee, and which inevitably results in the insurers refusing to effect any payouts, the Lessee shall be liable for such loss, subject however to an amount equivalent to the Reconstruction Costs or the Lease Investment Balance, whichever is higher. In the event the Lessor decides to reinstate the affected Property(ies) to its original state, then (provided that the Takaful proceeds payable under any Takaful policy affected by the Lessor covers adequately the loss of Rental and shall not have become irrevocable through any act, default or negligence of the Lessee), the Lessee shall not be required to pay the Rent which shall be suspended from the happening Mohamed Ridza & Co. Page | 183
  188. of such destruction or damage until the affected Property (ies) shall have been again rendered safe and fit for use. 24. E. 1. Transaction Documents : (i) Master Ijarah Agreement; (ii) Property Management Agreement; and (iii) Lessee’s Letter of Undertaking OPERATIVE DOCUMENTS Master Agreement Ijarah : On the Commencement Date, the Lessor and the Lessee shall enter into an operating Master Ijarah Agreement whereby the Lessor will lease to the Lessee the respective Properties throughout the Lease Term. The Master Ijarah Agreement will set out the terms and conditions under which the Lessee will have the right to occupy, use and operate the Properties during the Lease Term. The Master Ijarah Agreement shall have the following terms: (i) The Lessee agrees that the Lessor shall not under any circumstances be liable to the Lessee or to any third party for any cost, claim, demand, loss, damage or expense of any kind or nature caused directly or indirectly by, or out of, the use of any part or the whole of the Properties. The Lessee will agree to indemnify and keep indemnified and save harmless the Lessor against all and any such costs, claims, demands, losses, damages and expenses; (ii) The Lessee shall be responsible for the performance of all Ordinary Maintenance and Repair required for the Properties; In the event the Lessee fails to keep the Properties in optimum condition for the purpose they are currently employed or intended to be employed, the Lessor shall be entitled to exercise all necessary steps or measures to ensure that the Properties are reinstated to its optimum condition and all costs and expenses incurred by the Lessor related thereto shall be reimbursed by the Lessee within [six (6)] months from such written claims received from the Lessor. (iii) Mohamed Ridza & Co. The Lessor shall be responsible for the performance of all Major Maintenance and will procure that the Property Manager will perform all Major Maintenance on behalf of the Lessor in accordance with the terms and conditions set out in the Property Page | 184
  189. Management Agreement . The Lessor is entitled to increase the Rent payable by the Lessee to the extent it reimburses the Property Manager for the cost of such Major Maintenance services incurred by the Property Manager as are necessary to maintain the Property (i) in good tenantable condition and repair (ordinary wear and tear excepted), (ii) in accordance with prudent industry practice, (iii) in a manner consistent with all existing licences, permits, and easements over the Properties and (iv) in accordance with all applicable laws, rules and regulations; (iv) There shall be no early termination of the Lease; (v) The Lessee will be obligated to pay the Rent to the Lessor monthly in advance commencing on the Commencement Date and thereafter on or before the 7th day of each and every succeeding calendar month . (vi) The Lessee will bear the entire risk of loss of or damage to the Properties or any part thereof arising from the negligent or improper usage or operation thereof by the Lessee and will indemnify the Lessor against the same; (vii) The Lessor, through the Property Manager, shall be responsible for the payment of quit rent, procuring of the Loss Insurance Coverage and procuring an independent valuer to conduct periodic valuation on the Properties every three (3) years; (viii) The Lessee may register the lease at the relevant land office in accordance with the provisions of the National Land Code, 1965; and (ix) The Lessee shall undertake to procure the subtenants to execute a new lease agreement with the Lessor on terms and conditions similar to its existing lease arrangement on the occurrence of a Termination Event. Under the Master Ijarah Agreement, a “Termination Event” includes but shall not be limited to the following events:(i) Mohamed Ridza & Co. Save and except for the breach of the Lessee’s undertaking referred to in Section D, Item 20 herein, the Lessee shall fail to observe or perform any of the provisions of the lease agreement, whether express or implied, and in the case of a failure capable of being Page | 185
  190. remedied , the Lessor does not determine within one (1) month after the Lessor becomes aware of or having been notified of the failure that the failure has been remedied to the Lessor's satisfaction; Mohamed Ridza & Co. (ii) any representation, warranty, covenant or undertaking made or given by the Lessee under the lease agreement proves to have been inaccurate or incorrect in any material respect on or as of the date made or deemed made and would in the opinion of the Lessor have a material adverse effect on the Lessee’s ability to perform its obligations under the Master Ijarah Agreement; (iii) there is a winding-up order passed against the Lessee, or a liquidator, provisional liquidator, receiver, receiver and manager, trustee, administrative or other similar officer is appointed in respect of all or any part of the business or assets of the Lessee, or the Lessee passes any resolution for voluntary winding-up; (iv) the Lessee is unable to pay its debts within the meaning of s.218(2) of the Companies Act, 1965, which would in the opinion of the Lessor have a material adverse effect on the Lessee’s ability to perform its obligations under the Master Ijarah Agreement; (v) any licence, approval, permit or consent required for the Lessee to occupy and operate the Properties or any part thereof as intended has been suspended, revoked or become null and void or ineffective for any reason whatsoever and the result of which would in the opinion of the Lessor have a material adverse effect on the Lessor’s ability to perform its obligations under the Master Ijarah Agreement; (vi) any licence, approval, permit or consent required for the Lessee to carry on its business has been suspended, revoked or become null and void or ineffective for any reason whatsoever and the result of which would in the opinion of the Lessor have a material adverse effect on the Lessor’s ability to perform its obligations under the Master Ijarah Agreement; (vii) the Lessee does not post the Security Deposit and Utility Deposit when required by the Lessor; (viii) a breach by the Lessee of the Lessee’s undertaking; Page | 186
  191. (ix) any indebtedness (subject to a threshold in excess of USD Fifty Million (USD50,000,000.00)) for borrowed moneys or guarantee of the Lessee becomes capable in accordance with the relevant terms thereof, of being declared due prematurely by reason of a default by the Lessee, in its obligations in respect thereof on the due date for such payment or if due on demand, when demanded becomes enforceable; and in any such event save and except for sub-items (vii) and (viii) above, the Lessor may, without prejudice to any other right or remedy that the Lessor may have under the Master Ijarah Agreement or the law by written notice terminate the Master Ijarah Agreement. In relation to sub-items (vii) and (viii), its occurrence would tantamount to an automatic declaration of a Termination Event. For avoidance of doubt, non-registration of the memorandum of transfers for the Properties will not tantamount to a Termination Event. In the event that any of the Transfer Documents cannot be registered and/or perfected in favour of the Issuer for whatever reason within the following periods:(a) in relation to all the Properties except for Cyberjaya Complex, within [nine (9) months] from the date of presentation at the relevant land office; and (b) in relation to the Cyberjaya Complex, within [twelve (12) months] from the date of presentation at the relevant land office, the Lessee and/or the Issuer shall be given a period of thirty (30) days to rectify such matters relating to the reason for the non-registration and/or non-perfection (“Rectification Period”). In the event the non-registration and/or nonperfection cannot and/or is not rectified within the Rectification Period, the ABC Sukuk Holders shall have the discretion to grant a one-time extension of such period. The voting rights of the respective ABC Sukuk Holders in deciding on the extension period shall be in accordance with the percentage of beneficial ownership of the Properties. Upon the expiry of the Rectification Period and the ABC Sukuk Holders decide not to grant any extension:(a) Mohamed Ridza & Co. in the event the non-registration relates to Page | 187
  192. Menara TM , the Seller shall undertake to buy back all the Properties (including Menara TM) at the original Purchase Price; (b) in the event the non-registration relates to Properties other than Menara TM, the Seller shall undertake to buy back the affected Property(ies) at the end of year-13 at a purchase price equivalent to the original purchase price of the affected Property(ies). Such purchase price will be paid by the Seller into an account to be opened by the Issuer (“Wadiah Account”) within three (3) business days of the expiration of the Rectification Period and upon the receipt of such purchase price, will be utilised as set out in Attachment A hereto; Upon the expiry of the Rectification Period if the ABC Sukuk Holders agree to grant an extension of the period (“Extension Period”), regardless of the nonregistration of whichever Property, the Seller shall, within three (3) business days from the expiration of the Rectification Period, pay an amount calculated in accordance with the Formula (as described below) into the Wadiah Account. Upon the expiry of the Extension Period:(a) if Menara TM has yet to be registered, the Seller shall utilise the amount paid into the Wadiah Account to buy back Menara TM and TM shall also buy back all the other Properties at a purchase price calculated according to the Formula; (b) if Property(ies) other than Menara TM have yet to be registered, the Seller shall undertake to buy back the affected Property(ies) at the end of year-13 by utilising the amount paid into the Wadiah Account. Such purchase price will be utilised as set out in Attachment A hereto; The Formula means:Original Purchase Price of the relevant Property x [1 + (y)% (which is determined prior to issuance of the Sukuk)]. For the avoidance of doubt, any registration that takes effect after the Rectification Period or the Extension Period (where granted) shall not have any effect or impair the operations of the paragraphs above. In the case where the registration is made upon the Mohamed Ridza & Co. Page | 188
  193. expiry of the Extension Period (where granted), the Issuer shall refund the monies paid into the Wadiah Account to the Seller. 2. Property Management Agreement : The Lessor shall appoint TMas the Property Manager. The Property Manager shall, on behalf of the Lessor, be responsible for the following:(i) the due performance of all Major Maintenance in respect of the Properties; (ii) the settlement of quit rent dues on all the Properties; (iii) the procurement of the following insurance policies with a panel of reputable Malaysian takaful companies as agreed by the Trustee: (iv) (a) a comprehensive insurance policy on the Properties against loss, destruction, damage by fire, storm or tempest for a value which amounts to at least the Reconstruction Costs or the Lease Investment Balance, whichever is higher; and (b) an insurance policy to cover the loss of revenue i.e. for the outstanding lease rentals during the period of reinstatement of the affected Properties to its original state. the procurement of an independent valuer to conduct periodic valuation on the Properties every three (3) years. The Property Manager shall receive from the Lessor a fee to be agreed by the parties which is payable upon signing of the Property Management Agreement. All actual expenses incurred by the Property Manager in the course of providing its services shall be reimbursed by the Lessor within [six (6) months] from the date of receipt of written claims from the Property Manager. 3. Lessee’s Letter Undertaking of : Concurrent with the execution of the Master Ijarah Agreement, the Lessee shall execute the Letter of Undertaking in favour of the Lessor. The Letter of Undertaking shall provide the following:(i) Mohamed Ridza & Co. the Lessee irrevocably undertakes in the event of a shortfall in the payment of Rent and the Lessee is unable to remedy such shortfall within Page | 189
  194. one (1) month of its occurrence, it will within three (3) months thereafter look for a Replacement Lessee which credit rating is equal to or better than the Lessee and is acceptable to the Lessor for the remaining life of the Lease on the same terms and conditions comparable to this Lease; (ii) The Lessee shall indemnify the Lessor for any losses suffered by the Lessor resulting from the Lessee’s breach of its undertaking, provided that the Lessee’s responsibility shall not exceed the Lessee’s remaining lease obligations on net present value basis; and (iii) Where the Property Manager is other than TM, the Lessee shall step in and perform the obligations of the Property Manager under the Property Management Agreement in the event the Property Manager fails to perform its obligations or is in breach of the terms of the said Property Management Agreement. The Lessee further acknowledges that if the Lessee breaches the Lessee’s Undertaking, it would tantamount to an automatic declaration of a Termination Event. The Letter of Undertaking shall survive termination of the Master Ijarah Agreement. Mohamed Ridza & Co. Page | 190
  195. APPENDIX 2 CASHFLOW FORECAST AND PROJECTIONS Mohamed Ridza & Co. Page | 191
  196. Mohamed Ridza & Co. Page | 192
  197. MENARA ABS BERHAD CASH FLOWS PROJECTIONS IN CONNECTION WITH THE ISSUANCE OF UP TO RM1 ,100 MILLION ISLAMIC ASSET-BACKED SUKUK AL-IJARAH CASH INFLOWS 1) ISSUANCE OF SUKUK a) The Company has received approval from the Securities Commission to issue up to RM1,100 million Islamic Asset-backed Sukuk Al-Ijarah. For the purpose of the cashflow projections, it is assumed that RM1,000 million will be issued, which are as follows:Total issuance RM’million i) ii) iii) iv) A1 Tranche : AAA A2 Tranche : AA2 A3 Tranche : A1 A4 Tranche : A2 240.00 55.00 40.00 10.00 v) vi) vii) viii) B1 Tranche : AAA B2 Tranche : AAA B3 Tranche : AAA C Tranche : unrated 30.00 40.00 85.00 500.00 1,000.00 2) b) The Properties shall be sold at end of lease period at a price in reference to the then market value. For the purpose of the cashflow projections it is assumed the selling price then is RM1,000 million. c) Redemption on maturity. Note that Tranche A and C are to be redeemed from the proceeds of sale of properties, whilst Tranche B are redeemed from rental income. It is assumed that B1 Tranche Sukuk, B2 Tranche Sukuk and B3 Tranche Sukuk are redeemed in Year 7, Year 10 and Year 13 respectively. d) Tranche C holders would rank last but before additional distribution in terms of priority of payment, thus the redemption of Tranche C may not be redeemed at face value depending on cash availability. REVENUE a) The rental revenue shall be paid by the Lessee to the Company on monthly basis in advance and the annualised rentals are made up as follows:- i) ii) iii) Menara TM Menara Celcom Cyberjaya Complex iv) Wisma TM Taman Desa Mohamed Ridza & Co. Year 1-5 RM’million 51.39 Year 6-10 RM’million 59.10 Year 11-15 RM’million 67.96 9.72 2.27 2.01 11.18 2.61 2.31 12.86 3.00 2.66 65.39 75.20 86.48 Page | 193
  198. b ) 3) Under the terms of the Master Ijarah Agreement, the Lessee would pay additional rental amount which equal to the Property Management Expenses incurred by the Lessor. PROFIT ON SURPLUS CASH a) The Transaction Administrator shall invest the surplus cash available. It is assumed that the profit rate for investment in Surplus Cash at 2.5% p.a. CASH OUTFLOWS 4) SPV OPERATIONAL COSTS a) Estimated SPV operational costs are on-going expenses including but not limited to the following fees for Trustees, Transaction Administrator, agencies, auditors, tax agent and Directors, RAM surveillance, company secretarial and bookkeeping. It is assumed that the operational costs increased by 15% every 5 years and the estimated costs for the first 5 years (Year 1 – Year 5) are as follows:Estimated RM Description Rating and Trustees Corporate and Finance Services Contingency and Others Total 235,000 147,000 83,000 465,000 Annual Cost (RM/Million) 5) 0.47 PROPERTY MANAGEMENT EXPENSES a) It is assumed for the cashflow projections that the property manager's expenses to be incurred for the 1st year is RM30.5 million and assume increase of 3% per annum. This expense is chargeable to the Lessee by way of additional rental. The estimated expenses are as follows: RM’million i) ii) iii) iv) 13.79 9.71 Building Maintenance Utilities Management Fees Other Building Expenses 1.40 5.60 30.50 6) PERIODIC DISTRIBUTION a) The expected periodic return for the ABC Sukuk are as follows: Sukuk Tranche Mohamed Ridza & Co. Total Issuance Indicative Periodic Distribution Year 1-7 Year 8-10 Year 11-13 Page | 194 Year 14-15
  199. - Tranche A1 - Tranche A2 - Tranche A3 - Tranche A4 - Tranche B1 RM ’million 240 55 40 10 30 - Tranche B2 - Tranche B3 - Tranche C 40 85 500 Rate (p.a) 1,000 7) 4.80% 5.30% 10.00% RM’million 12.72 3.05 2.52 0.69 - RM’million 12.72 3.05 2.52 0.69 - RM’million 12.72 3.05 2.52 0.69 - 1.92 4.51 1.92 4.51 4.51 - 26.79 25.41 23.49 18.98 b) The periodic return is assumed to be paid semi-annually from the date of issuance of the ABC Sukuk. c) Where there is insufficient cash in terms of priority payment to pay the periodic distribution for Tranche C, the same periodic distribution will be accrued, accumulated and deferred. This shortfall in payment does not constitute an event of default. The periodic distribution paid in the above cashflow projection to Tranche C Sukuk is 7.25% p.a. for up to year 13, thus 2.75% p.a. of periodic distribution is thus deferred and accumulated based on an indicative periodic distribution rate of 10% p.a. over 13 years. DISTRIBUTION OF SURPLUS a) 8) 5.30% 5.55% 6.30% 6.90% 4.60% RM’million 12.72 3.05 2.52 0.69 1.38 Surplus cash at the end of transaction is distributed to Tranche C holders as Additional Distribution. TAXATION a) It is assumed that there will not be any chargeable income arising from the transaction. It is expected that there will be sufficient deductions for allowable expenses and capital allowances to offset against the taxable profit. Mohamed Ridza & Co. Page | 195
  200. APPENDIX 3 CORPORATE PROFILE OF THE PROPERTY MANAGER Mohamed Ridza & Co. Page | 196
  201. TM is to be appointed as the property manager for the Properties and will perform the following obligations on behalf of the Issuer in accordance with the terms and conditions set out in the Property Management Agreement , which shall include: (a) carry out all Major Maintenance of preventive on behalf of the Issuer; (b) procure that Loss Insurance Coverage is effected and maintained at all times (whether in the name of the Issuer or in the name of the Property Manager as co-insured with the Issuer or with the Issuer endorsed as loss payee thereon) against any Total Loss Event and any other insurable risks with respect to the Properties as would usually be insured against by a reasonably prudent person owning property similar to the Properties or carrying on business similar to the business of the Lessee for an amount at least equal to the Reconstruction Cost of the Properties or the Lease Investment Balance, whichever is higher; (c) respond to any queries in relation to the Properties as the Issuer may request; (d) settle all quit rent dues on the Properties; (e) procure the appointment of an independent valuer to conduct periodic valuation on the Properties; (f) ensure that accurate and current records are kept of all maintenance, management and insurance activities carried out by the Property Manager with respect to the Properties; (g) prepare budgets and maintain the financial records for the Properties; (h) enforcing the terms of Lease and any other agreements pertaining to the Properties; (i) advise on insurance matters related to the Properties; (j) advise on the opportunities for the investment potential of the Properties; and (k) advise on the necessity for upgrading works the Properties. (l) to prepare monthly report which content shall include information on accounting, marketing, security and operation & maintenance. Mohamed Ridza & Co. Page | 197
  202. APPENDIX 4 THE PROPERTIES Mohamed Ridza & Co. Page | 198
  203. APPENDIX 4 (A) MENARA TM 1. Description of Menara TM Menara TM comprises the following:• • • • • • • • A 55-storey office tower A podium block comprises:A 4 level basement carpark A multi-purpose hall A 2 storey surau/childcare A medical center A sport center A 5 storey auditorium All the buildings except the 5 storey auditorium are completed and issued with Certificate of Fitness for Occupation. The auditorium is currently undergoing fitting out works. The buildings have a total of 1,600 bays of car parks, 300 bays of motorcycle parking and the following net lettable area:Building Main 55-storey office tower 4 level basement carpark (LG 4, 3, 2, 1) A multi-purpose hall A 2 storey surau/childcare A medical center A sport center & Unit Sukan Auditorium (under fitting out works) Total 2 Net Lettable Area (sq.ft) 992,168.81 2,622.14 11,933.95 3,735.00 7,808.25 65,878.14 1,084,146.29 sq.ft (100,717.19 sq.m) Gross Floor Area (sq.ft) 1,883,669.02 727,661.84 32,506.26 126,303.72 2,770,140.84 sq.ft (257,346.08 sq.m) Assessment Menara TM is assessed by the local authority, Dewan Bandaraya Kuala Lumpur (DBKL) at an Annual Value of RM 27,379,800. At the current rate of 12% per annum, the rates assessment levied by the local authority is RM 3,285,576 per annum. 3 Town Planning • Menara TM is situated within an area designated for commercial purposes. • The building was completed on November 2001. • The Certificate of Fitness was issued on November 14, 2003 vide Certificate No BP F940019. • The building is approximately 6 years old (from the building completion date) 4 Site Details Mohamed Ridza & Co. Page | 199
  204. 4 .1 Location Menara TM is situated along Lengkok Pantai Baharu, approximately 5 kilometres due southwest of the City Centre. It is easily accessible from the City Centre via Jalan Bangsar, Jalan Pantai Bahru and finally onto Lengkok Pantai Baharu leading to Menara TM. Menara TM is also accessible by using Putra LRT services stopping at Kerinchi Station. 4.2 Surrounding Locality The immediate surroundings are characteristically mixed in nature comprising commercial retail, office and residential uses. Surrounding developments within the immediate vicinity and surrounding areas comprise mainly residential and commercial developments. Prominent landmarks to the subject property include Menara Telekom, Plaza Pantai, Menara IGB, Mid Valley Megamall (comprising office buildings, shopping complex, hotel and cinema), Plaza Sentral and Tenaga Nasional Berhad Headquarters. Wisma Angkasapuri is located immediately opposite the subject property separated by Federal Highway. Established housing neighbourhoods nearby include Taman Bukit Pantai, Taman Bangsar, Brickfields, Bukit Bandaraya, Taman Seputeh and Taman Bukit Seputeh. University Malaya (UM) is located within walking distance due west of Menara TM. Schools in the vicinity include Sekolah Menengah Seri Pantai, Sekolah Rendah Agama Sri Pantai and Sekolah Kebangsaan Bukit Pantai. 4.3 Site The subject site comprises a rectangular shaped parcel of commercial land identified as PT 3901, within the locality of Jalan Pantai Baharu. Viewed from plan, the site is regular in shape with a provisional land area of approximately 30,708 sq.m. (approx. 330,549 sq.ft). The land is generally flat in terrain and lies higher than Jalan Pantai Baharu and Federal Highway. 4.4 Services Mains water, electricity supply and telephone lines are connected to Menara TM. Water supply is drawn from Syarikat Bekalan Air Selangor’s (SYABAS) mains. Plumbing and water piping system comprise domestic water piping and fittings inclusive of suction and storage tanks located at designated floors. Incoming electricity supply from Tenaga Nasional Bhd’s (TNB) incoming feeder is step down by switchgears and 14 units of transformers from 11KV to 415V and channeled to the Main Switch Board and finally to the networks of Distribution Board in the building. In case of power interruption, 3 units of diesel powered generator with automatic relay will be on standby to provide temporary electricity supply to the integral services within the building such as emergency lighting system, ventilation system and service lifts. Telecommunications installation within the building comprises fibre-optic network and other telephone, facsimile and multimedia systems. Mohamed Ridza & Co. Page | 200
  205. The building is installed with Integrated Building Management System (IBMS), a computerized supervisory center for building M&E systems which include Building Automation System (BAS), Security Management System, Lift & Escalator System (LES), Supervisory Control And Data Acquisition (SCADA), Addressable Lighting Control Syatem (ALCS) and Low Voltage & Plumbing Control System (LV&PV). The building is provided with 18 nos. of double deck passenger lifts, 3 nos. of VIP single deck passenger lifts, 2 nos. of service lift, 2 nos. of carpark lift and 2 pairs of escalators for vertical access. Internal building services include central air-conditioning system, fire fighting installations and telecommunications lines. Fire escape staircases are enclosed in common service cores. The passenger lifts serve the building which is divided 4 into Zones: Service Zone Level Zone 1 Zone 2 Zone 3 Zone 4 LG1, G 2nd to 18th LG1, G, 3rd, 4th, 18th to 32nd and 36th LG1, G, 3rd, 4th, 33rd and 50th LG 1, G, 50th to 55th Carpark lifts serve LG4 to Ground floor. Vertical access from level 56 to level 59 is via stair case whilst from level 59 to level 72 is via vertical Alimak 1200kg maintenance lift and finally from level 72 to level 77 is via vertical metal stair. The building is provided with Document Conveying System for delivery of documents and parcels within the building from LG3 to 56th Floor. The building is installed with the under floor air conditioning system. Unlike other buildings which is served by their own Water /Air Cooled Chiller units, the chilled water for the subject building is supplied direct from a district chiller cooling system located in Bangsar and operated by Tenaga Nasional, Engineering & Consultancy (TNEC). The building’s internal network of air-conditioning water supply will be chilled by the supply from TNEC via heat exchanger and flow to various indoors component which include Under Floor Supply Units (UFS), Direct Expansion (DX) Units and Air Handlling Unit (AHU). Fresh Air Unit and Exhaust Fan are located at various locations to provide forced ventilation for fresh air. In terms of fire fighting and protection installations, an Automatic Sprinkler System is installed. Wet risers, portable fire extinguishers, hose reels, smoke & heat detector system and break glass alarm system are placed at various strategic locations. There is also an Argonite Gas Automatic Extinguishing System, Staircase Pressurization Fan and external hydrants. Security System comprises Closed Circuit Television (CCTV) and Secure Card Access. Street lighting, road maintenance, sewage disposal and rubbish collection are provided by Dewan Bandaraya Kuala Lumpur (DBKL) and Alam Flora Sdn.Bhd. For internal building cleaning services, the building is installed with Centralized Vacuum Systems for internal housekeeping and gondolas (Special, Senior and Mobile type) for external facade cleaning. Public transportation in the form of the buses, taxis and LRT are easily available in the vicinity. The building services can be summarized as follows:- Mohamed Ridza & Co. Page | 201
  206. Type of services Standby Generator Lifts Passenger Service Carpark Escalator Maintenance Air-Conditioning Chiller Heat Exchanger Indoor Unit Gondola Make /Model Perkin Dormant Engine 11KV with Leroy Somer Alternator 2,000kva Total Single Deck-Schindler 1,360kg Double Deck-Schindler 1,360kg Schindler 1,360kg Schindler 1,360kg Schindler Alimak 1,200 kg 3 nos. 18 nos. 2 nos 2 nos. 2 pairs 1 no. Chilled water supplied by District Chiller Cooling System Alfa-laval Direct Expansion (DX) Unit – Hiross Under Floor Supply Unit (UFS) – Hiross Air Handling Unit (AHU) 6 nos. 23 nos. 459 nos. 20 nos. Special (with tracking for curving façade) Senior (hanging type for vertical elevation) Mobile (hanging type for sky garden) 2 nos. 2 nos. 2 nos. 3 nos. Menara TM’s maintenance expenses are inclusive of internal spaces. Their estimated average service charge for common area is approximately RM 1.80 psf. 5 Building Details 5.1 Building The office building is generally constructed of reinforced concrete framework with plastered brickwalls and aluminium framed curtain claddings/glazings with intermediate reinforced concrete floor and roof slabs, resting on deep piled foundations and twenty-two landscape open skygardens alternate every three floors of the building. Main entrances at ground floor are of automatic sliding glass type whilst other internal doors are generally of timber panel, timber fire rated and glass panel type. The windows are generally of aluminium glass panels. The ceilings are generally constructed of suspended fibrous board and perforated aluminium panel incorporating fire fighting and lighting installations. The finishes are generally as follows:Building Structure External walls Main lobby & Lift lobby walls Typical office area and other M&E area walls Toilet & cafeteria floor Main lobby & lift lobby floor Typical office area floor Other service & Utility room Mohamed Ridza & Co. Finishes Glass and aluminium panel cladding. Granite. Plastered & painted. Ceramic tile. Granite. Granite & carpeted. Homogeneous tile and vinyl tile. Page | 202
  207. M & E rooms and basement floor Ceiling for office, lobby, cafeteria Sky Garden Ceiling for other M&E rooms & basement Cement rendered. Fibrous plaster and perforated aluminium panel. Pebbled stone slab and landscaping. Plastered & coated with emulsion paint. The building provides the following internal accommodations:Floor Main Accommodations LG5 Telephone Exchange Chamber LG4 to LG2 Car Park, Lift Lobbies, M&E Rooms, Utility& Service Rooms, Toilets LG1 Car Park, Lift Lobbies, Showroom, Retail Spaces, Café/Restaurant, Security, Toilets LG Lift Lobby, Main Entrance Lobby, Building Control Room, Security Room, Retail Space, Toilets. 1st Building Maintenance, Office Room, Lift Lobby, M&E Rooms, Toilets 2nd Reading Area, Administrative Office, Lift Lobby, M&E Rooms, Utility& Service Rooms, Toilets 3rd Skygarden, Food Courts, Lift Lobby, M&E Rooms, Utility& Service Rooms, Toilets 4th to 55th Lift Lobby, Office Area, M&E Rooms, Utility& Service Rooms, Toilets. 56th to 59th M&E Rooms. 60th Helipad. 59th to 73rd Steel structure with steel plate walkway. 74th, 76th, 77th Antenna Tower, Maintenance Deck and roof top. 5.2 Building Occupancy Menara TM enjoys an occupancy rate of approximately 98 %. The lettable office space is occupied by approximately 20 tenants whose rental rates vary between RM 3.00 to RM 5.50 gross per sq.ft. per month (RM 32.29 to RM 72.66 gross per sq.m. per month) with varying dates of expiry of tenancies. 6 Valuation and Valuation Methodology 6.1 Value Mohamed Ridza & Co. Page | 203
  208. The market value of Menara TM is RM817 ,530,000.00. Menara TM was appraised on the basis that Menara TM is leased out for fifteen (15) years. On this basis the building was appraised based on the Rent as set out in the Principal Terms and Conditions as appended hereto in Appendix 1 before reverting back to market rental when the Lease expires. 6.2 Basis of valuation In determining the market value of the office tower and carpark, the Valuer has adopted the “Investment Method” and cross checked with the “Comparison Method” in formulating its opinion of the current market value of Menara TM. The ancillary buildings which forms part of the facilities to complement the office tower, is not income generating (whereby only minimal fee is charged and usage is restricted to office occupants only, the Valuer has adopted the “Cost Method” in determining the market value of the ancillary buildings. Here the depreciated replacement cost of the building is derived from estimation of reproduction cost of the building of same kind and design as when new based on current market prices for materials, labour and present construction techniques and deducting therefrom the accrued depreciation due to use and disrepair, age and obsolescence through technology and market changes. In the Investment Method, the capital value of Menara TM is derived from an estimate of the market rental which Menara TM can reasonably be let for. Rental evidence may be obtained from actual passing rents commanded by the building itself if it is tenanted. Outgoings, such as property taxes, repairs and maintenance, insurance and management are then deducted from the annual rental income. The net annual rental income is then capitalized at an appropriate current market yield to arrive at its indicative capital value. The Comparison Method adopted by the Valuer is the market approach of comparing Menara TM with similar properties that were either transacted recently or listed for sale within the same location or other comparable localities. In comparing properties, due consideration is given by the Valuer to the usual value-based factors such as location, size, building differences, improvements and amenities, time element and other relevant factors to arrive at the Valuers opinion of value. Mohamed Ridza & Co. Page | 204
  209. APPENDIX 4 (B) MENARA CELCOM 1. Description of Menara Celcom Menara Celcom comprises the following:• • 22-storey office tower and 5 level basement carpark 6-storey exchange building The buildings have a total of 593 bays of car parks, 75 bays of motorcycle parking and the following net lettable area:Building Main 22-storey office tower 6-storey exchange building Total 2 Net Lettable Area (sq.ft) 304,348 7,256 311,604 sq.ft (28,948.99 sq.m) Gross Floor Area (sq.ft) 425,722 87,138 512,860 sq.ft (47,646.30 sq.m) Assessment Menara Celcom is assessed for local rates by Dewan Bandaraya Kuala Lumpur (DBKL) at an Annual Value of RM 10,416,000.00. At the current rate of 12% per annum, the rates assessment levied by the local authority is RM 1,249,920.00 per annum. 3 Town Planning • Menara Celcom was completed on April 2002. • Menara Celcom is situated within an area designated for commercial purposes. • The Certificate of Fitness for Occupation had been issued by Dewan Bandaraya Kuala Lumpur on January 15, 2003 via Ref No. BP C940132 (U3). • The building is approximately 6 years old (from the building completion date). 4 Site Details 4.1 Location Menara Celcom is situated at the intersection of Jalan Tun Razak and Jalan Raja Muda Abdul Aziz, approximately 3 kilometres due east of the City Centre. Menara Celcom is accessible via Jalan Raja Muda Abdul Aziz or Jalan Tun Razak, an important arterial distributor road linking the northern and southern suburbs bypassing the City’s Central Business District (CBD). 4.2 Surrounding Locality The immediate surroundings are characteristically mixed in nature comprising commercial retail, office and residential uses. Mohamed Ridza & Co. Page | 205
  210. Prominent landmarks located to the west include Bangunan TH Selborn , Bangunan Yayasan Selangor and Menara NAZA. The 37-storey Menara Marinara comprises retails shop, office suite and luxurious apartments and penthouses are located just next to the west of the subject property. The Petronas Twin Towers and Suria KLCC are located closeby about 2 km to the south of the subject property. The Institut Jantung Negara (IJN), Perpustakaan Negara (National Library), Wisma Sejarah, Hospital Pusrawi, Hotel Putra, Pusat Darah Negara, Balai Seni Lukis Negara, Istana Budaya and Wisma Bernama are located nearby along Jakan Tun Razak due northwest of Menara Celcom whilst Hospital Kuala Lumpur is located further due west. Located along Jalan Semarak are Sekolah Rendah Jalan Gurney 1&2, Koperasi Felcra, Wisma Felda, Wisma Tanah, Bangunan JUPEM, Kolej Multimedia TM, UTM KL and Pusat Latihan Polis (PULAPOL). On the northern flank is the residential neighbourhood comprise of detached houses, occupied also by the embassies of Syria, Morocco and Cuba. Other residential areas nearby include Kg Datok Keramat, The Palladium and Havella Apartments on the east and Kg Baru on the west. Taman Tasik Titiwangsa is located about 3 km due northwest of Menara Celcom. Prominent retail centers nearby include City Square Complex/Plaza Ampang/Empire Tower and Ampang Park located 2km to the south at the intersection of Jalan Ampang/Tun Razak. 4.3 Site The subject site comprise a irregular shaped parcel of commercial land identified as PT 24 Section 87A, Town and District of Kuala Lumpur, Wilayah Persekutuan, Kuala Lumpur. Viewed from plan, the site is rectangular in shape with a provisional land area of approximately 9,107.823 sq m (approx. 98,036 sq ft). The land is generally flat in terrain and lies about level with the frontage road, Jalan Raja Muda Abdul Aziz. 4.4 Services Mains water, electricity supply and telephone lines are connected to Menara Celcom. Water supply is drawn from Syarikat Bekalan Air Selangor’s (SYABAS) mains. Plumbing and water piping system comprise domestic water piping and fittings inclusive of suction and storage tanks located at designated floors. Incoming electricity supply from Tenaga Nasional Bhd’s (TNB) incoming feeder is step down by switchgears and 14 units of transformers from 11KV to 415V and channeled to the Main Switch Board and finally to the networks of Distribution Board in the building. In case of power interruption, 3 units of diesel powered generator with automatic relay will be on standby to provide temporary electricity supply to the integral services within the building such as emergency lighting system, ventilation system and service lifts. Telecommunications installation within the building comprises fibre-optic network and other telephone, facsimile and multimedia systems. The building is installed with Integrated Building Management System (IBMS), a computerized Mohamed Ridza & Co. Page | 206
  211. supervisory center for building M &E systems which include Building Automation System (BAS), Security Management System, Lift System and Low Voltage & Plumbing Control System (LV&PV). The building is provided with 9 nos. of passenger lifts, 2 car park lifts, 2 service lifts for vertical access. Internal building services include central air-conditioning system, fire fighting installations and telecommunications lines. Fire escape staircases are enclosed in common service cores. Vertical access provided within the building is as follows: Service Block Description Tower Block 8 nos. of Schindler 1632 kg (24-person) passenger lifts 1 no. of Schindler 1632 kg (24-person) bomba lift 2 nos. of Schindler 1020 kg (15-person) car park lifts 1 no. of Schindler 612 kg (9-person) passenger lift 1 no. of Schindler 2000 kg cargo lifts Annexe Block In terms of fire fighting and protection installations, an Automatic Sprinkler System is installed. Wet risers, portable fire extinguishers, hose reels, smoke detector system, VESDA and manual break glass alarm system are placed at various strategic locations. There is also an Automatic Gas Extinguishing, System Staircase Pressurization Fan and external hydrants. Security System comprises Closed Circuit Television (CCTV) and Secure Card Access. Street lighting, road maintenance, sewage disposal and rubbish collection are provided by Dewan Bandaraya Kuala Lumpur (DBKL) and Alam Flora Sdn.Bhd. For internal building cleaning services, the building is installed with Centralized Vacuum Systems for internal housekeeping and gondolas for external facade cleaning. Public transportation in the form of the buses and taxis is easily available in the vicinity. The building services can be summarized as follows:Type of services Standby Generator Make/Model Carterpillar 475Hp/1000kVA Total 3 nos. Lift Schindler 1632 kg & 612 kg Schindler 1020 kg & 2000 kg 11 nos. 2 no. Trane 500 & 250-tons Nihon Spindle Air Handling Unit (AHU) Humidifier Precision Cooling Unit (PCU) Denko Axpiretech Skyman Skyman Genie Simplex 4 nos. 11 nos. 59 nos. 14 nos. 16 nos. 2 nos. 1 no. 1 no. 1 no. - Air-Conditioning Chiller Cooling Tower Indoor Unit Central Vacum System Telescope Gondola Monorail Gondola Skylift Fire Alarm System/ Building Security System From the records provided by TM Facilities, the maintenance expenses are inclusive of Mohamed Ridza & Co. Page | 207
  212. internal spaces . The estimated average service charge expenses for common area is approximately RM 1.20 psf. 5 Building Details 5.1 Building The office building is generally constructed of reinforced concrete framework with plastered brickwalls and aluminium framed curtain claddings/glazings with intermediate reinforced concrete floor and roof slabs, resting on deep piled foundations. Main entrances at ground floor lobby are of automatic sliding glass and frameless glass swing type whilst other internal doors are generally of timber panel and timber fire rated type. The windows are generally of aluminium glass panels. The finishes are generally as follows:Building Structure External walls Main lobby & Lift lobby & toilets walls Typical office area and other M&E area walls Toilet & cafeteria floor Main lobby & lift lobby floor Typical office area floor M& E rooms and basement floor Server rooms Ceiling for office, lobby Ceiling for other M&E rooms & basement Finishes Glass and aluminium wall cladding Granite slab & ceramic tile Plastered & painted. Ceramic tile Granite & ceramic tile Carpeted Cement rendered Raised floor Fibrous plaster and suspended ceiling boards Plastered & coated with emulsion paint. The building provides the following internal accommodations:Floor Basement 1A and 1B Basement 2A and 2B Basement 3A to 5B Level 1 Level 2 Level 3 Level 4 Mohamed Ridza & Co. Accommodations (Tower Block) Accommodations (Annexe Block) Car parking bays, motorcycle bays, switch room, fan room, MDF room, lift lobby Car parking bays, motorcycle bays, fan room, water tank, lift lobby Car parking bays, motorcycle bays, fan room, lift lobby Main Lobby, retail space, control room, lift lobby, M&E service rooms, toilets, staircases Office space, retail space, lift lobby, security room, toilet, AHU room, lift motor room, Tel/Data riser, BAS/PA/OA/EL riser, staircases Office space, lift lobby, toilet, AHU rooms, utility room, Tel/Data riser, BAS/PA/OA/EL riser, staicases Office space, lift lobby, toilet, AHU rooms, utility room, Tel/Data TNB switch room, transformer room, LV switch room, fire control room, refuse room, lift lobby, toilets, staircases Genset, MSB & LTC room, MDF room, fibre optic room, switch room, lift lobby, toilet, staircases, Air Cond Chiller, MSB & LTC room, ANOC room, lift lobby, toilet, staircases Switching control room, MSB air cond room, LTC room, lift lobby, toilets, Page | 208
  213. Level 5 Level 6 Level 7-10 Level 15-16 Level 11-14 Level 17-19 Level 20-22 Level 23 (Roof Top) 5.2 riser, BAS/PA/OA/EL riser, staicases Office space, lift lobby, toilet, AHU rooms, utility room, Tel/Data riser, BAS/PA/OA/EL riser, staicases Office space, lift lobby, toilet, AHU rooms, utility room, Tel/Data riser, BAS/PA/OA/EL riser, staicases Office space, lift lobby, toilet, AHU rooms, Tel/Data riser, BAS/PA/OA/EL riser, staicases Office space, lift lobby, toilet, AHU rooms, Tel/Data riser, BAS/PA/OA/EL riser, staircases, terrace on Level 11, monorail gondola on Level 11 Office space, server room, lift lobby, toilet, AHU rooms, Tel/Data riser, BAS/PA/OA/EL riser, staircases, terrace on Level 17 Office space, lift lobby, toilet, AHU rooms, Tel/Data riser, BAS/PA/OA/EL riser, staircases Lift motor room, A/C make-up tank, domestic storage tank, portable storage tank, Telescope gondola staircases Roof garden, corridor, cafeteria, MSB, LTC rooms, AHU chiller air cool room, toilets, staircases Pump room, lift motor room, sprinkler tank, wet riser/hose reel tank, air cooled chiller plant - - - Building Occupancy Menara Celcom is mainly owner occupied and also by other tenants. 6 Valuation Methodology 6.1 Valuation The market value of Menara Celcom is RM147,920,000.00. Menara Celcom was appraised on the basis that Menara Celcom is leased out for fifteen (15) years. On this basis the building was appraised based on the Rent as set out in the Principal Terms and Conditions as appended hereto in Appendix 1 before reverting back to market rental when the Lease expires. 6.2 Basis of valuation In determining the market value of the office tower and carpark, the Valuer has adopted the “Investment Method” and cross checked with the “Comparison Method” in formulating its opinion of the current market value of Menara Celcom. The ancillary buildings which forms part of the facilities to complement the office tower, is not income generating (whereby only minimal fee is charged and usage is restricted to office occupants only, the Valuer has adopted the “Cost Method” in determining the market value of the ancillary buildings. Here the depreciated replacement cost of the building is derived from estimation of reproduction Mohamed Ridza & Co. Page | 209
  214. cost of the building of same kind and design as when new based on current market prices for materials , labour and present construction techniques and deducting therefrom the accrued depreciation due to use and disrepair, age and obsolescence through technology and market changes. In the Investment Method, the capital value of Menara Celcom is derived from an estimate of the market rental which Menara Celcom can reasonably be let for. Rental evidence may be obtained from actual passing rents commanded by the building itself if it is tenanted. Outgoings, such as property taxes, repairs and maintenance, insurance and management are then deducted from the annual rental income. The net annual rental income is then capitalized at an appropriate current market yield to arrive at its indicative capital value. The Comparison Method adopted by the Valuer is the market approach of comparing Menara Celcom with similar properties that were either transacted recently or listed for sale within the same location or other comparable localities. In comparing properties, due consideration is given by the Valuer to the usual value-based factors such as location, size, building differences, improvements and amenities, time element and other relevant factors to arrive at the Valuer’s opinion of value. Mohamed Ridza & Co. Page | 210
  215. APPENDIX 4 (C) CYBERJAYA COMPLEX 1. Description of The Cyberjaya Complex The Cyberjaya Complex comprises of a four (4) storey office building with one level basement carpark known as Komplek TM Cyberjaya, 3300, Lingkaran Usahawan 1 Timur, 63000 Cyberjaya, Selangor Darul Ehsan. The building is completed and issued with Certificate of Fitness for Occupation. The building has a total net lettable area of approximately 94,710 sq. ft. (8,798.84 sq. m.). The building has 204 bays of car parks. The subject property bears postal address Komplek TM Cyberjaya, 3300, Lingkaran Usahawan 1 Timur, 63000 Cyberjaya, Selangor. 2 Assessment The Cyberjaya Complex is assessed by the local authority, Majlis Perbandaran Sepang at an Annual Value of RM 2,418,000. At the current rate of 8.40% per annum, the rates assessment levied by the local authority is RM 203,112. 3 Town Planning • The building was completed on January 2001. • Cyberjaya Complex is situated within an area designated for commercial purposes. • The Certificate of Fitness for Occupation (CFO) was issued on January 12, 2002 vide Certificate No. 0324. • The building is approximately 6 years old (from the building completion date). 4. Site Details 4.1 Location Cyberjaya Complex is situated along Lingkaran Usahawan 1 Timur, Cyberjaya Multi Super Corridor (MSC) approximately 9 km and 37 km due south west of Putrajaya and Kuala Lumpur City Centre respectively. It is easily accessible from the city centre via Kuala Lumpur – Seremban Expressway by exiting at UPM Toll Plaza and proceeding onto the South Klang Valley Expressway leading to Putrajaya/Cyberjaya before turning left onto Jalan B15, Persiaran Apec, Persiaran Sepang and finally turning right onto Lingkaran Usahawan 1 Timur leading to the Cyberjaya Complex. 4.2 Surrounding Locality Mohamed Ridza & Co. Page | 211
  216. Cyberjaya is located within the Multimedia Super Corridor (MSC) a 50 km by 15 km stretch of land that stretches from the Kuala Lumpur City Centre in the heart of Kuala Lumpur, to the Kuala Lumpur International Airport (KLIA) in Sepang. An extensive network of highways currently grants access to Cyberjaya. Later developments like expansions to current monorail systems available in Kuala Lumpur will allow even easier entry and exit into Cyberjaya. Cyberjaya is located directly to the west of Putrajaya. The immediate surroundings are characteristically mixed in nature comprising commercial retail, office and residential uses. The nearest landmarks to the subject property include Ericsson Building, InventQjaya Building, Multimedia University, Limkokwing University of Creative Technology (LUCT) and Cyberjaya University College of Medical Sciences (CUCMS). The Quill Riet’s 4 properties are located nearby due south of the subject property. Putrajaya being the new federal government administrative centre, is located in the hub of the Multimedia Super Corridor (MSC) and less than 25 minutes drive from the central business and cultural facilities of Kuala Lumpur. It is being developed as a comprehensive planned city based on two main themes: ‘A City in a Garden’ and ‘An Intelligent City’. Putrajaya covers over 4,581ha (11,320 acres) and its development is planned to stretch over two decades. 4.3 Site The subject site being part of Lot PT 12056 is a corner lot and generally irregular in shape encompassing a provisional land area of approximately 18,722 sq. m. (201,522 sq. ft. or 4.626 acres). It has a direct frontage of about 144.843 metres (475 ft) onto Lingkaran Usahawan 1 Timur and a depth of about 122.641 metres (402 ft) along its eastern boundary. The land is generally flat in terrain and lies about level with the frontage road, Lingkaran Usahawan 1 Timur. 4.4 Services Mains water, electricity supply and telephone lines are connected to the Cyberjaya Complex. The building is installed with Building Automation System (BAS), a computerized supervisory center for building M&E systems, which include electrical, air-conditioning and ventilation systems, fire fighting and domestic cold water services. The building is provided with 2 nos. of passenger lifts for vertical access. Internal building services include split air-conditioning system via AHU’s with individual package control system at every floor (22 units Split unit), fire fighting installations and telecommunications lines. Fire escape staircases are enclosed in common service cores. In terms of fire fighting and protection installations, an Automatic Sprinkler System is installed. Hose reels, dry riser breezing inlet, smoke detector/head detector (in every mechanical room), carbon dioxide system (in every mechanical room), portable fire extinguishers and pressurization fan c/w automatic control. The building services can be summarized as follows:Type of services Transformer Mohamed Ridza & Co. Make/Model 750Kva each Total 2 nos. Page | 212
  217. Generator Set Lifts Model Cummins QST30-G2 – 750Kba Otis Model 53NE4552 Loading capacity 1,020 kg each 1 no. 2 nos. Air-Conditioning System Centrallised with air handling units individually control at every floor 22 nos. Street lighting, road maintenance, sewage disposal and rubbish collection are provided by Majlis Perbandaran Sepang (MPS) and Alam Flora Sdn.Bhd. Public transportation in the form of the buses and taxis is easily available in the vicinity. From the records provided by TM Facilities, the maintenance expenses are inclusive of internal spaces. The estimated average service charge for common area is approximately RM 1.20 psf. 5 Building Details 5.1 Building The office building is generally constructed of reinforced concrete framework with plastered brickwalls with intermediate reinforced concrete floor and roof slabs concealed behind parapet walls resting on bored foundations. The external façade of the building is of tinted glass curtain walling. Main entrance at ground floor is of automatic sliding glass type whilst other internal doors are generally of dual leaf glass door, timber fire rated type and timber flush type. The windows are generally of fixed aluminium casement and aluminium frame glass top-hung type. The finishes are generally as follows:Building Structure External walls Main lobby & Lift lobby & toilets walls Typical office area and other M&E area walls Toilet & cafeteria floor Main lobby & lift lobby floor Typical office area floor M& E rooms and basement floor Ceiling for office and lobby Ceiling for other M&E rooms & basement Finishes Glass and aluminium panel cladding Marble slab / ceramic tiles Plastered & painted and tinted glass curtain walls. Ceramic tile Marble slab and ceramic tile Ceramic tile & carpeted Cement rendered Fibrous plaster and suspended ceiling boards Plastered & coated with emulsion paint. The building provides the following internal accommodations:Right Wing Floor Middle Wing Left Wing Lower Ground Ground Car Parks, Lift Lobby, Staircase, M & E Rooms & Driveway First Office Areas, Lift Lobby, Toilets, Staircase & M & E Waiting Area, Lift Lobby, Toilets & M & E Rooms Mohamed Ridza & Co. Main Lobby, Foyer, Security Counter, Pantry, Lift Lobby & Staircase 2 Bridge Link Waiting Area, Lift Lobby, Office Areas, Toilets, M & E Rooms & Staircase Office Areas, Lift Lobby, Toilets, Staircase & M & E Page | 213
  218. Second Rooms Office Areas , Lift Lobby, Toilets, Staircase & M & E Rooms Right Wing Floor Third Roof 5.2 Office Areas, Lift Lobby, Toilets, Staircase & M & E Rooms Office Areas, Waiting Areas, Lift Lobby, Staircase & M & E Rooms Middle Wing Office Areas, Waiting Area, Lift Lobby, Discussion Rooms & Staircase M & E Rooms, Staircase & Flat Roof Area Rooms Office Areas, Lift Lobby, Toilets, Staircase & M & E Rooms Left Wing Office Areas, Lift Lobby, Toilets, Staircase & M & E Rooms Building Occupancy Cyberjaya Complex enjoys an occupancy rate of approximately 97%. The lettable office space is occupied by approximately 5 tenants whose rental rates vary between RM 2.80 to RM 3.50 gross per sq. ft. per month (RM 30.14 to RM 37.67 gross per sq. m. per month) with varying dates of expiry of tenancies. 6 Valuation Methodology 6.1 Valuation The market value of Cyberjaya Complex is RM33,525,000.00. The Cyberjaya Complex was appraised on the basis that Cyberjaya Complex is leased out for fifteen (15) years. On this basis the building was appraised based on the Rent as set out in the Principal Terms and Conditions as appended hereto in Appendix 1 before reverting back to market rental when the Lease expires. 6.2 Basis of valuation In determining the market value of the Cyberjaya Complex, the Valuer has adopted the “Investment Method” and cross checked with the “Comparison Method” in formulating its opinion of the current market value of the Cyberjaya Complex. In the Investment Method, the capital value of the Cyberjaya Complex is derived from an estimate of the market rental which the Cyberjaya Complex can reasonably be let for. Rental evidence may be obtained from actual passing rents commanded by the building itself if it is tenanted. Outgoings, such as property taxes, repairs and maintenance, insurance and management are then deducted from the annual rental income. The net annual rental income is then capitalized at an appropriate current market yield to arrive at its indicative capital value. The Comparison Method adopted by the Valuer is the market approach of comparing the Cyberjaya Complex with similar properties that were either transacted recently or listed for sale within the same location or other comparable localities. In comparing properties, due consideration is given by the Valuer to the usual value-based factors such as location, size, building differences, improvements and amenities, time element and other relevant factors to arrive at the Valuer’s opinion of value. Mohamed Ridza & Co. Page | 214
  219. APPENDIX 4 (D) WISMA TM TAMAN DESA 1 Description of Wisma TM Taman Desa Wisma TM Taman Desa comprises of a block of twelve and a half (12½) storey building with two (2) basement levels of car park The buildings have a total net lettable area of 81,761 sq. ft. (approximately 7,595.85 sq. m.) and 200 parking bays. 2 Assessment Wisma TM Taman Desa is assessed by the local authority, Dewan Bandaraya Kuala Lumpur (DBKL) at an Annual Value of RM 1,422,000.00. At the current rate of 12% per annum, the rates assessment levied by the local authority is RM 170,640.00 per annum. 3 Town Planning • Wisma TM Taman Desa was completed on year 1993. • Wisma TM Taman Desa is situated within an area designated for commercial purposes. • The Certificate of Fitness for Occupation for this 12 ½ storey building with 2 level of basement was issued on May 5, 1994 bearing the Reference No. BP 169/85/B. • The building is therefore approximately 14 years old. (from the building completion date) 4 Site Details 4.1 Location Wisma TM Taman Desa is situated along Jalan Desa Utama. Geographically, it is located about 7 km south est from Kuala Lumpur City Centre. It is easily accessible from Kuala Lumpur City Centre via Jalan Sultan Hishamuddin, Jalan Syed Putra, thereafter make a left turn to Jalan Klang Lama, Jalan Desa and finally make a right turn to Jalan Desa Utama, which leads to the subject property. 4.2 Surrounding Locality Surrounding developments within the immediate vicinity comprise single storey / two storey terrace houses, detached houses, apartments, condominiums, flats and 2-storey shophouses. Housing schemes nearby include Taman Bukit Desa, Taman Abadi Indah, Taman Danau Desa, Taman Seputeh, Taman Bukit Seputeh and Taman Lien Hoe. Commercial schemes nearby include Taman Shanghai, Danau Desa Commercial Centre and Abadi Villa Commercial Centre. Mohamed Ridza & Co. Page | 215
  220. Prominent landmarks in the vicinity include Faber Towers , Faber Heights, Faber Indah, Faber Ria, Desa Ria Condominium, OBD Garden Tower Condominium, Danau Murni, Danau Permai, Danau Idaman, Tiara Faber Condominium, Abadi Villa Apartment and Condominium and Sekolah Kebangsaan Rendah Taman Desa I and Sekolah Kebangsaan Menengah Taman Desa 1. 4.3 Site The subject site comprises an irregular shaped parcel of commercial land identified as PT 3569. Viewed from plan, the site is irregular in shape with a surveyed land area of 4,230 sq.m. (45,531.30 sq.ft) It enjoys direct frontage of about 67 metres (210 ft) onto Jalan Desa Utama with a depth of about 60 metres (197 ft). The land is generally flat in terrain and lies about level with the frontage road, Jalan Desa Utama. 4.5 Services Mains water, electricity supply and telephone lines are connected to Wisma TM Taman Desa. The building is currently managed by TM Facilities Services Sdn. Bhd. which is the in-house management. However, mechanical and electrical maintenance services and housekeeping services are outsourced to TMR Urusharta (M) Sdn. Bhd and Sinar Jernih Services Sdn. Bhd. respectively. The building is provided with 4 nos. of passenger lifts for vertical access. Internal building services include central air-conditioning system, fire fighting installations and telecommunications lines. Fire escape staircases are enclosed in common service cores. Vertical access provided within the building is as follows: Description 3 nos. of Mitsubishi 1,020kg (15-person) passenger lifts 1 no of Mitsubishi 1,225kg (18-person) passenger lifts In terms of fire fighting and protection installations, an Automatic Sprinkler System is installed. Wet risers, portable fire extinguishers, hose reels, manual break glass alarm system are placed at various strategic locations. There are also Halon System, Carbon Dioxide System and Firemen’s Intercom System. Security System comprises Closed Circuit Television (CCTV) and 24-hour security guard. The building services can be summarized as follows:Type of services Standby Generator Make/Model Leroy Somer 750 kVA Total 1 no. Lifts Mitsubishi 1,020 kg & 1,250 kg 4 nos. AHU Fan Coil Units York Sanyo and Daikin 13 nos. 28 nos Mohamed Ridza & Co. Page | 216
  221. Cooling Tower Liang Chu 2 nos . From the records provided by TM Facilities, the maintenance expenses are inclusive of internal spaces. The estimated average maintenance expenses for common area is RM 1.00 psf. Street lighting, road maintenance, sewage disposal and rubbish collection are provided by Dewan Bandaraya Kuala Lumpur (DBKL) and Alam Flora Sdn.Bhd. Public transportation in the form of the buses and taxis is easily available in the vicinity. 5 Building Details 5.1 Building The office building is generally constructed of reinforced concrete framework with brick infilled walls supporting a reinforced concrete flat roof. Main entrances at ground floor are double leaf frameless glass panel doors whilst other internal doors are generally of timber panel and timber fire rated type. The windows are generally of aluminium glass panels. The finishes are generally as follows:Building Structure External walls Main lobby & Lift lobby & toilets walls Typical office area and other M&E area walls Toilets Main lobby & lift lobby floor Typical office area floor M& E rooms and basement floor Ceiling for office and lobby Ceiling for basement other M&E rooms & Finishes Glass and aluminium panel cladding Granite and ceramic tiles Plastered & painted. Ceramic tile Granite and ceramic tile Ceramic tile & carpeted Cement rendered Fibrous plaster and suspended ceiling boards Plastered & coated with emulsion paint. The building provides the following internal accommodations: Floor Basement 1 Basement 2 Ground Mezzanine Level 1 Level 2 Mohamed Ridza & Co. Accommodations Car Parks, Lift Lobby, Staircases, M & E Rooms Car Parks, Lift Lobby, Staircases, M & E Rooms Main Lobby, Cafeteria, Staircases, Toilets, Building Control Room, Lift Lobby, TM Point CEO’s Room, Office Area, Meeting Room, Lift Lobby, Staircases, Toilets Maintenance Office, Surau, Lift Lobby, Staircases, Toilets Office Area, Lift Lobby, Staircases, Toilets Page | 217
  222. Level 3 Level 4 Level 5 Level 6 Level 7 Level 8 Level 9 Level 10 Level 11 Roof Top 5 .2 Office Area, Lift Lobby, Staircases, Toilets Office Area, Lift Lobby, Staircases, Toilets Office Area, Lift Lobby, Staircases, Toilets Office Area, Lift Lobby, Staircases, Toilets Office Area, Lift Lobby, Staircases, Toilets Office Area, Lift Lobby, Staircases, Toilets Office Area, Lift Lobby, Staircases, Toilets Office Area, Lift Lobby, Staircases, Toilets Office Area, Lift Lobby, Staircases, Toilets Staircases, M&E Rooms Building Occupancy Wisma TM Taman Desa is currently owner-occupied/occupied by its subsidiary. 6 Valuation Methodology 6.1 Valuation The market value of Wisma TM Taman Desa is RM30,440,000.00. Wisma TM Taman Desa was appraised on the basis that Wisma TM Taman Desa is leased out for fifteen (15) years. On this basis the building was appraised based on the Rent as set out in the Principal Terms and Conditions as appended hereto in Appendix 1 before reverting back to market rental when the Lease expires. 6.2 Basis of valuation In determining the market value of Wisma TM Taman Desa, the Valuer has adopted the “Investment Method” and cross checked with the “Comparison Method” in formulating its opinion of the current market value of the Cyberjaya Complex. In the Investment Method, the capital value of Wisma TM Taman Desa is derived from an estimate of the market rental which Wisma TM Taman Desa can reasonably be let for. Rental evidence may be obtained from actual passing rents commanded by the building itself if it is tenanted. Outgoings, such as property taxes, repairs and maintenance, insurance and management are then deducted from the annual rental income. The net annual rental income is then capitalized at an appropriate current market yield to arrive at its indicative capital value. The Comparison Method adopted by the Valuer is the market approach of comparing Wisma TM Taman Desa with similar properties that were either transacted recently or listed for sale within the same location or other comparable localities. In comparing properties, due consideration is given by the Valuer to the usual value-based factors such as location, size, building differences, improvements and amenities, time element and other relevant factors to arrive at the Valuer’s opinion of value. Mohamed Ridza & Co. Page | 218
  223. APPENDIX 5 THE PROPOSED DEMERGER 1 . DETAILS OF THE PROPOSED DEMERGER The Proposed Demerger is expected to involve the following: (i) an internal restructuring whereby Telekom Enterprise Sdn Bhd (“TESB”) (a whollyowned subsidiary of TM) transfers Celcom (Malaysia) Berhad (“Celcom”) to TM International Sdn Bhd (“TM International”), where TM International will become the holding company for all of TM Group’s mobile and non-Malaysian businesses (“RegionCo”) (“Proposed Internal Restructuring”); (ii) a demerger of RegionCo from the TM Group through the distribution by TM of all the ordinary shares of RM1.00 each in TM International (“TM International Shares”) to its shareholders; and (iii) a listing of TM International on the Main Board of Bursa Malaysia Securities Berhad (“Bursa Securities”). The remaining TM Group after the demerger of RegionCo (“FixedCo”) will comprise the fixedline voice, data and broadband services and other telecommunication and on telecommunication related businesses. FixedCo will remain listed as TM on the Main Board of Bursa Securities. TM Group’s publicly listed subsidiaries, namely PT Excelcomindo Pratama TBK (“XL”), Dialog Telekom Plc (“Dialog”) and VADS Berhad (“VADS”) will also remain listed on their respective stock exchanges. The corporate structure of TM Group before and after the Proposed Demerger, based on the shareholdings of TM’s substantial shareholders as at 31 August 2007 and before taking into consideration capital management initiatives, is envisaged to be as follows: Current Corporate Structure Corporate structure after the Proposed Internal Restructuring Celcom Mohamed Ridza & Co. Page | 219
  224. TM International Corporate Structure after the proposed Internal Restructuring Corporate structure after the Proposed Demerger Notes : 1 Publicly listed companies. 2 Strategic business unit which includes TM retail, TM wholesale, TM Net Sdn Bhd, Telekom Sales & Services Sdn Bhd and others. 3 Strategic business unit which includes VADS, Fibrecomm Network (M) Sdn Bhd, Fiberail Sdn Bhd, Universiti Telekom Sdn Bhd, Menara Kuala Lumpur Sdn Bhd, TM Info-Media Sdn Bhd, TM Facilities Sdn Bhd and property. Mohamed Ridza & Co. Page | 220
  225. The corporate structures illustrated above are subject to the finalisation of the terms for the Proposed Demerger , which is expected to be announced by December 2007∗. The Proposed Demerger will be carried out along the following principles: (i) limited restrictions on scope of operations of RegionCo and FixedCo respectively; (ii) flexibility for management to maximise value of RegionCo and FixedCo respectively; (iii) any related party transactions between RegionCo and FixedCo shall be on an arm’s length or market based approach; (iv) full transparency in financial and operational performance of RegionCo and FixedCo respectively; (v) separate management and boards for RegionCo and FixedCo; and (vi) structural changes implemented along legal and business entities to minimise any business disruption. As part of the Proposed Demerger, TM’s management would also look to improve on the capital efficiency of the respective entities, which are involved in 2 distinct areas of business, through better and more tailored capital management initiatives. Such initiatives would take into consideration both the entities’ funding requirements and capital structure with the objective of enhancing shareholders’ return. 2. RATIONALE FOR THE PROPOSED DEMERGER The Proposed Demerger is driven principally to create shareholder value through accelerated operational improvement and growth. Specifically, the rationale of the Proposed Demerger is as follows: (i) Realise governance benefits that can accelerate current growth and improvement efforts The Board believes that the Proposed Demerger allows for improvement of organisational focus through more explicit management mandates and accountability for each respective business entities, and tailored performance management. The Proposed Demerger is also expected to improve the execution capacity of each respective business entities through better scope for talent management and people development in the respective companies. Consequently, the respective entities will be in a better position to pursue different strategies in a more focused way. RegionCo can focus fully on creating a leading regional mobile champion with enlarged footprint in fast-growing markets. FixedCo, on the other hand, can continue to grow its international carrier and connectivity business and develop its domestic fixed operations into a broadband and customerdriven company. The Proposed Demerger is also expected to result in greater transparency on the performance of the respective business entities enabling the capital market and other stakeholders to better ascertain the respective merits and prospects of each ∗ This announcement was made on the 10th December 2007. Details of the Proposed Demerger announcement is as set out in Appendix 8 Mohamed Ridza & Co. Page | 221
  226. entity . This would result in the development of a more focused shareholder base, which is also expected to facilitate a business-centric valuation of the separate entities and potentially unlock value to shareholders. (ii) Capture additional demerger benefits In addition, the Proposed Demerger will provide each company with a set of additional benefits. Firstly, RegionCo, as a separate regional mobile champion will benefit from increased deal structuring capability with its enhanced profile as a successful and growing pureplay mobile operator. The separate listing also provides RegionCo with a more attractive acquisition currency, in the form of its own listed shares, and greater access to equity markets and increased flexibility in funding. These allow RegionCo to be better positioned to pursue its growth strategies. Secondly, it would also provide the respective entities, which are involved in two distinct areas of business, the opportunity for better and more tailored capital management initiatives. This would allow each business to design optimised capital structures through differentiated gearing levels as well as enable better capital allocation processes for more effective capital spending. Each entity will also be able to pursue specific dividend policies and investor relations strategies. (iii) Freedom to pursue distinct aspirations and strategies and contribute to fulfillment of national objectives The Proposed Demerger will enable each business, Regionco and FixedCo, to focus on their respective core activities and pursue their different and distinct aspirations. RegionCo will be focused on becoming a best-in-class regional mobile champion with an active growth agenda, and create an international benchmark in the telecommunciation industry. As a result, RegionCo will be well-positioned to become another Malaysian example of establishing a successful international company with enhanced global networking opportunities for the country. FixedCo, on the other hand, will seek to place Malaysia at the forefront of the digital economy, supported further by the proposed high speed broadband project being developed with the government which would enable Malaysia to deliver on its high broadband penetration objectives. Moreover, it will contribute to the creation of a regional internet protocol (IP) hub and the promotion of a vibrant digital eco-system in the country. 3. INFORMATION ON REGIONCO AND FIXEDCO The Proposed Demerger will result in the creation of 2 telecommunication champions: (i) RegionCo - Regional Mobile Champion RegionCo is proposed to undertake the mobile business of the TM Group, which is presently being carried out by Celcom and the various operating subsidiaries and associated companies of TM International. Mohamed Ridza & Co. Page | 222
  227. RegionCo will be focused on becoming a best-in-class regional mobile champion with strong exposure to high growth mobile markets . As at 30 June 2007, RegionCo has a total of 31.8 million subscribers in high growth markets in Asia. The year-on-year subscribers growth as at 30 June 2007 was 33.1%. RegionCo has a significant presence in 10 countries, 8 of which are in the provision of mobile telecommunication services, as follows: Country Operating company Mobile Telecommunication Services (i) Malaysia Celcom (ii) Indonesia XL1 (iii) Sri Lanka Dialog1 (iv) Bangladesh TM International (Bangladesh) Limited (“TMIB”) (v) Singapore MobileOne Ltd1 (vi) India Spice Communications Limited1 (vii) Cambodia Telekom Malaysia International (Cambodia) Company Limited (viii) Iran Mobile Telecommunications Company of Esfahan Non-Mobile Telecommunication Services (ix) Pakistan Multinet Pakistan (Private) Limited2 (x) Thailand - Samart Corporation Public Company Limited1, 3 - Samart I-Mobile Public Company Limited1, 3 Notes: 1 Publicly listed companies. 2 Provision of fibre optic network services and broadband services. 3 Design, implemention and installation of telecommunication systems and distribution of telecommunication equipments. RegionCo also has strong competitive positions in the above regional markets, with Dialog being the leading mobile provider in Sri Lanka, TMIB and Celcom being the 2nd largest mobile provider in their respective countries, and XL being the 3rd largest mobile provider in Indonesia by revenue with improving market share. In addition, the Proposed Demerger would enable RegionCo to better position itself in expanding its regional presence. Such strategic initiatives, which will continue to spur RegionCo’s growth, are expected to be supported through the steady cashflow streams derived from Celcom and a flexible capital structure. (ii) FixedCo – Domestic Broadband Champion FixedCo will carry on the fixed-line voice, data and broadband services and other telecommunication and non-telecommunication related businesses. FixedCo is the leading domestic fixed-line and broadband provider, with a 95% market share in the fixed-line business and a 96% share of broadband business. As at 30 June 2007, FixedCo has 4.4 million fixed-line subscribers and 1.1 million broadband subscribers. Mohamed Ridza & Co. Page | 223
  228. FixedCo intends to lead the broadband penetration in Malaysia , which has strong growth opportunity given Malaysia’s broadband penetration of only 12.8% for the 2nd quarter of 2007 (based on statistics published by the Malaysian Communications and Multimedia ommission). As at 30 June 2007, FixedCo’s broadband subscribers grew by 66.8% year-on-year. In line with its aspirations and pursuant to the statement made by the Deputy Prime Minister, Dato’ Sri Mohd. Najib Tun Razak, on 27 September 2007, TM will be working with the government of Malaysia (“Government”) to develop a high-speed broadband (“HSBB”) infrastructure and service through a Public-Private Partnership (“PPP”) arrangement. The provision of HSBB services to key economic regions and the roll out of broadband would complement and enhance FixedCo’s revenue and earnings base while being in line with Government’s objective to achieve a broadband penetration of 50% by 2010. The investment for HSBB is approximately RM15.2 billion over the next 10 years, of which approximately one-third is expected to be contributed by the Government. As TM is in the midst of discussions with the Government to finalise the terms of the PPP, further details will be announced to shareholders in due course. While pursuing growth in the broadband business, FixedCo remains focused on enhancing international connectivity within the region. This would establish Malaysia as a regional Internet Protocol (IP) hub, serving as a digital gateway for South-East Asia. Further to FixedCo’s growth potential, there is potential upside to be derived through the improvement in FixedCo’s operational efficiencies. These may be achieved through the streamlining of network operations, cost savings from procurement, leveraging of cross- sectional marketing and other various initiatives. Upon completion of the Proposed Demerger, the Board envisages that FixedCo will adopt an appropriate dividend policy to enhance shareholders’ value. 4. EFFECTS OF THE PROPOSED DEMERGER 4.1 Net assets The effects of the Proposed Demerger on the net assets of RegionCo and FixedCo depend on the final terms of the Proposed Demerger. However, purely for illustrative purposes only, the indicative proforma effects of the Proposed Demerger on the consolidated net assets of the TM Group and TM International Group, without taking into consideration capital management initiatives, based on the audited consolidated financial statements of TM for the year ended 31 December 2006 and unaudited consolidated financial statements of TM International for the year ended 31 December 2006, are as follows: (i) TM Group (FixedCo after the Proposed Demerger) Mohamed Ridza & Co. Page | 224
  229. (ii) TM International Group (RegionCo after the Proposed Demerger) Notes: ² Based on the following assumptions: (a) the Proposed Demerger was completed on 31 December 2006; (b) the proposed capital repayment by Celcom of RM730 million to its sole shareholder, TESB (“Proposed Capital Repayment”) was completed on 31 December 2006; (c) the transfer of Celcom to TM International for a net consideration of RM3,127.4 million was satisfied through the issuance of 3,127.4 million TM International Shares. The net consideration comprises: (d) FixedCo distributed its entire holdings of TM International Shares to its shareholders through a capital repayment which was carried out through the cancellation of RM3,941.9 million of its share premium account and RM4,258.1 million of its retained profits; and Mohamed Ridza & Co. Page | 225
  230. (e) no transaction costs have been taken into consideration. The Board anticipates that both RegionCo and FixedCo will be well capitalised entities with the capacity to fund their businesses, and for RegionCo, to pursue future mergers and acquisition opportunities. 4.2 Earnings Purely for illustrative purposes only, based on the audited consolidated financial statements of TM for the financial year ended 31 December 2006, the proforma revenue, earnings before interest, taxation, depreciation and amortization (“EBITDA”), operating profit before finance cost, and profit after taxation and minority interests (“PATAMI”) of RegionCo and FixedCo with respect to the Proposed Demerger, without taking into consideration capital management initiatives, are as follows: 4.3 Issued and paid-up share capital and shareholdings of TM substantial shareholders The effects of the Proposed Demerger on the issued and paid-up share capital and shareholdings of TM shareholders would depend on the final terms of the Proposed Demerger. However, purely for illustrative purposes only, based on the assumptions as set out in Section 5.1 above, and without taking into consideration capital management initiatives, the Proposed Demerger is not expected to have any effect on the issued and paid-up share capital of TM. However, the distribution of TM International Shares to TM’s shareholders under the Proposed Demerger will reduce TM’s share premium account and retained profits by RM3,941.9 million and RM4,258.1 million respectively. Mohamed Ridza & Co. Page | 226
  231. Upon immediate completion of the Proposed Demerger , shareholders of TM will have direct shareholdings in TM International (RegionCo). Hence, the effective shareholding of TM’s shareholders in TM and TM International before and after the Proposed Demerger, without taking into consideration capital management initiatives, remains unchanged. 5. IMPLEMENTATION AND INDICATIVE TIMELINE The Proposed Demerger will be implemented along the existing legal and business entities of the TM Group. Hence, the Proposed Demerger is not expected to result in any major disruption to the TM Group’s existing operations as each business unit will continue in its dayto-day operations, while simultaneously pursuing the improvements envisaged under TM’s key performance indicators (KPI) and PIP. The indicative timeline for the implementation of the Proposed Demerger are as follows: Key milestones Indicative time Announcement of the final terms of the Proposed Demerger December 2007 Submission to the relevant regulatory authorities End 1st quarter 2008 Approval obtained from the relevant regulatory authorities Early 2nd quarter 2008 and shareholders Completion of the Proposed Demerger End 2nd quarter 2008 Appropriate announcements of the progress of the Proposed Demerger will be made to Bursa Securities in due course in accordance with the Listing Requirements of Bursa Securities. Mohamed Ridza & Co. Page | 227
  232. APPENDIX 6 LATEST UNAUDITED QUARTERLY RESULTS Mohamed Ridza & Co. Page | 228
  233. Mohamed Ridza & Co. Page | 229
  234. Mohamed Ridza & Co. Page | 230
  235. APPENDIX 7 AUDITED FINANCIAL STATEMENTS OF TM FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 (Extracted from TM’s Annual Report 2006) Mohamed Ridza & Co. Page | 231
  236. FINANCIAL STATEMENTS Statement of Responsibility by Directors Directors ’ Report Significant Accounting Policies Income Statements Balance Sheets Consolidated Statement of Changes in Equity Company Statement of Changes in Equity Cash Flow Statements Notes to the Financial Statements Statement by Directors Statutory Declaration Report of the Auditors General Information — — — — — — — — — — — — — 217 218 223 239 240 241 243 244 245 347 347 348 349
  237. STATEMENT OF RESPONSIBILITY BY DIRECTORS Statement of RESPONSIBILITY BY DIRECTORS IN RESPECT OF THE PREPARATION OF THE ANNUAL AUDITED FINANCIAL STATEMENTS he Directors are required by the Companies Act , 1965 to prepare financial statements for each financial year which have been made out in accordance with the applicable approved accounting standards in Malaysia and give a true and fair view of the state of affairs of the Group and the Company at the end of the financial year and of the results and cash flows of the Group and the Company for the financial year. T • prepared financial statements on the going concern basis as the Directors have a reasonable expectation, having made enquiries, that the Group and the Company have adequate resources to continue in operational existence for the foreseeable future. The Directors have the responsibility to ensure that the Group and the Company keeps accounting records which disclose with reasonable accuracy the financial position of the Group and the Company and which enable them to ensure the In preparing the financial statements, financial statements comply with the Companies the Directors have: Act, 1965. • adopted appropriate accounting policies and applied them consistently; • made judgements and estimates that are reasonable and prudent; • ensured that all applicable approved accounting standards have been followed; and The Directors have the overall responsibilities to take such steps as are reasonably open to them to safeguard the assets of the Group and for establishment and implementation of appropriate accounting and internal control systems for the prevention and detection of fraud and other irregularities. ANNUAL REPORT 2006 TELEKOM MALAYSIA BERHAD 217
  238. DIRECTORS ’ REPORT for the year ended 31 December 2006 1. The Directors have pleasure in submitting their annual report and the audited financial statements of the Group and the Company for the year ended 31 December 2006. PRINCIPAL ACTIVITIES 2. The principal activities of the Company during the year are the establishment, maintenance and provision of telecommunication and related services under the licence issued by the Ministry of Energy, Water and Communications. The principal activities of the subsidiaries are set out in note 50 to the financial statements. There was no significant change in the nature of these activities during the year. RESULTS 3. The results of the operations of the Group and the Company for the year were as follows: The Group The Company RM million RM million 4. Profit for the year attributable to: – Equity holders of the Company – Minority interests 2,068.8 233.5 534.7 — Profit for the year 2,302.3 534.7 In the opinion of the Directors, the results of the operations of the Group and the Company during the year were not substantially affected by any item, transaction or event of a material and unusual nature. DIVIDENDS 5. Since the end of the previous year, the dividends paid, declared or proposed on ordinary shares by the Company are as follows: RM million (a) (b) (c) 218 In respect of the year ended 31 December 2005, a final gross dividend of 25.0 sen per share less tax at 28% was paid on 20 June 2006 610.9 In respect of the year ended 31 December 2006, an interim gross dividend of 16.0 sen per share less tax at 28% was paid on 18 September 2006 391.0 In respect of the year ended 31 December 2006, the Directors now recommend a final gross dividend of 30.0 sen per share less tax at 27% (2005: a final gross dividend of 25.0 sen per share less tax at 28%) subject to the shareholders’ approval at the forthcoming Annual General Meeting of the Company. TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2006
  239. DIRECTORS ’ REPORT DIRECTORS’ REPORT for the year ended 31 December 2006 EMPLOYEES’ SHARE OPTION SCHEME 6. Details of the Company’s Employees’ Share Option Scheme (ESOS 3) are as disclosed in note 13(a) to the financial statements. The expiry date of ESOS 3 is 31 July 2007. The Company has been granted an exemption by the Companies Commission of Malaysia via a letter dated 19 January 2007 from having to disclose in this report the names of the persons to whom options have been granted during the period and details of their holdings pursuant to Section 169(11) of the Companies Act, 1965, except for information on employees who were granted options representing 100,000 ordinary shares and above. None of the employees of the Group and the Company were granted options representing 100,000 ordinary shares and above during the year ended 31 December 2006. SHARE CAPITAL 7. During the year, the issued and fully paid-up share capital of the Company was increased by the issuance of 6,139,500 ordinary shares of RM1 each for cash under ESOS 3, detailed as follows: Number of shares issued Exercise price per share 5,995,000 1,000 46,000 97,500 RM7.09 RM8.02 RM9.32 RM9.22 These shares rank pari-passu in all respects with the existing issued ordinary shares of the Company. MOVEMENTS ON RESERVES AND PROVISIONS 8. All material transfers to or from reserves or provisions during the year have been disclosed in the financial statements. STATUTORY INFORMATION ON THE FINANCIAL STATEMENTS 9. Before the financial statements of the Group and the Company were prepared, the Directors took reasonable steps to: (a) ascertain that actions had been taken in relation to the writing off of bad debts and the making of allowance for doubtful debts and satisfied themselves that all known bad debts had been written off and that adequate allowance had been made for doubtful debts; and (b) ensure that any current assets which were unlikely to be realised at their book value in the ordinary course of business had been written down to their expected realisable values. ANNUAL REPORT 2006 TELEKOM MALAYSIA BERHAD 219
  240. DIRECTORS ’ REPORT for the year ended 31 December 2006 STATUTORY INFORMATION ON THE FINANCIAL STATEMENTS (continued) 10. At the date of this report, the Directors are not aware of any circumstances which: (a) would render the amounts written off for bad debts or the amount of allowance for doubtful debts in the financial statements of the Group and the Company inadequate to any substantial extent or the values attributed to current assets in the financial statements of the Group and the Company misleading; and (b) have arisen which render adherence to the existing method of valuation of assets or liabilities of the Group and the Company misleading or inappropriate. 11. In the interval between the end of the year and the date of this report: (a) no items, transactions or other events of material and unusual nature has arisen which, in the opinion of the Directors, would substantially affect the results of the operations of the Group and the Company for the year in which this report is made; and (b) no charge has arisen on the assets of any company in the Group which secures the liability of any other person nor has any contingent liability arisen in any company in the Group. 12. No contingent or other liability of any company in the Group has become enforceable or is likely to become enforceable within the period of twelve (12) months after the end of the year which, in the opinion of the Directors, will or may affect the ability of the Group or the Company to meet their obligations when they fall due. 13. At the date of this report, the Directors are not aware of any circumstances not otherwise dealt with in this report or the financial statements of the Group and the Company, which would render any amount stated in the financial statements misleading. DIRECTORS 14. The Directors in office since the date of the last report are as follows: Directors Alternate Director Tan Sri Dato’ Ir. Muhammad Radzi Haji Mansor Dato’ Abdul Wahid Omar Dato’ Ahmad Haji Hashim Leonard Wilfred Yussin (ceased on 8 February 2007) Dyg Sadiah Abg Bohan (appointed on 8 February 2007) Dato’ Azman Mokhtar Dato’ Dr. Abdul Rahim Haji Daud Dato’ Lim Kheng Guan YB. Datuk Nur Jazlan Tan Sri Mohamed Ir. Prabahar NK Singam Rosli Man 15. According to Article 103 of the Company’s Articles of Association, Tan Sri Dato’ Ir. Muhammad Radzi Haji Mansor and Ir. Prabahar NK Singam shall retire from the Board at the Company’s Twenty-Second Annual General Meeting and being eligible offer themselves for re-election. 220 TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2006
  241. DIRECTORS ’ REPORT DIRECTORS’ REPORT for the year ended 31 December 2006 DIRECTORS’ INTEREST 16. In accordance with the Register of Directors' Shareholdings, the Directors who held office at the end of the year and have interest in shares and options over shares in the Company and subsidiaries are as follows: Interest in the Company Tan Sri Dato’ Ir. Muhammad Radzi Haji Mansor Dato’ Dr. Abdul Rahim Haji Daud Interest in the Company Dato’ Abdul Wahid Omar Number of ordinary shares of RM1 each Balance at Balance at 1.1.2006 Bought Sold 31.12.2006 123,500 145,000 — — — — 123,500 145,000 Number of options over ordinary shares of RM1 each Balance at Balance at 1.1.2006 Granted Exercised 31.12.2006 53,700* — — 53,700 * Options granted and vested under the Performance Linked ESOS Scheme on 6 September 2005 as detailed in note 13(a) to the financial statements. Interest in VADS Berhad Tan Sri Dato’ Ir. Muhammad Radzi Haji Mansor Dato’ Dr. Abdul Rahim Haji Daud Number of ordinary shares of RM1 each Balance at Balance at 1.1.2006 Bought Sold 31.12.2006 15,000 15,000 — — — — 15,000 15,000 17. In accordance with the Register of Directors' Shareholdings, none of the other Directors who held office at the end of the year have any direct or indirect interests in the shares and options over ordinary shares in the Company and its related corporations during the year. DIRECTORS’ BENEFITS 18. Since the end of the previous year, none of the Directors have received or become entitled to receive any benefit (except for the Directors’ fees, remuneration and other emoluments as disclosed in note 6 to the financial statements) by reason of a contract made by the Company or a related corporation with the Director or with a firm of which he is a member or with a company in which he has a substantial financial interest and any benefit that may deem to have been received by certain Directors. Neither during nor at the end of the year was the Company or any of its related corporations, a party to any arrangement with the object(s) of enabling the Directors to acquire benefits by means of the acquisition of shares in, or debentures of the Company or any other body corporate. ANNUAL REPORT 2006 TELEKOM MALAYSIA BERHAD 221
  242. DIRECTORS ’ REPORT for the year ended 31 December 2006 AUDITORS 19. The auditors, PricewaterhouseCoopers, have expressed their willingness to continue in office. In accordance with a resolution of the Board of Directors dated 23 February 2007. TAN SRI DATO’ Ir. MUHAMMAD RADZI HAJI MANSOR Chairman DATO’ ABDUL WAHID OMAR Group Chief Executive Officer 222 TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2006
  243. FINANCIAL STATEMENTS SIGNIFICANT ACCOUNTING POLICIES for the year ended 31 December 2006 The following accounting policies have been used consistently in dealing with items that are considered material in relation to the financial statements , and have been consistently applied to all the years presented, unless otherwise stated. 1. BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS The financial statements of the Group and the Company have been prepared in accordance with Financial Reporting Standards (FRSs), the Malaysian Accounting Standards Board (MASB) approved accounting standards in Malaysia for Entities Other Than Private Entities and the provisions of the Companies Act, 1965. During the year, the Group and the Company had adopted new and revised FRSs which are mandatory for financial year beginning on or after 1 January 2006 as described in (a) below. The financial statements have been prepared under the historical cost convention except as disclosed in the Significant Accounting Policies below. The preparation of financial statements in conformity with FRSs, the MASB approved accounting standards in Malaysia for Entities Other Than Private Entities and the provisions of the Companies Act, 1965, requires the use of certain critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of the revenue and expenses during the reported period. It also requires Directors to exercise their judgement in the process of applying the Group’s accounting policies. Although these estimates and judgement are based on the Directors’ best knowledge of current events and actions, actual results may differ. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the Group’s and the Company’s financial statements are disclosed in note 2 to the financial statements. (a) Standards, amendments to published standards and Interpretations Committee (IC) interpretations that are effective The new accounting standards, amendments to published standards and IC interpretations to existing standards effective for the Group’s and the Company’s financial year beginning on 1 January 2006 are as follows: FRS FRS FRS FRS FRS FRS FRS FRS FRS FRS FRS FRS FRS FRS FRS FRS FRS FRS 1 2 3 5 101 102 108 110 116 121 127 128 131 132 133 136 138 140 First-time Adoption of Financial Reporting Standards Share-based Payment Business Combinations Non-Current Assets Held for Sale and Discontinued Operations Presentation of Financial Statements Inventories Accounting Policies, Changes in Accounting Estimates and Errors Events After the Balance Sheet Date Property, Plant and Equipment The Effects of Changes in Foreign Exchange Rates Consolidated and Separate Financial Statements Investments in Associates Interests in Joint Ventures Financial Instruments: Disclosure and Presentation Earnings per Share Impairment of Assets Intangible Assets Investment Property ANNUAL REPORT 2006 TELEKOM MALAYSIA BERHAD 223
  244. SIGNIFICANT ACCOUNTING POLICIES for the year ended 31 December 2006 1 . BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS (continued) (a) Standards, amendments to published standards and IC interpretations that are effective (continued) Amendment to FRS 119 Employee Benefits – Actuarial Gains and Losses, Group Plans and Disclosures – in relation to the “asset ceiling” test IC IC IC IC IC IC IC IC IC IC IC 107 110 112 113 115 121 125 127 129 131 132 Introduction of the Euro Government Assistance – No Specific Relation to Operating Activities Consolidation – Special Purpose Entities Jointly Controlled Entities – Non-Monetary Contributions by Venturers Operating Leases – Incentives Income Taxes – Recovery of Revalued Non-Depreciable Assets Income Taxes – Changes in Tax Status of an Entity or its Shareholders Evaluating the Substance of Transactions Involving the Legal Form of a Lease Disclosure – Services Concessions Arrangement Revenue – Barter Transactions Involving Advertising Services Intangible Assets – Website Costs All changes in the accounting policies have been made in accordance with the transitional provisions in the respective standards, amendments to the published standards and IC interpretations. All standards, amendments to the published standards and IC interpretations adopted by the Group and the Company (where applicable) require retrospective application other than: FRS 2 – retrospective application on all equity instruments granted after 31 December 2004 and not vested as at 1 January 2006; FRS 3 – prospectively for business combination with agreements dated on or after 1 January 2006; FRS 5 – prospectively for non-current assets or disposal groups that meet the criteria to be classified as held for sale and operations that meet the criteria to be classified as discontinued on or after 1 January 2006; FRS 116 – the exchange of property, plant and equipment is accounted at fair value prospectively; and FRS 121 – prospective accounting for goodwill and fair value adjustments as part of foreign operations. A summary of the impact of the new accounting standards, amendments to the published standards and IC interpretations to existing standards on the financial statements of the Group and the Company is set out in note 49 to the financial statements. (b) Standards, amendments to published standards and IC interpretations to existing standards that are not yet effective and have not been early adopted The new standards, amendments to published standards and IC interpretations that are mandatory for the Group’s financial year beginning on 1 January 2007, which the Group has not early adopted, are as follows: • 224 FRS 117 Leases (effective for accounting period beginning on or after 1 October 2006). This standard requires the classification of leasehold land as prepaid lease payment. The Group will apply this standard from financial year beginning on 1 January 2007. The Group has not disclosed the financial impact of the application of this standard following the transitional provision which provides exemption from early disclosure of the financial impact prior to its effective date. TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2006
  245. FINANCIAL STATEMENTS SIGNIFICANT ACCOUNTING POLICIES for the year ended 31 December 2006 1 . BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS (continued) (b) Standards, amendments to published standards and IC interpretations to existing standards that are not yet effective and have not been early adopted (continued) (c) 2. • FRS 124 Related Party Disclosures (effective for accounting period beginning on or after 1 October 2006). This standard will affect the identification of related parties and some other related party disclosures. The Group will apply this standard from financial year beginning 1 January 2007. The Group has not disclosed the financial impact of the application of this standard following the transitional provision which provides exemption from early disclosure of the financial impact prior to its effective date. • FRS 139 Financial Instruments: Recognition and Measurement (effective date yet to be determined by MASB). This new standard establishes principles for recognising and measuring financial assets, financial liabilities and some contracts to buy and sell non-financial items. Hedge accounting is permitted only under strict circumstances. The Group will apply this standard when effective. Standards that are not yet effective and not relevant or material for the Group’s operations • FRS 6 Exploration for and Evaluation of Mineral Resources (effective for accounting year beginning on or after 1 January 2007). FRS 6 is not relevant to the Group’s operations as the Group does not carry out exploration for and evaluation of mineral resources. • Amendment to FRS 119 Employee Benefits – Actuarial Gains and Losses, Group Plans and Disclosures (effective for accounting periods beginning on or after 1 January 2007). This amendment introduces the option of an alternative recognition approach for actuarial gains and losses. It may impose additional recognition requirements for multi-employer plans where insufficient information is available to apply defined benefit accounting. It also adds new disclosure requirements. The Group will apply this amendment from financial year beginning 1 January 2007, where applicable. ECONOMIC ENTITIES IN THE GROUP (a) Subsidiaries Subsidiaries are those corporations or other entities (including special purpose entities) in which the Group has power to exercise control over the financial and operating policies so as to obtain benefits from their activities, generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are consolidated using the purchase method of accounting. Under the purchase method of accounting, subsidiaries are fully consolidated from the date on which control is transferred to the Group and are excluded from consolidation from the date that control ceases. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. ANNUAL REPORT 2006 TELEKOM MALAYSIA BERHAD 225
  246. SIGNIFICANT ACCOUNTING POLICIES for the year ended 31 December 2006 2 . ECONOMIC ENTITIES IN THE GROUP (continued) (a) Subsidiaries (continued) Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired at the date of acquisition is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the Consolidated Income Statement (see Significant Accounting Policies note 3(a)). Minority interests represent that portion of the profit or loss and net assets of subsidiaries attributable to equity interest that are not owned, directly or indirectly through the subsidiaries by the parent. It is measured at the minorities’ share of the fair values of the subsidiaries’ identifiable assets and liabilities at the acquisition date and the minorities’ share of changes in subsidiaries’ equity since that date. Separate disclosure is made of minority interests. Where more than one exchange transaction is involved, any adjustment to the fair value of the subsidiary’s identifiable assets, liabilities and contingent liabilities relating to previously held interests of the Group is accounted for as a revaluation. Intragroup transactions, balances and unrealised gains or losses on transactions between Group companies are eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the accounting policies adopted by the Group. The gain or loss on disposal of a subsidiary is the difference between the net disposal proceeds and the Group’s share of the subsidiary’s net assets as of the date of disposal, including the cumulative amount of any exchange differences that relate to that subsidiary which were previously recognised in equity, and is recognised in the Consolidated Income Statement. (b) Transactions with Minority Interests The Group applies a policy of treating transactions with minority interests as transactions with equity owners of the Group. For purchases from minority interests, the difference between any consideration paid and the relevant share of the carrying value of net assets of the subsidiary acquired is deducted from equity. For disposal to minority interests, differences between any proceeds received and the relevant share of minority interests are also recorded in equity. (c) Jointly Controlled Entities Jointly controlled entities are corporations, partnerships or other entities over which there is contractually agreed sharing of control by the Group with one or more parties where the strategic financial and operation decisions relating to the entity requires unanimous consent of the parties sharing control. The Group’s interest in jointly controlled entities is accounted for in the consolidated financial statements using the equity method of accounting. Equity accounting involves recognising the Group’s share of the post acquisition results of the jointly controlled entities in the Consolidated Income Statement and its share of post acquisition movement within reserve in reserves. The cumulative post acquisition movements are adjusted against the cost of the investment and includes goodwill on acquisition (net of accumulated impairment loss). 226 TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2006
  247. FINANCIAL STATEMENTS SIGNIFICANT ACCOUNTING POLICIES for the year ended 31 December 2006 2 . ECONOMIC ENTITIES IN THE GROUP (continued) (c) Jointly Controlled Entities (continued) Equity accounting is discontinued when the Group ceases to have joint control in the jointly controlled entities. The Group recognises the portion of gains or losses on the sale of assets by the Group to the jointly controlled entities that is attributable to the other venturers. The Group does not recognise its share of profits or losses from the jointly controlled entities that result from the purchase of assets by the Group from the jointly controlled entities until it resells the assets to an independent party. However, a loss on the transaction is recognised immediately if the loss provides evidence of a reduction in the net realisable value of current assets or an impairment loss. Where necessary, in applying the equity method, adjustments are made to the financial statements of jointly controlled entities to ensure consistency of the accounting policies with those of the Group. (d) Associates Associates are corporations, partnerships or other entities in which the Group exercises significant influence but which it does not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Significant influence is the power to participate in the financial and operating policy decisions of the associates but not control over those policies. Investments in associates are accounted for in the consolidated financial statements using the equity method of accounting. Equity accounting is discontinued when the Group ceases to have significant influence over the associates. The Group’s investments in associates includes goodwill identified on acquisition, net of any accumulated impairment loss (see Significant Accounting Policies note 3(a)). The Group’s share of its associates’ post-acquisition profits or losses is recognised in the Consolidated Income Statement, and its share of post-acquisition movements in reserves is recognised within reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investments. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group’s interest is reduced to nil and recognition of further loss is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate. The results of associates are taken from the most recent financial statements of the associates concerned, made up to dates not more than three months prior to the end of the financial year of the Group. Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates; unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Where necessary, in applying the equity method, appropriate adjustments are made to the financial statements of the associates to ensure consistency of accounting policies with those of the Group. Dilution gains and losses are recognised in the Income Statement. For incremental interest in associates, the date of acquisition is the date at which significant influence is obtained. Goodwill is calculated at each purchase date based on the fair value of assets and liabilities identified. The previously acquired stake is stepped up to fair value and the share of profits and equity movements for the previously acquired stake are not recognised since they are embedded in the step up. ANNUAL REPORT 2006 TELEKOM MALAYSIA BERHAD 227
  248. SIGNIFICANT ACCOUNTING POLICIES for the year ended 31 December 2006 3 . INTANGIBLE ASSETS (a) Goodwill Goodwill represents the excess of the cost of acquisition of subsidiaries, jointly controlled entities and associates over the Group’s share of the fair value of the identifiable net assets including contingent liabilities of subsidiaries, jointly controlled entities and associates at the date of acquisition. Goodwill on acquisition occurring on or after 1 January 2002 in respect of a subsidiary is included in the Consolidated Balance Sheet as an intangible asset. Goodwill is carried at cost less accumulated impairment losses. Goodwill is tested for impairment at least annually, or when events or circumstances occur indicating that an impairment may exist. Impairment of goodwill is charged to the Consolidated Income Statement as and when it arises. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity disposed. Goodwill is allocated to cash-generating units for the purpose of impairment testing. Each cash-generating unit or a group of cash-generating units represents the lowest level within the Group at which goodwill is monitored for internal management purposes and which are expected to benefit from the synergies of the combination. The Group allocates goodwill to each business segment in each country in which it operates. Goodwill on acquisition of jointly controlled entities and associates occurring on or after 1 January 2002 is included in the investments in jointly controlled entities and associates respectively. Such goodwill is tested for impairment as part of the overall balance. Goodwill on acquisitions that occurred prior to 1 January 2002 was written off against reserves in the year of acquisition. (b) Licences Acquired licences are shown at cost. Licences have finite useful lives and are carried at cost less accumulated amortisation. Amortisation is calculated using straight line method, from the effective date of commercialisation of services, subject to impairment, to the end of the assignment period. Licences are not revalued. 4. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the items. (a) Cost Cost of telecommunication network comprises expenditure up to and including the last distribution point before the customers' premises and includes contractors' charges, materials, direct labour and related overheads. The cost of other property, plant and equipment comprises their purchase cost and any incidental cost of acquisition. These costs include the costs of dismantling, removal and restoration, the obligation which was incurred as a consequence of installing the asset. Subsequent cost is included in the carrying amount of the asset or recognised as appropriate only when it is probable that the future economic benefit associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying value of the replaced part is derecognised. All other repairs and maintenance are charged to the Income Statement during the period in which they are incurred. 228 TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2006
  249. FINANCIAL STATEMENTS SIGNIFICANT ACCOUNTING POLICIES for the year ended 31 December 2006 4 . PROPERTY, PLANT AND EQUIPMENT (continued) (b) Depreciation Freehold land is not depreciated as it has an infinite life. Leasehold land is amortised in equal instalments over the period of the respective leases. Long term leasehold land has an unexpired lease period of fifty years and above. Other property, plant and equipment are depreciated on a straight line basis to write off the cost of the assets to their residual values over their estimated useful lives in years as summarised below: Telecommunication network Movable plant and equipment Computer support systems Buildings 3 5 3 5 – – – – 20 8 5 40 Depreciation on property, plant and equipment under construction commences when the property, plant and equipment are ready for their intended use. Depreciation on property, plant and equipment ceases at the earlier of derecognition and classification as held for sale. The assets’ residual values and useful lives are reviewed and adjusted as appropriate at each balance sheet date. (c) Impairment At each balance sheet date, the Group assesses whether there is any indication of impairment. If such indication exists, an analysis is performed to assess whether the carrying value of the asset is fully recoverable. A write down is made if the carrying value exceeds the recoverable amount (see Significant Accounting Policies note 8 on Impairment of Assets). (d) Gains or Losses on Disposal Gains or losses on disposal are determined by comparing the proceeds with the carrying amount of the related asset and are included in the Income Statement. (e) Asset Exchange Transaction Property, plant and equipment may be acquired in exchange for a non-monetary asset or for a combination of monetary and non-monetary assets and is measured at fair values unless; (i) the exchange transaction lacks commercial substance; or (ii) the fair value of neither the assets received nor the assets given up can be measured reliably. The acquired item is measured in this way even if the Group cannot immediately derecognise the assets given up. If the acquired item is not measured at fair value, its cost is measured at the carrying amount of the asset given up. (f) Repairs and Maintenance Repairs and maintenance are charged to the Income Statement during the period in which they are incurred. The cost of major renovations is included in the carrying amount of the asset when it is probable that future economic benefits in excess of the originally assessed standard of performance of the existing asset will flow to the Group. This cost is depreciated over the remaining useful life of the related asset. ANNUAL REPORT 2006 TELEKOM MALAYSIA BERHAD 229
  250. SIGNIFICANT ACCOUNTING POLICIES for the year ended 31 December 2006 5 . INVESTMENT PROPERTIES Investment properties, principally comprising land and office buildings, are held for long term rental yields or for capital appreciation or for both, and are not occupied by the Group or the Company. Investment properties are carried at cost less accumulated depreciation and impairment losses. Investment properties are depreciated on a straight line basis to write off the cost of the investment properties to their residual values over their estimated useful lives in years as summarised below: Leasehold land Buildings over the period of the respective leases 5 – 40 On disposal of an investment property, or when it is permanently withdrawn from use and no future economic benefits are expected, then it shall be derecognised (eliminated from balance sheet). The difference between the net disposal proceeds and the carrying amount is recognised as profit or loss in the period of the retirement or disposal. 6. LAND HELD FOR PROPERTY DEVELOPMENT Land held for property development consists of land on which no significant development work has been undertaken or where development activities are not expected to be completed within the normal operating cycle. Such land is classified as non-current asset and is stated at cost less accumulated impairment losses. Cost associated with the acquisition of land includes the purchase price of the land, professional fees, stamp duties, commissions, conversion fees and other relevant levies. Where an indication of impairment exists, the carrying amount of the asset is assessed and written down immediately to its recoverable amount (see Significant Accounting Policies note 8 on Impairment of Assets). Land held for property development is transferred to property development cost (under current assets) when development activities have commenced and where the development activities can be completed within the Company’s normal operating cycle of two to five years. 7. INVESTMENTS Investments in subsidiaries, jointly controlled entities and associates are stated at cost less accumulated impairment losses. Where an indication of impairment exists, the carrying amount of the investment is assessed and written down immediately to its recoverable amount (see Significant Accounting Policies note 8 on Impairment of Assets). Investments in International Satellite Organisations, quoted shares within non-current assets and other unquoted shares are stated at cost and an allowance for permanent diminution in value is made where, in the opinion of the Directors, there is a decline other than temporary in the value of such investments. Such allowance for permanent diminution in value is recognised as an expense in the period in which the diminution is identified. Marketable securities (within current assets) are carried at the lower of cost and market value, determined on an aggregate portfolio basis by category of investment. Cost is derived at based on the weighted average basis. Market value is calculated by reference to stock exchange quoted selling prices at the close of business on the balance sheet date. Increases/decreases in the carrying amount of marketable securities are credited/charged to the Income Statement. 230 TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2006
  251. FINANCIAL STATEMENTS SIGNIFICANT ACCOUNTING POLICIES for the year ended 31 December 2006 7 . INVESTMENTS (continued) On disposal of an investment, the difference between the net disposal proceeds and its carrying amount is charged/credited to the Income Statement. 8. IMPAIRMENT OF ASSETS Assets that have an indefinite useful life are not subject to amortisation and are tested for impairment annually, or as and when events or circumstances occur indicating that an impairment may exist. Property, plant and equipment and other non-current assets, including intangible assets with definite useful life, are reviewed for impairment losses whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the carrying amount of the asset exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less cost to sell and value-in-use. For the purpose of assessing impairment, assets are grouped at the lowest level for which there is separately identifiable cash flows (cash-generating units). Assets other than goodwill that suffered an impairment are reviewed for possible reversal at each reporting date. 9. GOVERNMENT GRANTS Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all attached conditions. Government grants relating to costs are deferred and recognised in the Income Statement over the financial period necessary to match them with the costs they are intended to compensate. Government grants relating to the purchase of assets are included in non-current liabilities as deferred income and are credited to the Income Statement on the straight line basis over the estimated useful lives of the related assets. 10. INVENTORIES Inventories are stated at lower of cost and net realisable value. Cost is determined on a weighted average basis and comprises all cost of purchase and other cost incurred in bringing the inventories to their present location. The cost of finished goods and work in progress comprises design costs, raw materials, direct labour, other direct costs and related production overheads (based on normal operating capacity). It excludes borrowing costs. Net realisable value represents the estimated selling price in the ordinary course of business, less all estimated costs to completion and applicable variable selling expenses. In arriving at the net realisable value, due allowance is made for all obsolete and slow moving items. Inventories include maintenance spares acquired for the purpose of replacing damaged or faulty plant or spares and supplies used in constructing and maintaining the network. ANNUAL REPORT 2006 TELEKOM MALAYSIA BERHAD 231
  252. SIGNIFICANT ACCOUNTING POLICIES for the year ended 31 December 2006 11 . NON-CURRENT ASSETS (OR DISPOSAL GROUP) CLASSIFIED AS ASSETS HELD FOR SALE Non-current assets (or disposal group) are classified as assets held for sale if their carrying amount will be recovered principally through a sale transaction rather than through a continuing use. Assets held for sale are stated at the lower of carrying amount and fair value less cost to sell. 12. TRADE RECEIVABLES Trade receivables are carried at anticipated realisable value. Bad debts are written off and specific allowances are made for trade receivables considered to be doubtful of collection. In addition, a general allowance based on a percentage of trade receivables is made to cover possible losses which are not specifically identified. 13. CASH AND CASH EQUIVALENTS For the purpose of the Cash Flow Statements, cash and cash equivalents comprise cash on hand, deposits held at call with banks, other short term, highly liquid investments with original maturities of three months or less and bank overdrafts. Deposits held as pledged securities for term loans granted are not included as cash and cash equivalents. Bank overdrafts are included within borrowings in current liabilities in the balance sheet. 14. SHARE CAPITAL (a) Classification Ordinary share and non-redeemable preference shares with discretionary dividends are classified as equity. Other shares are classified as equity and/or liability according to the economic substance of the particular instrument. Distribution to holders of a financial instrument classified as an equity instrument is charged directly to equity. (b) Share issue costs Incremental external costs directly attributable to the issuance of new shares or options are shown in equity as a deduction, net of tax from the proceeds. (c) Dividend to shareholders of the Company Dividends on redeemable preference shares are recognised as a liability and expressed on an accrual basis. Other dividends are recognised as a liability in the period in which they are declared. 232 TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2006
  253. FINANCIAL STATEMENTS SIGNIFICANT ACCOUNTING POLICIES for the year ended 31 December 2006 15 . BONDS, NOTES, DEBENTURES AND BORROWINGS Bonds, notes and debentures, are stated at the net proceeds received on issue. The finance costs which represent the difference between the net proceeds and the total amount of the payments of these borrowings are allocated to periods over the term of the borrowings at a constant rate on the carrying amount and are charged to the Income Statement. Interests, dividends, losses and gains relating to a financial instrument, or a component part, classified as a liability is reported within finance cost in the Income Statement. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least twelve months after the balance sheet date. Borrowing cost incurred in connection with financing the construction and installation of property, plant and equipment is capitalised until the property, plant and equipment are ready for their intended use. All other borrowing costs are charged to the Income Statement. 16. OPERATING LEASES Leases of assets where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the Income Statement on the straight line basis over the lease period. When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty is recognised as an expense in the period in which termination takes place. 17. INCOME TAXES Current tax expense is determined according to the tax laws of each jurisdiction in which the Group operates and include all taxes based upon the taxable profits, including withholding taxes payable by foreign subsidiaries, jointly controlled entities or associates on distributions of retained earnings to companies in the Group, and real property gains taxes payable on disposal of properties. Deferred tax is recognised in full, using the liability method, on temporary differences arising between the amounts attributed to assets and liabilities for tax purposes and their carrying amounts in the financial statements. However deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at that time of the transaction affects neither accounting nor taxable profit or loss. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences or unutilised tax losses can be utilised. Deferred tax is recognised on temporary differences arising on investments in subsidiaries, jointly controlled entities and associates except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. ANNUAL REPORT 2006 TELEKOM MALAYSIA BERHAD 233
  254. SIGNIFICANT ACCOUNTING POLICIES for the year ended 31 December 2006 17 . INCOME TAXES (continued) The Group’s share of income taxes of jointly controlled entities and associates are included in the Group’s share of results of jointly controlled entities and associates. Deferred tax is determined using tax rates (and tax laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled. 18. PROVISIONS Provisions are recognised when the Group and the Company have a present legal or constructive obligation as a result of past events, when it is probable that an outflow of resources will be required to settle the obligation, and when a reliable estimate of the amount can be made. Where the Group expects a provision to be reimbursed (for example, under an insurance contract), the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. Provisions are not recognised for future operating losses. Where there are a number of similar obligations, the likelihood that an outflow will be required in a settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense. 19. CONTINGENT LIABILITIES AND CONTINGENT ASSETS The Group does not recognise a contingent liability but discloses its existence in the financial statements. A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by uncertain future events beyond the control of the Group or a present obligation that is not recognised because it is not probable that an outflow of resources will be required to settle the obligation. A contingent liability also arises in the extremely rare circumstance where there is a liability that cannot be recognised because it cannot be measured reliably. A contingent asset is a possible asset that arises from past events whose existence will be confirmed by uncertain future events beyond the control of the Group. The Group does not recognise a contingent asset but discloses its existence where inflows of economic benefits are probable, but not virtually certain. In the acquisition of subsidiaries by the Group under a business combination, the contingent liabilities assumed are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The Group recognises separately the contingent liabilities of the acquirees as part of allocating the cost of a business combination where their fair values can be measured reliably. Where the fair values cannot be measured reliably, the resulting effect will be reflected in the goodwill arising from the acquisitions. 234 TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2006
  255. FINANCIAL STATEMENTS SIGNIFICANT ACCOUNTING POLICIES for the year ended 31 December 2006 19 . CONTINGENT LIABILITIES AND CONTINGENT ASSETS (continued) Subsequent to the initial recognition, the Group measures the contingent liabilities that are recognised separately at the date of acquisition at the higher of the amount that would be recognised in accordance with the provisions of FRS 137 and the amount initially recognised less, when appropriate, cumulative amortisation recognised in accordance with FRS 118. 20. REVENUE RECOGNITION Operating revenue comprises the fair value of the consideration received or receivables for the sale of products and rendering of services net of returns, duties, sales discounts and sales taxes paid, after eliminating sales within the Group. Operating revenue is recognised or accrued at the time of the provision of the products or services. Dividend income from investment in subsidiaries, jointly controlled entities, associates and other investments is recognised when a right to receive payment is established. Interest income includes income from deposits with licensed banks, finance companies, other financial institutions and staff loans, and is recognised on an accrual basis. 21. EMPLOYEE BENEFITS (a) Short Term Employee Benefits Wages, salaries, paid annual leave and sick leave, bonuses and non-monetary benefits are accrued in the period in which the associated services are rendered by employees of the Group. (b) Contribution to Employees Provident Fund (EPF) The Group’s contributions to EPF are charged to the Income Statement in the period to which they relate. Once the contributions have been paid, the Group has no further payment obligations. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available. (c) Termination Benefits Termination benefits are payable whenever an employee’s employment is terminated before the normal retirement date or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it is demonstrably committed to either terminate the employment of current employees according to a detailed formal plan without possibility of withdrawal or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Benefits falling due more than twelve months after the balance sheet date are discounted to present value. ANNUAL REPORT 2006 TELEKOM MALAYSIA BERHAD 235
  256. SIGNIFICANT ACCOUNTING POLICIES for the year ended 31 December 2006 21 . EMPLOYEE BENEFITS (continued) (d) Share-Based Compensation The Group has applied the provision of FRS 2 to all equity instruments granted after 31 December 2004 but not yet vested as at 1 January 2006, the effective date the Group adopted this FRS. The Group operates an equity settled, share-based compensation plan for the employees of the Group. The fair value of the employee services received in exchange for the grant of the share options is recognised as an expense in the Income Statement over the vesting periods of the grant with a corresponding increase in equity. The total amount to be expensed over the vesting periods is determined by reference to the fair value of the options granted, excluding the impact of any non-market vesting conditions. Non-market vesting conditions are included in the assumptions about the number of options that are expected to vest. At each balance sheet date, the Group revises its estimates of the number of options that are expected to vest. It recognises the impact of the revision of original estimates, if any, in the Income Statement, and a corresponding adjustment to equity. For options granted to subsidiaries, the expense will be recognised in the subsidiaries’ financial statements over the vesting periods of the grant. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised. 22. FOREIGN CURRENCIES (a) Functional and Presentation Currency Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The consolidated financial statements are presented in Ringgit Malaysia, which is the Company’s functional and presentation currency. (b) Transactions and Balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the Income Statement. (c) Group Companies The results and financial position of all the group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: (i) assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet; (ii) income and expenses for each Income Statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and (iii) all resulting exchange differences are recognised as a separate component of equity. 236 TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2006
  257. FINANCIAL STATEMENTS SIGNIFICANT ACCOUNTING POLICIES for the year ended 31 December 2006 22 . FOREIGN CURRENCIES (continued) (c) Group Companies (continued) On consolidation, exchange differences arising from the translation of the net investment in foreign operations are taken to shareholders’ equity. When a foreign operation is disposed of or sold, such exchange differences that were recorded in equity are recognised in the Income Statement as part of the gain or loss on disposal. Goodwill and fair value adjustments arising on the acquisition of a foreign entity completed on or after 1 January 2006 are treated as assets and liabilities of the foreign entity and are recorded in the functional currency of the foreign entity and translated at the exchange rate prevailing at balance sheet date. For acquisition of foreign entities completed prior to 1 January 2006, goodwill and fair value adjustments continued to be recorded at the exchange rates at the respective date of acquisitions. (d) Closing Rates The principal closing rates (units of Malaysian Ringgit per foreign currency) used in translating significant balances at year end are as follows: Foreign Currency US Dollar Japanese Yen Sri Lanka Rupee Bangladesh Taka Indonesian Rupiah Pakistani Rupee 31.12.2006 31.12.2005 3.52700 0.02964 0.03284 0.05107 0.00039 0.05807 3.77900 0.03205 0.03705 0.05709 0.00039 0.06328 Foreign Currency Singapore Dollar Thai Baht Indian Rupee Gold Franc Special Drawing Rights 31.12.2006 31.12.2005 2.29967 0.09958 0.07996 1.73361 5.30659 2.27281 0.09214 0.08403 1.76499 5.40263 23. FINANCIAL INSTRUMENTS (i) Description A financial instrument is any contract that gives rise to both a financial asset of one enterprise and a financial liability or equity instrument of another enterprise. A financial asset is any asset that is cash, a contractual right to receive cash or another financial asset from another enterprise, a contractual right to exchange financial instruments with another enterprise under conditions that are potentially favourable, or an equity instrument of another enterprise. A financial liability is any liability that is a contractual obligation to deliver cash or another financial asset to another enterprise, or to exchange financial instruments with another enterprise under conditions that are potentially unfavourable. (ii) Financial Instruments Recognised on the Balance Sheet The particular recognition and measurement method for financial instruments recognised on the balance sheet is disclosed in the individual significant accounting policy statements associated with each item. ANNUAL REPORT 2006 TELEKOM MALAYSIA BERHAD 237
  258. SIGNIFICANT ACCOUNTING POLICIES for the year ended 31 December 2006 23 . FINANCIAL INSTRUMENTS (continued) (iii) Financial Instruments Not Recognised on the Balance Sheet Financial derivative hedging instruments are used in the Group’s risk management of foreign currency and interest rate exposures of its financial liabilities. Hedge accounting principles are applied for the accounting of the underlying exposures and their hedge instruments. These hedge instruments are not recognised in the financial statements on inception. Exchange gains and losses relating to hedge instruments are recognised in the Income Statement in the same period as the exchange differences on the underlying hedged items. No amounts are recognised in respect of future periods. (iv) Fair Value Estimation for Disclosure Purposes The fair value of publicly traded financial instruments is based on quoted market prices at the balance sheet date. The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows. The fair value of forward foreign exchange contracts is determined using forward exchange market rates at the balance sheet date. In assessing the fair value of non-traded financial instruments, the Group uses a variety of methods and makes assumptions that are based on market conditions existing at each balance sheet date. Quoted market prices are used if available or other techniques, such as estimated discounted value of future cash flows, are used to determine fair value. In particular, the fair value of financial liabilities is estimated by discounting the future contractual cash flows at the current market interest rate available to the Group for similar financial instruments. The carrying values for financial assets and liabilities with a maturity of less than one year are assumed to approximate their fair values. 24. SEGMENT REPORTING Segment reporting is presented for the enhanced assessment of the Group’s risks and returns. A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks and returns that are different from other geographical segments. Segment revenue, expense, assets and liabilities are those amounts resulting from the operating activities of a segment that are directly attributable to the segment and the relevant portion that can be allocated on a reasonable basis to the segment. Segment revenue, expense, assets and liabilities are determined before intra-group balances and intra-group transactions are eliminated as part of the consolidation process, except to the extent that such intragroup balances and transactions are between group enterprises within a single segment. Inter-segment pricing is based on similar terms as those available to other external parties. These accounting policies form an integral part of the financial statements set out on pages 239 to 346. 238 TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2006
  259. FINANCIAL STATEMENTS INCOME STATEMENTS for the year ended 31 December 2006 The Group All amounts are in millions unless otherwise stated Note The Company 2006 RM 2005 RM 2006 RM 2005 RM OPERATING REVENUE 4 16 ,399.2 13,942.4 6,753.5 6,948.4 OPERATING COSTS – depreciation and amortisation – provision for a claim – other operating costs 5 6 (4,039.0) — (9,048.1) (3,444.5) (879.5) (8,393.5) (2,202.0) — (3,951.7) (2,192.8) — (4,344.2) OTHER OPERATING INCOME 7 OPERATING PROFIT BEFORE FINANCE COST 178.5 543.9 292.8 504.8 3,490.6 1,768.8 892.6 916.2 FINANCE INCOME FINANCE COST 8 8 234.0 (621.9) 313.0 (663.4) 100.5 (376.0) 197.2 (538.9) NET FINANCE COST 8 (387.9) (350.4) (275.5) (341.7) JOINTLY CONTROLLED ENTITIES – share of results (net of tax) 10.6 (3.7) — — ASSOCIATES – share of results (net of tax) – gain on dilution/disposal 19.9 — 14.2 91.5 — — — — 3,133.2 1,520.4 617.1 574.5 (664.9) (82.4) (166.1) PROFIT BEFORE TAXATION TAXATION 9 (830.9) PROFIT FOR THE YEAR 2,302.3 855.5 534.7 408.4 ATTRIBUTABLE TO: – equity holders of the Company – minority interests 2,068.8 233.5 811.3 44.2 534.7 — 408.4 — PROFIT FOR THE YEAR 2,302.3 855.5 534.7 408.4 61.0 60.8 23.9 23.9 EARNINGS PER SHARE (sen) – basic – diluted 10 10 The above Income Statements are to be read in conjunction with the Significant Accounting Policies on pages 223 to 238 and the Notes to the Financial Statements on pages 245 to 346. Report of the Auditors – Page 348. ANNUAL REPORT 2006 TELEKOM MALAYSIA BERHAD 239
  260. BALANCE SHEETS as at 31 December 2006 The Group All amounts are in millions unless otherwise stated 2006 RM 2005 RM 2006 RM 2005 RM 3 ,397.6 3,941.9 12,571.6 3,391.5 3,904.2 11,691.7 3,397.6 3,941.9 8,243.4 3,391.5 3,904.2 8,685.6 TOTAL CAPITAL AND RESERVES ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY MINORITY INTERESTS 19,911.1 836.5 18,987.4 654.0 15,582.9 — 15,981.3 — TOTAL EQUITY 20,747.6 19,641.4 15,582.9 15,981.3 10,282.8 — 2,261.9 64.6 10,801.7 — 2,368.7 65.0 2,368.0 4,747.0 1,434.0 — 3,279.7 4,873.2 1,694.8 — 12,609.3 13,235.4 8,549.0 9,847.7 33,356.9 32,876.8 24,131.9 25,829.0 20 21 22 23 24 25 26 27 28 18 7,059.1 24,026.5 — 168.4 — 807.5 220.6 226.7 557.7 115.6 6,971.7 22,320.9 — 170.7 — 137.5 102.7 258.0 595.8 196.5 43.6 11,931.9 179.8 — 9,836.8 141.2 — 220.5 557.3 — 47.4 12,519.4 191.4 — 9,949.4 141.2 1.5 220.9 595.4 — 29 30 31 32 33 24.0 172.8 3,464.1 320.1 4,680.4 — 204.2 3,536.0 274.7 6,415.6 24.0 68.4 2,498.0 318.4 2,035.3 — 100.2 2,831.3 273.5 2,210.5 8,661.4 10,430.5 4,944.1 5,415.5 5,740.9 718.9 1,803.1 223.7 5,980.9 730.2 1,414.1 182.3 2,348.7 590.3 736.0 48.3 2,306.8 598.3 247.2 100.8 8,486.6 8,307.5 3,723.3 3,253.1 174.8 2,123.0 1,220.8 2,162.4 33,356.9 32,876.8 24,131.9 25,829.0 SHARE CAPITAL SHARE PREMIUM RESERVES Note The Company 12 14 Borrowings Payable to subsidiaries Deferred tax liabilities Provision for liabilities 15 16 18 19 DEFERRED AND LONG TERM LIABILITIES INTANGIBLE ASSETS PROPERTY, PLANT AND EQUIPMENT INVESTMENT PROPERTY LAND HELD FOR PROPERTY DEVELOPMENT SUBSIDIARIES JOINTLY CONTROLLED ENTITIES ASSOCIATES INVESTMENTS LONG TERM RECEIVABLES DEFERRED TAX ASSETS Non-current asset held for sale Inventories Trade and other receivables Short term investments Cash and bank balances CURRENT ASSETS Trade and other payables Customer deposits Borrowings Current tax liabilities 34 35 15 CURRENT LIABILITIES NET CURRENT ASSETS The above Balance Sheets are to be read in conjunction with the Significant Accounting Policies on pages 223 to 238 and the Notes to the Financial Statements on pages 245 to 346. Report of the Auditors – Page 348. 240 TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2006
  261. FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the year ended 31 December 2006 Attributable to equity holders of the Company Issued and Fully Paid of RM1 each Special Share */ Ordinary Shares All amounts are in millions unless otherwise stated At 1 January 2006 – as previously reported – change in accounting policy Note Share Capital RM Currency Share Translation Premium Differences RM RM ESOS Reserve RM Retained Profits RM Minority Interests RM Total Equity RM 3,391.5 — 3,904.2 — (251.2) — — — 12,339.6 (396.7) 654.0 — 20,038.1 (396.7) 3,391.5 3,904.2 (251.2) — 11,942.9 654.0 19,641.4 — — (31.2) — — (2.5) (33.7) — — (31.2) — — (2.5) (33.7) Profit for the year — — — 2,068.8 233.5 2,302.3 Total recognised (expense)/income for the year — — — 2,068.8 231.0 2,268.6 Transaction with minority interests — — — — Acquisition of equity interest in subsidiaries — — — — Dilution of equity interest in subsidiaries — — — — 49(c)(viii) – as restated Currency translation differences arising during the year Net loss not recognised in the Income Statement 27(a) — (31.2) (180.8) (77.4) (258.2) — 28.1 28.1 — 23.6 23.6 Final dividends paid for the year ended 31 December 2005 11 — — — — (610.9) — (610.9) Interim dividends paid for the year ended 31 December 2006 11 — — — — (391.0) — (391.0) — — — — — (33.6) (33.6) 6.1 — 37.7 — — — — 25.0 — — — 10.8 43.8 35.8 3,397.6 3,941.9 25.0 12,829.0 836.5 20,747.6 Dividends paid to minority interests Employees’ share option scheme (ESOS) – shares issued – options granted At 31 December 2006 (282.4) ANNUAL REPORT 2006 TELEKOM MALAYSIA BERHAD 241
  262. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the year ended 31 December 2006 Attributable to equity holders of the Company Issued and Fully Paid of RM1 each Special Share */ Ordinary Shares All amounts are in millions unless otherwise stated At 1 January 2005 – as previously reported – change in accounting policy – as restated Currency translation differences arising during the year Net gain/(loss) not recognised in the Income Statement Profit for the year Note 49(c)(viii) 49(c)(viii) Total recognised income for the year Acquisition of equity interest in subsidiaries Partial disposal of equity interest in a subsidiary Dilution of equity interest in subsidiaries Final dividends paid for the year ended 31 December 2004 11 Interim dividends paid for the year ended 31 December 2005 11 Dividends paid to minority interests Employees' share option scheme (ESOS) – shares issued Issue of shares to minority interests At 31 December 2005 * Share Capital RM Currency Share Translation Premium Differences RM RM ESOS Reserve RM Retained Profits RM Minority Interests RM Total Equity RM 3,382.4 — 3,848.5 — (258.3) — — — 12,480.7 (332.8) 287.8 — 19,741.1 (332.8) 3,382.4 3,848.5 (258.3) — 12,147.9 287.8 19,408.3 — — 7.1 — — (25.1) (18.0) — — — — 7.1 — — — — 811.3 (25.1) 44.2 (18.0) 855.5 — — 7.1 — 811.3 19.1 837.5 — — — — — 304.7 304.7 — — — — — 24.5 24.5 — — — — — 27.9 27.9 — — — — (677.3) — (677.3) — — — — — — — — (339.0) — — (22.6) (339.0) (22.6) 9.1 — 55.7 — — — — — — — — 12.6 64.8 12.6 3,391.5 3,904.2 (251.2) — 11,942.9 654.0 19,641.4 Issued and fully paid shares include the Special Rights Redeemable Preference Share (Special Share) of RM1. Refer to note 12 to the financial statements for details of the terms and rights attached to Special Share. The above Consolidated Statement of Changes in Equity is to be read in conjunction with the Significant Accounting Policies on pages 223 to 238 and the Notes to the Financial Statements on pages 245 to 346. Report of the Auditors – Page 348. 242 TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2006
  263. FINANCIAL STATEMENTS COMPANY STATEMENT OF CHANGES IN EQUITY for the year ended 31 December 2006 Issued and Fully Paid of RM1 each Non-Distributable Distributable Special Share */ Ordinary Shares All amounts are in millions unless otherwise stated At 1 January 2006 – as previously reported – change in accounting policy Note 49(c)(viii) – as restated Profit for the year Share Capital RM Share Premium RM ESOS Reserve RM Retained Profits RM Total Equity RM 3,391.5 — 3,904.2 — — — 9,082.3 (396.7) 16,378.0 (396.7) 3,391.5 3,904.2 — 8,685.6 15,981.3 — — — 534.7 534.7 Final dividends paid for the year ended 31 December 2005 11 — — — (610.9) (610.9) Interim dividends paid for the year ended 31 December 2006 11 — — — (391.0) (391.0) 6.1 37.7 — — 43.8 — — 8.0 — 8.0 — — 17.0 — 17.0 3,397.6 3,941.9 25.0 8,218.4 15,582.9 3,382.4 — 3,848.5 — — — 9,626.3 (332.8) 16,857.2 (332.8) 3,382.4 3,848.5 — 9,293.5 16,524.4 Employees' share option scheme (ESOS) – shares issued – options granted to employees of the Company – options granted to employees of the subsidiaries 24 At 31 December 2006 At 1 January 2005 – as previously reported – change in accounting policy 49(c)(viii) – as restated Profit for the year 49(c)(viii) — — — 408.4 408.4 Final dividends paid for the year ended 31 December 2004 11 — — — (677.3) (677.3) Interim dividends paid for the year ended 31 December 2005 11 — — — (339.0) (339.0) 9.1 55.7 — — 64.8 3,391.5 3,904.2 — 8,685.6 15,981.3 Employees' share option scheme (ESOS) – shares issued At 31 December 2005 * Issued and fully paid shares include the Special Rights Redeemable Preference Share (Special Share) of RM1. Refer to note 12 to the financial statements for details of the terms and rights attached to Special Share. The above Company Statement of Changes in Equity is to be read in conjunction with the Significant Accounting Policies on pages 223 to 238 and the Notes to the Financial Statements on pages 245 to 346. Report of the Auditors – Page 348. ANNUAL REPORT 2006 TELEKOM MALAYSIA BERHAD 243
  264. CASH FLOW STATEMENTS for the year ended 31 December 2006 The Group All amounts are in millions unless otherwise stated Note The Company 2006 RM 2005 RM 2006 RM 2005 RM CASH FLOWS FROM OPERATING ACTIVITIES 36 5 ,339.8 5,504.3 2,592.7 2,251.3 CASH FLOWS USED IN INVESTING ACTIVITIES 37 (6,503.2) (6,513.7) (1,531.9) (3,716.9) CASH FLOWS USED IN FINANCING ACTIVITIES 38 (501.8) (1,329.2) (1,205.0) (1,738.4) (1,665.2) (2,338.6) (144.2) (3,204.0) (69.4) (32.8) (31.0) (25.9) NET DECREASE IN CASH AND CASH EQUIVALENTS EFFECT OF EXCHANGE RATE CHANGES EFFECT OF EXCLUSION FROM CONSOLIDATION OF A FORMER SUBSIDIARY 27(b)(i) CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR CASH AND CASH EQUIVALENTS AT END OF THE YEAR 33 — (18.7) — — 6,401.0 8,791.1 2,210.5 5,440.4 4,666.4 6,401.0 2,035.3 2,210.5 The above Cash Flow Statements are to be read in conjunction with the Significant Accounting Policies on pages 223 to 238 and the Notes to the Financial Statements on pages 245 to 346. Report of the Auditors – Page 348. 244 TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2006
  265. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 All amounts are in millions unless otherwise stated 1 . PRINCIPAL ACTIVITIES The principal activities of the Company during the year are the establishment, maintenance and provision of telecommunication and related services under the licence issued by the Ministry of Energy, Water and Communications. The principal activities of the subsidiaries are set out in note 50 to the financial statements. There was no significant change in the nature of these activities during the year. 2. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS Estimates and judgements are continually evaluated by the Directors and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. 2.1 Critical judgements in applying the entity’s accounting policies In determining and applying accounting policies, judgement is often required in respect of items where the choice of specific policy could materially affect the reported results and financial position of the Group. The following accounting policies require subjective judgements, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. (i) Intangible Assets The Group has applied judgement in determining the treatment of the annual fees payable over ten (10) years in respect of a 3G spectrum licence granted to a foreign subsidiary. The annual fee is charged to the Income Statement when incurred based on management’s judgement that future annual fees will no longer be payable upon the decision by the subsidiary to return the licence. Management considers the annual payment to be usage fees based on interpretation of the licence conditions, written confirmation from the Directorate General of Post and Telecommunication, Indonesia and current year assessment of 3G operations. The annual fees are therefore not considered part of the acquisition cost of the licence. Should the regulations and conditions with regards to the payment of the annual fees be amended in the future with the consequence that payment of the remaining outstanding annual fees cannot be avoided upon the subsidiary surrendering the licence, the Group will recognise an intangible asset and a corresponding liability at the present value of the remaining annual fees at that point in time. (ii) Classification between investment properties and property, plant and equipment The Group has developed certain criteria based on FRS 140 in making judgement whether a property qualifies as an investment property. Investment property is a property held to earn rentals or for capital appreciation or both. Some properties comprise a portion that is held to earn rentals or for capital appreciation and another portion that is held for use in the production or supply of goods or services or for administrative purposes. If these portions could be sold separately (or leased out separately under a finance lease), the Group would account for the portions separately. If the portions could not be sold separately, the property is an investment property only if an insignificant portion is held for use in the production or supply of goods or services or for administrative purposes. Judgement is made on an individual property basis to determine whether ancillary services are so significant that a property does not qualify as an investment property. ANNUAL REPORT 2006 TELEKOM MALAYSIA BERHAD 245
  266. NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 2 . CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (continued) 2.1 Critical judgement in applying the entity’s accounting policies (continued) (ii) Classification between investment properties and property, plant and equipment (continued) During the year, the Group has temporarily sub-let several vacant warehouses but has decided not to recognise these properties as investment properties because it is not the Group's intention to hold these properties in the long term for capital appreciation or rental income. Accordingly, these properties continue to be classified as property, plant and equipment. 2.2 Critical accounting estimates and assumptions The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, rarely equal the related actual results. To enhance the information content of the estimates, certain key variables that are anticipated to have material impact to the Group’s results and financial position are tested for sensitivity to changes in the underlying parameters. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next year are mentioned below. (i) Impairment of Goodwill The Group tests goodwill for impairment annually in accordance with its accounting policy or whenever events or change in circumstances indicate that this is necessary. The assumptions used, results and conclusion of the impairment assessment are stated in note 20 to the financial statements. (ii) Impairment of Property, Plant and Equipment, Intangible Assets (other than goodwill) and Investments The Group assesses impairment of the assets mentioned above whenever the events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable i.e. the carrying amount of the asset is more than the recoverable amount. Recoverable amount is measured at the higher of the fair value less cost to sell for that asset and its value-in-use. The value-in-use is the net present value of the projected future cash flow derived from that asset discounted at an appropriate discount rate. Projected future cash flows are based on Group’s estimates calculated based on historical, sector and industry trends, general market and economic conditions, changes in technology and other available information. (iii) Estimated Useful Lives of Property, Plant and Equipment The Group reviews annually the estimated useful lives of property, plant and equipment based on factors such as business plan and strategies, expected level of usage and future technological developments. Future results of operations could be materially affected by changes in these estimates brought about by changes in the factors mentioned. A reduction in the estimated useful lives of property, plant and equipment would increase the recorded depreciation and decrease the property, plant and equipment. 246 TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2006
  267. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 2 . CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (continued) 2.2 Critical accounting estimates and assumptions (continued) (iv) Taxation (a) Income taxes The Group is subject to income tax in numerous jurisdictions. Judgement is involved in determining the group-wide provision for income taxes. There are certain transactions and computations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for tax matters based on estimates of whether additional taxes will be due. If the final outcome of these tax matters result in a difference in the amounts initially recognised, such differences will impact the income tax and/or deferred tax provisions in the period in which such determination is made. (b) (v) Deferred tax assets Deferred tax asset is recognised to the extent that it is probable that future taxable profit will be available against which temporary differences can be utilised. This involves judgement regarding future financial performance of a particular entity in which the deferred tax asset has been recognised. Share-based Payments Equity settled share-based payments (share options) are measured at fair values at the grant dates. In addition, the Group revises the estimated number of performance linked share options that participants are expected to receive based on non-market conditions at each balance sheet date. The assumptions used in the valuation to determine these fair values are explained in note 13 to the financial statements. (vi) Contingent Liabilities Determination of the treatment of contingent liabilities is based on management’s view of the expected outcome of the contingencies after consulting legal counsel for litigation cases and experts internal and external to the Group for matters in the ordinary course of business. Please refer to note 41(b) to (m) to the financial statements for legal proceedings that the Group is involved as at 31 December 2006. ANNUAL REPORT 2006 TELEKOM MALAYSIA BERHAD 247
  268. NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 3 . SIGNIFICANT ACQUISITIONS (a) Acquisition of additional interest in PT Excelcomindo Pratama Tbk (XL) In 2005, the Group through TM International (L) Limited (TMIL), a wholly owned subsidiary, acquired 56.9% equity interest in XL through various stage of acquisitions as summarised below. XL became a subsidiary of the Group on 27 October 2005. % of equity interest acquired Completion Date 23.1 11 January 2005 4.2 15 June 2005 (iii) Subscription of new shares issued during the Initial Public Offering (IPO) 3.2 29 September 2005 (iv) Dilution of equity interest as a result of the IPO (5.5) 29 September 2005 (v) Exercise of call options 31.9 27 October 2005 Effective equity interest as at 27 October 2005 56.9 (i) (ii) Acquisition of 523,215 ordinary shares through the acquisition of Indocel Holding Sdn Bhd Acquisition of additional 95,130 ordinary shares The effect of the acquisition of XL to the financial results of the Group as reported in the previous year is disclosed below. Period from Period from 11 January 2005 to 27 October 2005 to 26 October 2005 31 December 2005 248 As an associate RM As a subsidiary RM Total RM Operating revenue Operating costs — — 293.6 (207.6) 293.6 (207.6) Operating profit Other operating income — — 86.0 0.3 86.0 0.3 Operating profit before finance cost Net finance cost Share of results of associate — — (12.5) 86.3 (19.1) — 86.3 (19.1) (12.5) (Loss)/profit before taxation Taxation (12.5) 10.2 67.2 (14.1) 54.7 (3.9) (Loss)/profit after taxation Minority interests (2.3) — 53.1 (22.9) 50.8 (22.9) Profit attributable to shareholders (2.3) 30.2 27.9 TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2006
  269. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 3 . SIGNIFICANT ACQUISITIONS (continued) (a) Acquisition of additional interest in PT Excelcomindo Pratama Tbk (XL) (continued) The effect of the acquisition of XL on the Group's financial position at the previous year end was as follows: 2005 RM Non-current assets (including goodwill on acquisition of XL) Current assets Non-current liabilities Current liabilities 5,249.4 546.4 (1,371.4) (855.6) Total net assets Minority interests Less: Amount accounted for as an associate at 26 October 2005 3,568.8 (319.5) (230.7) Increase in Group’s net assets Goodwill on acquisition offset against gain on dilution 3,018.6 126.2 Actual increase in Group’s net assets* 3,144.8 * including the amount relating to the fair value adjustments attributable to interest held in XL at balance sheet date. Details of net assets acquired, goodwill and cash flow arising from the acquisition in previous year were as follows: At date of acquisition RM Property, plant and equipment Deferred tax assets Inventories Trade and other receivables Cash and bank balances Trade and other payables Current tax liabilities Borrowings 2,076.4 12.6 10.6 216.0 455.1 (436.7) (1.0) (1,644.9) Fair value of total net assets as at 27 October 2005 Minority interests at 43.1% Less: Amount accounted for as an associate as at 26 October 2005 688.1 (296.6) (230.7) Fair value of net assets acquired as at 27 October 2005 Goodwill on acquisition offset against gain on dilution Goodwill on acquisition retained as an asset 160.8 126.2 2,827.4 Cost of acquisition (comprising purchase consideration and expenses directly attributable to the acquisition) 3,114.4 Purchase consideration discharged by cash Expenses directly attributable to the acquisition, paid by cash Less: Cash and cash equivalents of subsidiary acquired 3,096.8 17.6 (455.1) Cash outflow of the Group on acquisition 2,659.3 ANNUAL REPORT 2006 TELEKOM MALAYSIA BERHAD 249
  270. NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 3 . SIGNIFICANT ACQUISITIONS (continued) (a) Acquisition of additional interest in PT Excelcomindo Pratama Tbk (XL) (continued) The fair value of the net assets acquired at 27 October 2005 was provisional as at 31 December 2005 pending finalisation of the fair value determination of XL's telecommunication plant and equipment and certain assets and liabilities. Following the completion of the fair value determination in 2006, the provisional fair value of net assets acquired increased by RM104.1 million. On 7 June 2006, TMIL, entered into an agreement with AIF (Indonesia) Limited (AIF) to purchase 195,605,400 ordinary shares of Indonesian Rupiah 100 each in XL, representing approximately 2.8% of the issued and paidup share capital of XL from AIF (the AIF Purchased Shares) for a cash consideration of USD39.7 million. The acquisition of the AIF Purchased Shares was completed on 12 June 2006. Consequently, the Group's effective equity interest in XL increased from 56.9% to 59.7%. RM Purchase consideration: Cash consideration Expenses directly attributable to the acquisition 144.7 0.2 Carrying value of net assets acquired 144.9 (29.6) Difference between purchase consideration over net assets acquired 115.3 The acquisition of additional shares was treated as a transaction with minority shareholders and thus the difference between the consideration paid and the Group’s share of the carrying value of net assets as at 12 June 2006 was taken directly to equity. The Group's effective equity interest in XL was reduced to 59.6% following the sale of 3,507,000 of XL shares through the Jakarta Stock Exchange. (b) Acquisition of the remaining 49.0% equity interest in Telekom Malaysia International (Cambodia) Company Limited (formerly known as Cambodia Samart Communication Company Limited) (Casacom) As at 1 January 2006, the Group held 51.0% equity interest in Casacom through its wholly owned subsidiary, TM International Sdn Bhd (TMI). On 17 February 2006, TMI entered into a Share Sale and Purchase Agreement with Samart Corporation Public Company Limited (Samart), a company incorporated in Thailand, for the acquisition of 1,038,700 ordinary shares of USD4.00 each representing the remaining 49.0% equity interest in Casacom from Samart for a consideration of USD29.0 million (RM107.9 million). Casacom became a wholly owned subsidiary of the Group upon completion of the transaction on 27 March 2006. 250 TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2006
  271. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 3 . SIGNIFICANT ACQUISITIONS (continued) (b) Acquisition of the remaining 49.0% equity interest in Telekom Malaysia International (Cambodia) Company Limited (formerly known as Cambodia Samart Communication Company Limited) (Casacom) (continued) RM Purchase consideration: cash consideration expenses directly attributable to the acquisition 107.2 0.7 Carrying value of net assets acquired 107.9 (50.7) Difference between purchase consideration over net assets acquired 57.2 The acquisition of additional shares was treated as a transaction with minority shareholders and thus the difference between the consideration paid and the Group’s share of the carrying value of net assets as at 27 March 2006 was taken directly to equity. This acquisition has no material effect to the results of the Group in the current year. On 3 October 2006, Casacom changed its name to Telekom Malaysia International (Cambodia) Company Limited. (c) Acquisition of 24.42% equity interest in Samart I-Mobile Public Company Limited (SIM) On 17 February 2006, TMI entered into a Share Sale and Purchase Agreement with Samart for the acquisition of 105 million ordinary shares of Thai Baht (THB)1.00 each representing 24.42% equity interest in SIM from Samart for a consideration of THB1,312.5 million (RM124.8 million). SIM became an associate of the Group upon completion of the transaction on 27 March 2006. The goodwill on acquisition arising from the above transaction was RM62.0 million, being the excess of the purchase price over the Group’s share of the fair value of SIM’s identifiable net assets as at 27 March 2006. The above goodwill is included in the cost of investment in associates. This acquisition has no material effect to the results of the Group in the current year. (d) Acquisition of 49.0% equity interest in Spice Communications Limited (formerly known as Spice Communications Private Limited) (Spice) through the acquisition of the entire equity interest in TMI India Ltd (TMI India) (formerly known as Distacom Communications (India) Limited) (DCIL) TMI Mauritius Ltd (TMIM), a wholly owned subsidiary of the Group, held via TMI, acquired a 100% equity interest in DCIL, pursuant to the Share Sale and Purchase Agreement on 10 March 2006, for a cash consideration of USD178.8 million (RM659.4 million). DCIL is an investment holding company having a 49.0% equity interest in Spice. DCIL became a wholly owned subsidiary and Spice became a jointly controlled entity of the Group upon completion of the acquisition on 10 May 2006. ANNUAL REPORT 2006 TELEKOM MALAYSIA BERHAD 251
  272. NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 3 . SIGNIFICANT ACQUISITIONS (continued) (d) Acquisition of 49.0% equity interest in Spice Communications Limited (formerly known as Spice Communications Private Limited) (Spice) through the acquisition of the entire equity interest in TMI India Ltd (TMI India) (formerly known as Distacom Communications (India) Limited) (DCIL) (continued) The goodwill on acquisition arising from the above transaction was RM691.1 million, being the excess of the purchase price over the Group’s share of the provisional fair value of Spice’s identifiable net assets as at 10 May 2006. The above goodwill is included in the cost of investment in jointly controlled entities. This acquisition has no material effect to the results of the Group in the current year. On 22 August 2006 and 28 December 2006, DCIL and Spice changed their names to TMI India Ltd and Spice Communications Limited respectively. (e) Acquisition of business and business assets of Petrofibre Network (M) Sdn Bhd (PFN) During the year, Fiberail Sdn Bhd (Fiberail), a 60.0% owned subsidiary of the Group, acquired the business and business assets of PFN for RM101.9 million via a cash consideration of RM89.1 million and share consideration of RM12.8 million. Consequently, the Group’s equity interest in Fiberail reduced to 54.0%. This acquisition has no material effect to the results of the Group in the current year. (f) During the year, the Group also acquired the following companies for a total consideration of RM56.6 million: (i) 90.0% equity interest in Asset Media (Pvt) Ltd for USD3.15 million (RM11.6 million). (ii) 100% stake in Communiq Broadband Network (Private) Limited for USD3.51 million (RM18.3 million). (iii) 100% stake in CBN SAT (Private) Limited for USD1.39 million (RM6.7 million). (iv) Additional 20.0% equity interest in a subsidiary, Celcom Timur Sabah for a consideration of RM12.6 million. (v) Additional 10.0% equity interest in an associate, Fibrecomm Network Sdn Bhd (Fibrecomm) for a consideration of RM7.4 million. Consequently, Fibrecomm became a 51.0% owned subsidiary of the Group. The above acquisitions have no material effect to the results of the Group in the current year. 4. OPERATING REVENUE The Group 252 The Company 2006 RM 2005 RM 2006 RM 2005 RM Calls/usage Rentals Interconnect and international inpayment Others 2,966.8 1,415.6 615.4 128.7 3,448.4 1,481.8 488.8 139.2 2,933.6 1,435.6 576.8 129.3 3,256.6 1,495.9 549.5 139.4 Total fixed line Data services Other telecommunication related services 5,126.5 870.4 615.7 5,558.2 878.7 544.8 5,075.3 1,374.8 303.4 5,441.4 1,209.2 297.8 Total fixed line, data services and other telecommunication related services 6,612.6 6,981.7 6,753.5 6,948.4 TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2006
  273. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 4 . OPERATING REVENUE (continued) The Group 2006 RM 2005 RM 2006 RM 2005 RM Calls/usage Rentals Interconnect and international inpayment Messaging and roaming Others 5,402.4 171.8 957.5 1,801.7 231.1 3,928.0 356.5 629.2 985.5 153.3 — — — — — — — — — — Total cellular 8,564.5 6,052.5 — — 869.9 352.2 608.0 300.2 — — — — 16,399.2 13,942.4 6,753.5 6,948.4 Internet and multimedia Non-telecommunication related services TOTAL OPERATING REVENUE 5. The Company PROVISION FOR A CLAIM The provision for a claim in the previous year, comprised the potential satisfaction of the DeTeAsia Holdings GmbH which included arbitration costs, legal, interest, other related costs and tax thereon. 6. OTHER OPERATING COSTS The Group 2006 RM Allowance for doubtful debts (net of bad debt recoveries) Allowance for diminution in value of an associate Allowance for amount owing by subsidiaries Charges and agencies commissions Domestic interconnect and international outpayment Impairment of land held for property development Impairment of property, plant and equipment (PPE) Maintenance Marketing, advertising and promotion Net loss/(gain) on foreign exchange – realised Net (gain)/loss on foreign exchange – unrealised 303.9 — — 132.0 1,962.1 — 4.1 731.8 1,133.7 72.3 (433.3) The Company 2005 RM 497.5 — — 76.1 1,781.5 14.3 82.6 692.4 918.6 46.0 54.6 ANNUAL REPORT 2006 2006 RM 111.2 1.5 134.7 165.1 1,183.7 — — 310.1 142.6 (0.3) (260.4) 2005 RM 154.9 — — 110.7 1,298.6 — 6.5 361.1 156.8 (6.7) 22.4 TELEKOM MALAYSIA BERHAD 253
  274. NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 6 . OTHER OPERATING COSTS (continued) The Group 2006 RM 2005 RM 2006 RM 2005 RM 243.0 42.9 44.1 — 188.3 21.5 32.5 — 92.7 29.5 6.1 76.9 84.2 26.4 3.0 83.7 (28.7) 10.6 (28.1) 10.3 Rental – land and buildings Rental – equipment Rental – others Research and development (Reversal of)/allowance for diminution in value of quoted investments (Reversal of)/allowance for diminution in value of long term investments Reversal of allowance for doubtful debts Reversal of impairment of land held for property development Reversal of impairment of PPE Staff costs Staff costs capitalised in PPE Supplies and inventories Transportation and travelling Universal Service Provision Utilities Write off of PPE Others (10.3) — 105.7 (140.5) (10.3) — 84.2 (140.5) (3.6) (7.4) 1,991.4 (74.9) 619.1 128.7 398.4 295.3 2.0 1,501.5 — (76.0) 1,810.9 (61.5) 524.8 107.0 307.9 235.7 9.3 1,153.7 — (3.9) 1,126.1 (60.6) 273.5 42.3 113.7 172.9 — 332.7 — — 1,155.0 (58.5) 239.9 42.6 124.5 161.8 8.7 414.6 TOTAL OTHER OPERATING COSTS 9,048.1 8,393.5 3,951.7 4,344.2 1,555.0 38.8 210.0 149.4 35.5 1,354.0 161.0 190.5 103.2 — 875.2 37.2 145.3 58.7 7.7 846.0 114.7 137.7 55.1 — 0.8 1.6 — 0.3 0.8 1.2 0.2 — 0.4 1.3 — 0.3 0.3 1.0 0.2 — Staff costs include: – salaries, allowances, overtime and bonus – termination benefit – contribution to Employees Provident Fund (EPF) – other staff benefits – ESOS expense – remuneration of Directors of the Company – fees – salaries, allowances and bonus – contribution to EPF – ESOS expense 254 The Company TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2006
  275. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 6 . OTHER OPERATING COSTS (continued) The Group Others include: – audit fees – PricewaterhouseCoopers Malaysia – current year – in respect of prior year – PricewaterhouseCoopers Malaysia’s affiliates – others (a) 7. The Company 2006 RM 2005 RM 2006 RM 2005 RM 2.2 — 1.1 0.3 2.0 0.2 0.7 0.2 0.9 — — — 0.7 — — — Estimated money value of benefits of Directors amounted to RM125,141 (2005: RM115,052) for the Group and RM40,729 (2005: RM33,611) for the Company. OTHER OPERATING INCOME The Group Compensation for loss of exclusive rights Dividend income from subsidiaries Dividend income from quoted shares Dividend income from unquoted shares Gain on dilution/partial disposal of subsidiaries Interest income from subsidiaries Other income from subsidiaries Penalty on breach of contract Profit on disposal of property, plant and equipment Profit/(loss) on disposal of long term investments Loss on disposal of fixed income securities Loss on disposal of short term investments Rental income from buildings Rental income from vehicles Revenue from training and related activities Sale of scrap stores Others TOTAL OTHER OPERATING INCOME The Company 2006 RM 2005 RM 2006 RM 2005 RM — — 4.5 2.7 13.8 — — 10.7 12.4 68.5 (0.2) (1.7) 9.2 — 13.2 7.4 38.0 137.0 — 4.2 0.5 259.0 — — 3.3 14.8 40.8 — (10.9) 14.8 — 13.1 7.4 59.9 — 142.4 3.3 2.7 — 8.0 16.7 6.4 11.7 (8.9) (0.2) (1.7) 39.7 14.7 14.1 7.2 36.7 137.0 151.3 4.2 0.5 — 15.3 6.2 9.6 20.2 40.8 — (10.9) 51.8 9.5 14.4 7.4 47.5 543.9 292.8 504.8 178.5 ANNUAL REPORT 2006 TELEKOM MALAYSIA BERHAD 255
  276. NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 8 . NET FINANCE COST 2006 2005 Islamic Foreign Domestic Principles RM RM RM 256 Total RM Islamic Foreign Domestic Principles RM RM RM Total RM THE GROUP Finance income 80.9 110.5 42.6 234.0 152.0 105.7 55.3 313.0 TOTAL FINANCE INCOME 80.9 110.5 42.6 234.0 152.0 105.7 55.3 313.0 Finance cost from borrowings Amortisation of fair value adjustment on borrowings Accretion of finance income Amortisation of discounts (500.4) (90.6) (79.0) (670.0) (392.4) (188.3) (111.1) (691.8) 19.2 10.8 — 18.6 1.0 (1.5) 37.8 11.8 (1.5) 3.2 — — 25.4 — (0.2) — — — 28.6 — (0.2) TOTAL FINANCE COST (470.4) (72.5) (79.0) (621.9) (389.2) (163.1) (111.1) (663.4) NET FINANCE COST (389.5) 38.0 (36.4) (387.9) (237.2) (57.4) (55.8) (350.4) THE COMPANY Finance income 30.5 52.7 17.3 100.5 121.0 49.7 26.5 197.2 TOTAL FINANCE INCOME 30.5 52.7 17.3 100.5 121.0 49.7 26.5 197.2 (22.4) (307.7) (330.2) — (33.7) (363.9) (78.6) 11.8 (1.5) — — — (174.8) — (0.2) — — — (174.8) — (0.2) Finance cost from borrowings Dividend for redeemable preference shares Accretion of finance income Amortisation of discounts (285.3) — 10.8 — (78.6) 1.0 (1.5) TOTAL FINANCE COST (274.5) (79.1) (22.4) (376.0) (330.2) (175.0) (33.7) (538.9) NET FINANCE COST (244.0) (26.4) (5.1) (275.5) (209.2) (125.3) (7.2) (341.7) TELEKOM MALAYSIA BERHAD — — — — ANNUAL REPORT 2006 — — —
  277. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 9 . TAXATION The Group The Company 2006 RM 2005 RM 2006 RM 2005 RM 413.7 269.8 448.9 (105.6) 255.3 87.9 261.6 (154.0) (95.7) (54.3) 130.1 — (141.5) (119.3) 58.5 — 533.5 473.4 82.4 166.1 23.0 3.7 — — — — 266.7 164.8 — — 297.4 191.5 — — TOTAL TAXATION 830.9 664.9 82.4 166.1 Current taxation: Current year Under/(over) accrual in prior years (net) 444.8 269.4 471.9 (101.9) 255.3 87.9 261.6 (154.0) 393.0 339.0 (208.9) 58.5 (157.2) (64.8) (54.3) (127.1) — 83.0 — (51.9) — — — — 830.9 664.9 82.4 The taxation charge for the Group and the Company comprise: Malaysia Income Tax Current year Prior year Deferred Tax (net) Current year Prior year Overseas Income Tax Current year Prior year Deferred Tax (net) Current year Deferred taxation: Origination and reversal of temporary differences Benefit from previously unrecognised deductible temporary differences and tax losses Change in tax rate (Over)/under accrual of deferred tax 31.1 (0.4) ANNUAL REPORT 2006 166.1 TELEKOM MALAYSIA BERHAD 257
  278. NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 9 . TAXATION (continued) The explanation of the relationship between taxation expense and profit before taxation is as follows: Numerical reconciliation between taxation expense and the product of accounting profit multiplied by the Malaysian tax rate: The Group The Company Profit Before Taxation 2006 RM 2005 RM 2006 RM 2005 RM 3,133.2 1,520.4 617.1 574.5 877.3 425.7 172.8 160.9 1.0 45.4 192.7 (260.2) (11.4) (157.2) (17.0) (64.8) 10.0 (54.3) 269.4 6.7 28.1 708.4 (346.3) (15.7) (127.1) — — 4.0 83.0 (101.9) — — 107.9 (86.6) (11.4) — (17.0) (51.9) — (119.3) 87.9 — — 293.2 (118.3) (15.7) — — — — — (154.0) 830.9 664.9 82.4 166.1 Taxation calculated at the applicable Malaysian taxation rate of 28% Tax effects of: – shares of results of jointly controlled entities and associates – different taxation rates in other countries – expenses not deductible for taxation purposes – income not subject to taxation – expenses allowed for double deduction – previously unrecognised temporary differences – tax incentives – change in tax rate – current year tax losses not recognised – (over)/under accrual of deferred tax (net) – under/(over) accrual of income tax (net) TOTAL TAXATION 10. EARNINGS PER SHARE (a) Basic earnings per share Basic earnings per share of the Group is calculated by dividing the profit attributable to equity holders by the weighted average number of ordinary shares of the Company in issue during the year. The Group Profit attributable to equity holders (RM million) Weighted average number of ordinary shares in issue (million) Basic earnings per share (sen) 258 TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2006 2006 2005 2,068.8 3,394.0 811.3 3,387.6 61.0 23.9
  279. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 10 . EARNINGS PER SHARE (continued) (b) Diluted earnings per share For the diluted earnings per share calculation, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. For ESOS 3 offered since 2002 and PLES offered since 2005, a calculation is done to determine the number of shares that could have been acquired at fair value (determined as the average annual share price of the Company's shares) based on the monetary value of the subscription rights attached to outstanding share options. This calculation serves to determine the unexercised shares to be added to the ordinary shares in issue for the purpose of computing the dilution. No adjustment is made to profit attributable to equity holders for the share options calculation. For details of the Company’s Employees' Share Option Scheme, please refer to note 13(a) to the financial statements. The Group 2006 2005 Profit attributable to equity holders (RM million) 2,068.8 811.3 Weighted average number of ordinary shares in issue (million) 3,394.0 3,387.6 7.3 13.6 3,401.3 3,401.2 60.8 23.9 Adjustment for ESOS 3 (million) Weighted average number of ordinary shares for computation of diluted earnings per share (million) Diluted earnings per share (sen) 11. DIVIDENDS IN RESPECT OF ORDINARY SHARES Dividends approved and paid in respect of ordinary shares: The Group and Company 2006 2005 Gross Amount of dividend dividend, net per share of 28% tax Sen RM Gross dividend per share Sen Amount of dividend, tax-exempt RM Interim dividends in respect of the year ended: – 31 December 2005 – 31 December 2006 Final dividends in respect of the year ended: – 31 December 2004 – 31 December 2005 — 16.0 — 391.0 10.0 — 339.0 — — 25.0 — 610.9 20.0 — 677.3 — DIVIDEND RECOGNISED AS DISTRIBUTION TO ORDINARY EQUITY HOLDERS OF THE COMPANY 41.0 1,001.9 30.0 1,016.3 ANNUAL REPORT 2006 TELEKOM MALAYSIA BERHAD 259
  280. NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 11 . DIVIDENDS IN RESPECT OF ORDINARY SHARES (continued) The Board now recommends a final gross dividend of 30.0 sen per share less tax at 27% (2005: a final gross dividend of 25.0 sen per share less tax at 28%) for shareholders’ approval at the forthcoming Annual General Meeting of the Company. The total dividend payout for the current year based on issued share capital as at 31 December 2006 is approximately RM1,135.1 million, representing 54.9% of the profit attributable to equity holders of the Company. This is in line with the dividend payout policy of between 40% to 60% of profit attributable to shareholders. These financial statements do not reflect this final dividend which will only be accrued as a liability when approved by shareholders. 12. SHARE CAPITAL The Group and Company 2006 Authorised: Ordinary shares of RM1 each Special share of RM1 (sub-note a) Class A Redeemable Preference Shares of RM0.01 each (sub-note b) Class B Redeemable Preference Shares of RM0.01 each (sub-note b) Issued and fully paid: Ordinary shares of RM1 each At 1 January Exercise of share options At 31 December Special share of RM1 (sub-note a) At 1 January and 31 December TOTAL ISSUED AND FULLY PAID-UP SHARE CAPITAL 260 TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2006 2005 Number of shares RM Number of shares RM 5,000.0 — 5,000.0 — 5,000.0 — 5,000.0 — — — — — — — — — 3,391.5 6.1 3,391.5 6.1 3,382.4 9.1 3,382.4 9.1 3,397.6 3,397.6 3,391.5 3,391.5 — — — — 3,397.6 3,397.6 3,391.5 3,391.5
  281. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 12 . SHARE CAPITAL (continued) (a) The Special Rights Redeemable Preference Share (Special Share) of RM1 would enable the Government through the Minister of Finance to ensure that certain major decisions affecting the operations of the Company are consistent with the Government's policy. The Special Shareholder, which may only be the Government or any representative or person acting on its behalf, is entitled to receive notices of meetings but does not carry any right to vote at such meetings of the Company. However, the Special Shareholder is entitled to attend and speak at such meetings. Certain matters, in particular, the alteration of the Articles of Association of the Company relating to the rights of the Special Shareholder, the dissolution of the Company, any substantial acquisitions and disposal of assets, amalgamation, merger and takeover, require the prior consent of the Special Shareholder. The Special Shareholder has the right to require the Company to redeem the Special Share at par at any time. In a distribution of capital in a winding up of the Company, the Special Shareholder is entitled to the repayment of the capital paid-up on the Special Share in priority to any repayment of capital to any other member. The Special Share does not confer any right to participate in the capital or profits of the Company. (b) These comprise 1,000 Class A Redeemable Preference Shares (RPS) (TM RPS A) of RM0.01 each and 1,000 Class B RPS (TM RPS B) of RM0.01 each, which were issued to Rebung Utama Sdn Bhd, a special purpose entity of the Company, at a premium of RM0.99 each over the par value of RM0.01 each. TM RPS A and TM RPS B rank pari-passu amongst themselves but below the Special Share and ahead of the ordinary shares of the Company in a distribution of capital in the event of the winding up or liquidation of the Company. TM RPS A and TM RPS B have been classified as liabilities. The details of TM RPS A and TM RPS B are set out in note 16(a) to the financial statements. (c) During the year, the issued and fully paid-up share capital of the Company was increased by the issuance of 6,139,500 ordinary shares of RM1 each for cash under ESOS 3, detailed as follows: Number of shares issued Exercise price per share 5,995,000 1,000 46,000 97,500 RM7.09 RM8.02 RM9.32 RM9.22 These shares rank pari-passu in all respects with the existing issued ordinary shares of the Company. ANNUAL REPORT 2006 TELEKOM MALAYSIA BERHAD 261
  282. NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 13 . EMPLOYEES' SHARE OPTION SCHEME Total expense recognised arising from share-based payments amounted to RM35.8 million and RM8.0 million for the Group and the Company respectively as disclosed in note 6 to the financial statements. No expense is recognised for outstanding share options granted before 31 December 2004 or share options granted after 31 December 2004 but vested before 1 January 2006. (a) Employees’ Share Option Scheme (ESOS) of the Company The Company's existing Employees' Share Option Scheme (ESOS 3) was approved by the shareholders at an Extraordinary General Meeting held on 21 May 2002. The expiry date of ESOS 3 is 31 July 2007. Options to subscribe for ordinary shares of RM1 each under ESOS 3 was granted in various phases, as follows: Exercise price (RM) Scheme Grant date ESOS 3 (phase 1) 1 August 2002 7.09 20 May 2004 8.02 ESOS 3 (phase 2) 10 March 2005 6 September 2005 ESOS 3 (phase 3) 18 December 2006 Number of options granted Eligibility Executives and Non-Executives of the Company and its subsidiaries Non-Executives of the Company 259,014,000 9.32 9.22 Executives of the Company Executives and Non-Executives of the Company and its subsidiaries 3,365,000 19,439,000 8.69 Executives and Non-Executives of the Company and its subsidiaries 5,470,000 48,000 On 6 September 2005, the Company also implemented a Performance Linked Employee Options Scheme (PLES) for Senior Management of the Company and its subsidiaries. The scheme is an extension of the existing ESOS 3 and expires on 31 July 2007. The maximum number of PLES options granted and the vesting period is as follows: Vesting Period/Maximum Options Granted Performance Condition 1 May 2005 1 May 2006 1 May 2007 Performance for financial year: – 2004 – 2005 – 2006 Aggregated performance for 2004-2006 5,991,200 — — — — 5,991,200 — — — — 5,991,200 11,982,400 Total 5,991,200 5,991,200 17,973,600 Options granted under PLES are conditional grants and are based on the performance of the Group and individuals for the respective years. Options under PLES have an exercise price of RM10.24. The number of options a grantee may exercise will be notified to the grantee through a letter of notification after the end of the respective financial years. Options to which the grantees are not qualified to exercise shall lapse, be null and void. 262 TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2006
  283. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 13 . EMPLOYEES' SHARE OPTION SCHEME (continued) (a) Employees’ Share Option Scheme (ESOS) of the Company (continued) General features of ESOS 3 and PLES (i) The eligibility for participation in ESOS is at the discretion of the Option Committee appointed by the Board of Directors. (ii) The total number of shares to be offered shall not exceed 10% of the total issued and paid-up shares of the Company. (iii) No option shall be granted for less than 100 shares nor more than 1,200,000 shares unless so adjusted pursuant to item (v) below. (iv) The subscription price of each RM1 share shall be the average of the middle market quotation of the shares as shown in the daily official list issued by the Bursa Malaysia Securities Berhad for the five (5) trading days preceding the date of offer with a 10% discount, except for PLES options, which were granted without discount. (v) In the event of any alteration in capital structure of the Company during the option period which expires on 31 July 2007, such corresponding alterations shall be made in: (i) the number of new shares in relation to ESOS so far as unexercised; (ii) and/or the subscription price. Specific features of ESOS 3 (vi) Subject to item (v) above, an employee may exercise his options subject to the following limits: (a) In respect of any options granted and remained unexercised prior to 17 May 2005, being the effective date of the 2005 amendments to the ESOS by-law: Percentage of options exercisable (%) Number of options granted Below 20,000 20,000 – 99,999 100,000 and above Year 1 Year 2 Year 3 Year 4 Year 5 100 *40 20 — 30 20 — **30 20 — — 20 — — 20 * 40% or 20,000 options, whichever is higher ** 30% or the remaining number of options unexercised (b) In respect of options granted after 17 May 2005 (not inclusive of PLES options), the number of options which a grantee may exercise in a relevant year shall be evenly distributed over the number of unexpired years of the scheme, as calculated on the date of acceptance of the option, save as determined otherwise by the Option Committee. The options granted do not confer any right to participate in any share issue of any other company. ANNUAL REPORT 2006 TELEKOM MALAYSIA BERHAD 263
  284. NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 13 . EMPLOYEES' SHARE OPTION SCHEME (continued) (a) Employees’ Share Option Scheme (ESOS) of the Company (continued) The movement during the year in the number of options over the ordinary shares of RM1 each of the Company is as follows: Fair Exercise At 1 At 31 value at Option Scheme Price January Granted Exercised Forfeited December grant date (ESOS 3) (RM) (’000) (’000) (’000) (’000) (’000) (RM) 2006 Phase Phase Phase Phase Phase 1 1 2 2 3 7.09 8.02 9.32 9.22 8.69 Total 2005 Phase Phase Phase Phase 1 1 2 2 7.09 8.02 9.32 9.22 Total 28,798.0 14.0 3,176.0 19,356.5 — — — — — 5,470.0 (5,995.0) (1.0) (46.0) (97.5) — — — (38.0) (421.0) (327.0) 22,803.0 13.0 3,092.0 18,838.0 5,143.0 51,344.5 5,470.0 (6,139.5) (786.0) 49,889.0 37,675.0 23.0 — — — — 3,365.0 19,439.0 (8,874.0) (9.0) (189.0) (5.0) (3.0) — — (77.5) 28,798.0 14.0 3,176.0 19,356.5 37,698.0 22,804.0 (9,077.0) (80.5) 51,344.5 —* —* —* 1.61 1.07 —* —* —* 1.61 At 31 December Option Scheme (PLES) Exercise Price (RM) 2006 Performance for: – 2004 – 2005 – 2006 Aggregate 10.24 10.24 10.24 10.24 Total 2005 Performance for: – 2004 – 2005 – 2006 Aggregate Total 10.24 10.24 10.24 10.24 At 1 January (’000) Granted (’000) Exercised (’000) — — — — — — — — (26.8) (5,991.2) — — 1,602.2 — n/a n/a n/a n/a 5,991.2 11,982.4 25,593.8 — — (6,018.0) 1,602.2 17,973.6 — — — — 5,991.2 5,991.2 5,991.2 11,982.4 — — — — (4,362.2) — — — 1,629.0 n/a n/a n/a n/a 5,991.2 5,991.2 11,982.4 — 29,956.0 — (4,362.2) 1,629.0 23,964.8 The above unexercised options remain in force until 31 July 2007. TELEKOM MALAYSIA BERHAD Vested (’000) 1,629.0 5,991.2 5,991.2 11,982.4 * FRS 2 not applicable for these tranches n/a Not applicable 264 Forfeited (’000) Fair Not yet value at vested grant date (’000) (RM) ANNUAL REPORT 2006 —* 1.14 1.14 1.14 —* 1.14 1.14 1.14
  285. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 13 . EMPLOYEES' SHARE OPTION SCHEME (continued) (a) Employees’ Share Option Scheme (ESOS) of the Company (continued) Details relating to options exercised during the year are as follows: Exercise date Fair value of shares at exercise date Exercise price/ Number of options exercised (’000) RM/share RM7.09 RM8.02 RM9.32 RM9.22 9.50-9.95 8.90-9.10 9.30-9.70 2,292.0 1,687.0 2,016.0 — 1.0 — 42.0 — 4.0 41.5 — 56.0 5,995.0 1.0 46.0 97.5 2,209.0 1,329.0 563.0 2,706.0 1,238.0 829.0 7.0 — — 2.0 — — — — 2.0 164.0 22.0 1.0 — — — — — 5.0 8,874.0 9.0 189.0 5.0 2006 RM million 2005 RM million Ordinary share capital – at par Share premium 6.1 37.7 9.1 55.7 Proceeds received on exercise of share options 43.8 64.8 Fair value at exercise date of shares issued 58.0 96.1 2006 January to May 2006 June to October 2006 November to December 2006 2005 January 2005 February to March 2005 April to May 2005 June to August 2005 September to October 2005 November to December 2005 11.35 10.35-10.65 9.60-10.05 10.25-10.80 10.10-10.25 9.40-9.55 ANNUAL REPORT 2006 TELEKOM MALAYSIA BERHAD 265
  286. NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 13 . EMPLOYEES' SHARE OPTION SCHEME (continued) (a) Employees’ Share Option Scheme (ESOS) of the Company (continued) The fair value of shares issued on the exercise of options is the mean market price at which the Company's share were traded on the Bursa Malaysia Securities Berhad on the day prior to the exercise of the options. The fair values of options granted in which FRS 2 applies, was determined using the Black Scholes Valuation model. The significant inputs into the model are as follows: ESOS 3 Exercise price Option life (number of days to expiry) Weighted average share price at grant date Expected dividend yield Risk free interest rates (Yield of Malaysian Government securities) Expected volatility TM share historical volatility period: From To Phase 2 RM9.22 Phase 3 RM8.69 PLES RM10.24 649 225 649 RM10.10 RM9.65 RM10.10 3.0% 3.0% 3.0% 3.18% 3.21% 3.18% 23.27% 15.74% 23.27% 24.10.2003 14.10.2005 18.12.2004 18.12.2006 24.10.2003 14.10.2005 The volatility measured at the standard deviation of continuously compounded share return is based on statistical analysis of daily share prices over the last two (2) years from the grant date. (b) ESOS of VADS Berhad (VADS) The ESOS was approved by VADS's shareholders at an Extraordinary General Meeting held on 28 January 2005. The principal features of ESOS are as follows: (i) The eligibility for participation in ESOS is at the discretion of the Option Committee appointed by the Board of Directors of VADS. (ii) The total number of shares to be offered shall not exceed 15% of the total issued and paid-up shares of VADS. (iii) No option shall be granted for less than 1,000 shares nor more than 500,000 shares unless so adjusted pursuant to item (vi) below. (iv) The subscription price of each RM1 share shall be the average of the middle market quotation of the shares as shown in the daily official list issued by the Bursa Malaysia Securities Berhad for the five (5) trading days preceding the date of offer with a 10% discount. 266 TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2006
  287. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 13 . EMPLOYEES' SHARE OPTION SCHEME (continued) (b) ESOS of VADS Berhad (VADS) (continued) The principal features of ESOS are as follows (continued): (v) Subject to item (vi) below, an employee may exercise his options subject to the following limits: Percentage of options exercisable (%) Year 1 Year 2 Year 3 Year 4 Year 5 20 20 20 20 20 Number of options granted (vi) In the event of any alteration in capital structure of VADS during the option period which expires on 31 March 2010, such corresponding alterations shall be made in: (a) the number of new shares in relation to ESOS so far as unexercised; (b) and/or the subscription price. These options granted do not confer any right to participate in any share issue of any other company. The movement during the year in the number of options over the ordinary shares of RM1 each of VADS are as follows: Grant date 2006 14 April 2005 31 August 2005 30 November 2005 19 January 2006 28 April 2006 28 July 2006 20 October 2006 Exercise Price (RM) 2.65 2.76 2.94 3.08 3.69 3.82 5.75 Total 2005 14 April 2005 31 August 2005 30 November 2005 Total 2.65 2.76 2.94 At 1 January (’000) Granted (’000) Exercised (’000) Forfeited (’000) At 31 December (’000) 4,761.0 400.0 220.0 — — — — — — — 800.0 848.0 504.0 628.0 (1,242.0) (104.0) (82.0) (248.0) (136.0) (100.0) (18.0) (344.0) (40.0) — (200.0) (54.0) (24.0) (56.0) 3,175.0 256.0 138.0 352.0 658.0 380.0 554.0 5,381.0 2,780.0 (1,930.0) (718.0) 5,513.0 — — — 5,455.0 400.0 220.0 (178.0) — — (516.0) — — 4,761.0 400.0 220.0 — 6,075.0 (178.0) (516.0) 5,381.0 Fair value at grant date (RM) 0.62 0.86 0.74 0.63 1.02 0.88 1.41 0.62 0.86 0.74 The above unexercised options remain in force until 31 March 2010. ANNUAL REPORT 2006 TELEKOM MALAYSIA BERHAD 267
  288. NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 13 . EMPLOYEES' SHARE OPTION SCHEME (continued) (b) ESOS of VADS Berhad (VADS) (continued) The fair values of options granted in which FRS 2 applies, was determined using the Black Scholes Valuation model. The significant inputs into the model are as follows: Exercise price Option life (number of days to expiry) Weighted average share price at grant date Expected dividend yield Risk free interest rates (Yield of Malaysian Government securities) Expected volatility VADS share historical volatility period: From To RM5.75 RM3.82 RM3.69 RM3.08 RM2.94 RM2.76 RM2.65 1,259 1,343 1,434 1,533 1,581 1,673 1,812 RM6.60 RM4.26 RM4.42 RM3.42 RM3.28 RM3.38 RM2.84 3.5% 3.5% 3.5% 3.5% 3.5% 3.5% 3.5% 3.76% 4.22% 4.07% 3.56% 3.68% 3.28% 3.70% 24.04% 23.08% 22.20% 20.59% 26.00% 26.00% 26.00% 30.6.2003 20.10.2006 30.6.2003 28.7.2006 30.8.2002 28.4.2006 30.8.2002 30.8.2002 19.1.2006 30.11.2005 30.8.2002 31.8.2005 30.8.2002 14.4.2005 The volatility measured at the standard deviation of continuously compounded share return is based on statistical analysis of daily share prices over the last two (2) to four (4) years from the grant date. (c) ESOS of Dialog Telekom Limited (Dialog) On 11 July 2005, the Board of Directors of Dialog resolved and issued 199,892,741 ordinary shares of Dialog at the Initial Public Offering (IPO) price of Sri Lanka Rupee (SLR) 12 to an ESOS Trust, being 2.7% of the issued share capital of Dialog. Of the total ESOS shares that were transferred to the ESOS Trust, 88,841,218 shares (44.4%) were granted at the point of the IPO with the exercise price equals to IPO price. The balance 111,051,523 shares (56.6%) are accounted as treasury shares of Dialog as at 31 December 2006 and shall be granted to employees as an ongoing performance incentive mechanism in four (4) further tranches. The principal features of ESOS are as follows: 268 (i) The eligibility for participation in ESOS is at the discretion of the ESOS Committee appointed by the Board of Directors of Dialog. (ii) Except the existing tranche, the exercise price of the granted ESOS shares will be based on the five (5) days weighted average market price of Dialog’s shares immediately preceding the offer date for options, with the ESOS Committee having the discretion to set an exercise price up to 10% lower than that derived weighted average market price. TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2006
  289. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 13 . EMPLOYEES' SHARE OPTION SCHEME (continued) (c) ESOS of Dialog Telekom Limited (Dialog) (continued) (iii) Options are conditional on an employee satisfying the following: – – – has attained the age of eighteen (18) years; is employed full-time by and on the payroll of a company within Dialog Group; and has been in the employment of Dialog Group for a period of at least one (1) year of continuous service prior to and up to the offer date, including service during the probation period. (iv) No options shall be granted for more than 8.0 million shares. (v) An employee may exercise his options subject to the following limits: Percentage of options exercisable (%) Number of options granted Year 1 Year 2 Year 3 100 50 50 — 50 30 — — 20 Support and Operative Supervisory and Middle Management Management and Senior Management The movement during the year in the number of ESOS shares outstanding is as follows: Grant date Exercise price (SLR) At 1 January (’000) Granted (’000) Exercised (’000) Forfeited (’000) (649.0) 2006 11 July 2005 12 87,725.0 — (38,341.0) 2005 11 July 2005 12 — 88,841.0 (1,116.0) — At 31 December (’000) Fair value at grant date (SLR) 48,735.0 4.4 87,725.0 4.4 The fair values of options granted in which FRS 2 applies, was determined using the Black Scholes Valution model. The significant inputs into the model are as follows: Exercise price SLR12 Option life (number of days to expiry) 1,826 Weighted average share price at grant date SLR12 Expected dividend yield 2.1% Risk free interest rates (Yield of treasury bond of Central Bank of Sri Lanka) 10.00% Expected volatility 28.24% The above volatility rate was devived after considering the patent and level of historical volatility of entities in the same industry since Dialog does not have sufficient information on historical volatility as it was only listed on the Colombo Stock Exchange in July 2005. The volatility measured at the standard deviation of continuously compounded share return is based on statistical analysis of daily share prices of these entities over the last two (2) years from the grant date. ANNUAL REPORT 2006 TELEKOM MALAYSIA BERHAD 269
  290. NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 13 . EMPLOYEES' SHARE OPTION SCHEME (continued) (d) Employee share allocation scheme of PT Excelcomindo Pratama Tbk (XL) Based on the Resolution of an Extraordinary General Meeting of Shareholders, as stated in Deed No. 127, dated 19 July 2005, XL’s shareholders approved the plan to implement an employees’ stock option program through the Employee Stock Allocation (ESA) which was realised together with XL’s initial stock public offering. The members of ESA received free shares from XL totalling 5,000,000 shares which were distributed proportionally to XL’s employees based on their respective working periods and positions. This program is only valid for permanent employees who have been working for a minimum of twelve (12) months on the date of stock listing on the Jakarta Stock Exchange (Stock Exchange). The IPO price of Indonesian Rupiah 2,000 was deemed the fair value of the free shares. The shares from the ESA program will be returned to XL if the employees resign or have their contracts terminated within one (1) year from the date on which the shares were recorded. Shares for this program cannot be sold within one (1) year of the stock listing on the Stock Exchange and cannot be taken as cash by the member of the ESA. 14. RESERVES The Group The Company 2006 RM 2005 RM 2006 RM 2005 RM Retained profits ESOS reserve Currency translation differences arising from translation of foreign subsidiaries/jointly controlled entities/associates 12,829.0 25.0 11,942.9 — 8,218.4 25.0 8,685.6 — (251.2) — — TOTAL RESERVES 12,571.6 11,691.7 8,243.4 8,685.6 (282.4) Subject to agreement with the Inland Revenue Board, the Company has sufficient tax credit under Section 108 of the Income Tax Act, 1967 and tax-exempt income under Section 8 of the Income Tax (Amendment) Act, 1999 at 31 December 2006 to frank the payment of net dividends out of all (2005: all) its retained profits without incurring additional taxation. 270 TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2006
  291. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 15 . BORROWINGS 2006 2005 Total RM Weighted Average Rate of Finance Long Term RM Short Term RM Total RM 113.8 113.8 5.27% 113.8 113.7 227.5 210.3 400.0 610.3 8.10% 628.9 300.0 928.9 7.72% 210.3 513.8 724.1 7.54% 742.7 413.7 1,156.4 5.88% 3,000.0 — 3,000.0 5.84% 3,000.0 — 3,000.0 4.74% 10.0 50.2 60.2 4.00% — 5.1 5.1 5.07% 243.0 207.9 450.9 5.19% 443.0 246.0 689.0 5.76% 3,253.0 258.1 3,511.1 5.72% 3,443.0 251.1 3,694.1 Total Domestic 6.10% 3,463.3 771.9 4,235.2 6.16% 4,185.7 664.8 4,850.5 FOREIGN Secured Borrowings from financial institutions (sub-note b) Other borrowings (sub-note c) Bank overdrafts (sub-note d) 7.90% 498.0 301.4 799.4 8.88% 178.2 29.4 207.6 1.96% 14.00% 200.9 — 12.0 1.7 212.9 1.7 — 12.00% 113.3 — — 1.9 113.3 1.9 6.66% 698.9 315.1 1,014.0 5.78% 291.5 31.3 322.8 7.00% 6,013.6 — 6,013.6 7.00% 5,516.4 264.9 5,781.3 6.72% 1.26% 17.34% 98.3 8.7 — 712.7 1.4 2.0 811.0 10.1 2.0 2.58% 1.25% — 797.9 10.2 — 451.9 1.2 — 1,249.8 11.4 — 6.96% 6,120.6 716.1 6,836.7 6.20% 6,324.5 718.0 7,042.5 Total Foreign 6.92% 6,819.5 1,031.2 7,850.7 6.19% 6,616.0 749.3 7,365.3 TOTAL BORROWINGS 6.63% 10,282.8 1,803.1 12,085.9 6.17% 10,801.7 1,414.1 12,215.8 THE GROUP DOMESTIC Secured Borrowings from financial institutions (sub-note a) Borrowings under Islamic Banking facilities (sub-note a) Unsecured Redeemable Bonds (note 16(c)) Borrowings from financial institutions Borrowings under Islamic Banking facilities Unsecured Notes and Debentures (sub-note e) Borrowings from financial institutions Other borrowings Bank overdrafts Weighted Average Rate of Finance Long Term RM Short Term RM 5.70% — 8.10% ANNUAL REPORT 2006 TELEKOM MALAYSIA BERHAD 271
  292. NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 15 . BORROWINGS (continued) 2006 2005 Domestic RM Foreign RM Total RM Domestic RM Foreign RM Total RM 463.3 2,000.0 1,000.0 — 3,078.2 2,680.4 0.8 1,060.1 3,541.5 4,680.4 1,000.8 1,060.1 1,185.7 2,000.0 1,000.0 — 3,481.0 2,006.0 0.8 1,128.2 4,666.7 4,006.0 1,000.8 1,128.2 3,463.3 6,819.5 10,282.8 4,185.7 6,616.0 10,801.7 The Group's long term borrowings are repayable as follows: After After After After one year and up to five years five years and up to ten years ten years and up to fifteen years fifteen years 2006 Weighted Average Rate of Finance Long Term RM Short Term RM Total RM Weighted Average Rate of Finance Long Term RM Short Term RM Total RM DOMESTIC Unsecured Borrowings under Islamic Banking facilities 5.16% 243.0 200.0 443.0 5.19% 443.0 246.0 689.0 Total Domestic 5.16% 243.0 200.0 443.0 5.19% 443.0 246.0 689.0 FOREIGN Unsecured Notes and Debentures (sub-note e) Borrowings from financial institutions Other borrowings 7.80% 2,116.3 — 2,116.3 7.87% 2,259.6 — 2,259.6 5.55% 1.26% — 8.7 534.6 1.4 534.6 10.1 3.38% 1.25% 566.9 10.2 — 1.2 566.9 11.4 Total Foreign 7.32% 2,125.0 536.0 2,661.0 6.94% 2,836.7 1.2 2,837.9 TOTAL BORROWINGS 7.02% 2,368.0 736.0 3,104.0 6.60% 3,279.7 247.2 3,526.9 THE COMPANY 272 2005 TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2006
  293. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 15 . BORROWINGS (continued) 2006 2005 Domestic RM Foreign RM Total RM Domestic RM Foreign RM Total RM 243.0 — — — 1,062.0 2.1 0.8 1,060.1 1,305.0 2.1 0.8 1,060.1 443.0 — — — 1,705.1 2.6 0.8 1,128.2 2,148.1 2.6 0.8 1,128.2 243.0 2,125.0 2,368.0 443.0 2,836.7 3,279.7 The Company's long term borrowings are repayable as follows: After After After After one year and up to five years five years and up to ten years ten years and up to fifteen years fifteen years The currency exposure profile of borrowings is as follows: The Group Ringgit Malaysia US Dollar Bangladesh Taka Sri Lanka Rupee Other currencies (a) The Company 2006 RM 2005 RM 2006 RM 2005 RM 4,235.2 7,259.3 322.7 188.8 79.9 4,850.5 7,107.4 11.4 233.2 13.3 443.0 2,650.9 — — 10.1 689.0 2,826.5 — — 11.4 12,085.9 12,215.8 3,104.0 3,526.9 Syndicated term loan facilities and Islamic Private Debt securities issued by Celcom (Malaysia) Berhad (Celcom), a wholly owned subsidiary. The borrowings are secured by deed of assignment over Celcom's key bank collection accounts and designated bank accounts which requires Celcom to deposit a proportion of its cash flows into designated bank accounts from which funds can be utilised only for interest and principal repayments on these borrowings. Under the respective debt covenants, Celcom is required to comply with certain conditions which includes not to be in breach of certain agreed financial ratios summarised as follows: – – – – (b) debt equity ratio of not more than 1.25; debt over EBITDA ratio of not more than 2.5; EBITDA over finance cost ratio of more than 5; and finance service coverage ratio of more than 1.2. Secured by way of fixed charge on property, plant and equipment of subsidiaries (note 21 to the financial statements). ANNUAL REPORT 2006 TELEKOM MALAYSIA BERHAD 273
  294. NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 15 . BORROWINGS (continued) (c) Consists of USD60.0 million (2005: USD29.2 million) supplier credit that bears 0% interest during the first two (2) years and is repayable from 2007 to 2012. This supplier credit is secured by way of fixed charge on property, plant and equipment of a foreign subsidiary (note 21 to the financial statements). (d) The bank overdrafts were secured by way of fixed charge over property, plant and equipment of a subsidiary and interests were payable at rates which varied according to the lenders' prevailing base lending rates. Interest rate during the year was 14% per annum (2005: 12% per annum) (note 21 to the financial statements). (e) Consists of the following: The Group USD70.0 million London Interbank Offer Rate (LIBOR) plus 2.25% Floating Rate Notes due 2006 USD250.0 million 7.125% Notes due 2013 USD350.0 million 8.0% Notes due 2009 USD300.0 million 8.0% Guaranteed Notes due 2010 USD500.0 million 5.25% Guaranteed Notes due 2014 USD300.0 million 7.875% Debentures due 2025 The Company 2006 RM 2005 RM 2006 RM 2005 RM — 868.0 1,265.8 1,058.2 1,763.5 1,058.1 264.9 — 1,367.1 1,133.8 1,889.7 1,125.8 — — — 1,058.2 — 1,058.1 — — — 1,133.8 — 1,125.8 6,013.6 5,781.3 2,116.3 2,259.6 16. PAYABLE TO SUBSIDIARIES (i) On 12 December 2003, the Company issued for cash 1,000 Class A Redeemable Preference Shares (RPS) (TM RPS A) and 1,000 Class B RPS (TM RPS B) to Rebung Utama Sdn Bhd (RUSB), a special purpose entity of the Company, at a premium of RM0.99 each over the par value of RM0.01 each. Subsequently, on 30 December 2003, the Company issued RM1,983.5 million nominal value 10-year redeemable unsecured bonds due 2013 (Tranche 1) and RM1,000.0 million nominal value 15-year redeemable unsecured bonds due 2018 (Tranche 2) (collectively referred to as TM bonds) to RUSB. As part of an overall cost efficient funding structure, the funds for the subscription of the Company’s RPS and bonds were raised by RUSB vide the issuance of RM2,987.0 million RPS (RUSB RPS) to Tekad Mercu Berhad (Tekad Mercu), another special purpose entity of the Company. Tekad Mercu had, in turn, issued RM2,000.0 million nominal value 10-year redeemable unsecured bonds due 2013 (Tranche 1) and RM1,000.0 million nominal value 15-year redeemable unsecured bonds due 2018 (Tranche 2) (collectively referred to as Tekad Mercu bonds) to investors on 30 December 2003 to finance the subscription of the RUSB RPS (sub-note c). 274 TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2006
  295. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 16 . PAYABLE TO SUBSIDIARIES (continued) (ii) On 22 September 2004, the Company's wholly owned subsidiary, TM Global Incorporated, a company incorporated in the Federal Territory of Labuan, under the Offshore Companies Act, 1990, issued a 10-year USD500.0 million Guaranteed Notes. The Notes carry an interest rate of 5.25% per annum payable semiannually in arrears on 22 March and September commencing in March 2005. The Notes will mature on 22 September 2014. Proceeds from the transaction are being utilised to refinance the Company’s maturing debt and general working capital. The Notes are unconditional and irrevocably guaranteed by the Company. Listed below are the effects of the transactions to the Company: The Company Payable to a subsidiary company, RUSB TM RPS A of RM1,000 (sub-note a) TM RPS B of RM1,000 (sub-note a) 10-year redeemable unsecured bonds due 2013 (Tranche 1) (sub-note b) 15-year redeemable unsecured bonds due 2018 (Tranche 2) (sub-note b) (ii) Payable to a subsidiary company, TM Global Incorporated 2006 RM 2005 RM — — 1,983.5 1,000.0 1,763.5 — — 1,983.5 1,000.0 1,889.7 4,747.0 4,873.2 (i) (a) TM RPS A and TM RPS B TM RPS A and TM RPS B issued by the Company to RUSB have been classified as liabilities and accordingly, dividends on these preference shares are recognised in the Income Statement as interest expense. The salient terms of the RPS are as follows: (i) The preference shares, 1,000 RPS A and 1,000 RPS B are both issued at RM0.01 par value and a premium of RM0.99 each. (ii) TM RPS A and TM RPS B rank pari-passu amongst themselves but below the Special Share and ahead of the ordinary shares of the Company in a distribution of capital in the event of the winding up or liquidation of the Company. (iii) The non-cumulative dividends, when declared by the Board of Directors of the Company, are payable in arrears at the end of every six (6) month period commencing from the date of issue of the RPS of 12 December 2003, the amount which will be at the discretion of the Directors. (iv) The RPS is not convertible and shall not confer on the holder thereof any right to participate on a return in excess of capital on liquidation, winding up or otherwise of the Company, other than on redemption, up to the redemption price of RM1.00 for each RPS A and RPS B. (v) Both RPS A and RPS B do not have fixed maturity dates and may be redeemed in cash at the option of the Company at any time, at a redemption price of RM1.00 per share. ANNUAL REPORT 2006 TELEKOM MALAYSIA BERHAD 275
  296. NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 16 . PAYABLE TO SUBSIDIARIES (continued) (b) TM Bonds The principal features of the bonds issued by the Company to RUSB are as follows: (i) Unless previously redeemed, purchased and cancelled, the bonds are redeemable by the Company on 30 December 2013 and 28 December 2018 respectively at nominal amount together with accrued and unpaid interest. The bonds may also be redeemed by the Company at any time after the issue date by private arrangement with RUSB. (ii) Payment of coupon on the bonds may either be: (a) – – interest of 6.25% per annum payable semi-annually in arrears on the Tranche 1 bonds, and interest of 5.25% per annum payable semi-annually in arrears on the Tranche 2 bonds, with the option to reset these rates after the fifth year; or (b) – net dividends on both TM RPS A and TM RPS B, which shall be equal to the interest on Tranche 1 and Tranche 2 of the bonds less any amounts in the Designated Accounts, being accounts designated to capture all collections of dividends and tax refunds by the authorities, and a nominal interest of 0.01% per annum payable semi-annually. – (iii) The bonds will constitute direct, unconditional and unsecured obligations of the Company and will at all times rank pari-passu, without discrimination, preference or priority amongst themselves and at least paripassu with all other present and future unsecured and unsubordinated obligations of the Company, subject to those preferred by law or the transaction documents. (iv) The bonds are not convertible, not transferable and not tradeable. (c) Tekad Mercu Bonds The principle features of the bonds issued by Tekad Mercu are as follows: (i) (ii) Unless previously redeemed, purchased and cancelled, the bonds are redeemable by Tekad Mercu on 30 December 2013 and 28 December 2018 respectively at nominal amount together with accrued and unpaid interest. In respect of Tranche 2 only, (a) Tekad Mercu has the right to redeem all of the outstanding Tekad Mercu bonds (Tranche 2) on the tenth and the twentieth coupon payment date (‘Optional Redemption Date’) with advance notice to the bondholders at nominal amount together with accrued and unpaid interest (up to but excluding the relevant Optional Redemption Date) in respect thereof. (b) If on the day falling 20 business days prior to any Optional Redemption Date, the rating of the Tekad Mercu bonds (Tranche 2) shall be below AAA or its equivalent as confirmed by the Calculation Agent, then Tekad Mercu shall be obliged to redeem all outstanding Tekad Mercu bonds (Tranche 2) on the relevant Optional Redemption Date. Redemption of the Tekad Mercu bonds (Tranche 2) shall be at their nominal value together with all accrued interest (up to but excluding the relevant Optional Redemption Date) in respect thereof. (iii) The bonds may also be purchased, in whole or in part, by the Company, at any time at any price in the open market or by private treaty. 276 TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2006
  297. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 16 . PAYABLE TO SUBSIDIARIES (continued) (c) Tekad Mercu Bonds (continued) (iv) Payment of coupon on the bonds Interest rate of 6.20% per annum payable semi-annually in arrears on the Tranche 1 bonds and interest rate of 5.25% per annum payable semi-annually in arrears on the Tranche 2 bonds with the option to reset these rates after the fifth year. (v) The bonds will constitute direct, unconditional and unsecured obligations of Tekad Mercu and will at all times rank pari-passu without discrimination, preference or priority amongst themselves and at least paripassu with all other present and future unsecured and unsubordinated obligations of Tekad Mercu, subject to those preferred by law or the transaction documents. (vi) The bonds are not convertible but transferable, subject to certain selling restrictions. (vii) The Company has granted a Put Option in favour of the security trustee of the bonds for the benefit of the holders of the bonds. The Put Option will allow the holders of the bonds to have direct recourse on the Company for the following circumstances: (a) on a pre-agreed time frame, there is insufficient amounts in the relevant Designated Account to meet coupon payments and/or principal redemption of the bonds on the relevant due date for payment; (b) an event of default has been declared under the bonds; and (c) an event of default has been declared under the Put Option. None of the TM RPS, TM bonds, Tekad Mercu bonds and TM Global Incorporated Notes have been redeemed, purchased or cancelled during the year. 17. HEDGING TRANSACTIONS (a) Long Dated Swap Underlying Liability USD300.0 million 7.875% Debentures Due 2025 In 1998, the Company entered into a long dated swap, which will mature on 1 August 2025. Hedging Instrument The Company made a payment of USD5.0 million and is obliged to pay fixed amounts of JPY209.9 million semiannually on each 1 February and 1 August, up to and including 1 August 2025. Prior to 1 February 2004, the counter-party was not obliged to agree to any request by the Company to terminate the transaction. Commencing from 1 February 2004, the Company has the right to terminate the transaction at a rate mutually agreed with the counter-party. However, the Company intends to hold the contract to maturity. On 1 August 2025, the Company will receive RM750.0 million from the counter-party. These proceeds will be swapped for USD300.0 million at a pre-determined exchange rate of RM2.5 to USD1.0, which will be used for the repayment of the USD300.0 million 7.875% redeemable unsecured Debentures. The effect of this transaction is to effectively build up a sinking fund with an assured value of USD300.0 million on 1 August 2025 for the repayment of the Debentures. ANNUAL REPORT 2006 TELEKOM MALAYSIA BERHAD 277
  298. NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 17 . HEDGING TRANSACTIONS (continued) (b) Cross-currency Interest Rate Swap (CCIRS) Underlying Liability USD150.0 million Unsecured Syndicated Term Loan On 29 June 2000, the Company refinanced its former USD350.0 million syndicated term loan into two (2) tranches comprising USD200.0 million due on 30 June 2003 and USD150.0 million due on 29 June 2007. The first tranche of USD200.0 million has been fully paid in 2003. Hedging Instrument On 26 July 2001, the Company entered into a USD150.0 million CCIRS. The swap has the following new terms whereby, the Company will receive USD150.0 million in return for the payment of JPY17,324.0 million on maturity of the USD150.0 million tranche of the syndicated term loan on 29 June 2007. The swap entitles the Company to receive floating interest at 6-month USD LIBOR, and obliges it to pay interest at 6-month USD LIBOR less 1.504% per annum. The net effect of the CCIRS is to convert the Company’s USD150.0 million debt obligation into JPY at the principal exchange rate of JPY115.4933 at the maturity date of 29 June 2007. On 2 April 2004, the Company restructured its existing USD150.0 million CCIRS. Following the restructuring of the CCIRS, the Company will now receive USD150.0 million in return for payment of JPY17,134.5 million on maturity of the underlying syndicated term loan on 29 June 2007. The restructured swap entitles the Company to receive a floating interest rate of 6-month USD LIBOR per annum and obliges it to pay interest at a floating rate of 6-month USD LIBOR-in-arrears minus 1.504%. The objective of this transaction is effectively to convert the principal loan amount from USD liability into JPY liability and reducing the interest payable on the USD150.0 million outstanding syndicated term loan. The Company terminated this transaction on 18 September 2006. (c) Interest Rate Swap (IRS) Underlying Liability USD300.0 million 8.0% Guaranteed Notes Due 2010 In the year 2000, the Company issued USD300.0 million 8.0% Guaranteed Notes due 2010. The Notes are redeemable in full on 7 December 2010. Hedging Instrument On 1 April 2004, the Company entered into an IRS agreement with a notional principal of USD150.0 million that entitles it to receive interest at a fixed rate of 8.0% per annum and obliges it to pay interest at a floating rate of 6-month USD LIBOR-in-arrears plus 5.255%. The swap was due to mature on 7 December 2006. On 7 June 2005, the Company restructured the existing USD150.0 million IRS into a range accrual swap. Following the restructuring, the Company will now receive interest at a rate of 8.0% times N1/N2 (where N1 is the number of the days when the reference floating rate, i.e. the 6-month USD LIBOR in this transaction, stays within a predetermined range, while N2 is the total number of days in the calculation period). In exchange, the Company will pay interest at a floating rate of 6-month USD LIBOR plus 2.15%. The restructured swap will mature on 7 December 2010. On 25 January 2006, the Company further restructured the above USD150.0 million IRS range accrual swap. The Company will now pay interest at a floating rate of 6-month USD LIBOR plus 2.35% for a new predetermined range. The maturity date remains the same. 278 TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2006
  299. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 17 . HEDGING TRANSACTIONS (continued) (d) Interest Rate Swap (IRS) Underlying Liability USD300.0 million 7.875% Debentures Due 2025 In 1998, the Company issued USD300.0 million 7.875% Debentures due 2025. Hedging Instrument On 2 April 2004, the Company entered into an IRS agreement with a notional principal of USD150.0 million that entitles it to receive interest at a fixed rate of 7.875% per annum and obliges it to pay interest at a floating rate of 6-month USD LIBOR-in-arrears plus 5.05%. The swap was to mature on 1 August 2006. On 1 August 2005, the Company restructured its existing USD150.0 million IRS into a range accrual swap. Following the restructuring, the Company will now receive interest at a rate of 7.875% times N1/N2 (where N1 is the number of the days when the reference floating rate, i.e. the 6-month USD LIBOR in this transaction, stays within a predetermined range, while N2 is the total number of days in the calculation period). In exchange, the Company will pay interest at a floating rate of 6-month USD LIBOR plus 1.85%. The restructured swap was to mature on 1 August 2010. On 5 December 2005, the Company restructured its existing USD150.0 million IRS range accrual swap. Following the restructuring, the Company will receive interest at a rate of 7.875% times N1/N2 (where N1 is the number of the days when the reference floating rate, i.e. the 6-month USD LIBOR in this transaction, stays within a predetermined range, while N2 is the total number of days in the calculation period). In exchange, the Company will now pay interest at a floating rate of 6-month USD LIBOR plus 2.24%. The restructured swap will mature on 1 August 2010. (e) Interest Rate Swap (IRS) Underlying Liability RM1,000.0 million 5.25% Bond Due 2018 In 2003, the Company issued RM1,000.0 million 5.25% Bond due 2018. Hedging Instrument On 2 April 2004, the Company entered into an IRS agreement with a notional principal of RM200.0 million that entitles it to receive interest at a fixed rate of 5.25% per annum and obliges it to pay interest at a floating rate of 6-month USD Kuala Lumpur Interbank Offer Rate (KLIBOR)-in-arrears plus 1.78%. The swap has matured on 13 June 2006. Subsequently, on 22 April 2004, the Company entered into another IRS agreement with a notional principal of RM200.0 million that entitles it to receive interest at a fixed rate of 5.25% per annum and obliges it to pay interest at a floating rate of 6-month USD KLIBOR-in-arrears plus 1.62%. The swap has matured on 13 June 2006. ANNUAL REPORT 2006 TELEKOM MALAYSIA BERHAD 279
  300. NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 18 . DEFERRED TAX Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when the deferred taxes relate to the same tax authority. The following amounts, determined after appropriate offsetting, are shown in the balance sheet: The Group The Company 2006 RM 2005 RM 2006 RM 2005 RM Subject to income tax: Deferred tax assets Deferred tax liabilities 115.6 2,261.9 196.5 2,368.7 — 1,434.0 — 1,694.8 TOTAL DEFERRED TAX 2,146.3 2,172.2 1,434.0 1,694.8 At 1 January Current year charged/(credited) to Income Statement arising from: – property, plant and equipment – tax losses – intangible assets – others 2,172.2 1,895.2 1,694.8 1,636.3 – acquisition of subsidiaries – currency translation differences At 31 December 395.0 180.2 — (458.5) 513.6 (124.1) (14.0) (80.6) (227.5) — — (33.3) 146.6 — (14.0) (74.1) 116.7 (120.6) (22.0) 294.9 (12.6) (5.3) (260.8) — — 58.5 — — 2,146.3 2,172.2 1,434.0 1,694.8 The tax effect of deductible temporary differences and unutilised tax losses of subsidiaries for which no deferred tax asset is recognised in the balance sheet are as follows: The Group Deductible temporary differences Unutilised tax losses 280 TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2006 2006 RM 2005 RM 544.3 189.3 701.5 179.3 733.6 880.8
  301. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 18 . DEFERRED TAX (continued) Breakdown of cumulative balances by each type of temporary difference: The Group The Company 2006 RM 2005 RM 2006 RM 2005 RM 96.2 18.3 731.1 355.3 198.5 253.5 — — 267.2 — — 233.9 845.6 (730.0) 807.3 (610.8) 267.2 (267.2) 233.9 (233.9) 115.6 196.5 — — 2,984.4 7.5 2,979.5 — 1,701.2 — 1,928.7 — Offsetting 2,991.9 (730.0) 2,979.5 (610.8) 1,701.2 (267.2) 1,928.7 (233.9) Total Deferred Tax Liabilities After Offsetting 2,261.9 2,368.7 1,434.0 1,694.8 THE GROUP 2006 RM 2005 RM At 1 January Current year provision Over accrual of provision in respect of previous year 65.0 8.0 (7.6) — 65.0 — Utilised during the year 65.4 (0.8) 65.0 — At 31 December 64.6 65.0 (a) Deferred Tax Assets Property, plant and equipment Tax losses Others Offsetting Total Deferred Tax Assets After Offsetting (b) Deferred Tax Liabilities Property, plant and equipment Others 19. PROVISION FOR LIABILITIES The provision for liabilities relates to provision for dismantling costs of existing telecommunication network and equipment of a subsidiary. ANNUAL REPORT 2006 TELEKOM MALAYSIA BERHAD 281
  302. NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 20 . INTANGIBLE ASSETS Goodwill RM Licences RM Total RM 6,891.3 — (1.5) 80.4 184.5 (8.9) 6,971.7 184.5 (10.4) (63.7) — — (23.0) (63.7) (23.0) At 31 December 2006 6,826.1 233.0 7,059.1 At 1 January 2005 Acquisition of subsidiaries Amortisation 4,022.7 2,868.6 — 50.0 33.0 (2.6) 4,072.7 2,901.6 (2.6) At 31 December 2005 6,891.3 80.4 6,971.7 At 31 December 2006 Cost Accumulated amortisation Accumulated impairment 6,870.8 — (44.7) 258.6 (25.6) — 7,129.4 (25.6) (44.7) Net Book Value 6,826.1 233.0 7,059.1 At 31 December 2005 Cost Accumulated amortisation Accumulated impairment 6,936.0 — (44.7) 83.0 (2.6) — 7,019.0 (2.6) (44.7) Net Book Value 6,891.3 80.4 6,971.7 THE GROUP Net Book Value At 1 January 2006 Addition Currency translation differences Acquisition of subsidiaries (including adjustments to initial fair value accounting) Amortisation 282 TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2006
  303. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 20 . INTANGIBLE ASSETS (continued) Goodwill RM Licences RM Total RM THE COMPANY Net Book Value At 1 January 2006 Amortisation — — 47.4 (3.8) 47.4 (3.8) At 31 December 2006 — 43.6 43.6 Net Book Value At 1 January 2005 Amortisation — — 50.0 (2.6) 50.0 (2.6) At 31 December 2006 — 47.4 47.4 At 31 December 2006 Cost Accumulated amortisation — — 50.0 (6.4) 50.0 (6.4) Net Book Value — 43.6 43.6 At 31 December 2005 Cost Accumulated amortisation — — 50.0 (2.6) 50.0 (2.6) Net Book Value — 47.4 47.4 The remaining amortisation period of acquired licences ranged from two (2) years to twelve (12) years. Impairment tests for goodwill The Group undertakes an annual test for impairment of its cash-generating units. No impairment loss was required for the carrying amount of goodwill assessed as at 31 December 2006 as their recoverable amounts were in excess of their carrying amounts. Goodwill is allocated to the Group’s cash-generating units identified according to business segment and the country of operations. ANNUAL REPORT 2006 TELEKOM MALAYSIA BERHAD 283
  304. NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 20 . INTANGIBLE ASSETS (continued) Impairment tests for goodwill (continued) The following cash-generating units, being the lowest level of asset for which there are separately identifiable cash flows, have carrying amounts of goodwill that are considered significant in comparison with the Group’s total goodwill: Cellular Malaysia Indonesia Cellular and Others Multiple units without significant goodwill 2006 RM 2005 RM 4,022.7 2,722.9 4,022.7 2,827.4 6,745.6 6,850.1 80.5 41.2 6,826.1 6,891.3 The amount of goodwill initially recognised is dependent upon the allocation of the purchase price to the fair value of identifiable assets acquired and the liabilities assumed. The determination of the fair value of the assets and liabilities is based, to a considerable extent, on management’s judgement. a. Key assumptions used in the value-in-use calculations The recoverable amounts of the cash-generating units including goodwill in these tests are determined based on value-in-use calculations. This value-in-use calculations apply a discounted cash flow model using cash flow projections based on forecasts and projections approved by management covering a five-year period for the cellular business in Malaysia and a ten-year period for the cellular business in Indonesia. These forecasts and projections reflect management’s expectation of revenue growth, operating costs and margins for each cash-generating unit based on past experience. Cash flows beyond the fifth year for the cellular business in Malaysia and tenth year for the cellular business in Indonesia are extrapolated using estimated terminal growth rates. These rates have been determined with regards to projected growth rates for the respective markets in which the cash-generating units participate and are not expected to exceed the long term average growth rates for those markets. The value-in-use calculation for the Group's cash-generating unit in Indonesia reflects the low penetration of mobile telecommunications in that country and the expectation of strong revenue growth throughout the ten-year plan. Discount rates applied to the cash flow forecasts are derived from the cash-generating unit’s pre-tax weighted average cost of capital plus a reasonable risk premium at the date of the assessment of the respective cashgenerating units. The following assumptions have been applied in the value-in-use calculations: Pre-tax discount rate Terminal growth rate 284 TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2006 Malaysia % Indonesia % 13.1 1.5 18.5 4.0
  305. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 20 . INTANGIBLE ASSETS (continued) Impairment tests for goodwill (continued) b. Impact of possible change in key assumptions Changing the assumptions selected by management, in particular the discount rate assumptions used in the discounted cash flow model could significantly affect the Group’s results. The Group’s review includes an impact assessment of changes in key assumptions. Based on the sensitivity analysis performed, management has concluded that no reasonable change in the base case key assumptions would cause the carrying amounts of the cash-generating units to exceed their recoverable amounts. If the following pre-tax discount rates are applied to the cash flow forecasts and projections of the Group’s cashgenerating units, the carrying amounts of the cash-generating units including goodwill will equal the corresponding recoverable values, assuming all other variables remain unchanged. Pre-tax discount rate Malaysia % Indonesia % 26.7 20.0 21. PROPERTY, PLANT AND EQUIPMENT Buildings RM Capital Work-InProgress RM Total Property, Plant and Equipment RM 571.5 — 106.3 3.6 (0.3) — (34.8) — 3.9 2.5 16.9 3,273.6 — 35.6 63.0 (0.7) — (228.4) — — (3.1) (54.4) 1,960.9 3.8 3,716.0 (3,243.9) — — — (0.6) 3.5 — — 22,320.9 156.3 5,739.8 — (29.0) (2.0) (4,016.0) (4.1) 7.4 (126.1) — — 3.3 — — 3.3 — — — (24.0) — (24.0) 16,445.5 589.8 817.0 672.9 3,061.6 2,439.7 24,026.5 At 31 December 2006 Cost Accumulated depreciation Accumulated impairment 43,824.9 (26,728.5) (650.9) 1,822.6 (1,226.7) (6.1) 4,572.3 (3,738.0) (17.3) 815.9 (124.8) (18.2) 4,719.3 (1,622.2) (35.5) 2,494.6 — (54.9) 58,249.6 (33,440.2) (782.9) Net Book Value 16,445.5 589.8 817.0 672.9 3,061.6 2,439.7 24,026.5 Telecommunication Network RM Movable Plant and Equipment RM 15,132.3 147.0 1,718.4 2,740.1 (27.1) (0.1) (3,157.2) (3.5) — (110.3) 5.9 581.0 3.7 91.1 47.6 (0.9) (0.3) (150.7) — — (13.3) 31.6 801.6 1.8 72.4 389.6 — (1.6) (444.9) — — (1.9) — — — — At 31 December 2006 THE GROUP Net Book Value At 1 January 2006 Acquisition of subsidiaries Additions Assetisation Disposals Write off Depreciation Impairment Reversal of impairment Currency translation differences Reclassification Reclassified from land held for property development (note 23) Reclassified to non-current asset held for sale (note 29) Computer Support Land Systems (sub-note e) RM RM ANNUAL REPORT 2006 TELEKOM MALAYSIA BERHAD 285
  306. NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 21 . PROPERTY, PLANT AND EQUIPMENT (continued) Buildings RM Capital Work-InProgress RM Total Property, Plant and Equipment RM 509.5 165.0 17.6 9.2 (0.7) — (5.4) (22.1) — 1.1 (7.4) 3,230.7 9.9 27.0 209.5 (0.6) (3.5) (156.7) (33.8) — (3.7) — 1,481.2 367.6 3,228.4 (3,058.4) — — — (24.0) — — 7.4 19,645.7 2,114.4 4,279.6 — (46.2) (9.3) (3,441.4) (82.6) 76.0 (30.4) — — (91.5) — — (91.5) (3.0) (2.3) (3.8) (5.2) (41.3) (93.4) 15,132.3 581.0 801.6 571.5 3,273.6 1,960.9 22,320.9 At 31 December 2005 Cost Accumulated depreciation Accumulated impairment 39,819.9 (24,038.2) (649.4) 1,714.1 (1,127.0) (6.1) 4,246.8 (3,427.9) (17.3) 659.3 (65.7) (22.1) 4,829.8 (1,520.7) (35.5) 2,018.7 — (57.8) 53,288.6 (30,179.5) (788.2) Net Book Value 15,132.3 581.0 801.6 571.5 3,273.6 1,960.9 22,320.9 Telecommunication Network RM Movable Plant and Equipment RM At 1 January 2005 Acquisition of subsidiaries Additions Assetisation Disposals Write off Depreciation Impairment Reversal of impairment Currency translation differences Reclassification Reclassified to land held for property development (note 23) Exclusion from consolidation of a former subsidiary 13,183.0 1,509.9 673.4 2,510.7 (43.8) (5.8) (2,706.8) (1.3) 76.0 (25.2) — 398.9 30.8 222.5 70.1 (1.0) — (134.6) (1.4) — (1.3) — 842.4 31.2 110.7 258.9 (0.1) — (437.9) — — (1.3) — — — (37.8) At 31 December 2005 THE GROUP Computer Support Land Systems (sub-note e) RM RM Net book value of property, plant and equipment of certain subsidiaries pledged as security for borrowings (note 15(b), (c) and (d) to the financial statements): Telecommunication network Movable plant and equipment Computer support systems Land Buildings 286 TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2006 2006 RM 2005 RM 1,838.2 75.2 23.9 4.2 51.3 1,457.0 131.7 28.5 3.0 22.2 1,992.8 1,642.4
  307. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 21 . PROPERTY, PLANT AND EQUIPMENT (continued) Buildings RM Capital Work-InProgress RM Total Property, Plant and Equipment RM 213.1 2.1 — — — (0.3) 3.9 2,258.4 — 48.4 — — (122.3) — 797.2 1,503.3 (1,683.9) — — — — 12,519.4 1,621.0 — (0.1) (1.7) (2,186.6) 3.9 — — — (10.9) (24.0) 10.9 — — (24.0) — 371.8 466.4 207.9 2,171.4 616.6 11,931.9 30,073.4 (21,759.8) (215.8) 1,201.8 (830.0) — 3,321.8 (2,855.4) — 215.1 (4.6) (2.6) 3,503.8 (1,332.4) — 616.6 — — 38,932.5 (26,782.2) (218.4) Net Book Value 8,097.8 371.8 466.4 207.9 2,171.4 616.6 11,931.9 At 1 January 2005 Additions Assetisation Disposals# Write off Depreciation Impairment Reclassified to investment property (note 49(c)(viii)) Reclassification 8,704.0 22.5 1,695.9 (224.9) (5.2) (1,711.3) — 249.2 137.3 36.2 (2.0) — (81.1) — 470.2 18.0 219.8 (3.1) — (274.8) — 275.0 0.2 9.2 (49.4) — (0.5) (6.5) 2,352.5 11.5 204.1 — (3.5) (122.3) — 1,157.2 1,803.2 (2,165.2) (5.4) — — — 13,208.1 1,992.7 — (284.8) (8.7) (2,190.0) (6.5) — — — — — — (7.5) (7.4) (183.9) — — 7.4 (191.4) — At 31 December 2005 8,481.0 339.6 430.1 213.1 2,258.4 797.2 12,519.4 28,916.0 (20,219.2) (215.8) 1,171.1 (831.5) — 3,058.5 (2,628.4) — 223.9 (4.3) (6.5) 3,489.3 (1,230.9) — 797.2 — — 37,656.0 (24,914.3) (222.3) 8,481.0 339.6 430.1 213.1 2,258.4 797.2 12,519.4 THE COMPANY Net Book Value At 1 January 2006 Additions @ Assetisation Disposals Write off Depreciation Reversal of impairment Reclassified to non-current asset held for sale (note 29) Reclassification At 31 December 2006 At 31 December 2006 Cost Accumulated depreciation Accumulated impairment At 31 December 2005 Cost Accumulated depreciation Accumulated impairment Net Book Value Telecommunication Network RM Movable Plant and Equipment RM Computer Support Land Systems (sub-note e) RM RM 8,481.0 15.3 1,292.5 — — (1,691.0) — 339.6 78.9 31.3 (0.1) (0.2) (77.7) — 430.1 21.4 311.7 — (1.5) (295.3) — — — — — 8,097.8 @ Included in additions for 2006 was RM22.3 million being telecommunication network assets, computer support system and land transferred from subsidiaries. # Included in disposals for 2005 was RM283.8 million being telecommunication network assets and land transferred to subsidiaries. There was no disposal to subsidiaries in 2006. ANNUAL REPORT 2006 TELEKOM MALAYSIA BERHAD 287
  308. NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 21 . PROPERTY, PLANT AND EQUIPMENT (continued) (a) Included in property, plant and equipment of the Group and the Company are fully depreciated assets which are still in use costing RM19,100.6 million (2005: RM16,451.8 million) and RM15,359.2 million (2005: RM13,091.9 million) respectively. (b) During the year, a subsidiary had reviewed the estimated useful life of certain telecommunication network and equipment. The revision was accounted for as a change in accounting estimates and resulted in an accelerated depreciation of RM46.5 million. (c) During the year, the Group incurred impairment losses of RM4.1 million following impairment assessments performed by subsidiaries. The allowance for impairment losses relates primarily to the write down of certain telecommunication network assets. (d) During the year, the Group reversed impairment losses amounting to RM7.4 million comprising RM3.5 million in relation to capital work-in-progress which was previously made by a subsidiary on long outstanding projects which are now completed. The remaining RM3.9 million was in relation to a piece of land of the Company. (e) Details of land are as follows: Freehold RM Long term leasehold RM Short term leasehold RM Other RM Total RM 235.3 0.3 3.5 — — 3.9 (1.4) 0.5 6.8 63.2 — — (0.3) (0.9) — — 0.4 19.6 186.7 106.0 0.1 — (33.8) — 3.9 (0.1) 1.4 86.3 — — — (0.1) — — (0.8) (10.9) 571.5 106.3 3.6 (0.3) (34.8) 3.9 2.5 — 16.9 3.3 — — — 3.3 At 31 December 2006 252.2 82.0 264.2 74.5 672.9 At 31 December 2006 Cost Accumulated depreciation Accumulated impairment 262.8 — (10.6) 94.9 (6.1) (6.8) 382.8 (117.8) (0.8) 75.4 (0.9) — 815.9 (124.8) (18.2) Net Book Value 252.2 82.0 264.2 74.5 672.9 THE GROUP Net Book Value At 1 January 2006 Additions Assetisation Disposals Depreciation Reversal of impairment Currency translation differences Reclassification Reclassified from/(to) building Reclassified from land held for property development (note 23) 288 TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2006
  309. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 21 . PROPERTY, PLANT AND EQUIPMENT (continued) (e) Details of land are as follows: (continued) Freehold RM Long term leasehold RM Short term leasehold RM Other RM Total RM At 1 January 2005 Acquisition of subsidiaries Additions Assetisation Disposals Depreciation Impairment Currency translation differences Reclassification Reclassified to land held for property development (note 23) Exclusion from consolidation of a former subsidiary 259.3 0.4 0.9 — (0.7) — (14.5) (2.3) — 161.1 — — — — (0.6) (6.8) — (3.4) 4.2 164.6 16.5 — — (4.6) (0.8) 3.4 3.4 84.9 — 0.2 9.2 — (0.2) — — (7.4) 509.5 165.0 17.6 9.2 (0.7) (5.4) (22.1) 1.1 (7.4) (4.0) (87.1) — (0.4) (91.5) (3.8) — — — (3.8) At 31 December 2005 235.3 63.2 186.7 86.3 571.5 At 31 December 2005 Cost Accumulated depreciation Accumulated impairment 249.8 — (14.5) 75.2 (5.2) (6.8) 247.2 (59.7) (0.8) 87.1 (0.8) — 659.3 (65.7) (22.1) Net Book Value 235.3 63.2 186.7 86.3 571.5 THE COMPANY Net Book Value At 1 January 2006 Additions Depreciation Reversal of impairment Reclassification Reclassified to building 88.9 2.1 — 3.9 0.5 — 32.0 — (0.1) — 0.4 — 5.9 — (0.1) — (0.1) — 86.3 — (0.1) — (0.8) (10.9) 213.1 2.1 (0.3) 3.9 — (10.9) At 31 December 2006 95.4 32.3 5.7 74.5 207.9 THE GROUP ANNUAL REPORT 2006 TELEKOM MALAYSIA BERHAD 289
  310. NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 21 . PROPERTY, PLANT AND EQUIPMENT (continued) (e) Details of land are as follows: (continued) Freehold RM Long term leasehold RM Short term leasehold RM Other RM Total RM At 31 December 2006 Cost Accumulated depreciation Accumulated impairment 98.0 — (2.6) 34.3 (2.0) — 7.4 (1.7) — 75.4 (0.9) — 215.1 (4.6) (2.6) Net Book Value 95.4 32.3 5.7 74.5 207.9 At 1 January 2005 Additions Assetisation Disposals Depreciation Impairment Reclassified to investment property Reclassification 95.4 — — — — (6.5) — — 90.5 — — (49.0) (0.2) — (7.5) (1.8) 4.2 — — — (0.1) — — 1.8 84.9 0.2 9.2 (0.4) (0.2) — — (7.4) 275.0 0.2 9.2 (49.4) (0.5) (6.5) (7.5) (7.4) At 31 December 2005 88.9 32.0 5.9 86.3 213.1 At 31 December 2005 Cost Accumulated depreciation Accumulated impairment 95.4 — (6.5) 33.9 (1.9) — 7.5 (1.6) — 87.1 (0.8) — 223.9 (4.3) (6.5) Net Book Value 88.9 32.0 5.9 86.3 213.1 THE COMPANY The title deeds pertaining to other land have not yet been registered in the name of the Company and a subsidiary. Pending finalisation with the relevant authorities, these land have not been classified according to their tenure. 290 TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2006
  311. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 22 . INVESTMENT PROPERTY THE COMPANY 2006 RM 2005 RM Net Book Value At 1 January Transfer from property, plant and equipment (note 49(c)(viii)) Depreciation 191.4 — (11.6) — 191.4 — At 31 December 179.8 191.4 At 31 December Cost Accumulated depreciation 229.1 (49.3) 229.1 (37.7) Net Book Value 179.8 191.4 The fair value of the property was estimated at RM180.0 million based on a valuation performed by an independent professionally qualified valuer. Valuation was based on current price in an active market. 23. LAND HELD FOR PROPERTY DEVELOPMENT THE GROUP 2006 RM 2005 RM Net Book Value At 1 January Transfer (to)/from property, plant and equipment (note 21) Transfer to land held for sale Reversal of impairment/(impairment) 170.7 (3.3) (2.6) 3.6 93.5 91.5 — (14.3) At 31 December 168.4 170.7 At 31 December Land at cost Accumulated impairment 179.1 (10.7) 185.0 (14.3) Net Book Value 168.4 170.7 ANNUAL REPORT 2006 TELEKOM MALAYSIA BERHAD 291
  312. NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 24 . SUBSIDIARIES 2006 Malaysia RM THE COMPANY Quoted investment, at cost Unquoted investments, at cost Allowance for diminution in value Options granted to employees of subsidiaries 19.5 1,116.8 (9.0) 2005 Overseas RM — 37.1 — Total RM 19.5 1,153.9 (9.0) Malaysia RM Overseas RM Total RM 19.5 1,117.3 (9.0) — 23.9 — 19.5 1,141.2 (9.0) 17.0 — 17.0 — — — 1,144.3 37.1 1,181.4 1,127.8 23.9 1,151.7 — — — — — — Net investments 1,144.3 37.1 1,181.4 1,127.8 23.9 1,151.7 Amount owing by subsidiaries (sub-note b) Allowance for loans and advances 9,216.1 (672.4) 111.7 — 9,327.8 (672.4) 9,030.0 (540.9) 308.6 — 9,338.6 (540.9) Amount owing by subsidiaries after allowance 8,543.7 111.7 8,655.4 8,489.1 308.6 8,797.7 TOTAL INTEREST IN SUBSIDIARIES 9,688.0 148.8 9,836.8 9,616.9 332.5 9,949.4 266.9 — 266.9 143.5 — 143.5 Unquoted investments, at written down value (sub-note a) Market value of quoted investment (a) Investments in certain subsidiaries have been written down to recoverable amount of RM1 each. (b) The amount owing by subsidiaries represents shareholder loans and advances for working capital purposes. These loans and advances are unsecured and bear interest ranging from 0% to 8.9% (2005: 0% to 8.2%) and are principally with no fixed repayment terms. However, the Company has indicated that it will not demand substantial repayment within the next twelve (12) months. Shareholder loans and advances provided to overseas subsidiaries are in US Dollar. The Group's equity interest in the subsidiaries, their respective principal activities and countries of incorporation are listed in note 50 to the financial statements. 292 TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2006
  313. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 25 . JOINTLY CONTROLLED ENTITIES 2006 2005 Malaysia RM Overseas RM Total RM Malaysia RM Overseas RM Total RM Share of net assets of jointly controlled entities 175.5 632.0 807.5 137.5 — 137.5 THE COMPANY Unquoted shares, at cost 141.2 — 141.2 141.2 — 141.2 THE GROUP The Group's share of the revenue and results of the jointly controlled entities are as follows: 2006 RM Revenue Other income Expenses excluding tax Share of results of an associate (net of tax) Profit/(loss) after tax 2005 RM 227.5 6.7 (281.4) 57.8 — — (7.5) 3.8 10.6 (3.7) 2006 RM 2005 RM The Group's share of the assets and liabilities of the jointly controlled entities are as follows: Non-current assets Current assets Current liabilities Non-current liabilities 1,807.8 203.8 (98.2) (1,105.9) Net assets 807.5 608.1 46.5 (517.1) — 137.5 During the year, the Group acquired 49.0% interest in a jointly controlled entity, Spice Communications Limited as detailed in note 3(d) to the financial statements. The Group's equity interest in the jointly controlled entities, their respective principal activities and countries of incorporation are listed in note 51 to the financial statements. ANNUAL REPORT 2006 TELEKOM MALAYSIA BERHAD 293
  314. NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 26 . ASSOCIATES 2006 2005 Malaysia RM Overseas RM Total RM Malaysia RM Overseas RM Total RM THE GROUP Share of net assets of associates Quoted Unquoted (sub-note a) — 15.1 197.2 8.3 197.2 23.4 — 46.0 50.1 6.6 50.1 52.6 TOTAL 15.1 205.5 220.6 46.0 56.7 102.7 — 361.5 361.5 — 137.4 137.4 Market value of quoted investments THE COMPANY Unquoted investment, at cost Allowance for diminution in value TOTAL (a) 1.5 (1.5) — — 1.5 (1.5) 1.5 — — — 1.5 — — — — 1.5 — 1.5 During the year, a former associate, Fibrecomm Network (M) Sdn Bhd became a 51.0% owned subsidiary of the Group. Details as disclosed in note 3(f)(v) to the financial statements. The Group's share of revenue and profit of associates are as follows: Revenue Profit after taxation 2006 RM 2005 RM 537.8 19.9 362.4 14.2 2006 RM 2005 RM 250.7 350.5 (250.7) (129.9) 240.5 193.4 (155.6) (175.6) 220.6 102.7 The Group's share of assets and liabilities of associates are as follows: Non-current assets Current assets Current liabilities Non-current liabilities Net assets 294 TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2006
  315. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 26 . ASSOCIATES (continued) The Group has excluded the amount that would otherwise have been accounted for in respect of the current and cumulative year share of (losses)/profit after taxation of associates amounting to (RM0.3 million) (2005: RM1.7 million) and (RM2.2 million) (2005: (RM1.9 million)) respectively from the financial statements as the carrying amount of these investments have been fully eroded. The Group has no obligation to finance any further losses. The Group's equity interest in the associates, their respective principal activities and countries of incorporation are listed in note 52 to the financial statements. 27. INVESTMENTS The Group Investments in International Satellite Organisations, at cost Allowance for permanent diminution in value Investments in quoted shares, at cost Allowance for permanent diminution in value The Company 2006 RM 2005 RM 2006 RM 2005 RM 79.1 (77.7) 79.1 (77.7) 79.1 (77.7) 79.1 (77.7) 1.4 1.4 1.4 1.4 251.9 (75.0) 252.3 (75.0) 251.9 (75.0) 252.3 (75.0) 176.9 177.3 176.9 177.3 78.7 (30.3) 119.9 (40.6) 192.8 (150.6) 203.1 (160.9) 48.4 79.3 42.2 42.2 226.7 258.0 220.5 220.9 — — — — TOTAL INVESTMENTS AFTER ALLOWANCE 226.7 258.0 220.5 220.9 Market value of quoted investments 159.7 103.7 159.7 103.7 Investments in unquoted shares, at cost (sub-note a) Allowance for permanent diminution in value Investments in unquoted shares, at written down value (sub-note b) (a) During the year, the Group recognised the disposal of its investment in Ghana Telecommunications Company Limited, resulting in a gain of RM77.4 million, which includes the realisation of foreign exchange loss of RM83.6 million. ANNUAL REPORT 2006 TELEKOM MALAYSIA BERHAD 295
  316. NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 27 . INVESTMENTS (continued) (b) (i) The following corporations in which the Group owns more than one half of the voting power, which, due to permanent loss of control or significant influence, have been accounted as investments and written down to recoverable amounts of RM1 each. Held by the Company – Societe Des Telecommunications De Guinee Held by Celcom Group – TRI Telecommunication Tanzania Limited – TRI Telecommunication Zanzibar Limited* – Tripoly Communication Technology Corporation Ltd In view of the above, the financial statements of the respective companies have not been consolidated nor equity accounted for. The Directors are of the view that the amounts would be insignificant to the Group results. * On 13 March 2006, the Group through a subsidiary had obtained an order from the High Court of Zanzibar to wind up the company. (ii) The Ministry of Commerce of Cambodia vide its Letter of Confirmation dated 2 October 2006 approved the deletion of TRI Celullar Communications Cambodia Company (TRICELCAM), a joint venture company between Celcom (Malaysia) Berhad (Celcom) and Ministry of Posts and Telecommunications of Cambodia (MPTC) from the trade list upon the date of signing of the above letter. Consequently, TRICELCAM has ceased to be an investee company of Celcom from 2 October 2006. The deletion of TRICELCAM did not have any significant impact to the Group. 28. LONG TERM RECEIVABLES The Group 296 The Company 2006 RM 2005 RM 2006 RM 2005 RM Staff loans under Islamic principles Staff loans 441.4 120.1 457.3 157.9 441.4 119.0 457.3 157.2 Total staff loans (sub-note a) Other long term receivables (sub-note b) Allowance for other long term receivables 561.5 66.8 (7.4) 615.2 58.0 (7.4) 560.4 66.8 (7.4) 614.5 58.0 (7.4) 620.9 665.8 619.8 665.1 Staff loans receivable within twelve months included under other receivables (note 31) (63.2) (70.0) (62.5) (69.7) TOTAL LONG TERM RECEIVABLES 557.7 595.8 557.3 595.4 TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2006
  317. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 28 . LONG TERM RECEIVABLES (continued) (a) Staff loans comprise housing, vehicle, computer and club membership loans offered to employees with financing cost of 4.0% per annum on a reducing balance basis except for club membership loans which are free of financing cost. There is no single significant credit risk exposure as the amount is mainly receivable from individuals. Staff loans inclusive of financing cost are repayable in equal monthly instalments as follows: (i) Housing loans – twenty-five (25) years or upon employees attaining fifty-five (55) years of age, whichever is earlier (ii) Vehicle loans – maximum of eight (8) years for new cars and six (6) years for second hand cars (iii) Computer loans – three (3) years (b) Other long term receivables of the Company are in respect of education loans provided to undergraduates and are convertible to scholarships if certain performance criteria are met. The loans are interest free and if not converted to scholarship will be repayable over a period of not more than eight (8) years. During the year, RM3.9 million (2005: RM11.6 million) was converted to scholarship and expensed off to the Income Statement. 29. NON-CURRENT ASSET HELD FOR SALE During the year, the Company entered into a Sale and Purchase Agreement (SPA) with University of Malaya (UM), for the disposal of a twenty-five (25) storey office building known as Wisma TM at Jalan Pantai Baharu, Kuala Lumpur for a total consideration of RM70.0 million. Consequently, the carrying value of the building was reclassified as non-current asset held for sale as follows: The Group and Company Carrying amount immediately before classification RM Amount transferred from property, plant and equipment (note 21) Carrying Allocation of amount as at remeasurement 31 December 2006 RM RM 24.0 — 24.0 The Company was subsequently informed that the Ministry of Higher Education has requested for the asset to be in the name of Pesuruhjaya Tanah Persekutuan (PTP) instead of UM. Consequently, PTP has instructed UM to request the Company to amend the SPA where the new SPA is to be executed between the Company and PTP which is currently in progress. ANNUAL REPORT 2006 TELEKOM MALAYSIA BERHAD 297
  318. NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 30 . INVENTORIES The Group Cables and wires Network materials Telecommunication equipment Spares and others Land held for sale TOTAL INVENTORIES The Company 2006 RM 2005 RM 2006 RM 2005 RM 39.1 33.8 14.1 84.8 1.0 48.5 48.3 14.8 91.2 1.4 39.1 19.0 7.3 3.0 — 48.5 32.0 10.0 9.7 — 172.8 204.2 68.4 100.2 31. TRADE AND OTHER RECEIVABLES The Group 2006 RM 2005 RM 2006 RM 2005 RM Receivables from telephone customers Receivables from non-telephone customers Receivables from subsidiaries 2,639.8 1,805.1 — 2,617.7 1,895.5 — 1,522.1 1,073.1 562.6 1,411.1 1,252.1 594.7 Advance rental billings 4,444.9 (394.9) 4,513.2 (370.9) 3,157.8 (368.9) 3,257.9 (365.9) 4,050.0 (1,557.0) 4,142.3 (1,647.2) 2,788.9 (763.2) 2,892.0 (700.3) 2,493.0 2,495.1 2,025.7 2,191.7 Allowance for doubtful debts Total trade receivables after allowance Deposit for additional investment Prepayments Tax recoverable Staff loans (note 28) Other receivables from subsidiaries Other receivables from associates Other receivables (sub-note a) Allowance for doubtful debts Total other receivables after allowance TOTAL TRADE AND OTHER RECEIVABLES AFTER ALLOWANCE 298 The Company TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2006 — 246.0 15.1 63.2 — 19.0 787.2 (159.4) 142.9 182.7 102.0 70.0 — 25.0 700.3 (182.0) — 29.0 15.1 62.5 27.1 1.1 465.4 (127.9) 142.9 18.7 102.0 69.7 78.6 0.6 374.3 (147.2) 971.1 1,040.9 472.3 639.6 3,464.1 3,536.0 2,498.0 2,831.3
  319. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 31 . TRADE AND OTHER RECEIVABLES (continued) The Group The Company 2006 RM 2005 RM 2006 RM 2005 RM 2,079.2 690.6 202.0 166.2 137.9 114.7 73.5 2,415.8 486.5 151.5 96.4 202.1 116.9 66.8 1,694.6 670.3 — — 132.1 — 1.0 2,225.3 443.7 — — 162.0 — 0.3 3,464.1 3,536.0 2,498.0 2,831.3 1,838.3 654.7 — 1,946.7 548.4 — 1,217.9 245.2 562.6 1,338.6 258.4 594.7 2,493.0 2,495.1 2,025.7 2,191.7 The currency exposure profile of trade and other receivables after allowance is as follows: Ringgit Malaysia US Dollar Indonesian Rupiah Sri Lanka Rupee Special Drawing Rights Bangladesh Taka Other currencies The following table represents credit risk exposure of trade receivables, net of allowances for doubtful debts and without taking into account any collateral taken: Business Residential Subsidiaries (a) Included in other receivables are amounts owing from a former subsidiary amounting to RM83.9 million (2005: RM83.9 million) and RM70.0 million (2005: RM70.0 million) for the Group and the Company respectively as at 31 December 2006, which has been fully provided for. The Group and the Company are not exposed to major concentrations of credit risk due to the diversed customer base. In addition, credit risk is mitigated to a certain extent by cash deposits and bankers' guarantee obtained from customers. The Group and the Company consider the allowance for doubtful debts at balance sheet date to be adequate to cover the potential financial loss. Credit terms of trade receivables excluding advance rental billing range from 30 to 90 days (2005: 30 to 90 days). Other receivables from subsidiaries and associates are unsecured and interest free with no fixed repayment terms. ANNUAL REPORT 2006 TELEKOM MALAYSIA BERHAD 299
  320. NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 32 . SHORT TERM INVESTMENTS The Group The Company 2006 RM 2005 RM 2006 RM 2005 RM Shares quoted on the Bursa Malaysia Securities Berhad Quoted fixed income securities 125.3 194.8 106.1 168.6 123.6 194.8 104.9 168.6 TOTAL SHORT TERM INVESTMENTS 320.1 274.7 318.4 273.5 Market value of quoted shares Market value of fixed income securities 125.3 194.8 106.1 168.6 123.6 194.8 104.9 168.6 33. CASH AND BANK BALANCES The Group The Company 2006 RM 2005 RM 2006 RM 2005 RM Deposits with: Licensed banks Licensed finance companies Other financial institutions Deposits under Islamic principles 2,388.0 20.1 392.1 1,096.0 4,057.5 68.4 837.5 973.2 1,197.8 — 259.3 296.2 1,897.6 28.5 176.6 41.8 Total Deposits Cash and bank balances Cash and bank balances under Islamic principles 3,896.2 705.2 79.0 5,936.6 433.2 45.8 1,753.3 282.0 — 2,144.5 66.0 — TOTAL CASH AND BANK BALANCES Less: Bank overdraft (note 15) Deposits pledged 4,680.4 6,415.6 2,035.3 2,210.5 (1.9) (12.7) — — — — 4,666.4 6,401.0 2,035.3 2,210.5 3,537.8 817.8 143.2 77.8 15.3 88.5 4,909.5 1,005.2 86.0 190.0 179.8 45.1 1,510.3 525.0 — — — — 1,678.2 532.3 — — — — 4,680.4 6,415.6 2,035.3 2,210.5 TOTAL CASH AND CASH EQUIVALENTS AT END OF THE YEAR (3.7) (10.3) The currency exposure profile of cash and bank balances is as follows: Ringgit Malaysia US Dollar Indonesian Rupiah Bangladesh Taka Sri Lanka Rupee Other currencies 300 TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2006
  321. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 33 . CASH AND BANK BALANCES (continued) Deposits of the Group included RM377.3 million (2005: RM314.6 million) being funds earmarked for principal and interest repayments under terms of borrowings of Celcom as mentioned in note 15(a) to the financial statements. The deposits are placed mainly with a number of creditworthy financial institutions. There is no major concentration of deposits in any single financial institution. Deposits have maturity range from overnight to 365 days (2005: from overnight to 360 days) and from overnight to 91 days (2005: from 9 to 182 days) for the Group and the Company respectively. Bank balances are deposits held at call with banks. The weighted average interest rate of deposits (excluding deposits under Islamic principles) as at 31 December 2006 is 4.14% (2005: 3.71%) and 3.85% (2005: 3.37%) for the Group and the Company respectively. 34. TRADE AND OTHER PAYABLES The Group The Company 2006 RM 2005 RM 2006 RM 2005 RM Trade payables Provision for a claim (sub-note a) Accruals for Universal Service Provision Deferred revenue Finance cost payable Duties and other taxes payable Deposits and trust monies Other payables to subsidiaries Other payables to associates Other payables (sub-note b) 3,683.7 — 294.6 386.6 182.8 48.0 42.1 — — 1,103.1 3,106.1 879.5 288.2 281.1 161.6 38.9 44.1 — 1.2 1,180.2 1,440.1 — 183.2 — 91.3 53.2 20.9 116.5 — 443.5 1,408.1 — 194.1 — 91.6 38.6 25.6 53.3 — 495.5 TOTAL TRADE AND OTHER PAYABLES 5,740.9 5,980.9 2,348.7 2,306.8 3,696.5 970.9 445.4 178.5 165.7 160.3 123.6 4,371.1 735.6 272.3 124.7 155.1 245.1 77.0 1,798.1 399.4 — 147.8 — — 3.4 1,820.7 377.0 — 94.0 — — 15.1 5,740.9 5,980.9 2,348.7 2,306.8 The currency exposure profile of trade and other payables is as follows: Ringgit Malaysia US Dollar Indonesian Rupiah Special Drawing Rights Sri Lanka Rupee Bangladesh Taka Other currencies ANNUAL REPORT 2006 TELEKOM MALAYSIA BERHAD 301
  322. NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 34 . TRADE AND OTHER PAYABLES (continued) (a) This was in respect of a provision made for legal claim as detailed in note 5 to the financial statements. (b) Included in other payables is government grant of RM27.2 million (2005: RM21.7 million) for the Group and RM11.6 million (2005: RM9.4 million) for the Company. Credit terms of trade and other payables vary from 30 to 180 days (2005: from 30 to 180 days) depending on the terms of the contracts. Other payables to subsidiaries and associates are unsecured, interest free and have no fixed terms of repayment. 35. CUSTOMER DEPOSITS The Group The Company 2006 RM 2005 RM 2006 RM 2005 RM Telephones Cellular services Data services Others 559.4 128.6 30.9 — 567.3 131.8 30.8 0.3 559.4 — 30.9 — 567.2 — 30.8 0.3 TOTAL CUSTOMER DEPOSITS 718.9 730.2 590.3 598.3 Telephone customer deposits are subjected to rebate at 5% per annum in accordance with Telephone Regulations, 1996. 36. CASH FLOWS FROM OPERATING ACTIVITIES The Group 2006 RM Receipts from customers Payments to suppliers and employees Payment of compensation Payment of finance cost Payment of income taxes Tax refund TOTAL CASH FLOWS FROM OPERATING ACTIVITIES 302 TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2006 2005 RM The Company 2006 RM 2005 RM 16,180.9 (8,787.4) (874.0) (648.8) (530.9) — 13,750.2 (6,978.8) — (700.5) (621.2) 54.6 6,897.0 (3,632.9) — (386.6) (284.8) — 6,757.6 (3,631.9) — (557.8) (371.2) 54.6 5,339.8 5,504.3 2,592.7 2,251.3
  323. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 37 . CASH FLOWS USED IN INVESTING ACTIVITIES The Group 2006 RM The Company 2005 RM 2006 RM 2005 RM Disposal of property, plant and equipment Purchase of property, plant and equipment Payment of intangible asset (telecommunication and spectrum licence) Disposal of long term investments Disposal of short term investments Purchase of short term investments Acquisition of subsidiaries (net of cash acquired) Additional investment in subsidiaries Partial disposal of a subsidiary Investment in a jointly controlled entity Acquisition of an associate Redemption of preference shares in a subsidiary Payments to subsidiaries Repayments from subsidiaries Advances to subsidiaries Advances from subsidiaries Repayments of loans by employees Loans to employees Interest received Dividend received 41.4 (5,698.7) 61.0 (4,160.6) 11.8 (1,699.1) 11.4 (2,081.9) (192.5) 157.3 147.0 (166.2) (39.4) (265.4) 3.5 (659.4) (124.8) — — — — — 112.2 (52.2) 226.8 7.2 (8.0) 61.8 81.0 (227.4) (2,750.5) (3.5) 185.2 (141.2) — — — — — — 116.9 (70.3) 337.2 4.7 (8.0) 1.7 147.0 (166.2) — — — — — — (30.6) 1,043.1 (1,113.3) 9.3 112.2 (51.3) 99.1 112.4 (8.0) 61.8 81.0 (227.4) — — — (141.2) — 80.0 (1,799.6) 1,267.8 (1,620.2) 261.2 116.9 (70.3) 195.6 156.0 TOTAL CASH FLOWS USED IN INVESTING ACTIVITIES (6,503.2) (6,513.7) (1,531.9) (3,716.9) 38. CASH FLOWS USED IN FINANCING ACTIVITIES The Group 2006 RM Issue of share capital Issue of share capital to minority interests Proceeds from borrowings Repayments of borrowings Dividends paid to shareholders Dividends paid to minority interests TOTAL CASH FLOWS USED IN FINANCING ACTIVITIES The Company 2005 RM 2006 RM 2005 RM 43.8 20.7 2,344.9 (1,875.7) (1,001.9) (33.6) 64.8 142.6 786.5 (1,284.2) (1,016.3) (22.6) 43.8 — — (246.9) (1,001.9) — 64.8 — — (786.9) (1,016.3) — (501.8) (1,329.2) (1,205.0) (1,738.4) ANNUAL REPORT 2006 TELEKOM MALAYSIA BERHAD 303
  324. NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 39 . SIGNIFICANT NON-CASH TRANSACTIONS Significant non-cash transactions during the year are as follows: The Group (a) (b) (c) (d) (e) (f) (g) The Company 2006 RM 2005 RM 2006 RM 2005 RM Conversion of amount owing into paid-up capital of a subsidiary — — 13.2 649.0 Contra settlements with subsidiaries between receivables and payables — — 105.2 162.3 Transfer of telecommunication network assets, computer support system and land from subsidiaries — — 22.3 — Transfer of telecommunication network assets and land to subsidiaries — — — 293.6 Contra settlements with a subsidiary between amount owing by subsidiaries and other payables — — — 10.9 12.8 — — — — 43.4 — — Purchase of business and business assets by a subsidiary satisfied by the issuance of shares (note 3(e)) Disposal of an associate satisfied by issuance of shares and novation of debt 40. CAPITAL AND OTHER COMMITMENTS The Group (a) Property, plant and equipment Commitments in respect of expenditure approved and contracted for Commitments in respect of expenditure approved but not contracted for (b) Donation to Yayasan Telekom Amount approved and committed 304 TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2006 The Company 2006 RM 2005 RM 2006 RM 2005 RM 3,817.2 3,988.5 1,594.3 2,602.4 1,226.7 382.2 — — 62.4 120.1 62.4 120.1
  325. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 40 . CAPITAL AND OTHER COMMITMENTS (continued) The Company (c) Non-cancellable operating lease commitments Not later than one year Later than one year and not later than five years 2006 Future minimum lease payments RM 2005 Future minimum lease payments RM 52.4 74.3 52.4 126.7 126.7 179.1 The above lease payments relate to the non-cancellable operating lease of a telecommunication tower from a wholly owned subsidiary. (d) Other Commitments On 21 April 2006, a Deed of Undertaking has been signed between Spice Communications Limited (Spice) (formerly known as Spice Communications Private Limited), the Company, TM International Sdn Bhd (TMI) and DBS Bank Ltd in connection with the provision of limited sponsor support for a USD215.0 million Indian Rupee facility and a USD50.0 million USD facility. Under the terms, TMI, failing which the Company, is required to make payment of any outstanding principal and/or interest under the facilities to the lenders upon occurrence of a specified trigger event. TMI’s and the Company’s obligation on behalf of Spice give the Group the rights to exercise a call option under the terms of a shareholders’ agreement to acquire additional shares in Spice from the existing shareholder, namely Modi Wellvest. 41. CONTINGENT LIABILITIES (UNSECURED) (a) On 6 October 2005, TM International (L) Limited (TMIL) had executed a blanket counter indemnity in favour of a financial institution in Labuan for all facilities offered. As at 31 December 2006, the amount outstanding is USD16.6 million. A summary of the facilities offered by the financial institution is as follows: (i) Issuance of USD10.0 million Standby Letter of Credit (SBLC) to a financial institution in Karachi on behalf of TMIL on 6 October 2005 to counter guarantee a USD10.0 million SBLC to Pakistan Telecommunication Authority (PTA) on behalf of a subsidiary, Multinet Pakistan (Private) Limited (Multinet). This SBLC was part of a requirement in awarding a long distance international licence to Multinet. The tenure of the SBLC is three (3) years and is subject to an annual review. (ii) Offering of an additional SBLC facility of up to USD33.0 million to TMIL on 18 December 2006, to counter guarantee a financial institution in Karachi for Bank Gurantee (BG) issuances on behalf of Multinet to Telenor Pakistan (Private) Limited (Telenor). Multinet and Telenor had entered into a twenty (20) years Indefeasible Right of Use agreement which requires a BG favouring Telenor to be issued by Multinet. A financial institution in Karachi has issued a BG to Telenor on behalf of Multinet. The BG is to be issued in three (3) tranches. As at 31 December 2006, a USD6.6 million SBLC was issued, being the first tranche. The tenure of the SBLC is one (1) year and is subject to an annual review. ANNUAL REPORT 2006 TELEKOM MALAYSIA BERHAD 305
  326. NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 41 . CONTINGENT LIABILITIES (UNSECURED) (continued) (b) (i) On 11 August 2003, the Company jointly with TM Info-Media Sdn Bhd (TMIM) (formerly known as Telekom Publications Sdn Bhd), a wholly owned subsidiary, instituted legal proceedings against Buying Guide (M) Sdn Bhd (BGSB) relating to an infringement of the Company’s and TMIM’s copyright and passing off. BGSB filed their defence and counterclaim on 15 October 2003 for RM114.3 million being special damages for the suspension of BGSB’s corporate exercise. BGSB also claimed for general, aggravated and exemplary damages, interests and costs against TMIM. On 27 July 2004, BGSB filed a notice of appeal against the assistant registrar’s decision in dismissing BGSB’s application for further and better particulars against the Company with costs. On 8 April 2005, the Court dismissed the said appeal with costs. On 10 June 2005, the Company and/or TMIM filed their reply to BGSB’s statement of defence and defence to BGSB’s counterclaim. The matter was fixed for further case management on 6 March 2006. The case management fixed on 14 February 2007 has been adjourned to 11 June 2007 for the parties to prepare an “Agreed and Non-Agreed Bundle of Document”. The Directors, based on legal advice, are of the view that the Company and TMIM have a reasonably good chance of success in winning and defending the said claim and BGSB's counterclaim. (ii) The Company and TMIM filed an application for an injunction against BG Online Sdn Bhd (BGO) and BG Media Sdn Bhd (BGM) on 10 August 2004 to prevent them from publishing any telephone directories including the “Super Pages” directory comprising the “Yellow Pages” mark and/or the Yellow Pages Get-Up as set out in the relevant application papers to the High Court or a mark or get-up which is confusingly similar thereto. On 9 August 2005, the High Court allowed the Company’s and TMIM’s application for an interim injunction. The said interim injunction would be effective and valid until the full trial of the case. At the current moment, no trial dates have been fixed by the High Court. On 29 August 2005, BGO and BGM filed an appeal at the Court of Appeal against the decision of the High Court dated 9 August 2005. The Court has yet to fix the hearing date for the said appeal. Meanwhile on 25 January 2006, the Court granted leave for the Company and TMIM to file committal proceedings against the directors of BGM and BGO due to BGM’s and BGO’s failure to comply with the Court Order of 9 August 2005. A notice of motion for committal was filed against the said directors on 27 January 2006 by the Company and TMIM. On 15 February 2007, an alleged contemnors’ application to cross examine the deponent of plaintiff’s supporting affidavit (the said application) has been fixed for mention on 8 March 2007 and 22 March 2007 for the parties to file submissions. On the same day, the plaintiffs’ application to commit the directors of BGM and BGO to prison for the contempt of the court’s order has been kept in abeyance pending the hearing of the said application. The Court has also fixed 26 April 2007 for the hearing of the said application and as mention date for the plaintiffs’ application for committal and case management. The Directors, based on legal advice, are of the view that the Company and TMIM have a reasonably good chance of success in establishing the said claim. 306 TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2006
  327. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 41 . CONTINGENT LIABILITIES (UNSECURED) (continued) (c) Kabel Pantai Timur Sdn Bhd (KPT) had suspended remedial work contracted resulting in termination of their service under the “Perlaksanaan Projek Rangkaian Tempatan secara JKH for Pahang, Terengganu & Kelantan”. The Company had called for the performance bond in the form of a BG in view of KPT’s failure to rectify the works in accordance with the required specifications. The Company also demanded KPT to return materials supplied under the contract. KPT challenged the above action taken by the Company by initiating arbitration proceedings in accordance with the contract and claimed for an amount of RM10.4 million plus further damages, interests and costs. By a letter dated 6 June 2005 from KPT, KPT quantified its total claims as at the date of the letter at RM90.2 million. The Company has also filed its counterclaim for RM19.1 million in damages, interests and costs. The arbitration hearing dates fixed from 5 August 2005 to 8 August 2005 and 12 September 2005 to 15 September 2005 had been adjourned to another date to be fixed by the Arbitrator. On the continued hearing date of 18 December 2006, both counsel addressed the Arbitrator on the lists of payments that have been made by the Company to KPT for the works carried out in Terengganu as the instructions by the Arbitrator. The Company’s solicitors are of the view that the quantum of damages claimed by KPT is grossly inflated and that KPT may fail to prove a substantial part of its case. Based on legal advice, the quantum of damages that will be recoverable by the Company, by way of counterclaim, is currently uncertain. The Directors, based on legal advice, are of the view that the Company has a good chance of defending their claim. (d) Bukit Lenang Development Sdn Bhd (BLDSB) had instituted legal proceeding against the Company, Tenaga Nasional Berhad (TNB) and SAJ Holdings Sdn Bhd (SAJ Holdings) (collectively referred to as the “Parties and/or Defendants”) by way of a writ of summons dated 27 November 2004 and statement of claim dated 15 December 2004 in the High Court of Malaya at Kuala Lumpur. BLDSB is seeking special damages for the sum of RM29.4 million and other damages and relief from the Parties for: (i) wrongfully conspiring with the occupants on Mukim Plentong, Daerah Johor Bahru, Johor Darul Takzim (the Land) by facilitating the occupants with telecommunications, electricity and water services and illegally assisting the occupants in their occupation with the obvious and foreseeable consequence of adversely affecting and seriously prejudicing BLDSB; (ii) joint tortfeasor with the occupants in the commission of the wrongs committed by the occupants; (iii) jointly and independently trespassing and continue to trespass the Land by reason of emplacement of the telecommunication, electricity and water equipments to the occupants; (iv) wrongfully and/or unconscionably derived and still deriving pecuniary benefits from its wrongful actions and the wrongful use of the Land and that the same amount to unjust enrichment of the law; and (v) loss of opportunity in that the plaintiff has been wrongfully prevented from developing the Land and as such has not had the benefit of the full potential of the development and the advantageous economic circumstances in the period immediately following the acquisition of the Land by the plaintiff. ANNUAL REPORT 2006 TELEKOM MALAYSIA BERHAD 307
  328. NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 41 . CONTINGENT LIABILITIES (UNSECURED) (continued) (d) On 23 January 2006, the Court granted an order in terms for the Company's application to transfer this matter from Kuala Lumpur High Court to Johor Bahru High Court and as directed by the High Court, the Company filed its statement of defence in the Kuala Lumpur High Court on 21 February 2006. On 10 November 2006, the plaintiff’s solicitors had served the Company with the unsealed notice to attend pre-trial case management. However, the plaintiff’s solicitors have yet to serve the Company with the sealed copy of the said notice. The Directors, based on legal advice, are of the view that the Company has a reasonably good chance of success in defending its case against BLDSB. (e) Acres & Hectares Sdn Bhd (AHSB) had instituted legal proceeding against the Company by way of a writ of summons dated 22 April 2005 and statement of claim dated 7 April 2005 in the High Court of Malaya at Kuala Lumpur. In the said statement of claim, AHSB claimed that the Company was indebted to AHSB in the judgement sum of RM2.9 million plus 8% interest per annum on the said sum from 29 November 2004 (Notice of Demand) until the date of full settlement for consultancy works rendered to TM Facilities Sdn Bhd (TMF), a wholly owned subsidiary of the Company in respect of the management and development of the Company’s land. Further, AHSB claimed for damages in the sum of RM26.9 million plus 8% interest per annum on the said sum from date of the statement of claim until date of full settlement for alleged losses suffered by AHSB due to the Company’s failure to proceed with the said project and cost. On 15 June 2005, the Company filed its statement of defence disputing the appointment of AHSB as the Company’s consultant in relation to the said project and put AHSB to strict proof thereof. In addition, the Company contended that the preliminary reports prepared by AHSB were part of the requirements to be fulfilled by AHSB prior to the selection of the appointment of a consultant to be approved by TMF Board of Directors. On 7 July 2005, the Company filed an interlocutory application to strike out AHSB’s claim and the matter was originally fixed for hearing on 29 September 2005. The Court heard the said application on 17 October 2005 and then adjourned the said hearing to 22 December 2005. On 22 December 2005, the Court directed the Company and AHSB to file their written submission on 6 January 2006 and 20 January 2006 respectively and the decision was fixed on 10 February 2006. However, on 10 February 2006, the Court dismissed the Company's application with costs on grounds that there were triable issues to be decided before a full and proper hearing. Meanwhile, AHSB had served a notice to attend for pre-trial case management on the Company and this notice is fixed for hearing on 6 March 2006. On 6 March 2006, the Court had fixed this matter for hearing on 10 December 2007 to 12 December 2007. The Court has also directed the parties to file the necessary cause papers before the said hearing dates. The Directors, based on legal advice, are of the view that the Company has a reasonably good chance of success in defending its case against AHSB. 308 TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2006
  329. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 41 . CONTINGENT LIABILITIES (UNSECURED) (continued) (f) By a Joint Venture Agreement dated 13 September 1993 (JVA), Technology Resources Industries Berhad (TRI) and VIP Engineering and Marketing Limited (VIPEM) agreed to establish TRI Telecommunications Tanzania Limited (Tritel) as a joint venture company, to provide telecommunications services in Tanzania. On 10 December 2001, vide Civil Case No. 427 of 2001 (the Suit) VIPEM claimed a sum of USD18.6 million as its share of loss of profits for mismanagement of Tritel. TRI through its solicitors asserted that the Court has no jurisdiction to hear the Suit because of the arbitration clause in the JVA and applied for a stay of proceedings. The Court concurred with TRI’s contention. TRI then filed a petition to stay the proceedings pending reference of the dispute to arbitration. Subsequently, on 17 July 2003 the Court adjourned the Suit sine die pending completion of the liquidation of Tritel. In light of the winding up order made against Tritel, on 22 July 2003, TRI filed its claims of RM123.4 million with the liquidator of Tritel. The Directors, based on legal opinion received, are of the view that on the allegations of mismanagement, unless more evidence can be produced, the allegations are rhetorical and unsubstantiated. In view of the winding up proceedings, there is also a possibility that VIPEM will not pursue its claim. Hence, no provision has been made in the financial statements for the claim made by VIPEM. (g) On 16 February 2005, Rego Multi-Trades Sdn Bhd (Rego), a wholly owned subsidiary of TRI, which is also a subsidiary of Celcom (Malaysia) Berhad (Celcom), filed a claim against Aras Capital Sdn Bhd (Aras Capital) and Tan Sri Dato’ Tajudin Ramli (TSDTR) for RM261.8 million, as at 30 November 2004, together with interest and cost. The claim was made for recovery of the said sums pursuant to: (i) an investment management agreement dated 10 January 1997 (the investment agreement) and a supplemental agreement dated 21 April 1997 (the supplemental agreement) between Rego and Aras Capital; and (ii) a letter of indemnity dated 1 April 1998 (the letter of indemnity) given by TSDTR to Rego relating to the investments made by Rego under the investment agreement and the supplemental agreement. On 13 May 2005, TSDTR filed its defence and instituted a counterclaim against Rego, TRI and its directors. In the counterclaim, TSDTR seeks, inter alia, (i) a declaration that the letter of indemnity given by TSDTR to Rego relating to the investments made by Rego under the investment agreement and the supplemental agreement between Rego and Aras Capital is void or alternatively is avoided, (ii) rescission of the letter of indemnity, (iii) the return of the sum of RM100.0 million as being a sum allegedly paid by TSDTR to Rego and (iv) general, exemplary and aggravated damages to be assessed. The claim against the Rego/TRI directors is for general, exemplary and aggravated damages to be assessed arising from a claim of alleged conspiracy. On 4 July 2005, Rego filed its reply and defence to counterclaim while TRI and the directors filed their respective defences to the counterclaim. Subsequently Rego, TRI and the directors filed their respective application to strike out TSDTR’s counterclaim on 19 July 2005. The striking out applications were fixed for hearing on 8 December 2005. On 18 May 2006, the Registrar dismissed Rego, TRI and the directors striking out applications. On 29 May 2006, Rego, TRI and the directors filed their respective appeals against the Registrar’s decision on the striking out application to the Judge in Chambers (Appeals) and the Appeals for Rego, TRI and the directors are fixed for hearing on 12 July 2007, 27 July 2007 and 17 August 2007 respectively. The Directors, based on legal advice received, are of the view that there are good prospects of striking out the counterclaim against the Group. ANNUAL REPORT 2006 TELEKOM MALAYSIA BERHAD 309
  330. NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 41 . CONTINGENT LIABILITIES (UNSECURED) (continued) (h) On 24 November 2005 and 29 November 2005, Celcom was served with two (2) writs of summons and statement of claim by MCAT GEN Sdn Bhd (MCAT). The claims instituted were for (i) libel based on certain alleged press releases made by Celcom which appeared in the New Straits Times, Utusan Malaysia, Harian Metro and Berita Harian (First Suit) and (ii) breach of contract on an alleged resellers agreement between Celcom and MCAT (Second Suit). In the First Suit, MCAT is seeking, amongst others, damages for libel in the sum of RM1.0 billion, aggravated and exemplary damages, an injunction restraining Celcom from further publishing any similar defamatory words, a public apology, interests and costs. In the Second Suit, MCAT seeks, amongst others, specific performance of the alleged resellers agreement, damages in the sum of RM609.7 million, damages in lieu or in addition to specific performance, interests and costs. On 24 January 2007, the Court allowed MCAT’s amendment application, primarily to amend its claim for damages from RM609.7 million to RM765.1 million. Subsequently on 13 December 2005, Celcom was served with a writ of summons and statement of claim by MCAT’s directors, whereby the directors have pleaded a cause of action for libel against Celcom based on certain alleged press releases which appeared in the New Straits Times, Utusan Malaysia, Harian Metro and Berita Harian. The directors are seeking, amongst others, damages for libel totalling RM1.01 billion, aggravated and exemplary damages, an injunction restraining Celcom from further publishing any similar defamatory words, a public apology, interests and costs (Third Suit). On 16 January 2006, Celcom filed its statement of defence in the Third Suit and instituted a counterclaim against the fifth plaintiff, Mohd Razi bin Adam, the Chief Executive Officer of MCAT claiming damages and other reliefs for breach of fiduciary duty and breach of confidential information. The fifth plaintiff was an employee of Celcom before joining MCAT on 31 May 2005. On 9 January 2006, Celcom filed its statement of defence for both the First Suit and the Second Suit. Celcom instituted a counterclaim in the First Suit against MCAT for passing off and filed a striking out application to strike out MCAT’s claim in the First Suit on the grounds that the statement of claim discloses no cause of action, is frivolous, vexatious and an abuse of the process of the Court. The striking out application is now fixed for hearing on 22 March 2007. On the direction of the Court, Celcom filed an application to consolidate the First Suit with the Third Suit. On 11 December 2006, the Court allowed Celcom’s application to consolidate and ordered that the Third Suit be transferred to the First Suit’s Court. The Third Suit will be heard after the First Suit has been disposed off by the Court. In respect of the Second Suit, MCAT’s application for an interim injunctive relief was heard and dismissed with costs on 13 April 2006. MCAT filed an appeal to the Court of Appeal. On 30 August 2006 the appeal was dismissed with costs. Subsequently, MCAT has filed a motion for leave to appeal to the Federal Court. On 31 October 2006, Celcom filed an application for security of costs in the Federal Court seeking RM150,000 for security. Celcom had filed an application to strike out certain paragraphs in MCAT’s amended statement of claim due to MCAT’s failure to comply with the Court’s direction to furnish further and better particulars to the Company. The Court has directed parties to file written submission and fixed the same for clarification/decision on 23 February 2007. Case management is fixed for mention on 2 March 2007. In respect of the Third Suit, in light of Celcom’s consolidation application, which was allowed by the Court in the First Suit, the Court will inform the parties on the next hearing date for the striking out application. Case management is fixed for hearing on 9 March 2007. The Directors, based on legal advice received, are of the view that the crystallisation of liability from the three (3) cases above is remote. 310 TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2006
  331. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 41 . CONTINGENT LIABILITIES (UNSECURED) (continued) (i) On 29 June 2006, the Company, Telekom Enterprise Sdn Bhd (TESB), Celcom and Technology Resources Industries Berhad (TRI) (hereinafter collectively referred to as “TM Group”) were each served with a copy of a defence and counterclaim by TSDTR’s solicitors making TM Group parties to the above legal proceedings via counterclaim. Subsequently, on 13 July 2006 TSDTR filed an amended defence and counterclaim and served a copy of the same on TM Group's Solicitors. In the amended counterclaim, TSDTR is seeking from TM Group and twenty (20) others jointly and/or severally the following reliefs: (i) the sum of RM6.2 billion (TRI shares at RM24.00 per share); (ii) general damages to be assessed; (iii) aggravated and exemplary damages to be assessed; (iv) damages for conspiracy to be assessed; (v) an account of all sums paid under the facility agreement and/or to Danaharta by TSDTR including all such sums received by Danaharta including as a result of the sale of the TRI shares and the Naluri Berhad shares; (vi) an assessment of all sums due to be repaid by Danaharta to TSDTR as a result of overpayment by TSDTR to Danaharta; (vii) an order that Danaharta forthwith pays all sums adjudged to be paid to TSDTR under prayer (vi); (viii) an account of all dividends and/or payments received by the Company arising out of or in relation to the TRI (now Celcom) Shares; (ix) an order that the Company forthwith pays all sum adjudged to be paid to TSDTR under prayer (viii); (x) damages for breach of contract against Danaharta to be assessed. In addition, TSDTR is also seeking, inter alia, from all twenty-four (24) defendants to the counterclaim the following reliefs: (i) the sum of RM7.2 billion; (ii) damages for conspiracy to be assessed; (iii) a declaration that the vesting certificates are illegal and ultra vires that the Danaharta Act and/or unconstitutional against the provisions of the Federal Constitution and/or against Public Policy and void; (iv) a declaration that the settlement agreement is illegal and ultra vires the Danaharta Act and/or the Federal Constitution and is void and unenforceable pursuant to Section 24 of the Contracts Act 1950 inter alia as being against Public Policy; (v) a declaration that all acts and deeds carried out and all agreements executed by Danaharta is illegal and unenforceable; (vi) an order that all contracts, agreements, transfers, conveyances, dealings, acts or deeds whatsoever carried out and executed by Danaharta hereby declared as null and void and set aside; (vii) all necessary and fit orders and directions as may be required to give full effect to the aforesaid declarations and orders; (viii) damages to be assessed; (ix) aggravated and exemplary damages to be assessed; (x) interest at the rate of 8% per annum on all sums adjudged to be paid by the respective defendants to the counterclaim to TSDTR from the date such loss and damage was incurred to the date of full payment; (xi) costs. ANNUAL REPORT 2006 TELEKOM MALAYSIA BERHAD 311
  332. NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 41 . CONTINGENT LIABILITIES (UNSECURED) (continued) (i) On 20 July 2006, TM Group’s Solicitors filed two (2) separate summonses in chambers on behalf of the Company/TESB and Celcom/TRI respectively to strike out TSDTR’s amended defence and counterclaim (SIC to Strike Out). The Court has fixed 6 June 2007 as the mention date in respect of the Company/TESB’s SIC to Strike Out. Meanwhile, Celcom/TRI’s SIC to Strike Out is fixed for mention on 11 July 2007. On 2 February 2007, TSDTR’s solicitors served on TM Group’s Solicitors a sealed copy of a summons in chambers containing TSDTR’s application to re-amend his amended defence and counterclaim (SIC to ReAmend). Under the SIC to Re-Amend, TSDTR intends to include fourteen (14) new defendants to its counterclaim, of which eleven (11) are directors/former directors/officers of TM Group. The hearing date of the SIC to Re-Amend is fixed for mention on 6 June 2007. The Directors, based on legal advice received, are of the view that the crystallisation of liability from the above is remote. (j) On 6 July 2006, Celcom was served with a writ of summons and statement of claim by the plaintiff, Dato’ Saizo Abdul Ghani (trading under the name and style of Airtime Telecommunication). The plaintiff seeks against Celcom and Kamsani bin Hj Ahmad (Kamsani), an employee of Celcom, general damages in the sum of RM15.0 million for the alleged libel and breach of contract, a further sum of RM15.0 million in exemplary and aggravated damages for the alleged libel and an injunction to prevent Celcom and Kamsani from distributing or publishing any letters or content similar thereto, interests and costs. A memorandum of appearance and a statement of defence was filed on 7 July 2006 and 21 July 2006 respectively on behalf of Celcom and Kamsani (Defendants). On 28 August 2006, the Defendants filed a striking out application and the same has been fixed for hearing on 5 February 2007, which was later adjourned to 16 April 2007. Based on legal advice, the Defendants have a reasonably good chance of success in defending the claims by the plaintiff. (k) On 6 July 2006, Celcom was served with a writ of summons and statement of claim by the plaintiff, Asmawi bin Muktar (trading under the name and style of GM Telecommunication & Trading). The plaintiff seeks against Celcom and Kamsani, general damages in the sum of RM10.0 million for the alleged libel and breach of contract, a further sum of RM9.0 million in exemplary and aggravated damages for the alleged libel and an injunction to prevent Celcom and Kamsani from distributing or publishing any letters or content similar thereto, and interests and costs. A memorandum of appearance and a statement of defence was filed on 7 July 2006 and 21 July 2006 respectively on behalf of Celcom and Kamsani (Defendants). On 28 August 2006, the Defendants filed a striking out application and the same has been fixed for mention on 17 October 2006 and later fixed for hearing on 2 February 2007, which was later adjourned to 7 February 2007. On the hearing date, the Court has fixed 22 February 2007 for clarification/decision. On 22 February 2007, the Court dismissed the striking out application. Based on legal advice, the Defendants have a reasonably good chance of success in defending the claims by the plaintiff. 312 TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2006
  333. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 41 . CONTINGENT LIABILITIES (UNSECURED) (continued) (l) TRI filed a claim against TSDTR, Bistamam Ramli and Dato’ Lim Kheng Yew (Defendants), being former directors of TRI for the recovery of a total sum of RM55.8 million which was paid to the Defendants as compensation for loss of office and incentive payment and also the return of two (2) luxury vehicles which were transferred to the first two (2) Defendants. On 18 September 2006, TRI was served with a copy of the first and second Defendants’ defence and counterclaim. This matter is fixed for case management on 23 April 2007 and trial dates have been fixed for 2 March 2009 to 5 March 2009. The Directors have been advised that TRI has a good chance of success in respect of the claim. (m) A public interest litigation was filed in July 2006, impugning arbitrary determination of tariff value of SIM cards for the purpose of the Government of Bangladesh’s decision of imposition of Value Added Tax (VAT) on SIM cards in Bangladesh. The Honorable High Court Division by a judgement dated 24 August 2006 made the rule absolute and declared that determination of tariff value of SIM card for the purpose of imposition of VAT was without lawful authority and of no legal effect. A civil petition for leave to appeal was filed by the National Board of Revenue and the Government of Bangladesh respectively before the Appellate Division of the Supreme Court of Bangladesh, which is still pending for hearing. Meanwhile, there is no order of stay of the judgement dated 24 August 2006. The Directors, based on legal advice received, are of the view that the crystallisation of liability from the above is remote. Apart from the above, the Directors are not aware of any other proceedings pending against the Company and/or its subsidiaries or of any facts likely to give rise to any proceedings which might materially affect the position or business of the Company and/or its subsidiaries. There were no other contingent liabilities or material litigations or guarantees other than those arising in the ordinary course of the business of the Group and the Company and on these no material losses are anticipated. 42. SIGNIFICANT EVENT DURING THE YEAR There were no other significant events during the year that have not been reflected in the audited financial statements. ANNUAL REPORT 2006 TELEKOM MALAYSIA BERHAD 313
  334. NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 43 . SIGNIFICANT SUBSEQUENT EVENTS (i) At an Extraordinary General Meeting of shareholders of a foreign subsidiary on 22 December 2006, the shareholders approved the subsidiary’s plan to obtain new borrowings in the aggregate amount not exceeding USD430.0 million through one or a number of transactions in the form of bilateral credit facility, syndicated credit facility, and/or through issuances of bonds and/or other debts instruments, denominated in foreign currencies and/or Indonesian Rupiah (IDR) for fiscal year 2007. Currently, the subsidiary is in the process of issuing an IDR Bond amounting to IDR1.5 trillion. (ii) On 3 January 2007 to 5 January 2007, a foreign subsidiary entered into several foreign currency contracts to hedge the US Dollar Bond payment, which will mature in 2009 and 2013. The notional amount of the contract is USD125.0 million. The premium on the foreign currency contract will be paid semi-annually. (iii) On 8 January 2007, a foreign subsidiary entered into a credit agreement with a foreign bank amounting to USD50.0 million. The facility will be available for drawdown commencing on 8 January 2007 up to the termination date on 30 May 2007. Based on the contract, the subsidiary agreed to pay a floating rate of interest at quarterly intervals of USD London Interbank Offer Rate (LIBOR) plus 1.05% margin per annum. The loan will mature in thirty-six (36) months from the first drawdown date. (iv) On 15 January 2007, a foreign subsidiary entered into a credit agreement with a foreign bank amounting to USD50.0 million. The facility will be available for drawdown commencing on 30 January 2007 up to 30 April 2007. Based on the contract, the subsidiary agreed to pay a floating rate of interest at quarterly intervals of USD LIBOR plus 0.95% margin per annum. The loan will mature on 29 January 2010. On 30 January 2007, the subsidiary made its first drawdown of USD25.0 million. There were no other material events subsequent to the end of the year that have not been reflected in the audited financial statements. 44. SEGMENTAL REPORTING By Business The Group is organised on a worldwide basis in four main business segments: (a) Fixed line and data – represents fixed line, data and other telecommunication related services (b) Internet and multimedia – represents Internet related services (c) Cellular – represents mobile telecommunication services (d) Non-telecommunication related services (others) – represents services provided by subsidiaries with core business in education, printing and publication of directories, property management and other activities, none of which is of a sufficient size to be reported separately. 314 TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2006
  335. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 44 . SEGMENTAL REPORTING (continued) Segment results represent segment operating revenue less segment expenses. Unallocated income includes interest income, dividend income and gain or loss on disposal of investments. Unallocated costs represent corporate expenses and net foreign exchange differences arising from revaluation of corporate borrowings. The accounting policies used to derive reportable segment results are consistent with those as described in the Significant Accounting Policies. Segment assets disclosed for each segment represent assets directly managed by each segment, primarily include intangibles, property, plant and equipment, receivables, inventories and cash and bank balances. Unallocated corporate assets mainly include staff loans, other long term receivables, investments, deferred tax assets and property, plant and equipment of the Company's corporate centre including training centre. Segment liabilities comprise operating liabilities and exclude borrowings, interest payable on borrowings, current tax and deferred tax liabilities. Segment capital expenditure comprises additions to intangibles, property, plant and equipment, including additions resulting from acquisition of subsidiaries as shown in note 20 and 21 to the financial statements. Significant non-cash expenses comprise mainly allowances and unrealised foreign exchange losses (excluding net foreign exchange differences arising from revaluation of borrowings) as shown in note 6 to the financial statements. Fixed line Internet and and data* multimedia* RM RM Cellular Malaysia Overseas RM RM Others* RM Total RM Year Ended 31 December 2006 Operating Revenue Total operating revenue Inter-segment** 7,352.1 (739.5) 881.2 (11.3) 4,528.7 (104.7) 4,154.9 (14.4) 747.0 (394.8) 17,663.9 (1,264.7) External operating revenue 6,612.6 869.9 4,424.0 4,140.5 352.2 16,399.2 1,271.0 65.6 1,129.9 1,254.1 33.9 Results Segment results Unallocated income Corporate expenses Foreign exchange gains Operating profit before finance cost Finance income Finance cost Jointly controlled entities – share of results (net of tax) Associates – share of results (net of tax) Profit before taxation Taxation 3,754.5 155.5 (721.8) 302.4 3,490.6 234.0 (621.9) — — — 10.6 — 10.6 17.8 — (7.5) 9.6 — 19.9 (97.4) (19.4) (398.7) (296.1) Profit for the year (19.3) 3,133.2 (830.9) 2,302.3 ANNUAL REPORT 2006 TELEKOM MALAYSIA BERHAD 315
  336. NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 44 . SEGMENTAL REPORTING (continued) Fixed line Internet and and data* multimedia* RM RM At 31 December 2006 Segment assets Jointly controlled entities Associates Unallocated corporate assets 17,206.9 — 80.8 384.6 — 0.5 Cellular Malaysia Overseas RM RM 9,679.9 — 14.5 10,766.1 807.5 124.8 Others* RM 1,526.0 — — Total assets 2,627.4 130.1 1,779.3 1,576.6 228.2 Total liabilities 6,341.6 12,085.9 2,668.4 21,095.9 Year Ended 31 December 2006 Other Information Capital expenditure – additions during the year – acquisition of subsidiaries (including fair value adjustments) Depreciation and amortisation Write off of property, plant and equipment Impairment of property, plant and equipment Reversal of impairment of property, plant and equipment Significant non-cash expenses 1,819.6 39.3 857.1 3.1 2,268.7 — 32.3 146.6 808.2 1.8 — 0.2 0.1 — 0.5 (3.9) 186.3 — 35.9 (3.5) 77.5 Year Ended 31 December 2005 Operating Revenue Total operating revenue Inter-segment** 7,511.9 (530.2) 617.8 (9.8) 4,495.7 (213.9) External operating revenue 6,981.7 608.0 4,281.8 TELEKOM MALAYSIA BERHAD 39,563.5 807.5 220.6 1,251.9 41,843.5 Segment liabilities Borrowings Unallocated liabilities 316 Total RM ANNUAL REPORT 2006 3,137.1 71.2 5,924.3 — 112.1 92.6 4,039.0 — — 2.0 3.5 — 4.1 (57.1) 817.7 — (118.0) — 5.5 (7.4) 187.2 1,770.7 — 812.9 (512.7) 15,209.0 (1,266.6) 1,770.7 300.2 13,942.4
  337. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 44 . SEGMENTAL REPORTING (continued) Fixed line Internet and and data* multimedia* RM RM Results Segment results Unallocated income Corporate expenses*** Foreign exchange gains Operating profit before finance cost Finance income Finance cost Jointly controlled entities – share of results (net of tax) Associates – share of results (net of tax) – gain on dilution/disposal Profit before taxation Taxation 1,208.6 20.2 Cellular Malaysia Overseas RM RM 1,129.2 579.2 Others* RM Total RM (32.8) 2,904.4 388.6 (1,559.7) 35.5 1,768.8 313.0 (663.4) — — — (3.7) — (3.7) 20.6 0.4 (11.1) 4.3 — 14.2 91.5 (170.4) (8.3) (257.6) (194.3) (34.3) 1,520.4 (664.9) Profit for the year At 31 December 2005 Segment assets Jointly controlled entities Associates Unallocated corporate assets 855.5 18,214.9 — 50.1 386.2 — 0.5 10,585.9 — 45.5 8,649.6 137.5 6.6 1,628.7 — — Total assets Segment liabilities Borrowings Unallocated liabilities 39,465.3 137.5 102.7 1,478.8 41,184.3 2,932.1 75.4 2,460.3 992.9 Total liabilities 153.8 6,614.5 12,215.8 2,712.6 21,542.9 ANNUAL REPORT 2006 TELEKOM MALAYSIA BERHAD 317
  338. NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 44 . SEGMENTAL REPORTING (continued) Fixed line Internet and and data* multimedia* RM RM Year Ended 31 December 2005 Other Information Capital expenditure – additions during the year – acquisition of subsidiaries (including fair value adjustments) Depreciation and amortisation Write off of property, plant and equipment Impairment of property, plant and equipment Significant non-cash expenses Cellular Malaysia Overseas RM RM Others* RM Total RM 2,110.3 31.3 730.7 1,355.7 51.6 4,279.6 124.2 2,245.0 — 46.8 — 864.2 4,891.8 231.8 — 56.7 5,016.0 3,444.5 8.7 — — 0.6 — 9.3 6.5 150.5 — 44.2 72.9 151.8 2.5 74.8 0.7 56.9 82.6 478.2 * Segmental information of overseas entities with respect to fixed line and data and other segments were not disclosed as they are insignificant. ** Inter-segment operating revenue has been eliminated in arriving at respective segment operating revenue. The intersegment operating revenue was entered into in the normal course of business and at prices available to third parties or at negotiated terms. *** Included in the unallocated corporate expenses of the previous year is the one-off provision for a claim as disclosed in note 5 to the financial statements. By Geographical Location The Group operates in many countries as shown in note 50 to the financial statements. Accordingly, the segmentisation of Group operation by geographical location is segmentised to Malaysia and overseas. The overseas operation is further segregated into Indonesia and others as no other individual overseas country contributed more than 10% of consolidated operating revenue or assets. In presenting information for geographical segments of the Group, sales are based on the country in which the customers are located. Total assets and capital expenditure are determined based on where the assets are located. 318 TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2006
  339. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 44 . SEGMENTAL REPORTING (continued) Operating Revenue Malaysia Overseas – Indonesia (sub-note a) – Others Jointly controlled entities Associates Unallocated corporate assets Total assets (a) Total Assets Capital Expenditure 2006 RM 2005 RM 2006 RM 2005 RM 2006 RM 2005 RM 12,087.4 12,002.7 30,387.0 30,539.9 2,865.2 2,864.9 2,296.1 2,015.7 293.6 1,646.1 6,081.2 3,095.3 5,223.5 3,701.9 1,900.7 1,251.0 5,886.6 544.1 16,399.2 13,942.4 39,563.5 39,465.3 6,016.9 9,295.6 807.5 220.6 1,251.9 137.5 102.7 1,478.8 41,843.5 41,184.3 Current year include full year results as compared to two (2) months results in 2005. 45. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The main risks arising from the Group's financial assets and liabilities are foreign exchange, interest rate, credit and liquidity risk. The Group's overall risk management seeks to minimise potential adverse effects of these risks on the financial performance of the Group. The Group has established risk management policies, guidelines and control procedures to manage its exposure to financial risks. Hedging transactions are determined in the light of commercial commitments. Derivative financial instruments are used only to hedge underlying commercial exposures and are not held for speculative purposes. Foreign Exchange Risk The foreign exchange risk of the Group arises from borrowings denominated in foreign currencies. The Group has long dated and interest rate swaps that are primarily used to hedge selected long term foreign currency borrowings to reduce the foreign currency exposures on these borrowings. The main currency exposure is US Dollar. The Group also has subsidiaries and associates operating in foreign countries, which generate revenue and incur costs denominated in foreign currencies. The main currency exposures are Sri Lanka Rupee, Bangladesh Taka and Indonesian Rupiah. The Group's foreign exchange objective is to achieve the acceptable level of foreign exchange fluctuation on the Company’s assets and liabilities and manage the consequent impact to the income statement. To achieve this objective, the Group targets a composition of currencies based on assessment of the existing exposure and desirable currency profile. To obtain this composition, the Group uses various types of hedging instruments such as cross-currency swaps. ANNUAL REPORT 2006 TELEKOM MALAYSIA BERHAD 319
  340. NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 45 . FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) Interest Rate Risk The Group has cash and bank balances and deposits placed with creditworthy licensed banks and financial institutions. The Group manages its interest rate risk by placing such balances on varying maturities and interest rate terms. The Group’s debts include bank overdrafts, bank borrowings, bonds, notes and debentures. The Group's interest rate risk objective is to manage the acceptable level of rate fluctuation on the interest expense. In order to achieve this objective, the Group targets a composition of fixed and floating debt based on assessment of its existing exposure and desirable interest rate profile. To obtain this composition, the Group uses various types of hedging instruments such as interest rate swaps and range accrual swaps. Credit Risk Financial assets that potentially subject the Group to concentrations of credit risk are primarily trade receivables, cash and bank balances, marketable securities and financial instruments used in hedging activities. Due to the nature of the Group’s business, customers are mainly segregated into business and residential. The Group has no significant concentration of credit risk due to its diverse customer base. Credit risk is managed through the application of credit assessment and approval, credit limit and monitoring procedures. Where appropriate, the Group obtains deposits or bank guarantees from customers. The Group places its cash and cash equivalents and marketable securities with a number of creditworthy financial institutions. The Group’s policy limits the concentration of financial exposure to any single financial institution. All hedging instruments are executed with creditworthy financial institutions with a view to limiting the credit risk exposure of the Group. The Group, however, is exposed to credit-related losses in the event of non-performance by counterparties to financial derivative instruments, but does not expect any counterparties to fail to meet their obligations. Liquidity Risk In the management of liquidity and cash flow risk, the Group monitors and maintains a level of cash and cash equivalents deemed adequate by management to finance the Group's operations and mitigate the effects of fluctuations in cash flows. Due to the dynamic nature of the underlying business, the Group aims at maintaining flexibility in funding by keeping both committed and uncommitted credit lines available. 46. INTEREST RATE RISK The table below summarises the Group's and the Company's exposure to interest rate risk. Included in the tables are the Group's and the Company's financial assets and liabilities at carrying amounts, categorised by the earlier of repricing or contractual maturity dates. The off-balance-sheet gap represents the net notional amounts of all interest rate sensitive derivative instruments. Sensitivity to interest rates arises from mismatches in the repricing dates, cash flows and other characteristics of assets and their corresponding liability funding. 320 TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2006
  341. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 46 . INTEREST RATE RISK (continued) Maturing or repriced in W.A.R.F.* 1 year or less RM >1 - 2 years RM >2 - 3 years RM >3 - 4 years RM — — — — — — — — 226.7 — 226.7 — — 4.00% — — 0.8 — — 2.0 — — 11.2 — — 5.8 — — 9.8 — — 89.4 — — 119.0 — 60.5 — 441.4 — — 441.4 60.5 119.0 — 7.37% — 50.7 — — — — — — — — — — — 50.7 3,350.2 — — — 3,350.2 50.7 — 4.67% — 194.8 — — — — — — — — — — — 194.8 125.3 — — — 125.3 194.8 — — 4.14% — — 2,800.2 — — — — — — — — — — — — — — — — — 2,800.2 — 705.2 — 1,175.0 — — 1,175.0 705.2 2,800.2 3,046.5 2.0 11.2 5.8 9.8 89.4 3,164.7 4,467.9 1,616.4 9,249.0 — — 724.9 409.5 — — — — 5.5 119.1 — — — — — 1,329.7 — — — — 611.2 529.1 — — — — 127.2 25.9 — — — — 972.1 6,165.5 — — — — 2,440.9 8,578.8 — — — 5.0 — — 718.9 5,740.9 1,061.2 — — — — — 1,061.2 5.0 2,440.9 8,578.8 718.9 5,740.9 1,134.4 124.6 1,329.7 1,140.3 153.1 7,137.6 11,019.7 6,464.8 1,061.2 18,545.7 1,912.1 (122.6) (1,318.5) (1,134.5) THE GROUP 2006 Financial Assets Investments Staff Loans and Other Long Term Receivables – balances under Islamic principles – non-interest sensitive – fixed interest rate Trade and Other Receivables (excluding short term staff loans) – non-interest sensitive – floating interest rate Short Term Investments – non-interest sensitive – fixed interest rate Cash and Bank Balances – balances under Islamic principles – non-interest sensitive – fixed interest rate Total Financial Liabilities Borrowings – balances under Islamic principles – non-interest sensitive – floating interest rate – fixed interest rate Customer Deposits Trade and Other Payables Total On-balance-sheet interest sensitivity gap Off-balance-sheet interest sensitivity gap Total interest sensitivity gap Balances Total Nonunder >4 - 5 More than interest interest Islamic years 5 years sensitive sensitive principles RM RM RM RM RM — — 7.04% 6.46% — — — 1,912.1 — — — (122.6) (1,318.5) (1,134.5) Total RM (143.3) (7,048.2) — — (143.3) (7,048.2) ANNUAL REPORT 2006 TELEKOM MALAYSIA BERHAD 321
  342. NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 46 . INTEREST RATE RISK (continued) Maturing or repriced in W.A.R.F.* 1 year or less RM >1 - 2 years RM >2 - 3 years RM >3 - 4 years RM — — — — — — — — 258.0 — 258.0 — — 4.00% — — 4.8 — — 1.8 — — 3.6 — — 14.3 — — 8.9 — — 123.8 — — 157.2 — 51.3 — 457.3 — — 457.3 51.3 157.2 — 6.70% — 92.2 — 50.7 — — — — — — — — — 142.9 3,323.1 — — — 3,323.1 142.9 — 4.56% — 168.6 — — — — — — — — — — — 168.6 106.1 — — — 106.1 168.6 — — 3.71% — — 5,026.0 — — — — — — — — — — — — — — — — — 5,026.0 — 370.6 — 1,019.0 — — 1,019.0 370.6 5,026.0 5,291.6 52.5 3.6 14.3 8.9 123.8 5,494.7 4,109.1 1,476.3 11,080.1 — — 266.9 414.0 — — — — 886.0 22.1 — — — — — 92.3 — — — — — 1,369.1 — — — — 1,236.3 1.8 — — — — 1,252.6 5,051.1 — — — — 3,641.8 6,950.4 — — — 5.7 — — 730.2 5,980.9 1,617.9 — — — — — 680.9 908.1 92.3 1,369.1 1,238.1 6,303.7 10,592.2 6,716.8 1,617.9 18,926.9 4,610.7 (855.6) (88.7) (1,354.8) (1,229.2) (6,179.9) — — 4,610.7 (855.6) THE GROUP 2005 Financial Assets Investments Staff Loans and Other Long Term Receivables – balances under Islamic principles – non-interest sensitive – fixed interest rate Trade and Other Receivables (excluding short term staff loans) – non-interest sensitive – floating interest rate Short Term Investments – non-interest sensitive – fixed interest rate Cash and Bank Balances – balances under Islamic principles – non-interest sensitive – fixed interest rate Total Financial Liabilities Borrowings – balances under Islamic principles – non-interest sensitive – floating interest rate – fixed interest rate Customer Deposits Trade and Other Payables Total On-balance-sheet interest sensitivity gap Off-balance-sheet interest sensitivity gap Total interest sensitivity gap * 322 Balances Total Nonunder >4 - 5 More than interest interest Islamic years 5 years sensitive sensitive principles RM RM RM RM RM — — 6.35% 5.97% — — — ANNUAL REPORT 2006 — — (88.7) (1,354.8) (1,229.2) (6,179.9) W.A.R.F. – Weighted Average Rate of Finance as at 31 December TELEKOM MALAYSIA BERHAD — Total RM 1,617.9 5.7 3,641.8 6,950.4 730.2 5,980.9
  343. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 46 . INTEREST RATE RISK (continued) The table below summarises the weighted average rate of finance as at 31 December by major currencies for each class of financial asset and liability: 2006 2005 THE GROUP Financial Assets Staff Loans Trade and Other Receivables (excluding short term staff loans) Short Term Investments Cash and Bank Balances Financial Liabilities Borrowings Maturing or repriced in Total RM USD RM — 4.00% — 4.00% 7.37% — 4.90% — 4.67% 3.52% 6.70% — 4.10% — 4.56% 2.97% 6.47% 5.86% 6.14% 5.80% Balances Total Nonunder >4 - 5 More than interest interest Islamic years 5 years sensitive sensitive principles RM RM RM RM RM W.A.R.F.* 1 year or less RM >1 - 2 years RM >2 - 3 years RM >3 - 4 years RM — 5.60% 2.97% — — — — — — — — — — 9.1 7.7 — — 34.7 — — — — — — — — 103.0 — — 43.8 110.7 — 8,500.9 — — 220.5 — — — — 8,500.9 43.8 110.7 220.5 — — 4.00% — — 0.8 — — 2.0 — — 11.2 — — 5.8 — — 9.8 — — 89.4 — — 119.0 — 59.4 — 441.4 — — 441.4 59.4 119.0 — 7.37% — 50.7 — — — — — — — — — — — 50.7 2,384.8 — — — 2,384.8 50.7 — 4.67% — 194.8 — — — — — — — — — — — 194.8 123.6 — — — 123.6 194.8 — — 3.85% — — 1,457.1 — — — — — — — — — — — — — — — — — 1,457.1 — 282.0 — 296.2 — — 296.2 282.0 1,457.1 1,703.4 2.0 28.0 40.5 9.8 192.4 THE COMPANY 2006 Financial Assets Amount Owing by Subsidiaries, net of allowances – non-interest sensitive – floating interest rate – fixed interest rate Investments Staff Loans and Other Long Term Receivables – balances under Islamic principles – non-interest sensitive – fixed interest rate Trade and Other Receivables (excluding short term staff loans) – non-interest sensitive – floating interest rate Short Term Investments – non-interest sensitive – fixed interest rate Cash and Bank Balances – balances under Islamic principles – non-interest sensitive – fixed interest rate USD ANNUAL REPORT 2006 1,976.1 11,571.2 Total RM 737.6 14,284.9 TELEKOM MALAYSIA BERHAD 323
  344. NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 46 . INTEREST RATE RISK (continued) Maturing or repriced in W.A.R.F.* 1 year or less RM >1 - 2 years RM >2 - 3 years RM >3 - 4 years RM — — 6.96% 7.87% — — 534.6 — — — — — — — — — — — 529.1 529.1 — — — — — — 529.1 534.1 — — 1,592.8 1,063.2 — 5.0 — — 443.0 — — — 443.0 5.0 1,592.8 1,063.2 5.67% — — — — — — — — — — — — — — — — — 4,747.0 — — 4,747.0 — — — 590.3 2,348.7 — — — 4,747.0 590.3 2,348.7 534.6 — — 1,058.2 — 5,810.2 7,403.0 2,944.0 1,168.8 2.0 — — 1,168.8 2.0 — 7.32% 2.97% — — 94.7 — — — — — — — — — — — 29.9 7.7 — — 35.6 — — — — 103.0 — — 160.2 110.7 — 8,526.8 — — 220.9 — — — — 8,526.8 160.2 110.7 220.9 — — 4.00% — — 4.8 — — 1.8 — — 3.6 — — 14.3 — — 8.9 — — 123.8 — — 157.2 — 50.6 — 457.3 — — 457.3 50.6 157.2 — 6.70% — 92.2 — 50.7 — — — — — — — — — 142.9 2,618.7 — — — 2,618.7 142.9 THE COMPANY 2006 Financial Liabilities Borrowings – balances under Islamic principles – non-interest sensitive – floating interest rate – fixed interest rate Payable to Subsidiaries – fixed interest rate Customer Deposits Trade and Other Payables Total On-balance-sheet interest sensitivity gap Off-balance-sheet interest sensitivity gap Total interest sensitivity gap 2005 Financial Assets Amount Owing by Subsidiaries, net of allowances – non-interest sensitive – floating interest rate – fixed interest rate Investments Staff Loans and Other Long Term Receivables – balances under Islamic principles – non-interest sensitive – fixed interest rate Trade and Other Receivables (excluding short term staff loans) – non-interest sensitive – floating interest rate 324 Balances Total Nonunder >4 - 5 More than interest interest Islamic years 5 years sensitive sensitive principles RM RM RM RM RM TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2006 28.0 (1,017.7) — — 28.0 (1,017.7) Total RM 443.0 10,790.0 9.8 (5,617.8) — — 9.8 (5,617.8)
  345. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 46 . INTEREST RATE RISK (continued) Maturing or repriced in W.A.R.F.* 1 year or less RM >1 - 2 years RM >2 - 3 years RM >3 - 4 years RM — 4.56% — 168.6 — — — — — — — — — — — 168.6 104.9 — — — 104.9 168.6 — — 3.37% — — 2,102.7 — — — — — — — — — — — — — — — — — 2,102.7 — 66.0 — 41.8 — — 41.8 66.0 2,102.7 2,463.0 52.5 3.6 51.9 44.5 226.8 2,842.3 11,587.9 499.1 14,929.3 — — 6.74% 7.74% — — — — — — 566.8 — — — — — — — — — — — 566.9 566.9 — — 566.9 564.7 — — 1,700.6 1,131.6 — 5.7 — — 689.0 — — — 689.0 5.7 1,700.6 1,131.6 4.96% 5.69% — — — — — — — — — — — — — — — — — — — — — — 400.0 4,473.2 — — 400.0 4,473.2 — — — — 598.3 2,306.8 — — — — 400.0 4,473.2 598.3 2,306.8 — 566.8 — — 1,133.8 6,004.8 7,705.4 2,910.8 2,463.0 (514.3) 3.6 51.9 — — — — 2,463.0 (514.3) 3.6 51.9 THE COMPANY 2005 Financial Assets (continued) Short Term Investments – non-interest sensitive – fixed interest rate Cash and Bank Balances – balances under Islamic principles – non-interest sensitive – fixed interest rate Total Financial Liabilities Borrowings – balances under Islamic principles – non-interest sensitive – floating interest rate – fixed interest rate Payable to Subsidiaries – floating interest rate – fixed interest rate Customer Deposits Trade and Other Payables Total On-balance-sheet interest sensitivity gap Off-balance-sheet interest sensitivity gap Total interest sensitivity gap * Balances Total Nonunder >4 - 5 More than interest interest Islamic years 5 years sensitive sensitive principles RM RM RM RM RM Total RM 689.0 11,305.2 (1,089.3) (5,778.0) — — (1,089.3) (5,778.0) W.A.R.F. – Weighted Average Rate of Finance as at 31 December ANNUAL REPORT 2006 TELEKOM MALAYSIA BERHAD 325
  346. NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 46 . INTEREST RATE RISK (continued) The table below summarises the weighted average rate of finance as at 31 December by major currencies for each class of financial asset and liability: 2006 THE COMPANY 2005 USD RM USD RM Financial Assets Amount Owing by Subsidiaries, net of allowances Staff Loans Trade and Other Receivables (excluding short term staff loans) Short Term Investments Cash and Bank Balances 5.60% — 2.97% 4.00% 7.31% — 2.97% 4.00% 7.37% — 5.31% — 4.57% 3.52% 6.70% — 4.42% — 4.56% 3.01% Financial Liabilities Borrowings Payable to Subsidiaries 7.35% 5.25% — 5.91% 6.97% 5.25% — 5.88% 47. CREDIT RISK For on-balance-sheet financial instruments, the main credit risk exposure has been disclosed elsewhere in the financial statements. Off-balance-sheet financial instruments The Group and the Company are exposed to credit risk where the fair value of the contract is favourable, where the counterparty is required to pay the Group or the Company in the event of contract termination. The following table summarises the favourable fair values of the contracts, indicating the credit risk exposure. The Group and Company 2006 Long dated swap 326 TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2006 Contract or notional principal amount RM 1,058.1 2005 Favourable fair value RM Contract or notional principal amount RM Favourable fair value RM 64.2 1,133.7 71.4
  347. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 48 . FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES The fair value of a financial instrument is assumed to be the amount at which the instrument could be exchanged or settled between knowledgeable and willing parties in an arm's length transaction, other than in forced or liquidation sale. Quoted market prices, when available, are used as the measure of fair values. However, for a significant portion of the Group and the Company's financial instruments, quoted market prices do not exist. For such financial instruments, fair values presented are estimates derived using the net present value or other valuation techniques. These techniques involve uncertainties and are significantly affected by the assumptions used and judgements made regarding risk characteristics of various financial instruments, discount rates, estimates of future cash flows, future expected loss experience and other factors. Changes in assumptions could significantly affect these estimates and the resulting fair values. (a) On-balance-sheet The carrying amounts of the financial assets and liabilities of the Group and the Company at the balance sheet date approximated their fair values except as set out below: The Group Financial assets Investments Staff loans Financial liabilities Borrowings (excluding redeemable bonds) Redeemable bonds/ Payable to subsidiaries The Company 2006 2005 2006 2005 Carrying Net amount fair value RM RM Carrying Net amount fair value RM RM Carrying Net amount fair value RM RM Carrying Net amount fair value RM RM 226.7 119.0 290.6 110.0 258.0 157.2 237.8 145.9 220.5 119.0 284.4 110.0 220.9 157.2 200.7 145.9 8,024.7 8,255.5 7,597.9 7,856.1 2,661.0 2,821.4 2,837.9 3,069.3 3,000.0 3,164.2 3,000.0 3,138.8 4,747.0 4,898.7 4,873.2 5,010.5 The above carrying amounts and net fair values of borrowings exclude swaps, which are disclosed in sub-note (b). ANNUAL REPORT 2006 TELEKOM MALAYSIA BERHAD 327
  348. NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 48 . FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES (continued) Financial assets The fair value of publicly traded financial instruments is based on quoted market prices at the balance sheet date. In assessing the fair value of non-traded financial instruments, the Group uses a variety of methods and makes assumptions that are based on market conditions existing at each balance sheet date. Where allowances of permanent diminution in value or impairment, where applicable, is made in respect of any investment, the carrying amount net of allowance made is deemed to be a close approximation of its fair value. The fair value of staff loans have been estimated by discounting the estimated future cash flows using the prevailing market rates for similar credit risks and remaining period to maturity. The fair value of staff loans is lower than carrying amount at the balance sheet date as the Company and its subsidiaries charged interest rates on staff loans at below current market rates. The Directors consider the carrying amount fully recoverable as they do not intend to realise the financial asset via exchange with another counterparty but to hold it to contract maturity. Collaterals are taken for these loans and the Directors are of the opinion that the potential losses in the event of default will be covered by the collateral values on individual loan basis. For educational loans, amount owing by subsidiaries and associates and customer deposits, it is not practicable to determine the fair values of these balances as they are mainly interest free and do not have fixed repayment terms. However, the carrying amounts recorded are anticipated to approximate their fair values at the balance sheet date. Financial liabilities The fair value of quoted bonds has been estimated using the respective quoted offer price. For unquoted borrowings with fixed interest rate, the fair values have been estimated by discounting the estimated future cash flows using the prevailing market rates for similar credit risks and remaining period to maturity. For unquoted borrowings with floating interest rate, the carrying values are generally reasonable estimates of their fair values. The financial liabilities will be realised at their carrying values and not at their fair values as the Directors have no intention to settle these liabilities other than in accordance with their contractual obligations. For all other short term on-balance-sheet financial instruments maturing within one (1) year or are repayable on demand, the carrying values are assumed to approximate their fair values. 328 TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2006
  349. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 48 . FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES (continued) (b) Off-balance-sheet The financial derivative instruments are used to hedge foreign exchange and interest rate risks associated with certain long term foreign currency borrowings. The contract notional principal amounts of the derivative and the corresponding fair value adjustments are analysed as below: The Group and Company 2006 Contract or notional principal amount RM Off-Balance-Sheet Financial Derivative Instruments Long dated swap Cross-currency interest rate swap Interest rate swaps 1,058.1 — 1,058.1 2005 Net fair value Favourable Unfavourable RM RM 64.2 — — Contract or notional principal amount RM — — (55.0) 1,133.7 566.9 1,540.0 Net fair value Favourable Unfavourable RM RM 71.4 — — — (5.5) (87.3) Fair values of financial derivative instruments are the present values of their future cash flows and are arrived at based on valuations carried out by the Company's bankers. Favourable fair value indicates amount receivable by the Company if the contracts are terminated as at 31 December 2006 or vice versa. 49. CHANGES IN ACCOUNTING POLICIES The following describes the impact of the new accounting standards, amendments to the published standards and IC interpretations adopted by the Group for financial year beginning on 1 January 2006 as listed in note 1(a) of the Significant Accounting Policies on Basis of Preparation of the Financial Statements. (a) Irrelevant or immaterial effect on financial statements The adoption of FRS 1, 102, 108, 110, 128, 131, 132, 133, 140 and the ‘assets ceiling’ amendments to FRS 119 did not result in significant changes to the Group’s accounting policies. In summary: • FRS 1 is not relevant to the Group's operation. • FRS 102, 108, 110, amendment to FRS 119, 128, 131, 132, 133 and 140 and IC interpretations had no material impact on the Group’s accounting policies. (b) Reclassification of prior year comparatives Set out below are changes in accounting policies that resulted in the reclassification of prior year comparatives but did not affect the recognition and measurement of Group’s net assets: • FRS 101 has affected the presentation of minority interests. Minority interests are now presented within total equity, separately from the parent shareholders equity in the Consolidated Balance Sheet and as an allocation from net profit for the year in the Consolidated Income Statement. The movement of minority interests is now presented in the Consolidated Statement of Changes in Equity. • Under FRS 101, the Group’s share of results of jointly controlled entities and associates are now presented net of tax in the Consolidated Income Statement. ANNUAL REPORT 2006 TELEKOM MALAYSIA BERHAD 329
  350. NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 49 . CHANGES IN ACCOUNTING POLICIES (continued) (c) Relevant effect from adoption of new accounting policies or changes in accounting policies (i) FRS 2 “Share-based Payment” The adoption of FRS 2 had resulted in a change in accounting policy for share-based payment. In the previous year, the provision of share options to employees did not result in a charge in the Income Statement. Upon adoption of FRS 2, the Group recognises the fair value of such share options as an expense in the Income Statement over the vesting period of the grant with a corresponding increase in equity. The Company and its following subsidiaries have Employees’ Share Option Scheme (ESOS) whereby share options are granted to eligible employees: • • • VADS Berhad Dialog Telekom Limited (a company listed on the Colombo Stock Exchange) PT Excelcomindo Pratama Tbk (a company listed on the Jakarta Stock Exchange) The new accounting policy has been applied retrospectively in respect of equity instruments granted after 31 December 2004 and not yet vested as at 1 January 2006. The financial impact to the Group arising from the retrospective application is not material and hence, no restatement of retained earnings is performed. The impact of the application of FRS 2 to the financial results of the Group and the Company in the current year was RM35.8 million and RM8.0 million respectively. (ii) FRS 3 “Business Combination”, FRS 136 “Impairment of Assets” and FRS 138 “Intangible Assets” Goodwill and Negative Goodwill The adoption of FRS 3, FRS 136 and FRS 138 had resulted in the extension of accounting policy for goodwill to cover the following: • Recognition of contingent liabilities and intangible assets as part of allocation of the cost of acquisition in determining goodwill arising from acquisition; • Recognition of the excess in fair value of the net identifiable assets acquired over the cost of acquisition immediately to the Consolidated Income Statement; • Allocation of goodwill to cash-generating units for the purpose of impairment testing. Each cashgenerating unit represents the lowest level within the Group at which goodwill is monitored for internal management purposes and which are expected to benefit from the synergies of the combination; and • Impairment of goodwill is charged to Consolidated Income Statement as and when it arises and reversal is not allowed. Business Combination The adoption of FRS 3, FRS 136 and FRS 138 had also resulted in change in the accounting policy for business combinations with agreement dated on or after 1 January 2006. Previously, where shares were issued as cost of a business combination, the measurement of the shares issued were that valued by independent advisers and agreed upon by the parties to the acquisition. Under FRS 3, the fair value of the shares at the date of exchange is used instead. 330 TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2006
  351. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 49 . CHANGES IN ACCOUNTING POLICIES (continued) (c) Relevant effect from adoption of new accounting policies or changes in accounting policies (continued) (ii) FRS 3 “Business Combination”, FRS 136 “Impairment of Assets” and FRS 138 “Intangible Assets” (continued) Business Combination (continued) Previously, intangible assets acquired in a business combination are recognised if, and only if, the probability recognition criterion was met. Under FRS 3, the probability recognition criterion for intangible assets is always considered to be satisfied. In addition, the cost of business combinations is now also allocated to contingent liabilities of the entity acquired. The above changes in accounting policy have been applied prospectively for business combinations with agreement dated on or after 1 January 2006. This change in accounting policy has no material financial impact on the Group's consolidated financial statements. Reassessment of the Useful Lives of Intangible Assets The Group has reassessed the useful lives of its recognised intangible assets in accordance with the transitional provisions of FRS 138. No adjustment resulted from this assessment. (iii) FRS 5 “Non-current Assets Held For Sale and Discontinued Operations” The adoption of FRS 5 requires a non-current asset (or disposal group) to be classified as held for sale if its carrying amount will be recovered principally through a sale transaction rather than through continuing use. These assets may be a component of an entity, a disposal group or an individual non-current asset. Non-current asset held for sale is measured at the lower of its carrying amount and fair value less costs to sell. The Group has applied FRS 5 prospectively on or after 1 January 2006. As a consequence of the adoption of FRS 5, the Group has reclassified the carrying amount of a building to non-current assets held for sale. (iv) FRS 116 “Property, Plant and Equipment” The adoption of FRS 116 had resulted in an extension of the accounting policy on property, plant and equipment as follows: • The cost of property, plant and equipment includes costs of dismantling, removal and restoration, the obligation incurred as a consequence of installing the assets; • The assets’ residual values and useful life are reviewed and adjusted as appropriate at least at each financial year-end; and • Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the Income Statement during the financial period in which they are incurred. The Group has applied the aforesaid and no material adjustment resulted from this assessment. ANNUAL REPORT 2006 TELEKOM MALAYSIA BERHAD 331
  352. NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 49 . CHANGES IN ACCOUNTING POLICIES (continued) (c) Relevant effect from adoption of new accounting policies or changes in accounting policies (continued) (v) FRS 121 “The Effects of Changes in Foreign Exchange Rates” Functional Currency Previously, the results and financial position of Group entities were measured in local currency and where applicable, translated into Ringgit Malaysia upon consolidation. Exchange differences arising thereon were taken directly to currency translation reserve. Under FRS 121, the concept of functional currency is emphasised as being the currency of the primary economic environment in which the Group entities operate. The functional currency of each Group entity has been re-evaluated and as a result, the results and financial position of certain Group entities are now measured in the functional currency which is not the presentation currency. This change in accounting policy has no material impact on the consolidated financial statements as majority of the Group entity have the same functional currency as their measurement currency. Goodwill and Fair Value Adjustments Previously, goodwill arising on the acquisition of foreign operations and fair value adjustments to the carrying amounts of assets and liabilities arising on such acquisition were deemed to be assets and liabilities of the parent company and were translated using the exchange rate at the date of acquisition. On adoption of FRS 121, goodwill and fair value adjustment arising from acquisition of foreign entities are now treated as assets and liabilities of the acquiring entity and are translated at the closing rate. The Group has applied this change in accounting policy prospectively to all acquisitions completed on or after 1 January 2006 in accordance with the transitional provision of FRS 121. This change in accounting policy has no material impact on the Group’s consolidated financial statements. Translation Using Spot Rate Previously, the Group translated foreign currency transactions and monetary items at contracted rates if those amounts are hedged by forward foreign exchange contracts. FRS 121 only allows exchange rates at date of transactions to be used in translating foreign currency transactions and exchange rates at balance sheet date for translation of monetary items. This change in accounting policy has been applied retrospectively. The effects of the change in accounting policy are illustrated in sub-note (viii). (vi) FRS 127 “Consolidated and Separate Financial Statements” The adoption of FRS 127 has resulted in a change in accounting policy on recognition of subsidiaries by the inclusion of existence and effect of potential voting rights that are currently exercisable in assessing control. The Group has applied FRS 127 retrospectively. This FRS does not have any financial impact on the Group’s consolidated financial statements. 332 TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2006
  353. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 49 . CHANGES IN ACCOUNTING POLICIES (continued) (c) Relevant effect from adoption of new accounting policies or changes in accounting policies (continued) (vii) FRS 140 “Investment Property” The adoption of FRS 140 has resulted in a change in accounting policy for investment properties. The definition of investment properties under FRS 140 has resulted in identification of assets of the Group and the Company that meet the definition of investment properties. The identified assets will be classified into a separate asset category on the balance sheet. Previously, investment properties were included in property, plant and equipment. This change in accounting policy has been applied retrospectively. Consequent from the adoption of FRS 140, the Company has reclassified the carrying amount of an office building that is occupied by a subsidiary as an investment property as illustrated in sub-note (viii). (viii) Effects of change in accounting policies The effects of the change in accounting policies as mentioned in (v) and (vii) above are illustrated below: Effects of change in accounting policies As previously reported RM FRS 121 RM FRS 140 RM As restated RM (8,329.6) 1,584.3 919.4 875.2 (63.9) (63.9) (63.9) (63.9) — — — — (8,393.5) 1,520.4 855.5 811.3 25.8 25.7 (1.9) (1.8) — — 23.9 23.9 12,480.7 12,339.6 10,405.0 (332.8) (396.7) 396.7 — — — 12,147.9 11,942.9 10,801.7 Income statement for the year ended 31 December 2005 Other operating costs Profit before taxation Profit for the year Profit attributable to equity holders of the Company (4,280.3) 638.4 472.3 472.3 (63.9) (63.9) (63.9) (63.9) — — — — (4,344.2) 574.5 408.4 408.4 Balance sheet as at 31 December 2005 Retained profits as at 1 January 2005 Retained profits as at 31 December 2005 Long term borrowings Property, plant and equipment Investment property 9,626.3 9,082.3 2,883.0 12,710.8 — (332.8) (396.7) 396.7 — — — — — (191.4) 191.4 9,293.5 8,685.6 3,279.7 12,519.4 191.4 THE GROUP Income statement for the year ended 31 December 2005 Other operating costs Profit before taxation Profit for the year Profit attributable to equity holders of the Company Earnings per share (sen) – basic – diluted Balance sheet as at 31 December 2005 Retained profits as at 1 January 2005 Retained profits as at 31 December 2005 Long term borrowings THE COMPANY ANNUAL REPORT 2006 TELEKOM MALAYSIA BERHAD 333
  354. NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 50 . LIST OF SUBSIDIARIES AS AT 31 DECEMBER 2006 The subsidiaries are as follows: % of Shareholdings Name of Company 334 Paid-up Capital 2006 2005 2006 Million 2005 Million Principal Activities Fiberail Sdn Bhd 54 60 RM15.8 RM14.2 Installation and maintenance of optic fibre telecommunication system along the railway corridor in Peninsular Malaysia GITN Sdn Berhad 100 100 RM50.0 RM50.0 Provision of managed network services and enhanced value added telecommunication and information technology services Intelsec Sdn Bhd 100 100 RM3.0 RM3.0 Dormant Mediatel (Malaysia) Sdn Bhd 100 100 RM# RM# Investment holding Meganet Communications Sdn Bhd 70 70 RM11.0 RM11.0 Provision of interactive multimedia communication services and solution Menara Kuala Lumpur Sdn Bhd 100 100 RM91.0 RM91.0 Management and operation of the telecommunication and tourism tower of Menara Kuala Lumpur Mobikom Sdn Bhd 100 100 RM260.0 RM260.0 Provision/transmission of voice and data through the cellular system Parkside Properties Sdn Bhd 100 100 RM0.1 RM0.1 Dormant Rebung Utama Sdn Bhd 100 100 RM# RM# Special purpose entity Tekad Mercu Berhad 100 100 RM# RM# Special purpose entity Telekom Applied Business Sdn Bhd 100 100 RM1.6 RM1.6 Provision of software development and sale of software products Telekom Consultancy Sdn Bhd 51 51 RM# RM# Dormant Telekom Enterprise Sdn Bhd 100 100 RM0.6 RM0.6 Investment holding Telekom Infotech Sdn Bhd+ — 100 RM— RM0.5 Dormant TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2006
  355. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 50 . LIST OF SUBSIDIARIES AS AT 31 DECEMBER 2006 (continued) % of Shareholdings Paid-up Capital Name of Company 2006 2005 2006 Million 2005 Million Principal Activities Telekom Malaysia-Africa Sdn Bhd 100 100 RM0.1 RM0.1 Investment holding Telekom Malaysia (Hong Kong) Limited** 100 100 HKD18.5 HKD18.5 Provision of international telecommunication services Telekom Malaysia (S) Pte Ltd** 100 100 SGD# SGD# Provision of international telecommunication services Telekom Malaysia (UK) Limited** 100 100 STR# STR# Provision of international telecommunication services Telekom Malaysia (USA) Inc** 100 100 USD3.5 USD# Provision of international telecommunication services Telekom Multi-Media Sdn Bhd 100 100 RM1.7 RM1.7 Investment holding and provision of interactive multimedia communication services and solutions Telekom Networks Malawi Limited** 60 60 MKW350.0 MKW350.0 Provision of telecommunication and related services in the Republic of Malawi Telekom Payphone Sdn Bhd 100 100 RM9.0 RM9.0 Investment holding Telekom Research & Development Sdn Bhd 100 100 RM20.0 RM20.0 Provision of research and development activities in the areas of telecommunication and multimedia, hi-tech applications and products and services in related business Telekom Sales and Services Sdn Bhd 100 100 RM14.5 RM14.5 Trading in customer premises equipment and maintaining telecommunication equipment Telekom Technology Sdn Bhd 100 100 RM13.0 RM13.0 Dormant Telesafe Sdn Bhd 100 100 RM4.0 RM4.0 Dormant ANNUAL REPORT 2006 TELEKOM MALAYSIA BERHAD 335
  356. NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 50 . LIST OF SUBSIDIARIES AS AT 31 DECEMBER 2006 (continued) % of Shareholdings Name of Company 2006 2005 2006 Million 2005 Million Principal Activities TM Cellular (Holdings) Sdn Bhd 100 100 RM0.1 RM0.1 Dormant TM Global Incorporated 100 100 USD# USD# Investment holding TM Facilities Sdn Bhd 100 100 RM2.3 RM2.3 Provision of facilities management services and property development activities TM Info-Media Sdn Bhd (formerly known as Telekom Publications Sdn Bhd) 100 100 RM6.0 RM6.0 Provision of printing and publications services TM International (Cayman) Ltd 100 100 USD# USD# Dormant TM International Leasing Incorporated+ — 100 USD— USD# Investment holding TM International Sdn Bhd 100 100 RM35.7 RM35.7 Investment holding and provision of telecommunication and consultancy services on an international scale TM Net Sdn Bhd 100 100 RM180.0 RM180.0 Provision of Internet related services TM Payphone Sdn Bhd 100 100 RM65.0 RM65.0 Provision of national payphone network and related services Universiti Telekom Sdn Bhd 100 100 RM650.0 RM650.0 Managing and administering a private university known as Multimedia University RM62.1 RM60.2 Provision of international and national managed network services for businesses and organisations VADS Berhad 336 Paid-up Capital TELEKOM MALAYSIA BERHAD 67.16 69.31 ANNUAL REPORT 2006
  357. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 50 . LIST OF SUBSIDIARIES AS AT 31 DECEMBER 2006 (continued) % of Shareholdings Name of Company 2006 2005 Paid-up Capital 2006 Million 2005 Million Principal Activities Subsidiaries held through Telekom Enterprise Sdn Bhd Celcom (Malaysia) Berhad 100 100 RM1,767.9 RM2,357.2 Provision of network capacity and services Mobitel Sdn Bhd 100 100 RM8.0 RM8.0 Dormant Subsidiaries held through Telekom Multi-Media Sdn Bhd TM Orion Sdn Bhd+ — 100 RM— RM# Dormant Telekom Smart School Sdn Bhd 51 51 RM15.0 RM15.0 Implementation of government smart school project, provision of multimedia education systems and software, portal services and other related services RM2.7 Dormant Subsidiary held through TM Info-Media Sdn Bhd (formerly known as Telekom Publications Sdn Bhd) Cybermall Sdn Bhd 100 100 RM2.7 Subsidiaries held through TM Facilities Sdn Bhd TM Land Sdn Bhd 100 100 RM# RM# Property development activities TMF Services Sdn Bhd (formerly known as Teleharta Sdn Bhd) 100 — RM# RM— Provision of facilities management services TMF Autolease Sdn Bhd (formerly known as TM Autolease Sdn Bhd) 100 — RM# RM— Provision of fleet management and services Subsidiaries held through TM International Sdn Bhd TM International (L) Limited 100 100 USD78.4 USD78.4 Investment holding Telekom Management Services Sdn Bhd 100 100 RM0.1 RM0.1 Provision of consultancy and engineering services in telecommunication and related area TMI Mauritius Ltd## 100 100 USD# USD# Investment holding ANNUAL REPORT 2006 TELEKOM MALAYSIA BERHAD 337
  358. NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 50 . LIST OF SUBSIDIARIES AS AT 31 DECEMBER 2006 (continued) % of Shareholdings Name of Company 2006 2005 Paid-up Capital 2006 Million 2005 Million Principal Activities Subsidiaries held through TM International Sdn Bhd (continued) G-Com Limited** 100 100 CED455.0 CED455.0 Investment holding Telekom Malaysia International (Cambodia) Company Limited (formerly known as Cambodia Samart Communication Company Limited)## 100 51 USD8.5 USD8.5 Provision of mobile telecommunication services in Cambodia USD72.7 USD— Investment holding SLR7,243.0 SLR7,204.7 Provision of mobile telecommunication services in Sri Lanka Subsidiary held through TMI Mauritius Ltd TMI India Ltd (formerly known as Distacom Communications (India) Limited)## 100 — Subsidiaries held through TM International (L) Limited Dialog Telekom Limited## 338 89.62 90.10 TESS International Ltd 100 100 USD# USD# Dormant TM International (Bangladesh) Limited## 70 70 TK3,060.0 TK3,060.0 Provision of mobile telecommunication services in Bangladesh TM International Lanka (Private) Limited## 100 100 SLR222.0 SLR222.0 Investment holding Indocel Holding Sdn Bhd 100 100 RM0.1 RM0.1 Investment holding Multinet Pakistan (Private) Limited** 78 78 PKR1,000.0 PKR1,000.0 Provision of cable television services, information technology (including software development), telecommunication and multimedia services in Pakistan TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2006
  359. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 50 . LIST OF SUBSIDIARIES AS AT 31 DECEMBER 2006 (continued) % of Shareholdings Name of Company 2006 2005 Paid-up Capital 2006 Million 2005 Million Principal Activities IDR709,000 Provision of mobile telecommunication services in Republic of Indonesia SLR823.7 SLR823.7 Provision of voice and data communication systems, radio and television broadcasting systems and mobile radio communication systems in Sri Lanka SLR# SLR— Provision of television broadcasting station and a television broadcasting network in Sri Lanka Subsidiary held through Indocel Holding Sdn Bhd PT Excelcomindo Pratama Tbk## 59.63 56.92 IDR709,000 Subsidiaries held through Dialog Telekom Limited Dialog Broadband Networks (Private) Limited (formerly known as MTT Network (Private) Limited)## 100 100 Asset Media (Private) Limited## 90 — Subsidiaries held through Asset Media (Private) Limited Communiq Broadband Network (Private) Limited## 100 — SLR50.0 SLR— Provision of information technology including data, content transmission services, audio visual services and television programmes services CBN Sat (Private) Limited## 100 — SLR# SLR— Provision of manufacturing, assembling, importing and exporting of electronic consumer products and audio visual goods RM1.0 Adopting research ideas from Multimedia University for further development and prototyping, directing consultancy project to faculties and centres at Multimedia University and collaborating with other business partners in joint exercise Subsidiary held through Universiti Telekom Sdn Bhd Unitele Multimedia Sdn Bhd 100 100 RM1.0 ANNUAL REPORT 2006 TELEKOM MALAYSIA BERHAD 339
  360. NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 50 . LIST OF SUBSIDIARIES AS AT 31 DECEMBER 2006 (continued) % of Shareholdings Name of Company 2006 2005 Paid-up Capital 2006 Million 2005 Million Principal Activities RM# RM# Business of digital video and film production and post production utilising technology made available in the related industry Subsidiary held through Unitele Multimedia Sdn Bhd MMU Creativista Sdn Bhd (formerly known as Lensa MMU JV Sdn Bhd) 100 100 Subsidiaries held through VADS Berhad VADS e-Services Sdn Bhd 100 100 RM1.0 RM1.0 Contact centre and related services VADS Solutions Sdn Bhd 100 100 RM1.5 RM1.5 Provision of system integration services VADS Professional Services Sdn Bhd 100 100 RM# RM# Provision of personnel for contact centre services RM— Provision of managed contact centre services Subsidiary held through VADS e-Services Sdn Bhd VADS Contact Centre Services Sdn Bhd 100 — RM# Subsidiaries held through Celcom (Malaysia) Berhad 340 Celcom Academy Sdn Bhd< 100 100 RM# RM# Dormant Celcom Multimedia (Malaysia) Sdn Bhd 100 100 RM# RM# Dormant Celcom Technology (M) Sdn Bhd 100 100 RM2.0 RM2.0 Provision of telecommunication value added services through cellular or other forms of telecommunications network Celcom Timur (Sabah) Sdn Bhd 80 60 RM7.0 RM7.0 Provision of fibre optic transmission network Celcom Transmission (M) Sdn Bhd 100 100 RM25.0 RM25.0 Provision of network transmission related services Celcom Trunk Radio (M) Sdn Bhd 100 100 RM# RM# Dormant CT Paging Sdn Bhd 100 100 RM0.5 RM0.5 Dormant TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2006
  361. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 50 . LIST OF SUBSIDIARIES AS AT 31 DECEMBER 2006 (continued) % of Shareholdings Name of Company 2006 2005 Paid-up Capital 2006 Million 2005 Million Principal Activities Subsidiaries held through Celcom (Malaysia) Berhad (continued) Technology Resources Industries Berhad 100 100 RM# RM# Investment holding Celcom Mobile Sdn Bhd 100 100 RM1,565.0 RM1,565.0 Provision of mobile communications services, network services, application services and content Alpha Canggih Sdn Bhd 100 100 RM# RM# Property investment Subsidiary held through Celcom Transmission (M) Sdn Bhd Fibrecomm Network (M) Sdn Bhd (note 3(f)(v)) 51 — RM75.0 RM— Provision of fibre optic transmission network services Subsidiaries held through Technology Resources Industries Berhad Alpine Resources Sdn Bhd 100 100 RM2.5 RM2.5 Dormant Freemantle Holdings (M) Sdn Bhd^ 100 100 RM13.5 RM13.5 Dormant — 62.4 RM— RM0.7 Ceased operations Rego Multi-Trades Sdn Bhd 100 100 RM2.0 RM2.0 Dealing in marketable securities Technology Resources Management Services Sdn Bhd 100 100 RM# RM# Dormant Technology Resources (Nominees) Sdn Bhd 100 100 RM# RM# Dormant TR Components Sdn Bhd 100 100 RM# RM# Investment holding TR International Limited** 100 100 HKD# HKD# Investment holding RM0.3 Dormant Malaysian Motorhomes Sdn Bhd@ Subsidiary held through TR Components Sdn Bhd Aseania Plastics Sdn Bhd**> 99 99 RM0.3 ANNUAL REPORT 2006 TELEKOM MALAYSIA BERHAD 341
  362. NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 50 . LIST OF SUBSIDIARIES AS AT 31 DECEMBER 2006 (continued) All subsidiaries are incorporated in Malaysia except the following: Name of Company Place of Incorporation Asset Media (Private) Limited Communiq Broadband Network (Private) Limited CBN Sat (Private) Limited Dialog Telekom Limited Dialog Broadband Networks (Private) Limited G-Com Limited Multinet Pakistan (Private) Limited PT Excelcomindo Pratama Tbk Telekom Malaysia (Hong Kong) Limited Telekom Malaysia (S) Pte Ltd Telekom Malaysia (UK) Limited Telekom Malaysia (USA) Inc Telekom Malaysia International (Cambodia) Company Limited Telekom Networks Malawi Limited TESS International Ltd TM International (Bangladesh) Limited TM International (Cayman) Ltd TM International Lanka (Private) Limited TMI Mauritius Ltd TMI India Ltd TR International Limited – – – – – – – – – – – – – – – – – – – – – # Sri Lanka Sri Lanka Sri Lanka Sri Lanka Sri Lanka Ghana Pakistan Indonesia Hong Kong Singapore United Kingdom USA Cambodia Republic of Malawi Republic of Mauritius Bangladesh British West Indies, USA Sri Lanka Republic of Mauritius Republic of Mauritius Hong Kong Amounts less than 0.1 million in their respective currency ## Audited by a member firm of PricewaterhouseCoopers International Limited which is a separate and independent legal entity from PricewaterhouseCoopers Malaysia 342 ** Not audited by PricewaterhouseCoopers ^ Undergoing members' voluntary winding up pursuant to Section 254(1) of the Companies Act, 1965 (CA) since 2 August 2006 > Undergoing members' voluntary winding up pursuant to Section 254(1) of the CA since 14 July 2005 < Undergoing members' voluntary winding up pursuant to Section 254(1) of the CA since 25 April 2006 + Dissolved during the year pursuant to members' voluntary winding up under Section 272(5) of the CA @ Dissolved pursuant to Section 239(a), (c) and (d) of the CA effective 3 November 2006 TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2006
  363. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 50 . LIST OF SUBSIDIARIES AS AT 31 DECEMBER 2006 (continued) CED HKD IDR MKW PKR SGD SLR STR TK USD Ghanaian Cedi Hong Kong Dollar Indonesian Rupiah Malawi Kwacha Pakistani Rupee Singapore Dollar Sri Lanka Rupee Pound Sterling Bangladesh Taka US Dollar 51. LIST OF JOINTLY CONTROLLED ENTITIES AS AT 31 DECEMBER 2006 The jointly controlled entities are as follows: Name of Company % of Shareholdings 2006 2005 Principal Activities Jointly controlled entity held through TM International Sdn Bhd SunShare Investments Ltd (sub-note a) 51 51 Investment holding company — Licensed Mobile Cellular Telecommunications Service Provider in the state of Punjab and Karnataka in India Jointly controlled entity held through TMI India Ltd (formerly known as Distacom Communications (India) Limited) Spice Communications Limited (formerly known as Spice Communications Private Limited)**(note 3(d)) 49 Name of Company Place of Incorporation SunShare Investments Ltd Spice Communications Limited – Federal Territory, Labuan – India (a) The Group has an 80.0% interest in the ordinary shares of SunShare Investments Ltd (SunShare), a jointly controlled entity incorporated in the Federal Territory of Labuan, which is an investment holding company. Notwithstanding the ordinary shareholding, the economic benefit of the Group in SunShare is 51.0%. SunShare in turn owns a 29.78% stake in an associate, MobileOne Limited (M1), a company incorporated in Singapore and listed on the Singapore Stock Exchange. M1 provides mobile and other related telecommunication services as well as development of mobile telecommunication products and services. ** Not audited by PricewaterhouseCoopers All jointly controlled entities have co-terminous financial year end with the Company except for Spice Communications Limited with financial year end on 30 June. ANNUAL REPORT 2006 TELEKOM MALAYSIA BERHAD 343
  364. NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 52 . LIST OF ASSOCIATES AS AT 31 DECEMBER 2006 The associates are as follows: % of Shareholdings 2006 2005 Name of Company mySPEED.com Sdn Bhd 16.22 16.22 Sistem Iridium Malaysia Sdn Bhd Principal Activities Creating, implementing and operating ebusiness activities including electronic commerce delivery services, multimedia related activities and other computerised or electronic services 40 40 Dormant Mahirnet Sdn Bhd 49 49 Development, management and marketing of educational products offered by local and overseas educational institutions electronically Mutiara.Com Sdn Bhd 30 30 Provision of promotion of Internet-based communication services Associates held through Telekom Multi-Media Sdn Bhd Associates held through TM International Sdn Bhd Samart Corporation Public Company Limited 18.98 19.24 Design, implementation and installation of telecommunication systems and the sale and distribution of telecommunication equipment in Thailand Samart I-Mobile Public Company Limited 24.42 — Mobile phone distributor accessories and bundled with content and administration of the distribution channels for and management of customer care and billing system of I900MHz mobile phone 49 — Planning, designing, installing, operating and maintaining a GSM cellular telecommunication network to customers in the province of Esfahan, Iran 20 20 Trade or business of a telecommunications infrastructure and services company Associate held through TM International (L) Limited Mobile Telecommunications Company of Esfahan (sub-note a) Associate held through Celcom (Malaysia) Berhad Sacofa Sdn Bhd 344 TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2006
  365. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 52 . LIST OF ASSOCIATES AS AT 31 DECEMBER 2006 (continued) Name of Company % of Shareholdings 2006 2005 Principal Activities Associate held through Technology Resources Industries Berhad Mobile Telecommunications Company of Esfahan (sub-note a) — 49 Planning, designing, installing, operating and maintaining a GSM cellular telecommunication network to customers in the province of Esfahan, Iran 41 Provision of fibre optic transmission network services Associate held through Celcom Transmission (M) Sdn Bhd Fibrecomm Network (M) Sdn Bhd (note 3(f)(v)) — All associates are incorporated in Malaysia except the following: Name of Company Place of Incorporation Mobile Telecommunications Company of Esfahan Samart Corporation Public Company Limited Samart I-Mobile Public Company Limited – Iran – Thailand – Thailand All associates have co-terminous financial year end with the Company except for mySPEED.com Sdn Bhd and Mobile Telecommunications Company of Esfahan with financial year end on 31 January and 20 March respectively. (a) On 7 December 2005, Celcom (Malaysia) Berhad (Celcom), signed a Share Sale Agreement (SSA) with TM International (L) Limited (TMIL) to transfer all its equity holding in Mobile Telecommunications Company of Esfahan (MTCE) for a consideration of USD6.0 million. The completion of the transfer in accordance with the SSA was on 3 August 2006 and consequently MTCE ceased to be an associate of Celcom and became an associate of TMIL. ANNUAL REPORT 2006 TELEKOM MALAYSIA BERHAD 345
  366. NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 53 . COMPARATIVES In addition to the restatement of the comparative financial statements as disclosed in note 49(c)(viii) to the financial statements, summarised below are other comparatives that were restated: (i) During the year, the Group had reviewed and changed the grouping of segmental reporting information for Internet and multimedia, fixed line and data and other segments to give a fairer presentation of the results of operations. The comparatives have been restated to conform with current year classification. As a consequence, the presentation of operating revenue in note 4 to the financial statements has been changed and comparatives are restated. (ii) The following balances as at 31 December 2005 for the Group and the Company were also reclassified to conform with current year presentation: The Group Non-current liabilities Customer deposits Provision for liabilities Current liabilities Trade and other payables Customer deposits As previously reported RM The Company Reclassified RM As restated RM As previously reported RM Reclassified RM As restated RM 598.4 — (598.4) 65.0 — 65.0 598.3 — (598.3) — — — 6,177.7 — (196.8) 730.2 5,980.9 730.2 — — — 598.3 — 598.3 54. CURRENCY All amounts are expressed in Ringgit Malaysia (RM). 55. APPROVAL OF FINANCIAL STATEMENTS The financial statements have been approved for issuance in accordance with a resolution of the Board of Directors on 23 February 2007. 346 TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2006
  367. FINANCIAL STATEMENTS STATEMENT BY DIRECTORS pursuant to Section 169 (15) of the Companies Act, 1965 We, Tan Sri Dato’ Ir. Muhammad Radzi Haji Mansor and Dato’ Abdul Wahid Omar being two of the Directors of Telekom Malaysia Berhad, state that, in the opinion of the Directors, the financial statements on pages 223 to 346 are drawn up so as to exhibit a true and fair view of the state of affairs of the Group and the Company as at 31 December 2006 and of the results and the cash flows of the Group and the Company for the year ended on that date in accordance with Financial Reporting Standards, the MASB approved accounting standards in Malaysia for Entities Other than Private Entities and the provisions of the Companies Act, 1965. In accordance with a resolution of the Board of Directors dated 23 February 2007. TAN SRI DATO’ Ir. MUHAMMAD RADZI HAJI MANSOR Chairman DATO’ ABDUL WAHID OMAR Group Chief Executive Officer STATUTORY DECLARATION I, Bazlan bin Osman, being the Officer primarily responsible for the financial management of Telekom Malaysia Berhad, do solemnly and sincerely declare that to the best of my knowledge and belief, the financial statements set out on pages 223 to 346 are correct, and I make this solemn declaration conscientiously believing the same to be true and by virtue of the provisions of the Statutory Declarations Act, 1960. Subscribed and solemnly declared at Kuala Lumpur this 23 February 2007. ) ) ) BAZLAN BIN OSMAN Before me: T. THANAPALASINGAM Commissioner for Oaths Kuala Lumpur ANNUAL REPORT 2006 TELEKOM MALAYSIA BERHAD 347
  368. REPORT OF THE AUDITORS to the Members of Telekom Malaysia Berhad (Company No. 128740-P) We have audited the financial statements set out on pages 223 to 346. These financial statements are the responsibility of the Company’s Directors. Our responsibility is to form an independent opinion, based on our audit, on the financial statements and to report our opinion to you, as a body, in accordance with Section 174 of Companies Act, 1965 and for no other purpose. We do not assume responsibility to any other person for the content of this report. We conducted our audit in accordance with approved Auditing Standards in Malaysia. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Directors, as well as evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion: (a) the financial statements have been prepared in accordance with the provisions of the Companies Act, 1965 and Financial Reporting Standards, the MASB approved accounting standards in Malaysia for Entities Other than Private Entities so as to give a true and fair view of: (i) the matters required by section 169 of the Companies Act, 1965 to be dealt with in the financial statements; and (ii) the state of affairs of the Group and the Company as at 31 December 2006 and of the results and the cash flows of the Group and the Company for the year ended on that date; and (b) the accounting and other records and the registers required by the Act to be kept by the Company and by the subsidiaries of which we have acted as auditors have been properly kept in accordance with the provisions of the Act. The names of the subsidiaries of which we have not acted as auditors are indicated in note 50 to the financial statements. We have considered the financial statements of these subsidiaries and the auditors’ reports thereon. We are satisfied that the financial statements of the subsidiaries that have been consolidated with the Company's financial statements are in form and content appropriate and proper for the purposes of the preparation of the consolidated financial statements and we have received satisfactory information and explanations required by us for those purposes. The auditors' reports on the financial statements of the subsidiaries were not subject to any material qualification and did not include any comment made under subsection (3) of section 174 of the Act. PRICEWATERHOUSECOOPERS (AF: 1146) Chartered Accountants DATO’ AHMAD JOHAN BIN MOHAMMAD RASLAN [1867/09/08(J)] Partner Kuala Lumpur Date: 23 February 2007 348 TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2006
  369. FINANCIAL STATEMENTS GENERAL INFORMATION as at 31 December 2006 1 . Telekom Malaysia Berhad is a public limited liability Company, incorporated and domiciled in Malaysia, and listed on the main board of the Bursa Malaysia Securities Berhad. 2. The address of the registered office of the Company is: Level 51, North Wing Menara TM Jalan Pantai Baharu 50672 Kuala Lumpur 3. The principal office and place of business of the Company is: Menara TM Jalan Pantai Baharu 50672 Kuala Lumpur 4. The number of employees at the end of the year amounted to: 2006 2005 Group 35,824 34,552 Company 19,094 19,643 ANNUAL REPORT 2006 TELEKOM MALAYSIA BERHAD 349
  370. APPENDIX 8 ANNOUNCEMENT ON THE PROPOSED DEMERGER DATED 10 DECEMBER 2007 Mohamed Ridza & Co. Page | 232
  371. Not for distribution in the United States of America TELEKOM MALAYSIA BERHAD ("TM") (I) PROPOSED DEMERGER OF THE TM GROUP (“PROPOSED DEMERGER”) COMPRISING THE PROPOSED INTERNAL RESTRUCTURING AND PROPOSED DISTRIBUTION (BOTH AS DEFINED HEREIN); (II) PROPOSED LISTING OF THE ENTIRE ISSUED AND PAID-UP ORDINARY SHARE CAPITAL OF TM INTERNATIONAL SDN BHD (“TM INTERNATIONAL”) ON THE MAIN BOARD OF BURSA MALAYSIA SECURITIES BERHAD (“BURSA SECURITIES”) (“PROPOSED LISTING”); (III) PROPOSED SHAREHOLDERS’ MANDATE FOR THE ISSUANCE OF UP TO 10% OF THE ENLARGED SHARE CAPITAL OF TM INTERNATIONAL (“PROPOSED SHAREHOLDERS’ MANDATE”); (IV) PROPOSED EMPLOYEES’ SHARE OPTION SCHEME FOR ELIGIBLE EMPLOYEES AND EXECUTIVE DIRECTOR(S) OF THE TM GROUP (“PROPOSED OPTION SCHEME”); AND (V) SPECIAL DIVIDEND TO SHAREHOLDERS OF TM (“SPECIAL DIVIDEND”) (COLLECTIVELY REFERRED TO AS THE “PROPOSALS”) 1. INTRODUCTION 1.1 We refer to TM’s announcement dated 28 September 2007 in relation to the Proposed Demerger. 1.2 On behalf of the Board of Directors (“Board”) of TM, CIMB Investment Bank Berhad (“CIMB”) is pleased to announce that the Board had, on 8 December 2007, approved the final terms of the Proposed Demerger. 1.3 Consequently, on 10 December 2007, TM entered into an agreement with its whollyowned subsidiaries, Telekom Enterprise Sdn Bhd (“TESB”), TM International, Celcom (Malaysia) Berhad (“Celcom”) and Celcom Transmission (M) Sdn Bhd (“CTX”) to give effect to the Proposed Internal Restructuring (details of which are set out in Section 2.1 below). 1.4 Following the Proposed Internal Restructuring, TM proposes to distribute its entire holdings in and rights to ordinary shares of RM1.00 each in TM International (“TM International Shares”) to the entitled shareholders of TM (“Proposed Distribution”). The Proposed Demerger is a 2-step process involving both the Proposed Internal Restructuring and Proposed Distribution. 1.5 The entire issued and paid-up ordinary share capital of TM International is proposed to be listed on the Main Board of Bursa Securities. 1.6 In conjunction with the Proposed Demerger, the Board of TM proposes the following: (i) proposed shareholders’ mandate for the issuance of up to 10% of the enlarged issued and paid-up share capital of TM International after the Proposed Demerger; and (ii) proposed employees’ share option scheme for eligible employees and Executive Director(s) of TM and its subsidiaries (“TM Group”). 1
  372. Not for distribution in the United States of America 1 .7 2. CIMB, on behalf of TM, is also pleased to announce that TM’s Board has approved a payment of a special gross dividend of 65 sen per share less tax of 27% (representing a net dividend of 47.45 sen per share or RM1,632,189,693.16) in respect of the financial year ending 31 December 2007, to the shareholders of TM. DETAILS OF THE PROPOSALS 2.1 Proposed Internal Restructuring 2.1.1 On 10 December 2007, TM, TESB, TM International, Celcom and CTX (collectively referred to in Section 2.1 of this announcement as the “Parties”) entered into an agreement to give effect to the Proposed Internal Restructuring (“Demerger Agreement”). 2.1.2 The Proposed Internal Restructuring involves the following: (i) CTX, a wholly-owned subsidiary of Celcom, transferring its entire holding of 38,250,000 ordinary shares of RM1.00 each in Fibrecomm Network (M) Sdn Bhd (“Fibrecomm Shares”), which represents 51% of the issued and paid-up share capital of Fibrecomm Network (M) Sdn Bhd (“Fibrecomm”), to TESB for a consideration of RM33 million; (ii) TESB, a wholly-owned subsidiary of TM, transferring its entire holding of 1,237,534,681 ordinary shares of RM1.00 each in Celcom (“Celcom Shares”), representing 100% of the issued and paid-up share capital of Celcom, to TM International for a consideration of RM4,677 million; (iii) TM transferring its entire holding of 37,433,992 redeemable convertible preference shares of USD0.01 each in SunShare Investments Ltd (“SunShare RCPS”), representing approximately 51% of the issued and paid-up share capital of SunShare Investments Ltd (“SunShare”), to TM International for a consideration of RM141 million; and (iv) settlement of net amount owing by TM International and its subsidiaries upon completion of the Proposed Internal Restructuring (“RegionCo”) to TM and its subsidiaries upon the completion of the Proposed Demerger (“FixedCo”) as at 30 November 2007 of RM3,041 million, whereby the net consideration of RM7,826 million in relation to the Proposed Internal Restructuring will be satisfied as follows: (i) RM3,801 million shall be satisfied through the issuance of such number of TM International Shares by TM International in favour of TM or its nominee(s) at an issue price to be determined such that the enlarged number of TM International Shares (after the Proposed Demerger) is the same as the number of ordinary shares of RM1.00 each in TM (“TM Shares”) in issue as at a date (to be determined and announced later) on which TM’s shareholders must be registered in TM’s Record of Depositors or Register of Members in order to participate in the Proposed Distribution (“Entitlement Date”); (ii) RM2,925 million shall be satisfied by way of an amount owing from TM International to TM at a finance cost of 5.90% per annum (“First Amount Owing”); and 2
  373. Not for distribution in the United States of America (iii) RM1,100 million shall be satisfied by way of an amount owing from TM International to TM at a finance cost of 6.72% per annum (“Second Amount Owing”). In addition, subject to the approvals of the relevant regulatory authorities, TM intends to transfer the 3G Spectrum Assignment (as defined in Section 5 below) to Celcom on an ‘as is where is basis’, for a consideration of RM40.1 million to be satisfied by way of cash. 2.1.3 For illustrative purposes, based on TM’s and TM International’s issued and paid up ordinary shares as at 30 September 2007 of 3,439.8 million TM Shares and 35.7 million TM International Shares respectively and assuming the issuance of 137.6 million new TM Shares, representing 4% of TM’s existing issued and paid-up ordinary share capital, under the Proposed Option Scheme, 3,541.7 million new TM International Shares will be issued under the Proposed Internal Restructuring at an issue price of approximately RM1.07 per TM International Share. 2.1.4 The purchase consideration for the Fibrecomm Shares, Celcom Shares and SunShare RCPS are based on the cost of investment, whilst the transfer consideration for the 3G Spectrum Assignment is based on its carrying amount, as recorded in the management accounts of the respective vendors as at 30 November 2007, bearing in mind that the transfers of securities/assets are pursuant to an internal restructuring involving whollyowned subsidiaries of the TM Group. 2.1.5 The finance costs for the First Amount Owing and Second Amount Owing are based on the weighted average finance cost of the Sukuk Ijarah issued by Hijrah Pertama Berhad (formerly known as Hijrah Pertama Sdn Bhd, formerly known as Malaysian Logistics Sdn Bhd), a wholly-owned subsidiary of TM (“Hijrah Bonds”) and the weighted average finance cost of FixedCo excluding the Hijrah Bonds respectively. 2.1.6 The other salient terms of the Demerger Agreement are as follows: (i) The First Amount Owing and Second Amount Owing will be payable by TM International to TM within 12 months from the date of completion of the Proposed Internal Restructuring (“Completion Date”). Pending such payment, TM international shall also from the Completion Date, make semi-annual interest payments due on 30 June and 31 December at the prescribed finance costs as stated above until the respective outstanding amounts are fully paid, unless otherwise agreed in writing between TM and TM International; (ii) TESB, relying on the warranties, representations and indemnity by CTX, shall purchase Fibrecomm Shares and TM International, relying on the warranties, representations and indemnity by TESB and TM, shall purchase Celcom Shares and SunShare RCPS respectively, on an ‘as is where is basis’, free from all encumbrances and liabilities and with all rights, benefits and advantages attaching thereto, including all bonuses, rights, dividends and distributions declared, made and paid up to the Completion Date; (iii) the Proposed Internal Restructuring is conditional upon, amongst others, the approvals pertaining to the Proposed Demerger and Proposed Listing as set out in Section 7 being obtained by the relevant Parties (“Conditions Precedent”) within 3 months from the date of the Demerger Agreement with an automatic extension of 2 months if the conditions precedent are not met within the said first 3 months or such other extended period as the Parties may mutually agree, failing which the Demerger Agreement shall lapse and be of no further effect; 3
  374. Not for distribution in the United States of America 2 .1.7 2.2 2.3 (iv) the Parties may, subject to the extent permitted by law or the rules of the relevant regulatory authorities, waive any of the Conditions Precedent at any time by mutual agreement in writing; and (v) the Completion Date shall be within 60 days from the date when all the Conditions Precedent are fulfilled or such other date as the Parties may mutually agree in writing. TESB will not be assuming any liability under the Proposed Internal Restructuring. Other than the purchase consideration as set out in Section 2.1.2 above and the guarantees which TM International may be required to assume by the lenders of RegionCo, whose approvals are required for the Proposed Demerger, there is no liability to be assumed by TM International arising from the Proposed Internal Restructuring. Proposed Distribution 2.2.1 Following the Proposed Internal Restructuring, TM will distribute its entire holdings in and rights to TM International Shares to the shareholders of TM whose names appear in TM’s Record of Depositors or Register of Members as at the Entitlement Date (“Entitled Shareholders”) on the basis of 1 TM International Share for every 1 TM Share held as at the Entitlement Date out of TM’s retained earnings. 2.2.2 For illustrative purposes only, based on TM’s management accounts as at 30 September 2007, the Proposed Demerger will reduce TM’s retained earnings as at 30 September 2007 from RM7,605 million to RM3,710 million. 2.2.3 Upon completion of the Proposed Distribution, the Entitled Shareholders would hold directly such number of TM International Shares in the same proportion as their holdings in TM as at the Entitlement Date and RegionCo will be demerged from the TM Group. Framework agreement In respect of transactions between RegionCo and FixedCo, TM, Celcom and TM International (collectively referred to in Section 2.3 of this announcement as the “Parties”) had, on 10 December 2007, entered into an agreement to govern the existing and future commercial arrangements or transactions between FixedCo and RegionCo following the Proposed Demerger (“Framework Agreement”) for a period of 3 years from completion of the Proposed Demerger or such other time as may be mutually agreed in writing. The general principles include the following: (i) any arrangements or transactions entered into between the Parties shall be on an arm’s length commercial terms basis; (ii) the Parties shall, in good faith and in the spirit of mutual co-operation, work towards finalisation of the terms for joint co-operation with clear and fair incentives for their respective contributions; (iii) the Parties shall ensure that there is no disruption in the provision of service to business customers of the other party; (iv) the Parties shall use their best endeavours to conclude any arrangements and transactions in an expedient manner; and 4
  375. Not for distribution in the United States of America (v) 2.4 the Framework Agreement is not intended to restrict the Parties but to make it clear that FixedCo will be focusing on fixed-line business whilst RegionCo focuses on mobile business. For a period of 3 years from the completion of the Proposed Demerger, FixedCo will not engage in or make any investment in any mobile business without RegionCo’s prior consent, and RegionCo will not engage in or make any investment in any fixed-line business in Malaysia without FixedCo’s prior consent. Proposed Listing The entire issued and paid-up ordinary share capital of TM International (including new TM International Shares issued under the Proposed Internal Restructuring and pursuant to the Proposed Shareholders’ Mandate, if any) is proposed to be listed on the Main Board of Bursa Securities. For the avoidance of doubt, TM will remain listed on the Main Board of Bursa Securities. TM Group’s publicly listed companies, namely PT Excelcomindo Pratama Tbk (“XL”), Dialog Telekom PLC (formerly known as Dialog Telekom Limited) (“Dialog”) and VADS Berhad will also remain listed on their respective stock exchanges. 2.5 Proposed Shareholders’ Mandate 2.5.1 TM International proposes to seek a shareholders’ mandate for the issuance of up to 10% of its enlarged issued and paid-up share capital after the Proposed Demerger under Section 132D of the Companies Act, 1965 (“Act”). Whilst TM, as the only shareholder of TM International, can approve the shareholder’s mandate for TM International, TM proposes to seek its shareholders’ approval for TM to agree to the said mandate before approving the mandate in its capacity as the shareholder of TM International, in view of the fact that upon completion of the Proposed Demerger, the shareholders of TM will also be the shareholders of TM International. 2.5.2 The Proposed Shareholders’ Mandate, once in effect, shall continue in force until: (i) TM International’s next annual general meeting; or (ii) the expiration of the period within which TM International’s next annual general meeting is required by law to be held, whichever is earlier (“Mandate Period”). 2.5.3 RegionCo may require funds for capital expenditure, investments and/or acquisitions (including the repayment of borrowings taken to make such capital expenditure, investments and/or acquisitions, if any) in RegionCo’s core growth markets (“Investments”), which include, but are not limited to India, Sri Lanka, Bangladesh, Indonesia and the Indochina region, and/or working capital. 2.5.4 The amount and timing of funds to be raised for the Investments cannot be determined at this point in time as they are dependent on external factors such as granting of new licences or opportunities to expand into RegionCo’s core growth markets. 2.5.5 The issuance of new TM International Shares pursuant to the Proposed Shareholders’ Mandate may be made at any point in time during Mandate Period. Any such issuance may also be made in conjunction with the Proposed Listing (“Proposed IPO”). 5
  376. Not for distribution in the United States of America 2 .6 2.5.6 If implemented, the Proposed IPO will involve an offering to institutional investors (“Proposed Institutional Offering”) and potentially an offering to retail investors, comprising the Malaysian public (“Proposed Retail Offering”). The final decision in respect of the Proposed Retail Offering (if any) and the terms of the Proposed IPO (including amount to be raised, uses of proceeds, minimum subscription and pricing, which is expected to be determined via a bookbuilding process) will be made and announced by TM’s Board at a later date. Nonetheless, the number of TM International Shares to be offered under both the Proposed Institutional Offering and Proposed Retail Offering (if any) shall not exceed 10% of the enlarged share capital of TM International after the Proposed Demerger. 2.5.7 In any case, the final terms of any issuance of new TM International Shares pursuant to the Proposed Shareholders’ Mandate will be announced accordingly. Proposed Option Scheme In conjunction with the Proposed Demerger, TM proposes to establish an employees’ share option scheme for eligible employees and Executive Director(s) of the TM Group (other than subsidiaries that are dormant) (collectively referred to as “Eligible Employees”). The salient terms and conditions of the Proposed Option Scheme are as follows: (i) Maximum number of TM Shares available under the Proposed Option Scheme The total number of TM Shares which may be offered under the Proposed Option Scheme shall not exceed 4% of the existing issued and paid-up share capital of TM. Furthermore, not more than 50% of the TM Shares made available under the Proposed Option Scheme will be allocated, in aggregate to the Executive Director(s) and senior management of the TM Group. In addition, not more than 10% of the TM Shares made available under the Proposed Option Scheme will be allocated to any Eligible Employee who, either singly or collectively through persons connected with the Eligible Employee, holds 20% or more of the issued and paid-up ordinary share capital of TM. (ii) Eligibility Eligibility for participation by an employee or Executive Director in the Proposed Option Scheme shall be subject to the terms and conditions contained in the Bye-Laws for the Proposed Option Scheme, which includes that the employee or Executive Director: (iii) (a) has attained the age of 18 years; and (b) is employed on full time basis by and on the payroll of a corporation within the TM Group. Duration of the Proposed Option Scheme The Proposed Option Scheme shall be in force for a period of 18 months from the date relevant approvals and/or conditions have been obtained and/or complied with, unless extended or renewed by TM’s Board for another 12 months or a shorter period as it deems fit, subject to TM shareholders’ approval. 6
  377. Not for distribution in the United States of America (iv) Option Price The price payable by Eligible Employees for each TM Share upon exercise of an option under the Proposed Option Scheme (“Option”) may be at a discount, provided the discount shall not be more than 10% of the 5 day weighted average market price of TM Shares preceding the offer date, or at par value of TM Shares, whichever is higher. (v) Ranking of new TM Shares The new TM Shares to be issued under the Proposed Option Scheme shall, upon allotment and issuance, rank equally in all respects with the existing TM Shares except that they shall not entitle the holders to any dividend, right, allotment and/or other distributions in respect of which the entitlement date is before the date of issuance of such new TM Shares. (vi) Trust arrangement The Proposed Option Scheme will be implemented through a trust to be established by TM, whereby TM will issue new TM Shares to the trust to be satisfied by an amount owing by the trust to TM. The trust will be administered by a trustee to be appointed by TM (“Trustee”), in accordance with the trust deed to be constituted. The Trustee shall grant the Options to Eligible Employees only on the instructions of the options committee to be appointed by TM’s Board. Upon exercise of the Options, Eligible Employees will acquire the corresponding number of TM Shares (and TM International Shares, if the Options are exercised after the completion of the Proposed Demerger) at the Option exercise price, from the trust. 2.7 Special Dividend TM’s Board has approved a payment of a special gross dividend of 65 sen per share less tax of 27% (representing a net dividend of approximately 47.45 sen per share or RM1,632,189,693.16) in respect of the financial year ending 31 December 2007, to the shareholders of TM. The entitlement date and payment date with respect to the Special Dividend will be announced in due course. 2.8 Conditionality The Proposed Internal Restructuring, Proposed Distribution and Proposed Listing are inter-conditional in terms of approvals. The Proposed Shareholders’ Mandate is conditional upon, in terms of approvals, the Proposed Demerger and Proposed Listing but not vice versa. In terms of implementation, the Proposed Internal Restructuring and Proposed Distribution are expected to be completed simultaneously followed by the completion of the Proposed Listing. If the issuance of new TM International Shares pursuant to the Proposed Shareholders’ Mandate is carried out in conjunction with the Proposed Demerger, it is expected to be completed simultaneously with the Proposed Demerger. The Proposed Option Scheme and Special Dividend are not conditional upon any other proposals and vice-versa. 7
  378. Not for distribution in the United States of America 2 .9 Ranking of new TM International Shares The new TM International Shares to be issued under the Proposed Internal Restructuring and pursuant to the Proposed Shareholders’ Mandate, (if any) shall, upon allotment and issuance, rank equally in all respects with the existing TM International Shares except that they shall not entitle the holders to any dividend, right, allotment and/or other distributions in respect of which the entitlement date is before the date of issuance of such new TM International Shares. 2.10 Corporate structure The corporate structure of the TM Group before and after the Proposed Demerger, based on the shareholdings of TM’s substantial shareholders as at 30 September 2007 and assuming that the Proposed Option Scheme is implemented before the Proposed Demerger, is as follows: 2.10.1 Corporate structure as at 30 September 2007 (adjusted for effects of the Proposed Option Scheme) Khazanah Nasional Berhad (“Khazanah”) Employees Provident Fund Board (“EPF”) 39.3% Skim Amanah Saham Bumiputera (“SASB”) 12.1% 8.9% Bank Negara Malaysia (“BNM”) Other shareholders 7.0% 32.7% TM* 100% TM International 100% 3G Spectrum Assignment SunShare RPS Malaysia Business*2 TESB TM Ventures*3 100% Dialog* XL* TM International (Bangladesh) Limited (“TMIB”) SunShare Shares Celcom 100% Spice Communications Ltd (“Spice”)* Telekom Malaysia International (Cambodia) Company Limited (“TMIC”) MobileOne Ltd (“M1”)* Other assets*1 Companies CTX Strategic business units 51% Fibrecomm 8 Other assets
  379. Not for distribution in the United States of America 2 .10.2 Corporate structure after the Proposed Internal Restructuring Khazanah EPF 39.3% SASB 12.1% Other shareholders BNM 8.9% 7.0% 32.7% TM* 100% 100% TM International Malaysia Business*2 TESB TM Ventures*3 51% Dialog* XL* SunShare Shares and SunShare RPS TMIB Fibrecomm 100% Celcom Spice* TMIC Other assets*1 M1* Companies Strategic business units 100% 3G Spectrum Assignment CTX Other assets 2.10.3 Corporate structure after the Proposed Distribution Khazanah EPF 39.3% SASB 12.1% BNM 8.9% Other shareholders 7.0% Khazanah 32.7% EPF 39.3% SASB 12.1% TM International* 8.9% BNM Other shareholders 7.0% 32.7% TM* 100% Dialog* XL* SunShare Shares and SunShare RPS TMIB Malaysia Business*2 TESB TM Ventures*3 51% 100% Celcom Spice* CTX 3G Spectrum Assignment TMIC Other assets*1 M1* Fibrecomm 100% Companies Strategic business units Other assets Notes (applicable throughout Section 2.10): *1 Includes 49% of Mobile Telecommunications Company of Esfahan, 89% of Multinet Pakistan (Private) Limited, 18.97% of Samart Corporation Public Company Limited* and 35.31% effective interest in Samart I-Mobile Public Company Limited*. *2 Strategic business unit, comprising mainly of fixed line and broadband businesses. *3 Strategic business unit, comprising 65% of VADS Berhad, 54% of Fiberail Sdn Bhd, 100% of Universiti Telekom Sdn Bhd, 100% Menara Kuala Lumpur Sdn Bhd, 100% of TM Info-Media Sdn Bhd, 100% of TM Facilities Sdn Bhd and property holdings. * Publicly listed companies. 9
  380. Not for distribution in the United States of America 3 . RATIONALE FOR THE PROPOSALS 3.1 Proposed Demerger (i) Realise governance benefits that can accelerate current growth and improvement efforts The Proposed Demerger is expected to allow an improvement of organisational focus through more explicit management mandates and accountability for each respective business entity and tailored performance management. This is also expected to improve execution capacity in each respective business entity through better scope for talent management and human resource development. Consequently, the respective entities will be better positioned to pursue different strategies in a more focused way. The Proposed Demerger is also expected to result in greater transparency on each business entity’s performance, enabling the capital market and other stakeholders to better ascertain the merits and prospects of each entity. This would result in the development of a more focused shareholder base, which is also expected to facilitate a business-centric valuation of the separate entities and potentially unlock value to shareholders. (ii) Capture additional demerger benefits As a separate entity, RegionCo is expected to benefit from increased deal structuring capability with its enhanced profile as a successful and growing focused mobile operator. The proposed separate listing is also expected to provide RegionCo with greater access to equity markets and increased flexibility in funding, allowing RegionCo to be better positioned to pursue its growth strategies. The Proposed Demerger would also provide each resultant entity with the opportunity to undertake more tailored capital management initiatives and pursue specific dividend policies and investor relations strategies. (iii) Freedom to pursue distinct aspirations and strategies The Proposed Demerger will enable each business entity to focus on their respective core activities and pursue their different and distinct aspirations. RegionCo will be focused on becoming a leading regional mobile operator in the South/South East Asian region with an active growth strategy. FixedCo, on the other hand, will be focused on becoming Malaysia’s leading next generation communications provider embracing customer needs through innovation and execution excellence. 3.2 Proposed Listing The Proposed Listing will allow the Entitled Shareholders the opportunity to realise part of their shareholding in TM International in the market and enhance the profile of RegionCo within the global investing community. 3.3 Proposed Shareholders’ Mandate and Proposed IPO The Proposed Shareholders’ Mandate will provide flexibility to TM International for the issuance of new TM International Shares, subject to the relevant authorities’ approval, to fund RegionCo’s capital expenditure, investments and/or acquisitions (including the repayment of borrowings taken to make such capital expenditure, investments and/or acquisitions, if any) in RegionCo’s core growth markets, which include, but are not limited to India, Sri Lanka, Bangladesh, Indonesia and the Indochina region. 10
  381. Not for distribution in the United States of America Furthermore , the Proposed IPO, if implemented, will provide the Entitled Shareholders with better guidance on the valuation of RegionCo, immediately prior to its listing, as the Proposed IPO is expected to include a price discovery process through a bookbuilding exercise. 3.4 Proposed Option Scheme In view of the expiry of the earlier employees’ share option scheme in September 2007, TM’s Board wishes to propose a new employees’ share option scheme. However, in view of the Proposed Demerger and Proposed Listing, the terms of the option scheme will need to be adjusted such that the Eligible Employees are able to participate in both the equity of RegionCo and FixedCo, post demerger. In addition, in recognition of the contribution of the employees to TM Group leading up to the Proposed Demerger, the Proposed Option Scheme has been structured to be facilitative to encourage higher level of participation by the employees of TM Group. This is also intended to encourage and retain Eligible Employees during the transition period of the demerger to enable RegionCo and FixedCo to continue operations with minimal disruptions. 3.5 Special Dividend As a result of the TM Group’s review of its capital management initiatives, TM’s Board has approved the Special Dividend after taking into consideration the capital structures of FixedCo and RegionCo and their respective financial positions. The Special Dividend rewards TM’s shareholders for their continuous support of TM. After payment of the Special Dividend, TM Group’s financial position is expected to remain strong, supported by the sizeable cash and cash equivalents reserves and continued cash flow generated from its operations. 4. INFORMATION ON REGIONCO AND FIXEDCO The Proposed Demerger will result in the creation of 2 strong telecommunication players: 4.1 RegionCo - Leading Regional Mobile Operator RegionCo is proposed to undertake the mobile and non-Malaysian businesses of the TM Group, which is presently being carried out collectively by Celcom and the various operating subsidiaries and associated companies of TM International. 11
  382. Not for distribution in the United States of America RegionCo will be focused on becoming a leading regional mobile operator with strong exposure to high growth mobile markets . As at 30 September 2007, RegionCo (including its associated companies and investee company) has a total of approximately 35.7 million subscribers in such high growth markets. The year-on-year subscriber growth as at 30 September 2007 was approximately 34.7%. RegionCo (including its associated companies and investee companies) has a significant presence in 10 countries, 8 of which are in the provision of mobile telecommunication services, as follows: Country Operating company Mobile Telecommunication Services (i) Malaysia Celcom (ii) Indonesia XL (iii) Sri Lanka Dialog*1 (iv) Bangladesh TMIB (v) Singapore M1 (vi) India Spice*1 (vii) Cambodia TMIC (viii) Iran Mobile Telecommunications Company of Esfahan *1 *1 Non-Mobile Telecommunication Services (ix) Pakistan Multinet Pakistan (Private) Limited*2 (x) Thailand - Samart Corporation Public Company Limited*1,3 - Samart I-Mobile Public Company Limited*1,3 Notes: *1 Publicly listed companies. *2 Provision of fibre optic network services and broadband services. *3 Design, implementation and installation of telecommunication systems and distribution of telecommunication equipment. RegionCo also has strong competitive positions in the above regional markets, with Dialog being the leading mobile services provider in Sri Lanka, TMIB and Celcom being the 2nd largest mobile services provider in their respective countries, and XL being the 3rd largest mobile services provider in Indonesia by revenue. In its aspiration to become the leading mobile operator in the region, RegionCo aims to expand its presence in the South/South East Asian region by addressing the unfulfilled communication needs of local population with affordable and innovative products and services while developing an operational excellence model to maximise growth and margins in the countries in which it operates. Background information on TM International TM International was incorporated in Malaysia under the Act as a private limited company on 12 June 1992 under the name, Telekom Malaysia International Sdn Bhd and was activated in 2001. On 16 October 2001, it assumed its present name. As part of the Proposed Demerger, TM International will be converted to a public company. The principal activities of TM International are investment holding and provision of telecommunication and consultancy services on an international scale. 12
  383. Not for distribution in the United States of America The authorised and issued and paid-up share capital of TM International as at 30 September 2007 is as follows : No. of ordinary shares Type Authorised Issued and paid-up Par value RM Total RM 500,000,000 1.00 500,000,000 35,693,116 1.00 35,693,116 The Directors of TM International as at 30 September 2007 are as follows: (i) Tan Sri Dato’ Ir. Muhammad Radzi Haji Mansor (Chairman); (ii) Dato’ Sri Abdul Wahid Omar; (iii) Dato’ Lim Kheng Guan; (iv) Ganendran Sarvananthan; (v) Datuk Bazlan Osman; and (vi) Dato’ Yusof Annuar Yaacob (Chief Executive Officer). The existing and proposed substantial shareholders of TM International are set out in Section 6.4(ii). 4.2 FixedCo – Malaysia’s Leading Next Generation Communications Provider FixedCo will carry on the retail, domestic and global wholesale fixed-line voice, data and broadband services and other telecommunication and non-telecommunication related businesses in Malaysia and regionally. FixedCo is the leading domestic fixed-line and broadband provider, with a 95% market share in the fixed-line business and a 96% share of broadband business. As at 30 September 2007, FixedCo has 4.4 million fixed-line subscribers and 1.2 million broadband subscribers. FixedCo will be focused on becoming Malaysia’s leading next generation communications provider embracing customer needs through innovation and execution excellence. It will strive to enrich consumer lifestyle and experience by providing innovative next generation services, stimulating growth and elevating business performance of customers with high value information and communications solutions and uphold customer-driven principles towards service excellence and efficiency. FixedCo intends to lead the broadband penetration in Malaysia, which has strong growth opportunities given Malaysia’s broadband penetration of only 12.8% for the 2nd quarter of 2007 (based on statistics published by the Malaysian Communications and Multimedia Commission). As at 30 September 2007, FixedCo’s broadband subscribers grew by approximately 60.7% year-on-year. As previously announced, TM will be working in partnership with the Government of Malaysia (“Government”) to develop a high speed broadband (“HSBB”) infrastructure and service. TM is in the midst of discussions with the Government to finalise the terms of the HSBB partnership and further details will be announced in due course. 13
  384. Not for distribution in the United States of America While pursuing growth in the broadband business , FixedCo remains focused on enhancing international connectivity within the region. This would establish Malaysia as a regional Internet Protocol (IP) hub, serving as a digital gateway for South-East Asia. Other FixedCo initiatives will include capitalising on initial Performance Improvement Program (“PIP”) successes to target improved cost efficiency and productivity levels, procurement excellence and leveraging the Next Generation Network transformation for greater agility. FixedCo will also continue to dispose/monetise non-core assets and re-integrate core affiliates into FixedCo. Upon completion of the Proposed Demerger, TM’s Board envisages that FixedCo will adopt an appropriate dividend policy to enhance shareholders’ value. 5. INFORMATION ON 3G SPECTRUM ASSIGNMENT The 3G Spectrum Assignment refers to the Spectrum Assignment No. SA/01/2003 granted to TM dated 2 April 2003 over the following frequency bands with effect from 2 April 2003 until 1 April 2018: (i) 1950 megahertz (“MHz”) - 1965 MHz; (ii) 2140 MHz - 2155 MHz; and (iii) 2020 MHz - 2025 MHz, as varied by the variations to the Spectrum Assignment No. SA/01/2003 dated 14 March 2007 and 15 November 2007. 6. EFFECTS OF THE PROPOSALS The proforma effects of the Proposals on TM and TM International have been presented below, for illustrative purposes only, based on the following assumptions: (i) issuance of 137.6 million TM Shares, representing approximately 4% of TM’s existing issued and paid-up share capital, under the Proposed Option Scheme, which is assumed to be completed before the Proposed Demerger, with an assumed Option exercise price of RM10.91 (based on the 5-day volume-weighted average market price of TM Shares up to 30 November 2007); and (ii) issuance of 357.7 million TM International Shares (“Issue Shares”) pursuant to the Proposed Shareholders’ Mandate, representing approximately 10% of TM International’s issued and paid-up share capital after the Proposed Demerger, at an illustrative issue price of RM2.23, representing the proforma net book value per TM International Share after the Proposed Demerger. With respect to the Proposed Shareholders’ Mandate, the actual timing and number of Issue Shares to be issued (if any) will be determined at a later date. If implemented, the price per Issue Share and actual amount to be raised under the said issuance is expected to be determined after a bookbuilding process. Accordingly, this assumption is made solely for the purpose of illustrating the effects of the issuance of Issue Shares (if any) on TM International and is not an indication of RegionCo’s valuation, which would depend on the market conditions then and the outcome of the bookbuilding exercise (if any). 14
  385. Not for distribution in the United States of America The inclusion of such information should not be regarded as a representation , warranty or prediction by TM, TM International or any other person with respect to the accuracy of the underlying assumptions or that such results will be or are likely to be achieved. The Proposed Listing will not have any effect on TM’s and TM International’s issued and paidup share capital, earnings, net assets, gearing and substantial shareholders’ shareholdings in TM and TM International. The Proposed Shareholders’ Mandate will not have any effect on TM’s issued and paid-up share capital, earnings, net assets, gearing and substantial shareholders’ shareholdings in TM while the Special Dividend will not have any effect on TM International’s issued and paid-up share capital, earnings, net assets, gearing and substantial shareholders’ shareholdings in TM International. 6.1 Issued and paid-up share capital (i) TM The Proposed Demerger and Special Dividend will not have any effect on the issued and paid-up share capital of TM. The effects of the Proposed Option Scheme on TM’s issued and paid-up share capital are as follows: Existing issued and paid-up share capital as at 30 September 2007 To be issued under the Proposed Option Scheme Enlarged issued and paid-up share capital (ii) No. of ordinary shares of RM1.00 each Issued and paidup ordinary share capital million RM million 3,439.8 3,439.8 137.6 137.6 3,577.4 3,577.4 TM International The Proposed Option Scheme will not have any direct effect on the issued and paid-up share capital of TM International as it is anticipated that under the terms of the Proposed Option Scheme, the TM Shares would be issued under the trust before the Entitlement Date for the Proposed Demerger. This, however, has an impact in terms of increasing the resultant number of TM International Shares to be issued under the Proposed Internal Restructuring such that the eventual number of TM International Shares equals the number of TM Shares entitled to the Proposed Distribution, as illustrated below. Further, the Proposed Shareholders’ Mandate will not have an immediate impact on the issued and paid-up share capital of TM International. However, there will be an increase of up to 10% of TM International’s enlarged issued and paid-up share capital if any Issue Shares are issued pursuant to the Proposed Shareholders’ Mandate. 15
  386. Not for distribution in the United States of America The effects of the Proposed Demerger and issuance of Issue Shares pursuant to the Proposed Shareholders ’ Mandate on the issued and paid-up share capital of TM International are as follows: No. of ordinary shares of RM1.00 each Issued and paidup ordinary share capital million RM million 35.7 35.7 To be issued under the Proposed Demerger 3,541.7 3,541.7 Issued and paid-up share capital after the Proposed Demerger 3,577.4 3,577.4 To be issued pursuant to the Proposed Shareholders’ Mandate 357.7 357.7 3,935.1 3,935.1 Existing as at 30 September 2007 Enlarged issued and paid-up share capital 6.2 Earnings The Special Dividend will not have any material effect on the earnings of TM. Based on the audited consolidated financial statements of TM for the financial year ended 31 December 2006, the proforma revenue, earnings before interest, taxation, depreciation and amortisation (“EBITDA”), and profit after taxation and minority interests (“PATAMI”) of RegionCo and FixedCo with respect to the Proposed Demerger, assuming completion of the Proposed Demerger on 1 January 2006, are as follows: ------------------Financial year ended 31 December 2006-----------------Audited Adjusted*1 ------------------Proforma-----------------TM Group TM Group FixedCo RegionCo RM mil RM mil RM mil RM mil Operating revenue 16,399 16,774 8,201 8,573 EBITDA 7,530 7,534 3,532 4,002 PATAMI 2,069 2,054 923 1,131 Note: *1 After adjustments for inter-company transactions between RegionCo and FixedCo as well as proforma tax effects arising from the Proposed Demerger. The Proposed Option Scheme is also expected to have an impact on TM’s consolidated earnings in view of the adoption of the Financial Reporting Standard 2 (“FRS2”) “Share-Based Payment”. In accordance with FRS2, the cost arising from the issuance of options under the Proposed Option Scheme (“Options”) will be measured by the fair value of the Options at the grant/offer date, thereby reducing TM’s consolidated earnings. The fair value is dependent on, amongst others, the exercise price of TM Shares at the Option grant/offer date, the tenure of the Option and volatility of share price of TM. The charge will be recognised over the vesting period. The fair value of the Options will be considered using the same valuation model applied in computing the fair value of the options granted under the TM Group’s previous employees’ share option scheme. 16
  387. Not for distribution in the United States of America Other than the cost effects pursuant to FRS2 , the effects of the Proposed Option Scheme on TM’s consolidated earnings per share would depend on the utilisation of the proceeds to be received upon the exercise of the Options by the Eligible Employees. The Proposed Option Scheme is also expected to potentially have an impact on TM International’s consolidated earnings by virtue of the cost that TM charges to its relevant subsidiaries based on the allocation of Options to the Eligible Employees of the said subsidiaries. 17
  388. Not for distribution in the United States of America 6 .3 Net assets and gearing (i) TM Group (FixedCo after the Proposed Demerger) For illustrative purposes only, based on TM’s audited consolidated financial statements as at 31 December 2006 and on the assumption that the Proposals were completed on 31 December 2006, the proforma effects of the Special Dividend, Proposed Option Scheme and Proposed Demerger on TM’s consolidated net assets and gearing are set out below: Audited as at 31 December 2006 RM million Post FY2006 *1 adjustments RM million After the Special Dividend RM million After the Proposed *2 Option Scheme RM million After the Proposed Demerger RM million 3,397.6 3,439.8 3,439.8 3,577.4 3,577.4 Share premium Reserves 3,941.9 12,571.6 4,262.1 12,555.6 4,262.1 10,923.4 5,625.7 10,923.4 5,625.7 2,948.8 Total capital and reserves attributable to TM’s equity holders / Net assets 19,911.1 20,257.5 18,625.3 20,126.5 12,151.9 3,397.6 5.86 12,085.9 0.61 3,439.8 5.89 12,085.9 0.60 3,439.8 5.41 12,085.9 0.65 3,577.4 5.63 12,085.9 0.60 3,577.4 3.40 7,935.8 0.65 Share capital No. of TM Shares in issue (mil) Net assets per share (RM) Total borrowings Gearing (times) Total borrowings net of First Amount Owing and Second Amount Owing Gearing net of First Amount Owing and Second Amount Owing (times) 3,910.8 0.32 Notes: *1 After adjusting for options exercised under TM’s previous employees’ share option scheme from 1 January 2007 up to 30 September 2007. *2 Assuming all the Options are fully exercised and cost effects pursuant to FRS2 have not been included. 18
  389. Not for distribution in the United States of America (ii) TM International Group (RegionCo after the Proposed Demerger) Save for the potential charge by TM on TM International pursuant to the Proposed Option Scheme as set out in Section 6.2 above, the Proposed Option Scheme will not have any effect on TM International’s consolidated net assets and gearing. For illustrative purposes only, based on TM International’s unaudited consolidated financial statements as at 31 December 2006 and on the assumption that the Proposals were completed on 31 December 2006, the proforma effects of the Proposed Demerger and issuance of Issue Shares pursuant to the Proposed Shareholders’ Mandate on TM International’s consolidated net assets and gearing are set out below: Unaudited as at 31 December 2006 After the Proposed Demerger After issuance of the Issue Shares pursuant to the Proposed Shareholders’ Mandate RM million RM million RM million Share capital Share premium Reserves 35.7 58.3 2,987.8 3,577.4 317.6 4,079.6 3,935.1 702.4*1 4,079.6 Total capital and reserves attributable to TM International’s equity holders / Net assets 3,081.8 7,974.6 8,717.1 Net assets per share (RM) Total borrowings Gearing (times) 86.32 3,426.1 1.11 2.23 8,175.1*2 1.03 2.22 8,175.1*2 0.94 Notes: *1 After deducting estimated expenses of RM55.2 million, based on the illustrative issue price of RM2.23 per Issue Share. *2 Includes the First Amount Owing and Second Amount Owing. 19
  390. Not for distribution in the United States of America 6 .4 Substantial shareholders’ shareholdings (i) TM The Proposed Demerger and the Special Dividend will not have any effect on the shareholdings of TM’s substantial shareholders in TM. The effects of the Proposed Option Scheme, assuming all the Options are fully exercised, on the shareholdings of TM’s substantial shareholders in TM, based on TM’s Register of Substantial Shareholders as at 30 September 2007, are as follows: Khazanah EPF BNM SASB ----------------------------- As at 30.09.07 ------------------------------ -------------- After Proposed Option Scheme ------------------- ---------------- Direct -------------- ------------ Direct --------------- -------------- Indirect --------- No. of TM Shares held % No. of TM Shares held 1,242,000,773 398,089,300 36.11 11.57 162,455,300 *2 33,623,400 *1 % % No. of TM Shares held 4.72 0.98 1,242,000,773 398,089,300 34.72 11.13 162,455,300 *2 33,623,400 *1 4.54 0.94 318,944,400 8.92 - - *3 7.04 - - 318,944,400 9.27 - - *3 7.32 - - 251,680,000 ------------ Indirect ------------- No. of TM Shares held 251,680,000 Notes: *1 Deemed interest by virtue of TM Shares held via CIMSEC Nominees (Tempatan) Sdn Bhd under Section 6A of the Act. *2 Deemed interest by virtue of TM Shares managed by other portfolio managers on behalf of EPF under Section 6A of the Act. *3 Held via Amanah Raya Nominees (Tempatan) Sdn Bhd. 20 %
  391. Not for distribution in the United States of America (ii) TM International Save for consequential changes to TM International’s issued and paid-up share capital as a result of an increase an in TM’s issued and paidup share capital pursuant to the Proposed Option Scheme, the Proposed Option Scheme and Special Dividend will not have any effect on the shareholdings of TM International’s existing substantial shareholders and proposed substantial shareholders in TM International. The effects of the Proposed Demerger and issuance of Issue Shares pursuant to the Proposed Shareholders’ Mandate on the shareholdings of TM International’s existing substantial shareholders and proposed substantial shareholders in TM International are as follows: Shareholders ----------------------As at 30.09.07*1----------------------------Direct--------- ----------Indirect-------No. of TMI No. of TMI Shares Shares held % held % TM 35,693,116 100.00 - ------------After the Proposed Demerger*2---------------------Direct----------- -----------Indirect--------No. of TMI Shares held % - - No. of TMI Shares held % No. of TMI Shares held % - - - - *3 4.54 *4 0.94 - Khazanah - - - - 1,242,000,773 34.72 162,455,300 EPF - - - - 398,089,300 11.13 33,623,400 BNM - - - - 318,944,400 8.92 - *5 SASB - - - 251,680,000 After issuance of the Issue Shares pursuant ----to the Proposed Shareholders’ Mandate----------------Direct----------- -----------Indirect--------- 7.04 - No. of TMI Shares held % - - - 1,242,000,773 31.56 *3 162,455,300 4.13 398,089,300 10.12 33,623,400 *4 0.85 - 318,944,400 8.11 - - - *5 6.40 - - 251,680,000 Notes: *1 Based on TM International’s Register of Members as at 30 September 2007. *2 Based on TM’s Register of Substantial Shareholders as at 30 September 2007 after adjustments for the Proposed Option Scheme as set out in Section 6.4(i) above. *3 Deemed interest by virtue of TM International Shares to be held via CIMSEC Nominees (Tempatan) Sdn Bhd under Section 6A of the Act. *4 Deemed interest by virtue of TM International Shares to be managed by other portfolio managers on behalf of EPF under Section 6A of the Act. *5 To be held via Amanah Raya Nominees (Tempatan) Sdn Bhd. 21
  392. Not for distribution in the United States of America 6 .5 Dividends (i) TM (FixedCo) In determining the dividend payout ratio in respect of any financial year after the Proposed Demerger, TM intends to adopt a progressive dividend policy which enables the company to provide stable and sustainable dividends to shareholders while maintaining an efficient capital structure and ensuring sufficiency of funding for future growth. Upon completion of the Proposed Demerger, TM intends to distribute dividends of RM700 million or up to 90% of its normalised profit after tax attributable to its shareholders, whichever is higher. Dividends will be paid only if approved by TM’s Board out of funds available for such distribution. The actual amount and timing of dividend payments will depend upon TM’s level of cash and retained earnings, results of operations, business prospects, monetisation of non-core assets, projected levels of capital expenditure and other investment plans, current and expected obligations and such other matters as TM’s Board may deem relevant. (ii) TM International (RegionCo) In determining the capital structures of FixedCo and RegionCo, TM’s Board has considered the expected dividend payment capacity of TM International, bearing in mind RegionCo’s strategy to explore regional growth opportunities and the dividend policies of comparable companies. TM’s Board expects TM International's dividend payout ratio (i.e. dividends as a proportion to normalised profit after tax attributable to its shareholders) to not exceed TM Group's payout ratio in recent years. The actual dividend policy of TM International shall be determined at a later date by TM International’s Board, leading up to the Proposed Demerger. It should be noted that dividends to shareholders in the future will depend upon a number of factors, including TM International’s level of cash and retained earnings, results of operations, business prospects, capital requirements and surplus, general financial conditions, contractual restrictions and other factors considered relevant by TM International’s Board. 7. APPROVALS REQUIRED The Proposals (save for the Special Dividend) are subject to the following: (i) approval of the Securities Commission (“SC”) for the Proposed Demerger, Proposed Listing and issuance of the Issue Shares pursuant to the Proposed Shareholders’ Mandate; (ii) approval of MoF Inc for the Proposed Internal Restructuring and Proposed Distribution; (iii) approval of the SC (on behalf of the Foreign Investment Committee) for the Proposed Demerger, Proposed Listing and issuance of the Issue Shares pursuant to the Proposed Shareholders’ Mandate; (iv) approval of Bursa Securities for the Proposed Listing and the listing of the TM Shares to be issued pursuant to the Proposed Option Scheme; (v) approval of the Malaysian Communications and Multimedia Commission for the transfer of the 3G Spectrum Assignment under the Proposed Internal Restructuring; (vi) approval of TM’s shareholders; 22
  393. Not for distribution in the United States of America (vii) approval of the TM Group’s creditor/lenders (where applicable); (viii) approval of the TM Group’s counterparties with respect to shareholders’ agreements and joint venture agreements (where applicable); and (ix) approvals/consents of any other relevant authorities, if required. Application to the relevant authorities is expected to be submitted within 3 months from the date of this announcement. The Special Dividend is not subject to any approval. 8. EXPECTED IMPLEMENTATION/COMPLETION DATE Barring any unforeseen circumstances: 9. (i) the Proposed Demerger and Proposed Listing are expected to be completed in the second quarter of 2008; (ii) the Proposed Shareholders’ Mandate is expected to be in force in the first quarter of 2008; (iii) the Proposed Option Scheme is expected to be implemented and be in force in the first quarter of 2008; and (iv) the Special Dividend is expected to be paid in the first quarter of 2008. DIRECTORS’ AND MAJOR SHAREHOLDERS’ INTERESTS Dato’ Sri Abdul Wahid Omar (“DSAWO”), being an Executive Director of TM, may be allocated Options under the Proposed Option Scheme. As such, DSAWO has voluntarily abstained and will continue to abstain from deliberating and voting on the Proposed Option Scheme at the relevant Board meetings. DSAWO, together with any persons connected to him, shall also abstain from voting in respect of their direct and/or indirect shareholdings in TM on the resolutions pertaining to the Proposed Option Scheme at TM’s extraordinary general meeting to be convened. Save as disclosed above, none of the Directors and major shareholders of TM and/or persons connected to the Directors or major shareholders of TM have any direct or indirect interest in the Proposals, save for their respective entitlements as shareholders of TM, where applicable. 10. ADVISERS CIMB and UBS AG, acting through its business group, UBS Investment Bank, have been appointed by TM as the Joint Advisers for the Proposed Demerger, Proposed Listing, Proposed Shareholders’ Mandate and Proposed Option Scheme. 11. DIRECTORS’ STATEMENT The Directors of TM (other than DSAWO who has voluntarily abstained from deliberation for the reason set out in Section 9 above), having considered all aspects of the Proposed Option Scheme, is of the opinion that the terms of the Proposed Option Scheme are fair and reasonable and are in the best interest of TM. The Board of TM, having considered all aspects of the Proposals (other than the Proposed Option Scheme), is of the opinion that the terms of the Proposals (other than the Proposed Option Scheme) are fair and reasonable and are in the best interest of TM. 23
  394. Not for distribution in the United States of America 12 . COMPLIANCE WITH THE SC’S POLICIES AND GUIDELINES ON ISSUE/OFFER OF SECURITIES (“SC GUIDELINES”) Save as disclosed below, the Proposals do not depart from the SC Guidelines. (i) As the Proposed Listing is sought under the market capitalisation route, Paragraph 6.24 of the SC Guidelines requires that a moratorium be imposed on the disposal of TM International Shares held by its shareholders. Given the nature of the Proposed Listing i.e. via an introduction through the Proposed Distribution, TM and TM International propose that no moratorium be imposed on shareholders so as not to prejudice the shareholders of TM; (ii) Based on TM’s Register of Substantial Shareholders as at 30 September 2007, EPF, SASB and BNM will be the substantial shareholders of TM International upon completion of the Proposed Demerger. As these shareholders are not involved in the preparation of the submission to the SC, TM and TM International propose that these shareholders are not required to make the disclosure in respect of any circumstance that could result in conflict of interest situation as required under Paragraph 6.20 of the SC Guidelines; (iii) If implemented, the issuance of Issue Shares pursuant to the Proposed Shareholders’ Mandate is expected to involve a bookbuilding exercise. If this is implemented as the Proposed IPO, under Paragraph 6.23 of the SC Guidelines, underwriting arrangements need to be in place before an offering of securities is made. As it is market convention that a bookbuilding, as a price discovery process, does not involve an underwriting process, TM and TM International propose that no underwriting arrangements be put in place before the said offering (if any); and (iv) Given that TM International would comply with the National Development Policy requirements even if all the new TM International Shares under the Proposed Shareholders’ Mandate are issued to non-Bumiputera shareholders, TM International proposes that no minimum number of TM International Shares is to be placed to Bumiputera investors under any issuance pursuant to the Proposed Shareholders’ Mandate, if implemented, as required under Paragraph 6.08 of the SC Guidelines. In addition, as the final terms of the any issuance of TM International Shares pursuant to the Proposed Shareholders’ Mandate have not been finalised, any future departure (if any) in respect of the issuance of TM International Shares will be announced with the final terms of the said issuance. 24
  395. Not for distribution in the United States of America 13 . DOCUMENT AVAILABLE FOR INSPECTION A copy of the Demerger Agreement is available for inspection at TM’s registered office at Level 51, North Wing, Menara TM, Jalan Pantai Baharu, 50672 Kuala Lumpur, Malaysia, during normal business hours from Mondays to Fridays (except for public holidays) for a period of 3 months from the date of this announcement. This announcement is dated 10 December 2007. This announcement is not an offer for sale of securities in any jurisdiction, including in the United States of America (“US”). Securities may not be offered or sold in the US absent registration or an exemption from registration under the US Securities Act 1933, as amended. None of TM, TM International or any seller of securities intends to register any portion of the offering in the US or to conduct a public offering of securities in the US. This announcement contains “forward-looking statements”. These forward-looking statements include statements relating to TM and TM International’s businesses, performance and prospects. These statements reflect the current views of TM and TM International with respect to future events and are subject to certain risks, uncertainties and assumptions. It is important to note that actual results could differ materially from those anticipated in these forward looking statements. 25