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Pasukhas Green Assets Sdn Bhd (ASEAN Green SRI Sukuk) RM200 Million - Information Memorandum

IM Insights
By IM Insights
4 years ago
Pasukhas Green Assets Sdn Bhd (ASEAN Green SRI Sukuk) RM200 Million - Information Memorandum

Kafalah, Murabahah, Shariah, Sukuk, Tawarruq, Wakalah, Ta’widh, Ibra’, Credit Risk, Al-kafalah, Net Assets, Participation, Provision, Receivables, Reserves, Sales, Suq al-Sila’

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  1. ELECTRONIC DISCLAIMER STRICTLY PRIVATE AND CONFIDENTIAL NOT FOR DISTRIBUTION TO PERSONS THAT DO NOT FALL WITHIN THE RELEVANT CATEGORIES OF PERSONS SPECIFIED IN SECTION 2 (6) OF THE COMPANIES ACT 2016, AS AMENDED FROM TIME TO TIME (“COMPANIES ACT”) AND PERSONS TO WHOM AN OFFER OR INVITATION TO SUBSCRIBE THE ASEAN GREEN SRI SUKUK (AS DEFINED HEREIN) MAY BE MADE AND TO WHOM THE ASEAN GREEN SRI SUKUK ARE ISSUED WOULD NOT FALL WITHIN PART 1 OF SCHEDULE 6 OF THE CAPITAL MARKETS AND SERVICES ACT 2007, AS AMENDED FROM TIME TO TIME ("CMSA"), OR PART 1 OF SCHEDULE 7 OF THE CMSA READ TOGETHER WITH SCHEDULE 9 (OR SECTION 257(3)) OF THE CMSA AT ISSUANCE; THEREAFTER, NOT FOR DISTRIBUTION TO PERSONS THAT DO NOT FALL WITHIN THE RELEVANT CATEGORIES OF PERSONS SPECIFIED IN SECTION 2(6) OF THE COMPANIES ACT OR PERSONS TO WHOM AN OFFER OR INVITATION TO PURCHASE THE ASEAN GREEN SRI SUKUK THAT WOULD NOT FALL WITHIN PART 1 OF SCHEDULE 6 (OR SECTION 229(1)(b)) OF THE CMSA READ TOGETHER WITH SCHEDULE 9 (OR SECTION 257(3)) OF THE CMSA AFTER THE ISSUANCE OF THE ASEAN GREEN SRI SUKUK. IMPORTANT: YOU MUST READ THE FOLLOWING DISCLAIMER BEFORE CONTINUING. Please find attached an electronic copy of the information memorandum dated 27 February 2019 (“Information Memorandum”), in relation to the proposed issue of, offer for subscription or purchase of, or invitation to subscribe for or purchase of Islamic medium term notes (“ASEAN Green SRI Sukuk”) pursuant to an Islamic medium term note programme of RM200.0 million in nominal value under the Shariah principle of Wakalah Bi Al-Istithmar together with Murabahah (via Tawarruq arrangement) (“ASEAN Green SRI Sukuk Programme”) by Pasukhas Green Assets Sdn Bhd (Company No. 1293491-H) (formerly known as Morning Summit Sdn Bhd) (“Issuer”). The following disclaimer applies to the attached Information Memorandum. You are advised to read this disclaimer carefully before accessing, reading or making any other use of the attached Information Memorandum. By accepting this e-mail and accessing the attached Information Memorandum, you agree to be bound by the following terms and conditions, including any modifications to them from time to time, each time you receive any information from us as a result of such access. Confirmation of Your Representation: The Information Memorandum is not a prospectus and has not been registered nor will it be registered as a prospectus under the CMSA. In order to be eligible to view the attached Information Memorandum or make an investment decision in respect of the ASEAN Green SRI Sukuk, you must be a person falling within the relevant category of persons specified in Section 2(6) of the Companies Act, and persons to whom an offer or invitation to subscribe the ASEAN Green SRI Sukuk may be made and to whom the ASEAN Green SRI Sukuk are issued would fall within Part 1 of Schedule 6 of the CMSA or Part 1 of Schedule 7 of the CMSA, read together with Schedule 9 (or Section 257(3)) of the CMSA; thereafter, a person falling within the relevant category of persons specified in Section 2(6) of the Companies Act, and persons to whom an offer or invitation to purchase the ASEAN Green SRI Sukuk would fall within Part 1 of Schedule 6 (or Section 229(1)(b)) of the CMSA, read together with Schedule 9 (or Section 257(3)) of the CMSA (“Selling Restrictions”). By accepting the e-mail and accessing the attached Information Memorandum, you shall be deemed to have represented to us (1) that you are a person falling within the Selling Restrictions; and (2) that you consent to the delivery of the attached Information Memorandum and any amendments or supplements thereto by electronic transmission.
  2. You are reminded that documents transmitted via this medium may be subject to interruptions , transmission blackout, delayed transmission due to internet traffic, data corruption, interception, unauthorised amendment, tampering, viruses or other technical, mechanical or systemic risks associated with internet transmissions. Neither RHB Investment Bank Berhad (Company No. 19663-P) as the Principal Adviser (“PA”), Lead Arranger (“LA”) and the Lead Manager (“LM”) of the ASEAN Green SRI Sukuk Programme or other financial institutions to be appointed prior to the issuance of each tranche of ASEAN Green SRI Sukuk nor any of their respective directors, officers, employees, representatives or affiliates have accepted and will accept any liability and/or responsibility for any such interruptions, transmission blackout, delayed transmission due to internet traffic, data corruption, interception, unauthorised amendment, tampering, viruses or other technical, mechanical or systemic risks associated with internet transmissions or any consequence thereof. RESTRICTIONS: The Information Memorandum is strictly confidential and does not constitute an issue, offer or sale of, or an invitation to subscribe or purchase the ASEAN Green SRI Sukuk or any other securities of any kind by any party in any jurisdiction in which such offer or sale of, or an invitation to subscribe or purchase the ASEAN Green SRI Sukuk would be unlawful prior to qualification under the securities laws of such jurisdictions. The Information Memorandum has not been and will not be made to comply with the laws of any 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, offer or sale of, or an invitation to subscribe or purchase the ASEAN Green SRI Sukuk or any other securities of any kind by any party in any Foreign Jurisdiction. You are reminded that you have accessed the Information Memorandum on the basis that you are a person into whose possession of the Information Memorandum may be lawfully delivered in accordance with the laws of the jurisdiction in which you are located and you may not nor are you authorised to deliver this document, electronically or otherwise, to any other person. If you have gained access to this transmission contrary to the foregoing restrictions, you will be unable to purchase any of the ASEAN Green SRI Sukuk described therein. Actions that You May Not Take: If you receive this document by e-mail, you should not reply by e-mail, and you may not purchase any ASEAN Green SRI Sukuk by doing so. Any reply e-mail communications, including those you generate by using the "Reply" function on your e-mail software, will be ignored or rejected. YOU ARE NOT AUTHORISED AND YOU MAY NOT FORWARD OR DELIVER THE ATTACHED INFORMATION MEMORANDUM, ELECTRONICALLY OR OTHERWISE, TO ANY OTHER PERSON OR REPRODUCE SUCH INFORMATION MEMORANDUM IN ANY MANNER WHATSOEVER. ANY FORWARDING, DISTRIBUTION, REPRODUCTION OR ALTERATION OF ANY OF THE CONTENTS OF THIS DOCUMENT AND THE ATTACHED INFORMATION MEMORANDUM IN WHOLE OR IN PART IS UNAUTHORISED. BY OPENING AND ACCEPTING THE ATTACHED INFORMATION MEMORANDUM YOU AGREE TO THE FOREGOING. THE FOREGOING IS IN ADDITION TO AND WITHOUT PREJUDICE TO ALL OTHER DISCLAIMERS AND AGREEMENTS WHICH A RECIPIENT OF THE INFORMATION MEMORANDUM SHALL BE DEEMED TO HAVE AGREED TO OR BE BOUND BY AS SET OUT IN THE INFORMATION MEMORANDUM.
  3. PASUKHAS GREEN ASSETS SDN BHD (Company No. 1293491-H) (formerly known as Morning Summit Sdn Bhd) INFORMATION MEMORANDUM PROPOSED ISSUE OF, OFFER FOR SUBSCRIPTION OR PURCHASE OF, OR INVITATION TO SUBSCRIBE FOR OR PURCHASE OF ISLAMIC MEDIUM TERM NOTES PURSUANT TO AN ISLAMIC MEDIUM TERM NOTE PROGRAMME OF RM200.0 MILLION IN NOMINAL VALUE UNDER THE SHARIAH PRINCIPLE OF WAKALAH BI AL-ISTITHMAR TOGETHER WITH MURABAHAH (VIA TAWARRUQ ARRANGEMENT) PRINCIPAL ADVISER / LEAD ARRANGER / LEAD MANAGER RHB INVESTMENT BANK BERHAD (Company No. 19663-P) This Information Memorandum is dated 27 February 2019
  4. TABLE OF CONTENTS HEADING . PAGE SECTION 1 – EXECUTIVE SUMMARY ................................................................................ 4 1.1 INTRODUCTION ......................................................................................................... 4 1.2 BRIEF BACKGROUND OF THE ISSUER .................................................................... 4 1.3 SALIENT FEATURES OF THE ASEAN GREEN SRI SUKUK PROGRAMME ............. 4 1.4 ELIGIBLE SRI PROJECT ............................................................................................ 7 SECTION 2 – CORPORATE INFORMATION OF THE ISSUER........................................... 9 2.1 CORPORATE HISTORY ............................................................................................. 9 2.2 PRINCIPAL ACTIVITIES .............................................................................................. 9 2.3 SHARE CAPITAL AND SHAREHOLDING STRUCTURE ............................................ 9 2.4 PROFILE OF DIRECTORS .......................................................................................... 9 SECTION 3 – CORPORATE INFORMATION OF PASUKHAS GROUP BERHAD ............ 11 3.1 CORPORATE HISTORY ........................................................................................... 11 3.2 PRINCIPAL ACTIVITIES............................................................................................ 11 3.3 SHARE CAPITAL AND SHAREHOLDING STRUCTURE .......................................... 11 3.4 PROFILE OF DIRECTORS ........................................................................................ 12 3.5 SENIOR MANAGEMENT ........................................................................................... 15 3.6 FINANCIAL HIGHLIGHTS.......................................................................................... 16 3.7 COMMENTARIES ON THE PGB GROUP’S FINANCIAL PERFORMANCE .............. 16 SECTION 4 – CORPORATE INFORMATION OF I.S. ENERGY SDN BHD ....................... 18 4.1 CORPORATE HISTORY ........................................................................................... 18 4.2 PRINCIPAL ACTIVITIES ............................................................................................ 18 4.3 SHARE CAPITAL AND SHAREHOLDING STRUCTURE .......................................... 18 4.4 PROFILE OF DIRECTORS ........................................................................................ 18 4.5 FINANCIAL HIGHLIGHTS.......................................................................................... 19 SECTION 5 – CORPORATE INFORMATION OF THE KAFALAH PROVIDER ................. 20 5.1 BRIEF HISTORY AND BACKGROUND INFORMATION OF DANAJAMIN ................ 20 5.2 SHAREHOLDING STRUCTURE ............................................................................... 20 5.3 FINANCIAL HIGHLIGHTS.......................................................................................... 21 SECTION 6 – PROJECT INFORMATION .......................................................................... 22 6.1 BACKGROUND INFORMATION................................................................................ 22 6.2 SITE........................................................................................................................... 22 6.3 PLANT, PROCESS AND TECHNOLOGY .................................................................. 23 SECTION 7 – SUMMARY OF THE RENEWABLE ENERGY POWER PURCHASE AGREEMENT (“REPPA”) .................................................................................................. 33 7.1 Overview .................................................................................................................... 33 SECTION 8 – PRINCIPAL TERMS AND CONDITIONS OF THE ASEAN GREEN SRI SUKUK PROGRAMME ...................................................................................................... 39 SECTION 9 – INVESTMENT CONSIDERATIONS ............................................................. 76 9.1 INVESTMENT CONSIDERATIONS RELATING TO THE ASEAN GREEN SRI SUKUK .. 76 9.2 INVESTMENT CONSIDERATIONS RELATING TO THE ISSUER ............................ 78 9.3 RISKS RELATING TO THE SUNGAI REK PROJECT ............................................... 79 9.4 GENERAL INVESTMENT CONSIDERATIONS ......................................................... 82
  5. SECTION 10 – INDUSTRY OVERVIEW ............................................................................. 84 10.1 OUTLOOK AND ECONOMY OF MALAYSIA ............................................................. 84 10.2 OVERVIEW AND OUTLOOK OF THE RENEWABLE ENERGY INDUSTRY ............. 92 SECTION 11 – OTHER MATERIAL INFORMATION.......................................................... 94 11.1 MATERIAL LITIGATION ............................................................................................ 94 11.2 MATERIAL CONTINGENT LIABILITIES .................................................................... 94 11.3 CONFLICT-OF-INTEREST SITUATIONS AND APPROPRIATE MITIGATING MEASURES .. 94 APPENDIX I ....................................................................................................................... 96 APPENDIX II ...................................................................................................................... 97 APPENDIX III ..................................................................................................................... 98 APPENDIX IV ..................................................................................................................... 99
  6. RESPONSIBILITY STATEMENT This information memorandum (“Information Memorandum”) has been approved by the directors of Pasukhas Green Assets Sdn Bhd (Company No. 1293491-H) (formerly known as Morning Summit Sdn Bhd) (“PGA” or the “Issuer”) and they collectively and individually accept full responsibility for the accuracy of the information contained in this Information Memorandum. The Board of Directors (“Board”) of the Issuer, after having made all reasonable enquiries and to the best of their knowledge, information and belief, confirms that all information contained in this Information Memorandum is true and correct in all material respects. The Board of the Issuer further confirms that there is no omission of a material fact, necessary to make the information contained in this Information Memorandum, in light of the circumstances under which it is provided, not misleading, and that the opinions and intentions expressed in the information contained in this Information Memorandum are honestly held. Reasonable enquiries have been made by the Board of the Issuer to ascertain that all material facts have been disclosed and to verify the accuracy of all such information and statements. In this context, the Board of the Issuer accepts full responsibility for such information contained in this Information Memorandum. IMPORTANT NOTICE AND GENERAL STATEMENTS OF DISCLAIMER This Information Memorandum is being furnished on a private and confidential basis solely for the purpose of enabling prospective investors to consider the purchase of the ASEAN Green SRI Sukuk. This Information Memorandum may not be reproduced, in whole or in part, or used for any other purpose, or shown, given, copied to or filed, in whole or in part, with any other person including, without limitation, any government or regulatory authority except with the prior consent of PGA or as required under Malaysian laws, regulations or guidelines. RHB Investment Bank Berhad (“RHB Investment Bank”) as the Principal Adviser (“PA”), Lead Arranger (“LA”) and Lead Manager (“LM”) has not independently verified the information contained in this Information Memorandum and does not make any representation, warranty or undertaking, neither expressed or implied with respect to the accuracy or completeness of any of the information contained in this Information Memorandum. To the extent permitted by law, the PA, LA or LM 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 ASEAN Green SRI Sukuk and to the extent permitted by law, shall not be liable for any consequences of reliance on any of the information or data in this Information Memorandum. The information in this Information Memorandum supersedes all other information and material previously supplied (if any) to the recipients. By taking possession of this Information Memorandum, the recipients are acknowledging and agreeing and are deemed to have acknowledged and agreed that they will not rely on any previous information supplied. 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 PGA, the PA, LA or LM or any other person. This Information Memorandum has not been and will not be made to comply with the laws of any 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, offer or sale of, or an invitation to subscribe for or purchase the ASEAN Green SRI Sukuk or any other securities of any kind by any party in any Foreign Jurisdiction. 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. i
  7. The distribution or possession of this Information Memorandum in or from certain jurisdictions may be restricted or prohibited by law . Each recipient is required to seek appropriate professional advice regarding, and to observe, any such restriction or prohibition. Neither PGA nor the PA, LA or LM 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 will keep confidential all of such information and data, (b) it is lawful for the recipient to subscribe for or purchase the ASEAN Green SRI Sukuk under all jurisdictions to which the recipient is subject, (c) it has complied with all applicable laws in connection with such subscription or purchase of the ASEAN Green SRI Sukuk, (d) PGA, the PA, LA or LM 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 ASEAN Green SRI Sukuk, and they shall not have any responsibility or liability in the event that such subscription or purchase of the ASEAN Green SRI Sukuk is or shall become unlawful, unenforceable, voidable or void, (e) it is aware that the ASEAN Green SRI 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, (f) 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 ASEAN Green SRI Sukuk, and is able and is prepared to bear the economic and financial risks of investing in or holding the ASEAN Green SRI Sukuk, (g) it is subscribing or accepting the ASEAN Green SRI Sukuk for its own account, and (h) it is a person falling within one of the categories of persons to whom an offer or invitation to subscribe the ASEAN Green SRI Sukuk may be made and to whom the ASEAN Green SRI Sukuk are issued would fall within the relevant category of persons specified in Section 2(6) of the Companies Act 2016, as amended from time to time (“Companies Act”), and persons to whom an offer or invitation to subscribe the ASEAN Green SRI Sukuk may be made and to whom the ASEAN Green SRI Sukuk are issued would fall within Part 1 of Schedule 6 of the Capital Markets and Services Act 2007, as amended from time to time (“CMSA”) or Part 1 of Schedule 7 of the CMSA, read together with Schedule 9 (or Section 257(3)) of the CMSA; thereafter, a person falling within the relevant category of persons specified in Section 2(6) of the Companies Act, and persons to whom an offer or invitation to purchase the ASEAN Green SRI Sukuk would fall within Part 1 of Schedule 6 (or Section 229(1)(b)) of the CMSA, read together with Schedule 9 (or Section 257(3)) of the CMSA. Each recipient is solely responsible for seeking all appropriate expert advice as to the laws of all jurisdictions to which it is subject. For the avoidance of doubt, this Information Memorandum shall not constitute an offer or invitation to subscribe or purchase the ASEAN Green SRI Sukuk in relation to any recipient who does not fall within the categories of persons specified in item (h) above. This Information Memorandum or any document delivered under or in relation to the proposed issue, offer and sale of the ASEAN Green SRI Sukuk is not, and should not be construed as, a recommendation by PGA and/or the PA, LA or LM to subscribe for or purchase the ASEAN Green SRI 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. All information and statements herein are subject to the detailed provisions of the respective agreements referred to herein and are qualified in their entirety by reference to such documents. The ASEAN Green SRI Sukuk Programme will carry risks and each recipient should perform and is deemed to have made its own independent investigation and analysis of PGA, the issuance of the ASEAN Green SRI 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 ASEAN Green SRI Sukuk shall in any circumstance imply that the information contained herein is correct at any time subsequent to the date stated hereof or if no dates have been specifically stated, subsequent to the date of this Information Memorandum or that any other information supplied in connection with the ASEAN Green SRI Sukuk is correct as of any time subsequent to the date indicated in the document containing the same. The PA, LA or LM expressly does not undertake to review the financial condition or affairs of PGA during the tenure of the ASEAN Green SRI Sukuk or to advise any investor of the ASEAN Green SRI Sukuk (“Sukukholder”) of any information coming to their attention unless required by law. The recipient of this Information Memorandum or the potential Sukukholders should review, inter alia, the most recently published documents incorporated by ii
  8. reference into this Information Memorandum when deciding whether or not to purchase any ASEAN Green SRI Sukuk . This Information Memorandum includes certain historical information, estimates, or reports thereon derived from sources mentioned in this Information Memorandum and other parties with respect to the Malaysian economy, the material businesses which PGA 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” and reflects projections of future events which may or may not prove to be correct. These statements include, among other things, discussions of each of PGA’s business strategy and expectation concerning its position in the Malaysian economy, future operations, profitability, liquidity, capital resources and financial position. All these statements are based on estimates and assumptions made by PGA that, although believed to be reasonable, are subject to risks and uncertainties that may cause actual events and the future results of PGA 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 PGA, its advisers or any other person that the future plans and objectives as anticipated by the Issuer will be achieved. Any such statements are not guarantees of performance and involve risks and uncertainties, many of which are beyond the control of the Issuer. 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. RHB Islamic Bank Berhad (Company No. 680329-V), as the Shariah adviser (“Shariah Adviser”), has reviewed and confirmed the structure and mechanism of the ASEAN Green SRI Sukuk and their compliance with the applicable Shariah principles. However, the approval is only an expression of the view of the Shariah Adviser based on his extensive experience in the subject. Investors are reminded that, as with any Shariah views, differences in opinion are possible. Investors are advised to obtain their own independent Shariah advice as to whether the structure meets their individual standards of compliance. ACKNOWLEDGEMENT PGA hereby acknowledges and authorises the PA, LA or LM to circulate or distribute this Information Memorandum on its behalf in respect of or in connection with the proposed issue of, offer for subscription or purchase of, or invitation to subscribe for or purchase of the ASEAN Green SRI Sukuk to prospective investors and that no further evidence of authorisation is required. STATEMENTS OF DISCLAIMER – SECURITIES COMMISSION MALAYSIA This Information Memorandum is not a prospectus and is not intended to be a prospectus and will not be lodged as a prospectus with the Securities Commission Malaysia (“SC”). However, a copy of this Information Memorandum, upon finalisation, has been lodged as an information memorandum for the purposes of Sections 229 and/or 230 of the CMSA with the SC, which takes no responsibility for its contents. The proposed issue of, offer for subscription or purchase of, or invitation to subscribe for or purchase of the ASEAN Green SRI Sukuk in this Information Memorandum or otherwise are subject to the fulfilment of various conditions precedent including without limitation the lodgement of information and documents in relation to the ASEAN Green SRI Sukuk Programme to the SC in accordance with the SC’s Guidelines on Unlisted Capital Market Products under the Lodge and Launch Framework issued by the SC on 9 March 2015 (effective iii
  9. on 15 June 2015 ) and revised on 11 October 2018 (as may be amended from time to time) (“LOLA Guidelines”). The structure of the ASEAN Green SRI Sukuk Programme has been endorsed by the Shariah Advisory Council of the SC. Information and documents in relation to the ASEAN Green SRI Sukuk Programme have been lodged with the SC pursuant to the LOLA Guidelines. Each recipient of this Information Memorandum acknowledges and agrees that the lodgement of the ASEAN Green SRI Sukuk Programme with the SC shall not be taken to indicate that the SC recommends the subscription or purchase of the ASEAN Green SRI Sukuk. The SC, who takes no responsibility for the contents of this Information Memorandum, shall not be liable for any non-disclosure on the part of PGA and assumes no responsibility for the correctness of any statements made or opinions or reports expressed in this Information Memorandum. EACH ASEAN GREEN SRI SUKUK WILL CARRY DIFFERENT RISKS AND ALL INVESTORS SHOULD EVALUATE EACH ASEAN GREEN SRI SUKUK ISSUE ON ITS OWN MERITS. INVESTORS SHOULD RELY ON THEIR OWN EVALUATION TO ASSESS THE MERITS AND RISKS OF THE INVESTMENT. INVESTORS ARE ADVISED TO NOTE THAT THIS ASEAN GREEN SRI SUKUK IS TRANSFERABLE AND TRADABLE. IT IS RECOMMENDED THAT PROSPECTIVE INVESTORS CONSULT THEIR FINANCIAL, LEGAL AND OTHER ADVISERS BEFORE SUBSCRIBING OR PURCHASING THE ASEAN GREEN SRI SUKUK. 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 latest audited financial statements and, if published later, the latest interim financial statements (if any) of the Issuer; 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 properly 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. 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 is made available to the recipient in connection with any further enquiries, must be held in complete confidence. This Information Memorandum is submitted to prospective investors specifically in reference to the ASEAN Green SRI Sukuk and may not be reproduced or used, in whole or in part, for any purpose, nor furnished to any person other than those to whom copies have been sent by the PA, LA or LM. iv
  10. In the event that there is any contravention of this confidentiality undertaking or there is reasonable likelihood that this confidentiality undertaking may be contravened , PGA or the PA, LA or LM may, at its discretion, apply for any remedy available whether at law or in equity, including without limitation, injunctions. PGA and the PA, LA or LM are entitled to fully recover from the contravening party all costs, expenses and losses incurred and/or suffered, in this regard on a full indemnity basis. For the avoidance of doubt, it is hereby deemed that this confidentiality undertaking shall be imposed upon the recipient, the recipient’s professional advisers, directors, employees and any other persons who may receive this Information Memorandum (or any part of it) from the recipient. The PA, LA or LM may at any time request any recipient to return this Information Memorandum and all reproductions whether in whole or in part any other information in connection therewith and where such a request is made, the recipient must return this Information Memorandum and all reproductions whether in whole or in part and any other information in connection therewith to the PA, LA or LM as soon as reasonably practicable after the said request from the PA, LA or LM. [The remainder of this page is intentionally left blank] v
  11. DEFINITIONS AND ABBREVIATIONS In this Information Memorandum , unless the subject of context otherwise requires, the following words and expressions shall have the following meanings: “Al-Kafalah Facility” : an Islamic guarantee facility of up to the guaranteed amount to be agreed between the Issuer and the Kafalah Provider(s) for the ASEAN Green SRI Sukuk based on the Shariah principle of AlKafalah; “ASEAN GBS” : ASEAN Green Bond Standards issued by the ASEAN Capital Markets Forum in November 2017 and revised in October 2018, as may be amended, supplemented and/or substituted from time to time, which shall be read together with the GBP (as defined under item (y) in the section entitled “Other terms and conditions” in Section 8 of this Information Memorandum); “ASEAN Green SRI Sukuk” : Islamic medium term notes issued or to be issued pursuant to the ASEAN Green SRI Sukuk Programme under the Shariah principle of Wakalah Bi Al-Istithmar together with Murabahah (via Tawarruq arrangement); “ASEAN Green SRI Sukuk Programme” : Islamic medium term note programme of RM200.0 million in nominal value under the Shariah principle of Wakalah Bi AlIstithmar together with Murabahah (via Tawarruq arrangement); “Board” : the Board of directors of the Issuer; “CMSA” : the Capital Markets and Services Act 2007, as amended from time to time; “Companies Act” : the Companies Act 2016, as amended from time to time; “Danajamin” : Danajamin Nasional Berhad (Company No. 854686-K); “Eligible SRI Projects” : any projects and/or assets deemed as (i) an eligible SRI project in all sectors pursuant to paragraphs 7.04(a) and 7.04(b) of Part 3 of Section B of the LOLA Guidelines; and (ii) an eligible Green Project (as defined under item (z) in the section entitled “Other terms and conditions” in Section 8 of this Information Memorandum) ; “Facility Agent” : RHB Investment Bank; “First Tranche” : the first tranche of ASEAN Green SRI Sukuk of RM17 million; “FYE” : the financial year ended 31 December; “ISE” : I.S. Energy Sdn Bhd (Company No. 612985-D); “Issuer Group” : the Issuer and its subsidiary companies; 1
  12. “Kafalah Provider” either: (a) Danajamin; or (b) (i) Danajamin and other financial institution(s); (ii) Danajamin and other financial guarantee insurer(s);or (iii) Danajamin, other financial institution(s) and other financial guarantee insurer(s), where each of the financial institution(s) and financial guarantee insurer(s) shall be those which are regulated and supervised by BNM under the Islamic Financial Services Act 2013; “Lead Arranger” : RHB Investment Bank; “Lead Manager” : RHB Investment Bank; “LOLA Guidelines” : the Guidelines on Unlisted Capital Market Products under the Lodge and Launch Framework issued by the SC on 9 March 2015 (effective on 15 June 2015) and revised on 11 October 2018; “MARC” : Malaysia Rating Corporation Berhad (Company No. 364803-V); “PESB” : Pasukhas Energy Sdn Bhd (Company No. 1184019-V); “PGA” or the “Issuer” : Pasukhas Green Assets Sdn Bhd (Company No. 1293491-H) (formerly known as Morning Summit Sdn Bhd); “PGB” : Pasukhas Group Berhad (Company No. 686389-A); “PGB Group” : PGB and its subsidiary companies; “Principal Adviser” : RHB Investment Bank; “PTC” : the principal terms and conditions of the ASEAN Green SRI Sukuk Programme as set out in Section 8 of this Information Memorandum; “RAM” : RAM Rating Services Berhad (Company No. 763588-T); “RAM Consultancy” : RAM Consultancy Services Sdn Bhd (Company No. 515578-M); “RHB Investment Bank” : RHB Investment Bank Berhad (Company No. 19663-P); “SC” : the Securities Commission Malaysia; “Shariah Adviser” : RHB Islamic Bank Berhad (Company No. 680329-V); 2
  13. “SRI” : sustainable and responsible investment; “Sukuk Trustee” : Malaysian Trustees Berhad (Company No. 21666-V); “Sukukholders” : the holders of the ASEAN Green SRI Sukuk; All terms, where applicable, include the plural and vice versa; (a) one gender only shall include the other gender; and (b) a person includes any individual, company, unincorporated association, government, state agency, international organisation or other entity. Unless otherwise indicated, any reference in this Information Memorandum to any legislation (whether primary legislation or regulations or other subsidiary legislation made pursuant to primary legislation), rules, statute or statutory provision shall be construed as a reference to any statutory modification or re-enactment thereof or any statutory instrument, order or regulation made thereunder or under any such modification or re-enactment. [The remainder of this page is intentionally left blank] 3
  14. SECTION 1 – EXECUTIVE SUMMARY This summary below aims to provide an overview of the information contained in this Information Memorandum and must be read in conjunction with the detailed information and statements appearing elsewhere in this Information Memorandum. Each investor should read this entire Information Memorandum carefully. Kindly refer to the Principal Terms and Conditions of the ASEAN Green SRI Sukuk Programme as set out in Section 8 herein for terms not defined in this section. 1.1 INTRODUCTION The Issuer proposes to issue ASEAN Green SRI Sukuk of up to RM200.0 million in nominal value based on the Shariah principle of Wakalah Bi Al-Istithmar together with Murabahah (via Tawarruq arrangement) under the ASEAN Green SRI Sukuk Programme. 1.2 BRIEF BACKGROUND OF THE ISSUER The Issuer was incorporated in Malaysia on 30 August 2018 as a private company limited by shares under the name of Morning Summit Sdn Bhd. It subsequently changed its name to Pasukhas Green Assets Sdn Bhd on 25 September 2018. Its registered address is 10th Floor, Menara Hap Seng, No. 1 & 3, Jalan P. Ramlee, 50250, Kuala Lumpur, Wilayah Persekutuan. As at 12 December 2018, the Issuer has a paid-up capital of RM1.00 comprising 1 ordinary share. The shareholder of the Issuer is Pasukhas Energy Sdn Bhd (Company No. 1184019-V), which in turn is a wholly owned subsidiary of Pasukhas Group Berhad (Company No. 686389-A). 1.3 SALIENT FEATURES OF THE ASEAN GREEN SRI SUKUK PROGRAMME The information set out in this subsection and the following information relating to the transaction structure of the ASEAN Green SRI Sukuk are qualified by, and must be read in conjunction with, the further detailed information appearing elsewhere in this Information Memorandum. In this section, in the event of any inconsistency of defined terms as set out in the “Definitions” and the following section, the terms as defined in the following section shall prevail. The ASEAN Green SRI Sukuk Programme shall comprise issuance(s) of ASEAN Green SRI Sukuk of up to RM200.0 million in nominal value, under the Shariah principle of Wakalah Bi Al-Istithmar together with Murabahah (via Tawarruq arrangement). The ASEAN Green SRI Sukuk shall constitute direct, unconditional and unsecured obligations of the Issuer and shall at all times rank pari passu, without discrimination, preference or priority amongst themselves and pari passu with all other present and future unsecured and unsubordinated obligations of the Issuer, subject to those preferred by law and the Transaction Documents (as defined under item (dd) in the section entitled “Other terms and conditions” in Section 8 of this Information Memorandum). 4
  15. The ASEAN Green SRI Sukuk are in compliance with the LOLA Guidelines and the ASEAN GBS , where the independent expert/ external review provider is RAM Consultancy. The Issuer’s green sukuk framework (“PGA Green Sukuk Framework”) and RAM Consultancy’s second opinion on the PGA Green Sukuk Framework dated 26 February 2019 are attached in this Information Memorandum as Appendix III and Appendix IV, respectively. A summary of the salient features of the ASEAN Green SRI Sukuk Programme is as follows: 1.3.1 Programme Size The size of the ASEAN Green SRI Sukuk Programme is RM200.0 million in nominal value. The Issuer shall have the option to upsize the limit of the ASEAN Green SRI Sukuk Programme at any time provided that: (i) the relevant requirements under the LOLA Guidelines in relation to such upsizing has been complied with (which include, the Issuer to ensure that any exercise to upsize the ASEAN Green SRI Programme limit does not unfairly discriminate or is otherwise prejudicial to existing Sukukholders); and (ii) all relevant regulatory approvals have been obtained (if applicable). For avoidance of doubt, the Sukukholders shall be deemed to have consented to such upsizing of the limit of the ASEAN Green SRI Sukuk Programme (via the Trust Deed executed between the Sukuk Trustee and the Issuer (“Trust Deed”)) from time to time. Accordingly, no consent will be required from the Sukukholders, the Lead Arranger, the Sukuk Trustee, the Facility Agent or any other party under the ASEAN Green SRI Sukuk Programme for the Issuer to exercise the option to increase the limit of the ASEAN Green SRI Sukuk Programme from time to time. 1.3.2 Tenure of Programme/ Sukuk Tenure of the ASEAN Green SRI Sukuk Programme The tenure of the ASEAN Green SRI Sukuk Programme is up to twenty (20) years from the date of first issuance of the ASEAN Green SRI Sukuk under the ASEAN Green SRI Sukuk Programme, provided that the first issuance of the ASEAN Green SRI Sukuk under the ASEAN Green SRI Sukuk Programme shall be made within 60 business days from the date of the lodgement of the lodgement kit to the SC. Tenure of the ASEAN Green SRI Sukuk Each tranche of the ASEAN Green SRI Sukuk shall have a tenure of at least one (1) year and up to twenty (20) years from the date of issuance, as the Issuer may select, provided always that the maturity of each tranche of the ASEAN Green SRI Sukuk shall not exceed the tenure of the ASEAN Green SRI Sukuk Programme. 5
  16. 1 .3.3 Purposes of Utilisation The proceeds raised from the issuance of the ASEAN Green SRI Sukuk shall be utilised by the Issuer solely for Shariah-compliant purposes as follows: (a) to fund the acquisitions of Eligible SRI Projects by the Issuer Group which may include an acquisition of a company under which the Eligible SRI Project is being held; (b) to fund the capital expenditure* which includes the construction of Eligible SRI Projects by the Issuer Group; (c) to pre-fund the relevant designated accounts under the Al-Kafalah Facility of the relevant tranche of the ASEAN Green SRI Sukuk, as may be required; (d) to repay/refinance the ASEAN Green SRI Sukuk of the Issuer Group; (e) to finance the Issuer Group’s Shariah-compliant working capital; and/or (f) to pay fees, expenses, costs, and all other amounts payable in relation to the ASEAN Green SRI Sukuk Programme and the Al-Kafalah Facility of the relevant tranche of the ASEAN Green SRI Sukuk. For the avoidance of doubt, (i) the utilisation of the proceeds of the ASEAN Green SRI Sukuk shall at all times be for Shariah-compliant purposes; and (ii) where applicable, each entity within the Issuer Group is intended to hold a specific Eligible SRI Project which would require working capital for its operations etc., and the funding of the acquisition of such entity would form part of the funding of the Eligible SRI Projects. The ASEAN Green SRI Sukuk proceeds which are to be channelled to the Issuer’s subsidiaries will be made via Shariah-compliant mode of financing. * Part of the ASEAN Green SRI Sukuk proceeds from the First Tranche shall be utilised towards the refinancing of a facility obtained for the construction of the Hydropower Plant (as defined under item (aa) in the section entitled “Other terms and conditions” in Section 8 of this Information Memorandum). 1.3.4 Selling Restrictions Selling Restrictions at Issuance The ASEAN Green SRI Sukuk may only be offered or sold, transferred or otherwise disposed of, directly or indirectly to a person to whom an offer or invitation to subscribe to the ASEAN Green SRI Sukuk would fall within Part 1 of Schedule 6 and Part 1 of Schedule 7 of the CMSA read together with Schedule 9 or Section 257(3) of the CMSA, and Section 2(6) of the Companies Act. 6
  17. Selling Restrictions thereafter The ASEAN Green SRI Sukuk may only be offered , sold, transferred or otherwise disposed directly or indirectly to a person to whom an offer or invitation to purchase the ASEAN Green SRI Sukuk would fall within Part 1 of Schedule 6 or Section 229(1)(b) of the CMSA read together with Schedule 9 or Section 257(3) of the CMSA, and Section 2(6) of the Companies Act. In addition, if any offer or sale of the ASEAN Green SRI Sukuk or any distribution of any document or other material in connection therewith is to be conducted in any jurisdiction other than Malaysia, the applicable laws and regulations of such jurisdiction will also have to be complied with prior to any such offer, sale or distribution. 1.3.5 Tradability and Transferablity The ASEAN Green SRI Sukuk is tradable and transferable up to RM200.0 million. 1.3.6 Al-Kafalah Facility from Danajamin The First Tranche of ASEAN Green SRI Sukuk Programme is Danajaminguaranteed. Danajamin is rated both AAA/P1 and AAA/MARC-1 by RAM and MARC, respectively. 1.3.7 Rating The First Tranche of the ASEAN Green SRI Sukuk Programme is not rated but each subsequent issuance after the First Tranche (“Subsequent Tranches”) may be rated and/or unrated as the Issuer may decide prior to the issuance of the relevant tranche of the ASEAN Green SRI Sukuk. In relation to the relevant rated tranche of the ASEAN Green SRI Sukuk, the rating(s) assigned for such ASEAN Green SRI Sukuk shall be disclosed in the issue term sheet of such Subsequent Tranche. Please refer to Section 8 of this Information Memorandum for further details of the ASEAN Green SRI Sukuk Programme. 1.4 ELIGIBLE SRI PROJECT The Hydropower Plant is deemed to be an Eligible SRI Project in accordance with the following: (a) an eligible SRI project pursuant to the LOLA Guidelines under paragraph 7.04(b)(i) (renewable energy and energy efficiency – project relating to new or existing renewable energy (solar, wind, hydro, biomass, geothermal and tidal)); and (b) an eligible Green Project pursuant to the ASEAN GBS under paragraph 4.1.5(i) (renewable energy). 7
  18. 1 .4.1 Impact Objectives The Issuer is committed to contributing to the nation to reduce its dependence on power generated using fossil fuels. Through the use of the energy generated from the Eligible SRI Project, the Issuer’s goal is to conserve the environment by providing an environmentally friendly, clean and sustainable power supply and being part of creating a sustainable world. 1.4.2 Compliance Statement from the Issuer The Issuer hereby confirms that it has complied with the relevant environmental, social and governance standards relating to the Hydropower Plant, which is an Eligible SRI Project, and shall ensure continuing compliance with such governance standards throughout the tenure of the ASEAN Green SRI Sukuk. [The remainder of this page is intentionally left blank] 8
  19. SECTION 2 – CORPORATE INFORMATION OF THE ISSUER 2.1 CORPORATE HISTORY The Issuer was incorporated in Malaysia on 30 August 2018 as a private company limited by shares under the name of Morning Summit Sdn Bhd, with an issued and paid-up capital of RM1.00 comprising one (1) ordinary shares of RM1.00 each. It subsequently changed its name to Pasukhas Green Assets Sdn Bhd on 25 September 2018. As at 12 December 2018, the Issuer does not have any subsidiaries. The Issuer is a wholly-owned subsidiary of PESB and PESB is a wholly-owned subsidiary of Pasukhas Group Berhad. 2.2 PRINCIPAL ACTIVITIES The company is principally an investment company. 2.3 SHARE CAPITAL AND SHAREHOLDING STRUCTURE The issued and paid-up share capital of the Issuer as at 12 December 2018 is as follows: Issued and Paid-Up Share Capital : RM1.00 divided into 1 unit of ordinary share. As at 12 December 2018, the shareholders of Issuer are as follows: Name No. of shares held % of shareholding 1 100 Pasukhas Energy Sdn Bhd (Company No. 11844019-V) 2.4 PROFILE OF DIRECTORS The directors of the Issuer and their respective profiles as at 12 December 2018 are as follows: 2.4.1 Wan Thean Hoe Please refer to Section 3.4.6 of this Information Memorandum entitled “Corporate Information of Pasukhas Group Berhad – Profile of Directors” for the profile of Mr. Wan Thean Hoe. 9
  20. 2 .4.2 Dato’ Teng Yoon Kooi Please refer to Section 3.4.4 of this Information Memorandum entitled “Corporate Information of Pasukhas Group Berhad – Profile of Directors” for the profile of Dato’ Teng Yoon Kooi. [The remainder of this page is intentionally left blank] 10
  21. SECTION 3 – CORPORATE INFORMATION OF PASUKHAS GROUP BERHAD 3.1 CORPORATE HISTORY Pasukhas Group Berhad (Company No. 686389-A) (“PGB”) was incorporated in Malaysia on 29 March 2005 under the Companies Act 1965. PGB is a public company limited by shares. 3.2 PRINCIPAL ACTIVITIES PGB is principally engaged in the business of investment holding and the provision of management services. The principal activities of its subsidiaries are engaged in the following segments: (i) Mechanical & Electrical (“M&E”) Engineering Services; (ii) Civil Engineering and Construction Services; (iii) Manufacturing of Low Voltage (“LV”) Switchboards; (iv) Trading of Equipment and Coal; (v) Renewable Energy and (vi) Property Development and Rental. 3.3 SHARE CAPITAL AND SHAREHOLDING STRUCTURE The issued and paid-up share capital of PGB as at 12 December 2018 is as follows: Issued and Paid-Up Share Capital : RM81,157,313.20 divided into 811,573,132 unit of ordinary share. The substantial shareholders of PGB as at 30 March 2018 are as follows: Direct Interest Names Indirect Interest No. of shares held % of shareholding No. of shares held % of shareholding 188,509,100 23.23 - - Thean - - 188,509,100(1) 23.23 Man - - 188,509,100(1) 23.23 Dato’ Sri Teng Ah Kiong 109,887,200 13.54 19,361,100(2) 2.39 Dato’ Teng Yoon Kooi 19,361,100 2.39 109,887,200(2) 13.54 RHB Nominees (Tempatan) Sdn Bhd OSK Capital Sdn Bhd for Tara Temasek Sdn Bhd Wan Hoe Chan Chung 11
  22. Notes : (i) (ii) 3.4 Deemed interested under Section 8 of the Companies Act by virtue of their shareholdings in Tara Temasek Sdn Bhd. Deemed interested by virtue of his brother’s shareholdings in PGB. PROFILE OF DIRECTORS The directors of PGB and their respective profiles as at 12 December 2018 are as follows: 3.4.1 Dato’ Sri Teng Ah Kiong Dato’ Sri Teng Ah Kiong was appointed to the Board on 19 May 2011 as the Executive Chairman cum Managing Director of PGB. Subsequently, he relinquished his position as the Managing Director on 1 January 2016 and continued to assume the role as the Executive Chairman of PGB. Dato’ Sri Teng completed his secondary school examination in 1971 and accumulated various on-the-job experiences before pursuing a Masters of Business Administration Degree from University of East London, UK, which was completed in 2009. He started his career as an electrician in 1971 with an electrical contracting company based in Butterworth, Penang. In 1977, he joined a sugar mill in Indonesia as the Head of the Electrical Unit where he was responsible for overseeing the maintenance of all electrical equipment and operation of the power house with three (3) electrical engineers and 28 electricians under his supervision. In 1980, he joined a Hong Kong-based turnkey construction company, Kerry Engineering Pte Ltd as the Head of Electrical Division and oversaw the electrical and mechanical installation works projects. In 1985, he co-founded Pasukhas Sdn Bhd (“PSB”), a subsidiary of PGB with his brother, Dato’ Teng Yoon Kooi who is the Executive Director of PGB. Dato’ Sri Teng is responsible for the PGB Group’s strategic operations and business development activities, the overall operations and management of the PGB Group as well as overseeing the sales and marketing functions. He is the brother to Dato’ Teng Yoon Kooi, the Executive Director of PGB. As at 30 March 2018, his direct shareholding in PGB is 13.54%, by virtue of holding 109,887,200 number of shares and his indirect shareholding in the Company is 2.39%, by virtue of his brother Dato’ Teng Yoon Kooi’s holding 19,361,100 number of shares in PGB. 3.4.2 Teoh Kim Hooi Teoh Kim Hooi was appointed to the Board on 8 February 2012 as an Independent Non-Executive Director. He is the Chairman of the Audit and Risk Management Committee and is also a member of the Nomination Committee and the Remuneration Committee. Mr Teoh graduated with a professional certification from the Association of Chartered Certified Accountants (“ACCA”), UK in 1980 and was admitted as an Associate Member of ACCA in 1982. He obtained his Fellowship of ACCA in 1987 and his audit licence from the MOF in 1986. He started his career in auditing as an audit assistant 12
  23. with a medium-sized audit firm from January 1979 to 1980 . Thereafter, he joined a medium-sized audit firm, as a Senior Associate and rose up to the ranks of Audit Manager and also Tax Manager before he commencetd his own practice in 1986. He currently practices under the name of TKH & Partners. He was also actively involved in the business advisory and company secretarial sectors. He is currently a Fellow Member of ACCA, a Licence Auditor and Tax Agent, a member of the Malaysian Institute of Accountants and a Fellow Member of the Chartered Tax Institute of Malaysia. As at 30 March 2018, his direct shareholding in PGB is 0.12% by virtue of his holding of 1,000,000 number of shares in PGB. 3.4.3 Yap Chee Keong Mr Yap Chee Keong was appointed to the Board on 19 August 2013 as an Independent Non-Executive Director. He is the Chairman of the Remuneration Committee and is also a member of the Audit and Risk Management Committee and the Nomination Committee. Mr Yap holds a Bachelor of Arts (First Class Honours) degree in Economics from the University of Leeds, United Kingdom (1978). He is also a Chartered Accountant of the Institute of Chartered Accountants of Scotland (1981). Mr Yap has auditing experience in England from 1978 to 1981. He also has extensive financial experience gained from his career in merchant banking from 1981 to 1997 with Bumiputra Merchant Bankers Berhad. Mr Yap Chee Keong is now a Financial Adviser and Company Director. He had also served as a Director of several other public listed companies. 3.4.4 Dato’ Teng Yoon Kooi Dato’ Teng Yoon Kooi was appointed to the Board on 19 May 2011 and is an Executive Director of PGB. Dato’ Teng completed his secondary school examination in 1974 and holds a Wireman Nil and Chargeman certificate from the Energy Commission of Malaysia. He has over 20 years of working experience in the electrical engineering industry. He began his career as a wireman apprentice in 1976 with Genelite Electric Sdn Bhd. In 1985, he co-founded PGB, a subsidiary of the Company with his brother, Dato’ Sri Teng Ah Kiong who is the Executive Chairman of the Company and since then, has been responsible for the execution of all the site projects for water treatment plants, palm oil mills and other industrial projects in the M&E engineering services industry. He is also a director of PSB. Dato’ Teng is responsible for overseeing the overall operations of the M&E engineering services division, the strategic planning and the overall management of M&E engineering projects, and the marketing and business development activities. He is the brother to Dato’ Sri Teng Ah Kiong, the Executive Chairman of PGB. As at 30 March 2018, his direct shareholding in PGB is 2.39%, by virtue of holding 19,361,100 number of shares and his indirect shareholding in PGB is 13.54%, by virtue of his brother, Dato’ Sri Teng Ah Kiong’s holding of 109,887,200 number of shares in PGB. 3.4.5 Chan Man Chung 13
  24. Chan Man Chung was appointed to the Board on 24 November 2015 as a NonIndependent Non-Executive Director . He completed his secondary school education in 1984 and has more than 20 years of experiences in Business Development and Strategic Planning. Mr Chan started his early career in 1988 as a Marketing Executive with Elken Malaysia, overseeing in marketing and sales of cosmetics products. In 1990, he was placed in charge of Hong Kong Branch for MBTS Group as General Manager, overseeing operation and business development activity. He briefly joined CNI Malaysia in 1992, a company focusing on health care product as Marketing Executive. In 1993, he joined Fulli-Strong as General Manager based in Indonesia. Four years later in 1997, he joined DXN Malaysia as Marketing Director, overseeing and developing oversea market in Asia particularly Indonesia, Philippines, Thailand, India and Australia. He also assisted in the listing exercise of DXN in Bursa Malaysia. In 2006, he left and pursue his interest in Property Development and became a shareholder of PT Panca Tunggal Sapta and PT Panca Pilar Mas Indonesia. Mr Chan has deemed interest in the Company by virtue of him being the ultimate beneficial owner of Tara Temasek Sdn Bhd, the substantial shareholder of the Company. As at 30 March 2018, his indirect shareholding in the Company is 23.23%, by virtue of Tara Temasek Sdn Bhd’s holding of 188,509,100 number of shares in PGB. 3.4.6 Wan Thean Hoe Mr Wan Thean Hoe was appointed to the Board on 4 November 2015 as an Executive Director and subsequently, he was re-designated as the Chief Executive Officer of the Company on 4 December 2015. Mr Wan is a member of the Malaysian Institute of Accountants and an associate member of The Chartered Insitute of Management Accountants. He started as an account executive in Maju Associate Sdn Bhd in 1993 before joining Tan Chong Motor Assemblies Sdn Bhd as an Accountant in 1995. Mr Wan subsequently joined DXN Holdings Bhd as the Group Financial Controller in 1998. In 2000, he joined Yunque Automotive (China) Co Ltd and Jiang Yin Cheng Chang Auto Parts (China) Co Ltd as Deputy General Manager. After came back from China, he joined Toptrans Engineering Group as Group Financial Controller in 2010 and started off Tara Temasek Sdn Bhd and Clean Tech Waste Solutions Sdn Bhd after he left Toptrans. Mr Wan has extensive knowledge in corporate finance, business planning and development. He has deemed interest in PGB by virtue of him being the ultimate beneficial owner of Tara Temasek Sdn Bhd, a substantial shareholder of PGB. As at 30 March 2018, his indirect shareholding in PGB is 23.23%, by virtue of Tara Temasek Sdn Bhd’s holding of 188,509,100 number of shares in PGB. 3.4.7 Norkamaliah Binti Hashim Puan Norkamaliah Binti Hashim was appointed to the Board on 5 July 2017 as an Independent Non-Executive Director. She is the Chairperson of Nomination 14
  25. Committee and is also a member of Audit and Risk Management Committee and the Remuneration Committee . She holds a Bachelor in Estate Management from Mara University of Technology, Shah Alam, Selangor. Puan Norkamaliah has more than 23 years of working experience in various companies specialized in real estate valuation, property management, plant and machinery valuation, land acquisition claims, feasibility studies, estate agency services as well as investment analysis. Currently she is a property consultant with TransAsia Property Consultancy Sdn Bhd. 3.5 SENIOR MANAGEMENT The details of the senior management of PGB are as follows: 3.5.1 Lim Ee Vone Ms Lim Ee Vone was appointed on 16 November 2015 as Chief Financial Controller of PGB. Ms Lim has more than 15 years of experience in corporate finance and accounting. She is a member of The Malaysian Institute of Accountants and Certified Practising Accountant of CPA Australia since 2007. She started her career in auditing as an Audit Associate in KPMG in 2003. Thereafter she joined Pricewaterhousecoopers in 2004 before joining ENV Water Engineering (M) Sdn Bhd in year 2007 as Account Manager cum Personal Assistant to Executive Director. She then joined Toptrans Engineering Sdn Bhd as Group Accountant overseeing Group Corporate Finance and Treasury matters from 2009 until 2015. Subsequently she joined Ahmad Zaki Resources Berhad as Senior Manager in Group Reporting, responsible for the Company write-up and presentation to Board of Director and external parties. She has extensive finance and accounting knowledge in the M&E industry. She does not have any family relationship with any Director and/or major shareholder of PGB, has no conflict of interest with PGB and has not been convicted of any offences within the past 5 years other than traffic offences, if any. There were no sanctions and/or penalties imposed on her by any relevant regulatory bodies, which were material and made public during the financial year ended 31 December 2017. [The remainder of this page is intentionally left blank] 15
  26. 3 .6 FINANCIAL HIGHLIGHTS The financial highlights of PGB for the last two (2) FYE and the unaudited financial statements for the financial period ended 30 September 2018 are as follows: Description RM’000 Audited FYE 2016 Audited FYE 2017 Group Company Group Company Group Revenue 60,385 40,207 36,859 20,880 83,231 Profit/(Loss) After Tax (5,926) (1,845) 724 (1,008) (2,518) 2,943 601 2,330 734 4,553 Total Assets 126,098 45,606 173,541 89,444 182,311 Total Equity 41,047 37,960 88,167 82,180 85,648 Borrowings 13,583 - 24,973 - 40,577 Cash and Bank Balances Unaudited Financial Period Ended 30 September 2018 Note: The figures above are truncated to the nearest thousand. 3.7 COMMENTARIES ON THE PGB GROUP’S FINANCIAL PERFORMANCE The PGB Group’s revenue recorded a decrease from RM60.385 million in FYE 2016 to RM36.859 million in FYE 2017. This was mainly attributable to decrease in activities of ongoing projects for local Civil Engineering and Construction services and M&E Engineering services projects. The PGB Group’s revenue was derived solely from Malaysia. Despite the lower revenue recorded, the PGB Group made a significant turnaround from loss after taxation of RM5.927 million in FYE 2016 to profit after taxation of RM0.725 million in FYE 2017. The improvement of the financial performance was mainly attributable to improvement in the gross operating profit from RM5.156 million in FYE 2016 to RM8.677 million in FYE 2017 due to better management of the project cost. For FYE 2017, the Civil Engineering & Construction Services segment was the largest contributor to the PGB Group revenue representing 56.65% (or RM20.880 million) of its revenue. The M&E Engineering Services segment continues to contribute to the PGB Group with revenue of RM6.965 million or 18.90% of the PGB 16
  27. Group revenue . The remaining revenues are contributed from the Manufacturing of LV Switchboards, Renewable Energy and Property Development and Rental segments of the PGB Group. The PGB Group recorded a profit before taxation of RM1.419 million for FYE 2017. This showed a significant improvement of RM8.132 million or 121.14% as compared to the previous financial year’s loss before taxation of RM6.713 million. The substantial increase was mainly attributed to the improvement of the gross operating profit. [The remainder of this page is intentionally left blank] 17
  28. SECTION 4 – CORPORATE INFORMATION OF I.S. ENERGY SDN BHD 4.1 CORPORATE HISTORY I.S. Energy Sdn Bhd (Company No. 612985-D) (“ISE”) was incorporated in Malaysia on 23 April 2003 as a private company limited by shares under the Companies Act 1965. 4.2 PRINCIPAL ACTIVITIES ISE’s principal activities mainly involve the design, construction and management of the mini hydro power plant and other related works. As at 12 December 2018, ISE does not have any subsidiaries. 4.3 SHARE CAPITAL AND SHAREHOLDING STRUCTURE The issued and paid-up share capital of ISE as at 12 December 2018 is as follows: Issued and Paid-Up Share Capital : RM4,000,000.00 divided into 4,000,000 unit of ordinary share. As at 12 December 2018, the shareholders of ISE are as follows: Name No. of shares held % of shareholding 4,000,000 100 Pasukhas Energy Sdn Bhd (Company No. 11844019-V) 4.4 PROFILE OF DIRECTORS The directors of ISE and their respective profiles as at 12 December 2018 are as follows: 4.4.1 Wan Thean Hoe Please refer to Section 3.4.6 of this Information Memorandum entitled “Corporate Information of Pasukhas Group Berhad – Profile of Directors” for the profile of Mr. Wan Thean Hoe. 4.4.2 Lim Ee Vone Please refer to Section 3.5.1 of this Information Memorandum entitled “Corporate Information of Pasukhas Group Berhad – Profile of Directors” for the profile of Ms. Lim Ee Vone. 18
  29. 4 .5 FINANCIAL HIGHLIGHTS The financial highlights of ISE for the last two (2) FYE and the unaudited financial statements for the financial period ended 30 September 2018 are as follows: Description RM’000 Audited FYE 2016 Audited FYE 2017 Unaudited Financial Period Ended 30 September 2018 3,828 4,303 2,692 (15) 367 (427) 16 23 85 Total Assets 28,187 26,544 25,384 Total Equity (165) 201 (225) Borrowings 12,128 - - Revenue Profit/ (Loss) After Tax Cash and Bank Balances Note: The figures above are truncated to the nearest thousand. [The remainder of this page is intentionally left blank] 19
  30. SECTION 5 – CORPORATE INFORMATION OF THE KAFALAH PROVIDER 5.1 BRIEF HISTORY AND BACKGROUND INFORMATION OF DANAJAMIN Danajamin is Malaysia’s first and only Financial Guarantee Insurer. Established in May 2009 under the Insurance (Financial Guarantee Insurance) Regulation 2001 that falls within the ambit of the Financial Services Act 2013, regulated and supervised by BNM. Danajamin’s role is to be a financial guarantor and a catalyst to stimulate and further develop the Malaysian bond/sukuk market. Danajamin provides financial guarantee insurance for bonds and sukuk issuances to viable Malaysian companies to enable access to the PDS market. Danajamin’s financial guarantee is a form of credit enhancement, and with it, the bonds/sukuk will be automatically upgraded to AAA(fg), the highest rating accorded to bonds/sukuk. Issuers will be more assured of a successful bonds/sukuk issuance with the improved rating. Investors, on the other hand, will have an opportunity to invest in AAA-rated papers that are guaranteed by Danajamin. Investors also have the assurance that Danajamin will pay the coupon/profit and principal on behalf of the issuer, should the issuer fail to do so. Danajamin’s key objectives are: • to provide financial guarantee to enable financially viable companies access to the PDS market to obtain financing with emphasis on long-term financing. • to catalyse the further development of the domestic PDS market as an alternative source of financing to complement the banking industry. • to stimulate economic growth by improving access to capital for Malaysian companies. Danajamin aims to: • facilitate a wider range of credit-worthy companies to raise capital via the bond/sukuk market. • encourage smaller/non-traditional issuers to raise capital via the bond/sukuk market. • provide availability of long-term capital for a wider range of companies. Danajamin is rated both AAA/P1 and AAA/MARC-1 by RAM and MARC, respectively. 5.2 SHAREHOLDING STRUCTURE Danajamin is jointly owned by MOF Incorporated (50%) and Credit Guarantee Corporation Malaysia Berhad (50%). Credit Guarantee Corporation Malaysia Berhad is a financial institution majority owned by BNM. 20
  31. 5 .3 FINANCIAL HIGHLIGHTS The financial highlights of Danajamin for the last three (3) FYE and the unaudited financial statements for the financial period ended 30 June 2018 are as follows:Description RM’000 Gross earned premiums Profit Before Tax Net Profit for the financial year/period Total Assets Total Liabilities Shareholders’ Equity Audited FYE 2015 Audited FYE 2016 Audited FYE 2017 90,516 98,214 93,110 119,314 125,514 114,188 119,314 125,514 114,188 2,003,988 544,186 1,459,802 2,094,185 518,753 1,575,432 2,737,501 1,057,332 1,680,169 Note: The figures above are truncated to the nearest thousand. [The remainder of this page is intentionally left blank] 21 Unaudited Financial Period Ended 30 June 2018 47,727 57,631 57,631 2,662,802 939,017 1,723,785
  32. SECTION 6 – PROJECT INFORMATION 6.1 BACKGROUND INFORMATION The government is intensifying the development of renewable energy, as the ‘fifth fuel’ resource under the country’s Fuel Diversification Policy. The policy, which was set out in 2001, had a target of renewable energy providing 5% of electricity generation by 2005 which is equal to between 500 and 600 MW of electricity generation installed capacity at that time. As the initiatives were not very successful, the government then launched the Green Technology Policy and Initiatives in July 2009. The policy was later strengthen by the introduction of Renewable Energy Act 2011 (Act 725) and establishment of Sustainable Energy Development Authority of Malaysia (SEDA) which continues the previous policy where electricity generated from the renewable resources such as biomass, waste, small hydro and solar can be connected to Tenaga Nasional Berhad (“TNB”) electricity distribution network but not under a willing seller-willing buyer arrangement but to sell electricity to TNB through the Feed-in-Tariff (FiT) arrangement. The Renewable Energy Act 2011 encourages the connection of small renewable power generation plants to the distribution network with up to 30 MW of installed capacity and sells the electricity generated to TNB, under a 21-year license agreement. The Renewable Energy Act 2011 also reinforces fiscal incentives such as investment tax allowances and pre-determined FiT structure which provides favourable return on investment as compared to the electricity selling tariff prior to the introduction of the FiT. Based on the RE act and quota, power generation in total capacity of 490MW has been targeted for small hydro power development by 2020. Under the above initiatives, ISE obtained SEDA Feed-in Approval for the 3.2MW installed capacity Sg Rek Powerplant in February 2012 and subsequently signed the Renewable Energy Power Purchase Agreement in November 2012. The Project for the development and construction of the 2.8 MW Mini Hydro Power Plant under the Small Renewable Energy Power Programme at Sg. Rek Kelantan were completed at the end of 2013 and came to Commercial Operation Date in January 2013. 6.2 SITE The Hydropower Plant is located in a secluded, mountainous area (approximately 500 meter above sea level) in the uninhabited upper reaches of Sungai Rek which is a tributary of Sungai Kelantan, in the Olak Jeram, Kuala Krai District, Kelantan, and is surrounded by a forest reserve that acts as a rainfall-catchment area. Unlike a conventional hydro-powered facility, the Plant’s “run-off river” small-hydro system does not require the construction of a dam. Instead, water is diverted from a certain height upstream at 500 meter above sea level (“asl”) and then channelled downwards via a 1,000mm diameter penstock which is 2,300 meter in length connecting the diversion structure and the power house, thus creating pressure that spins the 22
  33. turbines to produce electrical energy at the power house at 220 meter asl . The Hydropower Plant employs 2 units of Pelton turbines with unit capacity of 1.6MW, which have been designed to have a 30-year life span. The Hydropower Plant started commercial operations on 1 July 2012. 6.3 PLANT, PROCESS AND TECHNOLOGY 6.3.1 Headwork, Intake, desander and forebay A hydro system must extract water from the river in a reliable and controllable way. The water flowing in the channel must be regulated during high river flow and low flow conditions. A weir can be used to raise the water level and ensure a constant supply to the intake. In the case of Sg Rek, the headwork consists of reinforced concrete broad crested weir anchored to rock with total weir length of 52m, width of 4m, average depth of 3m and with spillway length of 32m. 23
  34. A controlled spillway has mechanical structures or gates to regulate the rate of flow . This design allows nearly the full height of the dam to be used for water storage yearround, and flood waters can be released as required by opening one or more gates. Sluice gates at both sides of weir An uncontrolled spillway, in contrast, does not have gates; when the water rises above the lip or crest of the spillway it begins to be released from the reservoir. The rate of discharge is controlled only by the depth of water above the reservoir's spillway. Weir overflow spillway and intake inlet An intake can be defined as a structure that diverts water from river or other water course to a conveyance system downstream of the intake. Side intake and bottom intake are the common types of river intakes that are used in small hydropower schemes. The water drawn from the river and fed to the turbine will usually carry a suspension of small particles. This sediment will be composed of hard abrasive materials such as sand which can cause expensive damage and rapid wear to turbine runners. To remove this material the water flow must be slowed down in settling basins so that the silt particles will settle on the basin floor. The deposit formed is then periodically flushed away. 24
  35. From the size of the smallest particle allowed into the penstock the maximum speed of the water in the settling basin can be calculated as the slower the water flows the lower the carrying capacity of the water for particles . The water speed in the settling basin can be slowed down by increasing the cross-section area of the channel. For each maximum size of the particles the optimum size of the settling tank can be calculated. The sediments which settle in the settling basin are flushed vertically through the opening into the flushing channel and back to the river. The flushing water volume is therefore kept to a minimum. Desander/settling basin and forebay The forebay tank forms the connection between the settling basin and the penstock. The main purpose is to allow the last particles to settle down before the water enters the penstock. Depending on its size it can also serve as a reservoir to store water. A sluice will make it possible to close the entrance to the penstock. In front of the penstock a trashrack is installed to prevent large particles to enter the penstock. A spillway is supposed to complete the forebay tank. 6.3.2 Conveyance System The water configuration for Sg Rek project is direct penstock system. Typical direct penstock arrangement as per Sg Rek 25
  36. The penstock is the pipe which conveys water under pressure from the forebay tank to the turbine . The penstock internal diameter is 1000mm and it is made from spiral steel pipe of differing thickness and coated both inside and outside. Part of the section of the penstock is buried underground and part laid on concrete support above ground. The penstock is routed next to the access road from the powerhouse to the intake. The penstock branched out into two before the powerhouse into inlet pipe to the turbine. The size of the inlet pipe is 500mm and sluice valve is installed on each pipe. 6.3.3 Power Stations (a) Civil Works and Buildings The powerhouse in hydropower plant is divided into three areas: the main powerhouse structure, housing the generating units and having combined generator and turbine room, erection bay and service areas. The other two areas are the control room and switchgear room. 26
  37. (b) Electro-mechanical Equipment:(i) Turbine The Pelton wheel is an impulse type water turbine, extracting energy from the impulse of the moving water. The water is directed with high speed through nozzles against the buckets, arranged around the circumferential rim of a drive wheel – the runner. The shaft design can be either in horizontal position in combination with one or two nozzles per runner, or in vertical position with up to six nozzles per runner. Two unit of hortizontal pelton turbines with unit capacity of 1.6MW were installed, giving the total installed capacity of 3.2MW. The turbine is of impulse type and consists of two nozzles. Two nozzles horizontal pelton turbine (ii) Governor The turbine governor is the essential part of the hydraulic power unit for efficient conversion of hydraulic energy to electric energy. The oil hydraulic power unit (HPU) packages including sump tank, pumps, control and main relay valves, filters, monitoring devices, and pressure accumulators. Special hydraulic features needed for the turbine control - like pump control blocks, failsafe function on main relay valves, special shape of control edges on main relay valves, etc. is provided in order to guarantee maximum reliability and safety. 27
  38. Governor control HPU HPU and emergency shutdown valve (iii) Generator A generator is a mechanical device which converts mechanical energy to electrical energy by electromagnetic induction - it "generates" (or creates) electricity. Generators may be driven by a broad range of sources or prime movers and in this case hydro turbine. Each turbine is couple to a synchronous generator. The generator is rated at 2000kV, generating voltage of 3.3kV, 3-phase, Frequency 50Hz and speed of 750rpm. 28
  39. Turbine assembly and turbine bucket (iv) Transformer The generator transformer is the first essential component for energy transmission, allowing energy supplied by the generator to be transferred to the network at the required voltage. For the plant, each generator has its’ own dedicated transformer. The transformer is rated at 2000kV, Low voltage of 3.3kV- High voltage 11kV, 3phase and frequency 50Hz. It is an oil cooled type ONAN type. Outdoor transformer and nameplate (v) Switchgear and Control Systems In an electric power system, switchgear is the combination of electrical disconnect switches, fuses or circuit breakers used to control, protect and isolate electrical equipment. Switchgear is used both to de-energize equipment to allow work to be done and to clear faults downstream. 29
  40. Control Room Hydroelectric Plant control , protection and automation equipment allow proper, often unmanned, operation of plants. Plant Control Systems (PCS) provide reliable, attended or unattended plant operation, and complete monitoring and control capabilities for new and refurbished hydroelectric plants. The system provides proven and costeffective controls for all facets of generation and switchyard operation, including voltage control, VAR control, generator start/stop, synchronization, and multi-generator load control with optimization. Water-related controls include pond level, tailrace level, minimum flow, headgate position, spillway level and fish ladder control. 30
  41. (c) Transmission and Interconnection Facilities:(i) Switchyard The switch yard consists of 2 sets of transformer, local transformer, standby generating set and Transmission line Start Gantry. Switchyard (ii) Transmission line & Interconnection. The transmission line consists of Aerial Bundle Cable strung on spun concrete poles routed along the access road leading to the Powerhouse for a distance of 9km. The interconnection is done at TNB Substation at Kg Jenekih at PE Chatel Baru. 31
  42. (d) Other plant facilities, tools and spares Spare runner Tools and consumables Overhead travelling crane (e) VSAT Communication System Tailrace Tailrace is drainage channel for discharge water from the turbine. One turbine has one tailrace when then the water is discharge back to the river. 32
  43. SECTION 7 – SUMMARY OF THE RENEWABLE ENERGY POWER PURCHASE AGREEMENT (“REPPA”) 7.1 Overview The REPPA is not related to any Eligible SRI Projects other than the Hydropower Plant as defined in the other terms and condition of the PTC and the First Tranche. In respect of defined terms in this Section 7 only, where the same is not defined elsewhere in this Information Memorandum, the defined terms have the meaning ascribed to them in the REPPA. A renewable energy power purchase agreement was entered into between Tenaga Nasional Berhad (Company No. 200866-W) (“TNB” or “Distribution Licensee”) and ISE (“Feed-in Approval Holder”) on 7 November 2012. The Feed-in Approval Holder has been granted a Feed-in approval dated 15 February 2012 (“Feed-in Approval”) by the Sustainable Energy Development Authority Malaysia (hereinafter referred to as the “Authority”) pursuant to the Renewable Energy Act 2011 (hereinafter referred to as the “Act”). The key terms and conditions of the REPPA are as follows:7.1.1 Term This Agreement shall take effect on the Effective Date and continue in effect throughout the effective period, 21 years commencing from Scheduled Feed-in Tariff Commencement Date, 1 July 2012, ending 30 June 2033 as specified in the Feed-in Approval, unless earlier terminated in accordance with the provisions of this Agreement. (“Effective Date” means 1 July 2012). 7.1.2 Sale and Purchase Obligations ISE shall sell and deliver, and TNB shall purchase and accept, on and after, the Scheduled Feed-in Tariff Commencement Date and for the Term: (a) the Metered Renewable Energy delivered by the Hydropower Plant at the agreed fixed rate for the Declared Annual Availability; (b) Excess energy delivered by the Hydropower Plant in excess of the Declared Annual Availability at the mutually agreed price from time to time with TNB; and (c) Excess energy delivered by the Hydropower Plant in excess of the Maximum Metered Renewable Energy at the mutually agreed price agreed by both parties and approved by the Authority. 33
  44. The REPPA provides exceptions where TNB is excused from accepting energy generated by ISE . The exceptions are: (a) Occurrence of emergency conditions; (b) situations when TNB conducts maintenance of the transmission lines and distribution facilities; (c) situations where in the reasonable opinion of TNB, the energy produced by the Hydropower Plant does not correspond to the specifications as specified in the REPPA; and (d) Occurence of force majeure events Other than the exceptions above, if TNB fails or refuses to accept renewable energy delivered from the Hydropower Plant due to reasons not attributable to ISE, ISE shall be entitled to compensation payments by TNB. 7.1.3 Operation and Maintenance ISE is to operate the Hydropower Plant in accordance with the operating and maintenance standards recommended by the equipment suppliers, prudent utility practices, the performance standards and operational guidelines set out in the REPPA, and the operating procedures described in the REPPA. 7.1.4 Force Majeure Event and Termination The Force Majeure Event shall mean an event, condition, or circumstance or its effect which: (a) is beyond the reasonable control of and occurs without fault or negligence on the part of the Party claiming it as a Force Majeure Event; and (b) causes a delay or disruption in the performance of any obligation under this Agreement despite all reasonable efforts of the Party claiming it as a Force Majeure Event to prevent it or mitigate its effects. Subject to satisfying the foregoing criteria, Force Majeure Events include without limitation, the following: (i) strikes or lockouts and/or other work stoppages or industrial action (other than those solely affecting the Party claiming the same as a Force Majeure Event); (ii) acts of public enemies or terrorists or acts of war, whether or not war is declared, acts of force by a foreign nation or embargo; (iii) public disorders, demonstrations; (iv) explosions, fire, earthquakes, landslides, subsidence, sabotage, and/or other natural calamities and acts of God; insurrection, 34 rebellion, sabotage, riots or violent
  45. (v) unusually severe weather conditions; (vi) expropriation or compulsory acquisition by any Government Entity; (vii) failure to obtain or renew any Governmental Authorisations; and (viii) any force Majeure Event affecting the performance of any Person that is a party to the EPC Contract, Water Rights Agreement or other contract between the Feed-in Approval Holder and such Person relating to the construction, operation or maintenance of the Renewable Energy Installation or the construction of the Interconnection Facilities. In the event that either Party is rendered unable by reason of a Force Majeure Event in effect after the Effective Date to perform, wholly or in part, any obligation set forth in this REPPA, then upon such Party’s giving notice and full particulars of the Force Majeure Event, those obligations of that Party shall be suspended or excused to the extent their performance is affected by such Force Majeure Event. Notwithstanding to the above, if a Force Majeure Event results in the revocation of the Feed-in Approval due to the failure by the ISE to meet its minimum performance threshold as stipulated in such Feed-in Approval, the REPPA shall automatically terminate upon the date specified in a notice from the Authority to the Parties confirming such revocation. 7.1.5 Event of Default and Termination The Event of Default, include the following: (a) either party shall fail to make payments for undisputed amounts due under this REPPA to another Party within 60 days after receipt of written notice of such non-payment; (b) ISE’s Authorisation shall have been revoked or terminated, and (i) all applicable appeal periods shall have expired, or (ii) a final decision on the appeal confirming such suspension, revocation or termination shall have been issued; (c) either party shall fail to comply with any of its other material obligations under this REPPA, and such failure shall continue un-remedied for 90 days after notice thereof by another Party, provided that if such failure cannot be remedied within such period of 90 days with the exercise of reasonable diligence, then such remedy period shall be extended for an additional period of 90 days so long as such failure is susceptible to remedy, and such Party is exercising reasonable diligence to remedy such failure; (d) ISE Abandons the Project and fails to resume activities within a period of time determined by the Authority; (e) (i) either Party becomes insolvent or suspends payment of its debts generally or is unable to pay its debts as they fall due; (ii) a receiver, receiver and manager, administrator, liquidator, provisional liquidator, trustee, custodian or similar officer is validly appointed (other than one appointed by the Financiers) over all or a 35
  46. material part of the undertakings , property or assets of any Party or a security holder lawfully takes possession (and does not relinquish possession within 30 days) of the whole or a material part of the undertakings, property or assets of any Party or distress or any other form of execution is levied, enforced or adjudged against or upon any such assets and is not discharged within 30 days of being levied, enforced or adjudged; (iii) an order is made or a resolution passed for the liquidation, windingup or dissolution of any Party, save for a members voluntary liquidation solely for the purpose of a solvent reconstruction or amalgamation, or a petition is presented for the winding up of a Party (which petition is not withdrawn or stayed or contested in good faith within 60 days); or (iv) any Party enters into a general assignment, arrangement or compositions with or for the benefit of its creditors pursuant to section 176 of the Companies Act 1965. In the situation where an Event of Default occurs and is continuing, the nondefaulting Party may, in addition to any rights described in specific clauses of the REPPA, terminate the REPPA by giving 14 days written notice, to the defaulting Party. As at the date of the Information Memorandum, no Event of Default has occurred which is continuing. If TNB terminates this REPPA as a result of an Event of Default by ISE, TNB shall have the option but not the obligation, exercisable by notice in writing to ISE and the Authority within 60 days of the termination of this REPPA, to purchase the Project in the manner and for the purchase price determined by the agreed formula of REPPA. In the event the option is exercised, ISE shall sell the Project (including the Feed-in Approval) to TNB. If ISE terminates this REPPA as a result of an Event of Default by TNB, ISE shall have the option but not the obligation, exercisable by notice in writing to TNB and the Authority within 60 days of the termination of this REPPA, to sell the Project to TNB for the purchase price determined by the agreed formula of REPPA. In the event the option is exercised, TNB shall purchase the Project (including the Feed-in Approval) from ISE. The ISE shall ensure that the Financing Parties acknowledge and are bound by TNB’s rights as set out in this REPPA. 7.1.6 Transfers and assignment The REPPA shall be binding upon, and shall incur for the benefit of the Parties and their respective successors and permitted assigns. Neither this REPPA, nor any of the rights or obligations hereunder, may be assigned, transferred or delegated by ISE without the express prior written consent of Authority. TNB has provided upfront consent for ISE to assign its rights and/or obligations under this REPPA to the Financing Parties and their successors and assigns as may be required for financing and refinancing purposes which include making payments to a collateral security account established under the Financing Documents. 36
  47. In the event of a default , TNB will accept a substitute for ISE under this REPPA, the agent for the Financing Parties, any assignee or transferee of such agent or any purchaser of ISE or the Project upon a foreclosure sale conducted on behalf of the Financing Parties of ISE's interest in the Project or of the issued share capital of ISE and afford the Financing Parties an opportunity to remedy any Event of Default by ISE within the relevant remedy period hereunder before terminating this REPPA. 7.1.7 Governing law This Agreement shall be governed by and construed in accordance with, the laws of Malaysia and the exclusive jurisdiction of the courts of Malaysia. 7.1.8 Definitions In this Section 7 of the Information Memorandum, the following words shall have the following meanings Abandons means the failure by the Feed-in Approval Holder, after the feed-in tariff commencement date, to operate the Renewable Energy Installation for a continuous period of more than three (3) months unless: (a) the Distribution Licensee is in breach of a material obligation under this Agreement: (b) the Renewable Energy Installation was during such period the subject of repair, rehabilitation or repowering; or (c) the Feed-in Approval Holder is excused from doing so pursuant to the provisions of Clause 7.1.16 of REPPA. Authority Event of Default Metered Renewable Energy Term Declared Annual Availability mean Sustainable Energy Development Authority Malaysia means the occurrence of any of the events described in Clause 7.1.22 of REPPA means the renewable energy generated and delivered from the Renewable Energy Installation and metered by the Distribution Licensee at the Connection Point on and after the feed-in tariff commencement date means the period of this Agreement taking effect on 1 July 2012 and continues in effect throughout the effective period as specified in the Feed-in Approval unless earlier terminated in accordance with the provisions of this Agreement means the annual quantity (in MWh) of renewable energy to be generated by the Renewable Energy Installation (in MWh) tor each year during the Term as set out in the Feed-in Approval 37
  48. Maximum Metered Renewable Energy EPC Contract Governmental Authorisations Person Parties / Party Water Rights Agreement Project Financing Parties Financing Documents Scheduled Feed-in Tariff Commencement Date means the quantity (In MWh) of Metered Renewable Energy equivalent to 110% of the Declared Annual Availability of the applicable Contract Year means all contracts to be entered into by the Feed-in Approval Holder and the EPC Contractor in connection with the design, engineering, procurement, construction, installation, testing and commissioning of the Renewable Energy Installation, the Interconnection Facilities and the Communication Facilities means any authorisation, consent, licence, concession, permit, waiver, privilege, exemption and/or approval from, or filing with, or notice to any Government Entity means any individual, corporation, partnership, joint venture, trust, unincorporated organisation or Government Entity The Distribution Licensee and the Feed-in Approval Holder are hereinafter collectively referred to as the 'Parties": and the term "Party" refers to either one of them, as the context may require means the contract(s) to be entered into by the Feed-in Approval Holder and the relevant Government Entity(ies)) governing the rights of the Feed-in Approval Holder to abstract, extract and/or utilise raw water for the operation of the Renewable Energy Installation means the development, design, financing, insurance, procurement, construction, installation, testing, commissioning, ownership, operation, management and maintenance of line Renewable Energy Installation, the Interconnection Facilities and the Communication Facilities including ancillary buildings and associated activities related to this project, and any modification thereof means the Persons providing financing or refinancing to the Feed-in Approval Holder for the Project and includes an agent or trustee or a bond issue means the loan agreements (including agreements for any subordinated debt), notes, bonds, indenture, guarantees, security agreements and any other documents relating to the financing or refinancing and security arrangements of the Project which have been or are to be entered into by the Feed-in Approval Holder means the scheduled feed-in commencement date, 1 July 2012, for the Renewable Energy Installation as set out in the Feed-in Approval 38
  49. SECTION 8 – PRINCIPAL TERMS AND CONDITIONS OF THE ASEAN GREEN SRI SUKUK PROGRAMME The information set out in this section is qualified in its entirety by, and must be read in conjunction with the further detailed information appearing elsewhere in this Information Memorandum. Words and expressions used and defined in this section shall, in the event of an inconsistency with the definitions section of this Information Memorandum, only be applicable for this section. Details of the ASEAN Green SRI Sukuk Programme (1) Name of facility/ : An Islamic Medium Term Note (“ASEAN Green SRI Sukuk”) programme Programme of RM200.0 Million in Nominal Value Under the Shariah Principle of Wakalah Bi Al-Istithmar Together With Murabahah (via Tawarruq Arrangement) (“ASEAN Green SRI Sukuk Programme”) (2) One-time issue or programme : Programme (3) Shariah principles (for sukuk) : 1. Wakalah bi al-Istithmar 2. Murabahah (via Tawarruq arrangement) (4) Facility description (for ringgitdenominated sukuk, to provide description as cleared by the SC) : Pursuant to the ASEAN Green SRI Sukuk Programme, the Issuer may from time to time issue ASEAN Green SRI Sukuk so long as the aggregate nominal value of outstanding ASEAN Green SRI Sukuk shall not exceed the programme size of RM200 million at any one time. The ASEAN Green SRI Sukuk, which adopts the ASEAN GBS (as defined under item (r) in the section entitled “Other terms and conditions”), will be issued based on the Shariah principle of Wakalah Bi Al-Istithmar together with Murabahah (via Tawarruq arrangement) in the following form: Underlying Transaction 1. Pursuant to a wakalah agreement (“Wakalah Agreement”) entered into between the Sukuk Trustee (acting on behalf of the holders of the ASEAN Green SRI Sukuk (“Sukukholders”)) and Pasukhas Green Assets Sdn Bhd (formerly known as Morning Summit Sdn Bhd) (“PGA” or the “Issuer”), the Sukuk Trustee (acting on behalf of the Sukukholders) shall appoint PGA to act as its agent (“Investment Wakeel”) to invest the proceeds from the issuance of the ASEAN Green SRI Sukuk (“Sukuk Proceeds”) in the Wakalah Investments (as defined below), in accordance with the terms of the Wakalah Agreement. 39
  50. 2 . PGA (as the Issuer) shall issue the ASEAN Green SRI Sukuk and the Sukukholders shall subscribe to the ASEAN Green SRI Sukuk by paying the Sukuk Proceeds. PGA (as the Investment Wakeel), shall declare a trust over the Sukuk Proceeds and over the Wakalah Investments acquired using the Sukuk Proceeds. The ASEAN Green SRI Sukuk shall represent the Sukukholders’ undivided and proportionate beneficial interest in the Trust Assets (as defined below). The “Trust Assets” shall comprise (i) the Sukuk Proceeds, (ii) the Wakalah Investments and (iii) the rights, title, interests, entitlements and benefits in, to and under the Transaction Documents (as defined under item (dd) in the section entitled “Other terms and conditions” below) in connection with the ASEAN Green SRI Sukuk. The Investment Wakeel shall invest the Sukuk Proceeds received from the Sukukholders into the relevant investment portfolio which shall comprise: (a) Shariah-compliant general business of the Issuer Group (as defined under item (bb) in the section entitled “Other terms and conditions”) (“Shariah-compliant Business”); and (b) Commodities (as defined below) purchased and sold under the Shariah principle of Murabahah (via Tawarruq arrangement) (“Commodity Murabahah Investment”). The investment described in (a) and (b) above shall collectively be referred to as the “Wakalah Investments”. The Shariah-compliant Business would be those in relation to the relevant Eligible SRI Projects (as defined under item (u) in the section entitled “Other terms and conditions” below), as each subsidiary of the Issuer is intended to hold a specific Eligible SRI Project under it. There is no substitution of the Shariah-compliant Business as each tranche of the ASEAN Green SRI Sukuk is in relation to specific identified Eligible SRI Projects. “Commodities” shall mean Shariah-compliant commodities, which shall include but not limited to crude palm oil or such other acceptable commodities (excluding ribawi items in the category of medium of exchange such as currency, gold and silver) which are provided through the commodity trading platform, Bursa Suq Al-Sila’ and/or such other trading platforms acceptable to the Shariah Adviser. 40
  51. 3 . Pursuant to an investment agreement between PGA (as the Issuer), PGA (as Investment Wakeel) and the Sukuk Trustee, the Investment Wakeel shall invest part of the Sukuk Proceeds into the Shariah-compliant Business. The value of the Wakalah Investments in respect of the Shariah-compliant Business shall be at least 33% of the aggregate value of the Wakalah Investments. For the avoidance of doubt, the above ratio of at least 33% of the value of the Wakalah Investments in respect of the Shariah-compliant Business is only applicable at the point of initial investment pursuant to each issuance of the ASEAN Green SRI Sukuk, subject to the valuation principles set out in the Wakalah Agreement, and does not need to be maintained throughout the tenure of the ASEAN Green SRI Sukuk. However, the Investment Wakeel shall ensure that the Shariah-compliant Business shall at all times be a component of the Wakalah Investments. 4. The remaining balance of the Sukuk Proceeds shall be invested into the Commodity Murabahah Investment. The Commodity Murabahah Investment shall be effected as follows: (a) Pursuant to a commodity murabahah investment agreement between PGA (as Buyer), PGA (as Investment Wakeel) and the Facility Agent (“Commodity Murabahah Investment Agreement”), PGA as the buyer (“Buyer”) shall issue a purchase order (“Purchase Order”) to the Investment Wakeel, the Facility Agent (as Purchase Agent) and the Sukuk Trustee (all acting on behalf of the Sukukholders) with an undertaking to purchase the Commodities from the Sukukholders at the Deferred Sale Price (as defined below); (b) Pursuant to the Purchase Order, the Investment Wakeel (on behalf of the Sukukholders), through the Facility Agent (as Purchase Agent), will purchase (via the commodity trading participant (“CTP”)) the Commodities on spot basis from the commodity broker(s) at Bursa Suq Al-Sila’ and/or other independent commodity broker(s) acceptable to the Shariah Adviser (“Commodity Supplier”) at a purchase price equivalent to the remaining balance of the Sukuk Proceeds in excess of the amount invested in the Shariahcompliant Business (“Commodity Purchase Price”). The Commodity Purchase Price shall be in line with the asset pricing requirements 41
  52. stipulated under the Guidelines on Unlisted Capital Market Products under the Lodge and Launch Framework issued by the Securities Commission Malaysia (“SC”) on 9 March 2015, effective on 15 June 2015 and revised on 11 October 2018 and as amended from time to time (“LOLA Guidelines”). The appointment of the Purchase Agent and the purchase of the Commodities are pursuant to a facility agency agreement between the Sukuk Trustee, Investment Wakeel and the Facility Agent (“Facility Agency Agreement”), the Commodity Murabahah Investment Agreement and a CTP purchase agreement between the Purchase Agent and the CTP; (c) Upon acquiring the Commodities, the Investment Wakeel (on behalf of the Sukukholders), through the Facility Agent (as Sub-investment Wakeel), will thereafter sell those Commodities to the Buyer for a price equivalent to the Commodity Purchase Price plus the applicable profit margin which shall be payable on deferred payment basis (“Deferred Sale Price”). For the avoidance of doubt, the Deferred Sale Price shall be equal to the aggregate of the Expected Periodic Distribution Amount (as defined under item (w) in the section entitled “Other terms and conditions” below), if any, and the nominal value of the ASEAN Green SRI Sukuk. The appointment of the Subinvestment Wakeel and the sale of the Commodities to the Buyer are pursuant to the Facility Agency Agreement, the Commodity Murabahah Investment Agreement and a sale and purchase agreement between the Subinvestment Wakeel and the Buyer; (d) Upon the purchase of the Commodities, the Buyer through the Facility Agent (as Selling Agent), will immediately sell (via the CTP) the Commodities to the commodity broker(s) at Bursa Suq Al-Sila’ and/or other independent commodity broker(s) other than the Commodity Supplier (“Commodity Buyer”) on spot basis for cash, at a selling price equivalent to the Commodity Purchase Price (“Selling Price”). The appointment of the Selling Agent and the sale of the Commodities to the Commodity Buyer are pursuant to a CTP sale agreement between the Buyer, the Selling Agent and the CTP. 42
  53. 5 . In respect of the ASEAN Green SRI Sukuk with Periodic Distributions (as defined below), the returns generated from the Wakalah Investments up to (i) the Expected Periodic Distribution Amount (in the case of ASEAN Green SRI Sukuk issued with Periodic Distribution on fixed rate); or (ii) the actual Periodic Distribution amount based on the Effective Profit Rate (as defined under item (d) in the section entitled “Other terms and conditions”) (in the case of ASEAN Green SRI Sukuk issued with Periodic Distribution on floating rate), shall be distributed periodically in the form of periodic distributions (“Periodic Distributions”, and each a “Periodic Distribution”). In respect of the ASEAN Green SRI Sukuk without Periodic Distributions, the returns generated from the relevant Wakalah Investments shall be payable on the Scheduled Dissolution Date (as defined under item (cc) in the section entitled “Other terms and conditions” below) or on the Dissolution Declaration Date (as defined under item (s) in the section entitled “Other terms and conditions” below) or on the Voluntary Early Redemption Date (as defined under item (ee) in the section entitled “Other terms and conditions” below) (if applicable), whichever is earlier. On (i) each date of the Periodic Distribution; (ii) the Scheduled Dissolution Date; or (iii) the Dissolution Declaration Date, as the case may be, any returns from the Wakalah Investments in excess of the Expected Periodic Distribution Amount distributable and/or the Dissolution Distribution Amount (as defined under item (t) in the section entitled “Other terms and conditions”) due and payable under the ASEAN Green SRI Sukuk shall be retained by the Investment Wakeel as an incentive fee for its services as the Investment Wakeel in managing the Wakalah Investments under the Wakalah Agreement. 6. PGA as the obligor (“Obligor”) shall grant a purchase undertaking (“Purchase Undertaking”) to the Sukuk Trustee (for the benefit of the Sukukholders), whereby on a Scheduled Dissolution Date or the Dissolution Declaration Date, whichever is the earlier, the Obligor shall purchase the Shariah-compliant Business at the Exercise Price (as defined under item (v) in the section entitled “Other terms and conditions”) by entering into a sale agreement. The Sukuk Trustee (acting on behalf of the Sukukholders) shall issue a sale undertaking (“Sale Undertaking”) in favour of the Issuer under which the Sukuk Trustee shall sell the Shariah-compliant Business to the Issuer at the Exercise Price by 43
  54. entering into a sale agreement upon the Voluntary Early Redemption (as defined under the section entitled “Provisions on early redemption, if applicable”). 7. The proceeds of the Wakalah Investments including the Exercise Price, the Deferred Sale Price and any returns generated shall be utilised to redeem the ASEAN Green SRI Sukuk at the Dissolution Distribution Amount on the Scheduled Dissolution Date or the Dissolution Declaration Date or the relevant Redemption Amount (as defined under the section entitled “Provisions on early redemption, if applicable”) on the Voluntary Early Redemption Date (if applicable), as the case may be. Any excess in respect of the proceeds of the Wakalah Investments thereof shall be retained by the Investment Wakeel as incentive fee. Upon full payment of all amounts due and payable under the ASEAN Green SRI Sukuk, the relevant trust in respect of the Trust Assets will be dissolved and the relevant ASEAN Green SRI Sukuk held by the Sukukholders will be cancelled. 8. Pursuant to the Al-Kafalah Facility (as defined under item (q) in the section entitled “Other terms and conditions”), the Kafalah Provider(s) (as defined under the section entitled “Details of guarantee, if applicable“) shall provide an unconditional and irrevocable guarantee under the Shariah principle of Kafalah, as a continuing obligation, in favour of the Sukuk Trustee for and on behalf of the Sukukholders under which the Kafalah Provider(s) shall agree to guarantee the Issuer’s payment obligation under the relevant tranche of the ASEAN Green SRI Sukuk (except payment obligation on Ta’widh (compensation) (as defined under the section entitled “Ta’widh (for ringgit-denominated sukuk)”) and other charges in relation to the ASEAN Green SRI Sukuk). The Kafalah will be issued once for each guarantee commitment of the Kafalah Provider(s) in respect of a tranche of ASEAN Green SRI Sukuk. For the avoidance of doubt, the Al-Kafalah Facility is intended to be a separate arrangement from the ASEAN Green SRI Sukuk wherein a separate financing agreement will be entered into between the Issuer and the Kafalah Provider(s). (5) Currency : Ringgit (6) Expected facility/ programme size : Up to MYR 200,000,000.00 44
  55. (7) Option to upsize : Yes (for programme) Additional Notes: The Issuer shall have the option to upsize the limit of the ASEAN Green SRI Sukuk Programme at any time provided that: (i) the relevant requirements under the LOLA Guidelines in relation to such upsizing has been complied with (which include, the Issuer to ensure that any exercise to upsize the ASEAN Green SRI Programme limit does not unfairly discriminate or is otherwise prejudicial to existing Sukukholders); and (ii) all relevant regulatory approvals have been obtained (if applicable). For avoidance of doubt, the Sukukholders shall be deemed to have consented to such upsizing of the limit of the ASEAN Green SRI Sukuk Programme (via the Trust Deed) from time to time. Accordingly, no consent will be required from the Sukukholders, the Lead Arranger, the Sukuk Trustee, the Facility Agent or any other party under the ASEAN Green SRI Sukuk Programme for the Issuer to exercise the option to increase the limit of the ASEAN Green SRI Sukuk Programme from time to time. (8) Tenure facility/ programme of : 20 year(s) (9) Availability period for debt/ sukuk programme : The ASEAN Green SRI Sukuk Programme is available for issuance at any time upon completion of documentation and compliance of all conditions precedent and other applicable conditions to the satisfaction of the Lead Arranger (unless otherwise waived or deferred by the Lead Arranger) and ending on the expiry of the ASEAN Green SRI Sukuk Programme or the date on which the ASEAN Green SRI Sukuk Programme is terminated, whichever is earlier, provided that the first issuance of the ASEAN Green SRI Sukuk under the ASEAN Green SRI Sukuk Programme shall be made within sixty (60) business days from the date of lodgement of this Lodgement Form with the SC. (10) Clearing and settlement platform : Payments Network Malaysia Sdn Bhd (“PayNet”) (11) Mode of issue : Private/direct placement Bought deal 45
  56. (12) Selling restrictions : (i) (ii) At issuance: Part 1 of Schedule 6 of the Capital Markets & Services Act, 2007 (“CMSA”) Part 1 of Schedule 7 of the CMSA Read together with Schedule 9 of CMSA Section 2(6) of the Companies Act 2016 After issuance: Part 1 of Schedule 6 of the CMSA Read together with Schedule 9 of CMSA Section 2(6) of the Companies Act 2016 Additional Notes: Selling Restrictions at issuance: The ASEAN Green SRI Sukuk may only be offered or sold, transferred or otherwise disposed of, directly or indirectly to a person to whom an offer or invitation to subscribe to the ASEAN Green SRI Sukuk would fall within Part 1 of Schedule 6 and Part 1 of Schedule 7 of the CMSA read together with Schedule 9 or Section 257(3) of the CMSA, and Section 2(6) of the Companies Act 2016, as amended or replaced from time to time (“Companies Act 2016”). Selling Restrictions thereafter: The ASEAN Green SRI Sukuk may only be offered, sold, transferred or otherwise disposed directly or indirectly to a person to whom an offer or invitation to purchase the ASEAN Green SRI Sukuk would fall within Part 1 of Schedule 6 or Section 229(1)(b) of the CMSA read together with Schedule 9 or Section 257(3) of the CMSA, and Section 2(6) of the Companies Act 2016. In addition, if any offer or sale of the ASEAN Green SRI Sukuk or any distribution of any document or other material in connection therewith is to be conducted in any jurisdiction other than Malaysia, the applicable laws and regulations of such jurisdiction will also have to be complied with prior to any such offer, sale or distribution. (13) Tradability and transferability : Size in Ringgit which are tradable and transferable: MYR 200,000,000.00 Size in Ringgit which are non-tradable and non-transferable: Not applicable (14) Secured/ combination of unsecured and secured, if applicable : Unsecured 46
  57. (15) Details of guarantee, if applicable : Each tranche of the ASEAN Green SRI Sukuk shall be guaranteed by a Kafalah Provider. The Kafalah Provider(s) shall provide an unconditional and irrevocable guarantee under the principle of Al-Kafalah (“Kafalah”) in favour of the Sukuk Trustee for and on behalf of the Sukukholders under which such Kafalah Provider shall guarantee the relevant tranche of the ASEAN Green SRI Sukuk. The first tranche of ASEAN Green SRI Sukuk of RM17 million in nominal value (“First Tranche”) together with one (1) profit payment obligation shall be guaranteed by Danajamin via a Kafalah (“First Tranche Kafalah”, as defined under item (x) in the section entitled “Other terms and conditions”). “Kafalah Provider” means either: (a) Danajamin; or (b) (i) Danajamin and other financial institution(s); (ii) Danajamin and other financial guarantee insurer(s); or (iii) Danajamin, other financial institution(s) and other financial guarantee insurer(s), where each of the financial institution(s) and financial guarantee insurer(s) shall be those which are regulated and supervised by BNM under the Islamic Financial Services Act 2013. (16) Convertibility of issuance and details of the convertibility : Non-convertible (17) : Non-exchangeable Exchangeability of issuance and details of the exchangeability (18) Call option and details, if applicable : No call option (19) Put option and details, if applicable : No put option 47
  58. (20) Details of covenants : Positive Covenants To include but not limited to the following: (i) the Issuer shall, and shall cause and procure that the Issuer Group shall, maintain in full force and effect all relevant authorisations, consents, rights, licences, approvals and permits (governmental and otherwise) and will, as soon as reasonably practicable, obtain any further authorisations, consents, rights, licences, approvals and permits (governmental and otherwise) which is or may become necessary to enable the Issuer or the Issuer Group to own its assets and carry on its business or to enable the Issuer or the Issuer Group to enter into or perform its obligations under the Transaction Documents or to ensure the legality, validity, enforceability, admissibility in evidence of the obligations of the Issuer, or the rights of the Sukukholders, the Sukuk Trustee and the Lead Arranger under the Transaction Documents and the Issuer shall comply with the same; (ii) the Issuer shall at all times on written demand, execute and cause and procure the execution of all such further documents and do all such further acts reasonably necessary at any time or times to give effect to the terms and conditions in the Transaction Documents; (iii) the Issuer shall, and shall cause and procure that the Issuer Group shall, exercise reasonable diligence in carrying out its business and affairs in a proper and efficient manner; (iv) the Issuer shall, and shall cause and procure that the Issuer Group shall, keep proper books and accounts at all times and provide the Sukuk Trustee and any person appointed by the Sukuk Trustee access to such books and accounts to the extent permitted by law, regulations, rules and orders; (v) the Issuer shall promptly perform and carry out all its obligations under all the Transaction Documents (including but not limited to redeem the ASEAN Green SRI Sukuk on the relevant Scheduled Dissolution Date(s) or any other date on which the ASEAN Green SRI Sukuk are due and payable) and the Issuer shall immediately notify the Facility Agent and the Sukuk Trustee in the event that the Issuer is unable to fulfil or comply with any of the provisions of the Transaction Documents; 48
  59. (vi) the Issuer shall, and shall cause and procure that the Issuer Group shall, prepare its audited financial statements on a basis consistently applied in accordance with the approved accounting standards in Malaysia and those audited financial statements shall give a true and fair view of the results of the financial position and operations of the Issuer and the Issuer Group for the period to which the audited financial statements are made up and audited and certified by qualified auditors appointed by the Issuer and the Issuer Group; (vii) the Issuer shall, and shall cause and procure that the Issuer Group, shall maintain such takaful/insurances in respect of its respective assets and business against all risks which a prudent company carrying a similar business to that of the Issuer or the Issuer Group would normally insure; (viii) the Issuer shall maintain a paying agent or its equivalent, who is based in Malaysia at all times; (ix) the Issuer shall procure that the Paying Agent shall notify the Sukuk Trustee, through the Facility Agent, if the Paying Agent does not receive payment from the Issuer on the due dates as required under the Transaction Documents and the terms and conditions of the ASEAN Green SRI Sukuk; (x) the Issuer shall, and shall cause and procure that the Issuer Group shall, file all relevant tax returns and pay all taxes promptly upon the same becoming due except to the extent that the taxes are being contested in good faith and by appropriate means and an adequate reserve has been set aside with respect thereto; (xi) the Issuer shall ensure that all shareholders' advances and/or other forms of equity contribution shall be subordinated to the ASEAN Green SRI Sukuk; (xii) the Issuer shall comply with all applicable provisions of the CMSA and/or the notes, circulars, conditions or guidelines issued or published by the SC and other regulatory agencies from time to time in respect of the ASEAN Green SRI Sukuk Programme; and (xiii) such other covenants as may be advised by the Solicitors and mutually agreed between the Lead Arranger and the Issuer. 49
  60. Negative covenants Save and except with the prior written consent of the Sukuk Trustee (acting on the instructions of the Sukukholders): (i) the Issuer shall not and shall cause and procure that the Issuer Group shall not permit any amendment, supplement or variation to its respective Memorandum or Articles of Association/ constitutional documents in a manner which may be materially prejudicial to the interests of the Sukukholders; (ii) the Issuer shall not and shall cause and procure that the Issuer Group shall not create or permit to exist any encumbrance, mortgage, charge (whether fixed or floating), pledge, lien, assignment by way of security or other security interest of any kind or any agreement to create any of the foregoing (collectively “Security Interest”) over all or any part of its assets other than pursuant to the Transaction Documents and the AlKafalah Facility; (iii) the Issuer shall not and shall cause and procure that the Issuer Group shall not dispose any of its assets, where such disposal will have a Material Adverse Effect (as defined herein), save and except for: (a) disposals which are solely for purposes of facilitating Shariah concepts used in Islamic financing facilities granted to the Issuer; (b) disposals in the ordinary course of business which are on ordinary commercial terms and on arm’s length basis; (iv) the Issuer shall not reduce or in any way whatsoever alter (except by way of an increase), its authorised or paid-up share capital, whether by varying the amount, structure or value thereof or the rights attached thereto or by converting any of its share capital into stock, or by consolidating, dividing or sub-dividing all or any of its shares; (v) the Issuer shall not declare or pay any dividends to its shareholders if a Dissolution Event (as defined under the section entitled “Events of default or enforcement events, where applicable, including recourse available to investors”) has occurred and is continuing or if following such payment, distribution or declaration, a Dissolution Event would occur; (vi) the Issuer shall not and shall cause and procure that the Issuer Group shall not lend any money or advance to any person other than: (a) to the Issuer's directors, 50
  61. officers or employees as part of their terms of employment , (b) to contract counterparties pursuant to contracts entered into in the ordinary course of business, (c) to its subsidiaries; and (d) to the Issuer by its subsidiaries; (vii) the Issuer shall not and shall cause and procure that the Issuer Group shall not substantially change its principal activities or operations in such a manner which will result or potentially result in a Material Adverse Effect; (viii) the Issuer shall not and shall cause and procure that the Issuer Group shall not cancel, surrender, abandon or otherwise amend related licenses or grants in any way which has a Material Adverse Effect unless imposed by any applicable legislation or authorities; (ix) the Issuer shall not and shall cause and procure that the Issuer Group shall not enter into any amalgamation, demerger, reconstruction or winding up of the Issuer or any of its subsidiaries in such a manner which will result or potentially result in a Material Adverse Effect; (x) the Issuer shall not enter into any agreement or transaction, whether directly or indirectly, with interested persons (including a director of the Issuer, a major shareholder of the Issuer or persons connected with a director or a major shareholder of the Issuer and the chief executive officer of the Issuer), unless: (a) such transaction is 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 (b) in respect of a transaction involving an aggregate payment or value equal to or greater than Ringgit Malaysia Twenty Million (RM20,000,000.00), the Issuer obtains certification from an independent adviser that the transaction is carried out on fair and reasonable terms; provided that the Issuer shall certify to the Sukuk Trustee: (i) that the transaction complies with item (a) above; (ii) that the Issuer has received the certification referred to in item (b) above (where applicable); and (iii) the transaction has been approved by the majority of the Issuer’s board of 51
  62. directors or shareholders in a general meeting , as the case may require; (xi) the Issuer shall not change the utilisation of proceeds from the ASEAN Green SRI Sukuk Programme where the Transaction Documents set out a specific purpose for which proceeds are to be utilised; and such other covenants as may be advised by the Solicitors and mutually agreed between the Lead Arranger and the Issuer. Financial Covenants The Issuer Group shall maintain a Consolidated Gearing Ratio of not more than 2.5 times throughout the tenure of the ASEAN Green SRI Sukuk Programme. Consolidated Gearing Ratio is defined as consolidated Financings of Issuer Group (including the total amounts outstanding under the ASEAN Green SRI Sukuk Programme) divided by the Equity Commitment (as defined below). “Financings” is defined as all on-balance sheet outstanding borrowings of the Issuer Group, including the ASEAN Green SRI Sukuk, and all on-balance sheet exposures including but not limited to derivatives financial instruments (if any). “Equity Commitment” shall mean ordinary shares, preference equity, all unsubordinated and subordinated shareholders’ advances/loans, capital reserve, revaluation reserve and all other proceeds which have been capitalized. Information Covenants To include but are not limited to the following:(i) the Issuer shall provide to the Sukuk Trustee on an annual basis, a certificate signed by any two (2) authorised signatories of the Issuer confirming that it has observed, complied with and performed all its covenants and obligations under the Transaction Documents and the terms and conditions of the ASEAN Green SRI Sukuk and that there did not exist or had not existed, from the date the ASEAN Green SRI Sukuk were first issued or the date of the previous certificate, as the case may be, any Dissolution Event, and if such is not the case, to specify the same; (ii) the Issuer shall deliver to the Sukuk Trustee the following: (a) as soon as they become available (and in any event within one hundred and eighty (180) days after the end of each of its financial years) copies of its annual financial statements for that 52
  63. year , which shall contain the income statements and balance sheets of the Issuer, company level and / or consolidated level, where applicable, and which are audited and certified without any qualification by external auditors appointed by the Issuer; (b) as soon as they become available and upon request (and in any event within ninety (90) days after the end of the first half of its financial year) copies of its unaudited half yearly financial statements, company level and/ or consolidated level, where applicable, for that period, which shall contain the income statements and balance sheets of the Issuer which are duly certified by any one (1) of its authorised signatories; (c) promptly, to the extent permitted by applicable laws, regulations, rules and orders, such additional financial or other information as the Sukuk Trustee may from time to time reasonably request, and also, such information as the Sukuk Trustee may require in order for the Sukuk Trustee to discharge its duties and obligations as Sukuk Trustee under the Transaction Documents; (d) promptly, to the extent permitted by applicable laws, regulations, rules and orders, all notices or other documents received by the Issuer from any of its shareholders or its creditors and a copy of all documents dispatched by the Issuer to its shareholders (or any class of them) in their capacity as shareholders or its creditors generally at the same time as these documents are dispatched to these shareholders or creditors; (iii) the Issuer shall permit the accounts, reports, notices, statements or circulars as provided by the Issuer to the Sukuk Trustee to be circulated by the Sukuk Trustee at its discretion, to the Sukukholders, and the credit rating agency, where applicable; (iv) the Issuer shall notify the Sukuk Trustee in writing immediately in the event that the Issuer becomes aware of:(a) any Dissolution Event or any potential event which, upon the giving of notice and/or lapse of time and/or the issue of a certificate and/or the fulfillment of the relevant requirement as contemplated under the relevant Transaction Documents would constitute a Dissolution Event; 53
  64. (b) (1) any amount payable under the ASEAN Green SRI Sukuk to become immediately payable; (2) the ASEAN Green SRI Sukuk to become immediately enforceable; and (3) any other right or remedy under the terms, provisions or covenants of the ASEAN Green SRI Sukuk or the Trust Deed to become immediately enforceable; (c) any circumstance that has occurred that would materially prejudice the Issuer or the Kafalah Provider; (d) any substantial change in the nature of the business of the Issuer or the Kafalah Provider, if any; of a change in name of the Kafalah Provider, if any; of any cessation of liability of Kafalah Provider for the payment of the whole or part of the monies for which they are liable under the Kafalah; (e) (f) (v) the happening of any event that has caused or could cause, one or more of the following: - (g) (h) any change in withholding tax position; any change in the utilisation of the proceeds from the ASEAN Green SRI Sukuk from that set out in the Transaction Documents which set out a specific purpose for which the proceeds are to be utilised; (i) any litigation or other proceedings of any nature whatsoever being initiated against the Issuer before any court or tribunal or administrative agency which would have a Material Adverse Effect; (j) any change in its board of directors; and (k) any other matter that may materially prejudice the interests of the Sukukholders; provide annual reporting, via newsletters, website updates, annual report and any other communication channels (as the case may be) to the Sukukholders on the following: (a) (b) the original amount earmarked for the Eligible SRI Projects; the amounts utilised for the Eligible SRI Projects; 54
  65. (vi) (c) the unutilised amount and where such unutilised amount is placed or invested pending utilisation; and (d) where feasible and to the extent possible, the impact objectives from the Eligible SRI Projects; and such other covenants as may be advised by the Solicitors and mutually agreed between the Lead Arranger and the Issuer. “Material Adverse Effect” means a material adverse effect on: (a) the Issuer’s ability to perform or comply with any of its obligations under the Transaction Documents; (b) the business or condition (financial or otherwise), operations or prospects of the Issuer Group; or (c) the validity, legality or enforceability of the Transaction Documents or the rights or remedies of the Sukuk Trustee under the relevant Transaction Documents. (21) Details of designated account, if applicable : No designated account (22) Name of credit rating agency, credit rating and amount rated, if applicable : No. 1 Credit rating agency To be determined Credit rating To be determined Final/ indicative rating To be determined Name of Class/Series/ Tranche To be determined Amount rated MYR 0.00 Additional Notes: First Tranche: Not rated. Subsequent Tranches: Each subsequent issuance after the First Tranche (“Subsequent Tranche”) may be rated and/or unrated as the Issuer may decide prior to the issuance of the relevant tranche of the ASEAN Green SRI Sukuk. In relation to the relevant rated tranche of the ASEAN Green SRI Sukuk, the rating(s) assigned for such ASEAN Green SRI Sukuk shall be disclosed in the issue term sheet of such Subsequent Tranche. 55
  66. (23) Conditions precedent : Conditions precedent typical and customary for a transaction of such nature which shall include but not be limited to the following and shall be in the form and substance acceptable to the Lead Arranger: Main Documentation: (i) The relevant Transaction Documents have been duly executed and endorsed as exempted from stamp duty and, where applicable, presented for registration at the relevant registries; The Issuer: (i) Certified true copies of the Certificate of Incorporation and the Memorandum and Articles of Association/constitutional documents of the Issuer; (ii) Certified true copies of the latest Form 24, Form 44 and Form 49 (or their equivalent under the Companies Act 2016) of the Issuer; (iii) Certified true extract of the board of directors’ resolution of the Issuer approving, amongst others, the establishment of the ASEAN Green SRI Sukuk Programme, authorising the issuance of the ASEAN Green SRI Sukuk and the execution of the Transaction Documents; (iv) A list of the authorised signatories and their respective specimen signatures of each of the Issuer’s authorised signatories; (v) A report of the relevant company search results on the Issuer conducted with the Companies Commission of Malaysia (“CCM”); and (vi) A report of the relevant winding up search results on the Issuer conducted with the Department of Insolvency Malaysia which revealed that no winding up order has been made against the Issuer; General: (i) Evidence of the endorsement from the SC’s Shariah Advisory Council (“SAC”) in respect of the ASEAN Green SRI Sukuk Programme; (ii) Evidence that the lodgement kit in respect of the ASEAN Green SRI Sukuk Programme has been lodged with the SC; (iii) All necessary approvals and consents required (including but not limited to the existing lenders/financiers of the Issuer) for the implementation of the ASEAN Green SRI Sukuk Programme (if required) have been obtained and the 56
  67. Issuer is in compliance with all conditions of such approvals and consents ; (iv) Evidence of confirmation from the Shariah Adviser that the structure and mechanism together with the Transaction Documents of the ASEAN Green SRI Sukuk Programme are in compliance with Shariah principles; (v) Evidence that arrangements have been made for the payment of all transaction fees, costs and expenses in connection with the establishment of the ASEAN Green SRI Sukuk Programme; (vi) Receipt of a satisfactory legal opinion by the Solicitors addressed to the Lead Arranger on the legality, validity and enforceability of the Transaction Documents and a confirmation addressed to the Lead Arranger that all the conditions precedent have been fulfilled or otherwise waived by the Lead Arranger as the case may be; (vii) Evidence that the Sukuk Trustees’ Reimbursement Account has been established and the deposit of RM30,000.00 has been made or arrangements have been made for the deposit of RM30,000.00 from the issue proceeds of the First Tranche; and (viii) Such other conditions precedent as may be advised by the Solicitors and mutually agreed between the Lead Arranger and the Issuer; Conditions precedent for each issuance of ASEAN Green SRI Sukuk: (a) (b) A written confirmation from the authorised signatories that: (i) all representations and warranties still remain true and correct in all material respects having regards to the prevailing circumstances; (ii) no Dissolution Event has occurred and is continuing and will occur if the relevant issuance is made; (iii) the issuance or proposed issuance of the ASEAN Green SRI Sukuk will not breach or cause to be breached the terms of each tranche of the ASEAN Green SRI Sukuk; and (iv) all the covenants under the Transaction Documents are complied with; The relevant Transaction Documents in respect of each particular tranche of the ASEAN Green SRI 57
  68. Sukuk have been executed and where applicable , stamped or endorsed as exempted from stamp duty and presented for registration with the relevant registries; (24) Representation and warranties (c) In respect of the First Tranche, receipt of documentary evidence that the Kafalah granted by Danajamin has been issued in the form and substance acceptable to the Lead Arranger; (d) In respect of the Kafalah for the respective tranches of the ASEAN Green SRI Sukuk, all relevant transaction documents in respect of such Kafalah have been duly executed and stamped or endorsed as exempt from stamp duty (as the case may be) and presented for registration; (e) Receipt of a satisfactory legal opinion by the Solicitors addressed to the Lead Arranger on the legality, validity and enforceability of the relevant Transaction Documents; (f) Confirmation from the Shariah Adviser that the structure and mechanism of the ASEAN Green SRI Sukuk and the Transaction Documents which are in compliance with Shariah principles has been obtained; and (g) Such other conditions precedent as advised by the Solicitors and to be agreed with the Issuer. : Representations and warranties typical and customary for a transaction of this nature, including but not limited to the following: (i) the Issuer is a company with limited liability duly incorporated and validly existing under the laws of Malaysia, has full power to carry on its business and to own its properties and assets; (ii) the Issuer’s Memorandum and Articles of Association/ constitutional documents incorporate provisions which authorise, and all necessary corporate and other relevant actions have been taken to authorise, and all relevant consents and approvals of any administrative, governmental or other authority or body in Malaysia have been duly obtained and are in full force and effect which are required to authorise the Issuer to execute and deliver the Transaction Documents in accordance with their terms; (iii) the Transaction Documents will, when executed and/ or issued and/or stamped, as the case may be, constitute legal, valid and binding obligations of the Issuer, where applicable, enforceable in accordance 58
  69. with their respective terms and that there is no law or regulation or any order or decree of any governmental authority , agency or court to which the Issuer is subject which would be in conflict with or prevent the Issuer from executing, delivering and performing the transactions contemplated in each of the Transaction Documents; (iv) neither the execution and delivery of the Transaction Documents, nor the performance of any of the transactions contemplated in the Transaction Documents: (a) contravenes or constitutes a default under any provision contained in any agreement, instrument, law, ordinance, decree, judgment, order, rule, regulation, licence, permit or consent by which the Issuer or any of its assets is bound whereby such default would have a Material Adverse Effect; (b) causes any limitation on the Issuer or the powers of its board of directors, whether imposed by or contained in the Memorandum and Articles of Association / constitutional documents or in any agreement, instrument, law, ordinance, decree, order, rule, regulation or judgment binding on the Issuer (as applicable), to be exceeded; or (c) causes the creation or imposition of any Security Interest or restrictions of any nature on any of its assets save as permitted under the Transaction Documents or the Al-Kafalah Facility Agreement; (v) no authorisation, approval, consent, permit, license, exemption, registration, recording, filing, or notarisation of the Transaction Documents and no payment of any duty or tax which has not been duly and unconditionally obtained, made or taken is necessary to ensure the validity or enforceability of the liabilities and obligations of the Issuer under the Transaction Documents in accordance with their terms; (vi) the Issuer’s audited financial statements are prepared in accordance with approved accounting standards and they give a true and fair view of the Issuer’s financial position and results of operations for the period to which the audited financial statements are made and are audited and certified by qualified auditors appointed by the Issuer; 59
  70. (25) Events of defaults or enforcement events, where applicable, including recourse available to investors (vii) no tax liabilities of any kind are outstanding in payments (save and except for taxes, which are disputed in good faith) and all computations and payments that should be or should have been made to the taxation authority or other relevant authorities have been made within the requisite periods and are up-to-date, correct and made on a proper basis with the taxation authority and other relevant authorities; (viii) no litigation, arbitration or administrative proceeding or claim which might by itself or together with any other such proceedings or claims which would have a Material Adverse Effect, is presently in progress or pending against the Issuer or any of its assets; (ix) the Issuer is not aware of and has no reason to believe any event has occurred which constitutes, or which with the giving of notice and/or lapse of time and/or a relevant determination would likely to constitute, a contravention of, or default under, any agreement or instrument by which the Issuer or any of its assets are bound or affected, being a contravention or default which might have a Material Adverse Effect; (x) after due and careful inquiry, the Issuer has disclosed to the Sukuk Trustee, the Lead Arranger and/or the Facility Agent all information relating to the Issuer and its business which are material in the context of the ASEAN Green SRI Sukuk Programme and the Transaction Documents; (xi) no Dissolution Event has occurred and is continuing or would occur as a result of the issuance of the ASEAN Green SRI Sukuk; and (xii) any other representations and warranties as advised by the Solicitors and mutually agreed between the Lead Arranger and the Issuer. : Events of default typical and customary for a transaction of this nature (“Dissolution Events”), which shall include but not limited to the following: (i) the Issuer fails to pay any amount due from it under any of the Transaction Documents on the due date or, if so payable, on demand; (ii) any representation or warranty made or given by the Issuer under the Transaction Documents or which is contained in any certificate, document or statement furnished at any time pursuant to the terms of the ASEAN Green SRI Sukuk and/or any of the 60
  71. Transaction Documents is or proves to have been incorrect or misleading in any material respect on or as of the date made or given or deemed made or given or if repeated at any time with reference to the facts and circumstances subsisting at such time , would not be accurate or would be misleading which would have a Material Adverse Effect and in the case of a failure which in the opinion of the Sukuk Trustee is capable of being remedied, the Issuer does not remedy such failure within a period of thirty (30) days after the Issuer became aware or having been notified in writing by the Sukuk Trustee of the failure, whichever is earlier; (iii) the Issuer fails to observe or perform its obligations under any of the Transaction Documents or the ASEAN Green SRI Sukuk or under any undertaking or arrangement entered into in connection therewith other than an obligation of the type referred to in subparagraph (i) above, and such failure to observe or perform would have a Material Adverse Effect and in the case of a failure which in the opinion of the Sukuk Trustee is capable of being remedied, the Issuer does not remedy the failure within a period of thirty (30) days after the Issuer became aware or having been notified in writing by the Sukuk Trustee of the failure, whichever is earlier; (iv) there has been a breach by any entity of the Issuer Group of any obligation under its existing or future contractual obligations, which would have a Material Adverse Effect and in the case of a breach which in the opinion of the Sukuk Trustee is capable of being remedied, the relevant entity of Issuer Group does not remedy such breach within a period of thirty (30) days after the Issuer or the relevant entity of Issuer Group became aware or having been notified in writing by the Sukuk Trustee of the breach, whichever is earlier; (v) where any indebtedness for borrowed moneys or guarantee of any entity of the Issuer Group becomes due and payable prior to its stated maturity or is not discharged at maturity or where the security created for such indebtedness for borrowed moneys becomes immediately enforceable; (vi) any judgment, which would have a Material Adverse Effect is not appealed, stayed or complied with within 45 days from the date such judgement is passed, or a creditor attaches or any other process is levied or enforced against any material part of the undertakings, assets, rights or revenues of any entity of the Issuer Group which would have a Material 61
  72. Adverse Effect and is not discharged , withdrawn or set aside within thirty (30) days; (vii) any entity of the Issuer Group fails to obtain, renew, maintain or comply in any material respect with all governmental approvals, licenses, permits and franchises which are necessary for the performance by the Issuer of its obligations under the Transaction Documents and such failure continues for thirty (30) days or more after written notice is delivered to the Issuer; (viii) any step is taken for the winding up, dissolution or liquidation of any entity of the Issuer Group or a resolution is passed for the winding up of any entity of the Issuer Group or a petition for winding up is presented against any entity of the Issuer Group and the relevant entity of the Issuer Group has not taken any action in good faith to oppose or set aside such petition within thirty (30) days from the date of service of such winding up petition or a winding up order has been made against any entity of the Issuer Group; (ix) any entity of the Issuer Group convenes a meeting of its creditors or proposes or makes any arrangement including any scheme of arrangement or composition or begins negotiations with its creditors, or takes any proceedings or other steps, with a view to a rescheduling or deferral of all or any substantial part of its indebtedness or a moratorium is agreed or declared by a court of competent jurisdiction in respect of or affecting all or any substantial part of its indebtedness or any assignment is made for the benefit of its creditors (other than for the purposes of and followed by a reconstruction which has been approved in writing by the Sukuk Trustee, unless during or following such reconstruction the relevant entity becomes or is declared to be insolvent) or where a scheme of arrangement under Section 366 of the Companies Act 2016 has been instituted against any entity of the Issuer Group; (x) any creditor of any entity of the Issuer Group exercises a contractual right to take over the financial management of that particular entity of the Issuer Group and such event would have a Material Adverse Effect; (xi) (a) any entity of the Issuer Group is deemed unable to pay any of its debts (under Section 465(1)(e) of the Companies Act 2016); or (b) any entity of the Issuer Group becomes unable to pay any of its debts as they fall due; or (c) any entity of the Issuer Group suspends or threatens to suspend making payments 62
  73. with respect to all or any of its debts and such event , in each case, would have a Material Adverse Effect, unless in any of the above, the relevant entity is disputing in good faith and taking proper legal steps in respect of the matter; (xii) where there is a revocation, withholding, invalidation or modification of any license, authorisation, approval or consent, which would have a Material Adverse Effect on any entity of the Issuer Group; (xiii) any entity of the Issuer Group changes or threatens to change the nature or scope of a substantial part of its business, or suspends or threatens to suspend or ceases or threatens to cease the operation of a substantial part of its business which it now conducts and such change, suspension or cessation would have a Material Adverse Effect; (xiv) any entity of the Issuer Group repudiates any of the Transaction Documents or any entity of the Issuer Group does or causes to be done any act or thing evidencing an intention to repudiate any of the Transaction Documents; (xv) the whole or a substantial part of the business, property and assets of any entity of the Issuer Group are seized, nationalised, expropriated or compulsorily acquired by or under the authority of any governmental body which would have a Material Adverse Effect; (xvi) any entity of the Issuer Group transfers or disposes of or threatens to transfer or dispose of substantially all of its respective business or assets except otherwise permitted under the ASEAN Green SRI Sukuk Programme; (xvii) at any time any of the provisions of the Transaction Documents in respect of the ASEAN Green SRI Sukuk Programme is or becomes invalid, illegal, void, voidable or unenforceable or ceases to be binding which in the opinion of the Sukuk Trustee may have a Material Adverse Effect; (xviii) any event or events has or have occurred or a situation exists which would have a Material Adverse Effect, and in the case of the occurrence of such event or situation which in the opinion of the Sukuk Trustee is capable of being remedied, the relevant entity of Issuer Group does not remedy it within a period of thirty (30) days after the relevant entity or the Issuer became aware or having been notified in writing by the Sukuk Trustee of the event or situation, 63
  74. whichever is earlier ; (xix) any Kafalah Provider has served a notice on the Sukuk Trustee to require the Sukuk Trustee to make a demand or claim on any of the Kafalah; (xx) any of the following event or events has or have occurred relating to any Kafalah Provider: (a) (b) (c) (d) (e) the Kafalah ceases to be, or is claimed by the Kafalah Provider not to be, in full force and effect; it is or will become unlawful for the Kafalah Provider to perform or comply with any one or more of its obligations under the Kafalah respectively; a resolution being passed or an order of court is made that the Kafalah Provider would be wound up or similar proceedings which are reasonably determined by the Sukuk Trustee to be analogous in effect being instituted or a bona fide petition (which for the avoidance of doubt, excludes vexatious or frivolous petitions) is presented for the winding up or dissolution of the Kafalah Provider by an order of a court of competent jurisdiction unless an application to stay, withdraw or dismiss such petition has been filed by the Kafalah Provider with the relevant authority within thirty (30) days of its presentation and such petition is stayed, withdrawn or dismissed within seventy five (75) days of its presentation; the Kafalah Provider ceases to carry on its business operations as carried out as at the date of the Trust Deed; the Kafalah Provider stops or threatens to stop payment in respect of its obligations generally or any other debenture of or monies borrowed/financing or any guarantee or indemnity given by the Kafalah Provider is not honoured when due and called upon or any indebtedness of the Kafalah Provider for borrowed monies/financing becomes due or payable or capable of being declared due or payable prior to its stated maturity by reason of a default by the Kafalah Provider in its obligations in respect of the same, or the Kafalah Provider fails to make any payment in respect thereof on the due date for such payment or if due on demand when demanded or the security for any such indebtedness becomes enforceable or any 64
  75. (xxi) guarantee or similar obligations of the Kafalah Provider is not discharged at maturity or when called provided that the aggregate amount of the Kafalah Provider’s obligations in respect of which one or more of the events set out herein in this section has occurred equals or exceeds RM100,000,000.00; (f) the Kafalah Provider repudiates the Kafalah or does or causes to be done any act or thing evidencing an intention to repudiate the Kafalah; or (g) the Kafalah Provider is unable to pay its debts within Section 466(1) of the Companies Act 2016 and the Kafalah Provider has not taken any action in good faith to set aside such claims within thirty (30) days from the date of service of such claims for payment; and any other events of default as may be advised by the Solicitors and mutually agreed between the Lead Arranger and the Issuer. In the circumstances where any of the events above occurs in respect of the ASEAN Green SRI Sukuk the Sukuk Trustee may and shall, if instructed by the Sukukholders of the ASEAN Green SRI Sukuk, (i) declare that such Dissolution Event has occurred and all amounts then outstanding on the Deferred Sale Price, subject to the Ibra’ for the ASEAN Green SRI Sukuk are immediately due and payable (ii) exercise the right under the Purchase Undertaking requiring the Issuer to purchase the Shariahcompliant Business at the Exercise Price by entering into a sale agreement and (iii) enforce any other provisions of the Transaction Documents. The Sukuk Trustee will also submit a claim on the Kafalah. For the avoidance of doubt, upon the occurrence of any of the Dissolution Events, the Sukuk Trustee shall without the need to seek further instructions or directions from the Sukukholders, declare that such Dissolution Events have occurred. For the purpose of this paragraph, references to “substantial” shall mean such business, property or assets of the Issuer, the book value of which is more than 10% of the Issuer's net assets, company level or consolidated level, where applicable. For the avoidance of doubt, the book value of the business, property or assets is as reflected in the Issuer’s latest quarterly or yearly audited financial statements or the latest quarterly unaudited financial statements, where applicable. (26) Governing laws : Laws of Malaysia. The Issuer shall unconditionally and irrevocably submit to the non-exclusive jurisdiction of the courts of Malaysia. 65
  76. (27) Provisions on buy-back, if applicable : Redemption on Maturity: Unless previously redeemed or purchased and cancelled, the ASEAN Green SRI Sukuk will be redeemed by the Issuer at 100% of their nominal value on their respective Scheduled Dissolution Date(s). Repurchase and Cancellation: The Issuer or any of its subsidiaries or agents may at any time purchase the ASEAN Green SRI Sukuk at any price in the open market or by private treaty, but these repurchased ASEAN Green SRI Sukuk shall be cancelled and cannot be resold. The ASEAN Green SRI Sukuk purchased by other related corporations (other than its subsidiaries) or any interested person of the Issuer, need not be cancelled but they will not entitle such related corporations or interested person of the Issuer to vote under the terms of the ASEAN Green SRI Sukuk Programme subject to any exceptions in the SC’s Trust Deeds Guidelines revised on 12 July 2011 and effective on 12 August 2011, as may be amended or replaced from time to time. (28) Provisions on early redemption, if applicable : The Issuer may redeem the ASEAN Green SRI Sukuk prior to their maturity by giving the requisite notice period set out in the Transaction Documents at the Redemption Amount (as defined below) (“Voluntary Early Redemption”). "Redemption Amount" shall be the amount equivalent to the Deferred Sale Price at the date of issuance of the ASEAN Green SRI Sukuk less the aggregate of Periodic Distributions payments paid (if any) less Ibra’ (as defined under the section entitled “Ibra (for ringgit-denominated sukuk)” below) (if any). (29) Voting : Voting by the Sukukholders under the ASEAN Green SRI Sukuk Programme shall be carried out as follows: Prior to upsizing of the ASEAN Green SRI Sukuk Programme: All matters (save in relation to the upsizing of the ASEAN Green SRI Sukuk Programme) which require the Sukukholders’ consent under the ASEAN Green SRI Sukuk Programme shall be carried out on a collective basis. Post upsizing of the ASEAN Green SRI Sukuk Programme: All matters which require the Sukukholders’ consent under the ASEAN Green SRI Sukuk Programme shall be carried out on a per series basis. Sukukholders holding a requisite amount under each series (to be determined under the Trust Deed) shall provide their consent for the relevant matters to be passed under the ASEAN Green SRI Sukuk Programme and the consent from the Sukukholders of all outstanding 66
  77. series shall have been obtained for any such resolution to be carried . For the avoidance of doubt and for the purposes of meetings of the Sukukholders, all ASEAN Green SRI Sukuk shall be deemed and considered to be a single class collectively prior to the upsizing of the ASEAN Green SRI Sukuk Programme. Upon the upsizing of the ASEAN Green SRI Sukuk Programme, the ASEAN Green SRI Sukuk with the same issue date shall form a series and voting by the Sukukholders at any meeting shall be on a per series basis. “series” shall mean, in relation to any ASEAN Green SRI Sukuk, such ASEAN Green SRI Sukuk with the same issue date. For the avoidance of doubt and for the purposes of meetings of the Sukukholders, a series shall have the same meaning as a tranche. (30) Permitted investments, if applicable : No permitted investments (31) Ta'widh (for ringgitdenominated sukuk) : In the event of any delays by the Investment Wakeel and/or PGA in the payment of any amounts due and payable to the Sukukholders pursuant to an exercise of the Purchase Undertaking or the Sale Undertaking and/or the Deferred Sale Price, the Investment Wakeel and/or PGA shall pay to the Sukuk Trustee (acting on behalf of the Sukukholder(s)) Ta’widh (compensation) on such delay in payments at the rate and in the manner prescribed by the SAC of the SC from time to time. (32) Ibra’ (for ringgitdenominated sukuk) : An Ibra’, where applicable, shall be granted by the Sukukholder(s). The Sukukholder(s) in subscribing or purchasing the ASEAN Green SRI Sukuk consent to grant Ibra’ on the Deferred Sale Price upon the occurrence of any of the following events: (a) upon the declaration of a Dissolution Event or upon a Voluntary Early Redemption; or (b) in respect of the ASEAN Green SRI Sukuk issued on floating rate basis, if the Effective Profit Rate is lower than the Contracted Profit Rate. In relation to (a) above, the Ibra’ shall be calculated as follows: (i) In relation to ASEAN Green SRI Sukuk issued with Periodic Distributions, in the case of declaration of a Dissolution Event, the Ibra’ shall be the unearned Periodic Distributions and calculated from the date of the declaration of a Dissolution Event up to the ASEAN Green SRI Sukuk’s respective Scheduled Dissolution Date(s). 67
  78. (ii) In relation to ASEAN Green SRI Sukuk issued without Periodic Distributions, in the case of declaration of a Dissolution Event, the Ibra’ shall be the unearned discount amount due to the Sukukholders and calculated from the date of the declaration of a Dissolution Event up to the ASEAN Green SRI Sukuk’s respective Scheduled Dissolution Date(s). (iii) In case of a Voluntary Early Redemption, the Ibra’ (if any) shall be at the discretion of the Sukukholders based on a formula to be mutually agreed by both parties. In relation to (b) above, the Ibra’ shall be the difference between the Periodic Distributions calculated based on the Contracted Profit Rate and the Periodic Distributions calculated based on the Effective Profit Rate. For the avoidance of doubt, Ibra' will be applicable to the Commodity Murabahah Investment portion of the Wakalah Investments, being the Deferred Sale Price only. Further, any double counting shall be disregarded. “Ibra’” means an act of releasing absolutely or conditionally Sukukholders’ rights and claims on any obligation against the Issuer which would result in the latter being discharged of its obligation or liabilities towards the Sukukholders. The release may be either partially or in full. The Ibra’ shall be subject to the requirements stipulated under the LOLA Guidelines. (33) Kafalah (for ringgitdenominated sukuk) : Please refer to the section entitled “Details of guarantee, if applicable”. [The remainder of this page is intentionally left blank] 68
  79. (34) Other Terms and Conditions : (a) Purposes of Utilisation : The proceeds raised from the issuance of the ASEAN Green SRI Sukuk shall be utilised by the Issuer solely for Shariahcompliant purposes as follows: (a) to fund the acquisitions of Eligible SRI Projects by the Issuer Group which may include an acquisition of a company under which the Eligible SRI Project is being held; (b) to fund the capital expenditure* which includes the construction of Eligible SRI Projects by the Issuer Group; (c) to pre-fund the relevant designated accounts under the Al-Kafalah Facility of the relevant tranche of the ASEAN Green SRI Sukuk, as may be required; (d) to repay/refinance the ASEAN Green SRI Sukuk of the Issuer Group; (e) to finance the Issuer Group’s Shariah-compliant working capital; and/or (f) to pay fees, expenses, costs, and all other amounts payable in relation to the ASEAN Green SRI Sukuk Programme and the Al-Kafalah Facility of the relevant tranche of the ASEAN Green SRI Sukuk. For the avoidance of doubt, (i) the utilisation of the proceeds of the ASEAN Green SRI Sukuk shall at all times be for Shariah-compliant purposes; and (ii) where applicable, each entity within the Issuer Group is intended to hold a specific Eligible SRI Project which would require working capital for its operations etc., and the funding of the acquisition of such entity would form part of the funding of the Eligible SRI Project. The ASEAN Green SRI Sukuk proceeds which are to be channelled to the Issuer’s subsidiaries will be made via Shariah-compliant mode of financing. * Part of the ASEAN Green SRI Sukuk proceeds from the First Tranche shall be utilised towards the refinancing of a facility obtained for the construction of the Hydropower Plant (as defined under item (aa) below). (b) Identified Assets/ Trust Assets : The Trust Assets shall comprise (i) the Sukuk Proceeds; (ii) the Wakalah Investments and (iii) the rights, title, interests, entitlements and benefits in, to and under the Transaction Documents in connection with the ASEAN Green SRI Sukuk. The Wakalah Investments comprise the Shariah-compliant Business and the Commodity Murabahah Investment. 69
  80. (c) Purchase and selling price/rental, where applicable – compliance with asset pricing requirements : Commodity Purchase Price: The Commodity Purchase Price shall be determined prior to each issuance of the ASEAN Green SRI Sukuk and shall be an amount equivalent to the remaining balance of the Sukuk Proceeds after the investment in the Shariah-compliant Business in respect of each issuance of the ASEAN Green SRI Sukuk. The Purchase Price of the Commodities shall be in line with the asset pricing requirement stipulated under the LOLA Guidelines. Deferred Sale Price: The Deferred Sale Price shall be determined prior to each issuance of the ASEAN Green SRI Sukuk and shall be an amount equivalent to the aggregate of the Expected Periodic Distribution Amount, if any, and the nominal value of the ASEAN Green SRI Sukuk. (d) Profit/coupon/ rental rate (fixed or floating) : The ASEAN Green SRI Sukuk may be issued at par, at a premium or at a discount. The profit rate, if applicable, shall be on a fixed rate or floating rate basis, and to be determined and agreed prior to each issuance of the ASEAN Green SRI Sukuk. In relation to the ASEAN Green SRI Sukuk where the floating rate is applicable, the Deferred Sale Price shall be calculated on an agreed contracted profit rate (“Contracted Profit Rate”). Notwithstanding the Contracted Profit Rate, the Issuer shall pay profit calculated at the profit rate determined for each period for which such profit is to be paid (“Effective Profit Rate”). For avoidance of doubt, the Effective Profit Rate shall not in any event exceed the Contracted Profit Rate. (e) Profit/coupon/ rental payment frequency : ASEAN Green SRI Sukuk with Periodic Distributions: The Periodic Distributions are payable at semi-annual intervals or such other periodic intervals in arrears to be agreed between the Issuer and the Lead Manager or relevant joint lead manager, if any, prior to the issuance of such ASEAN Green SRI Sukuk. ASEAN Green SRI Sukuk without Periodic Distributions: Not applicable. (f) Profit/coupon/ rental payment basis : ASEAN Green SRI Sukuk with Periodic Distributions: The Periodic Distributions shall be calculated on an actual number of days based on 365-day basis. ASEAN Green SRI Sukuk without Periodic Distributions: Not applicable. (g) Listing status and types of listing, where applicable : The Sukuk will not be listed on the Main Market or ACE Market of Bursa Malaysia Securities Berhad or any other stock exchanges. 70
  81. (h) Sukuk Trustees’ Reimburseme nt Account for Sukukholders’ Actions : The Issuer shall set up or procure the setting up of a profit bearing “Sukuk Trustees’ Reimbursement Account” with a financial institution with a sum of RM30,000.00 to be deposited by the Issuer prior to the first issue date or from the issue proceeds (which shall be maintained at all times throughout the tenure of the ASEAN Green SRI Sukuk Programme). The said account shall be solely operated by the Sukuk Trustee and the money shall only be used strictly by the Sukuk Trustee in carrying out its duties in relation to the occurrence of a Dissolution Event which are to be provided in the relevant Transaction Documents. Any unutilised money in the Sukuk Trustees’ Reimbursement Account shall be returned to the Issuer upon expiry of the ASEAN Green SRI Sukuk Programme. (i) Status and Ranking : The ASEAN Green SRI Sukuk shall constitute direct, unconditional and unsecured obligations of the Issuer and shall at all times rank pari passu, without discrimination, preference or priority amongst themselves and pari passu with all other present and future unsecured and unsubordinated obligations of the Issuer, subject to those preferred by law and the Transaction Documents. (j) Costs and Expenses : All legal fees, stamp duties (if any) and reasonable expenses incurred in connection with the ASEAN Green SRI Sukuk, including professional due diligence fees and fees payable to BNM, SC and the credit rating agency, where applicable shall be for the account of the Issuer. (k) Taxation : All payments by the Issuer shall be made without withholding or deductions for or on account of any present or future tax, duty or charge of whatsoever nature imposed or levied or on behalf of Malaysia or other applicable jurisdictions, or any authority thereof or therein having power to tax, unless such withholding or deduction is required by law, in which event the payer shall be required to make such additional amount so that the payee would receive the full amount which the payee would have received if no such withholding or deductions are made. (l) Form and Denomination : Form: Each issuance of the ASEAN Green SRI Sukuk shall be represented by a global certificate to be deposited with BNM, and is exchanged for definitive bearer form only in certain limited circumstances. The ASEAN Green SRI Sukuk will be prescribed in accordance with (1) the “Participation Rules for Payment and Securities Services” issued by PayNet (“PayNet Rules”) and (2) the Operational Procedures for Securities Services issued by PayNet (“PayNet Procedures”), or their replacement thereof (collectively, “PayNet Rules and Procedures”) applicable from time to time. 71
  82. Denomination : The ASEAN Green SRI Sukuk will be in the denomination of Ringgit Malaysia One Hundred Thousand (RM100,000.00) and in multiples of Ringgit Malaysia One Hundred Thousand (RM100,000.00) thereof or such other denominations as agreed by the Issuer and Facility Agent at the time of issuance provided that such denomination is allowed under the PayNet Rules and Procedures. (m) Jurisdiction : The Issuer shall unconditionally and irrevocably submit to the non-exclusive jurisdiction of the courts of Malaysia. (n) Independent expert for the ASEAN Green SRI Sukuk Programme : The Issuer has engaged RAM Consultancy Services Sdn Bhd (“RAM Consultancy”) as the independent expert for the ASEAN Green SRI Sukuk Programme. RAM Consultancy provides an independent second opinion assessment on the Issuer’s ASEAN Green SRI Sukuk framework against the transparency and disclosure requirements of the following: (1) (2) (3) Sustainable & Responsible Investment (“SRI”) Sukuk Framework under the SC ASEAN GBS under the ASEAN Capital Markets Forum Green Bond Principles under the International Capital Market Association The initial independent second opinion also includes the assessment of the Hydropower Plant as an identified Eligible SRI Project under the Issuer’s ASEAN Green SRI Sukuk framework at this juncture. However, the compliance assessment of future Eligible SRI Projects shall be at the discretion of the Issuer, and would entail a separate engagement with RAM Consultancy, if required, from time to time. (o) Tenure of facility/ programme : ASEAN Green SRI Sukuk Programme: The tenure of the ASEAN Green SRI Sukuk Programme is up to twenty (20) years from the date of first issuance of the ASEAN Green SRI Sukuk under the ASEAN Green SRI Sukuk Programme, provided that the first issuance of the ASEAN Green SRI Sukuk under the ASEAN Green SRI Sukuk Programme shall be made within 60 business days from the date of the lodgement of the lodgement kit to the SC. ASEAN Green SRI Sukuk: Each tranche of the ASEAN Green SRI Sukuk shall have a tenure of at least one (1) year and up to twenty (20) years from the date of issuance, as the Issuer may select, provided always that the maturity of each tranche of the ASEAN Green SRI Sukuk shall not exceed the tenure of the ASEAN Green SRI Sukuk Programme. 72
  83. (p) Other conditions : The ASEAN Green SRI Sukuk shall at all times be governed by the guidelines issued and to be issued from time to time by the SC, BNM and/or PayNet having jurisdiction over matters pertaining to the ASEAN Green SRI Sukuk. Definitions: (q) Al-Kafalah Facility : An Islamic guarantee facility of up to the guaranteed amount to be agreed between the Issuer and the Kafalah Provider(s) for the ASEAN Green SRI Sukuk based on the Shariah principle of Al-Kafalah. (r) ASEAN GBS (s) Dissolution Declaration Date : The date of declaration of a Dissolution Event by the Sukuk Trustee. (t) Dissolution Distribution Amount : On the Scheduled Dissolution Date: The ASEAN Green Bond Standards issued by the ASEAN Capital Markets Forum in November 2017 and revised in October 2018, as may be amended, supplemented and/or substituted from time to time, which shall be read together with GBP (as defined under item (y) below). (i) In the case of ASEAN Green SRI Sukuk issued with Periodic Distributions: The Dissolution Distribution Amount shall be the aggregate of: (ii) (a) the nominal value of the relevant ASEAN Green SRI Sukuk; plus (b) the accrued but unpaid Expected Periodic Distribution Amount (if any), accrued up to the relevant Scheduled Dissolution Date and shall be calculated in accordance with the PayNet Rules and Procedures (as defined under item (l) above). In the case of ASEAN Green SRI Sukuk issued without Periodic Distributions: The Dissolution Distribution Amount shall be equivalent to the nominal value of the ASEAN Green SRI Sukuk. On the Dissolution Declaration Date: (i) In the case of ASEAN Green SRI Sukuk issued with Periodic Distributions: The Dissolution Distribution Amount shall be the aggregate of: (a) the nominal value of the ASEAN Green SRI Sukuk; plus (b) the accrued but unpaid Expected Periodic Distribution Amount (if any), accrued up to the 73
  84. Dissolution Declaration Date and shall be calculated in accordance with the PayNet Rules and Procedures (as defined under item (l) above). (ii) In the case of ASEAN Green SRI Sukuk issued without Periodic Distributions: The Dissolution Distribution Amount shall be equivalent to the nominal value of the ASEAN Green SRI Sukuk. For the avoidance of doubt, any double counting shall be disregarded. The Dissolution Distribution Amount shall be subject to Ibra’ in circumstances described in the paragraph entitled “Ibra’”, where applicable. (u) Eligible SRI Projects : Any projects and/or assets deemed as: (i) an eligible SRI project in all sectors pursuant to paragraphs 7.04(a) and 7.04(b) of Part 3 of Section B of the LOLA Guidelines; and (ii) an eligible Green Project (as defined under item (z) below). (v) Exercise Price : The price for the purchase of the Shariah-compliant Business shall be at the market value or fair value of the Shariahcompliant Business determined based on the valuation principles set out in the Wakalah Agreement, at the relevant Scheduled Dissolution Date, the Dissolution Declaration Date, or the Voluntary Early Redemption Date, as the case may be. (w) Expected Periodic Distribution Amount : Such amount calculated at an agreed fixed rate (in the case of ASEAN Green SRI Sukuk issued with Periodic Distribution on fixed rate) or Contracted Profit Rate (in the case of the ASEAN Green SRI Sukuk issued with Periodic Distribution on floating rate) on the nominal value of the relevant ASEAN Green SRI Sukuk based on the actual number of days elapsed over three hundred and sixty five (365) days or in any event, in accordance with PayNet Rules and Procedures. The fixed rate and the Contracted Profit Rate, as the case may be, shall be determined prior to each issuance of the ASEAN Green SRI Sukuk. (x) First Tranche Kafalah : The Issuer shall enter into an Al-Kafalah Facility with Danajamin whereby Danajamin will issue a Kafalah in favour of the Sukuk Trustee (acting on behalf of the Sukukholder(s)) which shall unconditionally and irrevocably guarantee the First Tranche and one (1) profit payment obligation of the First Tranche. For the avoidance of doubt, the First Tranche Kafalah shall not guarantee the Issuer’s payment obligations on Ta’widh (compensation) and other charges in relation to the ASEAN Green SRI Sukuk Programme. Only one (1) 74
  85. demand is allowed to be made against Danajamin . The First Tranche Kafalah shall have a tenure of up to ten (10) years from the issuance date of the First Tranche together with a claim period of thirty (30) days thereafter. (y) GBP : The “Green Bond Principles” which are voluntary process guidelines issued by the International Capital Markets Association, as revised from time to time, that recommend transparency and disclosure and promote integrity in the development of the green bond market. (z) Green Projects : The broad categories of potential eligible projects as listed in the ASEAN GBS. (aa) Hydropower Plant The hydropower plant located along Sungai Rek in Olak Jeram, District of Kuala Krai, Kelantan with an installed capacity of 3.2MW, which is an Eligible SRI Project pursuant to paragraph 7.04(b)(i) of Part 3 of Section B of the LOLA Guidelines. The Hydropower Plant is currently held by I. S. Energy Sdn Bhd, which will subsequently be a subsidiary of the Issuer pursuant to an internal reorganisation exercise. The Issuer is an intermediate holding company and does not have any subsidiaries at the moment. It is intended for the Issuer to, from time to time, acquire companies under which Eligible SRI Projects are being held. (bb) Issuer Group : The Issuer and its subsidiary companies. (cc) Scheduled Dissolution Date : The maturity date of the relevant ASEAN Green SRI Sukuk. (dd) Transaction Documents : “Transaction Documents” includes: (a) Programme Agreement; (b) Trust Deed; (c) Securities Lodgement Form; (d) the Islamic documents; (e) Kafalah of the relevant tranche; and (f) any other relevant documentation which may be advised by the Solicitors and mutually agreed between the Lead Arranger and the Issuer. (ee) Voluntary Early Redemption Date : The date the relevant ASEAN Green SRI Sukuk is redeemed pursuant to the Voluntary Early Redemption. 75
  86. SECTION 9 – INVESTMENT CONSIDERATIONS An investment in the ASEAN Green SRI Sukuk involves certain risks. Prospective investors of the ASEAN Green SRI Sukuk should consider carefully, in the light of their own financial circumstances and investment objectives, the following factors, in addition to the matters set forth elsewhere in this Information Memorandum, prior to investing in the ASEAN Green SRI Sukuk. The Issuer believes that the factors described below represent the principal risks inherent in investing in the ASEAN Green SRI Sukuk. However, neither the Issuer nor the Principal Adviser/Lead Arranger/Lead Manager represent that the statements below regarding the risks of investing in any of the ASEAN Green SRI Sukuk are complete or exhaustive. Prospective investors are strongly encouraged to undertake their own investigations and analysis on the Issuer and its business and risks associated with the ASEAN Green SRI Sukuk Programme. Prospective investors should read the detailed information set out elsewhere in this Information Memorandum and reach their own views prior to making any investment decision. 9.1 INVESTMENT CONSIDERATIONS RELATING TO THE ASEAN GREEN SRI SUKUK 9.1.1 Profit rate risks Investment in the ASEAN Green SRI Sukuk involves the risk of subsequent changes in the market conditions, profit rates, the Government of Malaysia’s policies and regulations concerning, inter alia, monetary and fiscal issues, which may adversely affect the value of the ASEAN Green SRI Sukuk. The ASEAN Green SRI Sukuk is a fixed income Islamic security and therefore its price may fluctuate due to movements in the relevant benchmark profit rates. Generally, a rise in the benchmark profit rates may cause a fall in the prices of fixed income securities. The ASEAN Green SRI Sukuk may be similarly affected, resulting in a capital loss for the Sukukholders. Conversely, when the benchmark profit rates fall, prices of fixed income securities and the prices at which the ASEAN Green SRI Sukuk are traded may rise. Sukukholders may enjoy a capital gain but the profit received may be reinvested at lower returns. 9.1.2 Liquidity of the ASEAN Green SRI Sukuk The ASEAN Green SRI Sukuk comprises a new issue of securities for which there is currently no established secondary market. There is no assurance that a secondary market for the ASEAN Green SRI Sukuk will develop or, if it does develop, that it will provide the Sukukholders with liquidity of investment or that it will continue for the tenure of the ASEAN Green SRI Sukuk. If a market develops, the market value of the ASEAN Green SRI Sukuk may fluctuate, and a lack of liquidity, in particular can have a material adverse effect on the market value of the ASEAN Green SRI Sukuk. An investor in the ASEAN Green SRI Sukuk must be prepared to hold the ASEAN Green SRI Sukuk until the earlier of the maturity or the occurrence of the Dissolution Event of the relevant Sukuk or mandatory redemption of the ASEAN Green SRI Sukuk. 76
  87. 9 .1.3 Market Risk If a market develops, the market value of the ASEAN Green SRI Sukuk may fluctuate. Any sale of the ASEAN Green SRI Sukuk by the Sukukholders in any secondary market which may develop may be at a discount from the original issue price of the ASEAN Green SRI Sukuk, depending on many factors, including the prevailing interest rates and the market for similar securities. Other than the operating results and/or the financial conditions of the Issuer, the price of the ASEAN Green SRI Sukuk in the secondary market may be influenced by numerous factors, including but not limited to, the political, economic, and any other factors that can affect the capital markets, the Project, the industry, the Issuer in general. Adverse economic and financial developments could have a material adverse effect on the market value of the ASEAN Green SRI Sukuk. 9.1.4 Suitability of Investments The ASEAN Green SRI Sukuk issued under the ASEAN Green SRI Sukuk Programme may not be a suitable investment for all investors. Each potential investor in the ASEAN Green SRI Sukuk must determine the suitability of the investment in light of its own circumstances. In particular, each potential investor should: 9.1.5 (a) have sufficient knowledge and experience to make a meaningful evaluation of the ASEAN Green SRI Sukuk, the merits and risks of investing in the ASEAN Green SRI Sukuk and the information contained in this Information Memorandum; (b) have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of its particular financial situation, an investment in the ASEAN Green SRI Sukuk and the impact the ASEAN Green SRI Sukuk will have on its overall investment portfolio; (c) have sufficient financial resources and liquidity to bear all of the risks of an investment in the ASEAN Green SRI Sukuk; (d) understand thoroughly the terms of the ASEAN Green SRI Sukuk and be familiar with the behaviour of any relevant indices and financial markets; and (e) be able to evaluate (either alone or with the help of a financial adviser) possible scenarios for economic and other factors that may affect its investment and its ability to bear the applicable risks. Shariah Compliance Notwithstanding that the Shariah Adviser has provided a Shariah pronouncement on the structure and mechanism of the ASEAN Green SRI Sukuk, case law in Malaysia indicates that the courts in Malaysia may still examine the issue of whether the ASEAN Green SRI Sukuk are in compliance with Shariah. Investors who are permitted to hold only Shariah-compliant sukuk will not be able to hold the ASEAN Green SRI Sukuk in the event the ASEAN Green SRI Sukuk are held to be nonShariah compliant, and will be required to sell the ASEAN Green SRI Sukuk held by them, which may expose them to losses. 77
  88. 9 .1.6 Industry Risks Like other businesses, industry risks are an important factor that could materially and adversely affect the financial and business prospects of PGA. There is no assurance that any change within the industry will not materially affect the business of PGA. 9.1.7 Credit rating of the ASEAN Green SRI Sukuk Programme The First Tranche of the ASEAN Green SRI Sukuk Programme is not rated. However, each subsequent issuance after the First Tranche may be rated and/or unrated as the Issuer may decide prior to the issuance of the relevant tranche of the ASEAN Green SRI Sukuk. A credit rating addresses the likelihood of full and timely payment of profit and principal to the holders of the ASEAN Green SRI Sukuk. A credit rating is not a recommendation to buy, hold or sell the ASEAN Green SRI Sukuk and there can be no assurance that such a credit rating will not be revised on a periodic review basis during the tenure of the ASEAN Green SRI Sukuk Programme or that such a credit rating will not be withdrawn entirely if circumstances in the future so warrant. Further, such a rating is not a guarantee of repayment or that there will be no default by the Issuer under the ASEAN Green SRI Sukuk. In the event that the rating initially assigned to the ASEAN Green SRI Sukuk is subsequently downgraded, suspended or withdrawn for any reason, no person or entity will be obliged to provide any additional credit enhancement with respect to the ASEAN Green SRI Sukuk. Any downgrading, suspension or withdrawal of a rating may have an adverse effect on the liquidity and market price of the ASEAN Green SRI Sukuk. Any downgrading, suspension or withdrawal of a rating will not in itself constitute a Dissolution Event under the ASEAN Green SRI Sukuk Programme or an event obliging the Issuer to redeem the ASEAN Green SRI Sukuk. 9.2 INVESTMENT CONSIDERATIONS RELATING TO THE ISSUER 9.2.1 Risks Relating to the Issuer The Issuer was incorporated in Malaysia on 30 August 2018 under the Companies Act 2016 and therefore has no operating history and/or a track record. As at the date of this Information Memorandum, the only activities that the Issuer will engage in are the issuance of ASEAN Green SRI Sukuk and other activities incidental or related to the foregoing. The Issuer will therefore rely on the operating history and track record of PGB, PESB and ISE to meet its obligations to the Sukukholders and pay amounts due under the ASEAN Green SRI Sukuk. ISE will be depending on its income and revenue generated under the Project and in particular, the strength of its operation of the Project to generate positive cashflow. Given that the current sole business activity of ISE is the business of power generation, the ability of the Issuer to fulfil its payment obligations under the ASEAN Green SRI Sukuk is dependent on ISE’s ability to generate income from the sale of Renewable Energy to TNB pursuant to the REPPA. The termination of the REPPA will affect ISE's ability to receive income from the sale of Renewable Energy or any delay in the payment of the Renewable Energy by TNB to ISE will affect the Issuer’s ability to pay amounts due and payable under the ASEAN Green SRI Sukuk. 78
  89. (”Renewable Energy” refers to the Metered Renewable Energy and Test Renewable Energy.) (“Metered Renewable Energy” means the renewable energy generated and delivered and metered by ISE on and after the feed-in tariff commencement date.) (“Test Renewable Energy” means the renewable energy generated and delivered and metered by ISE from the initial operation date to the feed-in tariff commencement date.) Notwithstanding the above, the risk of the Issuer failing to meet its obligations under the ASEAN Green SRI Sukuk may be mitigated by the financial positions of PGB and PESB as well as the relevant Al-Kafalah Facility to be granted by the relevant Kafalah Provider in favour of the Issuer. 9.3 RISKS RELATING TO THE SUNGAI REK PROJECT 9.3.1 Water Supply Risk ISE’s plant relies on a steady flow of water from the Sungai Rek to generate electricity. The flow generally varies during the year due to weather condition, in particular the rainfall which plays a crucial role in ISE’s output and revenue generation – a factor beyond ISE’s control. For the months of November to February, the plant which located in the east coast states of West Malaysia, experience the maximum rainfall which happen during northeast monsoon season, while June and July are usually the driest months in most districts. There can be no assurance that any interruption in the water supply will not materially affect the business of ISE. Nonetheless, the water supply risk is mitigated to the extent that ISE will only require to pay penalty to TNB should the annual output is fall below the minimum annual output which is 35% of the declared annual availability output. 9.3.2 Transmission Risk Although the REPPA obliges TNB to accept and purchase all the electrical energy produced and delivered by ISE, TNB reserves the right to reject the ISE output should its transmission and distribution lines experience an emergency situation or require maintenance. However, the transmission risk emergency situation is remote and maintenance down time is within expectation level. 9.3.3 Off-take Risk Under the REPPA, TNB is obligated to purchase and accept all the electrical energy produced and delivered by ISE for a period of 21 years starting from the Scheduled Feed-in Tariff Commencement Date which was on 1 July 2012. The tariffs payable by TNB are benchmarked against Declared Annual Availability (MWh). TNB will pay ISE a Feed-in Tariff Rate of 24 sen/kWh throughout the tenure of the REPPA. Although the Feed-in Approval stipulates that ISE must ensure that its renewable energy installation meets an annual minimum performance threshold of no less than thirty five percent (35%) of the Declared Annual Availability for each year during the effective period (“Minimum Output”), the REPPA does not state that breaching the 79
  90. Minimum Output is an event of default . Based on past records, the annual output from ISE’s renewable energy installation have never fell below the Minimum Output. Despite having TNB as the sole purchaser, ISE’s exposure to customer concentration risk is mitigated by the credit strength of TNB. However, there can be no assurance that the credit risk against TNB in future will not materially affect the business of ISE. 9.3.4 Operational Dependence on Key Personnel It should be noted that ISE’s continuing success will depend to a large extent upon the abilities and continuing efforts of its continuing Board of Directors, senior management and its senior technical staff. The loss of any of these members may adversely affect ISE’s ability to operate its business and in turn, affect its financial performance and prospects. Further, ISE’s future success will also depend upon its ability to attract new skilled personnel. However, ISE expects to be able to source experienced personnel in industries similar to which it operates. Taking this into consideration, ISE strives to continue to attract and retain qualified and experienced personnel who are essential towards maintaining the high performance standards of ISE as well as to address its succession planning programme. Notwithstanding this, there can be no assurance that the sudden departure of any key personnel may not materially and adversely affect ISE’s ability to compete effectively in the industry over the short term. 9.3.5 Operations, Maintenance and Related Expenditures The operation and maintenance cost of the Hydropower Plant and capital expenditure may increase due to factors beyond ISE’s control. Such cost increases may arise from: (a) The standards of maintenance applicable to the Hydropower Plant prescribed by the REPPA and the regulatory authorities from time to time becoming more onerous; (b) Increases in cost materials and supplies; (c) Changes in market conditions; (d) Changes in technology; and/or (e) Environmental factors which may require repairs to be carried out more frequently or cause costs to be higher than expected. The cost involved in any such major repairs may be substantial. In view of the risks above, ISE have taken insurance policies to cover the risk on material damage to its plants and machinery, buildings, reservoir, equipment, piping and other property and interest and contents forming part of the Hydropower Plant, loss of anticipated gross profit as a direct result of machinery breakdown, burglary, public liability, and fire. 80
  91. 9 .3.6 Adequacy of takaful/insurance In order to mitigate certain risks in relation to the Project, ISE have taken insurance policies and ISE shall maintain such insurance policies throughout the operation of the Hydropower Plant, in accordance with the requirements of the Project Documents. However, there is no assurance that there will be sufficient coverage to fully protect against interruption to business, generation of revenue, accidents or any other liabilities associated with the business of ISE. 9.3.7 Regulatory Risks Various approvals, licences, permits and certificates are required to operate the Hydropower Plant’s business. These approvals, licences, permits and certificates will be required to be renewed or reissued upon expiration of its term. There will not be any assurance that in the future the relevant authorities will issue or renew any required approvals, licences, permits or certificates in a timely manner or at all or if renewed, additional conditions may be imposed by the relevant authorities. Under the REPPA, TNB is entitled to terminate the REPPA in accordance with its terms in the event the relevant approvals, licences is suspended or revoked or terminated and (i) all applicable appeal periods shall have expired or (ii) a final decision on the appeal confirming such suspension, revocation or termination shall have been issued. In addition, failure to renew, maintain or obtain the required approvals, licences, permits and certificates may interrupt the Project’s operations which may have a material adverse effect on ISE’s business, financial condition and results of operations. 9.3.8 Risk of Termination of the REPPA The REPPA may be terminated by either party under the events more particularly described in Section 7.1.5 of this Information Memorandum. The termination of the REPPA may materially affect ISE’s ability to meet its liabilities. The right of termination shall not prejudice or affect the accrued rights or claims and liabilities of the Parties. If the REPPA is terminated by TNB as a result of an Event of Default by the Feed-in Approval Holder, TNB shall have the option but not the obligation to purchase the Project at a purchase price determined in accordance with the terms of the REPPA. 9.3.9 Force Majeure Force majeure provisions in the REPPA can be found in Section 7.1.4 of this Information Memorandum. These are risks associated with ISE being unable to perform its obligations under the REPPA upon occurrence of a force majeure event which: (a) is beyond the reasonable control of and occurs without fault or negligence on the part of the party claiming it; and (b) causes a delay or disruption in the performance of any obligation under the REPPA despite all reasonable efforts of the party claiming it to prevent it or mitigate its effects. 81
  92. There is a risk that ISE may be adversely affected financially by a force majeure event either directly or indirectly if the parties to the REPPA are relieved of their contractual obligations thereunder . Neither parties shall be in breach of its obligations under the REPPA if it is unable to fulfil any of its obligations as a result of force majeure event. 9.4 GENERAL INVESTMENT CONSIDERATIONS 9.4.1 Political, Economic and Regulatory Risk The performance and financial condition of the Issuer may be affected by economic, political and regulatory conditions in Malaysia and other countries in the region, such as the changes in policies and regulatory requirements, risk of war, risk of terrorist attacks, expropriation and renegotiations or nullification of existing contracts. Investors should note that whilst the Issuer strive to continue to take effective measures such as prudent financial management and efficient operating procedures, there is no assurance that adverse political, economic or regulatory conditions will not materially affect the Issuer. 9.4.2 Inherent Regulatory Risk Regulatory risk is an inherent feature for independent power producers such as PGA. Events such as the imposition of an annual windfall profit levy on independent power producers in Peninsular Malaysia and Sabah in 2008, which had subsequently been abolished, remains vulnerable to regulatory risk. No assurance can be given that any future changes to present regulations or any introduction of new regulations or laws by the relevant authorities will not have a material adverse impact on PGA’s business. 9.4.3 Change in Law The structure of the transaction and the issue of the ASEAN Green SRI Sukuk are based on Malaysian law, tax and administrative practices in effect as at the date hereof and having due regard to the expected tax treatment of all relevant statutes under such law and practices. No assurance can be given that the Malaysian laws, tax or administrative practices will not change after the date of issue of the ASEAN Green SRI Sukuk or that such change will not adversely impact the structure of the transaction and the treatment of the ASEAN Green SRI Sukuk. 9.4.4 Forward-looking Statements Certain statements, information, estimates and reports in this Information Memorandum are based on historical data, which may not be reflective of the future results, and others are forward-looking in nature, which are subject to uncertainties and contingencies. All forward-looking statements are based on estimates and assumptions made by the Issuer and although each of the Board of Directors of the Issuer believes that these forward-looking statements are reasonable, the statements are nevertheless subject to known and 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. In light of these and other uncertainties, the inclusion of forward-looking statements in this Information Memorandum should not be regarded 82
  93. as a representation or warranty by the Issuer , or its advisers or arrangers, and there can be no assurance that the plans and objectives will be achieved. A deterioration in the financial condition of the Issuer could adversely affect the market value of the ASEAN Green SRI Sukuk and the ability of the Issuer to make payments under Transaction Documents relating to the ASEAN Green SRI Sukuk to which it is a party when due, if at all. [The remainder of this page is intentionally left blank] 83
  94. SECTION 10 – INDUSTRY OVERVIEW The information below is included for information purposes only and has not been independently verified by the Issuer, PA, LA or LM. All data and information below have been obtained from publicly available official sources of Malaysia. Neither the Issuer, any one of the PA, LA or LM nor any other party will be held responsible for any information contained herein. 10.1 OUTLOOK AND ECONOMY OF MALAYSIA The Malaysian economy in 2017 In 2017, the Malaysian economy recorded a robust growth of 5.9% (2016: 4.2%), supported by faster expansion in both private and public sector spending. A key highlight for the year was the rebound in gross exports growth as global demand strengthened. This was due mainly to higher demand from major trading partners following the upswing in the global technology cycle, investment expansion in the advanced economies and the turnaround in commodity prices. Altogether, the global technology upturn translated into robust demand for electronics and electrical (E&E) products while the stronger regional demand and the revival in investment activity in the advanced economies lifted exports of non-E&E products. Commodity exports also turned around in 2017, supported largely by the recovery in major commodity prices. While real GDP growth was boosted by the external sector, domestic demand continued to anchor growth. In particular, private consumption growth strengthened to 7.0% in 2017 (2016: 6.0%), supported mainly by continued wage and employment growth, with additional impetus from Government measures. Public consumption grew by 5.4% (2016: 0.9%) due to higher spending on supplies and services by the Federal Government amid sustained growth of emoluments. Gross fixed capital formation (GFCF) grew at a faster pace of 6.2% (2016: 2.7%), driven by improvements in both public and private investments. Public investment recovered to grow at 0.1% (2016: -0.5%), supported by continued spending by the General Government and public corporations. Private investment growth accelerated to 9.3% (2016: 4.3%), as firms benefited from the conducive external and domestic operating environment. On the supply side, most sectors registered higher growth in 2017. The performance of the two largest sectors, services and manufacturing, benefited from marked improvements in domestic and external conditions, growing at 6.2% and 6.0%, respectively (2016: 5.6% and 4.4%). The construction sector recorded a moderate growth of 6.7% (2016: 7.4%), while growth in agriculture production rebounded to 7.2% (2016: -5.1%). Growth in the mining sector, however, moderated to 1.1% (2016: 2.2%), reflecting the voluntary crude oil supply adjustments by PETRONAS, in line with the Organization of the Petroleum Exporting Countries (OPEC) agreement to limit oil production until end-2018. Labour market conditions improved with stronger employment gains keeping pace with labour force expansion. The labour force expanded by 303,000 people, while net employment gains amounted to 295,000 jobs, mostly driven by high- and mid-skilled workers. The unemployment rate during the year remained stable at 3.4% (2016: 3.4%). The labour force participation rate edged higher to 67.8% (2016: 67.7%) and employment growth tripled to 2.1% (2016: 0.7%), as employers were optimistic about the business outlook and thus continued to expand their workforce accordingly. The number of documented unskilled and semi-skilled foreign workers in Malaysia decreased during the year, with its share of the labour force correspondingly declining to 12.0% from 12.7% at end-2016. Aggregate nominal wages in the private and public sectors grew by 6.4% and 6.2%, respectively in 2017 (2016: 4.3% and 6.4%). 84
  95. Headline inflation increased to 3 .7% in 2017 (2016: 2.1%). Inflation remained volatile during the year and was primarily driven by higher domestic fuel prices. Higher global commodity prices and disruptions in domestic food supplies also contributed to the higher inflation. This, however, was mitigated by the stronger ringgit exchange rate since April 2017, which helped contain the rise in production costs for domestic goods. Core inflation was also higher in 2017, averaging at 2.3% for the year (2016: 2.1%). Nevertheless, demand-driven inflationary pressures remained largely stable given the lack of persistent tightness in capital stock and the absence of significant wage pressures. Malaysia’s external position improved considerably in 2017, benefiting from the favourable global economic landscape and relatively lower volatility in the international financial markets. Malaysia recorded a higher current account surplus, largely due to a higher goods surplus following the strong export performance, which more than offset widening deficits in the services and primary income accounts. Gross exports rebounded to grow strongly by 18.9% (2016: 1.2%), driven mainly by export volumes, particularly in manufactured exports. Gross imports also registered double-digit growth of 19.9% (2016: 1.9%), mainly reflecting higher imports of intermediate goods, capital goods, and goods for re-exports. The increase in imports was in line with the robust manufacturing exports, more rapid investment in the manufacturing and services sectors, and robust global demand. During the year, the financial account of the balance of payments registered a net inflow of RM2.3 billion (2016: net outflow of RM1.1 billion). These inflows were driven mainly by continued foreign direct investment (FDI) infl ows, and a resumption of portfolio investments by non-residents, amid continued acquisitions of financial assets abroad and long-term investments by resident banks, institutional investors, and fund managers. These developments reflected significant cross-border capital flows driven by robust domestic growth, improvement in global growth prospects and lower volatility in the fi nancial markets during the year. The international reserves of Bank Negara Malaysia amounted to USD102.4 billion as at end-2017 compared to USD94.5 billion as at end-2016. As at 15 March 2018, international reserves amounted to USD103.9 billion. The international reserves remained adequate to facilitate international transactions and sufficient to finance 7.3 months of retained imports and is 1.1 times the short-term external debt. Of note, the wide range of monetary policy instruments, exchange rate flexibility and resilient financial markets have enabled the economy to reduce its reliance on the Bank’s international reserves in managing external pressures. Malaysia’s external debt declined to RM883.4 billion as at end-2017, equivalent to USD215.5 billion or 65.3% of GDP (2016: RM 916.1 billion, equivalent to USD202.3 billion or 74.5% of GDP). The decline was mainly attributed to valuation effects following the strengthening of the ringgit against most currencies during the year. Excluding valuation effects, Malaysia’s external debt increased by 1.4% of GDP, mainly on account of increases in interbank borrowing and non-resident deposits. Risks arising from external debt remained manageable, mitigated by its currency and maturity profiles. More than a third of external debt is denominated in ringgit (34.3%), mainly in the form of non-resident holdings of domestic ringgit debt securities and ringgit deposits in domestic banking institutions. These liabilities are not subject to valuation changes from the fluctuations in the exchange rate. The remaining portion of total external debt of RM580.7 billion (65.7% share) is denominated in foreign currency, and is subject to prudential and hedging requirements on banking institutions and corporations. In terms of maturity, more than half of the total external debt is skewed towards medium- to long-term tenures (57.3% of total external debt), indicating limited rollover risks. Additionally, not all short-term external debt poses a claim on reserves. 85
  96. Overall , the fundamentals of the Malaysian economy continued to strengthen. Structural policies carried out over the decades have resulted in a highly open and diversified economy with multiple sources of growth. Improving labour market conditions amid faster wage growth continued to support household spending. Healthy financial institutions and sufficient domestic liquidity also ensured orderly financial intermediation. Furthermore, Malaysia’s external position remained strong and well-protected from a sharper depreciation, supported by sufficient international reserves and manageable levels of external debt. Despite the strong growth in 2017, structural reforms remained a priority to strengthen economic fundamentals and to safeguard the sustainability of the growth momentum. These include efforts to enhance domestic value-added in production and exports, promote higher quality domestic and foreign investments, raise productivity and cultivate a future-ready quality labour force. Outlook for the Malaysian Economy in 2018 The global economy is projected to expand at a faster pace in 2018, driven largely by private consumption and boosted by investment activity in the advanced economies. In Asia, trade activity will continue to expand, albeit at a more moderate pace. Financing conditions are likely to remain accommodative despite the ongoing normalisation of global monetary policy. In the advanced economies, the strength of investments is likely to persist through 2018 and Asian economies will continue to benefit from positive spillovers from the external sector. Other emerging market economies are also likely to see a pickup in growth, while commodity exporters will observe a rebound in domestic demand due to higher global crude oil prices. Overall, risks to the global outlook are poised to become more broadly balanced. Nevertheless, several downside risks stemming from 2017 linger. These include uncertainties surrounding the effects of a synchronised monetary policy normalisation across major economies, the inward-looking trade policies that threaten international trade, in addition to geopolitical risks that could adversely affect sentiments in global financial markets. Amid the stronger global economic conditions, the Malaysian economy is projected to grow by 5.5% - 6.0% in 2018. Domestic demand will continue to be the anchor of growth, underpinned by private sector activity. Private consumption growth is expected to remain sustained, supported by continued growth in employment and income, lower inflation and improving sentiments. Income growth will be supported by a robust export performance and continued Government measures, such as the continuation of Bantuan Rakyat 1Malaysia cash transfers, individual income tax reduction, and the special payment to all civil servants and retirees. Private investment growth will also be sustained, underpinned by ongoing and new capital spending in both the manufacturing and services sectors, and strengthened by continued positive business sentiments. Public sector expenditure is projected to decline due to the contraction in public investment amid more moderate growth in public consumption. Apart from domestic demand, GDP growth will also be supported by the favourable external demand conditions. Both gross exports and imports are forecasted to grow at aboveaverage trends in 2018. Exports will be lifted by favourable demand from major trading partners, the continued expansion in the global technology upcycle, increase in domestic productive capacity and broadly sustained global commodity prices. Despite the projected higher goods surplus of the current account, deficits in the services and income accounts will continue to weigh on the current account balance. Overall, the current account balance is expected to record a surplus of between 2.0% – 3.0% of GNI in 2018. Labour market conditions are expected to remain favourable and supportive of growth, driven by continued robust economic activity and better hiring sentiments. Employment will 86
  97. continue to expand while the growth in job creation will be sufficiently robust to accommodate new entrants into the workforce . As such, the unemployment rate is expected to be relatively unchanged. Looking ahead, several reforms undertaken such as the implementation of the Employment Insurance System and the Employers Undertaking, and an impending review of the minimum wage, will position the nation’s labour market on a more competitive and resilient path, and improve the overall well-being of Malaysia’s workforce. On the supply side, all economic sectors are forecasted to expand in 2018. The services and manufacturing sectors will continue to be the key drivers of overall growth. The construction sector is expected to register a stronger expansion, driven by large new and existing multiyear civil engineering projects. Growth in the mining sector is also projected to be higher, reflecting the continued pickup in natural gas production. The agriculture sector is expected to register a more moderate growth, following the exceptional post-El Niño crude palm oil production recovery in 2017. Headline inflation is projected to moderate in 2018, averaging between 2.0% – 3.0%. The lower inflation compared to 2017 is due mainly to an expected smaller contribution from global energy and commodity prices. A stronger ringgit exchange rate compared to 2017 would also mitigate import costs. Inflationary pressure from domestic demand factors will be contained by improving labour productivity and ongoing investments for capacity expansion. The inflation outlook, however, depends on the trajectory of global oil prices, which remains highly uncertain. Overall, the economic outlook is marked by several upside risks to growth. This includes stronger-than-expected global demand, which in turn would improve the prospects for export-oriented industries. The potential increase in minimum wage and a faster-thanexpected pickup of existing and new production facilities in various industries would also support a more favourable growth outlook. Nevertheless, several downside risks to growth remain. The strength of Malaysia’s exports to major trading partners could be impacted by unfavourable effects arising from monetary and regulatory policy shifts in the advanced economies, rising trade protectionism by major trading partners and a sharper-thanexpected growth moderation in PR China. In addition, a re-emergence of volatile global commodity prices or abrupt corrections in the global financial markets could weigh down sentiments, which in turn could dampen the strength of domestic economic activity. Malaysia is, however, well-positioned to withstand these headwinds should these downside risks materialise. The structural reforms that were undertaken over the years have endowed the Malaysian economy with multiple sources of growth, ample buffers and robust policy frameworks. Going forward, the positive economic environment will provide policymakers with ample policy space to continue with the necessary reforms. The domestic financial markets are resilient and well-positioned to intermediate large swings of capital flows in the event of heightened financial market volatility. Fundamentally, policymakers have the tools, capacity and flexibility to undertake the necessary measures to steer the economy along a steady growth path. (Source: Bank Negara Malaysia Annual Report 2017) Developments in the Malaysian Economy (3Q2018) Highlights • The Malaysian economy expanded by 4.4% in the third quarter. • Headline and core inflation declined to 0.5% and 1.4%, respectively. • Current account surplus was sustained at RM3.8bn in the third quarter. 87
  98. The Malaysian economy registered a growth of 4 .4% The Malaysian economy recorded a sustained growth of 4.4% in the third quarter of 2018 (2Q 2018: 4.5%), supported by expansion in domestic demand amid a decline in net exports growth. Private sector expenditure remained the key driver of growth, expanding at a faster pace of 8.5% (2Q 2018: 7.5%), while public sector expenditure turned around to register a positive growth of 1.1% (2Q 2018: -1.4%). On a quarter-on-quarter seasonally-adjusted basis, the economy grew by 1.6% (2Q 2018: 0.3%). Private consumption growth accelerated to 9.0% (2Q 2018: 8.0%). Household spending was boosted in July and August 2018, following the zerorisation of the Goods and Services Tax (GST) rate1, particularly on durable goods such as motor vehicles and furnishings, as well as food and beverages. Continued expansion in income and employment provided key support to household spending. Private investment growth edged higher to 6.9% (2Q 2018: 6.1%), underpinned mainly by capital spending in the manufacturing and services sectors. During the quarter, firms further expanded their capacity through increased machinery and equipment spending to cater to positive demand. Public consumption grew at a faster pace (5.2%; 2Q 2018: 3.1%). This was attributable to a higher spending on supplies and services, which more than offset the moderation in emoluments growth. Public investment registered a smaller decline during the quarter (-5.5%; 2Q 2018: -9.8%), due to improvements in General Government capital spending. However, capital spending by public corporations was lower as some projects were near completion. Gross fixed capital formation (GFCF) increased at a faster pace of 3.2% (2Q 2018: 2.2%), supported by continued private sector capital spending. By type of assets, capital spending on machinery and equipment was higher at 5.9% (2Q 2018: 3.6%). Investment in other types of assets turned around to register a marginal positive growth of 0.1% (2Q 2018: -2.9%). Investment in structures grew at a moderate pace of 1.8% (2Q 2018: 2.1%), due mainly to continued weak investments in residential property. Slower growth in commodity-related sectors offset by faster expansion in other sectors On the sectoral front, growth was mainly affected by lingering commodity-specific supply shocks. Nevertheless, the impact on overall growth was mitigated by expansions in the other economic sectors, mainly the services, manufacturing and construction sectors which account for 82% of the economy. Growth in the mining sector contracted further as natural gas production continued to be affected by unplanned supply outages and pipeline repairs in East Malaysian facilities. Meanwhile, agriculture sector growth remained weak due to the protracted recovery in crude palm oil production from adverse weather and production constraints in the previous quarter. Growth in the services sector rose further during the quarter, driven mainly by the wholesale and retail trade sub-sector on account of higher consumer spending during the tax holiday period. The finance and insurance sub-sector also benefitted from the zerorisation of GST as seen in higher consumer loans disbursements and insurance premium payments, particularly in the motor vehicle segment. Growth in the transport and storage sub-sector 88
  99. improved , supported by higher air passenger traffic. The information and communications sub-sector continued to expand, amid continued demand for data communication services. During the quarter, the manufacturing sector registered sustained growth, as improvements in the E&E and consumer-related clusters offset softer growth in primary-related output. Faster expansion in the E&E and consumer-related cluster was accounted by higher production of consumer-based electronics, household appliances, passenger cars and auto parts, following higher spending on durable goods during the tax holiday period. Manufacture of constructionrelated materials was sustained in line with activity in the construction sector. Primary-related output growth, however, slowed further during the quarter, weighed by lower output of natural feedstocks such as crude palm oil and natural gas. The construction sector registered sustained growth in the third quarter. Despite the ongoing review of several mega projects, construction activity in the civil engineering subsector remained supportive of growth, underpinned by steady progress in existing transportation, petrochemical and power plant projects. Growth in the non-residential subsector improved slightly, while growth in the residential sub-sector remained weak amidst the high number of unsold residential properties. Lower inflation during the quarter mainly reflected the GST zerorisation Headline inflation, as measured by the annual percentage change in the Consumer Price Index (CPI), declined to 0.5% in 3Q 2018 (2Q 2018: 1.3%). The lower inflation mainly reflected the impact from the GST zerorisation. By category, the impact was broad-based and particularly evident for communication services and recreational and cultural services. The percentage of items in the CPI basket that had an inflation of more than 2% declined to 9% in the third quarter (2Q 2018: 18%). This was despite the implementation of the Sales and Services Tax (SST) beginning 1 September 2018. With the small average price increase for SST-taxable items in September, the SST impact on inflation during the quarter has been limited. Core inflation, excluding the impact of consumption tax policy changes, moderated slightly to 1.4% (2Q 2018: 1.5%). Demand-driven inflationary pressures in the economy remained contained in the absence of excessive wage pressure and some degree of spare capacity in the capital stock. Positive labour market conditions Labour market conditions remained supportive of economic activity. Although the unemployment rate edged higher in the third quarter (3.4%; 2Q 2018: 3.3%), this was mainly on account of higher labour force participation (68.5%; 2Q 2018: 68.4%) which offset improvements in employment growth (2.6%; 2Q 2018: 2.4%). Stronger net employment gains were recorded in the services and manufacturing sectors in the third quarter. Private sector wages registered sustained growth of 5.7% (2Q 2018: 5.7%). This was driven mainly by higher wage growth in the services sector 3.9% (2Q 2018: 3.7%), supported by the wholesale and retail trade sub-sector. The manufacturing sector registered slower wage growth (9.6%; 2Q 2018: 10.1%), weighed by the more moderate wage growth in the domestic-oriented industries (6.1%; 2Q 2018: 8.6%). Nonetheless, wages in the exportoriented sub-sectors grew at a faster pace (10.9%; 2Q 2018: 10.6%), supported by continued growth in the E&E segment. 89
  100. Moderation in exports and imports In the third quarter of 2018 , gross exports expanded by 5.2% (2Q 2018: 8.3%), supported mainly by manufactured exports. Domestic exports2 declined by -0.2% (2Q 2018: 0.2%) due to the contraction in commodity exports. The trade surplus stood at RM25.2 billion (2Q 2018: RM27.1 billion). Manufactured exports grew by 7.4% (2Q 2018: 10.7%), supported by higher E&E exports (10.7%; 2Q 2018: 9.8%), with continued demand from major trading partners, particularly in the Asian region. Of significance, growth of semiconductor exports remained robust at 24.2% (2Q 2018: 21.0%), reflecting continued expansion in the global technology cycle. However, non-E&E exports moderated, particularly in petroleum products, and manufactures of metal and transport equipment. Commodities exports registered a smaller contraction of 3.0% (2Q 2018: -3.8%) as the continued decline in crude palm oil exports was partly offset by the stronger growth in mineral exports (9.3%; 2Q 2018: 8.1%), particularly in crude petroleum exports. Gross imports growth moderated to 6.3% during the quarter (2Q 2018: 8.5%) following a deceleration in capital imports and lower imports for re-exports. Consumption imports rebounded to 5.5% (2Q 2018: -2.8%) due to the surge in domestic spending during the tax holiday period and a smaller contraction in intermediate imports. Sustained current account surplus The current account surplus was broadly sustained at RM3.8 billion in the third quarter of 2018 (2Q 2018: RM3.9 billion), or 1.1% of GNI (2Q 2018: 1.2% of GNI). This was due a higher goods surplus3 and lower services deficit, amid a larger deficit in the primary income account. The goods surplus increased to RM26.6 billion (2Q 2018: RM26.1 billion), owing to higher E&E exports. The deficit in the services account narrowed to RM3.3 billion (2Q 2018: RM6.2 billion). This was attributable mainly to a larger surplus in the travel account (RM8.0 billion; 2Q 2018: RM6.6 billion) due to higher tourist arrivals and lower construction services deficit (-RM1.3 billion; 2Q 2018: -RM3.2 billion) following the cancellation and deferment of selected major projects. The primary income account recorded a larger deficit of RM15.0 billion (2Q 2018: -RM11.2 billion) as profits earned by foreign investors in Malaysia continued to outpace that of Malaysian firms investing abroad (RM16.3 billion; 2Q 2018: RM13.8 billion), particularly in the mining and manufacturing sectors. Of note, 26.4% of the profits earned by the foreign investors were reinvested (2Q 2018: 10.7%). The secondary income account recorded a sustained deficit of RM4.5 billion (2Q 2018:-RM4.7 billion), reflecting continued outward remittances by foreign workers. Financial account recorded a small net inflow In the third quarter of 2018, the financial account registered a small net inflow of RM0.2 billion (2Q 2018: net inflow of RM9.2 billion). Net inflows in portfolio and direct investment were partially offset by net outflows in other investments. The direct investment account registered a marginal net inflow of RM0.06 billion (2Q 2018: net outflow of RM0.7 billion). During the quarter, foreign direct investments (FDI) registered a larger net inflow of RM3.9 billion (2Q 2018: net inflow of RM2.8 billion). FDI inflows were 90
  101. mainly channeled into the manufacturing and mining sectors . Meanwhile direct investments abroad (DIA) by Malaysian companies recorded a higher outflow of RM3.9 billion (2Q 2018: net outflow of RM3.6 billion). DIA outflows were channeled mainly into the services sector, particularly the financial services sub-sector. The portfolio investment account registered a net inflow of RM0.6 billion, a significant turnaround from a net outflow of RM38.3 billion in 2Q 2018. This reflected the net liquidation of residents’ portfolio investment holdings abroad (3Q 2018: net inflow of RM4.3 billion; 2Q 2018: net outflow of RM1.0 billion). Portfolio investment by non-residents recorded a smaller outflow of RM3.6 billion (2Q 2018: net outflow RM37.2 billion) following the net liquidation of non-resident holdings of ringgit-denominated domestic debt securities. This took place amid significant financial market volatility globally. The other investment account recorded a net outflow of RM0.8 billion (2Q 2018: net inflow of RM48.4 billion). The banking sector’s reduction of their interbank placements abroad was offset by a net outflow from the non-bank private sector, particularly deposits. Net errors and omissions amounted to -RM7.4 billion, or -1.5% of total trade. The international reserves of Bank Negara Malaysia amounted to USD103.0 billion as at end-September 2018, compared to USD104.6 billion as at end-June 2018. Manageable external debt Malaysia’s external debt stood at RM947.9 billion or 66.2% of GDP as at end-September 2018 (end-June: RM936.5 billion or 65.4% of GDP). The higher external debt reflects largely the revaluation adjustment from the lower ringgit against major and regional currencies in the third quarter of 2018 and an increase in non-resident (NR) deposits in the domestic banking system. These were partly offset by some repayment of interbank borrowing. Malaysia’s external debt remains manageable given its currency and maturity profiles, and the availability of large external assets. Close to onethird of external debt is denominated in ringgit (30.6%; end-June: 31.2%), mainly in the form of NR holdings of domestic debt securities (63.4% share) and in ringgit deposits (17.7% share) in domestic banking institutions. As such, these liabilities are not subjected to valuation changes from the fluctuations in the ringgit exchange rate. The remaining external debt of RM657.9 billion or 69.4% of total external debt is denominated in foreign currency (FC), the bulk of which comprises offshore borrowings. As at end-September 2018, offshore borrowing declined to RM584.9 billion or 40.9% of GDP (end-June: RM586.5 billion or 41% of GDP), much lower compared to 60% of GDP during the Asian Financial Crisis in 1997-98. The corporate sector accounted for slightly more than half of FC-denominated external debt. Of which, about three-quarters were hedged, either naturally through FC-denominated revenue streams or financiallyhedged with onshore banks. Of the total FC-denominated external debt (inclusive of valuation effects), 38.1% (or amounting to RM250.4 billion) represents interbank borrowings and FC deposits in the domestic banking system. 76.2% of interbank borrowings are intra-group borrowings. The interbank borrowings largely reflect banks’ centralised liquidity and funding management practices. Notably, banks’ FC-denominated external debt remained stable during the quarter as reduced interbank borrowings was offset by increases in debt issuances abroad and nonresident deposits. Banks remained vigilant and proactive in managing their funding and liquidity risks. Foreign-currency risk measured in net open position of FC denominated exposures stood at 5.3% of banks’ total capital. Of this, USD net open position was low at 3.4% of banks’ total capital. 91
  102. Long-term bonds and notes issued offshore stood at RM149 .3 billion as at end-September 2018, accounting for 22.7% of total FC-denominated external debt. These were mainly by non-financial corporations and channeled primarily to finance asset acquisitions abroad. Intercompany loans (RM99.0 billion or 15.1% of FC-denominated external debt) are typically on flexible and concessionary terms, such as no fixed repayment schedule or low interest rate. Close to 70% of intercompany loans were obtained by non-resident controlled companies (MNCs) from parents or affiliates abroad. From a maturity perspective, more than half of the total external debt is skewed towards medium- to long-term tenure (54.0% of total external debt; end-June: 52.0%), suggesting limited rollover risks. Short-term external debt accounts for the remaining 46% of external debt. Of which, 36.1% is accounted by stable intragroup placements among banks, thus less susceptible to sudden withdrawal. About another 13% is accounted by trade credits, largely backed by export earnings and are self-liquidating. 4% are intercompany loans, which are typically on flexible and concessionary terms (For more granular breakdown of external debt, please refer to the Box Article on ‘Profile of Malaysia’s External Debt’). As at 31 October 2018, international reserves stood at USD101.7 billion. The reserves position is sufficient to finance 7.5 months of retained imports and is 1.0 time the short-term external debt. Reserves are not the only means for banks and corporations to meet their external obligations. The progressive liberalisation of foreign exchange administration rules has resulted in greater decentralisation of reserves. In particular, banks and corporations hold three-quarters of Malaysia’s external assets (as at end-3Q 2018: RM1.3 trillion). These external assets can be drawn upon to meet banks’ and corporations’ external debt obligations (RM752.4 billion), without creating a claim on international reserves. The adequate level of international reserves, together with the availability of substantial foreign currency and external assets by banks and corporations, and a flexible exchange rate, will continue to serve as important policy buffers against potential external shocks. (Source: Bank Negara Malaysia Quarterly Bulletin 3Q2018) 10.2 OVERVIEW AND OUTLOOK OF THE RENEWABLE ENERGY INDUSTRY Malaysia is blessed with many indigenous renewable energy sources. The renewable energy sources identified are: (a) (b) (c) (d) (e) (f) Palm oil biomass wastes and palm oil mill effluents; Mini-hydro; Solar power; Solid waste and land-fill gas; Wind energy* and geothermal*; Wastes and gases from agro-based* and farming industries*. Note: The detail resources potentials are yet to be fully examined and verified. Since 2001 Malaysia has made efforts towards renewable energy development where the principle adopted was using the market forces to deliver the intended outcomes towards electricity generation. The National Renewable Energy Policy and Action Plan sets out the projected targets for renewable energy development in Malaysia, as follows: 92
  103. Electricity Capacity Mix : By 2020, total capacity from renewable energy is targeted to reach 2,065 MW or 11% of total peak electricity demand capacity by 2020; Electricity (Energy) Mix: By 2020, total electricity mix from renewable energy is targeted to reach 11.2 TWh/year or 9% of total electricity generated. Electricity Capacity Mix: By 2030, total capacity from renewable energy is targeted to reach 3,484 MW or 14% of total peak electricity demand capacity by 2030; Electricity (Energy) Mix: By 2030, total electricity mix from renewable energy is targeted to reach 16.5 TWh/year or 11% of total electricity generated. The targets are projected until year 2050 when renewable energy would constitute 11.5GW or 36% of total peak electricity demand capacity and 29.3 TWh/year or 15% of total electricity generated as laid out in the table below: Year Ending Cum. Biomass (MW) Cum. Biogas (MW) 2011 2015 2020 2025 2030 2035 2040 2045 2050 110 330 800 1,190 1,340(1) 1,340(1) 1,340(1) 1,340(1) 1,340(1) 20 100 240 350 410(2) 410(2) 410(2) 410(2) 410(2) Cum. MiniHydro (MW) 60 290 490 490 490(3) 490(3) 490(3) 490(3) 490(3) Cum. Solar PV (MW) Cum. Solid Wastes (MW) Cum. Total RE (MW) 7 55 175 399 854 1,677 3,079 5,374 8,874 20 200 360 380 390 400 410 420 430 217 975 2,065 2,809 3,484 4,317 5,729 8,034 11,544 Notes : (1) The maximum potential can be realised from palm oil EFB and agro-based industry; (2) The maximum potential can be realised from POME, agro-based and farming industries; (3) The maximum potential can be realised from mini-hydro. The assumptions used in Table are: (1) RE plant lifespan is 25-30 years, whereby old plants will be replaced or upgraded. (2) RE Technical potential: i. Biomass (EFB, agro-based): 1,340 MW will be reached by 2028. ii. Biogas (POME, agro-based, farming): 410 MW will be reached by 2028. iii. Mini-hydro (not exceeding 30 MW): 490 MW will be reached by 2020. iv. Solar PV (grid-connected): unlimited. v. Solid waste (RDF, incineration, sanitary landfill): 378 MW will be reached by 2024 (at 30,000 tonne/day of solid waste as projected by KPKT, followed by 3% annual growth post 2024). (Source: National Renewable Energy Policy and Action Plan, Ministry of Energy, Green Technology & Water) 93
  104. SECTION 11 – OTHER MATERIAL INFORMATION 11.1 MATERIAL LITIGATION As at 12 December 2018, the Issuer is not engaged in any material litigation, claims or arbitration, either as plaintiff or defendant, and the Board of the Issuer is not aware of any proceedings pending or threatened against the Issuer or of any fact likely to give rise to any proceedings which may adversely affect the Issuer. 11.2 MATERIAL CONTINGENT LIABILITIES As at 12 December 2018, the Board of the Issuer is not aware of any material contingent liabilities, which may upon being enforceable, have a material adverse effect on the Issuer’s financial position or business. 11.3 CONFLICT-OF-INTEREST MEASURES SITUATIONS AND APPROPRIATE MITIGATING 11.3.1 RHB Investment Bank Berhad RHB Investment Bank is the Principal Adviser, the Lead Arranger, the Lead Manager and the Facility Agent for the ASEAN Green SRI Sukuk Programme. As at the date hereof and after making enquiries as were reasonable in the circumstances, RHB Investment Bank is not aware of any circumstances which would give rise to a conflict-of-interest in its capacity as the Principal Adviser/ Lead Arranger/ Lead Manager and Facility Agent in relation to the ASEAN Green SRI Sukuk Programme. 11.3.2 Adnan Sundra & Low Adnan Sundra & Low are the solicitors to the Principal Adviser and Lead Arranger for the ASEAN Green SRI Sukuk Programme. As at the date hereof and after making enquiries as were reasonable in the circumstances, Adnan Sundra & Low are not aware of any circumstances which would give rise to a conflict-of-interest in its capacity as the solicitors to the Principal Adviser and Lead Arranger in relation to the ASEAN Green SRI Sukuk Programme. 11.3.3 Malaysian Trustees Berhad Malaysian Trustees Berhad is the Sukuk Trustee for the ASEAN Green SRI Sukuk Programme. As at the date hereof and after making enquiries as were reasonable in the circumstances, Malaysian Trustees Berhad is not aware of any circumstances which would give rise to a conflict-of-interest in its capacity as the Sukuk Trustee in relation to the ASEAN Green SRI Sukuk Programme. 94
  105. 11 .3.4 RHB Islamic Bank Berhad RHB Islamic Bank Berhad is the Shariah Adviser for the ASEAN Green SRI Sukuk Programme. As at the date hereof and after making enquiries as were reasonable in the circumstances, RHB Islamic Bank Berhad is not aware of any circumstances which would give rise to a conflict-of-interest in its capacity as the Shariah Adviser in relation to the ASEAN Green SRI Sukuk Programme. [The remainder of this page is intentionally left blank] 95
  106. APPENDIX I ANNUAL REPORT OF PASUKHAS GROUP BERHAD FOR FYE 2017 96
  107. PASUKHAS GROUP BERHAD (Company No. 686389-A) (Incorporated in Malaysia under the Companies Act) DRIVING GROWTH, CREATING VALUE Annual Report 2017
  108. Annual Report 2017 CONTENTS 02 Corporate Information 03 04 06 07 17 36 122 Directors ’ Profile Profile Of Key Senior Management Audit And Risk Management Committee Report Statement On Risk Management And Internal Control 30 35 Chairman’s Statement Corporate Governance Overview Statement 20 33 Statement Accompanying Notice Of Annual General Meeting Management Discussion And Analysis 10 16 Notice Of Annual General Meeting Financial Highlights 09 13 Corporate Structure Additional Compliance Information Directors’ Responsibility Statement Financial Statements Analysis Of Shareholdings Proxy Form
  109. 2 PASUKHAS GROUP BERHAD (686389-A) CORPORATE INFORMATION BOARD OF DIRECTORS REGISTERED OFFICE Dato’ Teng Yoon Kooi Executive Director 10th Floor, Menara Hap Seng No. 1 & 3, Jalan P. Ramlee 50250 Kuala Lumpur Tel : 03 2382 4288 Fax : 03 2382 4170 Wan Thean Hoe Executive Director cum Chief Executive Officer HEAD OFFICE Dato’ Sri Teng Ah Kiong Executive Chairman Chan Man Chung Non-Independent Non-Executive Director Teoh Kim Hooi Independent Non-Executive Director Yap Chee Keong Independent Non-Executive Director Norkamaliah Binti Hashim Independent Non-Executive Director AUDIT AND RISK MANAGEMENT COMMITTEE Teoh Kim Hooi Chairman of Audit and Risk Management Committee, Independent Non-Executive Director Yap Chee Keong Independent Non-Executive Director Norkamaliah Binti Hashim Independent Non-Executive Director NOMINATION COMMITTEE Norkamaliah Binti Hashim Chairman of Nomination Committee, Independent Non-Executive Director Yap Chee Keong Independent Non-Executive Director Teoh Kim Hooi Independent Non-Executive Director REMUNERATION COMMITTEE Yap Chee Keong Chairman of Remuneration Committee, Independent Non-Executive Director Teoh Kim Hooi Independent Non-Executive Director Norkamaliah Binti Hashim Independent Non-Executive Director Wisma Modal Khas Lot 5815-A, Jalan Mawar Taman Bukit Serdang Seksyen 9 43300 Seri Kembangan Selangor Darul Ehsan Tel : 03 8948 3328 Fax : 03 8943 4328 PRINCIPAL BANKERS AmBank (Malaysia) Berhad Malayan Banking Berhad Malaysia Debt Ventures Berhad OCBC Bank (Malaysia) Berhad RHB Bank Berhad STOCK EXCHANGE ACE Market of Bursa Malaysia Securities Berhad Stock Name: PASUKGB Stock Code : 0177 Sector : Trading / Services COMPANY SECRETARIES Anna Lee Ai Leng (LS 0009729) Lim Lee Kuan (MAICSA 7017753) AUDITORS Crowe Horwath (Firm No. AF 1018) Level 16, Tower C Megan Avenue II 12, Jalan Yap Kwan Seng 50450 Kuala Lumpur Tel : 03 2788 9999 Fax : 03 2788 9998 SHARE REGISTRAR Tricor Investor & Issuing House Services Sdn Bhd Unit 32-01, Level 32, Tower A Vertical Business Suite Avenue 3, Bangsar South No. 8, Jalan Kerinchi 59200 Kuala Lumpur Tel : 03 2783 9299 Fax : 03 2783 9222
  110. ANNUAL REPORT 2017 CORPORATE Structure PASUKHAS LANKA (PVT) LIMITED 100% PASUKHAS SDN BHD 100% ESSENTIAL VALUE SDN BHD 55% PASUKHAS PRODUCTS SDN BHD 100% PASUKHAS ENERGY SDN BHD 100% PASUKHAS GROUP BERHAD (Company No. 686389-A) (Incorporated in Malaysia under the Companies Act) I.S. ENERGY SDN BHD 100% PASUKHAS CONSTRUCTION SDN BHD (Formerly known as Pasukan Khas Construction Sdn Bhd) 70% PASUKHAS DEVELOPMENT SDN BHD (Formerly known as Bungar Majujaya Sdn Bhd) 100% PASUKHAS PROPERTIES SDN BHD (Formerly known as Majujaya Masyhur Sdn Bhd) 100% MIDTOWN PEARL SDN BHD 100% 3
  111. 4 PASUKHAS GROUP BERHAD (686389-A) Notice of Annual General Meeting NOTICE IS HEREBY GIVEN that the Thirteenth Annual General Meeting of the Company will be held at Wisma Modal Khas, Lot 5815-A, Jalan Mawar, Taman Bukit Serdang, Seksyen 9, 43300 Seri Kembangan, Selangor Darul Ehsan on Monday, 28 May 2018 at 10.30 a.m. for the following purposes: AGENDA Ordinary Business 1. To receive the Audited Financial Statements for the financial year ended 31 December 2017 together with the Reports of the Directors and the Auditors thereon. 2. To re-elect the following Directors who retire by rotation in accordance with Article 70 of the Articles of Association and who being eligible offer themselves for re-election: (a) Dato’ Teng Yoon Kooi (b) Teoh Kim Hooi (Please refer to Explanatory Note A) Ordinary Resolution 1 Ordinary Resolution 2 3. To elect Puan Norkamaliah Binti Hashim who retire by rotation in accordance with Article 75 of the Ordinary Resolution 3 Articles of Association and who being eligible offer herself for election. 4. To approve the payment of Directors’ Fees of RM246,000 for the financial year ended 31 Ordinary Resolution 4 December 2017. 5. To approve the payment of Directors’ benefits payable to the Board of the Company and its Ordinary Resolution 5 subsidiaries of up to RM1,000,000 for the financial period from 1 January 2018 until 31 December 2018. 6. To re-appoint Messrs. Crowe Horwath as Auditors of the Company and to authorise the Directors Ordinary Resolution 6 to determine their remuneration. Special Business To consider and if thought fit, to pass the following Ordinary Resolutions, with or without modification:7. Authority to Issue Shares Pursuant to Sections 75 and 76 of the Companies Act, Ordinary Resolution 7 2016 “THAT subject always to the Companies Act 2016 (“Act”), the Articles of Association of the Company, the ACE Market Listing Requirements of Bursa Malaysia Securities Berhad (“Bursa Malaysia”) and the approvals of the relevant governmental or regulatory authorities, where such approval is required, the Directors be and are hereby authorised and empowered pursuant to Sections 75 and 76 of the Act to issue and allot shares in the Company to such persons, at any time until the conclusion of the next Annual General Meeting and upon such terms and conditions and for such purposes as the Directors may, in their absolute discretion, deem fit provided that the aggregate number of shares to be issued does not exceed ten per centum (10%) of the total number of issued shares of the Company for the time being.” 8. Proposed Renewal of Existing Shareholders’ Mandate for Recurrent Related Party Ordinary Resolution 8 Transactions of a Revenue or Trading Nature (“Proposed Shareholders’ Mandate”) “THAT, subject always to the Companies Act, 2016 (“Act”), the Memorandum and Articles of Association of the Company and the ACE Market Listing Requirements of Bursa Malaysia Securities Berhad or other regulatory authorities, approval be and is hereby given to the Company and/or its subsidiaries to enter into related party transactions with the Mandated Related Parties, particulars of which are set out in Section 2.3 of the Circular dated 25 April 2018, provided that such transactions are:(a) recurrent transaction of a revenue or trading nature; (b) necessary for the day-to-day operations of the Company and/or its subsidiaries; (c) carried out in the ordinary course of business of the Company and/or its subsidiaries, made on an arm’s length basis and on normal commercial terms with those generally available to the public; and (d) not detrimental to the interests of the minority shareholders of the Company;
  112. ANNUAL REPORT 2017 Notice of Annual General Meeting (cont’d) AND THAT such approval shall continue to be in force until: (a) the conclusion of the next annual general meeting (“AGM”) of the Company following this AGM where the authority is approved, at which time the authority will lapse unless renewed by a resolution passed at the meeting; or (b) the expiration of the period within which the next AGM after that date is required to be held pursuant to Section 340(2) of the Act (but shall not extend to such extensions as may be allowed pursuant to Section 340(4) of the Act); or (c) revoked or varied by a resolution passed by the shareholders of the Company at a general meeting; whichever is earlier; AND THAT the Directors of the Company be authorised to do, carry out and complete all such acts, things and arrangements (including executing all such documents as may be required) as they may consider expedient or necessary to give effect to the transactions as contemplated/ authorised by the Proposed Shareholders’ Mandate.” 9. To transact any other business of which due notice shall been given in accordance with the Companies Act 2016. By Order of the Board LIM LEE KUAN (MAICSA 7017753) ANNA LEE AI LENG (LS 0009729) Company Secretaries Selangor Darul Ehsan 25 April 2018 Notes: (A) The audited financial statements are laid in accordance with Section 340(1)(a) of the Companies Act 2016 for discussion only under Agenda 1. They do not require shareholders’ approval and hence, will not be put for voting. (1) A member of the Company entitled to attend and vote at the meeting is entitled to appoint a proxy or proxies to attend and vote in his stead. A proxy may but need not be a member of the Company. A member may appoint any person to be his proxy without restriction. If the proxy is not a member, he need not be an advocate, an approved company auditor or a person approved by the Registrar of Companies. (2) A member shall be entitled to appoint more than one proxy (subject always to a maximum of two (2) proxies at each meeting) to attend and vote at the same meeting. Where a member appoints two (2) proxies, the appointment shall be invalid unless the member specifies the proportions of his shareholdings to be represented by each proxy. (3) Where a member is an authorised nominee as defined under the Securities Industry (Central Depositories) Act, 1991, it may appoint at least one (1) proxy in respect of each Securities Account it holds with ordinary shares of the Company standing to the credit of the said securities account. (4) If no name is inserted in the space provided for the name of your proxy, the Chairman of the meeting will act as your proxy. (5) The instrument appointing a proxy must be deposited at the Registered Office of the Company at 10th Floor, Menara Hap Seng, No. 1 & 3 Jalan P. Ramlee, 50250 Kuala Lumpur not less than forty-eight (48) hours before the time for holding the meeting or any adjournment thereof. (6) If the appointer is a corporation, the instrument appointing a proxy must be executed under its Common Seal or under the hand of its attorney. (7) Pursuant to Rule 8.31A(1) of the ACE Market Listing Requirements of Bursa Malaysia Securities Berhad, all the resolutions set out in this Notice shall be put to vote by poll. 5
  113. 6 PASUKHAS GROUP BERHAD (686389-A) Notice of Annual General Meeting (cont’d) (8) For purpose of determining who shall be entitled to attend this meeting, the Company shall be requesting Bursa Malaysia Depository Sdn. Bhd. to make available to the Company, a Record of Depositors (“ROD”) as at 22 May 2018 and only a Depositor whose name appears on such ROD shall be entitled to attend this meeting or appoint proxy to attend and/or vote in his/her behalf. (9) Explanatory Notes on Special Business: (i) Ordinary Resolutions 4 & 5 Section 230(1) of the Companies Act 2016 provides amongst others, that the fees of the Directors and any benefits payable to the Directors of a listed company shall be approved at a general meeting. In this respect, the Board wishes to seek shareholders’ approval for the following payments to Directors at the 13th AGM in two (2) separate resolutions as below: • Resolution 4 on payment of Directors’ Fees totaling RM246,000 in respect of the financial year ended 31 December 2017; and • Resolution 5 on payment of Directors’ benefits payable to the Board of the Company and its subsidiaries of up to RM1,000,000 for the financial period from 1 January 2018 until 31 December 2018. (ii) Ordinary Resolution 7 Authority to Issue Shares Pursuant to Sections 75 and 76 of the Companies Act, 2016 The proposed Ordinary Resolution 7, if approved, will give flexibility to the Directors of the Company to issue shares up to a maximum of ten per centum (10%) of the issued share capital of the Company at the time of such issuance of shares and for such purposes as they consider would be in the best interest of the Company without having to convene separate general meetings. This authority, unless revoked or varied at a general meeting, will expire at the conclusion of the next Annual General Meeting of the Company. The previous mandate was not utilised and no proceeds were raised. The purpose of this general mandate sought will provide flexibility to the Company for any possible fund raising activities but not limited to further placement of shares for purpose of funding current and/or future investment projects, working capital, repayment of borrowings and/or acquisitions. (iii) Ordinary Resolution 8 Proposed Renewal of Existing Shareholders’ Mandate for Recurrent Related Party Transactions of a Revenue or Trading Nature (“Proposed Shareholders’ Mandate”) The proposed Ordinary Resolution 8, if passed, will provide a renewed mandate for the Company and/or its subsidiaries to enter into recurrent transactions involving the interests of Mandated Related Parties, which are of a revenue or trading nature and necessary for the Group’s day-to-day operations, subject to the transactions being carried out in the ordinary course of business and on terms not to the detriment of the minority shareholders of the Company. Please refer to the Circular to Shareholders dated 25 April 2018 dispatched together with this Annual Report. STATEMENT ACCOMPANYING NOTICE OF ANNUAL GENERAL MEETING Pursuant to Rule 8.29(2) of the ACE Market Listing Requirements of Bursa Malaysia Securities Berhad The profiles of the Directors who are standing for re-election/election as per Agenda 2 and 3 of the Notice of 13th AGM are stated on pages 13 to 16 of this Annual Report.
  114. ANNUAL REPORT 2017 7 Chairman ’s Statement Commentaries on Group’s Financial Performance The FYE 31 December 2017 was a very challenging year for the Group. The Group’s revenue recorded a decrease from RM60.385 million in FYE 31 December 2016 to RM36,859 million in FYE 31 December 2017. Despite the lower revenue recorded, the Group made a significant turnaround from loss after taxation of RM5.927 million in FYE 31 December 2016 to profit after taxation of RM0.725 million in FYE 31 December 2017. The improvement of the financial performance was mainly attributable to improvement in the gross operating profit from RM5.156 million in FYE 2016 to RM8.677 million in FYE 2017 due to better management of the project cost. For FYE 31 December 2017, the Civil Engineering & Construction Services was the largest contributor to the Group revenue at RM20.880 million representing 56.65% of Group revenue. The Mechanical & Electrical Engineering Services continues to contribute to the Group with revenue of RM6.965 million or 18.90% of Group revenue. The remaining revenues are contributed from the manufacturing of Low Voltage Switchboards, Renewable Energy and Rental Property. The Group recorded a profit before taxation of RM1.419 million for the current year under review. This showed a significant improvement of RM8.132 million or 121.14% as compared to the previous financial year’s loss before taxation of RM6.713 million. The substantial increase was mainly attributed to the improvement of the gross operating profit. Dividend The Board of Directors of the Group has not recommended any dividend payment for the current financial year, mainly due to its diversification and expansion for future sustainable growth. Prospects and Future Outlook The main revenue driver of the Group for the current year to date is mainly from Civil Engineering & Construction Services projects and moving forward the Group shall continue developing and expanding its foothold in this segment. The intense competitive market in the construction industry will remain a significant factor that may have a material impact on the Group’s earnings, while the availability of resources to undertake large projects remains a challenge to the Group. However, with greater construction expertise and larger clientele base after the completion of the acquisition of Pasukhas Construction Sdn Bhd (“PCSB”) in December 2016, with the synergies benefits thereon, the Group is expected to be in a better position to secure more projects and improve the future financial performance. The Civil Engineering and Construction services business segments shall serve alongside Mechanical and Electrical Engineering services business segment to bring the Group towards achieving its future business plans and expansion targets. Furthermore the acquisition of I. S. Energy Sdn Bhd (“ISE”) marked the initial footprint of the Group into energy utilities services and power generation business. ISE has been granted by Sustainable Energy Development Authority (SEDA) a 21-year concession starting from 7 November 2012 to operate the 3.2 MW Sungai Rek Hydro Power Plant. The long term stable income stream derived from the energy utilities services will contribute positively to Group’s long term revenue and profits. The members of the Board of Directors and I are confident of the future prospects of the Group in anticipation of the improved economy and in line with the additional roll out of more infrastructure projects initiated by the Government. We believe that with the continuous growth in the construction sector, acquisitions of PCSB and ISE, the financial performance in the coming financial years will be positive. Corporate Governance The Group and its Board of Directors continue to be resolute in ensuring that the Group’s business and affairs are in line to the principles of good corporate governance such as integrity, transparency, accountability and responsible business conduct. We adhere to laws and regulations to ensure a proper and well-structured management.
  115. 8 PASUKHAS GROUP BERHAD (686389-A) Chairman’s Statement (cont’d) Corporate Social Responsibility The Group believes that effective corporate responsibility can deliver benefits to its business and, in turn, to its shareholders by enhancing the Group’s reputation and business trust, staff motivation and retention, customer loyalty and long-term shareholder value. The Group has consistently sent its staff for training to upgrade their knowledge and enhance their specific skills which would contribute to the well-being of the Group throughout in the years to come. The Group also pays particular attention to the well-being of its staff notably in the area of improving the workplace, the community and the environment it operates to ensure the welfare and safety of its employees. The Group covers the cost of outpatient medical expenses for all eligible employees. Acknowledgements On behalf of the Board of Directors, I would like to express my deep appreciation to the management and staff, business associates and shareholders of the Group for their continuous commitment, contribution and support to the Group. I also would like to take this opportunity to welcome Puan Norkamaliah Binti Hashim who has been appointed as an Independent Non-Executive Director of the Company on 5 July 2017. Thank you. DATO’ SRI TENG AH KIONG Executive Chairman
  116. 9 ANNUAL REPORT 2017 FINANCIAL HIGHLIGHTS 2013 2014 2015 2016 2017 Profitability 41 ,297 41,304 68,109 60,385 36,859 Earnings/(Loss) before interest, tax, depreciation and amortization (EBITDA) (RM’000) Revenue (RM’000) 6,015 (3,829) 1,136 (6,646) 3,368 Profit/(Loss) before taxation (RM’000) 2,826 (5,205) 939 (6,713) 1,419 Profit/(Loss) for the year attributable to equity holders (RM’000) 1,285 (4,294) 897 (5,927) 725 29,500 29,500 29,500 37,011 89,783 295,001 295,001 295,001 370,112 811,573 33,797 29,503 30,400 41,047 88,168 Balance Sheet Share capital (RM’000) Number of shares in issue (units) (‘000) Shareholders’ equity (RM’000) Financial Ratio Revenue growth 6.55% 0.02% 64.90% (11.34%) (38.96%) Earnings growth (62.71%) (434.16%) 120.89% (760.76%) 112.23% Return on equity 3.80% (14.55%) 2.95% (14.44%) 0.82% 295,001 295,001 295,001 317,551 668,231 Share Information Weighted average number of ordinary Shares (units) (’000) Dividend per share (sen) Earnings/(Losses) per share (sen) Net assets per share (sen) - - - - - 0.44 (1.46) 0.30 (1.92) 0.09 11.46 10.00 10.31 11.09 10.86
  117. 10 PASUKHAS GROUP BERHAD (686389-A) MANAGEMENT DISCUSSION AND ANALYSIS OVERVIEW The Company is a public company limited by shares and is incorporated under the Companies Act in Malaysia. The Company is principally engaged in the business of investment holding and the provision of management services. The principal activities of its subsidiaries are engaged in the Mechanical & Electrical Engineering services, Civil Engineering and Construction services, Manufacturing of Low Voltage (“LV”) Switchboards, Trading of Equipment, Renewable Energy and Rental Property segments (“the Group”). The year 2018 will no doubt bring a fair share of challenges and opportunities to the Group. The slowdown in activities on ongoing projects for the local Civil Engineering and Construction services and Mechanical & Electrical Engineering services in year 2017 as compared to year 2016, which due to intense competitive market and continued pressure on pricing are expected to have adverse financial effects on the Company. Despite the headwinds from the slowdown, the Group remains optimistic as it will continue to leverage on its clients base, internal strength and marketing efforts to secure new contracts from both local and overseas clients. It is expected that the Group would be able to improve earnings and profitability for the foreseeable financial years. During the year 2017, Hong Leong Investment Bank Berhad, on behalf of the Board of the Group, announced that:(i) On 23 January 2017, the Company increased its total number of issued and paid-up share capital from 370,111,566 to 405,786,566 by an issuance of 35,675,000 new ordinary shares of RM0.10 each, at an issue price of RM0.15 each through private placement (“Placement Shares”). On 25 January 2017, the private placement is deemed completed following the listing of and quotation for 35,675,000 Placement Shares on the ACE Market of Bursa Securities. (ii) On 11 May 2017, a total of 405,786,566 Rights Shares in relation to the Rights Issue were listed and quoted on the ACE Market of Bursa Securities with effect from 9.00 a.m. on Thursday, 11 May 2017, marking the completion of the Rights Issue. (iii) On 21 June 2017, Pasukhas Energy Sdn Bhd (“PESB”) has entered into the signing of the I. S. Energy Sdn Bhd (“ISE”) Conditional Share Sales Agreement (“SSA”) and ISE Debt Settlement Agreement (“DA”). Following to the signing of the ISE SSA Agreement and ISE DA Agreement, PESB is deemed to have taken over the management of ISE, including the Sungai Rek Hydro Power Plant commencing from 31 May 2017. Therefore, PESB will be entitled to all revenue and profit generated by ISE after 31 May 2017. With its current solid foundation, and keen eye for integrating suitable mergers and acquisitions into its expansion plan, the Group is confident of maintaining sustainable growth and improved profitability. FINANCIAL REVIEW Revenue of the Group decreased to RM36.859 million (2016: RM60.385 million). This was mainly attributable to decrease in activities of ongoing projects for local Civil Engineering and Construction services and M&E Engineering services projects. The Group’s revenue was derived solely from Malaysia. Despite the lower revenue, the Group’s gross operating profit increase by 68.29% to RM8.677 million (2016: RM5.156 million) due to better management of the project cost. This resulted to the increase of net profit by 112.23% to RM0.725 million (2016: net loss RM5.927 million). Revenue for the year comprises of RM20.880 million (2016: RM40.207 million) contributed by Civil Engineering and Construction services, RM6.965 million (2016: RM11.367 million) by M&E Engineering services, and the remaining revenue are contributed from Manufacturing of LV Switchboards, Renewable Energy and Rental Property. Gross Operating Profit for the year was RM8.677 million (2016: RM5.156 million), of which RM3.578 million (2016: RM2.316 million) was mainly from Civil Engineering and Construction services, and RM2.383 million (2016: RM1.940 million) by M&E Engineering services. The remaining gross operating profit are contributed from Manufacturing of LV Switchboards, Renewable Energy and Rental Property.
  118. ANNUAL REPORT 2017 11 MANAGEMENT DISCUSSION AND ANALYSIS (cont’d) FINANCIAL REVIEW (cont’d) Most of the Group’s assets and liabilities are dominated in Ringgit Malaysia. However, the Group is exposed to foreign currency risk from trade sales and purchases of the subsidiaries. However, the net exposure in terms of its potential impact on both profitability and financial position of the Group is considered to be not material. The Group will continue to closely monitor its foreign exchange position and if necessary, hedge its foreign exchange exposure by entering into appropriate hedging instruments. As at 31 December 2017, the Group has not enter into any hedging instruments as the potential impact was insignificant. The Group has centralized its financing policies and control over all its operations. With tight control on treasury operations, yields from excess funds are maximized without compromising on risks while average cost of funds for borrowings is lowered. On the other side, all the bank facilities are secured by pledged of fixed deposits with licensed banks of the Group, joint and several guarantees of certain directors of the Company, and corporate guarantees by the Company. The Board has not recommended and declared any dividend for the year and over the previous years, mainly due to its continued diversification and expansion for sustainable growth in future. Nevertheless, future declaration of dividends shall be subjected to future investment and further expansion needs. OPERATIONAL REVIEW In 2017, the Group continued to grow with resilience against the headwinds. The macroeconomic volatilities, currency fluctuations across the Asian nations, and slowing GDP growth of China exerted pressures at an increased level in this competitive environment. Despite these challenges, the Group continued to implement its strategic plans and delivered core earnings on an expanded scale. Prior to the diversification into Renewable Energy business, the Group’s business comprised of four major segments i.e. Civil Engineering and Construction services, M&E Engineering services, Manufacturing of LV Switchboards, and Trading of Equipment. The Group had been undertaking various types of projects in the construction industry and provision of M&E engineering services, either on a joint venture basis or by subsidiary of PGB alone. In December 2016, the Group completed the acquisition of Pasukhas Construction Sdn Bhd (“PCSB”). Given PCSB’s past track records and expertise in construction, this acquisition is expected to produce synergistic benefits. With greater assets and resources and a larger clientele base after the completion of the Acquisition of PCSB, the Group will be in a position to widen its client base and improve the earnings and revenue source of the Group. In May 2017, the Group completed the acquisition of ISE. The acquisition of ISE remarkably marked the initial footprint of the Group into energy generation related industries and to diversification of its revenue base. PROSPECTS The Board of the Group believe that we can benefit from the growth of the general construction sector, which remains attractive on the back of continued Government development policies with strong emphasis on infrastructure development projects. It is our Group’s plan to further explore the possibility of forming strategic alliance or joint venture with other companies in larger construction projects. While competition in the construction industry remains intense, with our construction expertise and large clientele base, we are confident that we are in a better position to secure more projects and improve the financial performance of the Group. The Group’s M&E Engineering Services division is still actively securing more water and infrastructure projects. With the Government’s aim to develop Malaysia into a developed nation by 2020, and to have a complete and modern water infrastructure system in place catering to the entire country as one of the national targets, we are cautiously optimistic in benefiting from the roll out of new infrastructure projects from the Government and private sectors.
  119. 12 PASUKHAS GROUP BERHAD (686389-A) MANAGEMENT DISCUSSION AND ANALYSIS (cont’d) PROSPECTS (cont’d) With the acquisition of ISE and diversification into Renewable Energy, i.e. energy utilities services and power generation business, the Group’s growth potential is enhanced. In addition the long term stable income stream derived from the energy utilities services will contribute positively to the long term revenue and profits of the Group. ISE has been granted by Sustainable Energy Development Authority (SEDA) a 21-year concession starting from 7 November 2012 to operate the 3.2 MW Sungai Rek Hydro Power Plant. Furthermore, the introduction of the Renewable Energy Act 2011 provides a mandatory requirement for Tenaga Nasional Berhad to buy renewable energy power. Given the Government’s support in providing an economically viable platform for investments in the power and energy sector in Malaysia, the positive prospect is expected to improve the Group’s power and energy related businesses, thus enhancing our growth potential and performance. We will continuously be on the lookout for mergers and acquisitions opportunities to further expand on our power and energy related business in the near future. With our long term concession revenue from ISE, we will gradually reduce our dependence on revenue derived from our existing business activities. Overall, the Board is confident of the future prospects of the Group in anticipation of the improved economy and in line with the additional roll out of more infrastructure projects initiated by the Government. We believe that with the continuous opportunities in the construction sector, we expect the acquisitions of PCSB and ISE will contribute positively to the financial performance of the Group. Nonetheless, the Group will continue to focus and review strategies to improve the cost, quality and delivery of our products and services as well as overall operational efficiencies in order to remain competitive in the industries we operate in.
  120. ANNUAL REPORT 2017 13 Directors ’ Profile Dato’ Sri Teng Ah Kiong was appointed to the Board on 19 May 2011 as the Executive Chairman cum Managing Director of the Company. Subsequently, he relinquished his position as the Managing Director on 1 January 2016 and continued to assume the role as the Executive Chairman of the Company. accumulated various on-the-job experiences before pursuing a Masters of Business Administration Degree from University of East London, UK, which was completed in 2009. He started his career as an electrician in 1971 with an electrical contracting company based in Butterworth, Penang. In 1977, he joined a sugar mill in Indonesia as the Head of the Electrical Unit where he was responsible for overseeing the maintenance of all electrical equipment and operation of the power house with three (3) electrical engineers and 28 electricians under his supervision. In 1980, he joined a Hong Kong-based turnkey construction company, Kerry Engineering Pte Ltd as the Head of Electrical Division and oversaw the electrical and mechanical installation works projects. In 1985, he co-founded Pasukhas Sdn Bhd (“PSB”), a subsidiary of the Company with his brother, Dato’ Teng Yoon Kooi who is the Executive Director of the Company. Dato’ Sri Teng completed his secondary school examination in 1971 and Dato’ Sri Teng has attended all Board Meetings held during the financial year Dato’ Sri Teng Ah Kiong Malaysian, male, aged 65 Executive Chaiman DATO’ TENG YOON KOOI Malaysian, male, aged 61 Executive Director Dato’ Teng Yoon Kooi was appointed to the Board on 19 May 2011 and is an Executive Director of the Company. Dato’ Teng completed his secondary school examination in 1974 and holds a Wireman Nil and Chargeman certificate from the Energy Commission of Malaysia. He has over 20 years of working experience in the electrical engineering industry. He began his career as a wireman apprentice in 1976 with Genelite Electric Sdn Bhd. In 1985, he co-founded Pasukhas Sdn Bhd (“PSB”), a subsidiary of the Company with his brother, Dato’ Sri Teng Ah Kiong who is the Executive Chairman of the Company and since then, has been responsible for the execution of all the site projects for water treatment plants, palm oil mills and other industrial projects in the M&E engineering services industry. He is also a director of PSB. Dato’ Teng is responsible for overseeing the overall operations of the M&E engineering services division, the strategic planning and the overall management of M&E engineering projects, and the marketing and business development activities. ended 31 December 2017. He does not hold any directorship in any other public company. Save as disclosed, he does not have any family relationship with any Director and/or major shareholder of Pasukhas Group Berhad, has no conflict of interest with the Company and has not been convicted of any offences within the past 5 years other than traffic offences, if any. There were no sanctions and/or penalties imposed on him by any relevant regulatory bodies, which were material and made public during the financial year ended 31 December 2017. Dato’ Sri Teng is responsible for the Group’s strategic operations and business development activities, the overall operations and management of the Group as well as overseeing the sales and marketing functions. He is the brother to Dato’ Teng Yoon Kooi, the Executive Director of the Company. His shareholding in the Company is disclosed on page 122 of the Annual Report. He is the brother to Dato’ Sri Teng Ah Kiong, the Executive Chairman of the Company. His shareholding in the Company is disclosed on page 122 of the Annual Report. Dato’ Teng has attended all the Board Meetings held during the financial year ended 31 December 2017. Dato’ Teng does not hold any directorship in any other public company. Save as disclosed above, he does not have any family relationship with any Director and/or major shareholder of Pasukhas Group Berhad, has no conflict of interest with the Company and has not been convicted of any offences within the past 5 years other than traffic offences, if any. There were no sanctions and/ or penalties imposed on him by any relevant regulatory bodies, which were material and made public during the financial year ended 31 December 2017.
  121. 14 PASUKHAS GROUP BERHAD (686389-A) Directors’ Profile (cont’d) Mr Wan is a member of the Malaysian Institute of Accountants and an associate member of The Chartered Insitute of Management Accountants. WAN THEAN HOE Malaysian, male, aged 49 Executive Director cum Chief Executive Officer Mr Wan Thean Hoe was appointed to the Board on 4 November 2015 as an Executive Director and subsequently, he was re-designated as the Chief Executive Officer of the Company on 4 December 2015. CHAN MAN CHUNG Malaysian, male, aged 51 Non-Independent NonExecutive Director He started as an account executive in Maju Associate Sdn Bhd in 1993 before joining Tan Chong Motor Assemblies Sdn Bhd as an Accountant in 1995. Mr Wan subsequently joined DXN Holdings Bhd as the Group Financial Controller in 1998. In 2000, he joined Yunque Automotive (China) Co Ltd and Jiang Yin Cheng Chang Auto Parts (China) Co Ltd as Deputy General Manager. After came back from China, he joined Toptrans Engineering Group as Group Financial Controller in 2010 and started off Tara Temasek Sdn Bhd and Clean Tech Waste Solutions Sdn Bhd after he left Toptrans. Mr Wan has extensive knowledge in corporate finance, business planning and development. Mr Chan started his early career in 1988 as a Marketing Executive with Elken Malaysia, overseeing in marketing and sales of cosmetics products. In 1990, he was placed in charge of Hong Kong Branch for MBTS Group as General Manager, overseeing operation and business development activity. He briefly joined CNI Malaysia in 1992, a company focusing on health care product as Marketing Executive. In 1993, he joined Fulli-Strong as General Manager based in Indonesia. Mr Chan Man Chung was appointed to the Board on 24 November 2015 as a Non-Independent Non-Executive Director. Four years later in 1997, he joined DXN Malaysia as Marketing Director, overseeing and developing oversea market in Asia particularly Indonesia, Philippines, Thailand, India and Australia. He also assisted in the listing exercise of DXN in Bursa Malaysia. He completed his secondary school education in 1984 and has more than 20 years of experiences in Business Development and Strategic Planning. In 2006, he left and pursue his interest in Property Development and became a shareholder of PT Panca Tunggal Sapta and PT Panca Pilar Mas Indonesia. He has deemed interest in the Company by virtue of him being the ultimate beneficial owner of Tara Temasek Sdn Bhd, a substantial shareholder of the Company. His shareholding in the Company is disclosed on page 122 of the Annual Report. He has attended all the Board Meetings held during the financial year ended 31 December 2017 and he does not hold any directorship in any other public company. He does not have any family relationship with any Director and/or major shareholder of Pasukhas Group Berhad, has no conflict of interest with the Company and has not been convicted of any offences within the past 5 years other than traffic offences, if any. There were no sanctions and/ or penalties imposed on him by any relevant regulatory bodies, which were material and made public during the financial year ended 31 December 2017. Mr Chan has deemed interest in the Company by virtue of him being the ultimate beneficial owner of Tara Temasek Sdn Bhd, the substantial shareholder of the Company. His shareholding in the Company is disclosed on page 122 of the Annual Report. He has attended all Board Meetings held during the financial year ended 31 December 2017 and he does not hold any directorship in any other public company. He does not have any family relationship with any Director and/or major shareholder of Pasukhas Group Berhad, has no conflict of interest with the Company and has not been convicted of any offences within the past 5 years other than traffic offences, if any. There were no sanctions and/ or penalties imposed on him by any relevant regulatory bodies, which were material and made public during the financial year ended 31 December 2017.
  122. ANNUAL REPORT 2017 15 Directors ’ Profile (cont’d) TEOH KIM HOOI Malaysian, male, aged 63 Independent Non-Executive Director Mr Teoh Kim Hooi was appointed to the Board on 8 February 2012 as an Independent Non-Executive Director. He is the Chairman of the Audit and Risk Management Committee and is also a member of the Nomination Committee and the Remuneration Committee. YAP CHEE KEONG Malaysian, male, aged 63 Independent Non-Executive Director Mr Teoh graduated with a professional certification from the Association of Chartered Certified Accountants (“ACCA”), UK in 1980 and was admitted as an Associate Member of ACCA in 1982. He obtained his Fellowship of ACCA in 1987 and his audit licence from the MOF in 1986. He started his career in auditing as an audit assistant with a medium-sized audit firm from January 1979 to 1980. Thereafter, he joined a medium-sized audit firm, as a Senior Associate and rose up to the ranks of Audit Manager and also Tax Manager before he commencetd his own practice in 1986. He currently practices under the name of TKH & Partners. He was also actively involved in the business advisory and company secretarial sectors. He is currently a Fellow Member of ACCA, a Licence Auditor and Tax Agent, a member of the Malaysian Institute of Accountants and a Fellow Member of the Chartered Tax Institute of Malaysia. His shareholding in the Company is disclosed on page page 122 of the Annual Report. Mr Yap Chee Keong was appointed to the Board on 19 August 2013 as an Independent Non-Executive Director. He is the Chairman of the Remuneration Committee and is also a member of the Audit and Risk Management Committee and the Nomination Committee. now a Financial Adviser and Company Director. He had also served as a Director of several other public listed companies. Mr Yap holds a Bachelor of Arts (First Class Honours) degree in Economics from the University of Leeds, United Kingdom (1978). He is also a Chartered Accountant of the Institute of Chartered Accountants of Scotland (1981).  Mr Yap has auditing experience in England from 1978 to 1981. He also has extensive financial experience gained from his career in merchant banking from 1981 to 1997 with Bumiputra Merchant Bankers Berhad. Mr Yap Chee Keong is He has attended all the Board Meetings held during the financial year ended 31 December 2017 and he does not hold any directorship in any other public company. He does not have any family relationship with any Director and/or major shareholder of Pasukhas Group Berhad, has no conflict of interest with the Company and has not been convicted of any offences within the past 5 years other than traffic offences, if any. There were no sanctions and/ or penalties imposed on him by any relevant regulatory bodies, which were material and made public during the financial year ended 31 December 2017. He has attended four out of five Board Meetings held during the financial year ended 31 December 2017 and he does not hold any directorship in any other public company. He does not have any family relationship with any Director and/or major shareholder of Pasukhas Group Berhad, has no conflict of interest with the Company and has not been convicted of any offences within the past 5 years other than traffic offences, if any. There were no sanctions and/ or penalties imposed on him by any relevant regulatory bodies, which were material and made public during the financial year ended 31 December 2017.
  123. 16 PASUKHAS GROUP BERHAD (686389-A) Directors’ Profile (cont’d) Puan Norkamaliah Binti Hashim was appointed to the Board on 5 July 2017 as an Independent Non-Executive Director. She is the Chairperson of Nomination Committee and is also a member of Audit and Risk Management Committee and the Remuneration Committee. She holds a Bachelor in Estate Management from Mara University of Technology, Shah Alam, Selangor. Norkamaliah Binti Hashim Malaysian, female, aged 46 Independent Non-Executive Director Puan Norkamaliah has more than 23 years of working experience in various companies specialized in real estate valuation, property management, plant and machinery valuation, land acquisition claims, feasibility studies, estate agency services as well as investment analysis. Currently she is a property consultant with TransAsia Property Consultancy Sdn Bhd. She has attended one out of two Board Meetings held during the financial year ended 31 December 2017 and she does not hold any directorship in any other public company. She does not have any family relationship with any Director and/or major shareholder of Pasukhas Group Berhad, has no conflict of interest with the Company and has not been convicted of any offences within the past 5 years other than traffic offences, if any. There were no sanctions and/or penalties imposed on her by any relevant regulatory bodies, which were material and made public during the financial year ended 31 December 2017. PROFILE OF KEY SENIOR MANAGEMENT Ms Lim Ee Vone was appointed on 16 November 2015 as Chief Financial Controller of the Company. LIM EE VONE Malaysian, female, aged 38 Chief Financial Officer Ms Lim has more than 15 years of experience in corporate finance and accounting. She is a member of The Malaysian Institute of Accountants and Certified Practising Accountant of CPA Australia since 2007. She started her career in auditing as an Audit Associate in KPMG in 2003. Thereafter she joined Pricewaterhousecoopers in 2004 before joining ENV Water Engineering (M) Sdn Bhd in year 2007 as Account Manager cum Personal Assistant to Executive Director. She then joined Toptrans Engineering Sdn Bhd as Group Accountant overseeing Group Corporate Finance and Treasury matters from 2009 until 2015. Subsequently she joined Ahmad Zaki Resources Berhad as Senior Manager in Group Reporting, responsible for the Company write-up and presentation to Board of Director and external parties. She has extensive finance and accounting knowledge in Mechanical and Electrical industry. She does not have any family relationship with any Director and/or major shareholder of Pasukhas Group Berhad, has no conflict of interest with the Company and has not been convicted of any offences within the past 5 years other than traffic offences, if any. There were no sanctions and/or penalties imposed on her by any relevant regulatory bodies, which were material and made public during the financial year ended 31 December 2017.
  124. 17 ANNUAL REPORT 2017 Audit And Risk Management Committee Report The Board of Directors of Pasukhas Group Berhad (“the Board”) is pleased to present the Audit and Risk Management Committee (“ARMC”) Report for the financial year ended 31 December 2017. COMPOSITION AND MEETINGS The ARMC comprises of three (3) members as follows: • • • Teoh Kim Hooi, Chairman, Independent Non-Executive Director Yap Chee Keong, Member, Independent Non-Executive Director Norkamaliah Binti Hashim, Member, Independent Non-Executive Director During the financial year ended 31 December 2017, the ARMC conducted a total of five (5) meetings and the details of attendance of the ARMC Members are as follows: Name of Members Designation Attendance Teoh Kim Hooi Independent Non-Executive Director Chairman 5/5 Yap Chee Keong Independent Non-Executive Director Member 4/5 Norkamaliah Binti Hashim Independent Non-Executive Director (Appointed on 5 July 2017) Member 1/2 Details of the members of the ARMC are contained in the Profile of Directors as set out on pages 13 to 16 of this Annual Report. The ARMC Chairman, Mr Teoh Kim Hooi, is a member of the Malaysian Institute of Accountants (MIA) which fulfils the requirement of Rule 15.09(1)(c) of the ACE Market Listing Requirements of Bursa Securities. The Board reviews the terms of office of the ARMC members and assesses the performance of the ARMC and its members through an annual Board Committee effectiveness evaluation. The Board is satisfied that the ARMC and its members discharged their functions, duties and responsibilities in accordance with the ARMC’s Terms of Reference (TOR), supporting the Board in ensuring the Group upholds appropriate CG standards. At the invitation of the ARMC, the Chief Executive Officer, relevant Management Team members, External and Internal Auditors attended the ARMC meetings and presented their reports on financial results, audit findings and other matters for the information and/or approval of the ARMC. Minutes of each ARMC meeting were recorded and tabled for confirmation at the next following ARMC meeting and subsequently presented to the Board for notation. In 2017, the ARMC Chairman presented to the Board the Committee’s recommendations to approve the annual and quarterly financial statements. The ARMC Chairman also conveyed to the Board matters of significant concern as and when raised by the external auditors or internal auditors in the respective quarterly presentations. The Company Secretary is responsible for coordinating administrative details such as calling for meeting and keeping the minutes. Minutes of each meeting is signed by the Chairman and extract of matters requiring actions were distributed to relevant attendees and members of the ARMC. Terms of Reference The ARMC Terms of Reference is made available on the Company’s corporate website at www.pasukhasgroup.com.my. Review of ARMC The terms of office and performance of the ARMC and each of its members shall be reviewed by the Nomination Committee annually to determine whether such ARMC and members have carried out their duties in accordance with their terms of reference.
  125. 18 PASUKHAS GROUP BERHAD (686389-A) Audit And Risk Management Committee Report (cont’d) Summary of WORK OF THE ARMC During the financial year ended 31 December 2017, the ARMC has carried out the following work in accordance with its terms of reference to meets its responsibilities: (a) Reviewed the unaudited quarterly financial statements of the Group to ensure adherence to the regulatory reporting requirements and appropriate resolution prior to Board’s approval; (b) Reviewed the annual audited financial statements of the Company and of the Group prior to Board’s consideration and approval; (c) Reviewed the audit plan of the external auditors in terms of their scope of audit prior to their commencement of their annual audit; (d) Reviewed the recurrent related party transactions to be entered into by the Group to ensure that the transactions entered into were on arm’s length basis and on normal commercial terms and not detrimental to the interests of minority shareholders every quarter; (e) Reviewed the internal audit report which outlined the recommendations towards correcting areas of weaknesses and ensured that there were management action plans established for the implementation of the internal auditors’ recommendations; (f) Reviewed the audit reports from the external auditors in relation to audit and accounting matters arising from the statutory audit; matters arising from the audit of the Group in meetings with the external auditors without the presence of the executive Board members and management; (g) Met twice with the external auditors without the presence of the executive directors and management in the ARMC meetings to enquire on significant findings, fraud consideration, if any, and/or management cooperation level; (h) Reviewed the re-appointment of external auditors and their audit fees, after taking into consideration the independence and objectivity of the external auditors and the cost effectiveness of their audit, before the recommendation to the Board for approval; (i) Reviewed with the external auditors, the Statement on Risk Management and Internal Control of the Group for inclusion in the annual report; (j) Reviewed and confirmed the minutes of the ARMC meetings, and also distributed the minutes to the other members of the Board; and (k) Reported on the proceedings of each ARMC Meeting (through the ARMC Chairman). ARMC MEMBERS’ TRAINING The details of training programmes and seminars attended by each ARMC member during the year under review are set out in the Report of Nomination Committee on page 22 of this Annual Report. INTERNAL AUDIT function The Group has outsourced its internal audit functions to an independent professional consulting firm, CAS Consulting Services Sdn Bhd, who reports directly to the ARMC as well as to the Board. The scope of the internal audit covers the identification, assessment, examination and evaluation of the adequacy and effectiveness of the Group’s system of internal control, the efficiency of its processes and their standard of performance in carrying out assigned responsibilities. The internal auditors’ main function is to submit audit reports that highlight any risk and control weaknesses and provide suitable recommendations for improvement to reassure the senior management and the ARMC on the state of its internal control and that of the Group. The internal audit reports issued during the year incorporated findings and recommendations with regard to its system, control and processes, weaknesses highlighted in the course of audit, management responses, addressing and proposing remedial actions on the findings in its review process.
  126. ANNUAL REPORT 2017 19 Audit And Risk Management Committee Report (cont’d) INTERNAL AUDIT function (cont’d) The annual Internal Audit Plan is reviewed and approved by the ARMC prior to each financial year. The plan is developed based on the analysis of the businesses of the Group, as well as on past experience. The internal audit will focus its resources on areas with high risks and the Internal Auditors will first discuss with Management and the ARMC, review management reports and financial statements. The internal audit activity carried out in accordance with the approved audit plan for FY 2017 was on the Tendering and Procurement Management System. The cost of internal audit services rendered by the Internal Auditor in respect of the financial year ended 31 December 2017 amounted to RM12,500. Further details on the internal control are set out in the “Statement on Risk Management and Internal Control” on page 30 of this Annual Report. The report is made in accordance with the resolution of the Board of Directors dated 30 March 2018.
  127. 20 PASUKHAS GROUP BERHAD (686389-A) Corporate Governance Overview Statement The Board of Directors (“the Board”) of Pasukhas Group Berhad (“Pasukhas” or “the Company”) strives to ensure good corporate governance practices are implemented and maintained throughout the Company and its subsidiaries (“the Group”) as a fundamental part of discharging its duties to enhance shareholders’ values. This statement provides an overview on the application of the principles as set out in the Malaysian Code on Corporate Governance 2017 (“MCCG 2017”) and the extent to which the Company has complied with the three (3) key principles and practices of the MCCG 2017 during the financial year under review, and this is to be read together with the CG Report 2017 of the Company which is available on Bursa Malaysia’s website: http://www.bursamalaysia.com/corporate/about-us/corporate-governance/cg-report-2017/ and the Company’s website at www. pasukhasgroup.com. PRINCIPLE A: BOARD LEADERSHIP AND EFFECTIVENESS 1.1 Board Responsibilities The Board is responsible for formulating and reviewing the strategic plans and key policies of the Company, and charting the course of the Group’s business operations whilst providing effective oversight of Management’s performance, risk assessment and controls over business operations. The Board delegates and confers some of its authority and discretion on the Executive Chairman, Executive Directors, and Management as well as on properly constituted Board Committees comprising exclusively of Non-Executive Directors. The Board Committees comprise the Audit and Risk Management Committee (“ARMC”), Nomination Committee (“NC”) and Remuneration Committee (“RC”). Board Committees have been established to assist the Board in its oversight function with reference to specific responsibility areas. It should however be noted that at all times, the Board retains collective oversight over the Board Committees. These Committees have been constituted with clear terms of reference and they are actively engaged to ensure that the Group is in adherence with good corporate governance. The Chairman of the relevant Board Committees report to the Board on key issues deliberated by the Board Committees at their respective meetings. The terms of reference of the Commitees are published on the Company’s websites. The positions of the Executive Chairman and the Executive Director cum Chief Executive Officer (“CEO”) are held by two different individuals. There is a clear division of responsibilities between the Executive Chairman of the Board and the Executive Director cum CEO to ensure that there is a balance of power and authority. The Executive Chairman is responsible for running of the Board and ensuring that all Directors receive sufficient and reliable information on financial and non-financial matters to enable them to participate actively in Board decisions whilst the Executive Director cum CEO is responsible over the operating units, organisation effectiveness and implementation of the Board’s policies and decisions. To enhance accountability, the Board has established clear functions reserved for the Board and those delegated to Management. There is a formal schedule of matters reserved to the Board for its deliberation and decision to ensure the direction and control of the Company are in its hands. The role of Management is to support the Executive Directors and implement the running of the general operations and business of the Company, in accordance with the delegated authority of the Board. In general, the Non-Executive Directors are independent of Management. Their roles are to constructively challenge Management and monitor the success of Management in delivering the approved targets and business plans within the risk appetite set by the Board. They have free and open contact with Management at all levels, and they engage with the external and internal auditors to address matters concerning Management and oversight of the Company’s business and operations. Key matters reserved for the Board’s approval include the annual business plan and budget, capital management and investment policies, authority limits/levels, risk management policies, declaration of dividends, business continuity plan, issuance of new securities, business restructuring, expenditure above a certain limit, material acquisitions and disposals of assets.
  128. ANNUAL REPORT 2017 21 Corporate Governance Overview Statement (cont’d) PRINCIPLE A: BOARD LEADERSHIP AND EFFECTIVENESS (cont’d) 1.1 Board Responsibilities (cont’d) In performing their duties, all Directors have access to advice and services of a suitably qualified Company Secretary. The Company Secretary acts as a corporate governance counsel and ensures good information flow within Board, Board Committees and Senior Management. The Company Secretary attends all meetings of the Board and Board Committees and advises the Directors on the requirements encapsulated in the Company’s Constitution and legislative promulgations such as the Companies Act 2016, ACE Market Listing Requirements (“AMLR”), etc. The Company Secretaries were entrusted to record the Board’s deliberations, in terms of issues discussed, ensure that deliberations at Board and Board Committee meetings are well documented, and subsequently communicated to Management for appropriate actions. The minutes of the previous Board and Board Committee meetings are distributed to the Directors/ Committee prior to the meeting for their perusal before confirmation of the minutes at the commencement of the following Board meeting. The Directors may comment or request clarification before the minutes are tabled for confirmation as a correct record of the proceedings of the meeting. Management provides Directors with complete and time information prior to meetings and on-going basis to enable them to make informed decisions. 1.2 Board Charter The Company has in place a Board Charter that sets out, among others, the responsibilities, authorities, procedures, evaluations and structures of the Board and Board Committees, as well as the relationship between the Board with its Management and shareholders. The Board shall review its Charter from time to time to ensure it remains consistent with its objectives and responsibilities and the prevailing regulatory requirements. The responsibilities of the Board are stipulated in the Charter which is available in the Company’s website at www.pasukhasgroup.com. 1.3 Code of Conduct The Board has adopted a Code of Conduct for the Directors of the Company, which covers a wide range of business practices and procedures. The Code of Conduct describes the standards of business conduct and ethical behaviour for Directors in the performance and exercise of their responsibilities as Directors of the Company or when representing the Company, which is available in the Company’s website at www.pasukhasgroup.com. In addition, all employees are encouraged to report genuine concerns about unethical behaviour or malpractices. Any such, concern should be raised with senior management, and an appropriate action will be taken by the Company. If for any reason, it is believed that this is not possible or appropriate, then the concern should be reported to any of the Independent NonExecutive Director of the Company who can be contacted at admin@pasukhas.com.my. The Board has yet to identify a Senior Independent Non-Executive Director to whom concerns may be conveyed by shareholders and the general public. 1.4 Board Meetings The Board is satisfied with the level of time commitment given by the Directors towards fulfilling their roles and responsibilities as Directors of the Company. This is evidenced by the attendance record of the Directors at Board Meetings during the financial year, as set out in the table below:
  129. 22 PASUKHAS GROUP BERHAD (686389-A) Corporate Governance Overview Statement(cont’d) PRINCIPLE A: BOARD LEADERSHIP AND EFFECTIVENESS (cont’d) 1.4 Board Meetings (cont’d) Name of Director No. of Meetings Attended Dato’ Sri Teng Ah Kiong 5/5 Dato’ Teng Yoon Kooi 5/5 Wan Thean Hoe 5/5 Chan Man Chung 5/5 Teoh Kim Hooi 5/5 Yap Chee Keong 4/5 Norkamaliah Binti Hashim (Appointed on 5 July 2017) 1/2 To ensure that the Directors have the time to focus and fulfil their roles and responsibilities effectively, the Directors must not hold directorships in more than five (5) public listed companies and shall notify the Chairman before accepting any new directorship. To facilitate the Directors’ time planning, an annual meeting schedule is prepared and circulated at the beginning of every year, as well as the tentative closed periods for dealings in securities by Directors based on the targeted dates of announcements of the Group’s quarterly results. 1.5 Professional Development of Director The Board acknowledges the importance of continuous training to keep abreast with regulatory updates and development in the business environment. All the Directors have completed the mandatory accreditation program and attended various training programs. The training program, conferences, seminars and exhibitions attended by the Directors during the financial year are as follows: Attended by    Training /Program/Seminars Date of Training/ Program/Seminars Dato' Teng Yoon Kooi National Tax Conference 2017 25 - 26 July 2017 Dato' Sri Teng Ah Kiong National Tax Conference 2017 25 - 26 July 2017 Teoh Kim Hooi National Tax Conference 2017 25 - 26 July 2017 Wan Thean Hoe Valuation on Mergers and Acquisitions 22 August 2017 Chan Man Chung Practical Issues under the Companies Act 2016 26 September 2017 Yap Chee Keong Practical Issues under the Companies Act 2016 26 September 2017 Norkamaliah Binti Hashim Mandatory Accreditation Programme (MAP) for Directors of Public Listed Companies 13 and 16 October 2017 The Company will continue to identify suitable training for the Directors to equip and update themselves with the necessary knowledge in discharging their duties and responsibilities as Directors.
  130. ANNUAL REPORT 2017 23 Corporate Governance Overview Statement (cont’d) PRINCIPLE A: BOARD LEADERSHIP AND EFFECTIVENESS (cont’d) 2. Board Composition The Board comprises competent members with a wide spectrum of skills and experience whom it believes can lead Pasukhas to achieve its operational performance goals and attain good corporate standing in terms of governance and credibility. It currently comprises seven (7) members, three (3) Independent Non-Executive Directors, one (1) Non-Independent NonExecutive Director and three (3) Executive Directors. The composition of the Board fulfils the ACE Market Listing Requirements of Bursa Malaysia Securities Berhad (“AMLR”) of having at least two (2) or one-third (1/3) of the Board comprising independent directors. The Directors’ Profile is disclosed on pages 13 to 16 in this Annual Report. The Independent Non-Executive Directors do not participate in the day-to-day management of the Company and do not involve themselves in business transactions or relationships with the Company, in order not to compromise their objectivity. In staying clear of any potential conflict of interest, the Independent Non-Executive Directors remain in a position to fulfil their responsibility to provide check and balance to the Board. The Board has established separate NC and RC to assist in ensuring that its members remain relevant to the Company, having in place a remuneration policy which is competitive to attract and retain suitably qualified directors. 2.1 Tenure of Independent Director Independence is important for ensuring objectivity and fairness in Board’s decision making. The independence of Directors is measured based on the criteria prescribed under the AMLR in which a Director should be independent and free from any business or other relationship that could interfere with the exercise of independent judgement or the ability to act in the best interests of the Company. The Independent Directors, in addition to compliance with the criteria set out under the AMLR, have also declared that they will continue to bring independent and objective judgement to the Board during the review of Directors’ independence as part of the annual assessment carried out by the NC. The Board has adopted a nine-year policy for Independent Non-Executive Directors. An Independent Director may continue to serve on the Board subject to the director’s re-designation as a Non-Independent Director. Otherwise, the Board will justify and seek shareholders’ approval at the Annual General Meeting (“AGM”) in the event it retains the director as an Independent Director. None of the Independent non-Executive Directors has served for more than 9 years in the Company. If the Board continues to retain the independent Director after 12th years, the Board will seek shareholders’ approval through a two tier voting process and the manner to obtain the shareholders’ approval on the resolution shall follow the MCCG 2017. 2.2NC The NC comprises entirely of Independent Non-Executive Directors and the NC’s duties are as follows: • • • • • • • To recommend candidates for Board membership; To recommend candidates to fill the seats on Board Committees; To assess the contribution of each individual Director; To review annually the Board structure, size, composition and the balance between Executive Directors, Non-Executive Directors and Independent Directors to ensure that the Board has the appropriate mix of skills and experience including core competencies which Directors should bring to the Board and other qualities to function effectively and efficiently; To take the necessary steps to ensure that women candidates are sought as part of the Company’s recruitment exercise to meet its gender diversity policy; To review annually the independence of Independent Directors; To ensure existence of an appropriate framework and succession plan for the Executive Directors and senior management of the Company;
  131. 24 PASUKHAS GROUP BERHAD (686389-A) Corporate Governance Overview Statement(cont’d) PRINCIPLE A: BOARD LEADERSHIP AND EFFECTIVENESS (cont’d) 2.2 NC (cont’d) • • • To identify suitable orientation, educational and training programmes for continuous development of Directors; To establish and implement processes for assessing the effectiveness of the Board as a whole, the Board Committees and assessing the contribution of each Director; and To consider other matters as referred to the Committee by the Board. The NC met once during the financial period. All the meetings were attended by all members of the Committee and the following activities were carried out: • • • • Reviewing the structure of the Board and the Board Committees; Reviewing the tenure of Independent Non-Executive Directors and their independence; Evaluation of the performance of the Board and Board Committees; and Nominating the directors who are due for retirement by rotation and are eligible to stand for re-election. Generally, the NC is responsible for identifying and recommending suitable candidates for Board membership and also for assessing the performance of the Directors on an on-going basis. The Board will have the ultimate responsibility and final decision on the appointment. This process shall ensure that the Board membership accurately reflects the long-term strategic direction and needs of the Company while it determines the skills matrix needed to support strategic direction and needs of the Company. The NC evaluates and matches the criteria of the candidate, and will consider diversity, including gender, where appropriate, and recommends to the Board for appointment. In its effort to promote boardroom diversity, the NC has taken various steps to ensure that women candidates are sought from various sources as part of its recruitment exercise. The NC will contact those persons identified to determine interest in serving the Company. This communication will ensure that prospective Board members have clarity regarding the nominating process as well as Director/Board profiles, roles and responsibilities, expectations of time commitments and other information as required. The new Director(s) duly appointed by the Board are then recommended for re-election at the AGM. The Company shall then provide orientation and on-going education to the Board. In making the selection, the Board is assisted by the NC to consider the following aspects: • • Probity, personal integrity and reputation – the person must have the personal qualities such as honesty, integrity, diligence and independence of mind and fairness. Competence and capability – the person must have the necessary skills, ability and commitment to carry out the role. For the appointment of Puan Norkamaliah as an independent non-executive director during the financial year 2017, the Company sourced the candidates through Management’s nomination. 2.3 Diverse Board and Senior Management Team The Board views that the workplace and Board diversity is important to facilitate the decision-making process by harnessing different insights and perspectives. The Group adopted a policy of non-discrimination of any form, whether based on race, age, religion and gender throughout the organisation, which including the selection of Board members. The Board encourages a dynamic and diverse composition by nurturing suitable and potential candidates equipped with competency, skills, experience, character, time commitment, integrity and other qualities in meeting the future needs of the Company. Notwithstanding the challenges in achieving the appropriate level of diversity on the Board, the Board continues to work towards addressing this as and when vacancies arise and suitable candidates are identified. The Company’s prime responsibility in new appointments is always to select the best candidates available.
  132. 25 ANNUAL REPORT 2017 Corporate Governance Overview Statement (cont’d) PRINCIPLE A: BOARD LEADERSHIP AND EFFECTIVENESS (cont’d) 2.3 Diverse Board and Senior Management Team (cont’d) In 2017, the first female Director, Puan Norkamaliah, joined the Board. The Board is presently of the view that there is no necessity yet to fix a specific gender diversity policy as the appointment of any Director(s) should be based primarily on their merit, qualification and working experience. The current diversity of the Board and Key Senior Managment is as follows: Gender Number of Directors Male 6 Female 2 Total 8 Age Number of Directors 30-39 years 1 40-49 years 2 50-59 years 1 60 years and above 4 Total 8 Ethnicity Number of Directors Bumiputera 1 Chinese 7 Total 8 2.4 Annual Assessment The Board is tasked to review and evaluate its own performance and the performance of its Committees on an annual basis. The Board evaluation comprises a Board Assessment, an Individual (Self & Peer) Assessment and an Assessment of Independence of Independent Directors. The assessment of the Board is based on specific criteria, covering areas such as the Board structure, Board operations, roles and responsibilities of the Board, the Board Committees and the Executive Chairman’s role and responsibilities. For Individual (Self & Peer) Assessment, the assessment criteria include interactive contribution, quality of input, and understanding of role. The results of the assessment would form the basis of the NC’s recommendation to the Board for the re-election of Directors at the next AGM. Based on the annual assessment conducted, the NC was satisfied with the existing Board composition and concluded that each Directors has the requisite competence to serve on the Board and had sufficiently demonstrated their commitment to the Company in terms of time and participation during the year under review, and recommended to the Board the re-election of retiring Directors at the Company’s forthcoming AGM. All assessments and evaluations carried by the NC in discharge of its functions were properly documented. The Board is of the view that its present size and composition is optimal based on the Group’s operations and that it reflects a fair mix of financial, technical and business experiences that are important to the stewardship of the Group. In addition, the NC has reviewed and evaluated the performance of the Chief Financial Officer during the financial year.
  133. 26 PASUKHAS GROUP BERHAD (686389-A) Corporate Governance Overview Statement(cont’d) PRINCIPLE A: BOARD LEADERSHIP AND EFFECTIVENESS (cont’d) 3.Remuneration The RC is assigned with the duty to assist the Board in the review of remuneration policy for the Board and make recommendation thereof. The RC comprises entirely of Independent Non-Executive Directors. The RC and the Board ensure that the Company’s remuneration policy remains supportive of the Company’s corporate objectives and is aligned with the interest of shareholders, and that the remuneration packages of Directors and key Senior Management Officers are sufficiently attractive to attract and to retain persons of high calibre. The RC is tasked to review annually the performance of the Executive Directors and submit recommendations to the Board on specific adjustments in remuneration and/or reward payments that reflect their respective contributions for the year, and which depend on the performance of the Group, achievement of goals and/or quantified organisational targets as well as strategic initiatives set at the beginning of each year. The Board as a whole determines the remuneration of Non-Executive Directors and recommends the same for shareholders’ approval. The remuneration package of the Executive Directors consists of monthly salary, bonus (if any) and fees and Directors and Officers Liability Insurance in respect of any liabilities arising from acts committed in their capacity as Directors and Officers of the Company. Details of the Directors’ remuneration during the financial year 2017 are as follows:     Fees RM Salaries, Bonus RM Allowance RM Total RM         Non-Executive Directors Teoh Kim Hooi 36,000 - - 36,000 Yap Chee Keong 36,000 - - 36,000 Norkamaliah Binti Hashim (Appointed on 5 July 2017) 18,000 - - 18,000 Chan Man Chung 36,000 - - 36,000           Executive Directors         Dato' Sri Teng Ah Kiong Dato' Teng Yoon Kooi 66,000 - - 66,000 102,000 306,000 60,652 468,652 36,000 360,000 121,658 517,658 Wan Thean Hoe The number of Directors/senior management whose remuneration falls within the following bands is tabulated as below: Company Executive Director Non-Executive Director Senior Management 50,000 and below - 4 - 50,001 - 100,000 1 - - 200,001 - 250,000 - - 1 450,001 - 500,000 1 - - 500,001 - 550,000 1 - - Remuneration Band (RM)
  134. ANNUAL REPORT 2017 27 Corporate Governance Overview Statement (cont’d) PRINCIPLE B – EFFECTVE AUDIT AND RISK MANAGEMENT I.ARMC The ARMC is relied upon by the Board to, amongst others, provide advice in the areas of financial reporting, external audit, internal control environment and internal audit process, review of related party transactions as well as conflict of interest situation. The ARMC also undertakes to provide oversight on the risk management framework of the Group. The ARMC is chaired by an independent director who is distinct from the Chairman of the Board and majority of the members of the ARMC are financially literate. The composition of the ARMC, including its roles and responsibilities as well as a summary of its activities carried out in year 2017, are set out in the ARMC Report of this Annual Report. The ARMC has yet to adopt a policy that requires a former key audit partner to observe a cooling-off period of at least two (2) years before being appointed as a member of the ARMC. Nonetheless, the ARMC shall observe the said application in the event that any former key audit partner is appointed to the Board of the Company. The ARMC is responsible for reviewing audit, recurring audit-related and non-audit services provided by the external auditors. These recurring audit-related and non-audit services comprise regulatory reviews and reporting, interim reviews, tax advisory and compliance services. The terms of engagement for services provided by the external auditors are reviewed by the ARMC prior to submission to the Board for approval. The ARMC has reviewed the provision of non-audit services by the external auditors during the year and concluded that the provision of these services did not compromise the external auditors’ independence and objectivity as the amount of the fees paid for these services was not significant when compared to the total fees paid to the external auditors. The external auditors had provided a confirmation of their independence to the ARMC that they are and have been independent throughout the conduct of the audit engagement in accordance with the terms of all relevant professional and regulatory requirements. Having satisfied with Messrs. Crowe Horwath’s performance, technical competency and audit independence as well as fulfilment of criteria as set out in the Auditor Independent Policy, the ARMC recommended the re-appointment of Messrs. Crowe Horwath to the Board, upon which the shareholders’ approval will be sought at the AGM. Based on the ARMC’s assessment of the external auditors, the Board satisfied with the independence, quality of service and adequacy of resources provided by the external auditors in carrying out the annual audit for financial year 2017. In view thereof, the Board has recommended the re-appointment of the external auditors for the approval of shareholders at the forthcoming AGM. II. Risk Management and Internal Control Framework The Board has overall responsibility for maintaining a sound system of risk management and internal control of the Group that provides reasonable assurance of effective and efficient business operations, compliance with laws and regulations as well as internal procedures and guidelines. The ARMC oversees the risk management of the Group and advises the Board on areas of high risk faced by the Group and the adequacy of compliance and control throughout the organisation. The ARMC also reviews the action plan implemented and makes relevant recommendations to the Board to manage residual risks. The Group has established a formal risk management framework to oversee the risks management of the Company and engaged an external consultant to assist the Company in identifying, assessing and managing the risks in areas that are applicable to the Company’s business and ensure that the risk management process in place and functioning effectively. The Company continues to maintain and review its internal control procedures to ensure the protection of its assets and its shareholders’ investment.
  135. 28 PASUKHAS GROUP BERHAD (686389-A) Corporate Governance Overview Statement(cont’d) PRINCIPLE B – EFFECTVE AUDIT AND RISK MANAGEMENT (cont’d) II. Risk Management and Internal Control Framework (cont’d) The Company has outsourced its internal audit function to a professional services firm, namely CAS Consulting Services Sdn. Bhd. to assist the ARMC in discharging its duties and responsibilities in respect of reviewing the adequacy and effectiveness of the Group’s risk management and internal control systems. The Statement on Risk Management and Internal Control as included in this Annual Report provides the overview of the internal control framework adopted by the Company during the financial year ended 31 December 2017. PRINCIPLE C – INTEGRITY IN CORPORATE REPORTING AND MEANINGFUL RELATIONSHIP WITH THE STAKEHOLDERS I. Communication with stakeholders The Board recognises the importance of being transparent and accountable to the Company’s stakeholders and acknowledges the continuous communication between the Company and stakeholders would facilitate mutual understanding of each other’s objectives and expectations. As such, the Board consistently ensure the supply of clear, comprehensive and timely information to their stakeholders via various disclosures and announcements including quarterly and annual financial statements which provides investors with up-to-date financial information of the Group. All these announcements and other information about the Company are available on the Company’s website at www.pasukhasgroup.com. which shareholders, investors and public may access. In addition to the above, shareholders and investors can make inquiries about investor relations matters with designated management personnel directly responsible for investor relations matters via dedicated e-mail address available on the corporate website. In an effort to encourage greater shareholders’ participation at the AGM, the Board takes cognisance in serving longer than the required minimum notice period for AGMs, whenever possible. The Chairman shall ensure that the Board is accessible to shareholders and an open channel of communication is cultivated. The Company allows shareholders to appoint a proxy who may not be a member of the Company. If the proxy is not a member of the Company, he/she need not be an advocate, an approved company auditor or a person approved by the Registrar of Companies. To further promote participation of members through proxies, which is in line with the AMLR, the Company had amended its Constitution to include explicitly the right of proxies to speak at general meetings. From the Company’s perspective, the AGM also serves as a forum for Directors and Management to engage with the shareholders personally to understand their needs and seek their feedback. The Board welcomes questions and feedback from shareholders during and at the end of shareholders’ meeting and ensures their queries are responded in a proper and systematic manner. II. Conduct of General Meetings The AGM is the principal forum for shareholder dialogue, allows shareholders to review the Group’s performance via the Company’s Annual Report and pose questions to the Board for clarification. At the 12th AGM held on 25 May 2017, all the directors (including the chair of the Board Committees) were present in person to engage directly with, and be accountable to the shareholders for their stewardship of the Company. During the AGM, shareholders participated in deliberating resolutions being proposed or on the Group’s operations in general. The Directors responded to all questions raised and provided clarification as required by the shareholders.
  136. ANNUAL REPORT 2017 29 Corporate Governance Overview Statement (cont’d) PRINCIPLE B – EFFECTVE AUDIT AND RISK MANAGEMENT (cont’d) II. Conduct of General Meetings (cont’d) In line with good corporate governance practice, the notice of the Thirteenth AGM was issued at least 28 days before the AGM date. The Chairman ensures that the Board is accessible to shareholders and an open channel of communication is cultivated. This statement is made in accordance with the resolution of the Board dated 30 March 2018.
  137. 30 PASUKHAS GROUP BERHAD (686389-A) Statement on Risk Management and Internal Control INTRODUCTION The Malaysian Code on Corporate Governance 2012 requires listed companies to maintain a sound system of internal control to safeguard shareholders’ investment and the company’s assets. This Statement had been prepared in accordance with the Guidelines for Directors of Listed Issuers issued by Bursa Malaysia Securities Berhad (“Bursa Securities”) on the issuance of Statement on Risk Management and Internal Control pursuant to Paragraph 15.26(b) of the ACE Market Listing Requirements (“Listing Requirements”) of Bursa Securities. The Board of Directors (“the Board”) of Pasukhas Group Berhad (“the Company”) is pleased to provide the following statement on the state of the Company and its subsidiaries’ (“the Group”) risk management and internal control. BOARD’S RESPONSIBILITY The Board acknowledges its responsibility in establishing an efficient and effective sound risk management framework and internal control system, which includes the Board’s overall responsibility to maintain and review the adequacy and integrity of the Group’s internal control system. In addition, the Board also affirms its overall responsibility to identify principal risks, ensure the implementation of an appropriate control environment and framework to manage risks, and evaluate the operational effectiveness and efficiency of the Group. In view of the limitations that are inherent in any system of internal control, this system is designed to manage, rather than eliminate the risk of failure to achieve corporate objectives. Accordingly, the system can only provide reasonable but not absolute assurance against material misstatement, operational failures, fraud or loss. RISK MANAGEMENT FRAMEWORK AND CONTROL SELF-ASSESSMENT The Group has put in place an Enterprise Risk Management framework which seeks to identify principal risks affecting or likely to affect the Group and help to enable the implementation of appropriate and adequate systems to manage these risks on prioritised basis. Annual Management and Board meetings were conducted to discuss amongst others, the success and risk factors. The Group’s Enterprise Risk Management Framework (“Framework”) serves to inform and provide guidance to Directors, senior management, respective Head of Department and staff in managing risk in the Group. Towards this end, the framework sets out: • • • • The fundamentals and principles of risk and risk management that is to be applied in all situations and throughout all levels of the organisation; The process of identifying, assessing, responding, monitoring and reporting risks and controls; The roles and responsibilities of each level of management in the Group; and The mechanisms, tools and techniques for managing risk in the Group. The risk management process is an ongoing process and is applied at the beginning of any major new project or change in operational environment. During the financial year under review, the Group had implement Enterprise Risk Management Framework on Civil Engineering and Construction Services environment. The findings were presented to the Audit and Risk Management Committee (“ARMC”). The effectiveness of the system of Enterprise Risk Management is also reviewed through an on-going management appraisal of the effectiveness of its operations and the IS0 9001: 2008 standard Certification.
  138. ANNUAL REPORT 2017 31 Statement on Risk Management and Internal Control (cont’d) The Board believes firmly that risk management is essential for continued profitability and to safeguard shareholders’ investment. Hence, the Company has a system of risk management and internal control comprising of clear structures and accountabilities, well-understood policies, budgeting and review process. The senior executive management of the Group is responsible for identifying, managing and reporting on significant risks on an on-going basis and has been entrusted to formulate plans and implementation of plans to address risks and control of issues identified. The Management selects appropriate control objectives and procedures from the IS0 9001: 2008 standard to mitigate the risks to acceptable residual level. The Board meets on a quarterly basis to discuss matters brought to its attention, thus ensuring effective supervision over the operations of the Group. The Board is updated on the operations and activities of the Group which include the strategies and goals and an assessment of its current position and future prospects. All key risks and issues are quarterly reviewed and resolved by the Management team on regular meetings. The Board is committed towards operating and maintaining a sound system of internal control and recognizes that the system must continuously evolve to support the type of business and size of operations of the Group. As such, the Board will, when necessary, put in place appropriate action plans to rectify any potential weaknesses or further enhance the system of internal control. INTERNAL AUDIT FUNCTION Pursuant to Paragraph 15.26(b) of the Listing Requirements, the Board has established an internal audit function which reports directly to the ARMC. The Board recognizes that effective monitoring on a continuous basis is a vital component of a sound internal control system. In this respect, the Board through the ARMC is responsible for the review of the reports on internal control from its internal audit function. The Group’s internal audit function is outsourced to an independent professional firm, namely CAS Consulting Services Sdn Bhd, which reports directly to the ARMC on an annual basis. Observations from internal audits will be presented to the ARMC together with Management’s response and proposed action plans for its review. The action plans will then be followed up during subsequent internal audits with implementation status reported to the ARMC. The Internal Auditors, on an annually basis, reviews the effectiveness and adequacy of control procedures adopted by the Group in mitigating the key risks identified in the Business Risk Profile. During the financial year under review, the Internal Audit function performed a cycle of internal audit on Tendering and Procurement Management function (Civil Engineering and Construction Services). The findings from the audit were presented to the ARMC. The cost of internal audit services rendered by the Internal Auditor in respective of the financial year ended 31 December 2017 amounted to RM12,500. During the financial year, the results of any findings and weaknesses noted by the internal audit function, including the recommended corrective actions, were reported directly to the ARMC. Through these mechanisms, the ARMC can be assured that the key risks of the Group are regulary reviewed and appropriately managed to an acceptable level. The internal audit report that was tabled to the ARMC for their deliberation on an annual basis include management response and corrective actions taken or to be taken in regards to the specific findings and recommendations. The management as a whole is responsible for ensuring that the necessary corrective actions on reported weaknesses are promptly taken. ARMC presents its findings annually to the Board. The Board is of the opinion that there were no material losses incurred during the financial year as a result of weakness in internal control. The ARMC considers report from the internal audit function and comments from Management before making recommendation to the Board to strengthen the internal control system.
  139. 32 PASUKHAS GROUP BERHAD (686389-A) Statement on Risk Management and Internal Control (cont’d) KEY ELEMENTS OF THE GROUP’S INTERNAL CONTROL ARE AS FOLLOWS: • • • • • • • • • • • • A functional organization that clearly defines the level of authority and responsibilities for managing activities. Policies and procedures, updated as necessary, are documented and formalized for compliance purposes. Board committees have been established with clear terms of reference to ensure effective management. An internal audit service has been outsourced to conduct ongoing audits to assess the effectiveness of internal control and highlighting significant risks impacting the Group. Operating results of individual projects are closely monitored by the Management against budget. The scheduled and ad hoc meetings are held at all levels to identify, discuss and resolve business and operating issues. The Board reviews the operational and financial performance of the Group every quarter. Existence of organizational structure with clear responsibilities. The ARMC reviews the internal audit plan for the year, and reviews and holds discussions on the actions taken on internal control issues. Staff policies: i.e. Employees are briefed on Code of Ethics during induction. They are required to adhere to the Code of Ethics, which upholds the Group’s corporate values and ethical code of conduct. Formal guidelines are also available to govern staff’s termination and resignation. Staff performance: i.e. The Employees’ Performance Appraisal System is linked to their KPIs which are aligned to the Group’s business goals and financial targets respectively. Staff training: i.e. The Human Resource Management has arranged and facilitated regular internal and external training programmes for its employees in relation to their respective areas of works. The system of internal controls described in this statement is considered by the Board to be adequate and the risks are considered by the Board to be at an acceptable level within the Group’s business. However, such system does not eliminate the possibility of human error, collusion and others. The Board is satisfied that for the financial year under review, there is no material control failure or weakness that would have resulted in any material losses and contingencies that would require disclosure in the Annual Report. ADEQUACY AND EFFECTIVENESS OF THE GROUP’S RISK MANAGEMENT AND INTERNAL CONTROL SYSTEM The Board has received assurance from the CEO and CFO that the Group’s risk management and internal control system is operating adequately and effectively, in all material aspects, based on the risk management and internal control system of the Group. The Board is of view that the system of risk management and internal control is in place for the period under review and, up to the date of approval of this statement for inclusion in this Annual Report. REVIEW OF THE STATEMENT BY EXTERNAL AUDITORS Pursuant to Paragraph 15.23 of the Listing Requirements, the External Auditors have reviewed this Statement on Risk Management and Internal Control for inclusion in this Annual Report. Their reviews were performed in accordance with Audit and Assurance Practice Guide 3 (AAPG 3): Guidance for Auditors on Engagements to Report on the Statement on Risk Management and Internal Control included in the Annual Report issued by the Malaysian Institute of Accountants. Based on their review, nothing has come to their attention that causes them to believe that this Statement is not prepared, in all material respects, in accordance with the disclosures required by paragraph 41 and 42 of the Statement on Risk Management and Internal Control: Guidelines for Directors of Listed Issuers to be set out, nor is factually inaccurate. This Statement is issued in accordance with a resolution of the Board dated 30 March 2018.
  140. 33 ANNUAL REPORT 2017 Additional Compliance Information 1 . Utilisation of Proceeds There were no proceeds raised by the Company from any corporate proposals during the financial year ended 31 December 2017 except as below: Private Placement On 25 January 2017, the Company completed the Private Placement which involved the issuance of 35,675,000 PGB Shares at RM0.15 per PGB Share. The Private Placement was undertaken by the Company to raise funds for the Group’s working capital and finance the day-to-day operations of the Group. The status of the utilisation of these proceeds as at 28 March 2018 is as set out below:- Details of the proceeds raised from the Private Placement Proposed amount RM ’000 Utilised amount RM ’000 Remaining balance RM ’000 2,351 2,351 - 500 257 243 2,000 2,000 - 500 500 - 5,351 5,108 243 General requirements - Payment of trade and other payables - Marketing and advertisement expenses - Staff costs - Finance costs Total Rights Issue On 11 May 2017, the Company completed the Proposed Rights Issue of up to 407.1 million Company shares (“Rights Shares”) and 405,786,566 Rights Shares were issued, listed and quoted on the ACE Market of Bursa Securities. The status of the utilisation of these proceeds as at 28 March 2018 is as set out below: Proposed amount RM ’000 Utilised amount RM ’000 Remaining balance RM ’000 Payment of Remaining ISE Purchase Consideration 11,400 11,400 - Working capital 27,579 21,908 5,671 1,600 1,600 - 40,579 34,908 5,671 Details of the proceeds raised from the Rights Issue Estimated Corporate Exercise Expenses Total 2. Non-Audit Fees For the financial year ended 31 December 2017, the amounts of audit and non-audit fees paid by the Company and the Group to the External Auditors are as follows: Group RM ’000 Company RM ’000 Audit fees 152 16 Non-audit fees 160 96 26 4 338 116 Corporation related to the External Auditors Firm: - Tax agent fees Total
  141. 34 PASUKHAS GROUP BERHAD (686389-A) Additional Compliance Information (cont’d) 3. Variation in Results There were no variations between the audited results for the financial year ended 31 December 2017 and the announced unaudited results. The Group did not issue any profit estimate, forecast or projection in any public documents during the financial year. 4. Material Contracts There were no material contracts entered into by the Group involving Directors’ and major shareholders’ interest which were still subsisting as at the end of the financial year or which were entered into since the end of the previous financial period except as disclosed in Notes 43 and 44 of the Audited Financial Statements for financial year ended 31 December 2017. 5. Recurrent Related Party Transaction(s) The RRPTs of the Group have been entered into in the normal course of business. Further details of the RRPTs of a revenue or trading nature conducted during the financial year are disclosed in page 100 of the financial statements of the Annual Report. Please refer to Section 2.3 of the Circular to Shareholders dated 25 April 2018 on the names of the related parties and the Company’s relationship with the related parties.
  142. ANNUAL REPORT 2017 35 Directors ’ Responsibility Statement in respect of the Audited Financial Statements The Directors are required by the Companies Act 2016 (CA), to prepare the financial statements for each financial year which have been made out in accordance with the applicable Malaysian Financial Reporting Standards (MFRSs), the International Financial Reporting Standards (IFRSs) and the requirements of the CA in Malaysia. The Directors are responsible to ensure that the financial statements give a true and fair view of the state of affairs of the Group and of the Company at the end of the financial year, and of the results and cash flows of the Group and of the Company for the financial year. In preparing the financial statements, the Directors have: • • • adopted appropriate accounting policies and applied them consistently; made judgements and estimates that are reasonable and prudent; and prepared the financial statements on a going concern basis. The Directors are responsible to ensure that the Group and the Company keep accounting records which disclose the financial position of the Group and of the Company with reasonable accuracy, enabling them to ensure that the financial statements comply with the CA. The Directors are responsible for taking such steps as are reasonably open to them to safeguard the assets of the Group and of the Company, and to detect and prevent fraud and other irregularities.
  143. FINANCIAL STATEMENT 37 42 42 43 47 49 51 54 57 Directors ’ Report Statement by Directors Statutory Declaration Independent Auditors’ Report Statements of Financial Position Statements of Profit or Loss and Other Comprehensive Income Statements of Changes in Equity Statements of Cash Flows Notes to the Financial Statements
  144. 37 ANNUAL REPORT 2017 DIRECTORS ’ REPORT The directors of Pasukhas Group Berhad hereby submit their report and the audited financial statements of the Group and of the Company for the financial year ended 31 December 2017. PRINCIPAL ACTIVITIES The Company is principally engaged in the business of investment holding and the provision of management services. The principal activities of the subsidiaries are set out in Note 5 to the financial statements. There has been no significant change in the nature of these activities during the financial year. RESULTS Profit/(Loss) after taxation for the financial year Attributable to:- Owners of the Company Non-controlling interests The Group The Company RM RM 724,560 (1,008,012) 606,957 117,603 (1,008,012) - 724,560 (1,008,012) DIVIDENDS No dividend was recommended by the directors for the financial year. RESERVES AND PROVISIONS There were no material transfers to or from reserves or provisions during the financial year. ISSUES OF SHARES AND DEBENTURES During the financial year:(a) the Company increased its issued and paid-up share capital from RM37,011,157 to RM89,782,847 by:(i) an issuance of 35,675,000 new ordinary shares for a cash consideration of RM3,567,500 through Private Placement; (ii) an issuance of 405,786,566 new ordinary shares for a cash consideration of RM40,578,656 through Rights Issue for the acquisition of subsidiaries and working capital purposes; and (iii) transfer of RM8,625,534 from the share premium account pursuant to the Companies Act 2016. The new ordinary shares issued rank pari passu in all respects with the existing ordinary shares of the Company; and (b) there were no issues of debentures by the Company.
  145. 38 PASUKHAS GROUP BERHAD (686389-A) DIRECTORS’ REPORT (cont’d) OPTIONS GRANTED OVER UNISSUED SHARES During the financial year, no options were granted by the Company to any person to take up any unissued shares in the Company. BAD AND DOUBTFUL DEBTS Before the financial statements of the Group and of the Company were made out, the directors took reasonable steps to ascertain that action had been taken in relation to the writing off of bad debts and the making of allowance for impairment losses on receivables, and satisfied themselves that all known bad debts had been written off and that adequate allowance had been made for impairment losses on receivables. At the date of this report, the directors are not aware of any circumstances that would require the further writing off of bad debts, or the additional allowance for impairment losses on receivables in the financial statements of the Group and of the Company. CURRENT ASSETS Before the financial statements of the Group and of the Company were made out, the directors took reasonable steps to ensure that any current assets other than debts, which were unlikely to be realised in the ordinary course of business, including their value as shown in the accounting records of the Group and of the Company, have been written down to an amount which they might be expected so to realise. At the date of this report, the directors are not aware of any circumstances which would render the values attributed to the current assets in the financial statements misleading. VALUATION METHODS At the date of this report, the directors are not aware of any circumstances which have arisen which render adherence to the existing methods of valuation of assets or liabilities of the Group and of the Company misleading or inappropriate. CONTINGENT AND OTHER LIABILITIES At the date of this report, there does not exist:(a) any charge on the assets of the Group and of the Company that has arisen since the end of the financial year which secures the liabilities of any other person; or (b) any contingent liability of the Group and of the Company which has arisen since the end of the financial year. No contingent or other liability of the Group and of the Company has become enforceable or is likely to become enforceable within the period of twelve months after the end of the financial year which, in the opinion of the directors, will or may substantially affect the ability of the Group and of the Company to meet their obligations as and when they fall due. CHANGE OF CIRCUMSTANCES 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 of the Company which would render any amount stated in the financial statements misleading.
  146. 39 ANNUAL REPORT 2017 DIRECTORS ’ REPORT (cont’d) ITEMS OF AN UNUSUAL NATURE The results of the operations of the Group and of the Company during the financial year were not, in the opinion of the directors, substantially affected by any item, transaction or event of a material and unusual nature. There has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the directors, to affect substantially the results of the operations of the Group and of the Company for the financial year in which this report is made. DIRECTORS The name of directors of the Company who served during the financial year and up to the date of this report are as follows:Dato’ Sri Teng Ah Kiong Wan Thean Hoe Dato’ Teng Yoon Kooi Teoh Kim Hooi Yap Chee Keong Chan Man Chung Norkamaliah Binti Hashim (Appointed on 5 July 2017) Bakhtiar Jamilee Bin Hj Abdul (Resigned on 7 April 2017) The name of directors of the Company’s subsidiaries who served during the financial year and up to the date of this report, not including those directors mentioned above, are as follows:Lim Ee Vone Sim Guo Jong @ Tan Guo Jong Ng Kim Keong Wee Hiang Chyn Tang Chee Wai Nazaithul Akmar Binti Mukhtar (Appointed on 1 September 2017) Azimy Bin Mohamed (Appointed on 1 September 2017) DIRECTORS’ INTERESTS According to the Register of Directors’ Shareholdings, the interests of directors in office at the end of the financial year in shares of the Company and its related corporations during the financial year are as follows:Number of Ordinary Shares At 1.1.2017 Bought Sold At 31.12.2017 29,724,226 80,162,974 - 109,887,200 5,735,000 13,626,100 - 19,361,100 300,000 700,000 - 1,000,000 THE COMPANY Direct Interests Dato’ Sri Teng Ah Kiong Dato’ Teng Yoon Kooi Teoh Kim Hooi
  147. 40 PASUKHAS GROUP BERHAD (686389-A) DIRECTORS’ REPORT (cont’d) DIRECTORS’ INTERESTS (CONT’D) Number of Ordinary Shares At 1.1.2017 Bought Sold At 31.12.2017 THE COMPANY Indirect Interests Dato’ Sri Teng Ah Kiong 5,735,000 13,626,100 - 19,361,100 Wan Thean Hoe 56,000,000 132,509,100 - 188,509,100 Dato’ Teng Yoon Kooi 29,724,226 80,162,974 - 109,887,200 Chan Man Chung 56,000,000 132,509,100 - 188,509,100 By virtue of their shareholdings in the Company, Wan Thean Hoe and Chan Man Chung are deemed to have interests in shares in its related corporation during the financial year to the extent of the Company’s interests, in accordance with Section 8 of the Companies Act 2016. The other directors holding office at the end of the financial year had no interest in the shares and options over shares of the Company or its related corporations during the financial year. DIRECTORS’ BENEFITS Since the end of the previous financial year, no director has received or become entitled to receive any benefit (other than a benefit included in the aggregate amount of remuneration received or due and receivable by directors shown in the financial statements, or the fixed salary of a full-time employee of the Company or related corporations) by reason of a contract made by the Company or related corporation with the director or with a firm of which the director is a member, or with a company in which the director has a substantial financial interest except for any benefits which may be deemed to arise from transactions entered into in the ordinary course of business with companies in which certain directors have substantial financial interests as disclosed in Note 39 to the financial statements. Neither during nor at the end of the financial year was the Group or the Company a party to any arrangement whose object is to enable the directors to acquire benefits by means of the acquisition of shares in or debentures of the Company or any other body corporate. DIRECTORS’ REMUNERATION The details of the directors’ remuneration paid or payable to the directors of the Group and of the Company during the financial year are disclosed in Note 38 to the financial statements. INDEMNITY AND INSURANCE COST During the financial year, the total amount of indemnity coverage was RM8,222,000 and the insurance premium paid amounted to RM10,468 for the directors of the Group and certain officers of the Group. No indemnity was given to or insurance effected for auditors of the Company.
  148. ANNUAL REPORT 2017 DIRECTORS ’ REPORT (cont’d) SUBSIDIARIES The details of the Company’s subsidiaries are disclosed in Note 5 to the financial statements. SIGNIFICANT EVENTS DURING THE FINANCIAL YEAR The significant events during the financial year are disclosed in Note 43 to the financial statements. SIGNIFICANT EVENTS OCCURRING AFTER THE REPORTING PERIOD The significant events occurring after the reporting period are disclosed in Note 44 to the financial statements. AUDITORS The auditors, Messrs. Crowe Horwath, have expressed their willingness to continue in office. The auditors’ remuneration are disclosed in Note 33 to the financial statements. Signed in accordance with a resolution of the directors dated 30 March 2018. Wan Thean Hoe Dato’ Teng Yoon Kooi 41
  149. 42 PASUKHAS GROUP BERHAD (686389-A) STATEMENT BY DIRECTORS PURSUANT TO SECTION 251 (2) OF THE COMPANIES ACT 2016 We, Wan Thean Hoe and Dato’ Teng Yoon Kooi, being two of the directors of Pasukhas Group Berhad state that, in the opinion of the directors, the financial statements set out on pages 47 to 121 are drawn up in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act 2016 in Malaysia so as to give a true and fair view of the financial position of the Group and of the Company as of 31 December 2017 and of their financial performance and cash flows for the financial year ended on that date. Signed in accordance with a resolution of the directors dated 30 March 2018 Wan Thean HoeDato’ Teng Yoon Kooi STATUTORY DECLARATION PURSUANT TO SECTION 251 (1) (b) OF THE COMPANIES ACT 2016 I, Wan Thean Hoe, MIA Membership Number: 14817, being the director primarily responsible for the financial management of Pasukhas Group Berhad, do solemnly and sincerely declare that the financial statements set out on pages 47 to 121 are, to the best of my knowledge and belief, correct and I make this solemn declaration conscientiously believing the declaration to be true, and by virtue of the Statutory Declarations Act 1960. Subscribed and solemnly declared by Wan Thean Hoe, at Kuala Lumpur in the Federal Territory on this 30 March 2018 Wan Thean Hoe Before me Lai Din W668 Commissioner for Oaths
  150. ANNUAL REPORT 2017 43 INDEPENDENT AUDITORS ’ REPORT TO THE MEMBERS OF PASUKHAS GROUP BERHAD (Incorporated in Malaysia) Company No : 686389 - A REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS Opinion We have audited the financial statements of Pasukhas Group Berhad, which comprise the statements of financial position as at 31 December 2017 of the Group and of the Company, and the statements of profit or loss and other comprehensive income, statements of changes in equity and statements of cash flows of the Group and of the Company for the financial year then ended, and notes to the financial statements, including a summary of significant accounting policies, as set out on pages 47 to 121. In our opinion, the accompanying financial statements give a true and fair view of the financial position of the Group and of the Company as at 31 December 2017, and of their financial performance and their cash flows for the financial year then ended in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act 2016 in Malaysia. Basis for Opinion We conducted our audit in accordance with approved standards on auditing in Malaysia and International Standards on Auditing. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Financial Statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence and Other Ethical Responsibilities We are independent of the Group and of the Company in accordance with the By-Laws (on Professional Ethics, Conduct and Practice) of the Malaysian Institute of Accountants (“By-Laws”) and the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (“IESBA Code”), and we have fulfilled our other ethical responsibilities in accordance with the By-Laws and the IESBA Code. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the Group and of the Company for the current financial year. These matters were addressed in the context of our audit of the financial statements of the Group and of the Company as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. We have determined the matters described below to be the key audit matters to be communicated in our report. Key Audit Matter How our audit addressed the Key Audit Matter Allowance for impairment of trade receivables (Refer to Note 14 to the financial statements) The Group carries significant trade receivables and is exposed to credit risk, or the risk of counterparties defaulting. The assessment of the adequacy of the allowance for impairment losses involved judgement, which includes analysing historical bad debts, customer concentrations, customer creditworthiness, current economic trends and changes in the customer payment terms. Our procedures included, amongst others:� Obtained an understanding of:� the Group’s control over the receivable collection process; � how the Group identifies and assesses the impairment of receivables; and � how the Group makes the accounting estimates for impairment. � Reviewed the ageing analysis of receivables and testing the reliability thereof; � Reviewed subsequent cash collections for major receivables and overdue amounts; � Made inquiries of management regarding the action plans to recover overdue amounts; � Compared and challenged management’s view on the recoverability of overdue amounts to historical patterns of collection; � Examined other evidence including customer correspondences, proposed or existing settlement plans, repayment schedules, etc.; and � Evaluating the reasonableness and adequacy of the allowance for impairment recognised.
  151. 44 PASUKHAS GROUP BERHAD (686389-A) INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF PASUKHAS GROUP BERHAD (Incorporated in Malaysia) Company No : 686389 - A (cont’d) Key Audit Matters (Cont’d) Key Audit Matter How our audit addressed the Key Audit Matter Revenue Recognition for Construction Contracts (Refer to Note 32 to the financial statements) Revenue recognition for construction contracts, due to the contracting nature of the business, involves significant judgements. This includes the determination of the total budgeted contract costs and the calculation of percentage of completion which affects the quantum of revenue to be recognised. In estimating the revenue to be recognised, the management considers past experience and certification by customers and independent third parties, where applicable. We determined this to be a key audit matter due to the complexity and judgemental nature of the budgeting of contract costs and the determination of revenue recognised. Our procedures included, amongst others:� Read all key contracts and discussed with management to obtain a full understanding of the terms and risks to assess our consideration of whether revenue was appropriately recognised; � Test the operating effectiveness of internal controls over the completeness, accuracy and timing of revenue recognised in the financial statements; � Assessing the management’s assumptions in determining the percentage of completion of projects, estimations of revenue and costs, provisions for foreseeable losses, liquidated and ascertained damages as well as recoverability of billed receivables; � Assessed the reasonableness of percentage of completion by comparing to certification by external parties; and � Reviewing estimated profit and costs to complete and adjustments for job costing and potential contract losses. Accounting for business combination (Refer to Note 36 to the financial statements) During the financial year, the Company acquired 100% equity interests in I.S. Energy Sdn. Bhd. and additional 10% equity interests in Essential Value Sdn. Bhd. for RM1 million and RM152,500 respectively. The purchase price allocation exercises have been performed by management, assisted by an external expert for one of the exercises. We determined this to be a key audit matter as the acquisitions are material and requires the use of significant management judgement regarding the valuation of the assets acquired and liabilities assumed. Our procedures included, amongst others:� Assessed the scope of work, qualifications and competence of the external expert; � Reviewed the terms of engagement of the external expert to determine whether there were any matters that might have affected their objectivity or limited the scope of their work; � Assessed the methodologies used by the external expert; � Made enquiries with management on the purchase price allocation and assessing the purchase price allocation has been performed in accordance with the requirement set out in MFRS 3 Business Combination; � Assessed the appropriateness of the identifiable assets acquired and the liabilities assumed at the acquisition date and reviewing management’s procedure for determining the fair value of the net identifiable assets acquired; and � Tested the calculation of the goodwill arising from the acquisition of the subsidiaries, being the difference between the total purchase consideration and the fair value of the net identifiable assets acquired and liabilities assumed.
  152. ANNUAL REPORT 2017 45 INDEPENDENT AUDITORS ’ REPORT TO THE MEMBERS OF PASUKHAS GROUP BERHAD (Incorporated in Malaysia) Company No : 686389 - A (cont’d) Information Other than the Financial Statements and Auditors’ Report Thereon The directors of the Company are responsible for the other information. The other information comprises the information included in the annual report, but does not include the financial statements of the Group and of the Company and our auditors’ report thereon. Our opinion on the financial statements of the Group and of the Company does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements of the Group and of the Company, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements of the Group and of the Company or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors for the Financial Statements The directors of the Company are responsible for the preparation of financial statements of the Group and of the Company that give a true and fair view in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act 2016 in Malaysia. The directors are also responsible for such internal control as the directors determine is necessary to enable the preparation of financial statements of the Group and of the Company that are free from material misstatement, whether due to fraud or error. In preparing the financial statements of the Group and of the Company, the directors are responsible for assessing the Group’s and the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or the Company or to cease operations, or have no realistic alternative but to do so. Auditors’ Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements of the Group and of the Company as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with approved standards on auditing in Malaysia and International Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with approved standards on auditing in Malaysia and International Standards on Auditing, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:� Identify and assess the risks of material misstatement of the financial statements of the Group and of the Company, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. � Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s and the Company’s internal control. � Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.
  153. 46 PASUKHAS GROUP BERHAD (686389-A) INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF PASUKHAS GROUP BERHAD (Incorporated in Malaysia) Company No : 686389 - A (cont’d) Auditors’ Responsibilities for the Audit of the Financial Statements (Cont’d) As part of an audit in accordance with approved standards on auditing in Malaysia and International Standards on Auditing, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:- (Cont’d) � Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s or the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the financial statements of the Group and of the Company or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Group or the Company to cease to continue as a going concern. � Evaluate the overall presentation, structure and content of the financial statements of the Group and of the Company, including the disclosures, and whether the financial statements of the Group and of the Company represent the underlying transactions and events in a manner that achieves fair presentation. � Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial statements of the Group. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial statements of the Group and of the Company for the current financial year and are therefore the key audit matters. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on Other Legal and Regulatory Requirements In accordance with the requirements of the Companies Act 2016 in Malaysia, we report that the subsidiaries of which we have not acted as auditors, are disclosed in Note 5 to the financial statements. Other Matters This report is made solely to the members of the Company, as a body, in accordance with Section 266 of the Companies Act 2016 in Malaysia and for no other purpose. We do not assume responsibility to any other person for the content of this report. Crowe Horwath Firm No: AF 1018 Chartered Accountants 30 March 2018 Kuala Lumpur Chin Kit Seong Approval No: 03030/01/2019 J Chartered Accountant
  154. ANNUAL REPORT 2017 STATEMENTS OF FINANCIAL POSITION AT 31 DECEMBER 2017 Note The Group 2017 2016 RM RM The Company 2017 2016 RM RM ASSETS NON-CURRENT ASSETS Investments in subsidiaries 5 - - 34 ,768,967 34,668,968 Investments in associates 6 - 735,635 - 343,000 Plant and equipment 7 34,228,688 6,840,496 203 242 Investment properties 8 8,884,705 - - Goodwill 9 3,099,691 3,099,691 - Deferred tax assets 10 1,072,338 2,967,400 - Other investments 11 104,250 104,250 - 47,389,672 13,747,472 34,769,170 35,012,210 CURRENT ASSETS Inventories 12 1,191,053 1,327,645 - Amount owing by contract customers 13 25,773,499 27,948,360 - Trade receivables 14 45,001,461 55,175,309 - Other receivables, deposits and prepayments 15 28,706,423 6,238,810 30,333 513,851 Amount owing by subsidiaries 16 - - 41,850,763 4,363,498 Amount owing by an associate 17 - 2,254,554 - Current tax assets 1,700,830 1,164,933 1,728 1,128 Deposits with financial institutions 18 21,447,617 15,297,834 12,058,340 5,114,377 Cash and bank balances 2,330,812 2,943,154 734,350 601,606 126,151,695 112,350,599 54,675,514 10,594,460 TOTAL ASSETS 173,541,367 126,098,071 89,444,684 45,606,670 The annexed notes form an integral part of these financial statements. 47
  155. 48 PASUKHAS GROUP BERHAD (686389-A) STATEMENTS OF FINANCIAL POSITION AT 31 DECEMBER 2017 (cont’d) Note The Group 2017 2016 RM RM The Company 2017 2016 RM RM EQUITY AND LIABILITIES EQUITY Share capital 19 89,782,847 37,011,157 89,782,847 37,011,157 Share premium 20 - 7,543,299 - 7,543,299 Merger deficit 21 (10,500,000) (10,500,000) - Fair value reserve 22 17,000 17,000 - Foreign exchange translation reserve 23 1,400 - - Retained profits/(Accumulated losses) 2,672,453 2,065,496 (7,602,377) (6,594,365) Equity attributable to owners of the Company 81,973,700 36,136,952 82,180,470 37,960,091 Non-controlling interests 6,193,978 4,910,242 - TOTAL EQUITY 88,167,678 41,047,194 82,180,470 37,960,091 NON-CURRENT LIABILITIES Hire purchase payables 24 888,990 384,904 - Term loan 25 11,616,564 - - 12,505,554 384,904 - CURRENT LIABILITIES Amount owing to contract customers 13 2,015,923 2,652,315 - Trade payables 26 41,446,207 47,047,555 - Other payables and accruals 27 12,618,249 13,570,536 7,264,214 7,646,579 Amount owing to an associate 17 - 4,381,919 - Amount owing to directors 28 492,200 492,200 - Amount owing to shareholders 29 2,938,300 2,938,300 - Short-term borrowings 30 8,367,369 10,340,950 - Bank overdrafts 31 4,989,887 3,242,198 - 72,868,135 84,665,973 7,264,214 7,646,579 TOTAL LIABILITIES 85,373,689 85,050,877 7,264,214 7,646,579 TOTAL EQUITY AND LIABILITIES 173,541,367 126,098,071 89,444,684 45,606,670 The annexed notes form an integral part of these financial statements.
  156. 49 ANNUAL REPORT 2017 STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 Note The Group 2017 2016 RM RM REVENUE 32 36 ,859,073 60,385,013 COST OF SALES (28,182,086) (55,229,013) GROSS PROFIT 8,676,987 5,156,000 OTHER INCOME 7,364,981 655,925 16,041,968 5,811,925 ADMINISTRATIVE EXPENSES (10,093,980) (9,452,317) OTHER EXPENSES (3,278,429) (3,095,075) FINANCE COSTS (1,170,077) (222,388) SHARE OF RESULTS IN ASSOCIATES, NET OF TAX (80,319) 245,123 PROFIT/(LOSS) BEFORE TAXATION 33 1,419,163 (6,712,732) INCOME TAX EXPENSE 34 (694,603) 786,188 PROFIT/(LOSS) AFTER TAXATION 724,560 (5,926,544) OTHER COMPREHENSIVE INCOME - - TOTAL COMPREHENSIVE INCOME/(EXPENSES) FOR THE FINANCIAL YEAR 724,560 (5,926,544) The annexed notes form an integral part of these financial statements. The Company 2017 2016 RM RM - - - - - - 609,480 164,975 609,480 164,975 (1,604,350) (2,009,191) (13,142) (1,320) - - - - (1,008,012) (1,845,536) - - (1,008,012) (1,845,536) - - (1,008,012) (1,845,536)
  157. 50 PASUKHAS GROUP BERHAD (686389-A) STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d) Note The Group 2017 2016 RM RM The Company 2017 2016 RM RM PROFIT/(LOSS) AFTER TAXATION ATTRIBUTABLE TO:- Owners of the Company 606,957 (6,103,555) (1,008,012) (1,845,536) Non-controlling interests 117,603 177,011 - 724,560 (5,926,544) (1,008,012) (1,845,536) TOTAL COMPREHENSIVE INCOME/(EXPENSES) ATTRIBUTABLE TO:- Owners of the Company 606,957 (6,103,555) (1,008,012) (1,845,536) Non-controlling interests 117,603 177,011 - 724,560 (5,926,544) (1,008,012) (1,845,536) EARNINGS/(LOSS) PER SHARE (SEN) 35 Basic 0.09 (1.92) Diluted 0.09 (1.92) The annexed notes form an integral part of these financial statements.
  158. The annexed notes form an integral part of these financial statements . The Group Balance at 1.1.2016 29,500,100 933,233 (10,500,000) 17,000 - 10,449,579 30,399,912 - 30,399,912 Loss after taxation/Total comprehensive expenses for the financial year - - - - - (6,103,555) (6,103,555) 177,011 (5,926,544) Contributions by and distributions to owners of the Company: - Private Placement 19, 20 2,950,000 1,917,500 - - - - 4,867,500 - 4,867,500 - Expenses incurred in relation to the Private Placement 20 - (96,543) - - - - (96,543) - (96,543) - Acquisition of subsidiaries 36(a)(ii) 4,561,057 4,789,109 - - - (2,280,528) 7,069,638 4,733,231 11,802,869 Total transactions with owners 7,511,057 6,610,066 - - - (2,280,528) 11,840,595 4,733,231 16,573,826 Balance at 31.12.2016/ 1.1.2017 37,011,157 7,543,299 (10,500,000) 17,000 - 2,065,496 36,136,952 4,910,242 41,047,194 NON-DISTRIBUTABLE DISTRIBUTABLE Foreign Attributable Exchange to Owners Non Share Share Merger Fair Value Translation Retained of the Controlling Total CapitalPremium DeficitReserveReserve Profits CompanyInterests Equity NoteRMRMRMRMRMRMRMRMRM ANNUAL REPORT 2017 STATEMENTS OF CHANGES IN EQUITY FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 51
  159. The annexed notes form an integral part of these financial statements . The Group Balance at 31.12.2016/1.1.2017 37,011,157 7,543,299 (10,500,000) 17,000 - 2,065,496 36,136,952 4,910,242 41,047,194 Profit after taxation/Total comprehensive income for the financial year - - - - - 606,957 606,957 117,603 724,560 Contributions by and distributions to owners of the Company: - Private Placement 19, 20 3,567,500 1,783,750 - - - - 5,351,250 - 5,351,250 - Rights Issue 19 40,578,656 - - - - - 40,578,656 - 40,578,656 - Expenses incurred in relation to the Private Placement and Right Issue 20 - (701,515) - - - - (701,515) - (701,515) - Foreign exchange translation differences - - - - 1,400 - 1,400 - 1,400 - Acquisition of subsidiaries 36(d)(i) - - - - - - - 1,166,133 1,166,133 - Transfer from share premium 19, 20 8,625,534 (8,625,534) - - - - - - - Total transactions with owners 52,771,690 (7,543,299) - - 1,400 - 45,229,791 1,166,133 46,395,924 Balance at 31.12.2017 89,782,847 - (10,500,000) 17,000 1,400 2,672,453 81,973,700 6,193,978 88,167,678 NON-DISTRIBUTABLE DISTRIBUTABLE Foreign Attributable Exchange to Owners Non Share Share Merger Fair Value Translation Retained of the Controlling Total CapitalPremium DeficitReserveReserve Profits CompanyInterests Equity NoteRMRMRMRMRMRMRMRMRM 52 PASUKHAS GROUP BERHAD (686389-A) STATEMENTS OF CHANGES IN EQUITY FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d)
  160. 53 ANNUAL REPORT 2017 STATEMENTS OF CHANGES IN EQUITY FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d) Non Distributable Note Share Capital RM Distributable Share Accumulated Premium Losses RM RM The Company Balance at 1.1.2016 29,500,100 933,233 (2,468,301) Loss after taxation/Total comprehensive expenses for the financial year - - (1,845,536) Contributions by and distributions to owners of the Company: - Private Placement 19, 20 2,950,000 1,917,500 - - Expenses incurred in relation to the Private Placement 20 - (96,543) - - Acquisition of a subsidiary 36(a)(ii) 4,561,057 4,789,109 (2,280,528) Total transactions with owners 7,511,057 6,610,066 (2,280,528) Balance at 31.12.2016/1.1.2017 37,011,157 7,543,299 (6,594,365) Loss after taxation/Total comprehensive expenses for the financial year - - (1,008,012) Contributions by and distributions to owners of the Company: - Private Placement 19, 20 3,567,500 1,783,750 - - Rights Issue 19 40,578,656 - - - Expenses incurred in relation to the Private Placement and Right Issue 20 - (701,515) - - Transfer from share premium 19, 20 8,625,534 (8,625,534) - Total transactions with owners 52,771,690 (7,543,299) - Balance at 31.12.2017 89,782,847 - (7,602,377) The annexed notes form an integral part of these financial statements. Total Equity RM 27,965,032 (1,845,536) 4,867,500 (96,543) 7,069,638 11,840,595 37,960,091 (1,008,012) 5,351,250 40,578,656 (701,515) 45,228,391 82,180,470
  161. 54 PASUKHAS GROUP BERHAD (686389-A) STATEMENTS OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 Note The Group 2017 2016 RM RM The Company 2017 2016 RM RM CASH FLOWS FOR OPERATING ACTIVITIES Profit/(Loss) before taxation 1,419,163 (6,712,732) (1,008,012) (1,845,536) Adjustments for:- Bad debts written off 550,390 - - Depreciation of plant and equipment 1,753,123 205,042 39 40 Depreciation of investment properties 43,295 - - Gain on bargain purchase (1,150,863) - - Gain on fair value of existing equity interests in a former associate (861,964) - - (Gain)/Loss on disposal of plant and equipment (65,865) 1,511 - Impairment loss on: - trade receivables 1,889,156 2,259,097 - - other receivables - 70,622 - - plant and equipment - 176,554 - Inventories written down - 358,998 - Interest expense 1,156,134 221,218 - Loss on disposal of an associate 20,397 - 12,250 Interest income (1,003,609) (360,280) (608,537) (164,365) Share of results in associates 80,319 (245,123) - Unrealised (gain)/loss on foreign exchange (71) 600 (91) 670 Writeback impairment loss on: - trade receivables (3,688,163) - - - other receivables (62,579) - - Writeback of inventories previously written down (183,709) - - Operating loss before working capital changes carried forward (104,846) (4,024,493) (1,604,351) (2,009,191) The annexed notes form an integral part of these financial statements.
  162. ANNUAL REPORT 2017 STATEMENTS OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d) Note The Group 2017 2016 RM RM The Company 2017 2016 RM RM Operating loss before working capital changes brought forward (104,846) (4,024,493) (1,604,351) (2,009,191) Decrease in inventories 320,301 242,839 - Decrease/(Increase) in amount owing by contract customers 858,751 (3,604,793) - (Increase)/Decrease in trade and other receivables (10,580,438) 10,359,060 483,518 (491,338) (Decrease)/Increase in trade and other payables (24,890,552) (6,998,605) (382,365) 492,638 (Decrease)/Increase in amount owing to an associate (657,262) 564,329 - CASH FLOWS FOR OPERATING ACTIVITIES (35,054,046) (3,461,663) (1,503,198) (2,007,891) Interest paid (1,156,134) (221,218) - Income tax paid (556,945) (846,834) (600) (1,128) Income tax refunded 6,422 1,700 - 1,700 NET CASH FOR OPERATING ACTIVITIES (36,760,703) (4,528,015) (1,503,798) (2,007,319) CASH FLOWS FOR INVESTING ACTIVITIES Advances to an associate - (1,560,349) - Advances to subsidiaries - - (37,487,265) (356,891) Interest received 1,003,609 360,280 608,537 164,365 Net cash (outflow)/inflow from acquisition of subsidiaries 36(c) (5,020,672) 1,556,096 (99,999) Sales proceeds from disposal of an associate 330,750 - 330,750 - Proceeds from disposal of plant and equipment 1,053,834 4,442 - Purchase of plant and equipment 37(a) (107,170) (190,125) - Placement of fixed deposits pledged and/or with maturity period more than 3 months (8,203,166) (2,713,243) (8,997,346) (3,060,994) NET CASH FOR INVESTING ACTIVITIES (10,942,815) (2,542,899) (45,645,323) (3,253,520) The annexed notes form an integral part of these financial statements. 55
  163. 56 PASUKHAS GROUP BERHAD (686389-A) STATEMENTS OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d) Note The Group 2017 2016 RM RM The Company 2017 2016 RM RM CASH FLOWS FROM FINANCING ACTIVITIES Advances from directors - 344,760 - Advances from shareholders - 517,140 - Proceeds from issuance of shares 45,228,391 4,770,957 45,228,391 4,770,957 Repayment of bankers’ acceptances 37(b) (3,414,000) (2,457,000) - Repayment of hire purchase obligations 37(b) (339,627) (180,758) - Net drawdown of term loan 37(b) 1,813,869 - - NET CASH FROM FINANCING ACTIVITIES 43,288,633 2,995,099 45,228,391 4,770,957 NET DECREASE IN CASH AND CASH EQUIVALENTS (4,414,885) (4,075,815) (1,920,730) (489,882) EFFECTS OF FOREIGN EXCHANGE TRANSLATION 1,471 (600) 91 (670) CASH AND CASH EQUIVALENTS AT BEGINNING OF THE FINANCIAL YEAR 1,754,339 5,830,754 2,654,989 3,145,541 CASH AND CASH EQUIVALENTS AT END OF THE FINANCIAL YEAR 37(c) (2,659,075) 1,754,339 734,350 2,654,989 The annexed notes form an integral part of these financial statements.
  164. ANNUAL REPORT 2017 57 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 1 . GENERAL INFORMATION The Company is a public limited liability company, incorporated and domiciled in Malaysia. The registered office and principal place of business are as follows:- Registered office : 10th Floor, Menara Hap Seng, No. 1 & 3, Jalan P. Ramlee, 50250 Kuala Lumpur. Principal place of business : Wisma Modal Khas Lot 5815-A, Jalan Mawar, Taman Bukit Serdang, Seksyen 9, 43300 Seri Kembangan, Selangor Darul Ehsan. The financial statements were authorised for issue by the Board of Directors in accordance with a resolution of the directors dated 30 March 2018. 2. PRINCIPAL ACTIVITIES The Company is principally engaged in the business of investment holding and the provision of management services. The principal activities of the subsidiaries are set out in Note 5 to the financial statements. There have been no significant changes in the nature of these activities during the financial year. 3. BASIS OF PREPARATION The financial statements of the Group are prepared under the historical cost convention and modified to include other bases of valuation as disclosed in other sections under significant accounting policies, and in compliance with Malaysian Financial Reporting Standards (“MFRSs”), International Financial Reporting Standards and the requirements of the Companies Act 2016 in Malaysia. 3.1 During the current financial year, the Group has adopted the following new accounting standards and/or interpretations (including the consequential amendments, if any): MFRSs and/or IC Interpretations (Including The Consequential Amendments) Amendments to MFRS 107: Disclosure Initiative Amendments to MFRS 112: Recognition of Deferred Tax Assets for Unrealised Losses Annual Improvements to MFRS Standards 2014 – 2016 Cycles: Amendments to MFRS 12: Clarification of the Scope of the Standard The adoption of the above accounting standards and/or interpretations (including the consequential amendments, if any) did not have any material impact on the Group’s financial statements except as follows:- The amendments to MFRS 107 require an entity to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and noncash changes. A reconciliation between opening and closing balances of these items is provided in Note 37(b) to the financial statements.
  165. 58 PASUKHAS GROUP BERHAD (686389-A) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d) 3. BASIS OF PREPARATION (CONT’D) 3.2 The Group has not applied in advance the following accounting standards and/or interpretations (including the consequential amendments, if any) that have been issued by the Malaysian Accounting Standards Board (“MASB”) but are not yet effective for the current financial year:MFRSs and/or IC Interpretations (Including The Consequential Amendments) Effective Date MFRS 9 Financial Instruments (IFRS 9 as issued by IASB in July 2014) 1 January 2018 MFRS 16 Leases 1 January 2019 MFRS 15 Revenue from Contracts with Customers MFRS 17 Insurance Contracts IC Interpretation 22 Foreign Currency Transactions and Advance Consideration IC Interpretation 23 Uncertainty over Income Tax Treatments Amendments to MFRS 2: Classification and Measurement of Share-based Payment Transactions Amendments to MFRS 4: Applying MFRS 9 Financial Instruments with MFRS 4 Insurance Contracts Amendments to MFRS 9: Prepayment Features with Negative Compensation Amendments to MFRS 10 and MFRS 128: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture 1 January 2018 1 January 2021 1 January 2018 1 January 2019 1 January 2018 1 January 2018 1 January 2019 Deferred Amendments to MFRS 15: Effective Date of MFRS 15 1 January 2018 Amendments to MFRS 119: Plan Amendment, Curtailment or Settlement 1 January 2019 Amendments to MFRS 15: Clarifications to MFRS 15 ‘Revenue from Contracts with Customers’ Amendments to MFRS 128: Long-term Interests in Associates and Joint Ventures Amendments to MFRS 140 – Transfers of Investment Property Annual Improvements to MFRS Standards 2014 – 2016 Cycles: 1 January 2018 1 January 2019 1 January 2018 � Amendments to MFRS 1: Deletion of Short-term Exemptions for First-time Adopters � Amendments to MFRS 128: Measuring an Associate or Joint Venture at Fair Value Annual Improvements to MFRS Standards 2015 – 2017 Cycles 1 January 2018 1 January 2019 The adoption of the above accounting standards and/or interpretations (including the consequential amendments, if any) is expected to have no material impact on the financial statements of the Group upon their initial application except as follows:(a) MFRS 9 (IFRS 9 issued by IASB in July 2014) replaces the existing guidance in MFRS 139 and introduces a revised guidance on the classification and measurement of financial instruments, including a single forwardlooking ‘expected loss’ impairment model for calculating impairment on financial assets, and a new approach to hedge accounting. Under this MFRS 9, the classification of financial assets is driven by cash flow characteristics and the business model in which a financial asset is held. The Group is in the process of making an assessment of the financial impact arising from the adoption of MFRS 9 and the extent of the impact has not been determined. (b) MFRS 15 establishes a single comprehensive model for revenue recognition and will supersede the current revenue recognition guidance and other related interpretations when it becomes effective. Under MFRS 15, an entity shall recognise revenue when (or as) a performance obligation is satisfied, i.e. when ‘control’ of the distinct promised goods or services underlying the particular performance obligation is transferred to the customers. The amendments to MFRS 15 further clarify the concept of ‘distinct’ for the purposes of this accounting standard. In addition, extensive disclosures are also required by MFRS 15. The Group anticipates that the application of MFRS 15 in the future may have an impact on the amounts reported and disclosures made in the financial statements. However, it is not practicable to provide a reasonable estimate of the financial impacts of MFRS 15 until the Group performs a detailed review. The directors of the Company shall comply with the adoption of MFRS 9 and 15 respectively in the financial statements of the Group and of the Company for the financial year ending 31 December 2018.
  166. ANNUAL REPORT 2017 59 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d) 4. SIGNIFICANT ACCOUNTING POLICIES 4.1 Critical Accounting Estimates and Judgements Key Sources of Estimation Uncertainty Management believes that there are no key assumptions made concerning the future, and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year other than as disclosed below: (a) Impairment of Goodwill Goodwill is tested for impairment annually and at other times when such indicators exist. This requires management to estimate the expected future cash flows of the cash-generating unit to which goodwill is allocated and to apply a suitable discount rate in order to determine the present value of those cash flows. The future cash flows are most sensitive to budgeted gross margins, growth rates estimated and discount rate used. If the expectation is different from the estimation, such difference will impact the carrying value of goodwill. The carrying amount of goodwill as at the reporting date is disclosed in Note 9 to the financial statements. (b) Depreciation of Plant and Equipment The estimates for the residual values, useful lives and related depreciation charges for the plant and equipment are based on commercial factors which could change significantly as a result of technical innovations and competitors’ actions in response to the market conditions. The Group anticipates that the residual values of its plant and equipment will be insignificant. As a result, residual values are not being taken into consideration for the computation of the depreciable amount. Changes in the expected level of usage and technological development could impact the economic useful lives and the residual values of these assets, therefore future depreciation charges could be revised. The carrying amount of plant and equipment as at the reporting date is disclosed in Note 7 to the financial statements. (c) Deferred Tax Assets Deferred tax assets are recognised for all deductible temporary differences, unused tax losses and unabsorbed capital allowances to the extent that it is probable that future taxable profits would be available against which the deductible temporary differences, unused tax losses and unabsorbed capital allowances could be utilised. Management judgement is required to determine the amount of deferred tax assets that can be recognised, based on the assessment of the probability of the future taxable profits. The carrying amount of deferred tax assets as at the reporting date is disclosed in Note 10 to the financial statements. (d) Write-down of Inventories Reviews are made periodically by management on damaged, obsolete and slow-moving inventories. These reviews require judgement and estimates. Possible changes in these estimates could result in revisions to the valuation of inventories. The carrying amount of inventories as at the reporting date is disclosed in Note 12 to the financial statements. (e) Construction Contracts Significant judgement is required in determining the stage of completion of a construction contract, the extent of the construction costs incurred, the estimation of the variation works and total budgeted construction costs, as well as the recoverability of the construction project. In making the judgement, management evaluates based on experience and by relying the works of specialists. The gross amount due from contract customers for contract works as at the reporting date is disclosed in Note 13 to the financial statements.
  167. 60 PASUKHAS GROUP BERHAD (686389-A) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d) 4. SIGNIFICANT ACCOUNTING POLICIES (CONT’D) 4.1 Critical Accounting Estimates and Judgements (cONT’D) Key Sources of Estimation Uncertainty (Cont’d) (f) Impairment of Trade Receivables An impairment loss is recognised when there is objective evidence that a financial asset is impaired. Management specifically reviews its loans and receivables financial assets and analyses historical bad debts, customer concentrations, customer creditworthiness, current economic trends and changes in the customer payment terms when making a judgement to evaluate the adequacy of the allowance for impairment losses. Where there is objective evidence of impairment, the amount and timing of future cash flows are estimated based on historical loss experience for assets with similar credit risk characteristics. If the expectation is different from the estimation, such difference will impact the carrying value of receivables. The carrying amount of trade receivables as at the reporting date is disclosed in Note 14 to the financial statements. (g) Purchase Price Allocation Purchase prices related to business combinations are allocated to the underlying acquired assets and liabilities based on their estimated fair value at the time of acquisition. The determination of fair value required the Group to make assumptions, estimates and judgements regarding future events. The allocation process is inherently subjective and impacts the amount assigned to individually identifiable assets and liabilities. As a result, the purchase price allocation impact the Group’s reported assets (including goodwill) and liabilities, future net earnings due to the impact on future depreciation and amortisation expense and impairment tests. The fair values of the assets acquired and liabilities assumed under the business combinations made during the current financial year are disclosed in Note 36(b) to the financial statements. Critical Judgements Made in Applying Accounting Policies Management believes that there are no instances of application of critical judgement in applying the Group’s accounting policies which will have a significant effect on the amounts recognised in the financial statements other than as disclosed below: (a) Contingent Liabilities The recognition and measurement for contingent liabilities is based on management’s view of the expected outcome on contingencies after consulting legal counsel for litigation cases and experts, for matters in the ordinary course of business. (b) Fair Value Estimates for Certain Financial Assets and Financial Liabilities The Group carries certain financial assets and financial liabilities at fair value, which require extensive use of accounting estimates and judgement. While significant components of fair value measurement were determined using verifiable objective evidence, the amount of changes in fair value would differ if the Group use different valuation methodologies. Any changes in fair value of these assets and liabilities would affect profit and/or equity.
  168. ANNUAL REPORT 2017 61 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d) 4. SIGNIFICANT ACCOUNTING POLICIES (CONT’D) 4.2 FINANCIAL INSTRUMENTS Financial assets and liabilities are recognised in the statements of financial position when the Group has become a party to the contractual provisions of the instruments. Financial instruments are classified as financial assets, financial liabilities or equity instruments in accordance with the substance of the contractual arrangement and their definitions in MFRS 132. Interest, dividends, gains and losses relating to a financial instrument classified as a liability are reported as an expense or income. Distributions to holders of financial instruments classified as equity are charged directly to equity. Financial instruments are offset when the Group has a legally enforceable right to offset and intends to settle either on a net basis or to realise the asset and settle the liability simultaneously. A financial instrument is recognised initially at its fair value. Transaction costs that are directly attributable to the acquisition or issue of the financial instrument (other than a financial instrument at fair value through profit or loss) are added to/deducted from the fair value on initial recognition, as appropriate. Transaction costs on the financial instrument at fair value through profit or loss are recognised immediately in profit or loss. Financial instruments recognised in the statements of financial position are disclosed in the individual policy statement associated with each item. (a) Financial Assets On initial recognition, financial assets are classified as either financial assets at fair value through profit or loss, held-to-maturity investments, loans and receivables financial assets or available-for-sale financial assets, as appropriate. (i) Financial Assets at Fair Value through Profit or Loss Financial assets are classified as financial assets at fair value through profit or loss when the financial asset is either held for trading or is designated to eliminate or significantly reduce a measurement or recognition inconsistency that would otherwise arise. Derivatives are also classified as held for trading unless they are designated as hedges. Financial assets at fair value through profit or loss are stated at fair value, with any gains or losses arising on remeasurement recognised in profit or loss. Dividend income from this category of financial assets is recognised in profit or loss when the Group’s right to receive payment is established. Financial assets at fair value through profit or loss could be presented as current assets or non-current assets. Financial assets that are held primarily for trading purposes are presented as current assets whereas financial assets that are not held primarily for trading purposes are presented as current assets or non-current assets based on the settlement date. (ii) Held-to-maturity Investments Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the management has the positive intention and ability to hold to maturity. Held-tomaturity investments are measured at amortised cost using the effective interest method less any impairment loss, with interest income recognised in profit or loss on an effective yield basis. Held-to-maturity investments are classified as non-current assets, except for those having maturity within 12 months after the reporting date which are classified as current assets.
  169. 62 PASUKHAS GROUP BERHAD (686389-A) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d) 4. SIGNIFICANT ACCOUNTING POLICIES (CONT’D) 4.2 FINANCIAL INSTRUMENTS (cONT’D) (a) Financial Assets (Cont’d) (iii) Loans and Receivables Financial Assets Trade receivables and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as loans and receivables financial assets. Loans and receivables financial assets are measured at amortised cost using the effective interest method, less any impairment loss. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial. The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial asset, or (where appropriate) a shorter period, to the net carrying amount on initial recognition. Loans and receivables financial assets are classified as current assets, except for those having settlement dates later than 12 months after the reporting date which are classified as non-current assets. (iv) Available-for-sale Financial Assets Available-for-sale financial assets are non-derivative financial assets that are designated in this category or are not classified in any of the other categories. After initial recognition, available-for-sale financial assets are remeasured to their fair values at the end of each reporting period. Gains and losses arising from changes in fair value are recognised in other comprehensive income and accumulated in the fair value reserve, with the exception of impairment losses. On derecognition, the cumulative gain or loss previously accumulated in the fair value reserve is reclassified from equity into profit or loss. Dividends on available-for-sale equity instruments are recognised in profit or loss when the Group’s right to receive payments is established. Investments in equity instruments whose fair values cannot be reliably measured are measured at cost less accumulated impairment losses, if any. Available-for-sale financial assets are classified as non-current assets unless they are expected to be realised within 12 months after the reporting date. (b) Financial Liabilities (i) Financial Liabilities at Fair Value through Profit or Loss Fair value through profit or loss category comprises financial liabilities that are either held for trading or are designated to eliminate or significantly reduce a measurement or recognition inconsistency that would otherwise arise. Derivatives are also classified as held for trading unless they are designated as hedges.
  170. ANNUAL REPORT 2017 63 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d) 4. SIGNIFICANT ACCOUNTING POLICIES (CONT’D) 4.2 FINANCIAL INSTRUMENTS (cONT’D) (b) Financial Liabilities (Cont’d) (ii) Other Financial Liabilities Other financial liabilities are initially measured at fair value plus directly attributable transaction costs and subsequently measured at amortised cost using the effective interest method. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period. Financial liabilities are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting date. (c) Equity Instruments Ordinary shares are classified as equity and recorded at the proceeds received, net of directly attributable transaction costs. Dividends on ordinary shares are recognised as liabilities when approved for appropriation. (d)Derecognition A financial asset or part of it is derecognised when, and only when, the contractual rights to the cash flows from the financial asset expire or the financial asset is transferred to another party without retaining control or substantially all risks and rewards of the asset. On derecognition of a financial asset, the difference between the carrying amount and the sum of the consideration received (including any new asset obtained less any new liability assumed) and any cumulative gain or loss that had been recognised in equity is recognised in profit or loss. A financial liability or a part of it is derecognised when, and only when, the obligation specified in the contract is discharged or cancelled or expires. On derecognition of a financial liability, the difference between the carrying amount of the financial liability extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in profit or loss. 4.3 FUNCTIONAL AND FOREIGN CURRENCIES (a) Functional and Presentation Currency The individual financial statements of each entity in the Group are presented in the currency of the primary economic environment in which the entity operates, which is the functional currency. The consolidated financial statements are presented in Ringgit Malaysia (“RM”), which is the Company’s functional and presentation currency. (b) Foreign Currency Transactions and Balances Transactions in foreign currencies are converted into the respective functional currencies on initial recognition, using the exchange rates at the transaction dates. Monetary assets and liabilities at the end of the reporting period are translated at the exchange rates ruling as of that date. Non-monetary assets and liabilities are translated using exchange rates that existed when the values were determined. All exchange differences are recognised in profit or loss.
  171. 64 PASUKHAS GROUP BERHAD (686389-A) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d) 4. SIGNIFICANT ACCOUNTING POLICIES (CONT’D) 4.3 FUNCTIONAL AND FOREIGN CURRENCIES (cONT’D) (c) Foreign Operations Assets and liabilities of foreign operations are translated to the Group’s presentation currency at the exchange rates at the end of the reporting period. Income, expenses and other comprehensive income of foreign operations are translated at exchange rates ruling at the dates of the transactions. All exchange differences arising from translation are taken directly to other comprehensive income and accumulated in equity, attributed to the owners of the Company and non-controlling interests, as appropriate. Goodwill and fair value adjustments arising from the acquisition of foreign operations are treated as assets and liabilities of the foreign operations and are recorded in the functional currency of the foreign operations and translated at the closing rate at the end of the reporting period. On the disposal of a foreign operation (i.e. a disposal of the Group’s entire interest in a foreign subsidiary, or a partial disposal involving loss of control over a subsidiary that includes a foreign operation, or a partial disposal of an interest in associates, that includes a foreign operation of which the retained interest becomes a financial asset), all of the exchange differences accumulated in equity in respect of that foreign operation attributable to the owners of the Company are reclassified to profit or loss as part of the gain or loss on disposal. The portion that related to non-controlling interests is derecognised but is not reclassified to profit or loss. In addition, in relation to a partial disposal of a subsidiary that does not result in the Group losing control over the subsidiary, the proportionate share of accumulated exchange differences are reattributed to non-controlling interests and are not recognised in profit or loss. When the Group disposes of only part of its investment in associates that includes a foreign operation while retaining significant influence or joint control, or significant influence and joint control, the proportionate share of the accumulative exchange differences is reclassified to profit or loss. In the consolidated financial statements, when settlement of an intragroup loan is neither planned nor likely to occur in the foreseeable future, the exchange differences arising from translating such monetary item are considered to form part of a net investment in the foreign operation and are recognised in other comprehensive income. 4.4 BASIS OF CONSOLIDATION The consolidated financial statements include the financial statements of the Company and its subsidiaries made up to the end of the reporting period. Subsidiaries are entities controlled by the Group. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Potential voting rights are considered when assessing control only when such rights are substantive. The Group also considers it has de facto power over an investee when, despite not having the majority of voting rights, it has the current ability to direct the activities of the investee that significantly affect the investee’s return. Subsidiaries are consolidated from the date on which control is transferred to the Group up to the effective date on which control ceases, as appropriate. Intragroup transactions, balances, income and expenses are eliminated on consolidation. Intragroup losses may indicate an impairment that requires recognition in the consolidated financial statements. Where necessary, adjustments are made to the financial statements of subsidiaries to ensure consistency of accounting policies with those of the Group.
  172. ANNUAL REPORT 2017 65 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d) 4. SIGNIFICANT ACCOUNTING POLICIES (CONT’D) 4.4 BASIS OF CONSOLIDATION (CONT’D) (a) Business Combinations Acquisitions of businesses are accounted for using the acquisition method. Under the acquisition method, the consideration transferred for acquisition of a subsidiary is the fair value of the assets transferred, liabilities incurred and the equity interests issued by the Group at the acquisition date. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs, other than the costs to issue debt or equity securities, are recognised in profit or loss when incurred. In a business combination achieved in stages, previously held equity interests in the acquiree are remeasured to fair value at the acquisition date and any corresponding gain or loss is recognised in profit or loss. Non-controlling interests in the acquiree may be initially measured either at fair value or at the non-controlling interests’ proportionate share of the fair value of the acquiree’s identifiable net assets at the date of acquisition. The choice of measurement basis is made on a transaction-by-transaction basis. (b) Non-controlling Interests Non-controlling interests are presented within equity in the consolidated statement of financial position, separately from the equity attributable to owners of the Company. Profit or loss and each component of other comprehensive income are attributed to the owners of the Company and to the non-controlling interests. Total comprehensive income is attributed to non-controlling interests even if this results in the non-controlling interests having a deficit balance. (c) Changes in Ownership Interests in Subsidiaries Without Change of Control All changes in the parent’s ownership interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions. Any difference between the amount by which the non-controlling interest is adjusted and the fair value of consideration paid or received is recognised directly in equity of the Group. (d) Loss of Control Upon the loss of control of a subsidiary, the Group recognises any gain or loss on disposal in profit or loss which is calculated as the difference between:(i) the aggregate of the fair value of the consideration received and the fair value of any retained interest in the former subsidiary; and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the former subsidiary and any non-controlling interests. Amounts previously recognised in other comprehensive income in relation to the former subsidiary are accounted for in the same manner as would be required if the relevant assets or liabilities were disposed of (i.e. reclassified to profit or loss or transferred directly to retained profits). The fair value of any investments retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under MFRS 139 or, when applicable, the cost on initial recognition of an investment in an associate or a joint venture.
  173. 66 PASUKHAS GROUP BERHAD (686389-A) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d) 4. SIGNIFICANT ACCOUNTING POLICIES (CONT’D) 4.5 GOODWILL Goodwill is measured at cost less accumulated impairment losses, if any. The carrying value of goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying amount may be impaired. The impairment value of goodwill is recognised immediately in profit or loss. An impairment loss recognised for goodwill is not reversed in a subsequent period. Under the acquisition method, any excess of the sum of the fair value of the consideration transferred in the business combination, the amount of non-controlling interests recognised and the fair value of the Group’s previously held equity interest in the acquiree (if any), over the net fair value of the acquiree’s identifiable assets and liabilities at the date of acquisition is recorded as goodwill. Where the latter amount exceeds the former, after reassessment, the excess represents a bargain purchase gain and is recognised in profit or loss immediately. In respect of equity-accounted associates, the carrying amount of goodwill is included in the carrying amount of the investment and an impairment loss on such an investment is not allocated to any asset, including goodwill, that forms part of the carrying amount of the equity-accounted associates. 4.6 INVESTMENTS IN SUBSIDIARIES Investments in subsidiaries are stated at cost in the statement of financial position of the Company, and are reviewed for impairment at the end of the reporting periods if events or changes in circumstances indicate that the carrying values may not be recoverable. The cost of the investments includes transaction costs. On the disposal of the investments in subsidiaries, the difference between the net disposal proceeds and the carrying amount of the investments is recognised in profit or loss. 4.7 INVESTMENTS IN ASSOCIATES An associate is an entity in which the Group and the Company have a long-term equity interest and where it exercises significant influence over the financial and operating policies. Investments in associates are stated at cost in the statement of financial position of the Company, and are reviewed for impairment at the end of the reporting period if events or changes in circumstances indicate that the carrying values may not be recoverable. The cost of the investment includes transaction costs. The investment in an associate is accounted for in the consolidated financial statements using the equity method, based on the financial statements of the associate made up to 31 December 2017. The Group’s share of the post acquisition profits and other comprehensive income of the associate is included in the consolidated statement of profit or loss and other comprehensive income, after adjustment if any, to align the accounting policies with those of the Group, from the date that significant influence commences up to the effective date on which significant influence ceases or when the investment is classified as held for sale. The Group’s interest in the associate is carried in the consolidated statement of financial position at cost plus the Group’s share of the post acquisition retained profits and reserves. The cost of investment includes transaction costs. When the Group’s share of losses exceeds its interest in an associate, the carrying amount of that interest is reduced to zero, and the recognition of further losses is discontinued except to the extent that the Group has an obligation. Unrealised gains or losses on transactions between the Group and the associate are eliminated to the extent of the Group’s interest in the associate. Unrealised losses are eliminated unless cost cannot be recovered.
  174. ANNUAL REPORT 2017 67 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d) 4. SIGNIFICANT ACCOUNTING POLICIES (CONT’D) 4.7 INVESTMENTS IN ASSOCIATES (CONT’D) When the Group ceases to have significant influence over an associate and the retained interest in the former associate is a financial asset, the Group measures the retained interest at fair value at that date and the fair value is regarded as the initial carrying amount of the financial asset in accordance with MFRS 139. Furthermore, the Group also reclassifies its share of the gain or loss previously recognised in other comprehensive income of that associate to profit or loss when the equity method is discontinued. 4.8 PLANT AND EQUIPMENT All items of plant and equipment are initially measured at cost. Cost includes expenditure that are directly attributable to the acquisition of the asset and other costs directly attributable to bringing the asset to working condition for its intended use. Subsequent to initial recognition, all plant and equipment are stated at cost less accumulated depreciation and any impairment losses. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when the cost is incurred and it is probable that the future economic benefits associated with the asset will flow to the Group and the cost of the asset can be measured reliably. The carrying amount of parts that are replaced is derecognised. The costs of the day-to-day servicing of plant and equipment are recognised in profit or loss as incurred. Depreciation on plant and equipment is charged to profit or loss (unless it is included in the carrying amount of another asset) on a straight-line method to write off the depreciable amount of the assets over their estimated useful lives. Depreciation of an asset does not cease when the asset becomes idle or is retired from active use unless the asset is fully depreciated. The principal annual rates used for this purpose are:- Air conditioners Cables Computer and software Mini hydro power plant Motor vehicles Office equipment, furniture and fittings Plant and machinery Renovation Signboard The depreciation method, useful lives and residual values are reviewed, and adjusted if appropriate, at the end of each reporting period to ensure that the amounts, method and periods of depreciation are consistent with previous estimates and the expected pattern of consumption of the future economic benefits embodied in the items of the plant and equipment. Any changes are accounted for as a change in estimate. When significant parts of an item of plant and equipment have different useful lives, they are accounted for as separate items (major components) of plant and equipment. An item of plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use. Any gain or loss arising from derecognition of the asset, being the difference between the net disposal proceeds and the carrying amount, is recognised in profit or loss. The revaluation reserve included in equity is transferred directly to retained profits on retirement or disposal of the asset. 10% over the remaining project duration less residual value 40% remaining leasehold period 20% 10% 10% 10% 10%
  175. 68 PASUKHAS GROUP BERHAD (686389-A) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d) 4. SIGNIFICANT ACCOUNTING POLICIES (CONT’D) 4.9 INVESTMENT PROPERTIES Investment properties are properties which are owned or held under a leasehold interest to earn rental income or for capital appreciation or for both, but not for sale in the ordinary course of business, use in the production or supply of goods or services or for administrative purposes. Investment properties are initially measured at cost. Cost includes expenditure that is directly attributable to the acquisition of the investment property. Subsequent to initial recognition, investment properties are stated at cost less accumulated depreciation and impairment losses, if any. Depreciation is charged to profit or loss on a straight-line method over the estimated useful lives of the investment properties. The estimated useful lives of the investment properties is 50 years. Investment properties are derecognised when they have either been disposed of or when the investment property is permanently withdrawn from use and no future benefit is expected from its disposal. On the derecognition of an investment property, the difference between the net disposal proceeds and the carrying amount is recognised in profit or loss. Transfers are made to or from investment property only when there is a change in use. All transfers do not change the carrying amount of the property reclassified. 4.10IMPAIRMENT (a) Impairment of Financial Assets All financial assets (other than those categorised at fair value through profit or loss) investments in subsidiaries and investments in associates, are assessed at the end of each reporting period whether there is any objective evidence of impairment as a result of one or more events having an impact on the estimated future cash flows of the asset. For an equity instrument, a significant or prolonged decline in the fair value below its cost is considered to be an objective evidence of impairment. An impairment loss in respect of held-to-maturity investments and loans and receivables financial assets is recognised in profit or loss and is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate. An impairment loss in respect of available-for-sale financial assets is recognised in profit or loss and is measured as the difference between its cost (net of any principal payment and amortisation) and its current fair value, less any impairment loss previously recognised in the fair value reserve. In addition, the cumulative loss recognised in other comprehensive income and accumulated in equity under fair value reserve, is reclassified from equity into profit or loss. With the exception of available-for-sale debt instruments, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the financial asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised. In respect of available-for-sale equity instruments, impairment losses previously recognised in profit or loss are not reversed through profit or loss. Any increase in fair value subsequent to an impairment loss made is recognised in other comprehensive income.
  176. ANNUAL REPORT 2017 69 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d) 4. SIGNIFICANT ACCOUNTING POLICIES (CONT’D) 4.10IMPAIRMENT (CONT’D) (a) Impairment of Financial Assets (Cont’d) An impairment loss in respect of unquoted equity instrument that is carried at cost is recognised in profit or loss and is measured as the difference between the financial asset’s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment losses are not reversed in subsequent periods. (b) Impairment of Non-financial Assets The carrying values of assets, other than those to which MFRS 136 - Impairment of Assets does not apply, are reviewed at the end of each reporting period for impairment when an annual impairment assessment is compulsory or there is an indication that the assets might be impaired. Impairment is measured by comparing the carrying values of the assets with their recoverable amounts. When the carrying amount of an asset exceeds its recoverable amount, the asset is written down to its recoverable amount and an impairment loss shall be recognised. The recoverable amount of an asset is the higher of the asset’s fair value less costs to sell and its value‑in‑use, which is measured by reference to discounted future cash flows using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Where it is not possible to estimate the recoverable amount of an individual asset, the Group determines the recoverable amount of the cash-generating unit to which the asset belongs. An impairment loss is recognised in profit or loss immediately unless the asset is carried at its revalued amount. Any impairment loss of a revalued asset is treated as a revaluation decrease to the extent of a previously recognised revaluation surplus for the same asset. Any impairment loss recognised in respect of cash-generating unit is allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit and then to reduce the carrying amounts of the other assets in the cash-generating unit on a pro rata basis. In respect of assets other than goodwill, and when there is a change in the estimates used to determine the recoverable amount, a subsequent increase in the recoverable amount of an asset is treated as a reversal of the previous impairment loss and is recognised to the extent of the carrying amount of the asset that would have been determined (net of amortisation and depreciation) had no impairment loss been recognised. The reversal is recognised in profit or loss immediately, unless the asset is carried at its revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase. 4.11LEASED ASSETS (a) Finance Assets A lease is recognised as a finance lease if it transfers substantially to the Group all the risks and rewards incidental to ownership. Upon initial recognition, the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset. The corresponding liability is included in the statement of financial position as hire purchase payables. Minimum lease payments made under finance leases are apportioned between the finance costs and the reduction of the outstanding liability. The finance costs, which represent the difference between the total leasing commitments and the fair value of the assets acquired, are recognised in the profit or loss and allocated over the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability for each accounting period.
  177. 70 PASUKHAS GROUP BERHAD (686389-A) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d) 4. SIGNIFICANT ACCOUNTING POLICIES (CONT’D) 4.11LEASED ASSETS (CONT’D) (b) Operating Lease All leases that do not transfer substantially to the Group all the risks and rewards incidental to ownership are classified as operating leases and, the leased assets are not recognised on the statement of financial position of the Group and of the Company. Payments made under operating leases are recognised as an expense in the profit or loss on a straight-line method over the term of the lease. Lease incentives received are recognised as a reduction of rental expense over the lease term on a straight-line method. Contingent rentals are charged to profit or loss in the reporting period in which they are incurred. 4.12INVENTORIES Inventories are stated at the lower of cost and net realisable value. Cost is determined on the first-in, first-out method and comprises the purchase price, production or conversion costs and incidentals incurred in bringing the inventories to their present location and condition. Net realisable value represents the estimated selling price less the estimated costs of completion and the estimated costs necessary to make the sale. 4.13AMOUNTs OWING BY/TO CONTRACT CUSTOMERS The amounts owing by/to contract customers are stated at cost plus profits attributable to contracts in progress less progress billings and allowance for foreseeable losses, if any. Cost includes direct materials, labour and applicable overheads. 4.14PROVISIONS Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of past events, when it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and when a reliable estimate of the amount can be made. Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimate. Where the effect of the time value of money is material, the provision is the present value of the estimated expenditure required to settle the obligation. The unwinding of the discount is recognised as interest expense in profit or loss. 4.15BORROWING COSTS Borrowing costs, directly attributable to the acquisition, construction or production of a qualifying asset are capitalised as part of the cost of those assets, until such time as the assets are ready for their intended use or sale. The capitalisation of borrowing costs is suspended during extended periods in which active development is interrupted. All other borrowing costs are recognised in profit or loss as expenses in the period in which they incurred. Investment income earned on the temporary investment of specific borrowing pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation. 4.16INCOME TAXES (a) Current Tax Current tax assets and liabilities are expected amount of income tax recoverable or payable to the taxation authorities. Current taxes are measured using tax rates and tax laws that have been enacted or substantively enacted at the end of the reporting period and are recognised in profit or loss except to the extent that the tax relates to items recognised outside profit or loss (either in other comprehensive income or directly in equity).
  178. ANNUAL REPORT 2017 71 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d) 4. SIGNIFICANT ACCOUNTING POLICIES (CONT’D) 4.16INCOME TAXES (CONT’D) (b) Deferred Tax Deferred tax are recognised using the liability method for all temporary differences other than those that arise from goodwill or from the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction, affects neither accounting profit nor taxable profit. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period when the asset is realised or the liability is settled, based on the tax rates that have been enacted or substantively enacted at the end of the reporting period. Deferred tax assets are recognised for all deductible temporary differences, unused tax losses and unused tax credits to the extent that it is probable that future taxable profits will be available against which the deductible temporary differences, unused tax losses and unused tax credits can be utilised. The carrying amounts of deferred tax assets are reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that the related tax benefits will be realised. Current and deferred tax items are recognised in correlation to the underlying transactions either in profit or loss, other comprehensive income or directly in equity. Deferred tax arising from a business combination is adjusted against goodwill or negative goodwill. Current tax assets and liabilities or 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 taxable entity (or on different tax entities but they intend to settle current tax assets and liabilities on a net basis) and the same taxation authority. (c) Goods and Services Tax (“GST”) Revenues, expenses and assets are recognised net of GST except for the GST in a purchase of assets or services which are not recoverable from the taxation authorities, the GST are included as part of the costs of the assets acquired or as part of the expense item whichever is applicable. In addition, receivables and payables are also stated with the amount of GST included (where applicable). The net amount of the GST recoverable from or payable to the taxation authorities at the end of the reporting period is included in other receivables or other payables. 4.17EARNINGS PER ORDINARY SHARE Basic earnings per ordinary share is calculated by dividing the consolidated profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the reporting period, adjusted for own shares held. Diluted earnings per ordinary share is determined by adjusting the consolidated profit or loss attributable to ordinary shareholders of the Company and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares.
  179. 72 PASUKHAS GROUP BERHAD (686389-A) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d) 4. SIGNIFICANT ACCOUNTING POLICIES (CONT’D) 4.18CASH AND CASH EQUIVALENTS Cash and cash equivalents comprise cash in hand, bank balances, demand deposits and short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value with original maturity periods of three months or less. For the purpose of the statements of cash flows, cash and cash equivalents are presented net of bank overdrafts. 4.19EMPLOYEE BENEFITS (a) Short-term Benefits Wages, salaries, paid annual leave, bonuses, and non-monetary benefits are measured on an undiscounted basis and are recognised in profit or loss in the period in which the associated services are rendered by employees of the Group. (b) Defined Contribution Plans The Group’s contributions to defined contribution plans are recognised in profit or loss in the period to which they relate. Once the contributions have been paid, the Group have no further liability in respect of the defined contribution plans. 4.20CONTINGENT LIABILITIES A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by the occurrence of one or more uncertain future events not wholly within the control of the Group. It can also be a present obligation arising from past events that is not recognised because it is not probable that an outflow of economic resources will be required or the amount of obligation cannot be measured reliably. A contingent liability is not recognised but is disclosed in the notes to the financial statements, unless the probability of outflow of economic benefits is remote. When a change in the probability of an outflow occurs so that the outflow is probable, it will then be recognised as a provision. 4.21OPERATING SEGMENTS An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components. An operating segment’s operating results are reviewed regularly by the chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. 4.22fair value measurementS Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using a valuation technique. The measurement assumes that the transaction takes place either in the principal market or in the absence of a principal market, in the most advantageous market. For non-financial asset, the fair value measurement takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
  180. ANNUAL REPORT 2017 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d) 4. SIGNIFICANT ACCOUNTING POLICIES (CONT’D) 4.22fair value measurementS (CONT’D) For financial reporting purposes, the fair value measurements are analysed into level 1 to level 3 as follows:- Level 1 : Inputs are quoted prices (unadjusted) in active markets for identical assets or liability that the entity can access at the measurement date; Level 2 : Inputs are inputs, other than quoted prices included within level 1, that are observable for the asset or liability, either directly or indirectly; and Level 3 : Inputs are unobservable inputs for the asset or liability. The transfer of fair value between levels is determined as of the date of the event or change in circumstances that caused the transfer. 4.23REVENUE AND OTHER INCOME (a) Contract Income Revenue on contracts is recognised on the percentage of completion method unless the outcome of the contracts cannot be reliably determined, in which case revenue on contracts is only recognised to the extent of contract costs incurred that are recoverable. Foreseeable losses, if any, are provided for in full as and when it can be reasonably ascertained that the contract will result in a loss. The stage of completion is determined based on the proportion that contract costs incurred for work performed to-date bear to the estimated total contract costs. (b) Sale of Goods Revenue from sale of goods is recognised when significant risks and rewards of ownership of the goods have been transferred to the buyer and where the Group does not have continuing managerial involvement and effective control over the goods sold. (c)Services Revenue is recognised upon rendering of services and when the outcome of the transaction can be estimated reliably by reference to the stage of completion at the end of the reporting period. The stage of completion is determined by reference to the proportion of costs incurred for work performed todate bear to the estimated total costs. In the event the outcome of the transaction could not be estimated reliably, revenue is recognised to the extent of the expenses incurred that are recoverable. (d) Rental Income Rental income is accounted for on a straight-line method over the lease term. (e) Dividend Income Dividend income from investment is recognised when the right to receive dividend payment is established. (f) Interest Income Interest income is recognised on an accrual basis using the effective interest method. 73
  181. 74 PASUKHAS GROUP BERHAD (686389-A) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d) 5. INVESTMENTS IN SUBSIDIARIES Unquoted shares, at cost - in Malaysia - outside Malaysia The Company 2017 2016 RM RM 34,743,897 25,070 34,643,898 25,070 34,768,967 34,668,968 The details of the subsidiaries are as follows:- Name of Subsidiary Subsidiaries of the Company Pasukhas Sdn. Bhd. (“PSB”) Principal Place of Business/ Country of Incorporation Malaysia Percentage of Issued Share Capital Held By Parent 2017 2016 100% 100% Principal Activities (1) Designing, system integration, fabrication, installation, testing and commissioning of electrical and mechanical works for specified industries. (2) Civil engineering business. and construction Pasukhas Products Sdn. Bhd. (“PPSB”) Malaysia 100% 100% Dormant. Pasukhas Energy Sdn. Bhd. (“PESB”) Malaysia 100% 100% Investment holding. Pasukhas Development Sdn. Bhd. (formerly known as Bungar Majujaya Sdn. Bhd.) (“PDSB”) Malaysia 100% - Pasukhas Construction Sdn. Bhd. (formerly known as Pasukan Khas Construction Sdn. Bhd.) (“PCSB”) Malaysia 70% 70% General contractor. Pasukhas Lanka (Pvt) Ltd* Sri Lanka 100% 100% Dormant. Subsidiary of PESB I.S. Energy Sdn. Bhd. (“ISE”) Malaysia 100% - Design, build and manage mini hydro power plant and other related works. Malaysia 55% - Property investment and mechanical and electrical engineering business. Subsidiary of PSB Essential Value Sdn. Bhd. (“EVSB”) * Not audited by Messrs. Crowe Horwath. Dormant.
  182. ANNUAL REPORT 2017 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d) 5. INVESTMENTS IN SUBSIDIARIES (CONT’D) (a) During the current financial year, the Company has:(i) (ii) acquired 100% equity interests in PDSB for a total cash consideration of RM1; and subscribed for additional shares in PESB for a total cash consideration of RM99,998. The equity interest in PESB remained as 100% after the increase in the number of shares. The acquisition of PDSB has no significant effect on the financial results of the Group for the current financial year and the financial position of the Group as at the end of the current reporting period. (b) During the current financial year:(i) (ii) PESB has acquired 100% equity interests in ISE for a total cash consideration of RM1 million; and PSB has acquired an additional 10% equity interests held in EVSB for a total cash consideration of RM152,500. Following the completion of the acquisition, EVSB became a 55% owned subsidiary of PSB. The details of the acquisitions are disclosed in Note 36 to the financial statements. (c) In the previous financial year, the Company acquired:(i) 100% equity interests in PPSB for a total cash consideration of RM2; (ii) 100% equity interests in PESB for a total cash consideration of RM2; and (iii) 70% equity interests in PCSB for a total consideration of RM17,223,990. The acquisitions of PPSB and PESB have no significant effect on the financial results of the Group for the previous financial year and the financial position of the Group as at the end of the previous reporting period. The details of the acquisition of PCSB are disclosed in Note 36 to the financial statements. (d) The non-controlling interests at the end of the reporting period comprise the following: Effective Equity Interest The Group 2017201620172016 % % RM RM PCSB 30 30 5,057,265 4,910,242 EVSB 45 - 1,136,713 6,193,978 4,910,242 75
  183. 76 PASUKHAS GROUP BERHAD (686389-A) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d) 5. INVESTMENTS IN SUBSIDIARIES (CONT’D) (e) The summarised financial information (before intra-group elimination) for each subsidiary that has non-controlling interests that are material to the Group is as follows:- PCSB 2017 RM At 31 December Non-current assets 2,575,959 Current assets 46,223,378 Non-current liabilities (156,244) Current liabilities (31,785,545) Net assets 16,857,548 2016 RM 2,949,521 56,129,614 (232,476) (42,479,188) 16,367,471 Financial Year Ended 31 December Revenue 8,843,953 142,673,934 Profit/(Loss) after taxation/Total comprehensive income/(expenses) for the financial year 490,077 (4,187,742) Net cash for operating activities Net cash from investing activities Net cash from/(for) financing activities (377,061) 48,561 1,741,886 (4,978,654) 523,242 (977,174) EVSB 2017 RM At 31 December Non-current assets 8,884,705 Current assets 3,913,272 Non-current liabilities (604,888) Current liabilities (9,667,061) Net assets 2,526,028 Financial Year Ended 31 December Revenue 197,082 Loss after taxation/Total comprehensive expenses for the financial year (248,209) Net cash for operating activities Net cash from investing activities Net cash for financing activities 355,796 - - 2016 RM - -
  184. ANNUAL REPORT 2017 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d) 6. INVESTMENTS IN ASSOCIATES The Group 2017 2016 RM RM The Company 2017 2016 RM RM Unquoted shares, at cost At 1 January 343,045 343,045 343,000 343,000 Transfer to investments in subsidiaries (45) - - Disposal during the year (343,000) - (343,000) At 31 December - 343,045 - 343,000 Share of post acquisition profits At 1 January 392,590 147,467 - Addition during the year (80,319) 245,123 - Disposal during the year (8,147) - - Transfer to investments in subsidiaries (304,124) - - At 31 December - 392,590 - - 735,635 - 343,000 The details of the associates are as follows:Name of Associate Principal Place of Business Effective Equity Interest 2017 2016 Principal Activities Dyna Energy Sdn. Bhd. (“DESB”) Malaysia @ 49%* Dormant. EVSB Malaysia # 45% Property investment and mechanical and electrical engineering business. 77
  185. 78 PASUKHAS GROUP BERHAD (686389-A) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d) 6. INVESTMENTS IN ASSOCIATES (CONT’D) The summarised financial information for each associate that is material to the Group is as follows: DESBEVSB 2017201620172016 RMRMRMRM (Unaudited) (Unaudited) (Audited) (Audited) At 31 December Non-current assets - - # 6,494,225 Current assets - 719,894 # 4,624,472 Current liabilities - (19,920) # (10,259,937) Net assets - 699,974 # 858,760 Financial year ended 31 December Revenue - - 131,388^ 5,240,074 Profit after taxation/Total comprehensive income for the financial year 3,988^ 14,722 (182,830)^ 528,687 Group’s share of profit for the financial year 1,954^ 7,214 (82,273)^ 237,909 Reconciliation of net assets to carrying amount Group’s share of net assets above - 342,981 # Goodwill - 6,212 # Carrying amount of the Group’s interests in the associate - 349,193 # 386,442 - 386,442 * Not audited by Messrs. Crowe Horwath. @ Disposed of during the financial year. # As disclosed in Note 5(c) to the financial statements, PSB has acquired an additional 10% equity interests in EVSB. Consequently EVSB became a 55% owned subsidiary of PSB. Therefore, these information are no longer required to be disclosed. ^ Represents financial information and the Group’s share of profit up-to the date of disposal of DESB or the date that EVSB became a 55% owned subsidiary of PSB.
  186. PLANT AND EQUIPMENT 34 ,967 1,866,360 2,565 28,747,783 329,608 364,511 2,819,287 61,943 1,664 34,228,688 (4,366) - (570) (1,152,217) (102,416) (87,156) (394,559) (11,374) (465) (1,753,123) FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d) Acquisition Of At Subsidiaries Impairment DepreciationAt 1.1.2016 Additions (Note 36(b)) Disposals Loss Charges 31.12.2016 The GroupRMRMRMRMRMRMRM 2016 Carrying Amount Air conditioners 14,670 27,500 - (62) - (2,775) 39,333 Cables 3,030,883 - - - (176,554) - 2,854,329 Motor vehicles 50,895 215,000 93,050 - - (57,298) 301,647 Office equipment, furniture and fittings 369,295 64,116 32,154 (5,891) - (80,829) 378,845 Plant and machinery 266,065 900,000 2,079,962 - - (55,131) 3,190,896 Renovation 33,353 48,509 - - - (8,545) 73,317 Signboard 2,593 - - - - (464) 2,129 Total 3,767,754 1,255,125 2,205,166 (5,953) (176,554) (205,042) 6,840,496 Air conditioners 39,333 - - - Cables 2,854,329 - - (987,969) Computer and software - 2,908 227 - Mini hydro power plant - - 29,900,000 - Motor vehicles 301,647 130,377 - - Office equipment, furniture and fittings 378,845 63,935 8,887 - Plant and machinery 3,190,896 22,950 - - Renovation 73,317 - - - Signboard 2,129 - - - Total 6,840,496 220,170 29,909,114 (987,969) 2017 Carrying Amount Acquisition Of At Subsidiaries Depreciation At 1.1.2017 Additions (Note 36(b)) Disposal Charges 31.12.2017 The GroupRMRMRMRMRMRM 7. ANNUAL REPORT 2017 NOTES TO THE FINANCIAL STATEMENTS 79
  187. 80 PASUKHAS GROUP BERHAD (686389-A) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d) 7. PLANT AND EQUIPMENT (CONT’D) At Accumulated Net Book Cost Depreciation Value The GroupRMRMRM 2017 Air conditioners Cables Computer and software Mini hydro power plant Motor vehicles Office equipment, furniture and fittings Plant and machinery Renovation Signboard Total 43,652 4,665,902 3,135 29,900,000 944,890 1,614,522 4,383,606 113,747 4,644 (8,685) (2,799,542) (570) (1,152,217) (615,282) (1,250,011) (1,564,319) (51,804) (2,980) 34,967 1,866,360 2,565 28,747,783 329,608 364,511 2,819,287 61,943 1,664 41,674,098 (7,445,410) 34,228,688 Accumulated At Accumulated Impairment Net Book Cost Depreciation Loss Value The GroupRMRMRMRM 2016 Air conditioners Cables Motor vehicles Office equipment, furniture and fittings Plant and machinery Renovation Signboard Total 43,652 7,577,210 814,513 1,541,700 4,360,656 113,747 4,644 (4,319) (4,546,327) (512,866) (1,162,855) (1,169,760) (40,430) (2,515) - (176,554) - - - - - 39,333 2,854,329 301,647 378,845 3,190,896 73,317 2,129 14,456,122 (7,439,072) (176,554) 6,840,496 At Depreciation At 1.1.2017 Charges 31.12.2017 The CompanyRMRMRM 2017 Carrying Amount Office equipment, furniture and fittings 242 (39) 203 At Depreciation At 1.1.2016 Charges 31.12.2016 The CompanyRMRMRM 2016 Carrying Amount Office equipment, furniture and fittings 282 (40) 242
  188. 81 ANNUAL REPORT 2017 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d) 7. PLANT AND EQUIPMENT (CONT’D) At Accumulated Net Book Cost Depreciation Value The CompanyRMRMRM 2017 Office equipment, furniture and fittings 399 (196) 203 2016 Office equipment, furniture and fittings 399 (157) 242 (a) The net book value of the plant and equipment which have been acquired under hire purchase terms are as follows: Motor vehicles Plant and machinery The Group 2017 2016 RM RM 325,442 802,500 301,517 - 1,127,942 301,517 These leased assets have been pledged as security for the related finance lease liabilities of the Group as disclosed in Note 24 to the financial statements. (b) Certain assets have been charged to a financial institution for term loan granted to the Group as disclosed in Note 25 to the financial statements as follows: The Group 2017 2016 RM RM Computer and software Mini hydro power plant Office equipment, furniture and fittings Plant and machinery 2,565 28,747,783 16,162 2,684 - 28,769,194 - (c) The mini hydro power plant is depreciated over the leasehold period of 21 years.
  189. 82 PASUKHAS GROUP BERHAD (686389-A) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d) 8. INVESTMENT PROPERTIES Cost:- At 1 January Acquisition of subsidiaries (Note 36(b)) At 31 December Accumulated depreciation:- At 1 January Depreciation during the financial year At 31 December Represented by:- Leasehold commercial buildings Fair value The Group 2017 2016 RM RM - 8,928,000 - 8,928,000 - - (43,295) - (43,295) - 8,884,705 - 8,884,705 - 8,928,000 - (a) The leasehold commercial buildings have been pledged to a licensed bank as security for banking facilities granted to the Group as disclosed in Note 31 to the financial statements. (b) The fair value of the investment properties are within level 2 of the fair value hierarchy and are arrived at by reference to market evidence of transaction prices for similar properties. The most significant input into this valuation approach is the price per square foot of comparable properties.
  190. 83 ANNUAL REPORT 2017 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d) 9. GOODWILL Cost:- At 1 January Acquisition of subsidiaries (Note 36(d)) At 31 December The Group 2017 2016 RM RM 3,099,691 - 3,099,691 3,099,691 3,099,691 (a) The carrying amount of goodwill allocated to each cash-generating unit is as follows: Civil engineering and construction The Group 2017 2016 RM RM 3,099,691 3,099,691 (b) The Group has assessed the recoverable amount of goodwill allocated and determined that no impairment is required. The recoverable amount of the cash-generating unit is determined using the value in use approach and this is derived from the present value of the future cash flows from the cash-generating unit computed based on the projections of financial budgets approved by management covering a period of 5 years. The key assumptions used in the determination of the recoverable amount are as follows: Gross margin Growth rate Discount rate (i) Budgeted gross margin 2017 % 2016 % 8.00 16.00 6.80 2.00 5.00 6.70 Average gross margin achieved in 5 years immediately before the budgeted period increased for expected efficiency improvements and cost saving measures. (ii) Growth rate Based on the expected projection of the civil and structural sector. (iii) Discount rate (pre-tax) Reflects specific risks relating to the relevant cash-generating unit. The values assigned to the key assumptions represent management’s assessment of future trends in the cash-generating units and are based on both external sources and internal historical data. The directors believe that there is no reasonable possible change in the above key assumptions applied that is likely to materially cause the respective cash-generating unit carrying amount to be exceeded its recoverable amount.
  191. 84 PASUKHAS GROUP BERHAD (686389-A) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d) 10. DEFERRED TAX ASSETS The Group 2017 2016 RM RM At 1 January 2,967,400 Arising from acquisition of subsidiaries (Note 36(b)) (1,288,062) Recognised in profit or loss (Note 34) (607,000) At 31 December 1,072,338 The deferred tax assets/(liabilities) recognised at the end of the reporting period and before offsetting are as follows:- 1,142,000 990,600 834,800 2,967,400 Deferred tax assets:- Unutilised tax losses Unabsorbed capital allowances Provisions 1,972,700 150,500 853,000 1,900,140 791,500 1,040,560 2,976,200 3,732,200 Deferred tax liabilities:- Accelerated capital allowances on qualifying plant and equipment Revaluation of properties (615,800) (1,288,062) (764,800) - (1,903,862) (764,800) 1,072,338 2,967,400 No deferred tax assets are recognised on the following items: Excess of depreciation over capital allowances Unabosorbed capital allowances The Group 2017 2016 RM RM 30,800 10,491,000 11,750,100 10,521,800 11,750,100 Deferred tax assets have not been recognised in respect of these items because it is not probable that future taxable profits will be available against which the Group can utilise these benefits. As at 31 December 2017, subject to agreement with the Inland Revenue Board, the Group has unutilised investment tax allowances of approximately RM17,029,964 (2016 - Nil) available to be carried forward to be offset against future taxable income.
  192. 85 ANNUAL REPORT 2017 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d) 11. OTHER INVESTMENTS Quoted shares Transferable club membership Allowance for impairment losses: - At 1 January/31 December The Group 2017 2016 RM RM 12,000 100,000 12,000 100,000 112,000 112,000 (7,750) (7,750) 104,250 104,250 Represented by:- Quoted shares, at fair value 4,250 Transferable club membership, at cost 100,000 104,250 4,250 100,000 104,250 Investment in transferable club membership of the Group is designated as available-for-sale financial assets and is stated at cost as its fair value cannot be reliably measured using valuation techniques due to the lack of marketability of the investment. 12. INVENTORIES The Group 2017 2016 RM RM Materials, electrical parts and consumables 1,191,053 1,327,645 Recognised in profit or loss Inventories recognised at cost of sales 5,171,584 13,962,446 Inventories written down - 358,998 Writeback of inventories previously written down (183,709) None of the inventories is carried at net realisable value. 13. AMOUNTS OWING BY/(TO) CONTRACT CUSTOMERS The Group 2017 2016 RM RM Contract costs incurred 540,262,652 Attributable profits 24,680,590 564,943,242 Progress billings (541,185,666) 23,757,576 581,428,062 17,666,065 599,094,127 (573,798,082) 25,296,045 Represented by:- Amount owing by contract customers 25,773,499 27,948,360 Amount owing to contract customers (2,015,923) (2,652,315) 23,757,576 25,296,045 The contract costs incurred during the financial year included the following expenses:Hiring charges Staff costs 556,996 4,641,310 1,281,483 4,287,092
  193. 86 PASUKHAS GROUP BERHAD (686389-A) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d) 14. TRADE RECEIVABLES The Group 2017 2016 RM RM Gross trade receivables 47,494,553 Allowance for impairment losses: - At 1 January (4,292,099) - Addition during the financial year (Note 33) (1,889,156) - Arising from acquisition of a subsidiary - - Writeback during the financial year (Note 33) 3,688,163 - At 31 December (2,493,092) 45,001,461 59,467,408 (662,651) (2,259,097) (1,370,351) - (4,292,099) 55,175,309 (a) The Group’s normal trade credit terms range from 14 to 120 (2016 - 14 to 120) days. (b) Included in trade receivables of the Group are retention sums amounting to RM14,610,230 (2016 - RM22,978,337). The retention sums represent a portion of progress billings which are due and receivable upon expiry of the warranty period and the satisfaction of conditions specified in the relevant contracts. 15. OTHER RECEIVABLES, DEPOSITS AND PREPAYMENTS The Group 2017 2016 RM RM The Company 2017 2016 RM RM Other receivables: - Third parties 4,526,927 2,005,874 - - Advances to suppliers 778,642 447,238 - - Goods and services tax recoverable 651,563 535,211 - 5,957,132 2,988,323 - Allowance of impairment losses (8,043) (70,622) - 5,949,089 2,917,701 - Deposits 22,291,961 3,310,609 1,000 Prepayments 465,373 10,500 29,333 28,706,423 6,238,810 30,333 502,351 502,351 502,351 1,000 10,500 513,851 (a) The advances to suppliers are in respect of future supply of project materials. These advances shall be recoverable by set-off against future receipt of the project materials. (b) Included in deposits of the Group are:(i) an amount of RM19,729,078 (2016 - Nil) paid as land premium and architect fees for a joint venture project; (ii) an amount of RM770,000 (2016 - Nil) paid as cash deposit to the Financing Service Reserve Account (“FSRA”) in respect of the term loan as disclosed in Note 25 to the financial statements; and (iii) an amount of RM80,568 (2016 - Nil) as part of the cash deposit paid over a Sinking Fund. The Sinking Fund is to be build up to RM1,000,000 as disclosed in Note 25 to the financial statements by 5% from each proceeds/ receivables received from revenue of a subsidiary.
  194. 87 ANNUAL REPORT 2017 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d) 16. AMOUNT OWING BY SUBSIDIARIES The amount owing by subsidiaries is non-trade in nature, unsecured, interest-free and repayable on demand. The amount owing is to be settled in cash. 17. AMOUNTS OWING BY/(TO) ASSOCIATES The Group 2017 2016 RM RM Amount owing by an associate: Non-trade balance - 2,254,554 Amount owing to an associate: Trade balance - (4,381,919) In the previous financial year, the amount owing by an associate was non-trade in nature, unsecured, interest-free and repayable on demand. The amount owing was settled in cash. In the previous financial year, the trade balance was subject to normal credit term of 30 days. Included in the amount owing was retention sum amounted to RM530,180. 18. DEPOSITS WITH FINANCIAL INSTITUTIONS (a) The deposits with financial institutions of the Group and of the Company at the end of the reporting period bore effective interest rates ranging from 2.75% to 4.00% (2016 - 2.75% to 3.80%) per annum and 3.90% to 4.00% (2016 - 3.60% to 3.80%) per annum respectively. The deposits with financial institutions have maturity periods ranging from 31 to 365 (2016 - 31 to 365) days and 182 to 365 (2016 - 31 to 182) days for the Group and the Company respectively. (b) Included in the deposits with financial institutions of the Group at the end of the reporting period was an amount of RM9,389,277 (2016 - RM10,183,457) which has been pledged to licensed banks as security for banking facilities granted to the Group as disclosed in Notes 30 and 31 to the financial statements. 19. SHARE CAPITAL The Group/The Company 2017 2016 2017 Number Of Shares RM 2016 RM Ordinary share of RM0.10 each:- Authorised N/A 500,000,000 N/A 50,000,000 N/A- Not applicable pursuant to Companies Act 2016 which came into operation on 31 January 2017 as disclosed below.
  195. 88 PASUKHAS GROUP BERHAD (686389-A) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d) 19. SHARE CAPITAL (CONT’D) The Group/The Company 2017 2016 2017 Number Of Shares RM Issued and fully paid-up Ordinary shares with no par value (2016 - par value of RM0.10 each) At 1 January 370,111,566 295,001,000 37,011,157 Increase during the year: - Private Placement 35,675,000 29,500,000 3,567,500 - Rights Issue 405,786,566 - 40,578,656 - acquisition of a subsidiary - 45,610,566 - - transfer from share premium (Note 20) - - 8,625,534 At 31 December 811,573,132 370,111,566 89,782,847 2016 RM 29,500,100 2,950,000 4,561,057 37,011,157 (i) The holders of ordinary shares are entitled to receive dividends as and when declared by the Company, and are entitled to one vote per ordinary share at meetings of the Company. (ii) On 31 January 2017, the concepts of authorised share capital and par value of share capital were abolished in accordance with the Companies Act 2016. Consequently, the amount standing to the credit of the Company’s share premium account became part of the Company’s share capital pursuant to the transitional provisions set out in Section 618(2) of the Companies Act 2016. There is no impact on the numbers of ordinary shares in issue or the relative entitlement of any of the members as a result of this transition. 20. SHARE PREMIUM At 1 January Increase during the year: - Private Placement - acquisition of a subsidiary Expenses incurred in relation to the Private Placement and Rights Issue Transfer to share capital (Note 19) At 31 December The Group 2017 2016 RM RM 7,543,299 933,233 1,783,750 - (701,515) (8,625,534) 1,917,500 4,789,109 (96,543) - - 7,543,299 21. MERGER DEFICIT The merger deficit relates to a subsidiary which was consolidated under the merger method of accounting. The merger deficit arose from the difference between the nominal value of shares issued for the acquisition of a subsidiary and the nominal value of the shares acquired. 22. FAIR VALUE RESERVE The fair value reserve represents the cumulative fair value changes (net of tax, where applicable) of available-for-sale financial assets until they are disposed of or impaired.
  196. 89 ANNUAL REPORT 2017 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d) 23. FOREIGN EXCHANGE TRANSLATION RESERVE The foreign exchange translation reserve arose from the translation of the financial statements of foreign subsidiaries whose functional currencies are different from the Group’s presentation currency. 24. HIRE PURCHASE PAYABLES Minimum hire purchase payables: - not later than 1 year - later than 1 year and not later than 5 years Future finance charges Present value of hire purchase payables Analysed by:- Current liabilities (Note 30) Non-current liabilities The Group 2017 2016 RM RM 371,302 964,992 163,573 416,326 1,336,294 (138,067) 579,899 (55,045) 1,198,227 524,854 309,237 888,990 139,950 384,904 1,198,227 524,854 (a) The hire purchase payables of the Group are secured by the Group’s motor vehicles and plant and machinery under finance leases as disclosed in Note 7(a) to the financial statements. The hire purchase agreements are expiring from 1 to 5 (2016 - 1 to 5) years. (b) The hire purchase payables of the Group at the end of the reporting period bore effective interest rates ranging from 4.50% to 8.01% (2016 - 4.50% to 8.01%) per annum. The interest rates are fixed at the inception of the hire purchase arrangements. 25. TERM LOAN Current liabilities (Note 30) Non-current liabilities The Group 2017 2016 RM RM 1,271,132 11,616,564 - 12,887,696 - The term loan is secured by:(a) a Third Party Debenture creating a second fixed and floating charge and a Third Party Specific Debenture over certain plant and equipment of the Group as disclosed in Note 7 to the financial statements; (b) a corporate guarantee of the holding company; (c) a Third Party Assignment of all rights, interest and benefits of a subsidiary and proceeds from the sales of electricity in respect of the Renewable Energy Power Purchase Agreement executed between the subsidiary and a third party; (d) an assignment of all rights, interest and benefits of a subsidiary in respect of the Concession Agreement and any amendment between the subsidiary and a local authority; (e) an assignment in favour of the financial institution over all rights, interest and benefits of a subsidiary of all insurances in relation to the mini hydro power plant; (f) a Memorandum of Deposit and charge of securities over the shares of a subsidiary; (g) a Memorandum of Deposit of Cash Deposit of RM770,000 or equivalent to the three months financing service (principal and profits) for the FSRA as disclosed in Note 15 to the financial statements; (h) a Memorandum of Cash Deposit over Sinking Fund of RM1,000,000 to be build up by 5% from each proceeds/ receivables received from revenue of a subsidiary as disclosed in Note 15 to the financial statements; and (i) a Deed of Subordination from the Company/related companies/shareholders and/or directors’ advances until the term loan is fully settled. The term loan at the end of the reporting period bore an interest rate of 2.55% per annum above the Effective Cost of Funds of the financial institution.
  197. 90 PASUKHAS GROUP BERHAD (686389-A) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d) 26. TRADE PAYABLES Included in the trade payables of the Group is retention sum amounting to RM9,625,076 (2016 - RM7,604,962). The normal trade credit terms granted to the Group range from 30 to 120 (2016 - 30 to 120) days. 27. OTHER PAYABLES AND ACCRUALS The Group 2017 2016 RM RM The Company 2017 2016 RM RM Other payables 11,455,175 12,215,203 7,191,435 Goods and services tax payable 305,689 334,794 - Accruals 857,385 1,020,539 72,779 12,618,249 13,570,536 7,264,214 7,577,040 69,539 7,646,579 Included in other payables of the Group are:(a) an amount owing to a related party amounting to RM119,092 (2016 - RM59,546). The amount owing is unsecured, interestfree and repayable on demand. The amount owing is to be settled in cash; (b) an amount owing to a shareholder of EVSB amounting to RM686,025 (2016 - Nil). The amount owing is unsecured, interestfree and repayable on demand. The amount owing is to be settled in cash; and (c) the fair value of the amount owing to the vendors of PCSB amounted to RM7,074,256 (2016 - RM7,074,256) as disclosed in Note 36(a)(i). 28. AMOUNT OWING TO DIRECTORS The amount owing is unsecured, interest-free and repayable on demand. The amount owing is to be settled in cash. 29. AMOUNT OWING TO SHAREHOLDERS The amount owing is unsecured, interest-free and repayable on demand. The amount owing is to be settled in cash. 30. SHORT-TERM BORROWINGS Hire purchase payables (Note 24) Term loan (Note 25) Bankers’ acceptances Revolving credits The Group 2017 2016 RM RM 309,237 1,271,132 3,787,000 3,000,000 139,950 7,201,000 3,000,000 8,367,369 10,340,950
  198. 91 ANNUAL REPORT 2017 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d) 30. SHORT-TERM BORROWINGS (CONT’D) The weighted average effective interest rate of the bankers’ acceptances at the end of the reporting period is 5.47% (2016 4.96%) per annum. The weighted average effective interest rate of the revolving credits at the end of the reporting period is 5.24% (2016 - 5.17%) per annum. The bankers’ acceptances and revolving credits are secured by:(i) pledged deposits of the Group as disclosed in Note 18 to the financial statements; (ii) a joint and several guarantee of certain directors of the Company; and (iii) a corporate guarantee of the Company. 31. BANK OVERDRAFTS (a) The bank overdrafts are secured by:(i) (ii) (iii) (iv) a deed of assignment over the investment properties of the Group as disclosed in Note 8 to the financial statements; pledged deposits of the Group as disclosed in Note 18 to the financial statements; a joint and several guarantee of certain directors of a subsidiary and the Company; and a corporate guarantee of the Company and a shareholder of a subsidiary. (b) The bank overdrafts of the Group at the end of the reporting period bore floating interest rates ranging from 5.00% to 8.26% (2016 - 7.60% to 7.90%) per annum. 32.REVENUE Contract revenue Sale of goods, rendering of services, rental income and electricity supplied The Group 2017 2016 RM RM 25,345,255 48,229,015 11,513,818 12,155,998 36,859,073 60,385,013 The disaggregation of revenue from contracts with customers is presented under “Operating Segments” in Note 40 to the financial statements.
  199. 92 PASUKHAS GROUP BERHAD (686389-A) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d) 33. PROFIT/(LOSS) BEFORE TAXATION The Group 2017 2016 RM RM The Company 2017 2016 RM RM Profit/(Loss) before taxation is arrived at after charging/(crediting):- Auditors’ remuneration: - audit fees 152,494 87,266 16,000 16,000 - non-audit fees - auditor of the Company 160,000 - 96,000 Bad debts written off 550,390 - - Depreciation of plant and equipment 1,753,123 205,042 39 40 Depreciation of investment properties 43,295 - - Directors’ remuneration (Note 38) 2,822,446 2,701,955 865,069 861,977 Gain on bargain purchase (Note 36(d)) (1,150,863) - - Gain on fair value of existing equity interests in a former associate (861,964) - - Hiring charges 556,996 1,281,483 - Impairment loss on: - trade receivables (Note 14) 1,889,156 2,259,097 - - other receivables - 70,622 - - plant and equipment - 176,554 - Inventories written down - 358,998 - Interest expense: - bank overdraft 317,054 41,039 - - bankers’ acceptances 93,577 41,584 - - bank guarantee 615 2,921 - - hire purchase 76,303 (21,574) - - revolving credit 151,896 157,248 - - term loan 516,689 - - Loss on disposal of an associate 20,397 - 12,250 (Gain)/Loss on disposal of plant and equipment (65,865) 1,511 - Loss/(Gain) on foreign exchange: - realised 1,134 23,483 - - unrealised (71) 600 (91) 670 Rental income (65,694) - - Rental of premises 873,100 738,260 - Share of results in associates 80,319 (245,123) - Staff costs: - salaries, bonus and allowances 7,081,989 6,230,405 201,000 209,593 - defined contribution plan 606,509 463,754 23,040 24,606 - other benefits 629,896 398,106 125,100 15,184 Interest income (1,003,609) (360,280) (608,537) (164,365) Writeback of impairment loss on: - trade receivables (Note 14) (3,688,163) - - - other receivables (62,579) - - Writeback of inventories previously written down (183,709) - -
  200. 93 ANNUAL REPORT 2017 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d) 34. INCOME TAX EXPENSE The Group 2017 2016 RM RM The Company 2017 2016 RM RM Current tax expense: - for the financial year 85,000 - - underprovision in the previous financial year 2,603 48,612 - 87,603 48,612 - Deferred tax expense (Note 10): - for the financial year 845,000 (834,800) - - overprovision in the previous financial year (238,000) - - 607,000 (834,800) - 694,603 (786,188) - - A reconciliation of income tax expense applicable to profit/(loss) before taxation at the statutory tax rate to income tax expense at the effective tax rate of the Group and of the Company is as follows: The Group 2017 2016 RM RM The Company 2017 2016 RM RM Profit/(Loss) before taxation 1,419,163 (6,712,732) (1,008,012) (1,845,536) Tax at the statutory tax of 24% 340,599 (1,611,056) (241,923) (442,929) Tax effects of:- Share of results in associates 19,277 (58,830) - Non-deductible expenses 864,906 835,086 241,923 442,929 Deferred tax assets not recognised during the financial year 23,243 - - Utilisation of deferred tax assets not recognised in the previous financial year (318,025) - - Under/(Over)provision in the previous financial year: - current tax 2,603 48,612 - - deferred tax (238,000) - - 694,603 (786,188) - - Domestic income tax is calculated at the Malaysian statutory tax rate of 24% (2016 - 24%) of the estimated assessable profit for the financial year. The taxation of other jurisdictions is calculated at the rates prevailing in the respective jurisdiction. On 21 October 2016, the Government of Malaysia announced the reduction of income tax rate from 24% to a range of 20% to 24% based on the percentage of increase in chargeable income as compared to the immediate preceding year of assessment for years of assessment 2017 and 2018.
  201. 94 PASUKHAS GROUP BERHAD (686389-A) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d) 34. INCOME TAX EXPENSE (CONT’D) Tax savings during the financial year arising from:- Utilisation of capital allowances previously not recognised as deferred tax assets The Group 2017 2016 RM RM 1,325,106 - 35. EARNINGS/(LOSS) PER SHARE The basic earnings/(loss) per share is arrived at by dividing the Group’s earnings/(loss) attributable to owners of the Company for the financial year by the weighted average number of ordinary shares in issue during the financial year, as follows:- Profit/(Loss) attributable to owners of the Company (RM) Weighted average number of ordinary shares Basic earnings/(loss) per ordinary share (Sen) The Group 2017 2016 RM RM 606,957 (6,103,555) 668,231,368 317,550,907 0.09 (1.92) The diluted earnings/(loss) per ordinary share is the same as the basic earnings/(loss) per ordinary share as there is no dilutive potential ordinary shares outstanding at the end of the reporting period. 36. ACQUISITION OF SUBSIDIARIES 2017 During the current financial year, the Group:(i) through its subsidiary, PESB has acquired 100% equity interests in ISE. The acquisition of ISE is to enable the Group to expand its business into power and energy sector; and (ii) through its subsidiary, PSB has acquired an additional 10% equity interests in EVSB. Following the completion of the acquisition, EVSB became a 55% owned subsidiary of PSB. The acquisition of EVSB is to enable the Group to expand its business into mechanical and electrical sector. 2016 In the previous financial year, the Company acquired 70% equity interest in PCSB. The acquisition of PCSB is to enable the Group to expand its business into civil and structural sector.
  202. 95 ANNUAL REPORT 2017 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d) 36. ACQUISITION OF SUBSIDIARIES (CONT’D) The following summarises the major classes of consideration transferred, and the recognised amounts of assets acquired and liabilities assumed at the date of acquisition. (a) Fair Value of Purchase Consideration The Group 2017 2016 RM RM The Company 2017 2016 RM RM Cash (item (c) below) Contingent consideration (item (a)(i) below) Ordinary shares issued, at fair value (item (a)(ii) below) 1,152,500 - 99,999 - - 7,074,256 - 7,074,256 - 7,069,638 - 7,069,638 Total purchase consideration 1,152,500 14,143,894 99,999 14,143,894 (i) The Group is required to pay the vendors an additional consideration of RM7,873,834 if PCSB achieve an aggregate profit after taxation of RM7,873,834 based on the 24-month period commencing 1 October 2016 to 30 September 2018. The fair value of the contingent consideration of RM7,873,834 was estimated by calculating the present value of the future expected cash flows based on a discount rate of 5.50% and assumed probability-adjusted profits of PCSB of RM7,873,834. (ii) The Company issued a total of 45,610,566 new ordinary shares for the acquisition of PCSB:- The Group 2017 2016 RM RM At issued price of RM0.205 per share - At market value of RM0.155 per share - - The Company 2017 2016 RM RM 9,350,166 - 9,350,166 (7,069,638) - (7,069,638) 2,280,528 - 2,280,528 In the previous financial year, the difference of RM2,280,528 arising from the acquisition of PCSB has been accounted for as a deduction from retained profits.
  203. 96 PASUKHAS GROUP BERHAD (686389-A) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d) 36. ACQUISITION OF SUBSIDIARIES (CONT’D) (b) Identifiable Assets Acquired and Liabilities Assumed Investment properties Plant and equipment Trade and other receivables Cash and cash equivalents (item (c) below) Current tax assets Deferred tax (liabilities)/assets Trade and other payables Amount owing (to)/by contract customers Borrowings Fair value of net identifiable assets acquired The Group 2017 2016 RM RM 8,928,000 29,909,114 4,126,788 (3,868,172) 72,977 (1,288,062) (21,491,471) (679,718) (11,073,827) 2,205,166 37,924,444 1,556,096 6,506 990,600 (42,511,182) 16,089,468 (483,664) 4,635,629 15,777,434 (c) Cash Flows Arising from Acquisition The Group 2017 2016 RM RM The Company 2017 2016 RM RM Purchase consideration settled in cash and cash equivalents (item (a) above) 1,152,500 - 99,999 Less: Cash and cash equivalents of subsidiaries acquired (item (b) above) 3,868,172 (1,556,096) - Net cash outflow/(inflow) from the acquisition of subsidiaries 5,020,672 (1,556,096) 99,999 (d) Goodwill Arising from Acquisition Total fair value of consideration transferred (item (a) above) Add: Non-controlling interests (item (d)(i) below) Add: Gain on fair value of existing equity interests in a former associate (item (d)(iii) below) Add: Transfer from interest in an associate Less: Fair value of net identifiable assets (item (b) above) (Gain on bargain purchase) (Note 33)/Goodwill from the acquisition of subsidiaries (Note 8) The Group 2017 2016 RM RM 1,152,500 1,166,133 14,143,894 4,733,231 861,964 304,169 - (4,635,629) (15,777,434) (1,150,863) 3,099,691
  204. 97 ANNUAL REPORT 2017 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d) 36. ACQUISITION OF SUBSIDIARIES (CONT’D) (d) Goodwill Arising from Acquisition (Cont’d) (i) The non-controlling interests are measured at the non-controlling interests’ proportionate share of the fair value of the acquiree’s identifiable net assets at the date of acquisition. (ii) The Group has incurred acquisition-related costs of RM352,110 (2016 - RM320,000) related to external legal fees and due diligence costs. These expenses were recognised in “Administrative Expenses” line item of the consolidated statement of profit or loss and other comprehensive income. (iii) The remeasurement to fair value of the Group’s existing 45% interests in EVSB resulted in a gain of RM861,964 (being fair value of RM2,028,096 less its carrying value at acquisition date of RM1,166,132) was recognised in profit or loss under the “Other Income” line item as disclosed in Note 33 to the financial statements. (e) Impact of Acquisition on the Group’s Results The acquired subsidiaries have contributed the following results:- Revenue Profit after taxation The Group 2017 2016 RM RM 2,669,410 255,627 6,913,687 801,937 If the acquisition had taken place at the beginning of the current financial year, the Group’s revenue and profit/(loss) after taxation from continuing operations would have been RM38,689,774 (2016 - RM196,145,260) and RM752,308 (2016 (RM10,704,323)) respectively. 37. CASH FLOW INFORMATION (a) The cash disbursed for the purchase of plant and equipment is as follows: Cost of plant and equipment purchased (Note 7) Amount financed through hire purchase (Note (b) below) Other payables Cash disbursed for purchase of plant and equipment The Group 2017 2016 RM RM 220,170 (113,000) -^ 1,255,125 (165,000) (900,000) 107,170 190,125 ^ Referred as the purchase cost for a machinery which is payable in year 2016 and subsequently repaid through drawdown of hire purchase payables in year 2017. Therefore, the total drawdown of hire purchase facilities is as follows: Purchase of plant and equipment Repayment of purchase cost of machinery, accrued in financial year 2016 The Group 2017 2016 RM RM 113,000 900,000 165,000 - 1,013,000 165,000
  205. 2017 At 1 January - 524 ,854 7,201,000 3,000,000 10,725,854 Changes in Financing Cash Flows Proceeds from drawdown 13,300,000 1,013,000 12,912,000 - 27,225,000 Repayment of borrowing principal (11,486,131) (339,627) (16,326,000) - (28,151,758) Repayment of borrowing interests (516,689) (76,303) (93,577) (151,896) (838,465) Non-cash Changes Acquisition of subsidiaries (Note 36(b)) 11,073,827 - - - 11,073,827 Finance charges recognised in profit or loss 516,689 76,303 93,577 151,896 838,465 At 31 December 12,887,696 1,198,227 3,787,000 3,000,000 20,872,923 Term Hire Bankers’Revolving Loan PurchaseAcceptances Credits Total The GroupRMRMRMRMRM (b) The reconciliations of liabilities arising from financing activities are as follows:- 37. CASH FLOW INFORMATION (CONT’D) 98 PASUKHAS GROUP BERHAD (686389-A) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d)
  206. ANNUAL REPORT 2017 99 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d) 37. CASH FLOW INFORMATION (CONT’D) (c) The cash and cash equivalents comprise the following: The Group 2017 2016 RM RM The Company 2017 2016 RM RM Deposits with financial institutions (Note 18) 21,447,617 15,297,834 12,058,340 5,114,377 Cash and bank balances 2,330,812 2,943,154 734,350 601,606 Bank overdrafts (Note 31) (4,989,887) (3,242,198) - 18,788,542 14,998,790 12,792,690 5,715,983 Less: Deposits pledged to financial institutions and/ or with maturity period more than 3 months (21,447,617) (13,244,451) (12,058,340) (3,060,994) (2,659,075) 1,754,339 734,350 2,654,989 38. KEY MANAGEMENT PERSONNEL COMPENSATION The key management personnel of the Group and of the Company include executive directors and non-executive directors of the Company and certain members of senior management of the Group and of the Company. The key management personnel compensation during the financial year are as follows:- The Group 2017 2016 RM RM The Company 2017 2016 RM RM Directors of the Company Short-term employee benefits: - fees 330,000 411,000 246,000 264,000 - salaries, bonuses and other benefits 848,310 1,402,966 360,829 360,724 1,178,310 1,813,966 606,829 624,724 - defined contribution benefits 101,067 240,990 43,200 43,200 1,279,377 2,054,956 650,029 667,924 Directors of Subsidiaries Short-term employee benefits: - fees 84,000 28,500 - - salaries, bonuses and other benefits 1,302,829 552,355 192,000 173,317 1,386,829 580,855 192,000 173,317 - defined contribution benefits 156,240 66,144 23,040 20,736 1,543,069 646,999 215,040 194,053 Total directors’ remuneration (Note 33) 2,822,446 2,701,955 865,069 861,977 The estimated monetary value of benefits-in-kind provided by the Group to the directors of the subsidiaries were RM26,000 (2016 - RM34,750).
  207. 100 PASUKHAS GROUP BERHAD (686389-A) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d) 39. RELATED PARTY DISCLOSURES (a) Identities of Related Parties Parties are considered to be related to the Group if the Group or the Company has the ability, directly or indirectly, to control or jointly control the party or exercise significant influence over the party in making financial and operating decisions, or vice versa, or where the Group or the Company and the party are subject to common control. In addition to the information detailed elsewhere in the financial statements, the Group has related party relationships with its directors, significant investors, associates, key management personnel and entities within the same group of companies. (b) Significant Related Party Transactions and Balances Other than those disclosed elsewhere in the financial statements, the Group and the Company carried out the following transactions with the related parties during the financial year:- The Group 2017 2016 RM RM The Company 2017 2016 RM RM (i) Subsidiaries - Advances to subsidiaries - - 17,296,171 - Payment on behalf - - 19,817,052 2,986,808 - Interest income - - 374,895 (ii) Associates - Contract expenses - (3,593,423) - - Payment on behalf - 1,568,304 - (iii) Related parties - Rental of premises (781,200) (655,375) - - Top up rental deposit - (5,350) - The significant outstanding balances of the related parties together with their terms and conditions are disclosed in the respective notes to the financial statements. 40. OPERATING SEGMENTS Operating segments are prepared in a manner consistent with the internal reporting provided to the Group Chief Executive Officer as its chief operating decision maker in order to allocate resources to segments and to assess their performance. For management purposes, the Group is organised into business units based on their products and services provided. The Group is organised into 6 main reportable segments as follows:(i) M&E Engineering Services (“M&E”) - involved in the provision of water treatment and sewerage industry, palm oil, sugar mills, refineries and other factories. (ii) Manufacturing of LV Switchboards (“LV”) - involved in sub-distribution for the generation, transmission, distribution and conversion of electric energy and for the control of equipment that consume electric energy. (iii) Trading (“EQ”) - involved in trading of a variety of goods without any particular specialisation. (iv) Property Development (“PD”) - involved in civil engineering and construction. (v) Renewable Energy (“RE”) - involved in power plant and electricity supplied. (vi) Rental Property (“RP”) - Rental income generated from investment properties.
  208. 101 ANNUAL REPORT 2017 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d) 40. OPERATING SEGMENTS (CONT’D) The Group’s contract expenses, operating expenses, financing (including finance costs), income taxes, assets and liabilities are managed on a group and are not allocated to operating segments. Each reportable segment assets is measured based on all assets (including goodwill) of the segment other than investments in associates and tax-related assets. Each reportable segment liabilities is measured based on all liabilities of the segment other than borrowings and tax-related liabilities. Transfer prices between operating segments are at arm’s length basis in a manner similar to transactions with third parties. The effects of such inter-segment transactions are eliminated on consolidation. BUSINESS SEGMENTS The M&E LV PD RE RP Group RMRMRMRMRMRM 2017 Revenue External revenue 6,964,980 6,344,300 20,880,380 2,603,719 65,694 Inter-segment revenue - - - - - 6,964,980 6,344,300 20,880,380 2,603,719 65,694 Consolidation adjustments Consolidated revenue Results Segment profit Finance costs Share of results in associates Consolidated profit before taxation Segment profit includes the following:- Bad debts written off Depreciation of plant and equipment Depreciation of investment properties Gain on bargain purchase Gain on fair value of existing equity interests in a former associate Gain on disposal of plant and equipment Impairment loss on trade receivables Interest expenses Interest income Loss on disposal of an associate Share of results in associates Unrealised loss on foreign exchange Writeback of impairment loss on: - trade receivables - other receivables Writeback of inventories previously written down 36,859,073 36,859,073 36,859,073 2,669,559 (1,170,077) (80,319) 1,419,163 (550,390) (1,753,123) (43,295) 1,150,863 861,964 65,865 (1,889,156) (1,156,134) 1,003,609 (12,250) (80,319) 221 3,688,163 62,579 183,709
  209. 102 PASUKHAS GROUP BERHAD (686389-A) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d) 40. OPERATING SEGMENTS (CONT’D) BUSINESS SEGMENTS (CONT’D) The Group RM 2017 Assets Segment assets Unallocated assets: - deferred tax assets - current tax assets - goods and services tax recoverable Consolidation adjustments Consolidated total assets Addition to non-current assets other than financial instruments and deferred tax assets is: - plant and equipment Liabilities Segment liabilities Unallocated liability: - goods and services tax payable Consolidation adjustments Consolidated total liabilities M&E RM LV RM EQ RM PD RM 2016 Revenue External revenue 11,367,240 4,977,575 3,832,767 40,207,431 Inter-segment revenue - - - - 11,367,240 4,977,575 3,832,767 40,207,431 Consolidation adjustments Consolidated revenue 268,363,595 1,072,338 1,700,830 651,563 (98,246,959) 173,541,367 220,170 152,636,769 305,689 (67,568,769) 85,373,689 The Group RM 60,385,013 60,385,013 60,385,013
  210. 103 ANNUAL REPORT 2017 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d) 40. OPERATING SEGMENTS (CONT’D) BUSINESS SEGMENTS (CONT’D) The Group RM 2016 Results Segment loss Finance costs Share of results in associates Consolidated loss before taxation Segment loss includes the following:- Interest income Depreciation of plant and equipment Impairment loss on: - trade receivables - other receivables - plant and equipment Inventories written down Loss on disposal of plant and equipment Unrealised loss on foreign exchange Share of results in associates Assets Segment assets Unallocated assets: - deferred tax assets - current tax assets - goods and services tax recoverable Consolidation adjustments Consolidated total assets Addition to non-current assets other than financial instruments and deferred tax assets is: - plant and equipment Liabilities Segment liabilities Unallocated liability: - goods and services tax payable Consolidation adjustments Consolidated total liabilities (6,735,467) (222,388) 245,123 (6,712,732) 360,280 (205,042) (2,259,097) (70,622) (176,554) (358,998) (1,511) (600) 245,123 156,973,834 2,967,400 1,164,933 535,211 (35,543,307) 126,098,071 1,255,125 89,082,703 334,794 (4,366,620) 85,050,877
  211. 104 PASUKHAS GROUP BERHAD (686389-A) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d) 40. OPERATING SEGMENTS (CONT’D) GEOGRAPHICAL INFORMATION Revenue 2017 2016 RM RM Non-current Assets 2017 2016 RM RM Group Malaysia 36,859,073 60,385,013 47,389,672 13,747,472 MAJOR CUSTOMERS The following are major customers with revenue equal to or more than 10% of Group’s revenue:Revenue 2017 RM 2016 RM Segment Customer A 9,706,000 13,799,000 Property developer - Civil engineering and construction. Customer B 4,273,000 4,332,100 Property developer - Civil engineering and construction. Customer C 3,805,000 3,832,000 Manufacturing of LV Switchboards. Customer D * 9,879,000 Property developer - Civil engineering and construction. Customer E * 7,782,000 Property developer - Civil engineering and construction. * During the financial year, the revenue for these customers were less than 10% of the Group’s revenue. 41. CAPITAL COMMITMENT Payment to landowner for the future entitlement in respect of the Joint Venture Agreement Acquisition of subsidiaries The Group 2017 2016 RM RM 2,000,000 536,400 710,000 2,536,400 710,000 (a) During the financial year, the Group paid a deposit of RM472,500 for the acquisition of PT Bekah Bumi Leluhur (“PTBBL”). The remaining purchase consideration of PTBBL is RM536,400. (b) In the previous financial year, the Group paid a deposit of RM290,000 for the acquisition of ISE. The remaining purchase consideration of ISE was RM710,000. 42. FINANCIAL INSTRUMENTS The Group’s activities are exposed to a variety of market risk (including foreign currency risk, interest rate risk and equity price risk), credit risk and liquidity risk. The Group’s overall financial risk management policy focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance.
  212. 105 ANNUAL REPORT 2017 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d) 42. FINANCIAL INSTRUMENTS (CONT’D) 42.1FINANCIAL RISK MANAGEMENT POLICIES The Group’s policies in respect of the major areas of treasury activity are as follows:(a) Market Risk (i) Foreign Currency Risk The Group is exposed to foreign currency risk on transactions and balances that are denominated in currencies other than the respective functional currencies of entities within the Group. The currency giving rise to this risk is primarily United States Dollar. Foreign currency risk is monitored closely on an ongoing basis to ensure that the net exposure is at an acceptable level. The Group’s exposure to foreign currency risk (a currency which is other than the functional currency of the entities within the Group) based on the carrying amounts of the financial instruments at the end of the reporting period is summarised below:- Foreign Currency Exposure United States Dollar The Group RM 2017 Financial Asset Cash and bank balances Net currency exposure 2016 Financial Asset Cash and bank balances Net currency exposure 20,214 20,214 22,403 22,403 Foreign Currency Risk Sensitivity Analysis A 10% strengthening of the RM against the United States Dollar at the end of the reporting period would have increased profit/(loss) after taxation and equity respectively by RM1,536 (2016 - RM1,703). A 10% weakening in the foreign currency would have had an equal but opposite effect on the profit/(loss) after taxation and equity respectively. This assumes that all other variables remain constant.
  213. 106 PASUKHAS GROUP BERHAD (686389-A) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d) 42. FINANCIAL INSTRUMENTS (CONT’D) 42.1FINANCIAL RISK MANAGEMENT POLICIES (CONT’D) The Group’s policies in respect of the major areas of treasury activity are as follows:- (Cont’d) (a) Market Risk (Cont’d) (ii) Interest Rate Risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group’s exposure to interest rate risk arises mainly from long-term borrowings with variable rates. The Group’s policy is to obtain the most favourable interest rates available and by maintaining a balanced portfolio mix fixed and floating rate borrowings. The Group deposits with financial institution is carried at cost. Therefore, it is not subject to interest rate as defined in MFRS 7 since neither its carrying amount nor the future cash flows fluctuate because of a change in market interest rates. The Group’s exposure to interest rate risk that based on the carrying amounts of the financial instruments at the end of the reporting period is disclosed in Notes 25 and 30 to the financial statements. Interest Rate Risk Sensitivity Analysis The following table details the sensitivity analysis to a reasonably possible change in the interest rates at the end of the reporting period, with all other variables held constant:- The Group 2017 2016 RM RM Effects on Profit/(Loss) After Taxation Increase of 100 basis points 187,451 Decrease of 100 basis points (187,451) 102,168 (102,168) (iii) Equity Price Risk The Group’s principal exposure to equity price risk arises mainly from changes in quoted investment prices. The Group’s exposure to equity price risk is minimal as the Group only maintains a small portfolio of equities as disclosed in Note 11 to the financial statements. The Group’s exposure to equity price risk at the end of the reporting period would have an immaterial impact on the profit/(loss) after taxation and equity respectively. As such, sensitivity analysis is not disclosed.
  214. ANNUAL REPORT 2017 107 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d) 42. FINANCIAL INSTRUMENTS (CONT’D) 42.1 FINANCIAL RISK MANAGEMENT POLICIES (CONT’D) (b) Credit Risk The Group’s exposure to credit risk, or the risk of counterparties defaulting, arises mainly from trade and other receivables. The Group manages its exposure to credit risk by the application of credit approvals, credit limits and monitoring procedures on an ongoing basis. For other financial assets (including quoted investments and cash and bank balances), the Group minimises credit risk by dealing exclusively with high credit rating counterparties. The Groups uses ageing analysis to monitor the credit quality of the trade receivables. Any receivables having significant balances past due or more than 1 year, which are deemed to have higher credit risk, are monitored individually. The Group’s establishes an allowance for impairment that represents its estimate of incurred losses in respect of the trade and other receivables as appropriate. The main components of this allowance are a specific loss component that relates to individually significant exposures, and a collective loss component established for groups of similar assets in respect of losses that have been incurred but not yet identified (where applicable). Impairment is estimated by management based on prior experience and the current economic environment. The Company provides corporate guarantee to financial institutions for credit facilities granted to certain subsidiaries. The Company monitors the results of these subsidiaries regularly and repayments made by the subsidiaries. (i) Credit Risk Concentration Profile The Group’s major concentration of credit risk relates to the amounts owing by three major customers which constituted approximately 66% of its trade receivables at the end of the reporting period. (ii) Exposure to Credit Risk At the end of the reporting period, the maximum exposure to credit risk is represented by the carrying amount of each class of financial assets recognised in the statement of financial position of the Group and of the Company after deducting any allowance for impairment losses (where applicable).
  215. 108 PASUKHAS GROUP BERHAD (686389-A) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d) 42. FINANCIAL INSTRUMENTS (CONT’D) 42.1FINANCIAL RISK MANAGEMENT POLICIES (CONT’D) (b) Credit Risk (Cont’d) (iii) Ageing Analysis The ageing analysis of trade receivables is as follows: GrossIndividual Carrying Amount ImpairmentAmount The GroupRMRMRM 2017 Not past due 9,211,354 - 9,211,354 Past due: - less than 3 months 180,642 - 180,642 - 3 to 9 months 4,329,866 - 4,329,866 - over 9 months 19,054,366 (2,384,997) 16,669,369 23,564,874 (2,384,997) 21,179,877 Non-retention sum portion 32,776,228 (2,384,997) 30,391,231 Retention sum portion 14,718,325 (108,095) 14,610,230 Total trade receivables 47,494,553 (2,493,092) 45,001,461 2016 Not past due 6,291,021 - 6,291,021 Past due: - less than 3 months 659,798 - 659,798 - 3 to 9 months 7,654,578 (1,211,314) 6,443,264 - over 9 months 19,384,683 (581,794) 18,802,889 27,699,059 (1,793,108) 25,905,951 Non-retention sum portion 33,990,080 (1,793,108) 32,196,972 Retention sum portion 25,477,328 (2,498,991) 22,978,337 Total trade receivables 59,467,408 (4,292,099) 55,175,309 At the end of the reporting period, trade receivables that are individually impaired were those in significant financial difficulties and have defaulted on payments. These receivables are not secured by any collateral or credit enhancement. The Group believes that no additional impairment allowance is necessary in respect of trade receivables that are past due but not impaired because they are companies with good collection track record and no recent history of default.
  216. ANNUAL REPORT 2017 109 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d) 42. FINANCIAL INSTRUMENTS (CONT’D) 42.1FINANCIAL RISK MANAGEMENT POLICIES (CONT’D) (c) Liquidity Risk Liquidity risk arises mainly from general funding and business activities. The Group practises prudent risk management by maintaining sufficient cash balances and the availability of funding through certain committed credit facilities. Maturity Analysis The following table sets out the maturity profile of the financial liabilities at the end of the reporting period based on contractual undiscounted cash flows (including interest payments computed using contractual rates or, if floating, based on the rates at the end of the reporting period):- Weighted Average Contractual Effective Carrying Undiscounted Within 1-5 Rate Amount Cash Flows 1 Year Years The Group %RMRMRMRM 2017 Non-derivative Financial Liabilities Trade payables - 41,446,207 41,446,207 41,446,207 Other payables and accruals - 12,618,249 12,618,249 12,618,249 Amount owing to directors - 492,200 492,200 492,200 Amount owing to shareholders - 2,938,300 2,938,300 2,938,300 Hire purchase payables 5.73 1,198,227 1,336,294 371,302 964,992 Term loan 8.30 12,887,696 17,444,553 2,293,402 15,151,151 Bankers’ acceptances 5.47 3,787,000 3,787,000 3,787,000 Revolving credits 5.24 3,000,000 3,000,000 3,000,000 Bank overdrafts 5.74 4,989,887 4,989,887 4,989,887 83,357,766 88,052,690 71,936,547 16,116,143
  217. 110 PASUKHAS GROUP BERHAD (686389-A) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d) 42. FINANCIAL INSTRUMENTS (CONT’D) 42.1FINANCIAL RISK MANAGEMENT POLICIES (CONT’D) (c) Liquidity Risk (Cont’d) Maturity Analysis (Cont’d) Weighted Average Effective Contractual Interest Carrying Undiscounted Within 1-5 Rate Amount Cash Flows 1 Year Years The Group %RMRMRMRM 2016 Non-derivative Financial Liabilities Trade payables - 47,047,555 47,047,555 47,047,555 Other payables and accruals - 13,570,536 13,570,536 13,570,536 Amount owing to an associate - 4,381,919 4,381,919 4,381,919 Amount owing to directors - 492,200 492,200 492,200 Amount owing to shareholders - 2,938,300 2,938,300 2,938,300 Hire purchase payables 6.30 524,854 579,899 163,573 416,326 Bankers’ acceptances 4.96 7,201,000 7,201,000 7,201,000 Revolving credits 5.17 3,000,000 3,000,000 3,000,000 Bank overdrafts 7.75 3,242,198 3,242,198 3,242,198 Financial guarantee contracts in relation to corporate guarantees extended to an associate - - 2,115,000 2,115,000 82,398,562 84,568,607 84,152,281 416,326 Weighted Average Effective Contractual Interest Carrying Undiscounted Within Rate Amount Cash Flows 1 Year The Company %RMRMRM 2017 Other payables and accruals Financial guarantee contracts in relation to corporate guarantees extended to subsidiaries - 7,264,214 7,264,214 7,264,214 - - 18,979,482 18,979,482 7,264,214 26,243,696 26,243,696 - 7,646,579 7,646,579 7,646,579 - - 12,646,326 12,646,326 7,646,579 20,292,905 20,292,905 2016 Other payables and accruals Financial guarantee contracts in relation to corporate guarantees extended to subsidiaries
  218. 111 ANNUAL REPORT 2017 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d) 42. FINANCIAL INSTRUMENTS (CONT’D) 42.2CAPITAL RISK MANAGEMENT The Group manages its capital by maintaining an optimal capital structure so as to support its businesses and maximise shareholders’ value. To achieve this objective, the Group may make adjustments to the capital structure in view of changes in economic conditions, such as adjusting the amount of dividend payment, returning of capital to shareholders or issuing new shares. The Group manages its capital based on the debt-to-equity ratio. The Group’s strategies were unchanged from the previous financial year. The debt-to-equity ratio is calculated as net debt divided by total equity. The Group includes within net debt, payables and borrowings from financial institutions less cash and cash equivalents. Capital includes equity attributable to the owners of the Group. The debt-to-equity ratio of the Group at the end of the reporting period was as follows:- Hire purchase payables Trade payables Other payables and accruals Amount owing to an associate Amount owing to directors Amount owing to shareholders Bankers’ acceptances Term loan Revolving credits Bank overdrafts Less: Deposits with financial institutions Less: Cash and bank balances Net debt Total equity Debt-to-equity ratio The Group 2017 2016 RM RM 1,198,227 41,446,207 12,618,249 - 492,200 2,938,300 3,787,000 12,887,696 3,000,000 4,989,887 524,854 47,047,555 13,570,536 4,381,919 492,200 2,938,300 7,201,000 3,000,000 3,242,198 83,357,766 (21,447,617) (2,330,812) 82,398,562 (15,297,834) (2,943,154) 59,579,337 64,157,574 88,167,678 41,047,194 0.67 1.56 There was no change in the Group’s approach to capital management during the financial year.
  219. 112 PASUKHAS GROUP BERHAD (686389-A) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d) 42. FINANCIAL INSTRUMENTS (CONT’D) 42.3CLASSIFICATION OF FINANCIAL INSTRUMENTS The Group 2017 2016 RM RM The Company 2017 2016 RM RM Financial Assets Available-for-sale Financial Asset Other investments 104,250 104,250 - Loans and Receivables Financial Assets Trade receivables 45,001,461 55,175,309 - Other receivables and deposits 28,241,050 6,228,310 1,000 503,351 Amount owing by subsidiaries - - 41,850,763 4,363,498 Amount owing by an associate - 2,254,554 - Deposits with financial institutions 21,447,617 15,297,834 12,058,340 5,114,377 Cash and bank balances 2,330,812 2,943,154 734,350 601,606 97,020,940 81,899,161 54,644,453 10,582,832 Financial Liability Other Financial Liabilities Hire purchase payables 1,198,227 524,854 - Trade payables 41,446,207 47,047,555 - Other payables and accruals 12,618,249 13,570,536 7,264,214 7,646,579 Amount owing to an associate - 4,381,919 - Amount owing to directors 492,200 492,200 - Amount owing to shareholders 2,938,300 2,938,300 - Term loan 12,887,696 - - Bankers’ acceptances 3,787,000 7,201,000 - Revolving credits 3,000,000 3,000,000 - Bank overdrafts 4,989,887 3,242,198 - 83,357,766 82,398,562 7,264,214 7,646,579
  220. NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d) 2016 Financial Assets Other investments: - quoted shares 4,250 - - - - - 4,250 4,250 Financial Liability Hire purchase payables - - - - 524,854 - 524,854 524,854 2017 Financial Assets Other investments: - quoted shares 4,250 - - - - - 4,250 4,250 Financial Liability Hire purchase payables - - - - 1,198,227 - 1,198,227 1,198,227 Term loan - - - - 12,887,696 - 12,887,696 12,887,696 Fair Value Of Financial Instruments Fair Value Of Financial Instruments Total Carried At Fair Value Not Carried At Fair Value Fair Carrying Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 Value Amount RMRMRMRM RMRMRMRM The following table sets out the fair value profile of financial instruments that are carried at fair value and those not carried at fair value at the end of the reporting period. The Group The fair values of the financial assets and financial liabilities of the Group which are maturing within the next 12 months approximated their carrying amounts due to the relatively short-term maturity of the financial instruments. 42.4FAIR VALUE INFORMATION 42. FINANCIAL INSTRUMENTS (CONT’D) ANNUAL REPORT 2017 113
  221. 114 PASUKHAS GROUP BERHAD (686389-A) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d) 42. FINANCIAL INSTRUMENTS (CONT’D) 42.4FAIR VALUE INFORMATION (Cont’d) (a) Fair Value of Financial Instruments Carried at Fair Value (i) The fair values above have been determined using the following basis:(aa) The fair value of the quoted investment is estimated based on its quoted closing bid price at the end of the reporting period. (bb) There were no transfer between level 1 and level 2 during the financial year. (b) Fair Value of Financial Instruments Not Carried at Fair Value The fair values, which are for disclosure purposes, have been determined using the following basis:(i) The fair values of the hire purchase payables that carry fixed interest rates are determined by discounting the relevant cash flows using interest rates for similar instruments at the end of the reporting period. (ii) The fair value of the term loan that carry floating interest rate approximated its carrying amount as it is repriced to market interest rates on or near the reporting date. 43. SIGNIFICANT EVENTS DURING THE FINANCIAL YEAR (a) On 23 January 2017, the Company increased its total number of issued and paid-up share capital from 370,111,566 to 405,786,566 by an issuance of 35,675,000 new ordinary shares of RM0.10 each, at an issue price of RM0.15 each through Private Placement (“Placement Shares”). On 25 January 2017, the Private Placement is deemed completed following the listing of and quotation for 35,675,000 Placement Shares on the ACE Market of Bursa Securities. (b) On 24 January 2017, PESB entered into the following:(i) (ii) a supplemental agreement to the ISE SSA between PESB and Maser (M) Sdn. Bhd. (“Maser”) (“ISE Supplemental SSA 2”); and a supplemental agreement of the ISE DA between PESB, Maser and ISE (“ISE Supplemental DA 2”). The salient terms of the Supplemental SSA 2 are as follows:(i) the completion date for the Acquisition of ISE shall be extended to 17 March 2017 (“New Completion Date”), provided that:(aa) PESB to pay Maser the remaining SSA Consideration of RM0.71 million on the New Completion Date, together with late payment interest of 8.00% per annum on a day to day basis, calculated from 18 January 2017 until the date of full payment; and (bb) PESB to make payment of premium payable for subscription of insurances by ISE effective from May 2017, subject to the completion of the SSA.
  222. ANNUAL REPORT 2017 115 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d) 43. SIGNIFICANT EVENTS DURING THE FINANCIAL YEAR (CONT’D) (b) On 24 January 2017, PESB entered into the following (cont’d): The salient terms of the Supplemental DSA 2 are as follows:(i) the completion date of the DSA shall be extended to 17 March 2017, being the New Completion Date, provided that the Balance Settlement Sum to be paid in the following manners:(aa) The 85% of the Balance Settlement Sum is to be paid in two tranches:Interest rate     (aaa) PESB to pay a sum of RM3.5 million on or before Nil. 7 February 2017; and (bbb)  PESB to pay the remaining sum on or before the 8.00% per annum on a day to day basis, New ISE Completion Date. calculated from 18 January 2017 until the date of full payment. (bb) The 15% of the Balance Settlement Sum shall be paid within 3 months from the New ISE Completion Date, together with late payment interest of 8.00% per annum on a day to day basis, calculated from 18 April 2017 until the date of full payment. (c) The Companies Act 2016 came into operation on 31 January 2017 (except for Section 241 and Division 8 of Part III of the said Act) and replaced Companies Act 1965. Amongst the key changes introduced under the Companies Act 2016 that have affected the financial statements of the Group and of the Company upon its initial implementation are:(i) Removal of the authorised share capital; (ii) Ordinary shares ceased to have par value; and (iii) Share premium account transferred to share capital account. The Companies Act 2016 was applied prospectively and the impacts on implementation are disclosed in the respective notes to financial statements. (d) On 22 March 2017, PESB had entered into the following:(i) (ii) a supplemental agreement to the ISE SSA between PESB and Maser (“Supplemental ISE SSA No. 3”); and a supplemental agreement to the ISE DA between PESB, Maser and ISE (“Supplemental ISE DA No. 3”). The salient terms of the Supplemental ISE SSA No. 3 are as follows:(i) (ii) PESB to pay the remaining ISE SSA Consideration of RM710,000 (“Balance ISE SSA Consideration”) within 10 days from the date of the Supplemental ISE SSA No. 3; and PESB to pay the late payment interest on the Balance ISE SSA Consideration at the rate of 8.00% per annum, calculated on day to day basis from 18 January 2017 until the date of full payment by the ISE DA Completion Date (as defined below).
  223. 116 PASUKHAS GROUP BERHAD (686389-A) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d) 43. SIGNIFICANT EVENTS DURING THE FINANCIAL YEAR (CONT’D) (d) On 22 March 2017, PESB had entered into the following (Cont’d): The salient terms of the Supplemental ISE DA No. 3 are as follows:(i) the completion date of the ISE DA shall be 2 months from the date of the Supplemental ISE DA No. 3 (“ISE DA Completion Date”); (ii) PESB to pay a sum of RM290,000 as part payment of the Balance Settlement Sum within 10 days from the date of the Supplemental ISE DA No. 3; and (iii) PESB to pay all remaining Balance Settlement Sum together with the late payment interest of 8.00% per annum, calculated on day to day basis from 18 January 2017 until the date of full payment by the ISE DA Completion Date. The signing of the above Supplemental ISE SSA No. 3 and Supplemental ISE DA No. 3 are to allow the extension of 2 months to 22 May 2017 for both Maser and PESB to complete the Acquisition of ISE pursuant to the Supplemental ISE DA No. 3. Further, in consideration of PESB agreement with Maser for early payment of the 15% of the Balance Settlement Sum pursuant to the Supplemental ISE DA No. 3, Maser has on 22 March 2017 given a letter of undertaking to PESB to undertake that, for a period of 3 months from the ISE DA Completion Date:(i) (ii) Maser will continuously ensure that all documents in relation to the operation and management of ISE, including the operation of the hydro plant and the financial status of ISE are in order; and Maser will use its best endeavour to assist and advise PESB for the operation and management of ISE, including the hydro plant of ISE. (e) On 27 March 2017, the Company announced on relevant dates for Renounceable Rights Issue of up to 405,786,566 new ordinary shares in PGB (“PGB Share(s)”) (“Rights Share(s)”) at an issue price of RM0.10 per Rights Share on the basis of 1 Rights Share for every 1 existing PGB Share held at 5.00 p.m. on 10 April 2017. The Board of Directors had resolved to fix the issue price of the Rights Shares at RM0.10 per Rights Share. (f) At the close of acceptance, excess application and payment for the Rights Issue as at 5.00 p.m. on 26 April 2017 (“Closing Date”), the total valid acceptances and excess applications received for the Rights Issue was 539,679,891 Rights Shares. This represents a subscription rate of 133% of the total number of 405,786,566 Rights Shares available for subscription under the Rights Issue. The details of the valid acceptances and excess applications received as at the Closing Date are as follows: No. of Rights Shares  % of total issue Total valid acceptances 271,911,617 67.01 Total valid excess applications 267,768,274 65.99 Total valid acceptances and excess applications  539,679,891 133.00 Total Rights Shares available for subscription 405,786,566 100.00 Oversubscription 133,893,325 33.00   Accordingly, the Excess Rights Shares will be allocated in accordance with the basis as stated in Section 11.6 of the Abridged Prospectus dated 10 April 2017 in relation to the Rights Issue, on a fair and equitable basis. (g) On 11 May 2017, 405,786,566 Rights Shares in relation to the Rights Issue were listed and quoted on the ACE Market of Bursa Securities with effect from 9.00 a.m. on 11 May 2017, marking the completion of the Rights Issue.
  224. ANNUAL REPORT 2017 117 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d) 43. SIGNIFICANT EVENTS DURING THE FINANCIAL YEAR (CONT’D) (h) On 30 May 2017, PESB entered into a Memorandum of Understanding (“MOU”) with PT CHD Power Plant Operation Indonesia (“PT CHD”) to establish the basis for further discussions between the parties in exploring the feasibility of entering into a joint venture to undertake the development/explore potential business opportunities in power generation project in Indonesian market. (i) On 6 June 2017, the Company acquired one ordinary share representing 100% of the share capital of PDSB for a total cash consideration of RM1. Upon the Acquisition, PDSB became a wholly-owned subsidiary of the Company. (j) On 9 June 2017, PDSB entered into a Joint Venture Agreement (“JV Agreement”) with Yayasan Veteran ATM (“Yayasan”) in collaborating in a joint venture to undertake the development of a piece of state leasehold land held under Lot 385, Seksyen 87A Bandar Kuala Lumpur measuring approximately 5,142 square metres by constructing and completing a commercial development comprising office towers or such other type of buildings at the sole discretion of PDSB (“Development Project”).   (k) On 12 June 2017, PESB entered into an Approval Letter with PT Bangun Daya Perkasa (“PT BDP”) in expressing PESB’s interest in acquiring a 92.5% stake of PT BDP’s shares in PT Tenaga Listrik Gorontalo (“PT TLG”), a subsidiary of PT BDP. Subsequently, after reviewing the terms of the transaction and in order to comply with regulatory requirements, PESB proposed to modify the transaction structure whereby PESB shall acquire the equity interest in PT BDP instead. The shareholders of PT BDP, namely PT Saratoga Sentra Business and PT Persada Capital Investama had on 22 December 2017 accepted PESB Letter of Offer (“Offer Letter”) to acquire 100% equity interest in PT BDP. The Offer Letter is intended to set out the board parameters of the proposed acquisition. The Offer Letter is subject to the definitive agreement(s) containing the detailed terms and conditions of the proposed acquisition to be executed within a period of 3 months from the date of the Offer Letter. (l) On 21 June 2017, PESB entered into:(i) an agreement in respect of the ISE SSA between PESB and Maser to govern the obligations of the parties in respect of the redemption of the banking facilities granted by Kuwait Finance House (Malaysia) Berhad (“KFH”) to ISE and also to govern the management of ISE (“ISE SSA Agreement”); and (ii) an agreement in respect of the ISE DA between PESB, Maser and ISE to govern the payment of the remaining Balance Settlement Sum, of which the final amount payable to Maser shall be adjusted to take into account of the following:(aa) the redemption sum for the repayment of the loan granted by KFH, including any penalty and/or late payment imposed by KFH; and (bb) any costs, damages and losses suffered by PESB due to the management of ISE by Maser before the handover of the management of ISE. The above are collectively referred to as “ISE DA Agreement”. Following to the signing of the ISE SSA Agreement and ISE DA Agreement, PESB is deemed to have taken over the management of ISE, including the Sungai Rek Hydro Power Plant commencing from 31 May 2017. Therefore, PESB will be entitled to all revenue and profit generated by ISE after 31 May 2017. All relevant documents for the transfer of the ISE Shares had been delivered to PESB’s solicitor as stakeholder.
  225. 118 PASUKHAS GROUP BERHAD (686389-A) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d) 43. SIGNIFICANT EVENTS DURING THE FINANCIAL YEAR (CONT’D) (l) PESB had on 21 June 2017, paid the estimated remaining Balance Settlement Sum together with the late payment interest (in respect of the Balance SSA Consideration and Balance Settlement Sum) to Maser’s solicitors as stakeholder. In addition, Maser has handed over an undated deed of assignment of Debt to PESB’s solicitors as stakeholder. Both Maser and PESB have mutually agreed that the Acquisition of ISE shall be deemed to be completed when the redemption sum for the repayment of the loan granted by KFH is fully paid. (m) On 11 July 2017, PESB entered into a MOU with IR Hariyanto for the proposed acquisition of 61% equity interest in the share capital of PT Indomuda Satria Internusa. (n) On 21 July 2017, the Company disposed of its entire shareholding comprising 343,000 ordinary shares representing 49% equity interest held in DESB to Madun Bin Mangkadau for a total cash consideration of RM330,750.  (o) On 12 September 2017, PSB further acquire 10 ordinary shares representing 10% equity interest held in EVSB from Sim Guo Jong @ Tan Guo Jong for a total cash consideration of RM152,500. Following the acquisition, EVSB became a 55% owned subsidiary of PSB. (p) On 18 September 2017, the redemption sum in respect of KFH Loan is fully paid pursuant to the ISE SSA Agreement and ISE DA Agreement both dated 21 June 2017. The Proposed Acquisition of ISE has now been completed effective on 15 September 2017, hence marking the completion of the Proposals. (q) On 22 November 2017, PPSB entered into a Preliminary Share Sales Agreement (“PSSA”) with Masrani, Agus Triono, Akhmad Syaifullah and Khutut Jalu Prasojo (“the Vendors”) in relation to the acquisition of 60% of the issued and paidup share capital of PT BBL for a total cash consideration of IDR3.3 billion or equivalent to approximately RM1 million, upon the terms and conditions stipulated in the PSSA. 44. SIGNIFICANT EVENTS OCCURRING AFTER THE REPORTING PERIOD (a) On 19 January 2018, PPSB entered into a Sale and Purchase Contract with a Taiwan Company for the sale and delivery of one vessel of steam coal for USD6.35 million on a Free on Board (“FOB”) basis at anchorage point of South Kalimantan, Indonesia. (b) On 2 February 2018, the Company acquired one ordinary share representing 100% of the share capital of Pasukhas Properties Sdn. Bhd. for a total cash consideration of RM1. Upon the acquisition, Pasukhas Properties Sdn. Bhd. became a wholly-owned subsidiary of the Company. (c) On 5 February 2018, PPSB entered into a Sale and Purchase Contract with a Taiwan Company for the sale and delivery of two vessels of steam coal for USD8.74 million on a FOB basis at anchorage point of South Kalimantan, Indonesia. (d) On 27 February 2018, Pasukhas Properties Sdn Bhd acquired one ordinary share representing 100% of the share capital of Midtown Pearl Sdn. Bhd. (“MPSB”) for a total cash consideration of RM1. Upon the acquisition, MPSB became a wholly-owned subsidiary of Pasukhas Properties Sdn Bhd. (e) On 1 March 2018, PPSB entered into a Conditional Sale and Purchase of Shares Agreement (“CSPA”) with the vendors of PT BBL in relation to the acquisition of 1,650 shares, representing 60% of the issued and paid-up share capital of PT BBL for a total cash consideration of IDR3.3 billion or equivalent to approximately RM1 million, upon the terms and conditions as stipulated in the CSPA. (f) On 20 March 2018, PCSB accepted the Letter of Award with total sub-project sum amounting to RM41.3 million issued by Paramount Property Construction Sdn Bhd (Main Contractor) in relation to sub-contract of the superstructure works to PCSB.
  226. ANNUAL REPORT 2017 119 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d) 44. SIGNIFICANT EVENTS OCCURRING AFTER THE REPORTING PERIOD (CONT’D) (g) On 27 March 2018, the Company proposed to vary the utilisation of proceeds from Rights Issue of approximately RM7.87 million earmarked for payment of remaining PCSB cash consideration to fund its working capital requirements for its existing construction projects and joint ventures which include the payment of contractors, suppliers of goods and services, and sourcing of manpower such as construction workers. This would enable the PGB to optimise the returns on these funds. The variation is not subjected to any regulatory authorities or shareholders’ approval. (h) On 27 March 2018, PDSB entered into a supplement JV Agreement with Yayasan to clarify certain entitlements of PDSB (“the developer”) under the Development Project, which shall also include the following: (i) fifty car parking bays; (ii) one retail unit; and (iii) cafeteria and “surau” shall belong and managed entirely by the developer. 45. MATERIAL LITIGATION (a) In the matter of Fast Track Arbitration between Townscapes Builder Sdn. Bhd. (“Townscapes”) and PSB pursuant to Dispute Resolution Agreement dated 29 November 2016 Townscapes (the Claimant) is claiming against PSB (the Respondent) for a sum of RM3,281,962 being the payment for final account and loss of profit for the project known as Apartment Housing Scheme which includes: 1) Apartment Block A (14-Storey): i) 13-Storey (130 Units) Apartment, ii) 1-Storey Carpark, iii) 1 Unit Electrical Sub-Station; 2) Apartment Block B (14-Storey): i) 13-Storey (130 Units) Apartment, ii) 1-Storey Carpark; 3) 1-Storey Club House and Swimming Pool; 4) Guard House on Lot 208397, 69040, 69041, 69042, 69043, Taman Bintang, Bandaraya Ipoh, Mukim Hulu Kinta, Daerah Kinta, Perak Darul Ridzuan for Messrs Empire Multiple Sdn. Bhd. PSB disputed the entire claim of Townscapes save for a sum of RM472,042 and has counterclaimed a sum of RM281,003 against Townscapes. Based on the Arbitration Award dated 19 July 2017, the Arbitrator has awarded and directed that, in full and final settlement of all claims and counter-claims in the arbitration:(i) PSB shall pay to Townscape the sum of RM2,249,541 together with interest on the sum of RM2,238,157 at the rate of 5% per annum; (ii) PSB shall pay to Townscape, its costs in the sum of RM117,065; and (iii) PSB shall pay and bear the fees of the Arbitrator amounting to RM69,223 and Kuala Lumpur Regional Centre Arbitration’s (“KLRCA”) administrative fees in the sum of RM16,073 and to the extent that Townscape has paid any part thereof. The Respondent has filed an Originating Summons to set aside the Final Award and the Plaintiff has filed an Originating Summons to enforce the Final Award made on 19 July 2017. The Respondent and Claimant withdrew the suit with no order as to costs subsequently. (b) In the matter of an intended Fast Track Arbitration between PSB and Townscapes pursuant to Dispute Resolution Agreement dated 29 November 2017 PSB (the Claimant) is claiming against Townscapes (the Respondent) for approximately the sum of RM7,581,232 for payment on behalf, defects and liquidated damages for the project known as “Sub-structure and part of external works” for “Cadangan Mendirikan Skim Pembangunan Bersepadu Pelancongan Dan Wellness Center (Medical Tourism) at Lot 841 and 842, Jalan Teluk Bahang, Mukim 2, Teluk Bahang DBD, Pulau Pinang”. PSB anticipates a counterclaim of RM2,703,482 by Townscapes. Based on the Arbitration Award dated 23 November 2017, the Arbitrator has awarded the following in accordance to KLRCA Rules for Fast Track Arbitration:(i) (ii) (iii) (iv) Townscape need to pay PSB the sum of RM1,049,278; as sums found due to the Final Account; Townscape need to pay PSB costs of RM268,145; and all other claims are dismissed.
  227. 120 PASUKHAS GROUP BERHAD (686389-A) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d) 45. MATERIAL LITIGATION (CONT’D) (c) Kuala Lumpur High Court Companies (Winding Up) No: 28NCC-254-05/2015 PCSB and I-Innovations Construction Sdn Bhd (“ICSB”) presented a winding-up petition against MTM Millenium Holdings Sdn. Bhd. (“MTM”) for MTM’s failure to adhere to Final Award dated 28 May 2012 awarded by the Arbitrator, Mr David Cheah Ming Yew for payment of the sum of RM4,811,808, inclusive of interest amounting to RM1,093,720 as at 28 May 2012 and RM24,929 being half of the Arbitrator’s costs as awarded in the Final Award. PCSB has presented a winding up petition against MTM for MTM’s failure to pay the Final Award Sum. On 15 May 2017, the High Court allowed the said petition and Mr. Lean Chee Seng was appointed as the liquidator. (d) Issuance of Payment Claim under Construction Industry Payment and Adjudication Act 2012 (“CIPAA”) against Emerald Capital (Ipoh) Sdn Bhd (“Emerald”) PSB is claiming against Emerald for a construction contract claim under the Construction Industry Payment and Adjudication Act 2012 (“CIPPA”). The claim is for payment for work done under the project known as “Phase 2-1 Block Condominium 18-Storey (240 Units) together with the Common Facilities erected on Podium 5-Storey together with the Accessory Parcels and 2-Storey of Shop Lot (9 Units) erected upon Lot 25117 and 25118 (Previous Lot: 206349), Mukim Hulu Kinta, Daerah Kinta, Perak Darul Ridzuan for Emerald for the sum of RM8,293,658. PSB anticipates a counterclaim for the sum of RM8,491,493 by Emerald (“the Counterclaim anticipated”). A substantial portion of the Counterclaim anticipated which is RM2,135,000 constitutes a claim for alleged delay. On 28 June 2017, PSB had received the written Adjudication Decision dated 24 June 2017 from the Adjudicator. Based on the evidence/arguments submitted by both parties, the Adjudicator has made the following decision:(i) The adjudicated amount is RM6,452,897 and shall be paid to PSB; (ii) Emerald shall pay PSB simple interest on the adjudicated amount at the rate of 5% per annum; and (iii) Emerald shall pay the costs of the adjudication proceedings amounting to RM81,489. On 2 August 2017, PSB has been served with an Originating Summons from Emerald seeking to set aside the Adjudication Decision. PSB is at the same time applying to register the Adjudication Decision in the High Court. Kuala Lumpur High Court had on 4 October 2017, heard and dismissed the Emerald’s application to set aside the Adjudication Decision dated 24 June 2017 and allowed PSB’s application to enforce the Adjudication Decision with a revised amount of RM5,769,305 awarded to PSB. Emerald has filed an appeal to the Court of Appeal against the decision given at the Kuala Lumpur High Court which dismissed Emerald’s application to set aside the whole of the Adjudicator’s Decision dated 24 June 2017. The hearing date is fixed on 23 May 2018.
  228. ANNUAL REPORT 2017 121 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 (cont’d) 45. MATERIAL LITIGATION (CONT’D) (e) In the matter of an arbitration between Samsung C&T Corporation UEM Construction JV Sdn Bhd (“SamsungUEM”) (Claimant) and PCSB (Respondent) On 28 August 2017, the Company announced that PCSB had received a Notice of Arbitration dated 24 August 2017 from Samsung C&T Corporation UEM Corporation Construction JV Sdn. Bhd. (“the Claimant”) vide its solicitors, Messrs Wong & Partners to resolve the disputes between Claimant and Respondent in relation to the sub-contract works amounting to approximately RM14,000,000. The Respondent estimates its counter-claim to be in the region of RM4,000,000. The case is currently pending the appointment of an Arbitrator. PCSB’s solicitor is unable to ascertain the full extent of the claim as this matter has yet to progress beyond initial stages. (f) In the matter of an adjudication between Bauer (Malaysia) Sdn Bhd (the Claimant) and PSB (the Respondent) PSB received one Payment Claim under Section 5 of the CIPAA dated 28 June 2017 from its sub-contractor, Bauer (Malaysia) Sdn Bhd (“Bauer”) via its solicitor, Messrs Mohanadass Partnership for a total amount of RM8,956,617 (“CIPAA Payment Claim”). The CIPAA Payment Claim is in relation to the disputes over non-payment works done by Bauer for sub-structure and part of external works for “Cadangan Mendirikan Skim Pembangunan Bersepadu Pelancongan dan Wellness Centre (Medical Tourism)”. On 21 September 2017, PSB received a notice of Adjudication from the Claimant. The Claimant is claiming against the Respondent for the following reliefs:(i) (ii) the sum of RM2,728,989 for variation; and the sum of RM7,038,527 for loss and expense. There is a Liquidated Ascertained Damages claim by the Respondent from a sum of RM4,850,000. The Respondent has also sought a counterclaim and/or set-off of RM142,187. PSB had on 7 March 2018 received the Adjudication Decision dated 9 February 2018 (“Decision”) issued by the sole Adjudicator. Based upon the evidence tendered, the legal authorities submitted and the submissions made by the parties in the adjudication, and the findings of the Adjudicator on the issues submitted for determination, the following award is made by the Adjudicator:(i) (ii) (iii) (iv) PSB shall pay Bauer the sum of RM647,086 in relation to the Adjudication Claim; PSB shall pay Bauer costs in the sum of RM100,000; PSB shall pay Adjudicator’s fees and KLRCA fees in a total sum of RM84,840, less the deposit of RM42,420; and PSB shall pay Bauer the above mentioned sums within 30 days of the date of this Decision.
  229. 122 PASUKHAS GROUP BERHAD (686389-A) ANALYSIS OF SHAREHOLDINGS AS AT 30 MARCH 2018 Issued Share Capital Class of Shares Voting Rights Number of Shareholders : : : : 811,573,132 ordinary shares Ordinary shares One vote per ordinary share. 1,652 ANALYSIS OF SHAREHOLDINGS Size of Shareholdings Less than 100 100 to 1,000 No. of Shareholders % No. of Shares % 2 0.12 56 0.00 87 5.27 48,700 0.01 1,001 to 10,000 332 20.10 2,314,900 0.29 10,001 to 100,000 843 51.03 39,136,600 4.82 100,001 to 40,578,655 385 23.31 454,437,576 55.99 40,578,656 and above Total 3 1,652 0.18 100.00 315,635,300 811,573,132 38.89 100.00 SUBSTANTIAL SHAREHOLDERS’ SHAREHOLDINGS Names 1. RHB Nominees (Tempatan) Sdn Bhd OSK Capital Sdn Bhd for Tara Temasek Sdn Bhd 2. Direct Interest No. of Shares % Indirect Interest No. of Shares % 188,509,100 23.23 - - Wan Thean Hoe - - 188,509,100 (1) 23.23 3. Chan Man Chung 188,509,100 (1) 23.23 5. Dato’ Sri Teng Ah Kiong 19,361,100 (2) 2.39 6. Dato’ Teng Yoon Kooi - - 109,887,200 13.54 19,361,100 2.39 109,887,200 13.54 (2) Note: (1) Deemed interested under Section 8 of the Companies Act, 2016 by virtue of their shareholdings in Tara Temasek Sdn Bhd. (2) Deemed interested by virtue of his brother’s shareholdings in PGB. DIRECTORS’ SHAREHOLDINGS Names 1. Dato’ Sri Teng Ah Kiong 2. Dato’ Teng Yoon Kooi 3. Wan Thean Hoe 4. Chan Man Chung 5. Teoh Kim Hooi 6. 7. Direct Interest No. of Shares % Indirect Interest No. of Shares % 109,887,200 13.54 19,361,100 2.39 - 19,361,100 (2) 109,887,200 2.39 (2) 13.54 - 188,509,100 (1) 23.23 188,509,100 (1) 23.23 - - 1,000,000 0.12 - - Yap Chee Keong - - - - Norkamaliah Binti Hashim - - - - Note: Deemed interested under Section 8 of the Companies Act, 2016 by virtue of their shareholdings in Tara Temasek Sdn Bhd. (2) Deemed interested by virtue of his brother’s shareholdings in PGB. (1)
  230. 123 ANNUAL REPORT 2017 ANALYSIS OF SHAREHOLDINGS AS AT 30 MARCH 2018 (cont’d) LIST OF THIRTY (30) LARGEST SHAREHOLDERS No. Names 1. RHB Nominees (Tempatan) Sdn Bhd OSK Capital Sdn Bhd for Tara Temasek Sdn Bhd 2. No. of Shares % 188,509,100 23.23 Dato’ Sri Teng Ah Kiong 78,887,200 9.72 3. RHB Nominees (Asing) Sdn Bhd Exempt an (BP) for RHB Securities Hong Kong Limited A/C Clients (Retail) 48,239,000 5.94 4. Ong Mei Lee 35,244,226 4.34 5. Affin Hwang Nominees (Asing) Sdn Bhd Exempt an for Phillip Securities (Hong Kong) Ltd (Clients’ Account) 32,721,900 4.03 6. Dato’ Sri Teng Ah Kiong 31,000,000 3.82 7. Yew Ai Boon 27,199,900 3.35 8. Lim Siow Jin 26,667,000 3.29 9. Dato’ Teng Yoon Kooi 19,361,100 2.39 10. Citigroup Nominees (Asing) Sdn Bhd Exempt an for OCBC Securities Private Limited (Client A/C-NR) 15,166,400 1.87 11. M & A Nominee (Asing) Sdn Bhd for Wong Shuk Man 12,700,000 1.56 12. Liew Sze Fook 10,234,000 1.26 13. Wee Hiang Chyn 9,594,228 1.18 14. M & A Nominee (Asing) Sdn Bhd for He Liang 9,425,000 1.16 15. Liew Ngit Siew 7,558,700 0.93 16. M & A Nominee (Asing) Sdn Bhd for Huang Shasha 7,375,000 0.91 17. Kenanga Nominees (Tempatan) Sdn Bhd Pledged Securities Account for H’ng Bok Chuan 5,000,000 0.62 18. Chan Sooi Mun 4,382,455 0.54 19. Chia Chee Seng 3,933,800 0.48 20. Zhong Jialiang 3,768,000 0.46 21. Low Ah Kou 3,401,500 0.42 22. UOB Kay Hian Nominees (Tempatan) Sdn Bhd Exempt an for UOB Kay Hian Pte Ltd (A/C Clients) 3,300,000 0.41 23. Maybank Nominees (Tempatan) Sdn Bhd Pledged Securities Account for Lee Yeong Wai 3,247,000 0.40 24. Lau Kim Wah 3,000,000 0.37 25. Lim Lip Chai 2,948,000 0.36 26. Lim Kim Cheng 2,500,000 0.31 27. Sim Ah Seng 2,500,000 0.31 28. Hing Wai Keong 2,460,000 0.30 29. Chin Yet Ying 2,399,400 0.30 30. Dato’ Sri Punidanathan A/L Velupillai Total 2,250,000 0.28 604,972,909 74.54
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  232. PROXY FORM PASUKHAS GROUP BERHAD (Company No. 686389-A) (Incorporated in Malaysia under the Companies Act) No. of ordinary shares held I/We NRIC No./Co. No. (full name in block letters) of CDS Account No. (full address) Tel No. being a member/members of PASUKHAS GROUP BERHAD hereby appoint the *THE CHAIRMAN OF THE MEETING or failing him/her Name Address NRIC/Passport No. Proportion of Shareholdings (%) 1. *And/or (delete as appropriate) 2. as my/our proxy/proxies, to vote for me/us on my/our behalf at the Thirteenth Annual General Meeting of Pasukhas Group Berhad to be held at Wisma Modal Khas, Lot 5815-A, Jalan Mawar, Taman Bukit Serdang, Seksyen 9, 43300 Seri Kembangan, Selangor Darul Ehsan on Monday, 28 May 2018 at 10.30 a.m., or at any adjournment thereof. * If you wish to appoint other person(s) to be your proxy(ies), kindly delete the words “The Chairman of the Meeting or failing him/ her” and insert the name(s) of the person(s) desired. My/our proxy/proxies is/are to vote as indicated below: Ordinary Resolutions For Against 1. To re-elect Dato’ Teng Yoon Kooi as Director of the Company 2. To re-elect Mr Teoh Kim Hooi as Director of the Company 3. To elect Puan Norkamaliah Binti Hashim as Director of the Company 4. To approve the payment of Directors’ Fees 5. To approve the payment of Directors’ Benefits (excluding Directors’ fees) 6. To re-appoint Messrs Crowe Horwath as Auditors of the Company Special Business 7. Authority to Issue Shares 8. Proposed Renewal of Existing Shareholders’ Mandate Note: Please note that the short descriptions given above of the Resolutions to be passed do not in any way whatsoever reflect the intent and purpose of the Resolutions. The short descriptions have been inserted for convenience only. Shareholders are encouraged to refer to the Notice of Annual General Meeting for the full purpose and intent of the Resolutions to be passed. (Please indicate with a cross (X) in the space provided, how you wish your vote to be cast in respect of the above resolutions. If you do not do so, the proxy may vote or abstain at his/her discretion.) Signed this Notes: i) day of 2018 Signature/Common Seal of Shareholder A member of the Company entitled to attend and vote at the meeting is entitled to appoint a proxy or proxies to attend and vote in his stead. A proxy may but need not be a member of the Company. A member may appoint any person to be his proxy without restriction. If the proxy is not a member, he need not be an advocate, an approved company auditor or a person approved by the Registrar of Companies. ii) A member shall be entitled to appoint more than one proxy (subject always to a maximum of two (2) proxies at each meeting) to attend and vote at the same meeting. Where a member appoints two (2) proxies, the appointment shall be invalid unless the member specifies the proportions of his shareholdings to be represented by each proxy. iii) Where a member is an authorised nominee as defined under the Securities Industry (Central Depositories) Act, 1991, it may appoint at least one (1) proxy in respect of each Securities Account it holds with ordinary shares of the Company standing to the credit of the said securities account. iv) If no name is inserted in the space provided for the name of your proxy, the Chairman of the meeting will act as your proxy. v) The instrument appointing a proxy must be deposited at the Registered Office of the Company at 10th Floor, Menara Hap Seng, No. 1 & 3 Jalan P. Ramlee, 50250 Kuala Lumpur not less than forty-eight (48) hours before the time for holding the meeting or any adjournment thereof. vi) If the appointer is a corporation, the instrument appointing a proxy must be executed under its Common Seal or under the hand of its attorney. vii) Pursuant to Rule 8.31A(1) of the ACE Market Listing Requirements of Bursa Malaysia Securities Berhad, all the resolutions set out in this Notice shall be put to vote by poll. viii)For purpose of determining who shall be entitled to attend this meeting, the Company shall be requesting Bursa Malaysia Depository Sdn. Bhd. to make available to the Company, a Record of Depositors (“ROD”) as at 22 May 2018 and only a Depositor whose name appears on such ROD shall be entitled to attend this meeting or appoint proxy to attend and/or vote in his/her behalf.
  233. Fold this flap for sealing Then fold here Affix stamp THE COMPANY SECRETARY pasukhas group berhad 10th Floor , Menara Hap Seng No. 1 & 3, Jalan P. Ramlee 50250 Kuala Lumpur 1st fold here
  234. www .pasukhasgroup.com PASUKHAS GROUP BERHAD (Company No. 686389-A) (Incorporated in Malaysia under the Companies Act) Wisma Modal Khas, Lot 5815-A, Jalan Mawar, Taman Bukit Serdang, Seksyen 9, 43300 Seri Kembangan, Selangor Darul Ehsan, Malaysia. Tel : (603) 8948 3328 Fax : (603) 8943 4328 Email : admin@pasukhas.com.my
  235. APPENDIX II AUDITED FINANCIAL STATEMENTS OF I .S. ENERGY SDN BHD FOR FYE 2017 97
  284. APPENDIX III PGA GREEN SUKUK FRAMEWORK 98
  285. PASUKHAS GREEN ASSETS SDN BHD (formerly known as Morning Summit Sdn Bhd) (Company No. 1293491-H) GREEN SUKUK FRAMEWORK 1. INTRODUCTION Pasukhas Group Berhad (“PGB”) is a public company limited by shares and is incorporated under the Companies Act in Malaysia. PGB is listed in the ACE Market of the Bursa Malaysia Securities Berhad and is principally engaged in the business of investment holding and the provision of management services. Its subsidiaries are engaged in the Mechanical & Electrical Engineering services, Civil Engineering and Construction services, Manufacturing of Low Voltage Switchboards, Trading of Equipment and Coal, Renewable Energy and Property Development and Rental segments (the “Group”). In 2017, PGB had diversified into Renewable Energy i.e. energy utilities services and power generation business via the acquisition of I.S. Energy Sdn Bhd (“ISE”) by its wholly-owned subsidiary, Pasukhas Energy Sdn Bhd (“PESB”). ISE is principally involved in developing, maintaining and operating mini hydro plants and distribution of energy. ISE has secured Feed-in Tariff approval from Sustainable Energy Development Authority (SEDA) on 1 March 2012 for its mini hydro plant at Sungai Rek, Kuala Krai, Kelantan (“Sungai Rek Hydro Power Plant”) with a declared annual availability of 2.8 MW and installed capacity of 3.2 MW. ISE has been granted by SEDA a 21-year concession starting 7 November 2012 to operate the Sungai Rek Hydro Power Plant. Pasukhas Green Assets Sdn Bhd (formerly known as Morning Summit Sdn Bhd) (“PGA” or the “Issuer”), a wholly-owned subsidiary of PGB, intends to establish an Islamic medium term note (“ASEAN Green SRI Sukuk”) programme for the issuance of ASEAN Green SRI Sukuk of up to RM200 million in nominal value, from time to time, under the Shariah principle of Wakalah Bi Al-Istithmar together with Murabahah (via Tawarruq arrangement) (“ASEAN Green SRI Sukuk Programme”). The proceeds from the issuance of the ASEAN Green SRI Sukuk shall be utilised for Shariah-compliant purposes, which are further detailed under Section 2 below. The issuance proceeds will not be used to finance fossil fuel energy generation projects. This Green Sukuk Framework sets out PGA’s policy and internal organisation in terms of the potential future issuance of the ASEAN Green SRI Sukuk. It is developed in line with the ASEAN Green Bond Standards based on the International Capital Markets Association (ICMA)’s Green Bond Principles and it is the Issuer’s intention to apply best market practices as the standards develop from time to time. This Green Sukuk Framework aims to formalise a single approach that PGA will use for its future issuances of the ASEAN Green SRI Sukuk and the extension of the ASEAN Green SRI Sukuk Programme to fund Eligible SRI Projects (as defined below). 1
  286. PASUKHAS GREEN ASSETS SDN BHD (formerly known as Morning Summit Sdn Bhd) (Company No. 1293491-H) GREEN SUKUK FRAMEWORK 2. UTILISATION OF PROCEEDS The proceeds raised from the issuance of the ASEAN Green SRI Sukuk shall be used by the Issuer solely for Shariah-compliant purposes as follows: (a) (b) (c) (d) (e) (f) to fund the acquisitions of Eligible SRI Projects by the Issuer and its subsidiary companies (the “Issuer Group”) which may include an acquisition of a company under which the Eligible SRI Project is being held; to fund the capital expenditure* which includes the construction of Eligible SRI Projects by the Issuer Group; to pre-fund the relevant designated accounts under the Al-Kafalah Facility (as defined below) of the relevant tranche of the ASEAN Green SRI Sukuk, as may be required; to repay/refinance the ASEAN Green SRI Sukuk of the Issuer Group; to finance the Issuer Group’s Shariah-compliant working capital; and/or to pay fees, expenses, costs, and all other amounts payable in relation to the ASEAN Green SRI Sukuk Programme and the Al-Kafalah Facility of the relevant tranche of the ASEAN Green SRI Sukuk. For the avoidance of doubt, (i) the utilisation of the proceeds of the ASEAN Green SRI Sukuk shall at all times be for Shariah-compliant purposes and (ii) each of the entities within the Issuer Group, if any, is intended to hold a specific Eligible SRI Project which would require working capital for its operations etc., and the funding of the acquisition of such entities would also form part of the purposes of funding Eligible SRI Projects. The ASEAN Green SRI Sukuk proceeds which are to be channeled to the Issuer’s subsidiaries will be made via Shariah-compliant mode of financing. * Part of the ASEAN Green SRI Sukuk proceeds from the first tranche shall be utilised towards the refinancing of a facility obtained for the construction of the Sungai Rek Hydro Power Plant. “Eligible SRI Projects” means any project and/or asset deemed as: (i) an Eligible SRI Project in all the sectors pursuant to paragraphs 7.04(a) and 7.04(b) of Chapter 7 of Part 3 of Section B of the Guidelines on Unlisted Capital Market Products under the Lodge and Launch Framework issued by the Securities Commission Malaysia on 9 March 2015 (effective on 15 June 2015) and revised on 11 October 2018 (as amended from time to time); and (ii) an eligible Green Project i.e. the broad categories of potential eligible projects as listed in the ASEAN Green Bond Standards. 2
  287. PASUKHAS GREEN ASSETS SDN BHD (formerly known as Morning Summit Sdn Bhd) (Company No. 1293491-H) GREEN SUKUK FRAMEWORK “Al-Kafalah Facility” means an Islamic guarantee facility of up to the guaranteed amount to be agreed between the Issuer and the Kafalah provider(s) for the ASEAN Green SRI Sukuk based on the Shariah principle of Al-Kafalah. 3. PROCESS FOR PROJECT EVALUATION & SELECTION Eligible projects will be evaluated, selected and approved in consensus by the Treasury Department and the relevant business unit at PGB, including with participation from the relevant environmental specialist(s). Proceeds from the ASEAN Green SRI Sukuk will be used exclusively to finance projects that meet PGB’s Strategy for Social Responsibility and the project eligibility criteria, as well as those that have a high likelihood of delivering positive net effects in the long term. 4. MANAGEMENT OF PROCEEDS To ensure that the proceeds from the issuance of the ASEAN Green SRI Sukuk are ring-fenced, such proceeds will be deposited in the designated accounts to be operated and maintained solely by the Security Agent. Any excess standing to the credit of the designated accounts may be placed in highly-liquid and safe permitted investments and managed accordingly. The Issuer intends to engage an external auditor to review the management and the allocation of the issuance proceeds from the ASEAN Green SRI Sukuk. 5. REPORTING & TRANSPARENCY PGA shall disclose information on use of issuance proceeds, project evaluation and selection, and management of proceeds to investors in an information memorandum and ensure that such information is made publicly available from its designated website throughout the tenure of the ASEAN Green SRI Sukuk. PGA shall also endeavour to provide annual reporting, via its designated website and other communication channels that the Issuer may select, to investors on the following: (i) (ii) (iii) (iv) A brief description of the Eligible SRI Projects; The original amount earmarked for the Eligible SRI Projects; The amount utilised for the Eligible SRI Projects; The unutilised amount and where such unutilised amount is placed or invested pending utilisation, if applicable; 3
  288. PASUKHAS GREEN ASSETS SDN BHD (formerly known as Morning Summit Sdn Bhd) (Company No. 1293491-H) GREEN SUKUK FRAMEWORK (v) (vi) Where feasible and to the extent possible, the impact objectives from the Eligible SRI Projects; and Such other information that the Issuer may choose to provide. In addition to the above, the Issuer shall report, on an annual basis, the environmental benefits vis-à-vis e.g. the installed capacity and annual energy produced. 6. EXTERNAL REVIEW PGA will have its Green Sukuk Framework reviewed by RAM Consultancy Services Sdn Bhd who will issue a report (“Second Opinion”) based on its own methodology. The Second Opinion shall be disclosed to the investors in an information memorandum and made available in a website designated by the Issuer throughout the tenure of the ASEAN Green SRI Sukuk. The Second Opinion shall refer to the Issuer’s Green Sukuk Framework and include every issuance that is made under the ASEAN Green SRI Sukuk Programme. 4
  289. APPENDIX IV RAM CONSULTANCY SERVICES SDN BHD ’S SECOND OPINION DATED 26 FEBRUARY 2019 99
  290. PASUKHAS GREEN ASSETS SDN BHD (formerly known as Morning Summit Sdn Bhd) ASEAN GREEN SRI SUKUK PROPOSED SUKUK ISSUANCE OF RM200.0 MILLION SECOND OPINION REPORT 26 FEBRUARY 2019 Analysts Dinagaran Chandra (603) 7628 1039 dina@ram.com.my Benjamin Ang (603) 7628 1032 anguguan@ram.com.my Pasukhas Green Assets Sdn Bhd 1
  291. TABLE OF CONTENTS SUMMARY OF SECOND OPINION ON ASEAN GREEN SRI SUKUK ................................................................... 1 RAM’S ENVIRONMENTAL BENEFIT ASSESSMENT AND DEFINITION ............................................................... 3 1. SCOPE AND OBJECTIVES ................................................................................................................ 4 2. CORPORATE PROFILE..................................................................................................................... 4 3. 3.1. 3.2. 3.3. 3.4. REVIEW OF ASEAN GREEN SRI SUKUK FRAMEWORK ........................................................................ 5 Utilisation of Proceeds ................................................................................................................... 5 Project Evaluation & Selection ........................................................................................................ 6 Management of Proceeds .............................................................................................................. 6 Reporting Commitments ................................................................................................................ 7 4. 4.1. 4.2. 4.3. 4.4. SUSTAINABILITY ASSESSMENT ....................................................................................................... 7 National-Level Drivers .................................................................................................................... 7 Group-Level Assessment ................................................................................................................ 8 Sustainability Management ............................................................................................................ 9 Sukuk Positive Impact Creation ......................................................................................................10 APPENDIX 1 – Sustainable & Responsible Investment (“SRI”) Sukuk Framework Checklist ...............................12 APPENDIX 2 – ASEAN Green Bond Standards (“ASEAN GBS”) Checklist..........................................................15 APPENDIX 3 – Green Bond Principles (“GBP”) External Review Form ............................................................18 ABOUT RAM ..........................................................................................................................................24 Pasukhas Green Assets Sdn Bhd (formerly known as Morning Summit Sdn Bhd)
  292. SUMMARY OF SECOND OPINION ON ASEAN GREEN SRI SUKUK Overall , Pasukhas Green Assets Sdn Bhd’s (formerly known as Morning Summit Sdn Bhd) (“PGA” or “the Issuer”) ASEAN Green SRI Sukuk Framework is aligned to the transparency and disclosure requirements of the Securities Commission Malaysia’s Sustainable & Responsible Investment (“SRI”) Sukuk Framework, ASEAN Green Bond Standards (“ASEAN GBS”) and the globally recognised Green Bond Principles (“GBP”). Equally important, small hydropower projects are recognised as eligible green projects under the SRI Sukuk Framework, ASEAN GBS and GBP. PGA, a wholly-owned subsidiary of Pasukhas Group Berhad (“PGB” or “the Group”), is an intermediate holding company and does not have any subsidiaries at the moment. It is intended for the Issuer to, from time to time, acquire companies under which Eligible Green SRI Projects are being held. The Proposed ASEAN Green SRI Sukuk of RM200 million (“ASEAN Green SRI Sukuk”) will be used for the following Shariah-compliance purposes: To fund the acquisitions of Eligible Green SRI Projects1 by the Issuer and its subsidiary companies (“Issuer Group”), which may include an acquisition of a company under which the Eligible Green SRI Project is being held; ii) To fund the capital expenditure which includes the construction of Eligible Green SRI Projects by the Issuer Group; iii) To pre-fund the relevant designated accounts under the Al-Kafalah Facility of the relevant tranche of the ASEAN Green SRI Sukuk, as may be required; iv) To repay/refinance the ASEAN Green SRI Sukuk of the Issuer Group; v) To finance the Issuer Group’s Shariah-compliant working capital; and vi) To pay fees, expenses, costs and all other amounts payable in relation to the ASEAN Green SRI Sukuk Programme and the AlKafalah Facility of the relevant tranche of the ASEAN Green SRI Sukuk. i) PGA’s ASEAN Green SRI Sukuk Framework is clearly defined and provides clarity on important aspects of project evaluation and selection, management of proceeds and reporting commitments. RAM opines that PGA, guided by policies of PGB, has appropriate control objectives and procedures to operate the small-hydropower facility. The Group aligns with the principles of the internationally-recognised standards of ISO 9001:2008 Quality Management System. Additionally, the Group has policies to safeguard the environment as well as employees’ health and safety. Sustainable project management requires an assessment of issues and challenges within a local context. To this end, the commissioned technical due diligence report for the small-hydropower facility outlined key environmental aspects along with solutions to mitigate environmental and biodiversity impacts relating to the project. Malaysia has a vast potential to generate clean and renewable energy from its abundant natural resources. Electricity generation via hydropower has a much smaller carbon footprint when compared against fossil-fuel enabled power production. RAM opines PGA’s hydropower project conforms to Malaysia’s renewable energy commitments and emission reduction targets 2. In addition, the project has the potential to stimulate socioeconomic development of the surrounding community. 2 Degrees Scenario, or 2DS is reaffirmed in the Paris Agreement during the 21st U.N. Framework Convention on Climate Change (“UNFCCC”) Conference of the Parties (“COP21”). The goal is to limit global temperature rise to 2 degrees Celsius when compared against pre-industrial levels. The International Energy Agency (“IEA”) has identified the industries where the reductions in carbon emissions should be targeted to achieve this goal by 2050. 1 Eligible Green SRI Projects refer to projects that aim to: (a) preserve and protect the environment and natural resources; (b) conserve the use of energy; (c) promote the use of renewable energy; and (d) reduce greenhouse gas emission. These projects are deemed as (i) an eligible sustainable and responsible investment project in all sectors pursuant to paragraphs 7.04(a) and 7.04(b) of Part 3 of Section B of the Lodge and Launch Guidelines; and (ii) are projects eligible under the ASEAN GBS and GBP. 2 The national target is for renewable energy to comprise 2,080MW of overall electricity generation in the country. Pasukhas Green Assets Sdn Bhd (formerly known as Morning Summit Sdn Bhd) 1
  293. SUMMARY OF SECOND OPINION ON ASEAN GREEN SRI SUKUK Cumulative CO2 reductions by sector and technology in the 2DS to 2050 Key point : A portfolio of low-carbon technologies is needed to reach the 2DS; some solutions will be broadly applicable, while others will need to target specific sectors. (Source: Energy Technology Perspectives 2015, International Energy Agency) Building on from IEA’s study, RAM’s Environmental Benefit assessment essentially tiers projects and solutions based on their overall contributions towards the 2DS. The top tiered projects comprise technologies that decarbonize the energy system. RAM has assigned a Tier-1 Environmental Benefit to the 3.2MW Sungai Rek small-hydropower plant to be financed by the ASEAN Green SRI Sukuk. Pasukhas Green Assets Sdn Bhd (formerly known as Morning Summit Sdn Bhd) 2
  294. RAM ’S ENVIRONMENTAL BENEFIT ASSESSMENT AND DEFINITION Climate change represents a fundamental threat to the planet and society and is already transforming life on Earth. The effects of climate change are wide-ranging and can be seen everywhere in our biosphere. The 2015 Paris Climate Accord (“COP21”) sets a global action plan for the 197 participating governments to limit global warming to well below 2oC above pre-industrial levels (2 Degree Scenario). In addition, these countries have also committed to United Nation’s 17 Sustainable Development Goals that could transform the world by addressing areas of critical importance for the planet and society. The ultimate objective of green bond/sukuk is to facilitate financing towards environmentally-friendly solutions that can help mitigate the effects of climate change and/or create value for surrounding ecosystem. RAM’s Green Bond assessment incorporates a subjective assessment of the project’s contributions towards a low carbon, sustainable future. In addition, transparency and disclosure strength of the Green Bond is also a key consideration. ▪ Project is an important component of low carbon future and has clear, demonstrable environmental benefits. ▪ Project is aligned towards a low carbon future and has some demonstrable environmental benefits. ▪ Project has minimal contribution towards a low carbon future and has minimal demonstrable environmental benefits. ▪ Project directly contributes towards substantial and sustainable reductions of greenhouse gas emissions. ▪ Project directly contributes towards improvements in greenhouse gas emissions. ▪ Project indirectly contributes to the broader environment and is focused on asset-level environmental improvements. Projects that do not conform to the long-term vision of 2 Degrees Scenario reaffirmed under COP21 is not assigned an Environmental Benefit Rating. Pasukhas Green Assets Sdn Bhd (formerly known as Morning Summit Sdn Bhd) 3
  295. 1 . SCOPE AND OBJECTIVES PGA intends to establish an Islamic Medium-Term Note Programme of RM200 million to finance green assets. The sukuk proceeds shall be utilised for potential projects and/or solutions that meet the green eligibility criteria outlined in the Securities Commission Malaysia’s SRI Sukuk Framework, which are also compatible with the eligibility requirements of the ASEAN GBS and GBP. RAM Consultancy Services Sdn Bhd (“RAM”) was appointed to provide a second party opinion on the Issuer’s ASEAN Green SRI Sukuk Framework. The review covers an assessment of the Issuer’s ASEAN Green SRI Sukuk Framework against the disclosure requirements of the SRI Sukuk Framework, ASEAN Capital Markets Forum’s ASEAN GBS3 and the International Capital Markets Association’s GBP4, as well as sustainability responsibilities of the Issuer. The assessment includes a high-level review of public domain information and internal documents provided by the Issuer. The assessment is also supported by discussions with management and a site visit on 15 October 2018 to the small-hydro facility at Sungai Rek, Kelantan. RAM did not undertake an audit or other assurance activities to ascertain the validity and accuracy of the information provided. This assessment does not include an opinion on the creditworthiness and financial performance of the sukuk. 2. CORPORATE PROFILE The Issuer is a wholly-owned subsidiary of PGB. The Group is a listed entity on the ACE Market of the Bursa Malaysia stock exchange and functions as an investment holding company that provides management services to its subsidiaries. The group of companies wholly-owned by PGB essentially provide the following services: (i) Mechanical & Electrical Engineering; (ii) Civil Engineering & Construction; (iii) Manufacturing of Low Voltage Switchboards; (iv) Trading of Equipment and Coal; (v) Renewable Energy; and (vi) Property Development and Rental. Table 1 provides a brief description of the background of the major shareholders of PGB. Table 1: Major Shareholders of PGB Shareholders Ownership Mr. Wan Thean Hoe & Mr. Chan Man Chung (through Tara Temasek Sdn Bhd) 24.89% Dato’ Sri Teng Ah Kiong & Dato’ Teng Yoon Kooi 15.93% Description • Mr. Wan Thean Hoe is the Executive Director cum Chief Executive Officer of PGB. • Mr. Chan Man Chung is the Non-Independent Non-Executive Director of PGB. • Dato’ Sri Teng Ah Kiong is the Executive Chairman of PGB. • Dato’ Teng Yoon Kooi is the Executive Director of PGB. In line with the Group’s environmental sustainability objectives and long-term strategy, PGA has been established to own and operate green assets. Diagram 1 highlights the Group’s corporate structure. 3 The ASEAN Green Bond Standards (“ASEAN GBS”), developed by the ASEAN Capital Markets Forum (“ACMF”), are standards established to enhance transparency, consistency and uniformity of ASEAN Green Bonds. Launched on November 2017, the ASEAN GBS was developed based on ICMA’s GBP and was revised in October 2018. The ASEAN GBS are intended for issuers who intends to issue green bonds within the ASEAN region. 4 The Green Bond Principles (“GBP”), developed by the International Capital Market Association (“ICMA”), are voluntary process guidelines that recommend transparency and disclosure measures for issuers. The guideline was initially issued in January 2014 and updated in June 2018. The GBP is intended for broad use by a variety of participants in the green bond market to facilitate the flow of financing towards climate-friendly solutions. Pasukhas Green Assets Sdn Bhd (formerly known as Morning Summit Sdn Bhd) 4
  296. Diagram 1 : Pasukhas Group Berhad Corporate Structure (Pre-Issuance) 3. REVIEW OF ASEAN GREEN SRI SUKUK FRAMEWORK The focus areas reviewed are grouped under the following four principles which are embedded in the SRI Sukuk Framework, ASEAN GBS and GBP: (3.1) Utilisation of Proceeds; (3.2) Project Evaluation & Selection; (3.3) Management of Proceeds; and (3.4) Reporting Commitments. For detailed comparisons, please refer to Appendix 1 for the SRI Sukuk Framework Checklist; Appendix 2 for the ASEAN GBS Checklist; and Appendix 3 for the GBP External Review Form. 3.1. Utilisation of Proceeds The use of proceeds is the cornerstone of green bond or sukuk. The proceeds from the ASEAN Green SRI Sukuk will be used by the Issuer to grow its portfolio of green assets. The proceeds may finance several types of green projects. The selection of projects is defined as per the eligibility requirements prescribed under the SRI Sukuk Framework. This covers projects that aim to: (i) preserve the environment and natural resources; (ii) conserve the use of energy; (iii) promote the use of renewable energy; and/or (iv) reduce greenhouse gas emissions. Table 2 below highlights the possible green projects that may be financed via the sukuk proceeds: Table 2: Eligible Green SRI Projects Categories ▪ Natural Resources Sustainable land use ▪ Sustainable forestry and agriculture ▪ Biodiversity conservation ▪ Remediation and redevelopment of contaminated sites ▪ Water infrastructure, treatment and recycling ▪ Sustainable waste management ▪ Renewable Energy & Energy Efficiency New or existing renewable energy (solar, wind, hydro, biomass, geothermal and tidal) ▪ Efficient power generation and transmission systems ▪ Energy efficiency projects that results in reduction of greenhouse gas emissions or energy consumption per unit output PGA has stated that the green sukuk proceeds will not be used to finance fossil fuel energy generation projects. The project categories listed in Table 2 are also compatible with the eligibility requirements of the ASEAN GBS and GBP. The following are expenses that can be financed via the sukuk proceeds: i) ii) To fund the acquisitions of Eligible Green SRI Projects by the Issuer Group, which may include an acquisition of a company under which the Eligible Green SRI Project is being held; To fund the capital expenditure which includes the construction of Eligible Green SRI Projects by the Issuer Group; Pasukhas Green Assets Sdn Bhd (formerly known as Morning Summit Sdn Bhd) 5
  297. iii ) To pre-fund the relevant designated accounts under the Al-Kafalah Facility of the relevant tranche of the ASEAN Green SRI Sukuk, as may be required; iv) To repay/refinance the ASEAN Green SRI Sukuk of the Issuer Group; v) To finance the Issuer Group’s Shariah-compliant working capital; and vi) To pay fees, expenses, costs and all other amounts payable in relation to the ASEAN Green SRI Sukuk Programme and the Al-Kafalah Facility of the relevant tranche of the ASEAN Green SRI Sukuk. Broadly defined, green projects refer to innovative climate-friendly projects that help to deliver clear environmental benefits. The Issuer has identified a small hydropower plant with an installed capacity of 3.2MW at Sungai Rek, Kelantan (Malaysia) (“Hydropower Plant”) as the first green asset to be financed via the ASEAN Green SRI Sukuk proceeds. Part of the ASEAN Green SRI Sukuk proceeds from the first tranche shall be utilised towards the refinancing of a facility obtained for the construction of the Hydropower Plant. As a measure of transparency, RAM encourages the Issuer to provide examples of working capital expenses. I.S. Energy Sdn Bhd (“ISE”) owns and operates the Hydropower Plant. ISE signed a Renewable Energy Power Purchase Agreement with Tenaga Nasional Berhad (“TNB”) on 7 November 2012. Under the agreement, TNB will be the sole offtaker for the Hydropower Plant for a concession period of 21 years. ISE was acquired by Pasukhas Energy Sdn Bhd – a 100%-owned subsidiary of PGB and the holding company to PGA. Renewable energy projects are recognised as Green under the SRI Sukuk Framework, ASEAN GBS and GBP (see table 3 below). Small hydropower as a renewable energy resource is clean and effectively infinite. In addition, small hydropower has significantly lower Greenhouse Gas (“GHG”) emission intensities when compared to power generated by fossil fuels. Table 3: Renewable Energy Eligibility Under the SRI Sukuk Framework, ASEAN GBS and GBP GBP Use of proceeds – a Renewable energy (including production, transmission, appliances and products) ASEAN GBS Item 4.1.5 (i) Use of Proceeds – renewable energy SRI Sukuk Framework5 Item 7.04 (b)(i) – new or existing renewable energy (solar, wind, hydro, biomass, geothermal and tidal) 3.2. Project Evaluation & Selection PGA intends to expand its portfolio of green assets over the next few years. Projects that will be financed by the ASEAN SRI Sukuk proceeds will go through an internal evaluation and selection procedure. Eligible projects will be approved by the Treasury Department and relevant business units from the Group through a consensus decision-making process. The evaluation and selection process will include participation from relevant environmental specialists identified by PGA. The projects will be selected based on: (i) the Group’s Strategy for Social Responsibility; (ii) eligibility criteria defined in the SRI Sukuk Framework for green projects, which are also compatible with the eligibility requirements of the ASEAN GBS and GBP; and (iii) capacity to deliver high positive net impacts in the long term. RAM opines the project evaluation and selection process is in line with green bond market practices. As a measure of best practice, RAM encourages the Issuer to further define the decision-making process to include the following criteria: i) Policies, procedures and systems to identify and manage key environmental and social risks pertaining the project; ii) Requirements for Environmental Impact Assessment studies for relevant projects; and iii) Detailed considerations such as size and type for future eligibility of hydropower assets. This is largely due to the potential impacts of large hydropower projects on the wider ecosystem and surrounding communities. 3.3. Management of Proceeds 5 As per the Guidelines on Unlisted Capital Market Products Under the Lodge and Launch Framework issued on 9 March 2015 and revised on 11 October 2018 Pasukhas Green Assets Sdn Bhd (formerly known as Morning Summit Sdn Bhd) 6
  298. PGA has clearly defined the formal internal processes linked to the management of proceeds . The sukuk proceeds will be placed in a designated disbursement account that will be operated and maintained by the Security Agent – Malaysian Trustees Berhad. Further, the Issuer has stated that any unutilised funds may be placed in highly-liquid and safe permitted investments. Additionally, PGA will employ external auditors to provide verification on the allocation of proceeds to the applicable eligibility criteria. As a measure of transparency, RAM recommends the Issuer to disclose the independent assurance statement by the external auditor on its corporate website. In addition, RAM recommends the Issuer to provide granular information on the nature of investment eligibility for unutilised funds during annual reporting. For example, the Issuer may highlight the specific placements of funds in short-term deposits and/or Shariah-compliant funds and/or government-issued money market instruments and/or capital market instruments rated by credit rating agencies. 3.4. Reporting Commitments Transparency in reporting is an important characteristic of green bond or sukuk issuances. Issuers are encouraged to establish a formal process to communicate the Use of Proceeds Reporting and Impact Reporting. The Issuer has designated the Finance department for the reporting of proceeds allocations, while the Project Operations team will provide the reporting of environmental benefits from the Eligible Green SRI Projects. The Issuer has communicated that the following will be reported annually to the sukukholders via its corporate website (https://www.pasukhasgroup.com/) throughout the tenure of the issuance. The Issuer’s reporting commitments are consistent with market best practices. Table 4: PGA’s Reporting Commitments Use of Proceeds Reporting ▪ ▪ ▪ ▪ Impact Reporting ▪ Installed capacity of the Hydropower Plant (MW) ▪ Annual electricity generated from the Hydropower Plant (MWh) ▪ Impact objectives from the Eligible Green SRI Projects, where feasible and to the extent possible ▪ Impacts of the Eligible Green SRI Projects financed, including installed capacity of the projects, annual electricity generated (MWh), and other impact indicators that are relevant to the type of green assets Brief description of the Eligible Green SRI Projects The original amount earmarked for the Eligible Green SRI Projects The amount utilised for the Eligible Green SRI Sukuk Projects The total unutilised amount and placements of such amounts – invested, pending utilisation, or uninvested Impact reporting serves to illustrate the climate and environmental benefits of the project. For renewable energy projects, data on GHG emissions is a commonly used indicator to evaluate the environmental impact. We encourage the Issuer to also calculate and report the corresponding carbon emissions from the Hydropower Plant. This information is typically reported in renewable energy green bonds across the world. There are different GHG emission calculation methodologies that are available in the marketplace. Should the Issuer choose to report the carbon emissions, RAM recommends the Issuer to disclose the methodology employed and emission conversion factors used to calculate GHG emissions avoided for green projects. Where possible, RAM also suggests the Issuer to report “ex-ante”6 estimates developed during project design. This allows a comparison between the actual climate impact of the project with initial projections. In addition, RAM recommends the Issuer disclose the geography of assets acquired as a measure of transparency. 4. SUSTAINABILITY ASSESSMENT 4.1. National-Level Drivers 6 Based on forecasts. Pasukhas Green Assets Sdn Bhd (formerly known as Morning Summit Sdn Bhd) 7
  299. The ASEAN Green SRI Sukuk issued by PGA potentially enables financing of a wide selection of green industries and sectors . RAM opines the sukuk will support the following national level objectives and plans: Table 5: National Level Objectives and Plans Category National Level Objectives and Plans Renewable Energy The Government of Malaysia aims to increase the proportion of renewable energy mix to the national energy mix from current levels of 2% to 20% by 2025. Enforced in 2011, the Renewable Energy Act is aimed at increasing the contribution of clean and renewable energy sources such as solar photovoltaic, biomass, biogas and hydro in Malaysia’s electricity generation mix. An important driver for the renewable energy industry is the Feed-In-Tariff mechanism implemented and managed by the Sustainable Energy Development Authority of Malaysia. The mechanism supports the growth of the renewable energy industry by providing guaranteed long-term contracts for power generated from renewable energy sources. Energy Efficiency Malaysia’s energy industry accounts for approximately 20% of Gross Domestic Product. The government is aiming to reduce 15% of electricity consumption by year 2030. Various initiatives have been undertaken to support this objective: (i) the National Energy Efficiency Action Plan to improve efficiency of managing energy supply and demand; (ii) the Minimum Energy Performance Standards developed for electrical products for commercial use; (iii) the Home Energy Report, a joint initiative between Tenaga Nasional Berhad (“TNB”) and Ministry of Energy, Science, Technology, Environment and Climate Change to educate consumers on the importance of energy savings; and (iv) introduction of smart grid technology for two-way communications between utility and customers post-2020. Natural Resources Malaysia is a resource-rich country with valuable natural capital significant to the nation’s economy, ecosystem and the public. The Ministry of Water, Land and Natural Resources have identified a strategic plan aimed at protection and conservation of natural resources and biologic systems. The five-year plan (2016-2020) has three main strategic thrusts: (i) sustainable management of water and land resources; (ii) sustainable management of natural environment; and (iii) efficient and effective management of government organisations. The plan also outlines specific time-bound conservation targets. For instance, the government aims to establish dedicated management systems to protect at least 20% of terrestrial areas and 10% of marine areas. 4.2. Group-Level Assessment This section provides a high-level sustainability assessment of PGB. The Group has established a corporate sustainability strategy that is centred on four key pillars: (i) meeting shareholder’s demands for reasonable financial returns, long term economic growth, open communication and transparent financial accounting; (ii) investing in technologies and systems that use financial, natural and social resources in an efficient, effective and economic manner over the long term; (iii) embracing standards of corporate governance including corporate codes of conduct and public reporting; and (iv) managing human resources to maintain workforce capabilities and employee satisfaction through learning and knowledge management practices. As measure of best practice, RAM encourages PGB to further enhance its sustainability strategy and disclosures. RAM opines it is important for corporations to develop a holistic and integrated sustainability strategy that encompasses: (i) long term sustainability vision, objectives and commitments; (ii) regular and systematic consultation with identified stakeholders on important sustainability issues; (iii) a robust governance and accountability mechanism to operationalise sustainability; (iv) identification of key systems and processes to manage sustainability; and (v) regular reporting of performance indicators against established targets. RAM opines PGB has sound risk management and internal control processes. The Group has established an Enterprise Risk Management framework to be applied across all levels of the organisation. The Group represented that the risk Pasukhas Green Assets Sdn Bhd (formerly known as Morning Summit Sdn Bhd) 8
  300. management process is applied at the beginning of any major new project or change in operation environment . Further, PGB also uses appropriate control objectives and procedures from the ISO 9001:2008 to mitigate risks to acceptable levels. RAM also noted that two of the PGB’s subsidiaries, Pasukhas Sdn Bhd and Pasukhas Construction Sdn Bhd have received the ISO 9001:2008 Quality Management System certification. PGB has outlined a Health, Safety and Environment (“HSE”) vision for its workplace. The Group aims to prevent death, injury and other forms health hazards by promoting accountability, performance measurements and conduct the necessary operations analysis. The Group has committed to continuously improve its HSE practices to emerging best practices. RAM noted that PGB aims to expand its coal trading business to become a significant revenue stream for the Group (25% or more, as guided by the Group’s Circular to Shareholders dated 20 July 2018). RAM opines the above activities may not align with the global vision for a low carbon and climate friendly future. However, PGB represented that the above business plans are intended as a near-term strategy to diversify the Group’s revenue streams. The Group also ensured that the proceeds from the ASEAN Green SRI Sukuk will not be used to finance these activities. RAM carried out a high-level media scan of PGB and its subsidiaries in the web domain. We did not observe any significant controversies pertaining environment, social and governance practices of the organisation. 4.3. Sustainability Management The Issuer has committed to adopt good management practices to mitigate potential sustainability risks that could arise from green projects financed via the sukuk proceeds. This includes ensuring projects meet the compliance requirements of the applicable environmental laws and regulations in Malaysia. The Issuer will also conduct the necessary technical due diligence to review and analyse the technical, commercial, financial and legal matters relating to the green projects. Further, the Issuer will devote the relevant resources and technical expertise to operate the green projects. The 3.2MW small-hydro run-of-river facility is an existing facility located at Sungai Rek in the Olak Jeram, Kuala Krai District. The facility has a 45km2 catchment area and resides at the Sg Rek Forest Reserve area. A technical due diligence has been carried out to analyse the project location, hydrological data, equipment, project parameters, energy potential, possible environmental risks and other related project considerations. According to the Issuer, no Environmental Impact Assessment study was conducted for this project. The magnitude of environmental impact for hydro plants depends on the size, location and how the hydropower facility has been designed. Small run-of-river hydropower plants with less than 10 MW installed capacity typically have minor impact on the hydrological regime of the river7. These projects typically do not require the construction of dams with large impoundments. One of the most widely-discussed impacts of small hydropower is the impact on aquatic species due to the morphological change of the river. According to the technical due diligence report, rare and endangered fish species such as the Malaysian Masheer (also known as “Ikan Kelah”) can be found in the river. In order to manage the impact on this fish species and other aquatic species, the Operations Team monitors and maintains the appropriate Environmental Minimum Flow (“EMF”) of the river. EMF refers to the minimum flow values required to sustain the river ecology, ecosystem and biodiversity. RAM opines the facility has employed appropriate health and safety control measures. Guidelines for safety manual and disaster management have been established to manage workplace hazards and protect the surrounding environment. In addition, the management of facility also conducts regular safety training for the operation and maintenance personnel. As a measure of best practice, RAM encourages the Issuer to consider incorporating relevant IFC Performance Standards of the World Bank Group in the small hydropower project management plan. These performance standards have become a widely accepted sustainability framework for large infrastructure projects. The IFC Performance Standards is designed to manage key environmental and social risks and impact relating to project level activities such as labour and working conditions, resource efficiency and pollution prevention, community health, safety and security etc. They contain important industry best practice initiatives that can be beneficial for green projects undertaken by the Issuer. 7 Technical and Operational Procedures to Better Integrate Small Hydropower Plants in The Environment – Intelligent Energy for Europe Programme Pasukhas Green Assets Sdn Bhd (formerly known as Morning Summit Sdn Bhd) 9
  301. 4 .4. Sukuk Positive Impact Creation PGA’s ASEAN Green SRI Sukuk potentially comprises a few types of green projects. Therefore, RAM opines the positive impacts expected can be multifaceted towards the economy, environment and society. Table 6: Positive Impact Created Green Projects and Alignment to United Nations Sustainable Development Goals & Targets Project Category Renewable Energy Positive Impact Creation Alignment to United Nations Sustainable Development Goals & Targets Climate change is an urgent planetary threat and may have costly repercussions on communities and global economies. Approximately two-thirds of the world’s GHG emissions today can be attributed to energy production and systems. Therefore, the energy sector plays a critical role in global efforts to mitigate the effects of climate change. The transition towards low carbon energy systems is already happening. Renewable energies provide means to generate electricity from clean and sustainable sources such as sunlight, wind, hydro, biomass and other renewable resources. Deployment of renewable energy solutions has the potential to significantly reduce the GHG emission intensity of the global energy system. As such, investments into renewable energy ought to be scaled up for the world to achieve the emission reduction goals set out in the Paris Climate Accord. RAM opines innovative renewable energies will be a key component of building a low-carbon future. According to the International Renewable Energy Agency, renewable sources could potentially make up 65% of global energy use by 2050. The 3.2MW Sungai Rek small hydro facility generates on average 16 GWh8 of energy per year. Small hydropower plants have relatively negligible carbon emissions when compared to fossil fuel emission intensities. When compared against the grid emission intensity9 for Peninsular Malaysia, this corresponds to approximately 11,000 metric tonnes of carbon emissions avoided. 8 9 4-year average – 2014, 2015, 2016 and 2017 Baseline CO2 for Peninsular Malaysia = 0.694 tonnes/MWh (2014) – Sustainable Energy Development Authority Malaysia Pasukhas Green Assets Sdn Bhd (formerly known as Morning Summit Sdn Bhd) 10
  302. Project Category Energy Efficiency Positive Impact Creation Alignment to United Nations Sustainable Development Goals & Targets To limit the rise in average global temperatures below 2°C, significant investments have to be deployed into climate-friendly technologies that meet medium and long-term goals. In today’s carbon intensive infrastructure, solutions must also be targeted to improve energy efficiency of multiple end-use sectors such as industrial, transport, building etc. Thus, innovations to improve energy efficiency can be considered as low carbon solutions. These technologies help reduce the demand for energy consumption, therefore displacing carbon emitting fossil fuels in our energy systems. Further, energy efficiency improvements help to increase productivity since higher economic gains can be derived from every unit of electricity produced. Natural Resources Circular economy refers to the preservation of resources for the benefit of the environment and the economy. PGA’s ASEAN Green SRI Sukuk could potentially facilitate financing for broad range environmental solutions related to conservation of natural resources. These may include: (i) sustainable land use; (ii) sustainable forestry and agriculture; (iii) biodiversity conservation; (iv) remediation and redevelopment of contaminate sites; (v) water infrastructure, treatment and recycling; and (vi) sustainable waste management. Pasukhas Green Assets Sdn Bhd (formerly known as Morning Summit Sdn Bhd) 11
  303. APPENDIX 1
  304. APPENDIX 1 – SUSTAINABLE & RESPONSIBLE INVESTMENT (“SRI”) SUKUK FRAMEWORK CHECKLIST Reference: Securities Commission Malaysia – Guidelines on Unlisted Capital Market Products Under the Lodge and Launch Framework Part 3 – Corporate Bonds and Sukuk Chapter 7 – Sustainable and Responsible Investment (SRI) Sukuk No. 7.03 & 7.04 Item Eligible SRI Projects Requirement Eligible projects prescribed under the SRI Sukuk Framework include natural resources, renewable energy and energy efficiency projects. Alignment Yes Comment The proceeds from the ASEAN Green SRI Sukuk will be used for items relating to the expenses incurred for the acquisitions and constructions of Eligible Green SRI Projects and amounts payable in relation to the ASEAN Green SRI Sukuk Programme, among others. Part of the proceeds from the first issuance will be utilised towards the refinancing of a facility obtained for the construction of the Hydropower Plant. 7.06 Disclosure Requirements (a) Details of the Eligible SRI project and, to the extent possible, impact objectives from the Eligible SRI project. Yes At the point of assessment, the Hydropower Plant represents the only identified project to be financed by the ASEAN Green SRI Sukuk. The Issuer will disclose future green assets upon the completion of evaluation and selection process. Also, the Issuer has communicated that it will report to sukukholders on the impact objectives of the projects financed by the ASEAN Green SRI Sukuk, to the extent feasible. (b) A statement that the Issuer has complied with the relevant environmental, social and governance standards or recognised best practices relating to the Eligible SRI project. Yes Health and safety is an important consideration to operationalise green projects. The Issuer has complied with recognised best practices relating to the Eligible Green SRI Project. PGB has outlined a HSE vision for its workplace. The Group aims to prevent death, injury and other forms health hazards by promoting accountability, performance measurements and conduct the necessary operations analysis. The Group has committed to continuously improve its HSE practices to emerging best practices. For a more detailed assessment, please see Section 4.2 Group-Level Assessment (page 8). 7.05 & 7.07 Appointment of an independent expert The Issuer may appoint an independent expert to undertake an assessment of the Eligible SRI project. Where the independent expert has issued a report on the Eligible SRI project and the Issuer is proposing to issue a disclosure document in relation to the SRI sukuk, the Issuer may, subject to the consent of the independent expert, include the report in the disclosure document. Yes RAM Consultancy Services Sdn Bhd was appointed to provide a second party opinion on the Issuer’s ASEAN Green SRI Sukuk Framework. The review covers an assessment of the PGA’s ASEAN Green SRI Sukuk Framework against disclosure requirements of the SRI Sukuk Framework, ASEAN GBS and GBP, as well as sustainability responsibilities of the Issuer. Pasukhas Green Assets Sdn Bhd (formerly known as Morning Summit Sdn Bhd) 13
  305. No . 7.08 Item Reporting Investors to Requirement The Issuer or, where the Issuer is a special purpose vehicle, the obligor must provide annual reporting, via newsletters, website updates, annual report or any other communication channels, to sukukholders on the following: Alignment Yes Comment The Issuer has made a commitment to disclose all the said information annually to the sukukholders. The Issuer is committed to disclosing the following online: a. b. (a) The original amount earmarked for the Eligible SRI project; (b) The amount utilised for the Eligible SRI project; (c) The unutilised amount and where such unutilised amount is placed or invested pending utilisation; and (d) Where feasible and to the extent possible, the impact objectives from the Eligible SRI project. c. d. e. f. g. h. Pasukhas Green Assets Sdn Bhd (formerly known as Morning Summit Sdn Bhd) Brief description of the Eligible Green SRI Projects The original amount earmarked for the Eligible Green SRI Projects The amount utilised for the Eligible Green SRI Projects The total unutilised amount and placements of such amounts – invested, pending utilisation, or uninvested Installed capacity of the Hydropower Plant (MW) Annual electricity generated (MWh) Impact objectives from the Eligible Green SRI Projects, where feasible and to the extent possible Impacts of the Eligible Green SRI Projects financed, including installed capacity of the projects, annual electricity generated (MWh), and other impact indicators that are relevant to the type of green assets 14
  306. APPENDIX 2
  307. APPENDIX 2 – ASEAN GREEN BOND STANDARDS (“ASEAN GBS”) CHECKLIST Reference: ASEAN Capital Markets Forum – ASEAN Green Bond Standards Item Eligible Issuers No. 3.1 Requirement (i) Must be an ASEAN Issuer; or (ii) In the case of a Non-ASEAN Issuer, the eligible Green Projects must be located in any of the ASEAN countries. Alignment Yes 3.2 ASEAN Green Bonds issuances must be originated from any of the ASEAN member countries Yes PGA’s ASEAN Green SRI Sukuk originates from Malaysia. Ineligible Projects 4.1.6 For clarification purposes, fossil fuel power generation projects are excluded from the ASEAN GBS. Yes The Issuer has communicated within the ASEAN Green SRI Sukuk Framework that financing of assets shall adhere to outlined Eligible Green SRI Projects criteria, as stipulated within the Chapter 7 of Part 3 of Section B of the Guidelines on Unlisted Capital Market Products under the Lodge and Launch Framework issued by the Securities Commission Malaysia. Fossil fuel projects are excluded from the ASEAN Green SRI Sukuk. Continuous Accessibility to Information 4.2.1 The Issuer of ASEAN Green Bonds must clearly communicate to investors – Yes (i) The environmental sustainability objectives; (ii) The process by which the Issuer determines how the projects fit within the eligible Green Projects categories identified above; and (iii) The related eligibility criteria, including, if applicable, exclusion criteria or any other process applied to identify and manage potentially material environmental and social risks associated with the Green Projects. 4.2.5 4.3.1 4.3.4 4.4.5 Encourage More 4.4.1 The Issuer must make the following publicly available on a website designated by the Issuer at the time of the issuance and throughout the tenure of ASEAN Green Bonds: Comment The Issuer is an entity incorporated in Malaysia. i. ii. iii. PGA has communicated that they plan to further expand its portfolio of renewable energy and other green assets. Processes to determine project fit within the Eligible Green SRI Projects categories have been outlined. This involves consensual decision-making processes between PGA’s designated departments and external environmental specialists. The eligibility criteria for the use of proceeds, as well as the process of evaluation and selection were detailed in PGA’s ASEAN Green SRI Sukuk Framework. Yes The Issuer is committed to disclose information on use of proceeds, project evaluation and selection, as well as management of proceeds annually through the following platform: i. The Issuer will disclose applicable external review reports on its corporate website. Yes The net proceeds from the issuance of the ASEAN Green SRI Sukuk will be deposited in designated accounts to be operated and maintained solely by the Security Agent. The Issuer must also disclose to investors in the documentation for the issuance of the ASEAN Green Bonds the intended types of temporary placement for the balance of unallocated proceeds. The Issuer must provide to investors the annual reporting and the external review on the annual reporting, if any, through a website designated by the Issuer and/or annual reports throughout the tenure of the ASEAN Green Bonds. Yes The Issuer has stated that temporary placement of balances for unallocated proceeds will be placed in highly-liquid and safe permitted investments, where such proceeds will be managed accordingly. Yes The Issuer is committed to disclose information on use of proceeds, project evaluation and selection, as well as management of proceeds annually through the following platform: i. The Issuer will disclose applicable external review reports on its corporate website. Issuers must report to investors at least on an annual basis and encouraged to make more Yes The Issuer is committed to an annual publication on its corporate website and other communication (i) The process for project evaluation; (ii) The use of proceeds; and (iii) External review report on the process (if any). Prior to the issuance of the ASEAN Green Bonds, the Issuer must disclose to investors in the documentation for the issuance of the ASEAN Green Bonds the process for managing the net proceeds from the ASEAN Green Bonds. Pasukhas Green Assets Sdn Bhd (formerly known as Morning Summit Sdn Bhd) 16
  308. Item Frequent Reporting No . Requirement frequent reporting on the use of proceeds until full allocation, and as necessary thereafter in the event of material developments. This should include a list of the projects to which the ASEAN Green Bonds proceeds have been allocated, as well as a brief description of the projects and the amounts allocated and their expected impact. Alignment Comment channels that the Issuer may select information on allocation and impact of the ASEAN Green SRI Sukuk issued. External Review 5.1 Issuers are recommended to appoint external review providers for their ASEAN Green Bonds issuances. Yes RAM was appointed to provide a second party opinion on the Issuer’s ASEAN Green SRI Sukuk Framework. The review covers an assessment of PGA’s ASEAN Green SRI Sukuk Framework against the disclosure requirements of the ASEAN GBS, SRI Sukuk Framework and GBP, as well as sustainability responsibilities of the Issuer. 4.2.4 It is recommended that the Issuer’s process for project evaluation and selection be supported by an external review. Yes The Second Party Opinion review covers project evaluation and selection. 4.3.5 It is recommended that the Issuer’s management of proceeds be supplemented by the use of an auditor, or other third party to verify the internal tracking method and the allocation of funds from the ASEAN Green Bonds proceeds. Yes PGA has committed to appoint an external auditor to verify the proceeds are indeed utilised in accordance with the purpose of the ASEAN Green SRI Sukuk. 4.3.6 Where the Issuer appoints an auditor or other third party to verify the Issuer’s management of proceeds, the Issuer must make the report produced by the auditor or other third party publicly available on a website designated by the Issuer at the time of issuance of the ASEAN Green Bonds. Yes The Issuer has committed to appointing an auditor or third party to verify management of proceeds and to disclose the annual report on its corporate website. 4.4.4 It is recommended that the Issuer’s annual reporting on the use of proceeds be supplemented by a confirmation of such use of proceeds by an external reviewer along with any relevant updates of the external review. Yes PGA has committed to appointing an external assurance provider to independently confirm the accuracy of the reported allocation of proceeds. Pasukhas Green Assets Sdn Bhd (formerly known as Morning Summit Sdn Bhd) 17
  309. APPENDIX 3
  310. APPENDIX 3 – GREEN BOND PRINCIPLES (“GBP”) EXTERNAL REVIEW FORM Green Bond / Green Bond Programme External Review Form Section 1. Basic Information Issuer name: Pasukhas Green Assets Sdn Bhd (formerly known as Morning Summit Sdn Bhd) (“PGA”) Green Bond ISIN or Issuer Green Bond Framework Name, if applicable: Pasukhas Green Assets Sdn Bhd ASEAN Green SRI Sukuk Framework Independent External Review provider’s name: RAM Consultancy Services Sdn Bhd Completion date of this form: 24 October 2018 Publication date of review: - Section 2. Review overview SCOPE OF REVIEW The following may be used or adapted, where appropriate, to summarise the scope of the review. The review assessed the following elements and confirmed their alignment with the GBP: ■ ■ Use of Proceeds Management of Proceeds ■ ■ Process for Project Evaluation and Selection Reporting ROLE(S) OF REVIEW PROVIDER ■ Consultancy (incl. 2nd opinion) ☐ Certification ☐ Verification ☐ Rating ☐ Other (please specify): Note: In case of multiple reviews / different providers, please provide separate forms for each review. EXECUTIVE SUMMARY OF REVIEW and/or LINK TO FULL REVIEW (if applicable) Please refer to the Second Party Opinion on PGA’s ASEAN Green SRI Sukuk Framework. Pasukhas Green Assets Sdn Bhd (formerly known as Morning Summit Sdn Bhd) 19
  311. Section 3 . Detailed review Reviewers are encouraged to provide the information below to the extent possible and use the comment section to explain the scope of their review. 1. USE OF PROCEEDS Overall comment on section (if applicable): The proceeds from the ASEAN Green SRI Sukuk will be used for items relating to the expenses incurred for the acquisitions and constructions of Eligible Green SRI Projects and amounts payable in relation to the ASEAN Green SRI Sukuk Programme, among others. Part of the ASEAN Green SRI Sukuk proceeds from the first tranche shall be utilised towards the refinancing of a facility obtained for the construction of the Hydropower Plant. Use of proceeds categories as per GBP: ☒ Renewable energy ☐ Energy efficiency ☐ Pollution prevention and control ☐ Environmentally sustainable management of living natural resources and land use ☐ Terrestrial and aquatic biodiversity conservation ☐ Clean transportation ☐ Sustainable water and wastewater management ☐ Climate change adaptation ☐ Eco-efficient and/or circular economy adapted products, production technologies and processes ☐ Green buildings ☒ Unknown at issuance but currently expected to conform with GBP categories, or other eligible areas not yet stated in GBP ☐ Other (please specify): If applicable please specify the environmental taxonomy, if other than GBP: 2. PROCESS FOR PROJECT EVALUATION AND SELECTION Overall comment on section (if applicable): The Issuer’s process for project evaluation & selection includes having identified projects evaluated and approved by parties including a treasury department, relevant business units and relevant environmental specialists. Evaluation and selection ☒ ☐ ☒ Credentials on the issuer’s environmental sustainability objectives Defined and transparent criteria for projects eligible for Green Bond proceeds Summary criteria for project evaluation and selection publicly available ☐ ☐ ☐ Documented process to determine that projects fit within defined categories Documented process to identify and manage potential ESG risks associated with the project Other (please specify): Pasukhas Green Assets Sdn Bhd (formerly known as Morning Summit Sdn Bhd) 20
  312. Information on Responsibilities and Accountability ☒ ☐ Evaluation / Selection criteria subject to external advice or verification Other (please specify): ☐ In-house assessment 3. MANAGEMENT OF PROCEEDS Overall comment on section (if applicable): The process for management of proceeds is in line with expected norms for green bonds/sukuk. Sukuk proceeds will be placed in a designated disbursement account that will be operated and maintained by the Security Agent. Unutilised funds within designated accounts may be placed in highly-liquid and safe permitted investments. Additionally, external auditors will be engaged to provide the verification exercise for the management of proceeds. Tracking of proceeds: ☒ Green Bond proceeds segregated or tracked by the issuer in an appropriate manner ☒ Disclosure of intended types of temporary investment instruments for unallocated proceeds ☐ Other (please specify): Additional disclosure: ☐ Allocations to future investments only ☐ Allocations to both existing and future investments ☐ Allocation to individual disbursements ☐ Allocation to a portfolio of disbursements ☒ Disclosure of portfolio balance of unallocated proceeds ☐ Other (please specify): 4. REPORTING Overall comment on section (if applicable): The process for reporting is in line with expected norms for green bonds/sukuk. The Issuer will disclose online the information as follows: • • • • • • • • Brief description of the Eligible Green SRI Projects The original amount earmarked for the Eligible Green SRI Projects The amount utilised for the Eligible Green SRI Projects The total unutilised amount and placements of such amounts – invested, pending utilisation, or uninvested Installed capacity of the Hydropower Plant (MW) Annual electricity generated from the Hydropower Plant (MWh) Impact objectives from the Eligible Green SRI Projects, where feasible and to the extent possible Impacts of the Eligible Green SRI Projects financed, including installed capacity of the projects, annual electricity generated (MWh), and other impacts indicators that are relevant to the type of green assets Use of proceeds reporting: ☐ Project-by-project ☒ On a project portfolio basis ☐ Linkage to individual bond(s) ☐ Other (please specify): Information reported: Pasukhas Green Assets Sdn Bhd (formerly known as Morning Summit Sdn Bhd) 21
  313. ☒ Allocated amounts ☐ Green Bond financed share of total investment ☐ Semi-annual ☐ Other (please specify): Frequency: ☒ Annual ☐ Other (please specify): Impact reporting: ☐ Project-by-project ☒ On a project portfolio basis ☐ Linkage to individual bond(s) ☐ Other (please specify): ☐ Semi-annual ☐ GHG Emissions / Savings ☐ Energy Savings ☐ Decrease in water use ☒ Other ESG indicators (please specify): Impacts of the Eligible Green SRI Projects financed, including installed capacity of the projects, annual electricity generated (MWh), and other impacts indicators that are relevant to the type of green assets Frequency: ☒ Annual ☐ Other (please specify): Information reported (expected or ex-post): Means of Disclosure ☐ Information published in financial report ☐ Information published in sustainability report ☐ Information published in ad hoc documents ☒ Other (please specify): Corporate Website ☐ Reporting reviewed (if yes, please specify which parts of the reporting are subject to external review): Where appropriate, please specify name and date of publication in the useful links section. USEFUL LINKS (e.g. to review provider methodology or credentials, to issuer’s documentation, etc.) Corporate website – https://www.pasukhasgroup.com/ SPECIFY OTHER EXTERNAL REVIEWS AVAILABLE, IF APPROPRIATE Type(s) of Review provided: ☐ Second Party Opinion ☐ Certification ☐ Verification ☐ Scoring/Rating ☐ Other (please specify): Review provider(s): Date of publication: ABOUT ROLE(S) OF REVIEW PROVIDERS AS DEFINED BY THE GBP Pasukhas Green Assets Sdn Bhd (formerly known as Morning Summit Sdn Bhd) 22
  314. 1 . Second Party Opinion: An institution with environmental expertise, that is independent from the issuer may issue a Second Party Opinion. The institution should be independent from the issuer’s adviser for its Green Bond framework, or appropriate procedures, such as information barriers, will have been implemented within the institution to ensure the independence of the Second Party Opinion. It normally entails an assessment of the alignment with the Green Bond Principles. In particular, it can include an assessment of the issuer’s overarching objectives, strategy, policy and/or processes relating to environmental sustainability, and an evaluation of the environmental features of the type of projects intended for the Use of Proceeds. 2. Verification: An issuer can obtain independent verification against a designated set of criteria, typically pertaining to business processes and/or environmental criteria. Verification may focus on alignment with internal or external standards or claims made by the issuer. Also, evaluation of the environmentally sustainable features of underlying assets may be termed verification and may reference external criteria. Assurance or attestation regarding an issuer’s internal tracking method for use of proceeds, allocation of funds from Green Bond proceeds, statement of environmental impact or alignment of reporting with the GBP, may also be termed verification. 3. Certification: An issuer can have its Green Bond or associated Green Bond framework or Use of Proceeds certified against a recognised external green standard or label. A standard or label defines specific criteria, and alignment with such criteria is normally tested by qualified, accredited third parties, which may verify consistency with the certification criteria. 4. Green Bond Scoring/Rating: An issuer can have its Green Bond, associated Green Bond framework or a key feature such as Use of Proceeds evaluated or assessed by qualified third parties, such as specialised research providers or rating agencies, according to an established scoring/rating methodology. The output may include a focus on environmental performance data, the process relative to the GBP, or another benchmark, such as a 2degree climate change scenario. Such scoring/rating is distinct from credit ratings, which may nonetheless reflect material environmental risks. Pasukhas Green Assets Sdn Bhd (formerly known as Morning Summit Sdn Bhd) 23
  315. About RAMC RAMC is a provider of sustainability services and environment , social and governance (ESG) analytics. Incorporated on 31 May 2000 it is as a wholly-owned subsidiary of RAM Holdings Berhad (RAM Group). RAMC is the first ASEAN-based provider of sustainability ratings and second opinions and has the distinction of being the first Registered Observer of the International Capital Market Associations’ Green Bond Principles, Social Bond Principles and Sustainability Bond Guidelines in ASEAN. For further details, please refer to https://www.ram.com.my/sustainability About RAM Group The RAM Group is a leading provider of independent credit ratings, research, training, risk analysis, bond pricing and credit information. Formerly known as Rating Agency Malaysia Berhad, RAM Group was established in November 1990 as a catalyst for the domestic debt capital market and as the nation’s first credit rating agency. RAM Group shareholders comprise S&P Global Asian Holdings Pte Ltd, Fitch Ratings Limited and key financial institutions. On 1 July 2007, its rating operations were novated to RAM Rating Services Berhad (RAM Ratings). RAM Ratings is a wholly owned subsidiary of RAM Group. RAM Ratings is the leading and largest credit rating agency in Malaysia and ASEAN. Established in 1990 by the central bank of Malaysia as part of the “institutional infrastructure” to support the development of Malaysia’s bond market, RAM Ratings have rated close to USD350 billion of bonds issued by over 500 entities based in Malaysia and 12 other countries. Its rating portfolio encompasses corporates, sovereign nations, financial institutions, insurance companies, project finance and structured finance obligations. RAM Ratings is also the world’s leading rating agency for securities issued under Islamic principles, or sukuk. RAM Ratings’ experience and contributions in the fast-growing sukuk market has won numerous awards, including the Best Rating Agency (South East Asia 2017) by CPI Financial and the Best Islamic Rating Agency award in 2016 by Islamic Finance News. Accredited by the Tokyo Stock Exchange for listings on the Japanese Pro-Bond Market, RAM Ratings also offers ratings on the ASEAN and global rating scales, in addition to the Malaysian national scale. On 26 May 2016, RAM Ratings joined the line-up of pioneer credit rating agency signatories to the United Nations-supported Principles for Responsible Investment’s Statement on ESG in Credit Ratings. The Statement on ESG in Credit Ratings is a way for RAM Ratings to communicate its commitment to a more systematic and transparent incorporation of ESG into credit ratings and analysis. The latest addition to the RAM Group, RAM Solutions Sdn Bhd, was founded in 2016 and provides independent credit opinions on ventures listed on a multi-bank, web-based platform known as the Investment Account Platform (IAP). As an associate of RAM Holdings, Bond Pricing Agency Malaysia Sdn Bhd is the sole provider of bond-pricing and valuation data on the Malaysian bond market. Another associate, RAM Credit Information Sdn Bhd, is a leading provider of online credit and business information. The firm also provides model-based credit scores for a large portfolio of small and medium-sized companies. The RAM Group also offers capital markets professional training, educational courses and conferences. For further details, please refer to https://www.ram.com.my Pasukhas Green Assets Sdn Bhd (formerly known as Morning Summit Sdn Bhd) 24
  316. Disclaimer RAM Consultancy receives compensation for its opinion services which are normally paid by the issuers of Green Bond /SRI Sukuk. The receipt of this compensation has no influence on RAM Consultancy’s analytical process, diligence and professional opinion. In all instances, RAM Consultancy is committed to preserving the objectivity, integrity and independence of its opinion. RAM Consultancy is not aware of any conflict of interest relating to the opinion it provides in this report. RAM Consultancy will adequately disclose all related information in the report if there are such instances. In preparing this report, RAM Consultancy relied on information provided by the issuer. Therefore, RAM Consultancy does not warrant that the information contained herein is complete, accurate or up to date. This report explains why the proposed Green Bond/SRI Sukuk issuance is considered sustainable and responsible. The report is prepared for consumption of the readers of our Second Party Opinion and RAM Consultancy will not be liable for the substance of the opinion and/or any liability for damage arising from the use of our Second Party Opinion and/or the information contained in the report. Our report is not a recommendation to buy or sell securities. It is also not a credit assessment on the proposed Green Bond/SRI Sukuk. This Second Party Opinion may not be reproduced, transmitted or published in any form or by any means without the prior written permission of RAM Consultancy. All rights are reserved by RAM Consultancy. Published by RAM Consultancy Services Sdn Bhd Reproduction or transmission in any form is prohibited except by permission from RAM Consultancy Services Sdn Bhd.  Copyright 2019 by RAM Consultancy Services Sdn Bhd RAM Consultancy Services Sdn Bhd (515578-M) Suite 20.01, Level 20 The Garden South Tower Mid Valley City, Lingkaran Syed Putra 59200 Kuala Lumpur T: (603) 7628 1000 / (603) 2299 1000 F: (603) 2711 1701 E: sustainability@ram.com.my W: www.ram.com.my
  317. ISSUER PASUKHAS GREEN ASSETS SDN BHD (formerly known as Morning Summit Sdn Bhd) 10th Floor, Menara Hap Seng No. 1 & 3, Jalan P. Ramlee 50250 Kuala Lumpur PRINCIPAL ADVISER, LEAD ARRANGER AND LEAD MANAGER RHB INVESTMENT BANK BERHAD Level 10, Tower One RHB Centre Jalan Tun Razak 50400 Kuala Lumpur SHARIAH ADVISER RHB ISLAMIC BANK BERHAD Level 10, Tower One, RHB Centre Jalan Tun Razak 50400 Kuala Lumpur SOLICITORS TO THE PRINCIPAL ADVISER AND LEAD ARRANGER ADNAN SUNDRA & LOW Level 11, Menara Olympia No.8, Jalan Raja Chulan 50200 Kuala Lumpur FACILITY AGENT SUKUK TRUSTEE RHB INVESTMENT BANK BERHAD Level 10, Tower One, RHB Centre Jalan Tun Razak 50400 Kuala Lumpur MALAYSIAN TRUSTEES BERHAD Level 10, Tower One, RHB Centre Jalan Tun Razak 50400 Kuala Lumpur 100