Pengerang LNG (Two) Sdn Bhd (PLNG2) IMTN Sukuk (Petronas Gas) RM3 Billion - Information Memorandum

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1. Strictly Private & Confidential PENGERANG LNG (TWO) SDN. BHD. (Registration No. 201201012474 (985991-U)) INFORMATION MEMORANDUM IN RELATION TO THE ISSUANCE OF ISLAMIC MEDIUM TERM NOTES (“SUKUK MURABAHAH”) PURSUANT TO AN ISLAMIC MEDIUM TERM NOTES ISSUANCE PROGRAMME (“SUKUK MURABAHAH PROGRAMME”) OF UP TO RM3,000,000,000 IN NOMINAL VALUE BASED ON THE SHARIAH PRINCIPLE OF MURABAHAH (VIA TAWARRUQ ARRANGEMENT) LEAD ARRANGER AND LEAD MANAGER OF THE SUKUK MURABAHAH PROGRAMME CIMB INVESTMENT BANK BERHAD (REGISTRATION NO. 197401001266 (18417-M)) This Information Memorandum is dated 18 September 2020
2. STRICTLY CONFIDENTIAL – DO NOT FORWARD ATTACHED IS AN ELECTRONIC COPY OF THE INFORMATION MEMORANDUM DATED 18 SEPTEMBER 2020 (“INFORMATION MEMORANDUM”), IN RELATION TO THE ISSUANCE OF ISLAMIC MEDIUM TERM NOTES (“SUKUK MURABAHAH”) PURSUANT TO AN ISLAMIC MEDIUM TERM NOTES ISSUANCE PROGRAMME OF UP TO RM3,000,000,000 IN NOMINAL VALUE UNDER THE SHARIAH PRINCIPLE OF MURABAHAH (VIA TAWARRUQ ARRANGEMENT) (“SUKUK MURABAHAH PROGRAMME”) BY PENGERANG LNG (TWO) SDN. BHD. (REGISTRATION NO. 201201012474 (985991-U)) (“PLNG2” OR “ISSUER”). BY OPENING AND ACCEPTING THIS ELECTRONIC TRANSMISSION CONTAINING THE INFORMATION MEMORANDUM, THE RECIPIENT AGREES TO BE BOUND BY ALL THE TERMS AND CONDITIONS BELOW. IF YOU DO NOT AGREE TO ANY OF THE TERMS AND CONDITIONS, PLEASE DELETE THIS ELECTRONIC TRANSMISSION IMMEDIATELY. THE INFORMATION MEMORANDUM IS STRICTLY CONFIDENTIAL AND ANY DISTRIBUTION OF THE INFORMATION MEMORANDUM WITHOUT THE PRIOR WRITTEN CONSENT OF THE ISSUER, THE LEAD ARRANGER/ LEAD MANAGER (THE “LA/LM”) IS UNAUTHORISED. THE PERSON RECEIVING THIS ELECTRONIC TRANSMISSION FROM THE ISSUER, THE LA/LM AND ITS/THEIR RESPECTIVE AGENTS IS PROHIBITED FROM DISCLOSING THE INFORMATION MEMORANDUM, ALTERING THE CONTENTS OF THE INFORMATION MEMORANDUM OR FORWARDING A COPY OF THE INFORMATION MEMORANDUM OR ANY PORTION THEREOF BY ELECTRONIC MAIL OR OTHERWISE TO ANY PERSON. THE INFORMATION MEMORANDUM IS NOT A PROSPECTUS AND HAS NOT BEEN REGISTERED NOR WILL IT BE REGISTERED AS A PROSPECTUS UNDER THE CAPITAL MARKETS AND SERVICES ACT, 2007 AS AMENDED FROM TIME TO TIME (“CMSA”). AT THE POINT OF ISSUANCE, THE SUKUK MURABAHAH MAY ONLY BE OFFERED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF DIRECTLY OR INDIRECTLY TO A PERSON TO WHOM AN OFFER FOR SUBSCRIPTION OR PURCHASE OF, OR INVITATION TO SUBSCRIBE FOR OR PURCHASE THE SUKUK MURABAHAH MAY BE MADE AND TO WHOM THE SUKUK MURABAHAH ARE ISSUED WOULD FALL WITHIN SECTION 2(6) OF THE COMPANIES ACT 2016 AS AMENDED FROM TIME TO TIME (“COMPANIES ACT”), PART I OF SCHEDULE 6, AND PART I OF SCHEDULE 7, READ TOGETHER WITH SCHEDULE 8 AND SCHEDULE 9 (OR SECTION 257(3)) OF THE CMSA, SUBJECT TO THE APPLICABLE LAWS, ORDER, REGULATION OR OFFICIAL DIRECTIVE OF BANK NEGARA MALAYSIA (“BNM”) AND/OR THE SECURITIES COMMISSION MALAYSIA (“SC”) FROM TIME TO TIME (INCLUDING ANY AMENDMENTS, SUPPLEMENTALS AND VARIATION THERETO). THEREAFTER, THE SUKUK MURABAHAH MAY ONLY BE OFFERED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF DIRECTLY OR INDIRECTLY TO A PERSON TO WHOM AN OFFER FOR SUBSCRIPTION OR PURCHASE OF, OR INVITATION TO SUBSCRIBE FOR OR PURCHASE THE SUKUK MURABAHAH MAY BE MADE WOULD FALL WITHIN SECTION 2(6) OF THE COMPANIES ACT, PART I OF SCHEDULE 6 OF THE CMSA, READ TOGETHER WITH SCHEDULE 8 AND SCHEDULE 9 (OR SECTION 257(3)) OF THE CMSA, SUBJECT TO THE APPLICABLE LAWS, ORDER, REGULATION OR OFFICIAL DIRECTIVE OF BNM AND/OR THE SC FROM TIME TO TIME (INCLUDING ANY AMENDMENTS, SUPPLEMENTALS AND VARIATION THERETO).
3. THIS TRANSMISSION SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THE SUKUK MURABAHAH IN ANY JURISDICTION IN WHICH SUCH OFFER , SOLICITATION OR SALE WOULD BE UNLAWFUL UNDER THE LAWS OF SUCH JURISDICTIONS. TRANSMISSION OVER THE INTERNET MAY BE SUBJECT TO INTERRUPTIONS, TRANSMISSION BLACKOUT, DELAYED TRANSMISSION DUE TO INTERNET TRAFFIC, INCORRECT DATA TRANSMISSION DUE TO THE PUBLIC NATURE OF THE INTERNET, DATA CORRUPTION, INTERCEPTION, UNAUTHORISED AMENDMENT, TAMPERING, VIRUSES OR OTHER TECHNICAL, MECHANICAL OR SYSTEMIC RISKS ASSOCIATED WITH INTERNET TRANSMISSIONS. THE ISSUER, THE LA/LM OR ITS/THEIR RESPECTIVE AGENTS HAVE NOT ACCEPTED AND WILL NOT ACCEPT ANY RESPONSIBILITY AND/OR LIABILITY FOR ANY SUCH INTERRUPTION, TRANSMISSION BLACKOUT, DELAYED TRANSMISSION, INCORRECT DATA TRANSMISSION, DATA CORRUPTION, INTERCEPTION, AMENDMENT, TAMPERING OR VIRUSES OR ANY CONSEQUENCES THEREOF WHICH MAY RESULT IN A DIFFERENCE BETWEEN THE INFORMATION MEMORANDUM DISTRIBUTED TO YOU IN ELECTRONIC FORMAT AND THE HARD COPY VERSION AVAILABLE TO YOU ON REQUEST FROM US. 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 PROVIDED IN THE INFORMATION MEMORANDUM. ii
4. IMPORTANT NOTICE RESPONSIBILITY STATEMENTS This information memorandum dated 18 September 2020 (“Information Memorandum”) has been approved by the directors of Pengerang LNG (Two) Sdn. Bhd. (Registration No. 201201012474 (985991-U)) (“PLNG2” or the “Issuer”) and they collectively and individually accept full responsibility for the accuracy of the information given and confirm that, after having made all reasonable enquiries in the circumstances, and to the best of their knowledge, information and belief, there are no false or misleading statements or other material facts the omission of which would make any statement in this Information Memorandum false or misleading and that there are no material omissions in this Information Memorandum. The opinions and intentions expressed in this Information Memorandum in relation to the Issuer are honestly held, have been reached after considering all relevant circumstances and are based on reasonable assumptions and there are no other facts in relation to the Issuer or the Sukuk Murabahah Programme (as defined in this Information Memorandum) the omission of which would, in the context of any issuance of Sukuk Murabahah (as defined in this Information Memorandum), make any statement in this Information Memorandum misleading in any material respect and all reasonable enquiries have been made by the Issuer to ascertain such facts and to verify the accuracy of all such information and statements. No representation or warranty, expressed or implied, is made such that the information remains unchanged in any respect as of any date or dates after those stated herein, with respect to any matter concerning the Issuer or any statement made in this Information Memorandum. The Issuer and its respective board of directors accept full responsibility for the information contained in this Information Memorandum. GENERAL STATEMENTS OF DISCLAIMER This Information Memorandum is provided on a confidential basis to potential investors for the sole purpose of assisting them to decide whether to subscribe for or purchase the Islamic medium term notes (“Sukuk Murabahah”) issued pursuant to an Islamic medium term notes issuance programme of up to RM3,000,000,000 in nominal value by the Issuer based on the Shariah principle of Murabahah (via Tawarruq arrangement) ("Sukuk Murabahah Programme"). At the point of issuance of the Sukuk Murabahah, the Sukuk Murabahah may only be offered, sold, transferred or otherwise disposed of, directly or indirectly, to a person to whom an offer for subscription or purchase of, or invitation to subscribe for or purchase the Sukuk Murabahah may be made and to whom the Sukuk Murabahah are issued would fall within Section 2(6) of the Companies Act 2016 (“Companies Act”), Part I of Schedule 6 and Part I of Schedule 7 of the CMSA read together with Schedule 8 and Schedule 9 (or section 257(3)) of the CMSA, subject to the applicable laws, order, regulation or official directive of BNM and/or the SC from time to time (including any amendments, supplementals and variation thereto). Thereafter, the Sukuk Murabahah may only be offered, sold, transferred or otherwise disposed of, directly or indirectly, to a person to whom an offer for subscription or purchase of, or invitation to subscribe for or purchase the Sukuk Murabahah would fall within Section 2(6) of the Companies Act, Part I of Schedule 6 of the CMSA read together with Schedule 8 and Schedule 9 (or section 257(3)) of the CMSA, subject to the applicable laws, order, regulation or official directive of BNM and/or the SC from time to time (including any amendments, supplementals and variation thereto). i
5. No application is being made to list the Sukuk Murabahah on any stock exchange , nor is any such application contemplated. This Information Memorandum shall not be, in whole or in part, reproduced or used for any other purpose, or shown, given, copied to or filed with any other person including, without limitation, any government or regulatory authority except with the prior written consent of the Issuer or as required under Malaysian laws, regulations or guidelines. The Issuer has authorised CIMB Investment Bank Berhad (Registration No. 197401001266 (18417-M)) (“CIMB”) as the Lead Arranger and Lead Manager of the Sukuk Murabahah Programme (the “LA/LM”), to distribute this Information Memorandum. None of the information or data contained in this Information Memorandum has been independently verified by the LA/LM. Accordingly, no representation, warranty or undertaking, express or implied, is given or assumed by the LA/LM as to the authenticity, origin, validity, accuracy or completeness of such information and data or that the information or data remains unchanged in any respect after the relevant date shown in this Information Memorandum. The LA/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 Sukuk Murabahah Programme and shall not be liable for any consequences of reliance on any of the information or data in this Information Memorandum, except as provided by Malaysian laws. No person is authorised to give any information or data or to make any representation or warranty other than as contained in this Information Memorandum and, if given or made, any such information, data, representation or warranty must not be relied upon as having been authorised by the Issuer, the LA/LM or any other person. It is to be noted that although the Issuer has sought the advice of CIMB Islamic Bank Berhad (“Shariah Adviser”) with regards to the conformity of the Sukuk Murabahah and the structure and mechanism as described in the Principal Terms and Conditions of the Sukuk Murabahah Programme with Shariah principles, no representation, warranty or undertaking, express or implied, is given by the Issuer as to Shariah permissibility of the structure or the issue and trading of the Sukuk Murabahah and the Issuer, the LA/LM and the Shariah Adviser shall not be liable for any consequences of such reliance and/or assumption of any such compliance. Each recipient should perform and is deemed to have consulted its own professional advisers and obtained independent Shariah advice on the Shariah permissibility of the structure or the issue and trading of the Sukuk Murabahah. Any non-compliance with Shariah principles may have legal consequences. The Sukuk Murabahah Programme has been accorded a preliminary credit rating of AAAIS by Malaysian Rating Corporation Berhad. A credit rating is not a recommendation to buy, sell or hold securities and may be subject to revision, suspension or withdrawal at any time by the credit rating agency. This Information Memorandum has not been and will not be made to comply with the laws of any country (including its territories, all jurisdictions within that country and any possession areas subject to its jurisdiction), other than Malaysia (“Foreign Jurisdiction”), and has not been and will not be lodged, registered or approved pursuant to or under any legislation (or with or by any regulatory authorities or other relevant bodies) of any Foreign Jurisdiction and it does not constitute an issue or offer or sale of, or an invitation to subscribe for or purchase of the Sukuk Murabahah or any other securities of any kind by any party in any Foreign Jurisdiction. ii
6. The distribution or possession of this Information Memorandum in or from certain jurisdictions may be restricted or prohibited by law . Each recipient is required by the Issuer and the LA/LM to seek appropriate professional advice regarding, and to observe, any such restriction or prohibition. Neither the Issuer nor the LA/LM accepts any responsibility or liability to any person in relation to the distribution or possession of this Information Memorandum in or from any such Foreign Jurisdiction. This Information Memorandum is not and is not intended to be a prospectus and has not been registered or lodged under the laws of Malaysia or any Foreign Jurisdiction as a prospectus. Unless otherwise specified in this Information Memorandum, the information contained in this Information Memorandum is current as at the date hereof. 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 Sukuk Murabahah under all jurisdictions to which the recipient is subject, (c) the recipient has complied with all applicable laws in connection with such subscription or purchase of the Sukuk Murabahah, (d) the Issuer, the LA/LM and their respective affiliates, directors, officers, employees, agents and professional advisers are not and will not be in breach of the laws of any jurisdiction to which the recipient is subject as a result of such subscription or purchase of the Sukuk Murabahah, and they shall not have any responsibility or liability in the event that such subscription or purchase of the Sukuk Murabahah is or shall become unlawful, unenforceable, voidable or void, (e) it is aware that the Sukuk Murabahah 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 Sukuk Murabahah, and is able and is prepared to bear the economic and financial risks of investing in or holding the Sukuk Murabahah, (g) it is subscribing for or accepting the Sukuk Murabahah for its own account, (h) it is a person falling within one of the categories of persons specified in Section 2(6) of the Companies Act, Part I of Schedule 6 and Part I of Schedule 7 of the CMSA read together with Schedule 8 and Schedule 9 (or Section 257(3)) of the CMSA, subject to the applicable laws, order, regulation or official directive of BNM and/or the SC from time to time (including any amendments, supplementals and variation thereto) at issuance and Section 2(6) of the Companies Act, Part I of Schedule 6 of the CMSA, read together with Schedule 8 and Schedule 9 (or Section 257(3)) of the CMSA, subject to the applicable laws, order, regulation or official directive of BNM and/or the SC from time to time (including any amendments, supplementals and variation thereto) thereafter and (i) the making of this disclosure and general statement of disclaimer does not impose any continuing duty to update or provide any information from time to time or at any time except as specifically provided by law. 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, issue or invitation to subscribe or purchase of the Sukuk Murabahah in relation to any recipient who does not fall within item (h) above. This Information Memorandum or any document delivered under or in relation to the issue, offer and sale of the Sukuk Murabahah is not, and should not be construed as, a recommendation by the Issuer, the LA/LM or any other party to the recipient to subscribe for or purchase the Sukuk Murabahah. This Information Memorandum is not a substitute for, and should not be regarded as, an independent evaluation and analysis and does not purport to be all inclusive. Each issue of the Sukuk Murabahah will carry different risks and all potential investors are strongly encouraged to evaluate each issue on its own iii
7. merit . Each recipient should perform and is deemed to have made its own independent investigation and analysis of the Issuer, the Sukuk Murabahah and all other relevant matters, and each recipient should consult its own professional advisers. Neither the delivery of this Information Memorandum nor the offering, sale or delivery of any Sukuk Murabahah shall in any circumstance imply that the information contained herein concerning the Issuer is correct at any time subsequent to the date hereof or that any other information supplied in connection with the Sukuk Murabahah Programme is correct as of any time subsequent to the date indicated in the document containing the same. The LA/LM expressly does not undertake to review the financial condition or affairs of the Issuer during the life of the Sukuk Murabahah or to advise any investor in the Sukuk Murabahah of any information coming to their attention. The recipient of this Information Memorandum or the potential investors should review, inter alia, the most recently published documents incorporated by reference into this Information Memorandum when deciding whether or not to purchase any Sukuk Murabahah. 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 in which the Issuer 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. Certain statements, information, estimates and reports in this Information Memorandum are based on historical data, which may not be reflective of the future, and others are forward-looking in nature and are subject to risks and uncertainties, including, among others, the Issuer’s business strategy and expectation concerning its position in the Malaysian economy, future operations, growth prospects and industry prospects. While the respective Board of the Issuer believes that these forward-looking statements are reasonable, these 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 all this, the inclusion of forward-looking statements in this Information Memorandum should not be regarded as a representation or warranty by the Issuer that the plans and objectives of the Issuer will be achieved. All discrepancies (if any) in the tables included in this Information Memorandum between the listed amounts and totals thereof are due to, and certain numbers appearing in this Information Memorandum are shown after, rounding. Where this Information Memorandum contains or refers to a summary of a document or agreement, the summary is not meant to be exhaustive. The contents of the summary may be subject to some other provisions in the relevant document or agreement. STATEMENTS OF DISCLAIMER BY THE SECURITIES COMMISSION MALAYSIA (“SC”) In accordance with the CMSA, a copy of this Information Memorandum will be deposited with the SC, who takes no responsibility for its contents. The lodgement pursuant to the SC’s LOLA Guidelines (as defined herein) in relation to the proposed issuance of the Sukuk Murabahah has been made with the SC on 17 September 2020 pursuant to the Guidelines on Unlisted Capital Market Products under the Lodge and Launch Framework issued by the SC on 9 March 2015 (updated and iv
8. effective on 15 June 2015 and revised on 30 June 2020 ) (“LOLA Guidelines”) (the “Lodgement”). The issue, offer or invitation in relation to the Sukuk Murabahah in this Information Memorandum or otherwise is subject to the Lodgement and the fulfilment of various conditions precedent including without limitation the execution of the agreements relating to the Sukuk Murabahah Programme. Each recipient of this Information Memorandum acknowledges and agrees that the Lodgement shall not be taken to indicate that the SC recommends the subscription or purchase of the Sukuk Murabahah. The SC shall not be liable for any non-disclosure on the part of the Issuer and assumes no responsibility for the correctness or completeness of any statements made or opinions or reports expressed or contained in this Information Memorandum. EACH ISSUANCE OF THE SUKUK MURABAHAH WILL CARRY DIFFERENT RISKS AND ALL INVESTORS SHOULD EVALUATE EACH ISSUANCE OF THE SUKUK MURABAHAH BASED ON ITS MERITS AND RISKS. INVESTORS SHOULD RELY ON THEIR OWN EVALUATION TO ASSESS THE MERITS AND RISKS OF THEIR INVESTMENT IN THE SUKUK MURABAHAH. IT IS RECOMMENDED THAT PROSPECTIVE INVESTORS CONSULT THEIR FINANCIAL, LEGAL AND OTHER ADVISERS BEFORE PURCHASING OR SUBSCRIBING FOR THE SUKUK MURABAHAH. CONFIDENTIALITY To the recipient of this Information Memorandum: This Information Memorandum and its contents are strictly confidential and are made strictly on the basis that it will remain confidential. Accordingly, this Information Memorandum and its contents, or any information, which is made available in connection with any further enquiries, must be held in complete confidence. In the event that there is any contravention of this confidentiality undertaking or there is a reasonable likelihood that this confidentiality undertaking may be contravened, the Issuer and/or the LA/LM may, at its discretion, apply for any remedy available to the Issuer and/or the LA/LM whether at law or equity, including without limitation, injunctions. Each of the Issuer and/or the LA/LM is entitled to fully recover from the contravening party all costs, expenses and losses incurred and/or suffered. For the avoidance of doubt, it is hereby deemed that this confidentiality undertaking shall be imposed upon the recipient, the recipient’s professional advisors, directors, employees and any other persons concerned with the Sukuk Murabahah and the Sukuk Murabahah Programme. The recipient must return this Information Memorandum and all reproductions thereof whether in whole or in part and any other information in connection therewith to the LA/LM promptly upon the LA’s request, unless that recipient provides proof of a written undertaking satisfactory to the LA/LM with respect to destroying these documents as soon as reasonably practicable after the said request from the LA/LM. v
9. DOCUMENTS INCORPORATED BY REFERENCE The following documents issued from time to time after the date hereof shall be deemed to be incorporated in , and to form part of, this Information Memorandum:(i) the most recently published audited annual financial statements and, if published later, the most recently published interim financial statements of the Issuer (if any); (ii) 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; and (iii) any pricing supplements prepared and issued in relation to an issuance of the Sukuk Murabahah under the Sukuk Murabahah Programme. THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK vi
10. TABLE OF CONTENTS DEFINITIONS .................................................................................................................................. 1 SECTION 1.0 EXECUTIVE SUMMARY .................................................................................. 4 SECTION 2.0 PRINCIPAL TERMS AND CONDITIONS ...................................................... 7 SECTION 3.0 CORPORATE INFORMATION ON THE ISSUER ..................................... 39 SECTION 4.0 BUSINESS OVERVIEW OF THE ISSUER.................................................. 50 SECTION 5.0 INVESTMENT CONSIDERATIONS ............................................................. 65 SECTION 6.0 INDUSTRY OVERVIEW AND FUTURE PROSPECTS ............................. 73 SECTION 7.0 OTHER MATERIAL INFORMATION ........................................................... 81 APPENDIX I AUDITED FINANCIAL STATEMENTS OF THE ISSUER FOR THE FYE2019 APPENDIX II EXTRACT OF THE BASE CASE CASHFLOW PROJECTIONS APPENDIX III SUMMARY OF THE ASSUMPTIONS OF THE BASE CASE CASHFLOW PROJECTIONS APPENDIX IV SITE MAP OF THE RGTP PROJECT
11. DEFINITIONS In this Information Memorandum , the following words or expressions shall have the following meanings except where the context otherwise requires: BNM - means Bank Negara Malaysia. Board - means the Board of Directors. Btu - means British Thermal Unit, being the amount of heat required to raise the temperature of one (1) avoirdupois pound of pure water from fifty nine degrees Fahrenheit (59°F) to sixty degrees Fahrenheit (60°F) at an absolute pressure of fourteen and six hundred ninety-six thousand (14.696000) pound per square inch absolute (psia). Bursa Malaysia - means Bursa Malaysia Securities Berhad (Registration No. 200301033577 (635998-W)). CIMB - means CIMB Investment Bank Berhad (Registration No. 197401001266 (18417-M)). CMSA - means Capital Markets and Services Act 2007 (as amended from time to time). Companies Act - means Companies Act 2016 (as amended from time to time). Designated Account - means the Shariah-compliant finance service reserve account (“FSRA”). DGB - means Dialog Group Berhad (Registration No. 198901001388 (178694-V)). DGB Group - means DGB and its group of companies. DIALOG - means Dialog LNG Sdn. Bhd. (Registration No. 201401027828 (1103914-P)). Facility Agent - means CIMB Investment Bank Berhad (Registration No. 197401001266 (18417-M)). FYE - means the financial year ending/ended, as the case may be. GJ - Gigajoule. GUCD - means Gassing Up Cooling Down. Jetty Usage Agreement - means the Jetty Usage Agreement dated 28 February 2017 entered into between PT2SB and PLNG2. km - means kilometre. LA/LM - means CIMB. LPD - means the latest practicable date being 1 September 2020.
12. LNG - means liquefied natural gas . m3 - means cubic metre. MARC - means Malaysian Rating Corporation Berhad (Registration No. 199501035601 (364803-V)) as the credit rating agency. MMBtu - means one million Btu. MMscfd - means one million standard cubic feet per day. MTPA - means one million tonnes per annum. PDT - means Permodalan Darul Ta’zim Sdn Bhd (Registration No. 199401041837 (327525-V)). PEGT - means PETRONAS Energy & Gas Trading Sdn. Bhd. (Registration No. 201701046965 (1261141-H)). PETRONAS - means Petroliam Nasional Berhad (PETRONAS) (Registration No. 197401002911 (20076-K)). PETRONAS Group - means PETRONAS and its group of companies. PGB - means PETRONAS Gas 198301006447 (101671-H)). PGU - means Peninsular Gas Utilisation, the 2,623km gas pipeline network which sends gas for the consumption of power plants and other industry customers across Peninsular Malaysia. PLNG2 or Issuer - means Pengerang LNG (Two) Sdn. Bhd. (Registration No. 201201012474 (985991-U)). PT2SB - means Pengerang Terminals (Two) Sdn. Bhd. (Registration No. 201201004988 (978513-A)). RGTP - means an onshore LNG Regasification Terminal in Pengerang, Johor. RAPID - means the Refinery And Petrochemical Development project in Pengerang, Johor. Ringgit/RM and sen - means Ringgit Malaysia and sen respectively, being the lawful currency of Malaysia. S.S.I - means the State Secretary, Johor (Incorporated). SC - means Securities Commission Malaysia. Security Document - means a first ranking assignment and charge by the Issuer over all its rights, titles, interests and benefits in and under the Designated Account and all monies standing to the credit thereto. 2 Berhad (Registration No. Integrated
13. Security Trustee - means MTrustee Berhad (Registration No. 198701004362 (163032-V)). Sukuk Trustee - means MTrustee Berhad (Registration No. 198701004362 (163032-V)). Sukuk Murabahah - means the Islamic medium term notes issued or to be issued pursuant to the Sukuk Murabahah Programme. Sukukholders - means the holders of the Sukuk Murabahah. Sukuk Murabahah Programme - means the Islamic medium term notes issuance programme of up to RM3,000,000,000 in nominal value based on the Shariah principle of Murabahah (via Tawarruq arrangement). Transaction Documents - means the Transaction Documents, which shall comprise, inter alia: (i) (ii) (iii) (iv) (v) (vi) (vii) Programme Agreement; Trust Deed; Security Trust Deed; Securities Lodgement Form; Security Document; each Subscription Agreement; and agreements in respect of the underlying Shariah principle. Trust Deed - means the trust deed constituting the Sukuk Murabahah entered or to be entered between the Issuer and the Sukuk Trustee for the Sukuk Murabahah Programme. upstream business - includes the exploration, development and production of crude oil and natural gas in Malaysia and overseas (including unconventional resources), the liquefaction, sale and trading of LNG domestically and internationally and the sale of natural gas products in Malaysia and selected international markets. USD - means U.S. Dollar, being the lawful currency of the United States of America. 3
14. SECTION 1 .0 EXECUTIVE SUMMARY The information set out in this section is an executive summary of the principal features of the transaction. It is qualified in its entirety by, and must be read in conjunction with, the further detailed information appearing elsewhere in this Information Memorandum. 1.1 Brief background of PLNG2 PLNG2 was incorporated on 9 April 2012 in Malaysia under the Companies Act as a private company limited by shares. On 14 November 2014, PGB, DIALOG and PLNG2 entered into a Shareholders Agreement for PLNG2 to undertake the development of LNG regasification facilities comprising of a regasification unit and two (2) units of 200,000 m3 LNG storage tanks with an initial send out capacity of 3.5 MTPA (equivalent to approximately 490 MMscfd) of natural gas at Pengerang, Southern Johor, Malaysia. Pursuant to the Shareholders Agreement, the parties thereto agreed amongst others that PLNG2 shall enter into land lease agreement with S.S.I and S.S.I shall be entitled to 10% of the ordinary shares in PLNG2. In accordance with an agreement for share transfer dated 13 November 2017 entered into between PGB, DIALOG, the Issuer, S.S.I and PDT, S.S.I transferred its shares in PLNG2 to PDT. As at the LPD, PGB, DIALOG and PDT hold 65%, 25% and 10% of the ordinary shares in PLNG2 respectively. The principal activities of PLNG2 are to construct, own, manage and operate LNG regasification terminal and ancillary facilities at Pengerang, Johor. The registered office of the Issuer is located at Tower 1, PETRONAS Twin Towers, Kuala Lumpur City Centre, 50088 Wilayah Persekutuan Kuala Lumpur, Malaysia. 1.2 Brief summary of the structure of the Sukuk Murabahah Programme (Please refer to the definitions in Section 2.0 of this Information Memorandum for all terminologies used under this Section 1.2) The Sukuk Murabahah Programme entails the issuance of Sukuk Murabahah of up to RM3,000,000,000 in nominal value based on the Shariah principle of Murabahah (via Tawarruq arrangement), which is a Shariah principle and concept approved by the SC’s Shariah Advisory Council. The tenor of the Sukuk Murabahah Programme shall be thirty (30) years from the date of first issuance of the Sukuk Murabahah under the Sukuk Murabahah Programme. The tenor of each Sukuk Murabahah shall be at least one (1) year and up to twenty (20) years, provided that the Sukuk Murabahah mature prior to the expiry of the Sukuk Murabahah Programme. The Sukuk Murabahah shall be non-convertible, nonexchangeable and the Issuer shall have no call option nor put option. The Sukuk Murabahah issued under the Sukuk Murabahah Programme will be secured by a first ranking assignment and charge by the Issuer over all its rights, titles, interests and benefits in and under the Designated Account and all monies standing to the credit thereto. The Issuer shall maintain in the Designated Account 4
15. a minimum balance equivalent to the next six months ’ principal payment and next six months’ periodic distribution due in respect of each Sukuk Murabahah issued (“Minimum Required Balance”). The Minimum Required Balance may be met in whole (and not in part or combination thereof) with (a) cash deposited in the Designated Account; or (b) standby letter of credit with no recourse of the Issuer, procured or provided by PGB and DIALOG made in favour of the Security Trustee in the agreed shareholder’s proportion issued by a financial institution licensed in Malaysia with an agreed minimum rating or for PGB only, its shareholder’s proportion of the standby letter of credit may be replaced with a corporate guarantee for an equivalent amount. The Sukuk Murabahah may be issued with or without periodic distributions. All matters or resolutions which require the Sukukholders’ consent/approval under the Sukuk Murabahah Programme shall be carried out on a collective basis, by way of a resolution of the Sukukholders on the requisite majority of the Sukukholders as a single class and extraordinary resolution shall be passed on a vote of at least two-thirds (2/3) of those present and voting at a duly convened meeting. Please refer to Section 2.0 below for details of the principal terms and conditions of the Sukuk Murabahah Programme. 1.3 Status of the Sukuk Murabahah (Please refer to the definitions in Section 2.0 of this Information Memorandum for all terminologies used under this Section 1.3) The Sukuk Murabahah shall constitute direct, unconditional and secured obligations of the Issuer and shall at all times rank rank pari passu, without any discrimination, preference or priority among themselves and at least pari passu with all other present and future unsecured and unsubordinated obligations of the Issuer, subject to those preferred by law and the provisions of the Transaction Documents. 1.4 Credit Rating The Sukuk Murabahah Programme has been accorded a preliminary credit rating of AAAIS by MARC vide its letter dated 12 August 2020. 1.5 Utilisation of proceeds (Please refer to the definitions in Section 2.0 of this Information Memorandum for all terminologies used under this Section 1.5) The proceeds from the Sukuk Murabahah Programme shall be utilised for the following Shariah-compliant purposes: (a) repayment of shareholders’ preference shares including doubt, any utilisation for this issuance shall be subject Payments; and/or advances and/or redemption of redeemable any associated costs. For the avoidance of purpose other than from proceeds of the first to the Issuer’s ability to make Restricted 5
16. 1 .6 (b) payment towards prepayment of the Jetty Usage Agreement subject to agreement by the parties and the necessary approvals being obtained and/ or towards payment obligations under the Jetty Usage Agreement; and/or (c) working capital, capital expenditure and general corporate expenditure purposes and to fund the FSRA. Selling Restrictions The Sukuk Murabahah may only be offered, sold, transferred or otherwise disposed of, directly or indirectly, to a person to whom an offer for subscription or purchase of, or invitation to subscribe for or purchase the Sukuk Murabahah may be made and to whom the Sukuk Murabahah are issued would fall within: (i) Section 2(6) of the Companies Act; (ii) Part I of Schedule 6 of the CMSA; (iii) Part I of Schedule 7 of the CMSA; and (iv) read together with Schedule 8 and Schedule 9 or Section 257(3) of the CMSA, and subject to the applicable law, order, regulation or official directive of BNM and/or the SC from time to time (including any amendments, supplementals and variation thereto). Thereafter, the Sukuk Murabahah may only be offered, sold, transferred or otherwise disposed of, directly or indirectly, to a person to whom an offer for subscription or purchase of, or invitation to subscribe for or purchase the Sukuk Murabahah may be made would fall within: (i) Section 2(6) of the Companies Act; (ii) Part I of Schedule 6 of the CMSA; and (iii) read together with Schedule 8 and Schedule 9 or Section 257(3) of the CMSA, and subject to the applicable law, order, regulation or official directive of BNM and/or the SC from time to time (including any amendments, supplementals and variation thereto). THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK 6
17. SECTION 2 .0 PRINCIPAL TERMS AND CONDITIONS The principal terms and conditions relating to the Sukuk Murabahah Programme are set out below. Words and expressions used and defined in this Section 2.0, in the event of any inconsistency with the definition section of this Information Memorandum, shall only be applicable for this Section 2.0. (1) Name of facility : An Islamic medium term notes (“Sukuk Murabahah”) programme of up to RM3,000,000,000 in nominal value based on the Shariah principle of Murabahah (via Tawarruq arrangement) ("Sukuk Murabahah Programme") (2) One-time issue or programme : Programme (3) Shariah principles (for sukuk) : Murabahah (via Tawarruq arrangement) (4) Facility description (for Ringgitdenominated sukuk, to provide description as cleared by SC) : Underlying Transaction 1. Prior to the issuance of the Sukuk Murabahah, the Issuer shall enter into an agency agreement with the Sukuk Trustee (on behalf of the sukukholders (“Sukukholders”)), pursuant to which the Issuer (in such capacity, the "Agent") is appointed as the agent of the Sukukholders for the purchase and sale of Shariah-compliant commodities ("Commodities"). 2. Pursuant to a commodity Murabahah master agreement (“Commodity Murabahah Master Agreement”) to be entered into between the Issuer (in such capacity, as “Purchaser”), the Agent and the Sukuk Trustee (acting on behalf of the Sukukholders), the Issuer (as the Purchaser) shall issue a purchase order (“Purchase Order”) to the Agent and the Sukuk Trustee (acting on behalf of the Sukukholders). In the Purchase Order, the Purchaser will request the Agent to purchase the Commodities at the Purchase Price (as defined below) and shall irrevocably undertake to purchase the Commodities from the Sukukholders (via the Sukuk Trustee) at the deferred sale price (“Deferred Sale Price”) which shall be the Purchase Price (as defined below) plus the applicable Profit Margin (as defined below) payable on a deferred basis. 7
18. “Profit Margin” means: In the case of Sukuk Murabahah with Periodic Distributions (as defined below) issued at par: The aggregate Periodic Distributions; In the case of Sukuk Murabahah with Periodic Distributions issued at discount: The Discounted Amount (as defined below) plus the aggregate Periodic Distributions; In the case of Sukuk Murabahah without Periodic Distributions issued at a discount: The Discounted Amount; In the case of the Sukuk Murabahah with Periodic Distributions and issued at a premium The aggregate of the Periodic Distributions less the Premium Amount (as defined below). “Discounted Amount” means the difference between the nominal value of the Sukuk Murabahah and the Purchase Price in the case of Sukuk Murabahah issued at a discount. “Premium Amount” means the difference between the Purchase Price and the nominal value of the Sukuk Murabahah in the case of Sukuk Murabahah issued at a premium. 3. Based on the Purchase Order and the commodity trading participant (“CTP”) purchase agreement (“CTP Purchase Agreement”) to be entered into between the Agent and the CTP, the Agent (as agent of the Sukukholders) shall via the CTP purchase on a spot basis the Commodities from commodity vendor(s) in the Bursa Suq Al-Sila' commodity market and/or such other independent commodity trading platform acceptable to the Shariah Adviser (“Commodity Seller”) at a purchase price which shall be an amount equivalent to the Sukuk Murabahah proceeds ("Purchase Price"). The Purchase Price shall be in compliance with the asset pricing requirements as set out in the Securities Commission Malaysia (“SC”)’s Guidelines on Unlisted Capital Market Products under the Lodge and Launch Framework (first issued on 9 March 2015 and revised on 30 June 2020) (as amended from time to time) (“SC LOLA Guidelines”). 8
19. 4 . The Issuer shall issue Sukuk Murabahah from time to time to the Sukukholders whereby the Sukuk Murabahah proceeds shall be used to pay the Purchase Price. The Sukuk Murabahah shall evidence, amongst others, the Sukukholders' ownership of the Commodities and subsequently, once the Commodities are sold to the Issuer (as the Purchaser), the entitlement to receive the Deferred Sale Price. The Sukuk Murabahah may be issued with or without periodic distributions (“Periodic Distribution”). 5. Thereafter, pursuant to the undertaking under the Purchase Order, the Agent (acting on behalf of the Sukukholders) shall sell the Commodities to the Issuer (as the Purchaser) at the Deferred Sale Price under a sale and purchase agreement. Upon the purchase of the Commodities, the Issuer (as the Purchaser) shall, via the CTP (pursuant to a CTP sale agreement to be entered into between the Issuer (as the Purchaser) and the CTP (“CTP Sale Agreement”)) immediately sell the Commodities to Bursa Malaysia Islamic Services Sdn Bhd and/or such other independent commodity trading platform acceptable to the Shariah Adviser (“Commodity Buyer”) on a spot basis for cash at a price which shall be an amount equivalent to the Purchase Price. 6. In respect of the Sukuk Murabahah with Periodic Distributions, the Purchaser shall make Periodic Distributions on the relevant periodic distribution dates (“Periodic Distribution Date”) forming part of the Deferred Sale Price to the Sukukholders during the tenure of the Sukuk Murabahah. Upon declaration of an event of default (“Event of Default”) or on the relevant maturity dates (“Maturity Dates”) of the Sukuk Murabahah or upon Voluntary Early Redemption (as defined in the section entitled “Provisions on early redemption, if applicable”), as the case may be, whichever is earlier, the Issuer shall pay the relevant outstanding Deferred Sale Price or the relevant early redemption amount (in relation to declaration of an Event of Default and upon Voluntary Early Redemption, subject to Ibra’ (as defined under item (31) below)) for the redemption of the Sukuk Murabahah, whereupon the redeemed Sukuk Murabahah shall be cancelled. (5) Currency : Ringgit 9
20. (6) Expected facility/programme size (for programme, to state the option to upsize) : Up to RM3,000,000,000 (7) Tenure of facility/ programme : Thirty (30) years (8) Availability period for debt/sukuk programme : The period commencing from the date of completion of the relevant Transaction Documents (as defined under item (33) in the section entitled ‘Other terms and conditions’ and sub item (xii) entitled ‘Transaction Documents’) and, unless waived by the Lead Arranger, compliance of all conditions precedent to the satisfaction of the Lead Arranger provided that the Sukuk Murabahah shall mature prior to the expiry of the Sukuk Murabahah Programme and that the first issuance of the Sukuk Murabahah under the Sukuk Murabahah Programme be made within sixty (60) business days from the date of the Lodgement or any other extended dates approved by the SC. (9) Clearing and settlement platform : Payments Network Malaysia Sdn. Bhd. (“PayNet”) (10) Mode of issue : ☒ Private/direct placement ☒ Bought deal ☒ Book building (11) Selling restrictions : (i) At Issuance ☐ ☒ ☒ ☒ ☒ ☒ ☐ Exclusively to persons outside Malaysia Part I of Schedule 6 of the CMSA Part I of Schedule 7 of the CMSA Read together with Schedule 9 of CMSA Schedule 8 of CMSA Section 2(6) of the Companies Act, 2016 Other (ii) After Issuance ☐ ☒ ☒ ☒ ☒ ☐ Exclusively to persons outside Malaysia Part I of Schedule 6 of the CMSA Read together with Schedule 9 of CMSA Schedule 8 of CMSA Section 2(6) of the Companies Act, 2016 Other Additional Notes: - 10
21. Selling Restrictions at Issuance The Sukuk Murabahah may only be offered , sold, transferred or otherwise disposed of directly or indirectly, to a person to whom an offer for subscription or purchase of, or invitation to subscribe for or purchase the Sukuk Murabahah may be made and to whom the Sukuk Murabahah are issued would fall within Section 2(6) of the Companies Act 2016, as may be amended and/or substituted from time to time (“Companies Act”), Part I of Schedule 6 of the Capital Markets and Services Act, 2007 as amended from time to time ("CMSA") and Part I of Schedule 7 read together with Schedule 8 and Schedule 9 (or Section 257(3)) of the CMSA and subject to the applicable law, order, regulation or official directive of BNM and/or the SC from time to time (including any amendments, supplementals and variation thereto). Selling Restrictions after Issuance The Sukuk Murabahah may only be offered, sold, transferred or otherwise disposed of directly or indirectly, to a person to whom an offer for subscription or purchase of, or invitation to subscribe for or purchase the Sukuk Murabahah would fall within Section 2(6) of the Companies Act, Part I of Schedule 6 of the CMSA read together with Schedule 8 and Schedule 9 (or Section 257(3)) of the CMSA and subject to the applicable law, order, regulation or official directive of BNM and/or the SC from time to time (including any amendments, supplementals and variation thereto). (12) Tradability and transferability : ☐ ☐ ☒ Non-tradable & non-transferable Restricted transferability Tradable & transferable RM3,000,000,000 Additional Notes: The Sukuk Murabahah are tradable and transferable subject to the selling restrictions as provided in paragraph entitled “Selling Restrictions”. (13) Details of security/collateral pledged, if applicable : ☐ Unsecured ☒ Secured (a) A first ranking assignment and charge by the Issuer over all its rights, titles, interests and benefits in and under the Designated Account (as defined in paragraph 20 below) and all monies standing to the credit thereto. (“Security Documents”) 11
22. (14) Details of guarantee, if applicable : ☒ Not guaranteed ☐ Guaranteed (15) Convertibility of issuance and details of the convertibility : ☒ Non-convertible ☐ Convertible (16) Exchangeability of Issuance and details of the exchangeability : ☒ Non-exchangeable ☐ Exchangeable (17) Call option and details, if applicable : ☒ No call option ☐ Call option (18) Put option and details, if applicable : ☒ No put option ☐ Put option, details as follows: (19) Details of covenants (A) Positive covenants : ☐ No positive covenant ☒ Positive covenant, details as follows: The Issuer covenants that so long as any of the Sukuk Murabahah are outstanding: (i) The Issuer shall exercise reasonable diligence in carrying out its businesses and affairs in a proper and efficient manner and in accordance with sound financial and commercial standards and practices; (ii) The Issuer shall maintain and keep in full force and effect all relevant authorisations, consents, rights, licences, approvals and permits (governmental and otherwise) and will promptly obtain any further authorisations, consents, rights, licences, approvals and permits (governmental and otherwise) which (1) is or may become necessary to enable it to carry out its businesses and to own its assets, (2) is required to enable it to perform its obligations under the Transaction Documents to which it is a party and to ensure the legality, validity, enforceability and admissibility in evidence of the Transaction Documents to which it is a party or (3) is required to maintain and preserve the priority or rights of the Sukuk Trustee and the Sukukholders under the Transaction Documents; and the Issuer shall comply 12
23. with the same ; (iii) The Issuer shall at all times maintain a paying agent who is based in Malaysia and will procure the Facility Agent to notify the Sukuk Trustee, if the paying agent does not receive payment from the Issuer on the due dates as required under the Trust Deed and the terms and conditions of the Sukuk Murabahah; (iv) The Issuer shall keep proper books and accounts at all times and shall provide the Sukuk Trustee, and any person appointed by it (e.g. auditors) access to such books and accounts to the extent permitted by law; (v) The Issuer shall comply with all applicable laws, requirements, rules, regulations, orders, directives, guidelines, written notices, circulars, guidelines and conditions including the provisions of the CMSA and/or any requirements, rules, regulations, orders, directive, written notices, circulars or guidelines issued by the SC, the BNM and other regulatory authorities from time to time with regards to the securities, corporate bonds, sukuk and any applicable antimoney laundering and anti-terrorism financing laws; (vi) The Issuer shall comply at all times with all the provisions and promptly perform its obligations under the Transaction Documents to which it is a party (including but not limited to redeeming the Sukuk Murabahah on the relevant Maturity Dates or any other date on which the Sukuk Murabahah are due and payable) and ensure that it shall notify the Sukuk Trustee in the event the Issuer is unable to fulfil or comply with any provisions of the Transaction Documents; (vii) The Issuer shall open and maintain the Designated Account and pay all amounts into such account and make all payments from such account as required or permitted under the relevant Transaction Documents and assign and charge such Designated Account in favour of the Security Trustee as security; (viii) The Issuer shall maintain at all times throughout the tenor of the Sukuk Murabahah Programme, the Sukuk Trustees’ Reimbursement Account (as defined herein) with a deposit sum of RM30,000.00; (ix) The Issuer shall at all times and from time to time on request or demand from the Sukuk Trustee or the Security Trustee (as the case may be) execute or procure the execution of all such further documents and do or procure the doing of all such further acts as the Sukuk Trustee or the Security Trustee (as the case may be) may in its opinion consider reasonably 13
24. necessary to give full effect to the terms and conditions of the Sukuk Murabahah Programme and / or the Transaction Documents or to provide the full benefits of all rights, powers and remedies in the Transaction Documents to the Sukuk Trustee or the Security Trustee (as the case may be), subject to any such request or demand does not amount to the creation of any additional security in addition to the security over the Designated Account; (x) The Issuer shall appoint a reputable auditor or firm of auditors and shall notify the Sukuk Trustee of any change of such auditor or firm of auditors; (xi) The Issuer shall prepare its financial statements on a basis consistently applied in accordance with approved accounting standards in Malaysia and those financial statements shall give a true and fair view of the results of the operations of the Issuer, for the period to which the financial statements are made; (xii) The Issuer shall take out and maintain at all times such relevant insurance/Takaful policies/contracts and have coverage which are industry standard as are customarily taken out and maintained by other companies in the same industry; (xiii) The Issuer shall cause all loans (including any Islamic financing and any amounts of with the nature of a loan), if any, made by its directors, shareholders and related corporations to be subordinated to the Sukuk Murabahah and no repayment and/ or prepayment of such advance shall be made unless otherwise provided and permitted under the Transaction Documents; and (xiv) The Issuer shall at all times ensure that the terms in the trust deed for the Sukuk Murabahah Programme (“Trust Deed”) and the terms and conditions of the Sukuk Murabahah do not contain any matter which is inconsistent with the provisions of the information memorandum for the Sukuk Murabahah Programme. (B) Negative covenants : ☐ No negative covenant ☒ Negative covenant, details as follows: The Issuer covenants that so long as any of the Sukuk Murabahah are outstanding: (i) the Issuer shall not dispose any assets, save and except for:- 14
25. (a) any disposals solely for the purposes of facilitating Shariah concepts used in Islamic financing facilities granted to the Issuer; (b) any disposal of asset in the ordinary course of business of the Issuer on arm’s length basis and does not result in a Material Adverse Effect (as defined in the section entitled “Events of defaults or enforcement events, where applicable, including recourse available to investors”); or (c) any disposals of obsolete or redundant assets no longer required for business operations of the Issuer; (ii) the Issuer shall not incur any indebtedness which would cause the Debt to Equity Ratio (as defined below) to exceed 80:20; (iii) the Issuer shall not add, delete, vary, amend or substitute its Memorandum and Articles of Association or Constitution in a manner inconsistent with the provisions of the Transaction Documents; (iv) save and except for redeeming any redeemable preference shares if permitted under item (vii) below, the Issuer shall not reduce its 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, or by any other manner; (v) the Issuer will not enter into a transaction, whether directly or indirectly with any of its interested persons (including its shareholders, directors, subsidiaries, or associated companies) unless such transaction is entered into: - (vi) (a) in the ordinary course of business; (b) on arms-length basis; and (c) will not have a Material Adverse Effect. the Issuer shall not change the utilisation of the proceeds of the Sukuk Murabahah from the purposes specified in the Transaction Documents or Information Memorandum; (vii) other than the repayment of the Issuer’s shareholders’ loans and advances from the Sukuk proceeds of the first issuance and as disclosed in the information memorandum, the Issuer shall not 15
26. declare or pay any dividends or make any distribution whether income or capital to its shareholders or redeem or cancel any redeemable preference shares or make any payments (whether in relation to principal, interest or otherwise) in connection with any loans or advances from its shareholders or any other subordinated loans (“Restricted Payments”) if any of the following occurs:(a) an Event of Default has occurred, is continuing or has not been waived, or if following such payment or distribution, an Event of Default would occur; (b) the Finance Service Cover Ratio of 1.5 times (calculated in accordance with paragraph 19(C) below) is breached or will be breached if calculated immediately following such payments or distributions; (c) the Debt to Equity Ratio is breached or would be breached or will be breached if calculated immediately following such payments or distributions; or (d) the FSRA (as defined in the section entitled “Details of Designated Account(s), if applicable”) is not fully funded; (viii) the Issuer shall not make, grant, provide or extend any financing/loans or advances (as the case may be) to any person other than to the Issuer’s directors, officers or employees as part of their terms of employment; (ix) the Issuer shall not create or permit to exist any encumbrance, mortgage, charge (whether fixed or floating), pledge, lien, hypothecation, assignment by way of security, trust arrangement for the purpose of providing security or other security interest of any kind over any of its assets including, without limitation, title transfer and/or retention arrangements having a similar effect or any agreement to create any of the foregoing other than (i) any security interest created under the Sukuk Murabahah; (ii) any security interest over finance reserve accounts (other than the Designated Account) and/or assets created for other Debt (as defined below) obtained by the Issuer to the extent the Debt to Equity Ratio is complied with provided that no debenture may be created over the assets of the Issuer other than specific debenture which creates fixed charge over specific assets; and (iii) liens arising in the ordinary course of business by operation of law and not by way of contract; and 16
27. (x) the Issuer shall not take steps to dissolve itself voluntarily or otherwise. (C) Financial covenants : ☐ No financial covenant ☒ Financial covenant, details as below: (i) Debt to Equity Ratio The Issuer shall maintain a debt to equity ratio (“Debt to Equity Ratio”) of not exceeding 80:20 throughout the Sukuk Murabahah Programme which will be calculated by the Issuer on an annual basis based on the latest available audited consolidated accounts of the Issuer. Debt shall mean only: (a) the principal amount in respect of any loan / financing including the aggregate nominal value of all outstanding Sukuk Murabahah, advances, overdraft, guarantee, indemnity, or any other instrument creating or evidencing indebtedness for borrowed monies (be it actual or contingent) of the Issuer (including amount raised under Islamic financing, hire purchase facilities and lease obligations) excluding (i) all subordinated shareholder advances and (ii) all subordinated debts as recognised in the latest available audited consolidated accounts of the Issuer; (b) fair value of financial derivatives in connection with borrowed monies recognised in the latest available audited consolidated accounts of the Issuer; less (c) the cash balances recognised in the latest available audited consolidated accounts of the Issuer excluding any cash arising from Equity, cash raised from Debt (including the Sukuk Murabahah) and cash in any finance service reserve accounts or accounts of similar nature. Equity shall mean the aggregate of: (a) the Issuer’s equity as recognised in the latest available audited consolidated accounts of the Issuer including the retained earnings and reserves; and (b) the subordinated shareholders loan/advances to the Issuer or any subordinated debt of the Issuer. For the avoidance of doubt, any double counting shall be disregarded. 17
28. (ii) Finance Service Cover Ratio The Issuer shall maintain a Finance Service Cover Ratio (“FSCR”) calculated in accordance with the formula below of not less than 1.25 times to be tested annually based on the Issuer’s latest available audited financial statements and to be calculated based on the following formula: FSCR = Net Available Cash Total Financing Obligations “Total Financing Obligations” means the aggregate of: (i) the profit payment/ interest/ coupon payments scheduled to be paid by the Issuer during the next financial year; and (ii) the principal payments scheduled to be paid by the Issuer during the next financial year (excluding the amounts rolled over and to be refinanced in the same period). “Net Available Cash” means the aggregate of the following for the period of last 12 months: (i) all revenue received by the Issuer as recognised in the latest available audited consolidated accounts of the Issuer; plus (ii) the opening cash balance as recognised in the latest available audited consolidated accounts of the Issuer; plus (iii) the nominal value of any amount available for drawing under the FSRA SBLC (as defined below); plus (iv) the principal amount guaranteed under the PGB Guarantee (as defined below) in relation to the FSRA; plus (v) any Takaful/insurance proceeds received by the Issuer as recognised in the latest available audited consolidated accounts of the Issuer; less (i) all operating and maintenance expenses as recognised in the latest available audited consolidated accounts of the Issuer; (ii) all ongoing capital expenses as recognised in the latest available audited consolidated accounts of the Issuer; 18
29. (iii) all taxes, duties and working capital requirements paid by the Issuer as recognised in the latest available audited consolidated accounts of the Issuer. For avoidance of doubt, any double counting in respect of the FSCR shall be disregarded. (D) Information covenants : ☐ No information covenant ☒ Information covenant, details as below: The Issuer covenants that so long as any of the Sukuk Murabahah are outstanding: (i) the Issuer shall provide to the Sukuk Trustee at least on an annual basis together with the annual delivery to the Sukuk Trustee of the audited financial statements of the Issuer as referred to under item (ii) below, a certificate confirming that it has complied with all its obligations under the Transaction Documents and the terms and conditions of the Sukuk Murabahah and that there does not exist or had not existed, from the date the Sukuk Murabahah were issued, any Event of Default, 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 consolidated financial statements for that year which shall contain the income statements and balance sheets of the Issuer and which are audited and certified by a firm of independent certified public accountants; b) as soon as they become available (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 consolidated financial statements for that period which shall contain the income statements and balance sheets of the Issuer which are duly certified by any one of its directors; c) promptly such additional financial or other information relating to the Issuer’s business and its operations to the extent permitted by law as the Sukuk Trustee may from time to time reasonably request, in order to discharge its duties and obligations under the Transaction Documents within a reasonable timeline; and 19
30. d ) as soon as practicable, all statutory notices or other documents received by the Issuer from any of its shareholders or its creditors which contents may affect the ability of the Issuer to perform its obligations under the Transaction Documents, and a copy of all documents (including accounts, reports, notices, statements or circulars) which are material and substantial to or necessary for a reasonable investor to make informed investment decisions 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 promptly notify the Sukuk Trustee of any change in its board of directors or the composition or shareholdings of its shareholders; (iv) the Issuer shall promptly notify the Sukuk Trustee of any adverse change in its financial condition and of any litigation or other proceedings of any nature whatsoever being initiated against the Issuer before any court or tribunal or administrative agency involving itself which may have a Material Adverse Effect on the Issuer; (v) the Issuer shall immediately give notice to the Sukuk Trustee of the occurrence of any Events of Default or any event which, upon the giving of notice and/or lapse of time and/or the issue of a certificate and/or the fulfilment of the relevant requirement as contemplated under the relevant transaction document would constitute Event of Default (“Potential Event of Default”) forthwith upon becoming aware thereof, and it shall take all reasonable steps and/or such other steps as may reasonably be requested by the Sukuk Trustee to remedy and/or mitigate the effect of the Event of Default or the Potential Event of Default; (vi) the Issuer shall immediately inform the Sukuk Trustee of any substantial change in the nature of the business of the Issuer; and (vii) the Issuer shall immediately notify the Sukuk Trustee, upon becoming aware of:(i) any change in its withholding tax position or tax jurisdiction; and 20
31. (ii) any other matter in the reasonable opinion of the Issuer that may adversely affect the Issuer’s ability to perform its obligations under the Transaction Documents. (20) Details of Designated Account(s), if applicable : ☐ No designated account ☒ Designated account (A) Name of Account : Finance Service Reserve Account (“FSRA”) Parties responsible for opening the account : Issuer Parties responsible for maintaining /operating account : Prior to the occurrence of an Event of Default, Security Trustee and the Issuer. Upon the occurrence of an Event of Default, the Security Trustee. Signatories to account : Prior to the occurrence of an Event of Default, Security Trustee and the Issuer. Upon the occurrence of an Event of Default, the Security Trustee. Sources of funds : The Issuer shall prior to or on each issue date of Sukuk Murabahah deposit and maintain or cause to be deposited and maintained the following in the FSRA a minimum balance equivalent to the next six months’ principal payment and next six months’ Periodic Distribution due (“Minimum Required Balance”). FSRA shall be referred to as the “Designated Account”. The Designated Account shall be Shariah-compliant account. The Minimum Required Balance may be met in whole (and not in part or combination thereof) with:(i) cash deposited into the FSRA; or (ii) standby letter of credit in form and substance satisfactory to the Security Trustee to be procured or provided by Petronas Gas Berhad and Dialog LNG Sdn. Bhd in the Shareholder’s Proportion (as defined below) with no recourse to the Issuer issued by a financial institution licensed in Malaysia with a minimum rating of AA3 by Ratings Services Berhad (“RAM”) or AA- by Malaysian Rating Corporation Berhad (“MARC”) or BBB- by Standard & Poor’s or Baa3 by Moody's or their respective equivalent (“FSRA SBLC”) made in favour of the Security Trustee. In the case of Petronas Gas Berhad only, its Shareholder’s Proportion of the FSRA SBLC may be replaced with a corporate guarantee in or substantially in the form as set out in the relevant Transaction Documents for an 21
32. equivalent amount (“PGB Guarantee”); “Shareholder’s Proportion” shall be expressed as a percentage (rounded up to 2 decimal places) of the Minimum Required Balance and be determined as follows: In relation to Petronas Gas Berhad: A + (B x [A/(A+C)]) where: A B C = The percentage of shareholding by Petronas Gas Berhad in the Issuer = The percentage of shareholding by Permodalan Darul Ta’zim Sdn. Bhd. in the Issuer = The percentage of shareholding by Dialog LNG Sdn. Bhd. in the Issuer In relation to Dialog LNG Sdn. Bhd.: C + (B x [C / (A+C)]) where: A B C = The percentage of shareholding by Petronas Gas Berhad in the Issuer = The percentage of shareholding by Permodalan Darul Ta’zim Sdn. Bhd. in the Issuer = The percentage of shareholding by Dialog LNG Sdn. Bhd. in the Issuer In the event the FSRA SBLC is provided, the Security Trustee shall have the right to draw on the FSRA SBLC if it is not renewed by the Issuer sixty (60) days prior to the expiry of the FSRA SBLC or rating of the issuing bank of the FSRA SBLC is downgraded to a rating below AA3 by RAM or AA- by MARC or BBB- by Standard & Poor’s or Baa3 by Moody's or their respective equivalent and the Issuer does not replace the FSRA SBLC with another FSRA SBLC issued by an issuing bank with a rating of at least AA3 by RAM or AA- by MARC or BBB- by Standard & Poor’s or Baa3 by Moody's or their respective equivalent or alternatively by depositing an amount equivalent to the FSRA SBLC into the FSRA within ninety (90) business days from the date the Issuer is aware of such downgrade (provided that the downgrade does not render the FSRA SBLC null and the FSRA SBLC is still available for drawing). For the avoidance of doubt, the FSRA SBLC shall not have any recourse to the Issuer. 22
33. The Minimum Required Balance shall be maintained at all times and be recalculated on each Periodic Distribution Date . In the event the Minimum Required Balance is not met, the Issuer shall within ninety (90) days of such deficiency top up such deficit amount in the FSRA. Utilisation of funds : The funds in the FSRA shall be utilised in the following manner and in the following order of priority: (a) if the Issuer has insufficient amounts to pay any amounts due under the Sukuk Murabahah, an amount equal to the shortfall shall be utilised from the cash portion in the FSRA and in the event FSRA SBLC and, where applicable, PGB Guarantee is provided, demand on FSRA SBLC and, where applicable, PGB Guarantee to be made in equal proportion from the FSRA SBLC and/or the PGB Guarantee to pay for such shortfalls; and (b) if the balance in the FSRA exceeds the Minimum Required Balance, the excess shall be remitted back to the Issuer. Monies standing to the credit of the FSRA may be from time to time utilised towards investment in Permitted Investments (as defined herein). (21) Details of Credit Rating, if applicable : ☐ Not Rated ☒ Rated as follows: Credit Rating Agency Credit Rating Final/Indicative Name of Tranche / Series / Class Partial rating Amount rated (22) Conditions precedent : Malaysian Rating Corporation Berhad : AAAIS : Indicative : Not applicable : No : RM3,000,000,000 : Conditions precedent for the availability for the Sukuk Murabahah Programme shall include the following, all of which have to be in form and substance acceptable to the Lead Arranger: A. Main Documentation (i) The Transaction Documents have been executed and, where applicable, stamped (or endorsed as exempt from stamp duty) and presented for registration, if required. (ii) The notices of assignment, acknowledgement of the notices of assignment and consents (where applicable) from the account bank for the Designated 23
34. Account shall have been made or received , as the case may be. B. The Issuer (i) Certified true copies of the Certificate of Incorporation and the Constitution (whichever it is currently being referred to) of the Issuer; (ii) Certified true copies of the Return for Allotment of Shares (or Form 24 as prescribed under the Companies Act 1965), the Notification of Change in the Registered Address (or Form 44 as prescribed under the Companies Act 1965), and the Notification of Change in the Register of Directors, Managers and Secretaries (or Form 49 as prescribed under the Companies Act 1965) of the Issuer; (iii) A certified true copy of a board resolution of the Issuer authorising, among others, the establishment of the Sukuk Murabahah Programme, the issuance of the Sukuk Murabahah under the Sukuk Murabahah Programme and the execution of the Transaction Documents; (iv) A list of the Issuer’s authorised signatories and their respective specimen signatures; (v) A report of the relevant company searches on the Issuer conducted at the Companies Commission of Malaysia; and (vi) A report of the relevant winding up search conducted at the Department of Insolvency of Malaysia on or the relevant statutory declaration of the Issuer. C. General (i) The endorsement from the SAC of the SC has been obtained and acknowledgement from the SC on the lodgement made in respect of the Sukuk Murabahah Programme under the SC LOLA Guidelines; (ii) The endorsements from the Shariah Adviser in respect of the structure and mechanism and the Transaction Documents of the Sukuk Murabahah Programme are in compliance with the Shariah requirements have been received; (iii) The Sukuk Murabahah Programme shall have been assigned a credit rating of AAA by the Credit Rating Agency; (iv) Evidence that the Designated Account and the Sukuk Trustee’s Reimbursement Account have been 24
35. opened in Documents ; accordance with the Transaction (v) Evidence that the prescribed forms (as prescribed under the Companies Act 2016), where applicable, in respect of the charges created pursuant to the relevant Security Documents (for the purpose of registration of such charges with the CCM in accordance with the Companies Act 2016) have been duly lodged with the CCM and that immediately prior to the lodgement of such prescribed forms (as prescribed under the Companies Act 2016), a search conducted on the Issuer in respect of which such prescribed form is filed; (vi) A final due diligence report from the Insurance Adviser; (vii) Delivery of a base case financial model by the Issuer; (viii) Delivery of a report on cash flow projections and a comfort letter in relation to the Information Memorandum from a reporting accountant, both of which are satisfactory to the Lead Arranger; (ix) Evidence that all necessary consents and approvals for the Issuer to issue the Sukuk Murabahah and to create the security interest under the Security Document have been obtained; (x) Evidence that the transaction fees, costs and expenses relating to the establishment of the Sukuk Murabahah Programme as particularly set out in the Lodgement have been paid in full or arrangements have been put in place for such fees, costs and expenses to be paid in full; and (xi) The Lead Arranger have received from the Lead Arranger’s Solicitors a satisfactory legal opinion addressed to it and the Sukuk Trustee advising with respect to, among others, 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. Conditions precedent for each issuance(s) of the Sukuk Murabahah to include the following (all having to be in the form and substance acceptable to the LM):(xii) Confirmation from the Issuer that all representations and warranties remain true and correct; (xiii) No Event of Default has occurred or is continuing; (xiv) The amount to be issued will not result in a breach of 25
36. the Debt to Equity Ratio as set out in paragraph 19 (C)(i) above; and (xv) (23) Representations and warranties Evidence that arrangement has been made for the Minimum Required Balance to be met on or before issue date. : Representations and warranties are as follows:a) 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 property and assets, and has full beneficial ownership of all its properties and assets; b) the constitution of the Issuer incorporates 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 and perform the transactions contemplated in the Transaction Documents in accordance with their terms; c) neither the execution and delivery of any of the Transaction Documents nor the performance of any of the transactions contemplated by the Transaction Documents did or does as at the date this representation and warranty is made or repeated:(1) contravene or constitute 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 or which is applicable to the Issuer or any of its assets; (2) cause any limitation on the Issuer or the powers of its directors, whether imposed by or contained in its memorandum and articles of association or in any agreement, instrument, law, ordinance, decree, order, rule, regulation, judgment or otherwise, to be exceeded; or (3) cause the creation or imposition of any security interest or restriction of any nature on any of the Issuer’s assets, other than those permitted under the Transaction Documents; d) each of the Transaction Documents is or will when executed and/or issued, as the case may be, be in full force and effect and constitutes, or will when 26
37. executed or issued , as the case may be, constitute valid and legally binding obligations of the Issuer enforceable in accordance with its terms; e) all necessary action, conditions and things required to be taken, fulfilled and done (including the obtaining of any necessary consents and authorisations) in order to make the Transaction Documents admissible in evidence in the courts of Malaysia, have been taken, fulfilled and done and for the avoidance of doubt remains at all times in full force and effect; f) Other than as provided under the conditions precedent, no registration, recording, filing or notarisation of the Transaction Documents and no payment of any duty or tax and no other action whatsoever is necessary to ensure the legality, validity, binding effect or enforceability in Malaysia of the liabilities and obligations of the Issuer or the rights of inter alia, the Sukukholders under the Transaction Documents in accordance with their terms; g) no event or circumstance has occurred and is continuing which would constitute an Event of Default or a Potential Event of Default; h) no litigation, arbitration, administrative or governmental proceedings or claims are presently in progress or pending or to the best of its knowledge, information and belief, instituted against the Issuer or to which any properties or assets of the Issuer is or may be the subject which if adversely determined may have a Material Adverse Effect; i) no step has been taken by the Issuer or any of their creditors and/or any other person on their behalf, nor have any legal proceedings or applications under Section 366 or 368 of the Companies Act, 2016 been started which the Issuer is not disputing; j) its audited and unaudited financial statements as delivered to the Sukuk Trustee: (1) include a balance sheet and income statements and such other financial statements (if any) as are required by the laws to which it is subject; (2) were prepared in accordance with approved accounting standards and have been prepared, examined, reported on and approved in accordance with all procedures required by its constitution and laws to which it is subject; 27
38. (3) give a true and fair view of its financial position and the financial performance as at that date and for the financial period to which they relate, and there has been no material adverse change in the financial condition of the Issuer since the date of such financial statements until the date the relevant audited and unaudited financial statements, as the case may be, are delivered to the Sukuk Trustee; (24) Events of defaults or enforcement events, where applicable, including recourse available to investors k) the Issuer is subject to civil and commercial law with respect to its obligations under the Transaction Documents, the transactions contemplated hereby and thereby constitute private and commercial acts done for private and commercial purposes and it is not entitled to immunity on the grounds of sovereignty or otherwise from any legal action or proceeding (which may include, without limitation, suits, attachment prior to judgment, execution or other enforcement in Malaysia); l) the Issuer is in compliance and will comply with all applicable laws, guidelines, permits and regulations, including but not limited to all relevant environmental laws, permits and guidelines in all respects; and m) the information memorandum and any information, annexure, document, statement or report (including for the avoidance of doubt financial statements) furnished in writing by the Issuer in connection thereto are true in all respects and do not contain any statement or information that are false or misleading that are false or misleading in any respect there is no material omission in respect thereof and all or any projections or expressions of expectations, intentions, belief and opinion contained therein were honestly made on reasonable grounds after due and careful inquiry by the Issuer. : The following shall each be an Event of Default: (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 and such failure to pay is not remedied within seven (7) business days from the date such amount is due or demanded; (ii) any representation or warranty or statement which is 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 Sukuk Murabahah Programme and/or any of the Transaction Documents proves to have been incorrect or misleading in any material respect on or as of the 28
39. date made or given or deemed made or given , 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 forty five (45) days after the Issuer becoming aware or having been notified by the Sukuk Trustee of the failure; (iii) the Issuer fails to observe or perform its obligations under any of the Transaction Documents or the Sukuk Murabahah Programme or under any undertaking or arrangement entered into in connection therewith other than an obligation of the type referred to in paragraph (i) above, and in the case of a failure which in the opinion of the Sukuk Trustee is capable of being remedied (save and except for a breach to top up the Minimum Required Balance within the provided time frame where there shall not be any further remedy period), the Issuer does not remedy the failure within a period of forty five (45) days after the Issuer becoming aware or having been notified by the Sukuk Trustee of the failure; (iv) the Issuer fails to comply with any of the Financial Covenants and the Issuer does not remedy the breach within a period of forty five (45) days after the Issuer became aware or having been notified by the Sukuk Trustee of the breach; (v) any indebtedness for borrowed moneys of the Issuer which non-payment may have a Material Adverse Effect becomes due or payable or capable of being declared due or payable prior to its stated maturity is not discharged at maturity or when called and such declaration of indebtedness being due or payable is not discharged or disputed in good faith by the Issuer in a court of competent jurisdiction within ninety (90) days from the date of such declaration or call, or the Issuer goes into default under, or commits a breach of, any agreement or instrument relating to any such indebtedness, guarantee or other obligations, or any security created to secure such indebtedness becomes enforceable; (vi) an encumbrancer takes possession of, or a trustee, receiver, receiver and manager or similar officer is appointed in respect of the whole or substantial part of the business or assets of the Issuer, or distress, legal process, sequestration or any form of execution is levied or enforced or sued in respect of the whole or substantial part of the business or assets of the Issuer and is not discharged within ninety (90) days after being levied, enforced or sued out, or any security interest which may for the time being affect 29
40. any of its assets becomes enforceable ; (vii) the Issuer fails to satisfy any judgement passed against it by any court of competent jurisdiction which may have a Material Adverse Effect and no appeal against such judgement or an application for a stay of execution has been made to any appropriate appellate court within the time prescribed by law or such appeal or application for a stay of execution has been dismissed; (viii) a resolution is passed for the winding-up of the Issuer or a petition for winding-up is presented against the Issuer or a winding-up order has been made against the Issuer and the Issuer has not set aside such petition or the petition is not withdrawn or discharged within ninety (90) days from the date of service of such winding up petition or a winding up order has been made against the Issuer; (ix) the Issuer 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 a moratorium is declared by a court of competent jurisdiction in respect of or affecting all or any part of its indebtedness or any assignment for the benefit of its creditors which may have a Material Adverse Effect (other than for the purposes of and followed by a reconstruction previously approved in writing by the Sukuk Trustee, unless during or following such reconstruction the Issuer 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 the Issuer; (x) any Security Document ceases to be in full force and effect or ceases to be effective to create the security interest or to provide the priority of security purported to be created thereunder or for whatever reason, any of the security interests created under any Security Document cannot be perfected or is in jeopardy or rendered invalid or defective in any way and, if capable of being remedied, the Issuer has failed to remedy the same within forty five (45) days after the Issuer became aware or having been notified by the Sukuk Trustee of such event; (xi) where there is a revocation, withholding, invalidation or modification of any licence, authorisation, approval or consent which impairs or prejudices the Issuer’s ability to comply with the terms and conditions of the Sukuk Murabahah or the provisions of the Transaction Documents; 30
41. (xii) the Issuer is for the purpose of section 466 of the Companies Act 2016 deemed unable to pay any of its debts or becomes unable to pay any of its debts as they fall due or suspends making payments with respect to all or any class of its debts; (xiii) the Issuer changes or gives notice to change the nature or scope of a substantial part of its business, or suspends or gives notice to suspend or ceases or gives notice to cease the operation of a substantial part of its business which it now conducts directly or indirectly and such change or suspension or cessation may have a Material Adverse Effect on the Issuer; (xiv) the Issuer repudiates any of the Transaction Documents or the Issuer does or causes to be done any act or thing evidencing an intention to repudiate any of the Transaction Documents; (xv) at any time any of the provisions of the Transaction Documents is or becomes illegal, void, voidable or unenforceable which would or would reasonably be expected to materially prejudice the rights or interest of the Sukukholders; (xvi) any of the assets, undertakings, rights or revenue of the Issuer are seized, nationalised, expropriated or compulsorily acquired by or under the authority of any governmental body which may have a Material Adverse Effect on the Issuer; (xvii) any event or events has or have occurred or a situation exists which may have a Material Adverse Effect on the Issuer, and in the case of the occurrence of such event or situation which is capable of being remedied, the Issuer does not remedy it within a period of sixty (60) days after the Issuer became aware or having been notified by the Trustee or the Security Trustee of the event or situation; or (xviii) Petronas Gas Berhad ceases to hold at least fifty one percent (51%) of the ordinary shares in the Issuer. Upon the occurrence of an Event of Default whether or not any Event of Default is continuing, the Sukuk Trustee may and shall, if instructed by the Sukukholders, declare an Event of Default has occurred and the Sukuk Trustee shall be entitled to enforce its rights under the Transaction Documents, including enforcing its rights under the Security Document and requiring the Issuer to pay the outstanding Deferred Sale Price (subject to Ibra’, if applicable) in accordance with the terms of the Transaction Documents. 31
42. For the purpose of these principal terms and conditions , “Material Adverse Effect” means in relation to an event, the occurrence of which materially and adversely affects the ability of the Issuer to perform its obligations under the Sukuk Murabahah and/ or any of the Transaction Documents. (25) Governing laws : Laws of Malaysia. (26) Provisions on buyback, if applicable : ☐ No provision on buy-back ☒ Provision on buy-back, details as below: Purchase and Cancellation The Issuer or its subsidiaries or any agent(s) of the Issuer may at any time purchase the Sukuk Murabahah at any price in the open market or by private treaty, but these Sukuk Murabahah shall be cancelled and cannot be reissued or resold. The Sukuk Murabahah so acquired by related corporations (other than its subsidiaries) or any interested person of the Issuer (which includes the directors, major shareholders and chief executive officer) will not be cancelled but will not entitle them to vote at any meetings of the Sukukholders and will not be deemed to be outstanding for the purpose of determining the total votes exercisable by the Sukukholders whenever such determination is required under the Trust Deed. (27) Provisions on early redemption, if applicable : ☐ No provision on early redemption ☒Provision on early redemption, details as below: Voluntary Early Redemption The Issuer may at any time during the tenor of the Sukuk Murabahah Programme early redeem, in whole or in part, any outstanding Sukuk Murabahah prior to the respective maturity date(s) of such Sukuk Murabahah on any Periodic Distribution Date subject to the consent of the Sukukholders by an extraordinary resolution in accordance with the terms of the Trust Deed. (28) Voting : All matters or resolutions which require the Sukukholders’ consent/approval under the Sukuk Murabahah Programme shall be carried out on a collective basis, by way of a resolution of the Sukukholders on the requisite majority of the Sukukholders as a single class and extraordinary resolution shall be passed on a vote of at least 2/3 of those present and voting at a duly convened meeting. (29) Permitted investments, if applicable : ☐ No permitted investment ☒ Permitted investment, details as below:- 32
43. Permitted Investments shall comprise investments in Shariah compliant products approved by the SC ’s SAC, Bank Negara Malaysia’s (“BNM”) SAC or other recognised Shariah authorities acceptable to the Shariah Adviser and shall mean: (a) money market deposit, repo, fixed deposits with any Islamic bank licensed pursuant to the Islamic Financial Services Act, 2013 and having a minimum long term rating of A1 and short term rating of P1 by RAM or its equivalent by MARC; (b) Islamic money market funds which are approved by the SC; (c) Islamic principal guaranteed structured investments approved by BNM and issued by licensed financial institutions with a short-term rating of P1 or MARC-1 and a minimum long-term rating of AA3 or AA- or its equivalent or their local or foreign equivalents; (d) Islamic treasury bills, Islamic money market instruments, and sukuk issued by BNM or the Government of Malaysia; and/or (e) any sukuk issued by corporations, financial institutions, or guaranteed by licensed financial institutions with a short-term rating of P1 or MARC-1 or a minimum long-term rating of AA3 by RAM or AAby MARC or BBB- by Standard & Poor’s or Baa3 by Moody's or their respective equivalent. For the avoidance of doubt, the Issuer shall at all times ensure that the funds held in the Designated Account are invested in Permitted Investments having maturities that match the utilisation of the monies to meet any payment obligations of the Issuer under the Sukuk Murabahah and being denominated in Ringgit Malaysia PROVIDED THAT the Permitted Investments shall mature no later than three (3) business days before any payment obligations are due and payable under the Sukuk Murabahah Programme and have to be channelled back to the Designated Account. (30) Ta’widh (Compensation) : In the event of any delay in payments of the Deferred Sale Price, the Issuer (as the Purchaser) shall pay to the Sukuk Trustee (acting on behalf of the Sukukholders) Ta’widh (compensation) on such delay in payment, at the rate and in the manner prescribed by the SAC of the SC from time to time. (31) Ibra’ : Ibra’ refers to an act of releasing absolutely or conditionally one’s rights and claims on any obligation against another party which would result in the latter being discharged of his/its obligations or liabilities towards the former. 33
44. The release may be either partially or in full . The Ibra’ shall be subject to the requirements stipulated under the SC LOLA Guidelines. An Ibra’, where applicable, shall be granted by the Sukukholders. The Sukukholders in subscribing to the Sukuk Murabahah hereby consent to grant such Ibra’ if the Sukuk Murabahah are redeemed upon the declaration of an Event of Default or if the Sukuk Murabahah are redeemed before the Maturity Date pursuant to the Voluntary Early Redemption. The Ibra’ if the Sukuk Murabahah are redeemed upon the declaration of an Event of Default shall be calculated as follows: (i) In the case of Sukuk Murabahah with Periodic Distributions and issued at par or at premium The aggregate Distributions. (ii) of the unearned Periodic In the case of Sukuk Murabahah with Periodic Distributions and issued at a discount The unearned Discounted Amount plus aggregate of unearned Periodic Distributions. (iii) the In the case of Sukuk Murabahah without Periodic Distributions and issued at a discount The unearned Discounted Amount. The Ibra’ in relation to (i) to (iii) above shall be calculated from the date of declaration of an Event of Default up to the respective Maturity Date(s). The Ibra’ to be granted by the Sukukholders if the Sukuk Murabahah are redeemed before the Maturity Date pursuant to the Voluntary Early Redemption shall be mutually agreed between the Issuer and the Sukukholders prior to such early redemption. (32) Kafalah (33) Other terms conditions (i) Details utilisation proceeds Issuer : Not applicable. and : on : The proceeds from the Sukuk Murabahah Programme shall of be utilised for the following Shariah-compliant purposes: by (a) repayment of shareholders’ advances and/or redemption of redeemable preference shares including any associated costs. For the avoidance 34
45. of doubt , any utilisation for this purpose other than from proceeds of the first issuance shall be subject to the Issuer’s ability to make Restricted Payments; and/or (ii) Issue price (b) payment towards prepayment of the Jetty Usage Agreement dated 28.02.2017 entered into between Pengerang Terminals (Two) Sdn. Bhd. and the Issuer (“Jetty Usage Agreement”) subject to agreement by the parties and the necessary approvals being obtained and/ or towards payment obligations under the Jetty Usage Agreement; and/or (c) working capital, capital expenditure and general corporate expenditure purposes and to fund the FSRA. : The Sukuk Murabahah may be issued at par, at a premium or at a discount to the nominal value, subject to the PayNet Rules and Procedures (as defined below), as amended or substituted from time to time. “PayNet Rules and Procedures” refers to (1) the Participation and Operation Rules for Payments and Securities Services issued by Payments Network Malaysia Sdn Bhd (“PayNet”) and (2) the Operational Procedures for Securities Services” issued by PayNet, or their replacement thereof, applicable from time to time. (iii) Identified : Shariah-compliant commodities (excluding ribawi items in asset/ Trust the category of medium of exchange such as currency, gold asset and silver) which are provided through the commodity trading platform, Bursa Suq al-Sila’ and/or such other independent commodity trading platform(s) acceptable to the Shariah Adviser, which will be identified on or prior to each issuance of the Sukuk Murabahah. (iv) Purchase and selling price/rental Purchase Price: The Purchase Price shall be equal to the proceeds of the Sukuk Murabahah. The Purchase Price shall be in compliance with the asset pricing requirements as set out in the SC LOLA Guidelines. Deferred Sale Price: The Deferred Sale Price shall be the Purchase Price plus the applicable Profit Margin payable on a deferred basis. (v) Tenor of the : The tenor of the Sukuk Murabahah shall be at least one (1) Sukuk year and up to twenty (20) years, provided that the Sukuk Murabahah Murabahah mature prior to the expiry of the Sukuk Murabahah Programme. 35
46. (vi) Profit/ coupon/ : For Sukuk Murabahah with Periodic Distributions, the rental rate periodic distribution rate (“Periodic Distribution Rate”) (fixed or shall be fixed rate basis and shall be determined prior to floating) each issuance of Sukuk Murabahah. The Periodic Distribution Rate is not applicable for Sukuk Murabahah without Periodic Distributions. (vii) Profit/ coupon/ : For Sukuk Murabahah with Periodic Distributions, the rental payment payment frequency of the Periodic Distributions shall be frequency semi-annual or such other period in arrears (“Periodic Distribution Date”) as determined prior to each issuance of Sukuk Murabahah. Not applicable for Sukuk Murabahah without Periodic Distributions. (viii) Profit/ coupon/ : For Sukuk Murabahah with Periodic Distributions, the rental payment Periodic Distributions shall be calculated on the basis of the basis actual/365 days (“Periodic Distribution Basis”). Not applicable for Sukuk Murabahah without Periodic Distributions. (ix) Status : The Sukuk Murabahah shall constitute direct, unconditional and secured obligations of the Issuer and shall at all times rank pari passu, without any discrimination, preference or priority among themselves and at least pari passu with all other present and future unsecured and unsubordinated obligations of Issuer subject to those preferred by law and the provisions of the Transaction Documents. (x) Redemption : Unless previously purchased and cancelled, the Sukuk Murabahah will be redeemed by the Issuer at 100% of their nominal value on their respective Maturity Dates or upon declaration of an Event of Default, whichever is earlier. (xi) Form and : Each tranche of the Sukuk Murabahah shall be issued in denomination accordance with PayNet Rules and Procedures. Form Each tranche of the Sukuk Murabahah shall be represented by a global certificate to be deposited with BNM, and is exchangeable for definitive bearer form only in certain limited circumstances. Denomination The denomination of the Sukuk Murabahah shall be RM1,000.00 or in multiples of RM1,000.00 at the time of issuance. (xii) Transaction Documents : “Transaction Documents” shall comprise, inter alia: (i) (ii) Programme Agreement; Trust Deed; 36
47. (iii) (iv) (v) (vi) (vii) Security Trust Deed; Securities Lodgement Form; Security Document; each Subscription Agreement; and agreements in respect of the underlying Shariah principle. (xiii) No payment of : For the avoidance of doubt and notwithstanding any other Interest provision to the contrary herein contained, it is agreed and declared that nothing in these terms and conditions and the Transaction Documents shall oblige or entitle any party nor shall any party pay or receive or recover interest on any amount due or payable to another party pursuant to these terms and conditions, the Transaction Documents and the parties hereby expressly waive and reject any entitlement to recover such interest. (xiv) 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 by or on behalf of Malaysia, or any 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 Issuer shall not 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. For the avoidance of doubt, there will be no obligation for the Issuer to gross up in the event of any deduction required to be deducted or made for the account of any Sukukholder. (xv) Sukuk : A Sukuk Trustees’ Reimbursement Account shall be Trustees’ opened by or on behalf of the Issuer with credit balance of Reimbursemen no less than RM30,000.00, which shall be maintained by t Account the Sukuk Trustee throughout the tenure of the Sukuk Murabahah Programme. The Sukuk Trustees’ Reimbursement Account shall be operated solely 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 any Event of Default in the manner as provided in the Transaction Documents. Any unutilised monies in the Sukuk Trustees’ Reimbursement Account shall be returned to the Issuer upon the expiry of the Sukuk Murabahah Programme if no Event of Default takes place. (xvi) Other conditions : The Sukuk Murabahah shall at all times be governed by the guidelines issued and to be issued from time to time by the SC, BNM and/or any other authority in Malaysia having jurisdiction over matters pertaining to the Sukuk Murabahah, and the PayNet Rules and Procedures. 37
48. (xvii) Jurisdiction : The Issuer shall irrevocably and unconditionally submit to the exclusive jurisdiction of the courts of Malaysia. THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK 38
49. SECTION 3 .0 CORPORATE INFORMATION ON THE ISSUER 3.1 Corporate profile of the Issuer PLNG2 was incorporated on 9 April 2012 in Malaysia under the Companies Act as a private company limited by shares. On 14 November 2014, PGB, DIALOG and PLNG2 entered into a Shareholders Agreement for PLNG2 to undertake the development of LNG regasification facilities comprising of a regasification unit and two (2) units of 200,000 m3 LNG storage tanks with an initial send out capacity of 3.5 MTPA (equivalent to approximately 490 MMscfd) of natural gas at Pengerang, Southern Johor, Malaysia (“RGTP Project”). Pursuant to the Shareholders Agreement, the parties thereto agreed amongst others that PLNG2 shall enter into land lease agreement with S.S.I and S.S.I shall be entitled to 10% of the ordinary shares in PLNG2. In accordance with an agreement for share transfer dated 13 November 2017 entered into between PGB, DIALOG, the Issuer, S.S.I and PDT, S.S.I transferred its shares in PLNG2 to PDT. As at the LPD, PGB, DIALOG and PDT hold 65%, 25% and 10% of the ordinary shares in PLNG2 respectively. The principal activities of PLNG2 are to construct, own, manage and operate LNG regasification terminal and ancillary facilities at Pengerang, Johor. The registered office of the Issuer is located at Tower 1, PETRONAS Twin Towers, Kuala Lumpur City Centre, 50088 Wilayah Persekutuan Kuala Lumpur, Malaysia. 3.2 Share capital of the Issuer The issued and fully paid-up share capital of the Issuer as at LPD is RM880,789,000.00 which consists of 20,000,000 ordinary shares and 596,858 redeemable preference shares (RPS). 3.3 Shareholders of the Issuer The shareholders of the Issuer and their shareholdings as at LPD are as follows: PETRONAS Gas Berhad No. of Ordinary Shares and Preference Shares held Ordinary (%) Preference (%) Shares Shares 13,000,000 65 431,051 72 Dialog LNG Sdn. Bhd. 5,000,000 25 165,807 28 Permodalan Darul Ta’zim Sdn. Bhd. 2,000,000 10 - - Name of Shareholder 39
50. 3 .4 Corporate profile of the Shareholders of the Issuer PETRONAS Gas Berhad PGB was incorporated on 23 May 1983 as a wholly-owned subsidiary of PETRONAS and was listed on the main market of Bursa Malaysia on 4 September 1995. The issued and fully paid-up share capital of PGB as at LPD is RM1,978,731,915 which consists of 1,978,731,915 ordinary shares. As at LPD, PGB is 51.0% owned by PETRONAS, while the remaining shares are held by other institutional investors and retail shareholders. PGB is Malaysia’s leading gas infrastructure and centralised utilities company and one of the six publicly listed companies in PETRONAS Group. With a market capitalisation of approximately RM32.7 billion as at August 2020, PGB is also one of the largest companies listed on the main market of Bursa Malaysia and a constituent of FTSE Bursa Malaysia KLCI Index and FTSE4Good Bursa Malaysia Index. Through its core businesses in gas processing, gas transportation, regasification and utilities, PGB processes natural gas extracted from PETRONAS’ offshore fields, stores and re-gasifies imported LNG cargoes, transports both re-gasified and processed gas via the PGU network to shippers’ end-customers in Peninsular Malaysia and Singapore, and also supplies steam, power and industrial gases. Dialog LNG Sdn. Bhd. DIALOG was incorporated on 7 August 2014 in Malaysia under the Companies Act as a private company limited by shares under its existing name. The issued and fully paid-up share capital of DIALOG as at LPD is RM200,000.00 which consists of 200,000 ordinary shares. It is a wholly owned subsidiary of Dialog Equity (Two) Sdn. Bhd. which in turn is the wholly owned subsidiary of DGB. DGB is a leading integrated technical service provider to the upstream, midstream and downstream sectors in the oil, gas and petrochemical industry. DGB serves a diverse range of customers that include multinational oil majors, national oil companies as well as multinational engineering and services providers located throughout the world. DGB’s services include upstream assets and services, logistic assets and services – tank terminals and supply base, engineering, procurement, construction and commissioning, specialist products and services, plant maintenance and catalyst handling services, fabrication, digital technology and solutions. DGB is listed on the main market of Bursa Malaysia with a market capitalisation of approximately RM20 billion as at August 2020. DGB was also included into the FTSE Bursa Malaysia KLCI Index in June 2018. 40
51. Permodalan Darul Ta ’zim Sdn. Bhd. PDT was incorporated on 16 December 1994 in Malaysia under the Companies Act as a private company limited by shares under its existing name. PDT is a wholly-owned investment holding company by the Johor State Government. The issued and fully paid-up share capital of PDT as at LPD is RM1,000,002.00 which consists of 1,000,002 ordinary shares. PDT overarching role is driving equity holdings in various strategic investments and state initiatives that promotes competition. PDT is involved in sectors such as holding water-related assets, construction and property development. Shareholders Agreement Pursuant to the shareholders agreement dated 14 November 2014 entered into between PGB, DIALOG and the Issuer, and an agreement for share transfer dated 13 November 2017 entered into between PGB, DIALOG, the Issuer, S.S.I and PDT, (i) the holding of shares in the Issuer by PGB shall be 65%; (ii) the holding of shares by DGB and its affiliates shall be 25%; (iii) the Johor State Government, through S.S.I shall be entitled to be allocated 10% of the shares of the Issuer which was subsequently transferred to PDT; (iv) the Issuer shall be managed by a Board consisting of seven directors, four of which are to be nominated by PGB, two of which to be nominated by DIALOG and one of which is to be nominated by PDT. Similarly, each shareholder shall have the right to remove its appointed director; (v) with respect to all matters considered by the Board, each director will have one (1) vote. Except for the Board Reserved Matters set out in the Shareholders Agreement which shall only be decided by the affirmative vote of at least one of the directors appointed by each of PGB and DIALOG (or their alternates), all matters considered by the Board will be decided by the affirmative votes of a simple majority of all directors present or represented at the meeting. The chairman of the Board shall not have a casting vote; (vi) with respect to all matters considered by the shareholders, each shareholder shall, on poll, have one (1) vote for each fully paid-up share which that shareholder owns on record on the date the vote is taken. Except for the Shareholders Reserved Matters set out in the Shareholders Agreement which can only be authorised by the affirmative votes of PGB and DIALOG, and subject to the Companies Act, all matters considered by the shareholders will be decided by the affirmative vote of a simple majority of all the shareholders present and voting at the meeting. 41
52. 3 .5 Profiles of directors of the Issuer The profiles of the Directors of the Issuer as at LPD are as follows: 1. Kamalbahrin bin Ahmad (Chairman) Kamalbahrin bin Ahmad, Malaysian, aged 55, was appointed as a director and the Chairman of PLNG2 on 1 July 2017. He holds a Bachelor Degree in Chemical Engineering from University of Texas, United States of America (USA) and attended Advanced Management Programme in Harvard Business School, USA. During his stint in PGB, Kamalbahrin led the “Plant Operational Performance Improvement Program” and was also successful in the implementation of the gas processing plant new business model from tolling to performance based business model. In 2009, Kamalbahrin moved to management of PGB’s upstream businesses, being appointed as the Senior General Manager, Development Division PETRONAS Carigali where he managed drilling activities and projects for both domestic and international markets. In 2011, Kamalbahrin was seconded to Durban, South Africa to spearhead a transformation program of PETRONAS subsidiary Engen Refinery. With his 15 years of experience running all three PETRONAS refineries located in Terengganu, Melaka and Durban, he took up the position of Managing Director/ Chief Executive Officer (MD/CEO) of PETRONAS Penapisan Melaka Sdn Bhd in 2014. Kamalbahrin steered a smooth transition of the refinery operation post full acquisition of the asset from a joint venture with Philips66 to being wholly-owned by PETRONAS. Kamalbahrin is currently the Vice President, Gas & Power and MD/CEO of PGB. He also serves on several boards within PETRONAS Group. 2. Abdul Razak bin Saim (Director/Chief Executive Officer) Abdul Razak bin Saim, Malaysian, aged 53, was appointed as a director of PLNG2 on 3 November 2017. He holds a Degree in Mechanical Engineering (Hons) from University of Wollongong, New South Wales, Australia. He started his career with PETRONAS in 1992 as a procurement executive in PGB and held various technical positions within PGB until 2002. In September 2002, he was seconded to East Australia Pipeline Marketing Pvt Ltd and was based in Sydney for three years, where he managed the capacity marketing for the 3,000 km Moomba-Sydney gas pipeline under Third Party Access (TPA) regime, and was involved in the front-end development of the Papua New Guinea- Queensland pipeline project. He was appointed as Manager in the Gas Supply Planning Gas Business Unit of PETRONAS in 2006 and headed the department from 2008 until 2011. In 42
53. 2011 , he was promoted as the Head of Gas Business Development Department. He is presently the Head of Business Development and Commercial Division of PGB and the Chief Executive Officer of PLNG2. His responsibility includes maximizing profitability for the PETRONAS Group through effective business development, commercial negotiation and resolutions, business ventures management, land acquisition and management and TPA and regulatory. He also serves on several boards within the PETRONAS Group. 3. Zainal Abidin bin Zainudin (Director) Zainal Abidin Zainudin, Malaysian, aged 55, was appointed as a director of PLNG2 on 3 April 2017. He holds a BSc in Chemical Engineering from University of WisconsinMadison, USA and Masters in Business Administration (MBA) from University of Wales (Cardiff), United Kingdom. Zainal Abidin Zainudin currently holds the position of General Manager of Gas Planning and Optimization at Integrated Hydrocarbon Management, PETRONAS. His main tasks and responsibilities are to manage and regulate the overall planning and optimization of gas supply in Malaysia. He recently retired as a permanent staff and currently on a two-year working contract with PETRONAS effective 15 July 2020. He has more than 30 years working experience in the oil and gas industry. He started his career as a petroleum engineer when he joined PETRONAS in April 1989. He then progressed through the various upstream technical and economic departments in the (at that time called) PETRONAS Exploration and Production (E&P) (now known as Malaysia Petroleum Management (MPM)) and PETRONAS Carigali Sdn. Bhd. (“PCSB”) before he continued his further studies in 1999. After completing his MBA in 2000, he joined the PETRONAS’ Corporate Group holding various senior positions at Group Internal Audit, Group Strategic Planning and Portfolio, and Group Supply Chain Management, before returning back to upstream business in 2009 to head the Technical Planning of Petroleum Engineering Department in PCSB. Subsequently, in mid-2010 he moved to head the Petroleum Economics Department, which was responsible for the evaluation of project economics and developing investment criteria and set the standard and procedures for economic evaluations for the whole of PETRONAS upstream business. Prior to holding the current position, Zainal was the Country Head for PETRONAS’ Azerbaijan Operations where he managed the overall PETRONAS investment in Azerbaijan in particular the Shah Deniz assets. He also serves on several boards within the PETRONAS Group. 43
54. 4 . Abdul Razak Faiz bin Sulaiman (Director) Abdul Razak Faiz bin Sulaiman, Malaysian, aged 49, was appointed as a director of PLNG2 on 10 March 2020. He holds a Bachelors (Honours) in Accountancy from Universiti Teknologi MARA and a Masters of Science in Information Technology from Universiti Kebangsaan Malaysia. He is a Certified Public Accountant (CPA) with the Malaysian Institute of Certified Public Accountants (MICPA) and a Chartered Accountant (CA) with the Malaysian Institute of Accountants, both, after training with PriceWaterhouseCoopers PLT. He is also a member of the Association of Corporate Treasurers (ACT). He started his career with the PETRONAS Group with the Corporate Planning and Development Division of MISC Berhad. Over his 14-year stint with the MISC Group, he held various senior and leadership positions in the Corporate Planning, Group Finance, Group Treasury and Corporate Finance functionalities. Between 2005 & 2006, he was seconded to Malaysia Marine and Heavy Engineering Sdn Bhd (now known as MMHE Holdings Berhad) to head its corporate planning function and between 2006 to 2010, he was assigned to American Eagle Tankers Inc. Limited to oversee its global finance and planning functions headquartered out of London. Faiz is currently the Head of Commercial & Contract Management, PETRONAS Refinery and Petrochemical Corporation Sdn Bhd (PRPC). He also serves on several boards within the PETRONAS Group. 5. Chan Yew Kai (Director) Chan Yew Kai, Malaysian, aged 66, was appointed as a director of PLNG2 on 3 April 2014. He holds a first class Honours Degree in Chemical Engineering from the University of Malaya. He is a member of the Institution of Engineers, Malaysia and is a Professional Engineer registered with the Board of Engineers, Malaysia. He is also a Fellow of the Institution of Chemical Engineers, United Kingdom. He joined DGB in 1993 as General Manager and was later promoted as Director and Chief Executive Officer of Dialog Systems (Asia) Pte Ltd, overseeing the operations of DGB Group’s Business Development, Marketing, Technical Services and Petroleum Retail. He was later appointed as Deputy Group Managing Director and President & Chief Operating Officer of DGB prior to his current position. He is currently also an alternate board member of Johor Petroleum Development Corporation Berhad. He has over 41 years of experience in the oil, gas and petrochemical industry encompassing plant operations, project engineering and management, marketing and business development. He was formerly with Imperial Chemical Industries (UK) for nine years and PETRONAS for five years. He is currently the Executive Deputy Chairman of DBG. He also holds directorship in various companies across DGB Group. 44
55. 6 . Zainab binti Mohd Salleh (Director) Zainab binti Mohd Salleh, Malaysian, aged 54, was appointed as a director of PLNG2 on 9 April 2012. She holds a Bachelor of Commerce in Accountancy from University of New South Wales, Australia and is a Chartered Accountant with the Malaysian Institute of Accountants. She joined DGB in 1995 as Accountant and was later promoted to Group Financial Officer and Joint Company Secretary. She has over 31 years of working experience in auditing and financial management. She was formerly with Price Waterhouse (now known as PricewaterhouseCoopers) and other companies responsible for financial and cost management accounting. She is currently the Group Chief Financial Officer and Joint Company Secretary of DGB. She is also the Secretary of the Nomination Committee and Remuneration Committee and holds directorship in various companies across Dialog Group. 7. Lukman bin Abu Jari @ Abu Bakar (Director) Lukman bin Abu Jari @ Abu Bakar, Malaysian, aged 53, was appointed as a director of PLNG2 on 28 February 2020. He holds a Bachelor of Arts (Hons) Public Administration from Nottingham Trent University, United Kingdom and Masters of Business Administration (Strategic Management) from International Business School, Universiti Teknologi Malaysia (UTM). He has experience of almost 27 years working in government departments. He first served as a Public Relation Officer at UTM, Skudai between October 1993 and June 1995 and was subsequently appointed as an Assistant Director at Johor Economic Planning Unit (Privatisation) after obtaining five years experience as an Assistant Secretary in the State Secretary Office (Administration Branch). He also served as a Chief Private Secretary for the Chief Minister of Johor for the period of five years from 2004 to 2008 and thereafter served as the District Land Administrator at Kulai Jaya Land Office. His professional attitude and perseverance in carrying out official duties amid challenges faced are the qualities that he holds firmly when being appointed again at Johor Economic Planning Unit as a Deputy Director II (Macro & Privatisation) before his current appointment as a Chief Executive of PDT in 2014. He oversees and administers the day to day operation of the company by giving guidance to the management team. Aside from ensuring the adherence of the company’s corporate governance practices, he is also responsible to provide corporate advisory to the Board of Directors on potential projects in order to enhance the company’s revenue. He is currently the Chief Executive of Permodalan Darul Ta’zim Sdn Bhd. He also holds directorship in other companies such as Pengerang Independent Terminals Sdn Bhd, Desaru Development Corporation Sdn Bhd, Cahaya Jauhar Sdn Bhd, amongst others. 45
56. 8 . Shariza Sharis binti Mohd Yusof (Alternate Director to Kamalbahrin bin Ahmad, Abdul Razak bin Saim, Zainal Abidin bin Zainuddin and Abdul Razak Faiz bin Sulaiman) Shariza Sharis Binti Mohd Yusof, Malaysian, aged 46, was appointed as alternate director to Kamalbahrin bin Ahmad, Abdul Razak bin Saim and Zainal Abidin bin Zainuddin on 3 November 2017 and as alternate director to Abdul Razak Faiz bin Sulaiman on 10 March 2020. She is a Fellow of the Institute Chartered Accountants in England and Wales, Member of the Malaysian Institute of Accountants and holds a Bachelor of Science Degree in Economics & Accounting from University of Bristol, United Kingdom. She started her career with PETRONAS in 2001 as an Executive in PETRONAS Corporate Finance upon completing her professional qualification in United Kingdom. A year later, she was assigned to PETRONAS President/CEO’s Office as an analyst before joining PETRONAS Dagangan Berhad as Financial Accounting Manager in 2005. In 2007, she was seconded overseas to Dragon LNG, then a PETRONAS joint venture in United Kingdom, as Head of Finance & Administration. Upon her return to Malaysia in 2008, she was appointed as Senior Manager for Strategic Planning (Corporate and Americas) at PETRONAS Group Strategic Planning. In 2011, she joined PETRONAS Chemicals Group Berhad as Head of Group Accounts and Performance Planning and assumed the position of Financial Controller the following year. With over 19 years of experience in finance and planning across PETRONAS’s businesses, she was appointed as Chief Financial Officer of PGB on 1 September 2017. She is presently responsible for the overall fiscal and financial management as well as investor relations for PGB Group of Companies. She also serves on several boards within the PETRONAS Group. 9. Ngau Wu Wei (Alternate Director to Zainab bin Mohd Salleh) Ngau Wu Wei, Malaysian, aged 43, was appointed as alternate director to Zainab bin Mohd Salleh on 27 November 2014. Ngau Wu Wei has a Bachelor’s Degree in Information and Decision Systems from Carnegie Mellon University, and a Bachelor’s Degree in Accounting and Finance from the University of Canterbury. He has over 19 years of experience in the oil and gas and consulting industries. Wei spent over 13 years in the oil and gas industry, primarily in midstream and downstream, focusing on various roles from operations, corporate planning to digital and technology. Prior to joining DGB, he was a manager with BearingPoint (formerly known as KPMG Consulting) based out of the New York office, and serving financial services clients. He is currently the Director Corporate Strategy of Dialog Group. He also holds directorship in various companies across Dialog Group. 46
57. 10 . Teo Seow Ling (Alternate Director to Chan Yew Kai) Tew Seow Ling, Singaporean, aged 50, was appointed as alternate director to Chan Yew Kai on 7 November 2017. He holds a Bachelor of Engineering Degree in Mechanical Engineering and a Master of Science Degree in Industrial Engineering from the National University of Singapore. He has more than 21 years of extensive experience in both operations and general management of bulk liquid terminals of which he spent close to 17 years with Vopak where he held a variety of operational and senior management positions. Prior to joining DGB, he was the Vice-President of Operations at Singapore LNG Corporation Pte. Ltd. for two years. He is currently the Chief Executive Officer, Terminals Business of Dialog Group. He also holds directorship in various companies across Dialog Group. 11. Dzulkifly bin Hassan (Alternate Director to Lukman bin Abu Jari @ Abu Bakar) Dzulkifly bin Hassan, Malaysian, aged 43, was appointed as the alternate to Lukman bin Abu Jari @ Abu Bakar on 28 February 2020. A meticulous person in nature, Dzulkifly first obtained his Diploma in Accounting before graduating with a Bachelor Degree in Accounting with distinction. After gaining extensive experience as an auditor in the first tier accounting firm and a proved record of establishing cross-functional partnerships to deliver stellar results, he was appointed as Chief Operating Officer (COO) at one of the statutory bodies. In 2007 till 2013, Dzulkifly was selected by the State Government of Johor and Prime Minister’s Department to advise on strategic initiatives effecting global positioning of the successful development on Oil and Gas Industry in Pengerang, Johor. Leveraging on his strengths as an auditor and vast knowledge in various sectors includes, inter alia, agriculture, investment instruments, property management, tourism, utilities (water and waste water), oil and gas, manufacturing and construction, Dzulkifly subsequently joined PDT in January 2014, where he currently Deputy President for Corporate & Finance Group. He also sits in the board of several companies such as Pengerang Independent Terminals Sdn Bhd, Desaru Development Corporation Sdn Bhd, Tebrau Indah Sdn Bhd amongst others. 3.6 Management of the Issuer The Issuer’s management, operational and corporate support are provided from within the PETRONAS and PGB group of companies. The operations and maintenance services required by the Issuer are provided by PGB’s wholly-owned subsidiary Regas Terminal (Sg. Udang) Sdn. Bhd. (“RGTSU”) which has a proven track record of operating PETRONAS’ regasification terminal in Sungai Udang, Melaka, since 2013. The Operations and 47
58. Maintenance Agreement between the Issuer and RGTSU for the provision of the operations and maintenance services is further described in Section 4 .6 below. The Issuer has in place a Management Services Agreement dated 28 January 2016 with PGB for the provision of management services, including but not limited to the provision of any corporate services by PGB to the Issuer as well as various service agreements with related corporations for the respective administrative and business needs. Corporate support services are also provided by PETRONAS under the Management Services Agreement entered into on 25 April 2019 and the Treasury Master Services Agreement entered into on 8 February 2017. The scope of services provided by PETRONAS includes finance and tax, treasury, insurance, human resource management, legal and other business support functions. The Issuer has also entered into a technical services agreement dated 31 December 2019 with Petronas Global Technical Solutions Sdn. Bhd. (“PGTSSB”) for provision of technology products, technical services, project management, and engineering solutions services. The organisation chart with respect to the management of the Issuer is as follows:- Abdul Razak bin Saim who is also a director of the Issuer, is the Chief Executive Officer of the Issuer. His profile as at LPD is as disclosed in Section 3.5 above. His responsibilities as the Chief Executive Officer of the Issuer include steering, leading and controlling overall business operations of the Issuer by formulating the strategic business direction and ensuring the Issuer’s local regulatory compliance and practise of good governance in all aspects of business operations to achieve maximum value returns and best market positioning of the Issuer while 48
59. safeguarding and sustaining the long term interest of the shareholders , customers and community. 3.7 Corporate Structure of the Issuer The corporate structure of the Issuer as at LPD is as follows: THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK 49
60. SECTION 4 .0 BUSINESS OVERVIEW OF THE ISSUER 4.1 Business overview PLNG2 owns, operates and maintains RGTP, one of the six associated facilities in Pengerang Integrated Complex (“PIC”). RGTP is key in the delivery of natural gas supply to RAPID and Pengerang Cogeneration Plant (“PCP”) within PIC. RGTP is the second LNG regasification plant in Malaysia following the regasification terminal in Sungai Udang, an offshore terminal located in Melaka. As the primary entry point for gas supply in the southern region of Peninsular Malaysia, RGTP plays a key role in PIC, PETRONAS’ largest downstream investment in Malaysia to date, which consists of oil refineries, petrochemical plants, naphtha crackers, and other associated facilities. With an investment of USD27 billion, PIC supports the Government's overall Economic Transformation Programme (ETP) and forms part of Johor state’s ambitious Pengerang Integrated Petroleum Complex (“PIPC”). RGTP also augments the availability of gas in the country through its interconnection to the PGU grid. RGTP was constructed by the consortium of Samsung C&T Corporation, Whessoe Engineering Ltd, Science-Tech Solutions Sdn. Bhd. and Samsung C&T (KL) Sdn. Bhd. via an Engineering, Procurement, Construction, and Commissioning contract awarded on 8 October 2014. It commenced operations ahead of schedule in November 2017 upon completion of the regasification terminal, LNG jetty topside and the first LNG storage tank and achieved full commercial operation with the completion of the second LNG storage tank in April 2018. A) LNG Regasification Services As at 30 June 2020, 99.6% of the revenue of PLNG2 is from the provision of LNG regasification services, which include unloading, storage and regasification of LNG. RGTP has a regasification capacity of up to 3.5 MTPA and it regasifies LNG before the gas is transported to PIC in Pengerang, Johor via tee-off valve 511A, located at kilometer 3.1 of the 72 km Pengerang Gas Pipeline (PGP). RGTP is also connected by PGP to PGB’s PGU pipeline at Ulu Tiram, which allows for the gas to be sent to other industrial, commercial and residential users. RGTP regasifies the imported LNG through a process that includes unloading the imported LNG from vessels at a dedicated jetty within the Pengerang Deepwater Terminal. The imported LNG is then channelled to two storage tanks onsite through pipelines and is subsequently vapourised using seawater as heating medium and converted into gaseous state. Upon regasification, 90% of the natural gas is sent to PIC while the remaining 10% is injected into the PGU. The capacity users/shippers who import LNG from around the world may utilise RGTP’s regasification facilities by entering into a Terminal Use Agreement with PLNG2 to deliver gas to their end customers. The capacity users/shippers who use the services shall pay to the Issuer the regasification tariff, and, where relevant the interruptible regasification fee, the storage fee and the reload fee. 50
61. The regasification tariff is determined by the Energy Commission according to the Guidelines on Determination of Regasification Facility Tariff Under IncentiveBased Regulation (IBR) (“IBR Framework”) which provides a fair return on the company’s invested assets and recovery of operational costs. From the period of 1 January 2020 to 31 December 2022 (Regulatory Period 1), the regasification tariff is RM3.485/GJ/day subject to adjustments as provided under the IBR Framework. On 16 April 2019, the Issuer and PEGT, a wholly-owned subsidiary of PETRONAS, had entered into a long term Terminal Use Agreement which fully underwrites RGTP’s current capacity up to 1 November 2042. B) Ancillary Services As part of PLNG2’s revenue diversification efforts, PLNG2 has new revenue streams coming from integrated ancillary services at RGTP, namely GUCD and reloading. These two services signify PLNG2’s commitment to be a progressive energy and solutions partner by offering flexible and diversified solutions to cater for the growing needs of its customers and provide flexibility to capacity users of RGTP to export LNG, which in turn increases RGTP’s asset utilisation. The GUCD is a specialised service to condition the storage tanks on LNG carriers, after drydocking, to a hydrocarbon environment and cool it down to cryogenic temperature, of -130 degree Celsius (°C), before loading its next cargo. With the provision of the GUCD service, RGTP anticipates to attract more LNG vessel operators and owners to utilise its services, and allows the facility to grow as a one-stop centre, being strategically located along the Straits of Johor, close to the nearby Pasir Gudang and Singapore dockyards. PLNG2 has also introduced LNG reloading services, from PLNG2’s storage tanks into vessels at RGTP in August 2019, as part of the LNG bunkering/ breakbulking value chain. Through the launch of this service, PLNG2 provides the opportunities to capacity users of RGTP to also export LNG. This will further position RGTP as a one-stop solution centre in the region by offering a wide range of services to its customers. On 4 September 2020, PLNG2 commenced the provision of LNG truck loading service which is part of PETRONAS’ Virtual Pipeline System (“VPS”). Through the VPS solution, PETRONAS provides industries in Peninsular Malaysia that are not connected to natural gas infrastructure with an option to switch to gas as an alternative form of cleaner energy using trucks fitted with cryogenic tanks. THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK 51
62. 4 .2 Process and Technology RGTP is designed to receive LNG Carriers (“LNGC”) with capacity in the range of 130,000 m3 to 270,000 m3 for unloading operations and 5,000 m3 to 270,000 m3 for reloading operations. There are two dedicated berths located at the jetty for LNG whereby Berth 6204 is currently in operation and Berth 6205 is for future use. LNG will be unloaded from LNGC to the storage tanks for storing purposes prior to being regasified and transported to customers in PIC and other customers through PGU pipeline. In addition, LNG can also be reloaded from the storage tanks to the LNGC for export purposes. RGTP operates on different modes of operations i.e. unloading, reloading and holding. LNG from the storage tanks is pumped using combination of LNG In-Tank Pumps and HP LNG Pumps before being vaporised using Open Rack Vaporiser (“ORV”). Sea water is used as the heating medium for the ORV unit. During unloading and reloading operations, boil-off gas (“BOG”) generated from the LNG Storage Tanks or LNGC is transferred via the vapor return line and returned to the LNGC or LNG Storage Tanks respectively to maintain pressure balance. Excess BOG generated during holding, unloading and reloading modes of operation is compressed and then recondensed in a BOG Recondenser using the sub-cooled LNG from the tanks. LNG from the BOG Recondenser is then pumped to the ORVs for regasification into natural gas. 52
63. RGTP is designed to meet the send out capacities as following : Description Operating Modes LNG unloading and Unloading reloading operation Holding Reloading Send Out Capacity Name Plate 3.5 MTPA natural gas send out capacity (equivalent to 407.5ton/hr of natural gas Gassing up and cooling down is a process to prepare the ship before they can load and transport LNG vessel’s after lay-up/ dry docking. Gassing up process is when LNG is being introduced into the vessel to purge the inert gasses. Once completed, it will then undergo the cooling down process where further LNG transfer will be carried out to bring down temperature until it reaches ready to load condition of approximately -130°C. THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK 53
64. Digital in operation RGTP digital program had been designed and implemented based on Pengerang Refinery & Petrochemical Complex (PRPC) Digital Blueprint. PLNG2 had officially subscribed to the digital program and operations & maintenance (O&M) services since August 2019 via Letter of Interest to PRPC dated 21 August 2019. Prior to 2019, RGTP had run the terminal using information and communications technology (ICT) and connectivity infrastructure by Telekom Malaysia (TM). Fifteen initiatives had been identified for implementation under RGTP digital program with overall completion by FYE2021. To date, eight initiatives had been completed, six initiatives are currently ongoing and one initiative still under feasibility study. All the digital initiatives at RGTP geared towards safe, efficient, and reliable operation. 54
65. 4 .3 Site and Layout The RGTP Project was developed on reclaimed land located within the Pengerang terminal held under the title particulars H.S.(D) 36617, PTD 5041, Daerah Kota Tinggi, Mukim Pengerang, Negeri Johor measuring approximately 19.3056 hectares where the land reclamation for the RGTP Project has been completed by DIALOG. The land is a leasehold land of 99 years expiring on 27 February 2111 and shall be used as heavy industrial area for the purpose of use in oil and gas industry and other related uses, and be constructed in accordance with the plan approved by the relevant local authority. The lease payment is a one-off rental for the entire lease period. The land is leased by S.S.I to the Issuer for a term of 65 years expiring on 9 August 2080, with an option to renew the lease for a period up to 1 day prior to the expiry of the lease tenure of 99 years of the title. All the beneficial and legal ownership, rights, interests and benefits in or to all facilities, buildings, jetties, pipelines, tanks and other non-movables as constructed and/or laid on or below the land or any part thereof (and any assets, structures, appurtenances, plants, equipment, and any of the installations or movables constructed, installed and/or laid on the land) shall at all times throughout the lease period belong to and remain vested in the Issuer. Accordingly, the Issuer is entitled to impose and collect payments for terminal usage, jetties usage and usage of any part of facilities, buildings, jetties, pipelines, tanks which are constructed on the land; and to grant tenancies, licences or any other rights granted on the land or any part thereof. The rate of such charges shall be determined by the Issuer at its sole and absolute discretion. A site map of the RGTP Project is attached as Appendix IV of this Information Memorandum. 4.4 Regulatory Environment Regasification of LNG is governed under the Gas Supply Act 1993 and this activity is regulated by the Energy Commission. Pursuant to the IBR Framework, in any given year of a three-year regulatory period, PLNG2 shall set its respective tariffs and charges applied for the provision of the Regulated Services, defined in the IBR Framework as the berthing and unloading of LNG tankers, the temporary storage of LNG, the regasification of LNG and the delivery of regasified gas to the transportation or distribution system, as applicable (“Regulated Tariffs”). The Regulated Tariffs shall be set out in a Tariff Table to be published by PLNG2 on its designated website and by such other means as it considers appropriate to bring the Tariff Table to the attention of existing and prospective users of its facility. The Regulated Tariffs are subject to approval by the Energy Commission for every three-year Regulatory Period and the Regulated Tariffs may be adjusted for the next Regulatory Period. The Regulated Tariffs may also be revised annually by submitting the proposed Regulated Tariffs, in the form of the proposed Tariff Table for the following year, to the Energy Commission for review. 55
66. The Regulated Tariffs intends to provide a fair return on the company ’s invested assets and recovery of operational costs. The components and the method of calculation of the Regulated Tariffs are available on the Energy Commission’s website, www.st.gov.my. Further, the Third Party Access Code for Malaysian Regasification Terminals (“Code”) had been developed by the Energy Commission with the objective of establishing a framework for third party access to the regasification terminals and the Code applies to among others regasification licensees. Under the Code, the following documents will be established by and/or between the parties set out in the Code:(1) Access Arrangement (“AA”) established by a regasification licensee and approved by the Energy Commission contains the standard principles of arrangement between such regasification licensee and the parties who wish to access the relevant regasification terminal. The relevant AA shall be published before a regasification licensee starts to provide any regasification services and once so published shall not be amended, varied or modified without the written approval of the Energy Commission; (2) Regasification Agreement (“RGA”) to be entered into between a regasification licensee and a shipping licensee and/or an import into regasification terminal licensee containing all the terms and conditions related to the regasification services agreed upon between the relevant parties and will incorporate by reference the terms of the AA; and (3) Gas Connection Manual (“GCM”) containing certain technical provisions and physical arrangements between a regasification licensee and a transportation licensee. The GCM to be established will contain provisions regarding the physical connection, measurement, operational safety and arrangements with regards to the connecting facilities. Further details on the IBR Framework and contract terms requirement provided under the Code are available on the Energy Commission’s website, www.st.gov.my. 4.5 Licensing Requirements PLNG2 has been granted a regasification license, the details of which are provided below, to carry out the activity of operating and maintaining a regasification terminal to regasify the LNG into natural gas at the regasification terminal and includes receiving, storing and after the regasification, delivering the gas through the regasification terminal pipeline. License Regasification License Issuing Authority Energy Commission 56 Expiry Date Special Condition 30 March 2038 Within one month from the commencement date of 30 March 2018, PLNG2 (the “Licensee”) shall furnish to the Energy Commission a list of its substantial shareholders and their
67. respective shareholding in the Licensee . Any changes to the said list shall thereafter be informed to the Energy Commission. Any changes in the shareholders or the shareholding structure shall not involve any shareholders or shareholding of the transportation or distribution licensees or which is in conflict with the interests in the authorised business of the Licensee unless prior written approval of the Energy Commission is obtained. The Licensee shall ensure that the authorised business covered under the Licence shall not give any subsidy to, or receive any cross subsidy from, any other business of the Licensee or an affiliate or related undertaking of the Licensee. The Licensee shall, in the general conduct of its authorised business, comply with the policies of the Government including but not limited to the promotion of competition in the gas supply industry. The Licensee shall adopt and implement reasonable and prudent policies in relation to management and insurance of risks associated with its authorised business. 57
68. The Licensee shall notify the Energy Commission not less than three months prior written notice of its intention to acquire any relevant asset , dispose of or relinquish control over any relevant asset, with a value in excess of a sum equivalent to a figure which shall cause a difference of RM0.01 or more to the tariff currently applicable for the utilization of the facility, together with such further information as the Energy Commission may request, relating to such asset or the circumstances of such intended acquisition, disposal or relinquishment of control, including the acquisition and disposal procedures of the Licensee. PLNG2 also holds all the licenses that are required under the Gas Supply Act and other legislation for its business and operations, including Electrical Installation Registration License issued by the Energy Commission, Manufacturing License issued by Malaysia Investment Development Authority/ Ministry of International Trade and Industry to conduct activity of regasification of LNG to natural gas, and River Water Deviation or Abstraction License (Lesen Melencong atau Mengabstrak Air Sungai) issued by Director of Water Resources, Johor to abstract sea water. PLNG2 tracks and monitors governmental regulation and licensing requirements via its internal “Legal Easy” monitoring system which provides a comprehensive database to track license renewals and regulatory compliance. 4.6 Material Contracts In respect of defined terms in this Section 4.6 only, where the same is not defined elsewhere in this Information Memorandum, the defined terms have the meaning ascribed to them in the respective contracts. Terminal Use Agreement and Access Arrangement The capacity users/shippers who require regasification services are required to enter into a Terminal Use Agreement with PLNG2 being the regasification licensee and to access the regasification terminal. An Access Arrangement is required to be established and is incorporated into the Terminal Use Agreement. 58
69. The capacity users who use the services shall pay the regasification tariff and where relevant , the interruptible regasification fee, the storage fee and the reload fee for each contract month, the calculation of which is provided in the Terminal Use Agreement. The regasification fee is calculated based on the booked capacity instead of the actual terminal capacity utilised. PLNG2 would submit invoices at the end of each contract month to capacity users for the services provided during that contract month and payment shall be made in full by capacity user in Ringgit within thirty (30) days from the date of receipt of the invoice. The Terminal Use Agreement may be terminated by the capacity users if an insolvency event occurs in relation to PLNG2 or PLNG2 fails to perform any of its material obligations under the Terminal Use Agreement and such failure causes the receiving facility (i.e. the LNG Terminal Facility and LNG Jetty Substructure) to be unavailable for a period in excess of 365 days in any period of 1095 consecutive days. PLNG2 may terminate the Terminal Use Agreement if any of the Capacity User Events of Default (as set out in the Terminal Use Agreement) occur, including where the capacity users fails to pay when due any invoice issued by PLNG2 in respect of the fees, the Jetty Usage Agreement is terminated and an insolvency event occurs in relation to the capacity users. If the Terminal Use Agreement is terminated due to a Capacity User Event of Default, the capacity users shall remain obliged to pay the regasification fees and other ancillary services fees as if the Terminal Use Agreement had not been terminated until the date on which the Terminal Use Agreement would have expired. On 16 April 2019, PEGT, a wholly-owned subsidiary of PETRONAS, entered into a long term Terminal Use Agreement with PLNG2 and fully underwrites the current RGTP’s regasification facility’s capacity until 1 November 2042. The Access Arrangement, in form and substance approved by the Energy Commission on 20 December 2018, is incorporated into the Terminal Use Agreement and forms Part II thereof. PLNG2 shall provide to PEGT regasification services up to the regasification services entitlement of 515,068 MMBtu/day effective Regulatory Period 1. In addition, PEGT also subscribed to reload services up to the reload services entitlement which shall be mutually agreed between the parties during each contract year commencing from 3 August 2019. PEGT may request an additional services entitlement and/or variation to the capacity entitlement, following which the parties shall meet to discuss in good faith the scope of such additional services entitlement and/or variation to the capacity entitlement and to mutually agree, subject to the approval of the Energy Commission (if required), the terms of any amendment to or supplement of the Terminal Use Agreement for the provision of such additional and/or variation in writing. The annual contract quantity entitled by PEGT under the Terminal Use Agreement is:(a) 7,834,259.1498 m3 of natural gas regasified from LNG at the receiving facility and delivered to the natural gas delivery point in a contract year; and/or 59
70. (b) LNG reloaded from the receiving facility onto an LNG vessel at the LNG reload delivery point shall be the total reload services entitlement utilized by PEGT in a contract year. Under the Terminal Use Agreement, PEGT would have pay a compensation sum, the formula of which is provided in the Terminal Use Agreement, to PLNG2 if the Terminal Use Agreement is terminated pursuant to a default. If any force majeure event is continuing for a period of three hundred and sixty (360) consecutive calendar days, either party may terminate the Terminal Use Agreement and neither party shall have any liability as a result of such termination. PLNG2 shall publish on its website an accurate status of the receiving facility capacity. The information to be published shall be on a monthly basis and shall include (a) the available capacity comprising unsubscribed capacity and short term capacity which is available for subscription and (b) the amount of subscribed capacity. Notwithstanding PEGT has fully underwritten the facility’s capacity, PLNG2, after publishing the annual operation schedule, shall determine in its sole discretion and publish on its website whether there will be any capacity for it to provide short term services which are for a duration of less than 12 months during the following contract year provided that the provision of such short term services shall not adversely impact PEGT’s firm rights under its Terminal Use Agreement. Jetty Usage Agreement PLNG2 on 28 February 2017 entered into a long term Jetty Usage Agreement with PT2SB for the usage of the jetty facilities at PT2SB’s Terminal which allows berthing of LNGC and unloading of LNG cargo. Pursuant to the Jetty Usage Agreement, PT2SB shall design, engineer, procure, construct, install, test and/or commission, as part of PT2SB’s Terminal, the PT2SB-Built Facilities whereas PLNG2 shall construct, operate, maintain and own the Customer-Built LNG Top-Side Facilities for the purpose of accepting and/or handling LNG. PT2SB shall provide the following services to PLNG2, i.e. (i) to give access to use the LNG Berth for activities relating to, among others, the berthing of LNG carriers and loading and unloading of LNG for delivery to and from RGTP, (ii) to give access to the LNG Jetty Top-Side Area for the purposes of PLNG2’s use of the PT2SB-Owned Facilities which are located on the LNG Jetty Top-Side Area, and the use, operation and maintenance of the Customer-Owned Facilities which are located on the LNG Jetty Top-Side Area, (iii) to make available energy and utilities to PLNG2, and (iv) to provide services in respect of the PT2SB-Owned Facilities. The Jetty Usage Agreement shall be deemed to have come into full force and effect on and from 9 January 2015 and the initial term of the Jetty Usage Agreement is from 20 September 2018 (the “Services Commencement Date”) until the twenty-fifth (25th) anniversary of such Services Commencement Date. In consideration of the services provided under the Jetty Usage Agreement, PLNG2 shall pay to the Full Charges comprising of the Annual Fixed Charges (AFC), Annual Variable Charges (AVC) and Third Party Energy and Utilities Expenses during the period commencing from the Services Commencement Date to the date of expiry of the term of the Jetty Usage Agreement. As at the LPD, the 60
71. AFC for each full contract year is USD14 ,759,016 per annum payable as a monthly amount of USD1,229,918 per month. Prior to the start of each contract year, the provisional monthly AVC for such contract year shall be determined in accordance with the Billing and Payment Guidelines which is provided in Annex I of the Jetty Usage Agreement and consistent with the LNG Operational Guidelines. The provisional monthly AVC shall reflect the operation and maintenance activities planned for such contract year. PT2SB will invoice PLNG2 on the first day of each month in each contract year, the monthly charges for such month based on the monthly AFC as set out in Annex V of the Jetty Usage Agreement and the provisional monthly AVC for such month. In addition, PT2SB will invoice PLNG2 the Third Party Energy and Utilities Expenses in accordance with the Billing and Payment Guidelines. PLNG2 shall in respect of each invoice or debit note issued by PT2SB, make payment to PT2SB of the full amount specified as payable under such invoice or debit note within 30 days (and 14 days in respect of Third Party Energy and Utilities Expenses) from the date of PLNG2’s receipt of such invoice or debit note. If PLNG2 fails to pay any invoice or debit note for 90 consecutive days from the date that any invoice or debit note is due and payable, PT2SB may suspend the provision of all of the services (or such part of the services as PT2SB may in its sole and absolute discretion deem fit) to PLNG2. PT2SB may terminate the Jetty Usage Agreement where (i) PT2SB has suspended the provision of the services (or part thereof) and following such suspension, PLNG2 has failed to make payment to PT2SB of any undisputed amount due and payable under the Jetty Usage Agreement for a continuous period of 120 days from the first date on which any such unpaid amount is payable to PT2SB or (ii) PLNG2 suffers an insolvency event. Operations and Maintenance (“O&M”) Agreement On 10 November 2017, PLNG2 entered into an Operations and Maintenance Agreement with RGTSU where RGTSU, given its track record and experience, is appointed as the operator to operate and maintain the RGTP regasification facilities for 25 years commencing from the commercial operation date of 1 November 2017 (“O&M Contract Period”). RGTSU’s scope of work includes mechanical O&M works (i.e. replacing compressor parts, maintaining diesel engines, inspecting and servicing valves), instrument O&M works (i.e. maintaining measurement equipment, troubleshooting gas detector and analyser system, maintaining Marine Loading Arm), and also electrical O&M works (i.e. high voltage switchgear, high voltage and low voltage power transformers). PLNG2 shall pay to RGTSU the monthly service charges comprising of manpower and general and administration costs, inclusive of 10% for the provision of O&M works. The service charges may be revised annually based on the scopes and manpower rates. PLNG2 shall also pay and reimburse to RGTSU in full all the costs and charges resulting from and for the purpose of the O&M which includes operating expenses for routine and non-routine incurred by RGTSU to maintain and operate the RGTP regasification facilities. 61
72. The Operations and Maintenance Agreement may be terminated by PLNG2 if an Event of Default by RGTSU (as set out the Operations and Maintenance Agreement) occurs and is not remedied, including where RGTSU is in breach of any of its material obligations under the agreement, RGTSU goes into liquidation or RGTSU wholly or partly suspends the Works or abandons any part of the RGTP regasification facilities. RGTSU may terminate the Operations and Maintenance Agreement if an Event of Default by PLNG2 (as set out the Operations and Maintenance Agreement) occurs and is not remedied, including where PLNG2 fails to pay the invoices within 90 days from the date of RGTSU’s invoice, PLNG2 goes into liquidation or PLNG2 ceases or threatens to cease to carry on its business. Electricity Supply Agreement Pursuant to an Electricity Supply Agreement dated 21 October 2019 entered between PLNG2 and Pengerang Power Sdn. Bhd. (“PePSB”), the electricity requirement of RGTP is supplied by PePSB for a period up to the twenty-fifth (25th) anniversary (subject to extension as provided under the Electricity Supply Agreement) of the Petrochemical Project Commercial Operation Date to be declared. 4.7 Insurances PLNG2 has arranged adequate insurances to mitigate insurable risks arising from its employees, properties and legal liabilities which are consistent with standard industry practice and in accordance with the risk profile, nature of the operations and available coverage in the insurance market. PLNG2’s properties are insured under “All Risks” insurance policies, at the value of USD633,794,000 for the RGTP facility, which provide comprehensive coverage against any damage to the insured property with very limited exclusions allowed. Such policies are arranged based on manuscript all risks cover beyond the standard coverage offered by the insurance market. The insurances are also extended to cover additional protection of machinery breakdown of up to USD100,000,000 for each occurrence. PLNG2 has also ensured that their liability exposures are mitigated via umbrella liability insurance policies which will indemnify against liability to pay damages and/or compensation including claimant’s cost, fees and expenses due to bodily injury and/or property damage and/or advertising injury to third party arising out of PLNG2’s business operations. The liability coverage arranged is based on a manuscript liability policy which provide comprehensive protection. The insurances procured by PLNG2 are arranged on an annual basis as part of PETRONAS master insurance programmes and are placed with reputable local insurers which are licensed by BNM, and governed and regulated under Islamic Financial Services Act 2013 and Financial Services Act 2013 respectively. 4.8 Business Partners and Customers PLNG2 has entered into a long term Terminal Use Agreement on 16 April 2019 with PEGT for the provision of regasification services with full regasification capacity booking of 515,068 MMBtu/day, effective Regulatory Period 1, and reloading services. 62
73. Notwithstanding the full regasification capacity has been fully underwritten by PEGT , under the Third Party Access (“TPA”) regime, PLNG2 is open to additional requests for regasification services by new capacity users which, by entering into short-term terminal use agreement with the new capacity users, subject to availability of the facility at the relevant time. For GUCD, the current main customers subscribing to the services are Malaysia LNG Sdn. Bhd. and PETRONAS LNG Ltd. 4.9 Business strategies and Competitive strengths RGTP is located at Pengerang Deepwater Terminal which is strategic along the international shipping lane between Singapore and Malaysia. RGTP is also connected to the PIC and PGU system which provide access to the wider gas market in Malaysia and Singapore and its design capacity is more than sufficient to provide reliable supply to the end-customers. Whilst having only commenced operation in November 2017, RGTP has achieved world-class performance in terms of Overall Equipment Effectiveness (OEE), reliability and availability. RGTP was built as an integral facility for RAPID and hence enjoys the benefit of having a captive market. There is prospect for future growth in RAPID area as the PIC development is currently in its first phase. This will provide opportunity for PLNG2 to expand its captive market. The facility also has the capacity for an additional LNG tank to cater for any growth opportunities. It is also the first onshore LNG regasification terminal and is one of the only two LNG regasification terminals in Malaysia which provides third party shippers access to PGU under TPA regime. Apart from the core business, PLNG2 has captured additional revenue through the provision of ancillary services such as GUCD (pursuant to the Master Gas Up Cool Down Services Agreement dated 15 July 2019 entered into between PLNG2 and Petronas LNG Ltd., which is a 5-year master agreement), reloading and LNG truck-loading services (pursuant to a Truck-Loading Facility Services Agreement dated 14 September 2020 which is a 20-year contract). PLNG2 seeks to capture new customers for GUCD and reloading and explore other opportunities such as LNG bunkering and break-bulking services via strategic collaboration with licensed shippers and vessels’ owners, taking advantage of its strategic position along the international shipping lane. PLNG2, as part of PGB Group, is pursuing certification of MS ISO-9001:2015, MS ISO-14001:2015 and MS ISO-45001:2018, targeted to be obtained by September 2020. PLNG2 is also certified by Malaysian Productivity Corporation on effective 5S implementation at the terminal (3 star rating). PLNG2 is awarded with MSOHS Malaysian Society of Occupational Health and Safety with Gold merit in 2019. 4.10 Base Case Cashflow Projections The information and assumptions contained in the detailed financial model (“Base Case Cashflow Projections”) represent the current and anticipated financial parameters and other assumptions for the RGTP Project, made as of the LPD. The Base Case Cashflow Projections assume an issuance size of RM2.57 billion in nominal value, being the maximum amount allowed under the Debt to Equity 63
74. Ratio (as defined in Section 2.0) of not exceeding 80:20 under the terms of the Sukuk Murabahah Programme as at the LPD. The Base Case Cashflow Projections and certain statements herein are forwardlooking and illustrative only. The calculations are based on certain assumptions which may not be realised. In addition, the forward-looking statements involve certain risks and uncertainties. Each recipient should carefully conduct an independent evaluation of the Base Case Cashflow Projections and associated due diligence to determine the viability of the assumptions summarised in Appendix III of this Information Memorandum. An extract of the Base Case Cashflow Projections is attached as Appendix II of this Information Memorandum. The assumptions of the Base Case Cashflow Projections are summarised in Appendix III of this Information Memorandum. 4.11 Key financial highlights of the Issuer The following table presents a summary of the unaudited financial information of 1H2020 and the audited financial information for the FYE2019, FYE2018 and FYE2017:(RM ‘000) Total Current Assets Total Non-current Assets Total Assets Total Equity Total non-current liabilities Total current liabilities Revenue Profit after Tax 1H2020 332,003 3,013,904 FYE 2019 363,430 3,076,222 FYE 2018 597,926 2,555,773 FYE 2017 240,873 2,688,938 3,345,907 3,439,652 3,153,699 2,929,811 919,910 1,022,669 1,253,351 868,750 2,112,242 2,129,897 1,677,627 1,649,866 313,755 287,086 222,721 411,195 345,919 18,612 562,518 139,413 609,423 279,777 108,136 69,288 For the audited financial statements of the Issuer for FYE2019, please refer to Appendix I of the Information Memorandum. THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK 64
75. SECTION 5 .0 INVESTMENT CONSIDERATIONS Each issue of the Sukuk Murabahah under the Sukuk Murabahah Programme will carry different risks and all potential investors are strongly encouraged to evaluate each issue of the Sukuk Murabahah under the Sukuk Murabahah Programme on its own merit. Recipients of this Information Memorandum are advised to independently evaluate the risks described in this section before making an investment decision. The Sukuk Murabahah are subject to certain risk factors that could adversely affect, inter alia, the business of the Issuer. The risk factors relating to the Sukuk Murabahah which are summarised below do not purport to be comprehensive or exhaustive and are not intended to be a substitute or replacement for an independent assessment of the risk factors that may affect the Sukuk Murabahah. Each investor should carefully conduct his or her independent evaluation of the risks associated with investing in the Sukuk Murabahah. 5.1 Risks relating to the Issuer 5.1.1 Operational risks Although there is no material disruption on the operations of PLNG2 for the past three years, PLNG2’s business is subject to operation risks where any unsustainable PLNG2’s operational performance may lead to supply interruptions to its customers. It is also dependent on the RGTSU’s performance under the Operations and Maintenance Agreement. PLNG2 in its ordinary course of business is exposed to physical loss or damage to its operating assets which are typically mechanical/electrical breakdown, fire and explosion. While PLNG2 has insured against such risk, occurrence of such risks may result in its business interruption. To mitigate such risks, PLNG2 has implemented comprehensive operations and maintenance programme or work process which includes Operate Facility Work Process (OFWP), Maintain Facility Work Process (MFWP) and digital tools i.e. Regasification Management System (RMS); and Plant and Facilities Risk Management (PFRM) to assess, monitor and report operational risks. 5.1.2 Counterparty risks The provision of regasification services is PLNG2’s primary source of revenue, accounting for approximately 99% of its total revenue in FYE2018 and FYE2019 and 99.6% in 1H2020 while its ancillary services make up the remaining 1% or less in revenue. PLNG2 has secured a long term Terminal Use Agreement with a single customer, PEGT for the provision of regasification services where PEGT has undertaken to fully reserve the annual reserved firm capacity of the terminal until 1 November 2042, regardless of the actual terminal capacity utilised daily. Although PEGT is a wholly-owned subsidiary of PETRONAS, if PEGT fails to pay PLNG2 or if the Terminal Use Agreement is terminated or upon occurrence of event of force majeure, the revenue of PLNG2 may be affected. There is no assurance that PEGT will be able to fulfil its obligations under the Terminal Use Agreement and in the event of the termination of the Terminal Use Agreement with PEGT, there is no assurance that PLNG2 will be able to replace PEGT with a capacity user for the same capacity uptake. 65
76. 5 .1.3 Competition risks As one of the key associated facilities of PIC and the primary facility for gas supply to RAPID and PCP, PLNG2 enjoys the benefit of having a captive market in relation to regasification services with no major competitors in the country. Currently, the only other regasification facility in Malaysia is at Sungai Udang, Melaka operated by RGTSU. Nonetheless, PLNG2 faces competition from neighbouring LNG terminals for the provision of ancillary services in the region and there is no assurance that that the level of existing and future competition will not adversely affect the business and financial conditions of the Issuer. 5.1.4 Capital expenditure The Issuer intends to continue to invest capital to sustain its operation and improve its current facility. The Issuer also needs to fund the maintenance of its existing plants, machinery and equipment. The Issuer cannot provide the assurance that it will be able to maintain or increase its current levels of services without such capital investment. Its inability to generate sufficient operating cash flow or raise sufficient external financing to fund its capital expenditure and maintenance may limit its ability to improve its facilities above present levels. 5.1.5 Project risk The Issuer’s business plans depend upon the successful execution of facility maintenance and upgrading projects in a timely manner, and failure to deliver such projects successfully could adversely affect the Issuer’s financial performance. Successful execution of these projects in turn requires a high degree of project management expertise and skilled employees to maximise efficiency by the Issuer. Specific factors that can affect the performance of the maintenance and upgrading projects include the ability to negotiate successfully with partners, governments, suppliers, customers, or others, manage changes in operating conditions and costs, and respond effectively to unforeseen technical difficulties that could delay project start-up or cause unscheduled project downtime. A failure by the Issuer to manage these or other factors and to deliver facility maintenance and upgrading projects successfully could have an adverse effect on its business, financial condition and results of operations. 5.1.6 Technology development Technology and innovation are essential for the Issuer to remain competitive. Although the Issuer currently employs the common best available technology used for onshore LNG regasification process and does not foresee any technological breakthrough in the short or medium term, if the Issuer does not have access to or keep up with the right technology or does not deploy these effectively, there could be a material adverse effect on its ability to execute its strategies. 66
77. 5 .1.7 Governmental regulation and licensing requirements PLNG2 is regulated and licensed by the Energy Commission. There is no assurance that the Energy Commission will not fundamentally alter PLNG2’s business via amongst others, introduction of new laws, regulations or policies, which could have an impact upon its business and financial condition. The Regasification Licence issued by the Energy Commission is required for the operation of PLNG2’s business. Further, PLNG2 also holds various other licences and permits issued by various government authorities and regulatory agencies and such licences and permits are essential for the conduct of its business. These licences and permits are generally subject to a variety of conditions which are either stipulated in the licences and permits themselves or under the particular legislation and/or regulations. The continuation of these licences and permits may be subject to periodic examinations and/or random inspections by the relevant authorities to ensure that the Issuer complies with all relevant regulations of the issuing authority. Any breach or material non-compliance with the regulations of the issuing authorities may result in suspension, withdrawal or termination of the relevant licences and permits, financial penalties or cessation of the Issuer’s operations. In the ordinary course of business, the Issuer is required to undertake the renewal of various licences and permits, and the renewal processes may inadvertently be delayed due to administrative lag. Upon the expiration of any of its licences and permits, the renewal of all necessary licences and permits in the future will be subject to the relevant authorities’ approval. Any failure to secure renewal, or any loss, of a required licence or permit, would materially and adversely affect the Issuer’s business, financial condition, results of operations and/or prospects. Pursuant to the IBR, the Regasification Tariff is subject to approval of the Energy Commission for each three-year Regulatory Period (subject to annual revision as provided under the IBR). While the IBR Framework provides a fair return on the company’s invested assets and recovery of operational costs, in the event the Regasification Tariff is not set at a rate favourable to the Issuer, it may materially and adversely affect the Issuer’s business, financial condition, results of operations and prospects. 5.1.8 Insurance risk The Issuer is subject to several risks that are common among LNG terminal operators. These risks include project risks (relating to management of third party contractors and accidents), equipment risks (relating to the adequacy and condition of the Issuer’s facilities and equipment), distribution and transportation risks (relating to the condition and vulnerability of pipelines and other modes of transportation, such as gas and LNG tankers) and storage risks (relating to the operation and condition of tanks and other storage facilities). Although the Issuer has purchased insurance policies covering the risks as disclosed and discussed in Section 4.7 above, these insurance policies are subject to the standard market exclusions. Some risks and liabilities may remain uninsured due to unavailability of insurance coverage in the market or may only be available at non-commercially reasonable terms. 67
78. The Issuer is not covered under any insurance for business interruption or loss of revenue though it has put in place risk mitigation measures to address such risks . In addition, the Issuer’s regasification business is underpinned by a long term contract which fully underwrites the plant’s capacity. There can be no assurance that accidents will not occur in the future, or that insurances will adequately cover the entire scope or extent of the Issuer’s losses. There is also no certainty that adequate insurance for all potential liabilities and losses will continue in the future or on commercially viable terms. 5.1.9 Litigation risk Although there is no material litigation as at the LPD, the Issuer is subject to various claims, suits and legal proceedings that may arise from time to time. Additional legal claims or regulatory matters may arise and could involve shareholder, labor, intellectual property, tax and other matters. Disputes and legal proceedings in which the Issuer may be involved are subject to many uncertainties, and their outcomes are often difficult to predict. The defense of any such claims and any associated settlement costs can be substantial, even with respect to claims that have no merit. In addition, adverse judgments arising from litigation could result in restrictions or limitations on the Issuer’s operations or result in a material adverse impact on its reputation or financial condition. 5.1.10 Dependency on key personnel The Issuer’s continued success is dependent on PETRONAS and PGB’s ability to retain the services of key management and executives who are crucial to the successful implementation of the Issuer’s business strategy in the near to medium term. The in-depth knowledge, relevant experience and commitment PETRONAS and PGB’s key executives are instrumental to its development and ensuring safe, optimum and efficient pipeline network and regasification operations. As such, any loss of any key personnel by PETRONAS and/or PGB without qualified and timely replacements and the inability to attract, train and retain qualified replacements may have an adverse impact on the Issuer’s operations. 5.1.11 Foreign exchange risks The Issuer is exposed to risks related to exchange rate fluctuations, particularly with respect to the USD. While currently the Issuer has significant operating expenses and costs (including financing) denominated in USD, its revenues are primarily denominated in Ringgit. To the extent that the Issuer’s operating costs are not naturally matched in the same currency as its revenue and there are timing differences between invoicing and collections/payment, it will be exposed to any adverse fluctuations of in the rate of the Ringgit against USD. 5.1.12 Political and economic risks Adverse developments in the political and economic conditions in Malaysia and other countries in the region could materially affect the financial prospects of the Issuer. Political and economic uncertainties include risks of war, virus or pandemic outbreak, expropriation, nationalisation, re-negotiation or nullification of existing contracts, changes in interest rates and methods of taxation and currency exchange controls. 68
79. Investors should note that whilst the Issuer strives to continue to take effective measures such as prudent financial management and efficient operating procedures to operate its business , there can be no assurance that adverse political and economic factors will not materially affect the Issuer. 5.2 Risk relating to the Sukuk Murabahah 5.2.1 The Issuer’s ability to meet its obligations under the Sukuk Murabahah The ability of the Issuer to meet its obligations to the Sukukholders in terms of payment of amounts due in respect of the Sukuk Murabahah will depend on the Issuer’s income and revenue and in particular the strength of the Issuer’s operations to generate sufficient and positive cashflows. The Sukuk Murabahah will not be the obligations or responsibilities of any person other than the Issuer and shall not be the obligations or responsibilities of the LA/LM, the Sukuk Trustee, the Facility Agent or any of the Issuer’s shareholders or any subsidiary or affiliate thereof. 5.2.2 Suitability of investments Each potential investor in the Sukuk Murabahah must determine the suitability of that investment in light of its own circumstances. Each potential investor should: 5.2.3 (i) have sufficient knowledge and experience to make a meaningful evaluation of the Sukuk Murabahah, the merits and risks of investing in the Sukuk Murabahah and the information contained in this Information Memorandum; (ii) have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of its particular financial situation, an investment in the Sukuk Murabahah and the impact the Sukuk Murabahah will have on its overall investment portfolio; (iii) have sufficient financial resources and liquidity to bear all of the risks of an investment in the Sukuk Murabahah; (iv) understand thoroughly the terms of the Sukuk Murabahah and be familiar with the behaviour of any relevant indices and financial markets; and (v) 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. The Issuer’s ability to incur additional indebtedness and create security interest The Issuer may incur additional indebtedness and create security interest (other than a general debenture) as long as the Debt to Equity Ratio (as defined in Section 2.0) is met. The creation and issue of further Sukuk Murabahah or the incurrence of any other form of indebtedness which rank senior to or pari passu with the Sukuk Murabahah does not require the consent of the Sukukholders as long as the Debt to Equity Ratio is met. 69
80. The incurrence of such indebtedness and creation of security interest over assets of the Issuer may reduce the amount recoverable by the Sukukholders in the event of dissolution or winding-up of the Issuer . 5.2.4 Each issue carries different risks The purchase of the Sukuk Murabahah may involve substantial risks and is suitable only for sophisticated investors who have the knowledge and experience in financial and business matters necessary to enable them to evaluate the risks and the mitigating factors of an investment in the Sukuk Murabahah. Each issuance of the Sukuk Murabahah will carry different risks and all potential investors are strongly encouraged to evaluate the Sukuk Murabahah on its own merit before making an investment decision. There is no assurance that the terms and risks in future issuances of the Sukuk Murabahah will be similar to the terms and risks in prior issuances of the Sukuk Murabahah. 5.2.5 No prior market for the Sukuk Murabahah The Sukuk Murabahah comprise a new issue of securities for which there currently is no secondary market. There can be no assurance that such secondary market will develop or, if it does develop, that it will provide the Sukukholders with the liquidity of investments or will continue for as long as the Sukuk Murabahah are outstanding. If a market develops, the market value of the Sukuk Murabahah may fluctuate. Any sale of the Sukuk Murabahah by the Sukukholders in any secondary market which may develop, may be at a discount from the original issue price of the Sukuk Murabahah, depending on many factors, including the prevailing interest rates and the market for similar securities. 5.2.6 Market risk Trading prices of the Sukuk Murabahah may be influenced by numerous factors, including the prevailing interest rates, the market for similar securities, the operating results and/or financial condition of the Issuer, political, economic, financial conditions and any other factors that can affect the capital markets and/or the industry in which the Issuer is operating in. Consequently, any sale of the Sukuk Murabahah may be at prices that may be higher or lower than the initial offering price. Adverse economic developments could have a material adverse effect on the market value of the Sukuk Murabahah. 5.2.7 Interest/Profit rate risk Sukukholders may suffer unforeseen losses due to fluctuations in interest/profit rates. Although the principle of the payment of interest is repugnant to Shariah and therefore any obligation to pay interest imposed on the Issuer is waived and rejected, the Sukuk Murabahah are similar to fixed-income securities and may therefore see their prices fluctuate due to fluctuations in interest rates. Generally, a rise in interest rates may cause a fall in bond prices. The Sukuk Murabahah may be similarly affected resulting in a capital loss for the Sukukholders. Conversely, when interest rates fall, bond prices and the prices at which the Sukuk Murabahah are traded may rise. The Sukukholders may enjoy a capital gain but the profit received may be reinvested for lower returns. 70
81. 5 .2.8 Change of law The Sukuk Murabahah Programme is based on Malaysian laws and regulations in effect as at the date of this Information Memorandum. No assurance can be given as to the impact of any possible judicial decision or change to Malaysian laws and regulations, or administrative practice, after the date of this Information Memorandum. 5.2.9 Credit Rating of the Sukuk Murabahah Programme MARC has assigned a preliminary rating of AAAIS for the Sukuk Murabahah Programme. A rating is not a recommendation to purchase, hold or sell the Sukuk Murabahah. There is no assurance that such a rating will remain in effect for any given period of time or that such a rating will not be lowered or withdrawn if circumstances in the future so warrant. Further, such a rating is not a guarantee of payment or that there will be no default by the Issuer under the Sukuk Murabahah. In the event that the rating initially assigned to the Sukuk Murabahah Programme is subsequently downgraded, suspended or withdrawn for any reason, no person or entity will be obligated to provide any additional credit enhancement with respect to the Sukuk Murabahah. Any downgrade, suspension or withdrawal of a rating may have an adverse effect on the liquidity and the market price of the Sukuk Murabahah but would not constitute an event of default by itself that warrants the Sukuk Murabahah to be immediately due and payable. 5.2.10 Shariah compliance of the Sukuk Murabahah Programme and the Sukuk Murabahah The Shariah Adviser has issued pronouncement confirming amongst others that the transaction and structure of the Sukuk Murabahah Programme are Shariah compliant. However, the interpretation and application of Shariah is a matter of opinion and debate and may be subject to differing interpretations by Shariah scholars, Shariah supervisory and advisory boards and the courts (or any arbitral tribunal). Therefore, there can be no assurance that the transaction structure or issue and trading of the Sukuk Murabahah will be deemed to be Shariah compliant by any other Shariah board or Shariah scholars. None of the Issuer, the LA/LM or the Sukuk Trustee makes any representation as to the Shariah compliance of the Sukuk Murabahah and potential investors are reminded that, as with any Shariah views, differences in opinion are possible. Potential investors should obtain their own independent Shariah advice as to the compliance of the structure and the issue and trading of the Sukuk Murabahah with Shariah principles, if required. 5.3 Forward-looking statements Certain statements in this Information Memorandum are based on historical information, 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 forecasts and assumptions made by the Issuer and although believed to be reasonable, are 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. Such factors include, inter alia, the risk factors as set out in this section. In light of these and other uncertainties, the inclusion of forward-looking statements in this Information Memorandum should not be regarded as a 71
82. representation or warranty by the Issuer that the plans and objectives of the Issuer will be achieved . THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK 72
83. SECTION 6 .0 INDUSTRY OVERVIEW AND FUTURE PROSPECTS The information below is included for information purposes only and has not been independently verified by the Issuer or LA/LM. All data and information below have been obtained from publicly available official sources of Malaysia. Neither the Issuer, LA/LM or nor any other party will be held responsible for any information contained herein. 6.1 Overview of the Malaysian economy Growth declined in 2Q 2020 The Malaysian economy was confronted by concurrent supply and demand shocks arising from weak external demand conditions and strict containment measures in 2Q 2020. As a result, the economy registered its first contraction since the Global Financial Crisis (2Q 2020: -17.1%; 3Q 2009: -1.1%). On the supply side, this was reflected in negative growth across most sectors. From the expenditure side, domestic demand declined, while exports of goods and services registered a sharper contraction. On a quarter-on-quarter seasonally-adjusted basis, the economy declined by 16.5% (1Q 2020: -2.0%). Weak growth across most economic sectors Weak growth was recorded across most economic sectors amid the imposition of the Movement Control Order (MCO), followed by the Conditional and Recovery MCO, during 2Q 2020. The services sector contracted by 16.2% (1Q 2020: 3.1%). The sector was affected by the implementation of a nationwide restrictive MCO, with only essential services such as food-related retail, utilities, banking, transportation as well as information and communication entities allowed to operate with very limited capacity. The subsequent transition to Conditional MCO (CMCO) in May and Recovery MCO (RMCO) in June provided some relief to businesses in the sector. The lockdown had substantially affected consumer spending and tourism activity, as shown by the significant declines in the wholesale and retail trade, as well as food and beverages and accommodation sub-sectors. The transport and storage sub-sector was impacted by a sudden stop in tourist arrivals due to travel restrictions imposed domestically as well as the international border closures. Growth in the finance and insurance sub-sector was weighed down by lower net interest income, and lower fee-based income amid subdued capital market activity. Meanwhile, growth in the information and communication sub-sector was relatively sustained by the continued high demand for data communication services especially during this period of remote working arrangements. The manufacturing sector contracted by 18.3% (1Q 2020: 1.5%), due largely to the imposition of MCO restrictions as well as weak demand conditions. The extension of the MCO from end-March throughout April curtailed production activity across all industries. Essential sectors and those in the related supplychain sectors operated at reduced capacity to ensure sufficient social distancing at workplaces, while nonessential sectors such as transport equipment and textilerelated industries did not operate. Following the lifting of MCO restrictions in May, manufacturing firms gradually restarted operations, but did so while observing sector-specific health protocols amidst subdued demand conditions externally and domestically. The latter had particularly affected the performance of the primaryand consumer-related clusters. Nevertheless, the impact of weak demand was 73
84. partially mitigated by a backlog of orders which supported a faster production recovery , observed mainly in the electric and electronics (E&E) industry. The mining sector recorded a sharper contraction of 20.0% in 2Q 2020 (1Q 2020: -2.0%). Oil and gas output were affected by a sharp decline in demand due to the MCO as well as maintenance works in East Malaysia. Growth was also weighed by lower production in the other mining segment due to restrictions during the MCO period. Activity in the construction sector declined by 44.5% (1Q 2020: -7.9%), as almost all activities came to a standstill particularly in the month of April. Despite the partial reopening of the economy on 4 May, most construction sites faced challenges restarting due to adjustments required to comply with the strict COVID19 Standard Operating Procedures (SOPs). Most of the construction sites were reported to remain idle as developers faced challenges to restart, including financial constraints, initial lack of clarity over the SOPs and COVID-19 testing, and disruptions in the supply of construction materials. However, the situation improved significantly towards the end of the quarter after the Government implemented additional measures to facilitate the revival of the economy. However, the agriculture sector rebounded in the quarter at 1.0% (1Q 2020: 8.7%), mainly due to the recovery in oil palm production as fresh fruit bunch yields normalised from the earlier impact of dry weather and fertiliser cutbacks. The oil palm recovery was also supported by higher harvesting activities, arising from the greater presence of workers in estates during the MCO period . This more than offset the weaker production in the other agriculture subsectors, such as fisheries and livestock, due to weak demand. Sharp contraction in domestic demand Domestic demand declined by 18.7% in 2Q 2020 (1Q 2020: 3.7%), due mainly to weaker private sector expenditure. Spending by the private sector was impacted by lower income, movement restrictions and subdued consumer and business sentiments. While net exports continued to decline, the contribution of the external sector to the economy improved due mainly to the larger contraction in imports vis-a-vis the previous quarter. Private consumption growth declined by 18.5% in 2Q 2020 (1Q 2020: 6.7%). Household spending was particularly impacted by the strict movement restrictions in the early part of the quarter and income losses amid weak economic conditions. As movement restrictions were gradually relaxed towards the end of the quarter, retail and financing data indicated some improvement in spending, albeit remaining subdued. During this challenging period, stimulus measures such as the disbursement of Bantuan Prihatin Nasional cash transfers, EPF i-Lestari withdrawals and the implementation of the loan moratorium helped to cushion consumption spending. Public consumption continued to expand, albeit at a more moderate pace of 2.3% (1Q 2020: 5.0%). Growth was supported by continued increase in emoluments amid lower spending on supplies and services. Gross fixed capital formation (GFCF) registered a sharper contraction of 28.9% (1Q 2020: -4.6%), weighed by significantly lower capital spending by both public and private sectors. By type of asset, both investment in structures and machinery 74
85. & equipment (M&E) declined by 41.2% (1Q 2020: -4.0%) and 11.1% (1Q 2020: 6.2%), respectively. Private investment declined by 26.4% (1Q 2020: -2.3%), due mainly to the COVID-19 containment measures and heightened uncertainty which affected business sentiments and investment intentions. During the quarter, investment was affected by mobility restrictions, which temporarily halted the implementation of projects. Despite the gradual relaxation of the MCO, firms maintained a cautious approach to capital expenditure amid slower production and disruptions to global value chains. Furthermore, businesses also faced challenges in the delivery and installation of M&E amid border closures. Public investment also recorded a larger decline of 38.7% (1Q2020: -11.3%). This was due to a contraction in capital spending by both general government and public corporations due mainly to the movement restrictions. Negative headline inflation due to decline in fuel prices; risk of deflation is minimal Headline inflation, as measured by the annual percentage change in the Consumer Price Index (CPI), declined to -2.6% during the quarter (1Q 2020: 0.9%). The lower headline inflation was primarily due to the substantial decline in retail fuel prices (average RON95 petrol price per litre in 2Q 2020: RM 1.37; 1Q 2020: RM 1.96) and the implementation of the tiered electricity tariff rebate beginning the month of April. Notwithstanding the negative headline inflation, the decline in prices was not broadbased. In April, a relatively larger share of CPI items recorded unchanged prices (61%; March: 50%) amid the MCO which resulted in a significant reduction in economic activity. As economic activity gradually resumed under the CMCO and RMCO beginning from early May, there were some signs of normalisation in prices with a gradual increase in the share of CPI items recording price increases (May: 36%; June: 44%). Core inflation moderated slightly to 1.2% (1Q 2020: 1.3%). Despite the moderation in overall demand pressure and weaker labour market conditions, some essential goods and services such as food away from home and small household appliances experienced price increases during the quarter. This suggests the continued presence of underlying demand especially for necessities. Weak labour market conditions Labour market conditions weakened as containment measures and weak demand led firms to undertake cost-cutting actions. Measures such as retrenchments, paycuts and unpaid leave weighed on employment and income conditions. Employment declined by 1.3% (1Q 2020: +1.6%). Job losses were concentrated in the tourism-related industries as demand weakened considerably amid border closures. As a result, the unemployment rate rose to 5.1 % (1Q 2020: 3.5%). In addition to the job losses, shorter working hours and pay-cuts among those who remained in employment resulted in negative private sector wage growth in 2Q 2020 (-5.6%, 1Q 2020: 2.1%). The negative private services wage growth in 2Q 2020 (-6.4%, 1Q 2020: 1.4%) was driven mainly by tourismrelated services, such as wholesale and retail trade, food and beverage, and accommodation (3.5%; 1Q 2020: 1.9%) as well as transportation and storage (-29.7%; 1Q 2020: - 75
86. 3 .5%) sub-sectors. In the manufacturing sector, wages contracted by 4.0% (1Q 2020: +3.4%). This was mainly due to lower wage growth in the transport equipment and other manufactures sub-sector (-13.3%; 1Q 2020: 1.3%) and the textiles, wearing apparel, leather and footwear sub-sector (-15.3%; 1Q 2020: 2.4%) that were unable to operate during the MCO period. Trade activity declined due to contraction in manufacturing & commodities exports, and weaker demand from main trade partners In 2Q 2020, gross exports declined by 14.3% (1Q 2020: 1.1%) weighed by weaker growth in both manufactured and commodities exports. Gross imports contracted by 15.1% (1Q 2020: 1.3%) due to lower intermediate and consumption imports. The trade surplus narrowed to RM27.6 billion (1Q 2020: RM37.0 billion). Malaysia’s export performance in 2Q 2020 was affected by COVID-19 lockdowns globally, which resulted in disruptions to the global supply chains, lower demand from key trade partners and weaker commodity prices. Domestically, while the MCO restrictions had affected production in the early part of the quarter, manufactured exports registered a positive turnaround in June once the restrictions were eased. This was partly due to firms meeting a backlog of orders, particularly in the E&E sector. For the second quarter as a whole, manufactured exports contracted by 12.1% (1Q 2020: 2.5%) due mainly to lower non-E&E exports, which registered double-digit decline at -14.1% (1Q 2020: 11.2%). This was attributed to lower exports of petroleum products, metal manufactures and chemical & chemical products. E&E exports contracted further (-9.5%; 1Q 2020: 7.6%) amid lower exports to key trade partners, including the EU, US and Japan. Commodities exports worsened (-24.7%; 1Q 2020: -5.6%) due mainly to a sharp contraction in mineral exports following weaker prices and export volumes. Intermediate imports contracted by 23.4% (1Q 2020: 8.1%) during the quarter due to lower imports of industrial supplies and fuel & lubricants amid weaker manufacturing activity. Consumption imports also declined (-9.3%; 1Q 2020: 4.8%), driven primarily by a sharp contraction in consumer durable goods. Meanwhile, capital imports increased by 14.8% (1Q 2020: -27%), due mainly to the import of a large floating structure. Current account balance registered a surplus of RM7.6 billion The current account of the balance of payments registered a surplus of RM7.6 billion or 2.5% of GDP in 2Q 2020 (1Q 2020: RM9.5 billion or 2.6% of GDP). The goods surplus decreased to RM25.9 billion (1Q 2020: RM28.9 billion), as the decline in the level of exports outpaced that of imports. In the services account, the deficit widened to RM12.5 billion (1Q 2020: -RM8.0 billion), the largest ever recorded. This was due primarily to a travel deficit (-RM3.1 billion; 1Q 2020: +RM2.1 billion) amid international travel restrictions. The primary income account registered a lower deficit of RM4.0 billion (1Q 2020: RM6.0 billion). This mainly reflected higher direct investment income from Malaysian investments abroad. The deficit in the secondary income account narrowed to RM1.9 billion (1Q 2020: -RM5.4 billion). Outward remittances by foreign workers were lower due to the broad-based weakness in economic activity during the quarter. 76
87. Financial account registered a net outflow The financial account registered a net outflow of RM19 .8 billion (1Q 2020: RM13.3 billion), due mainly to outflows from the other investment account. This was partly offset by a turnaround in the portfolio investment account. The direct investment account turned around to register a small net outflow of RM1.2 billion (1Q 2020: +RM3.4 billion), as direct investment abroad (DIA) recorded higher outflows amid smaller foreign direct investment (FDI) inflows. DIA recorded outflows of RM3.5 billion in the second quarter (1Q 2020: -RM3 billion). These investments were mainly channelled into the services sector, particularly the financial services and information and communication services sub-sectors. FDI recorded smaller inflows amounting to RM2.2 billion (1Q 2020: +RM6.4 billion), amid the contraction in global growth. Inflows were mainly channelled into the mining sector, followed by the services sector, particularly financial services. The portfolio investment account registered a sizeable net inflow of RM22.2 billion (1Q 2020: -RM41.3 billion), following inflows from non-residents (NR) amid a moderation in residents’ portfolio investments abroad. NR investments recorded a net inflow of RM24.3 billion (1Q 2020: -RM26.2 billion). These inflows were channelled into debt securities (RM33.1 billion), and were partly offset by continued outflows from the equity market (RM8.9 billion). This follows the issuance of long-term bonds by the national oil and gas firm, and NR inflows into Malaysian Government Securities (MGS). Portfolio investment by residents recorded a small net outflow of RM2 billion (1Q 2020: -RM15.1 billion). The other investment account recorded a significant net outflow of RM41.3 billion (1Q 2020: +RM22.1 billion). This mainly reflected net interbank lending abroad by the domestic financial sector. Net errors and omissions amounted to +RM5.9 billion during the quarter, or +1.5% of total trade. External debt increased but remains manageable Malaysia’s external debt amounted to RM1,003 billion, or 69.3% of GDP as at end-June 2020 (end-March 2020: RM975.9 billion or 64.4% of GDP). The higher external debt mainly reflects a net issuance of international bonds and notes, and an increase in NR holdings of MGS. This was partly offset by lower NR deposits in the banking system and valuation effects following the stronger ringgit against selected major and regional currencies in the second quarter of 2020. Malaysia’s external debt remained manageable, given its currency and maturity profiles, and the availability of large external assets. Ringgit-denominated external debt amounted to RM305.2 billion, or 30.4% of total external debt (end-March 2020: 30.4%), mainly in the form of NR holdings of domestic debt securities (64.4% share of ringgit-denominated external debt) and NR ringgit deposits (19% share) in domestic banking institutions. As such, these liabilities were not subject to valuation changes that arise from fluctuations in the ringgit exchange rate. The remaining external debt of RM697.8 billion, or 69.6% of total external debt were denominated in foreign currency (FCY). The corporate sector accounted for 49% of FCY-denominated external debt and are largely subject to prudential and hedging requirements. Long-term bonds and notes issued offshore, accounting for 26.6% of total FCY-denominated external debt, stood at RM185.3 billion as at end-June 2020. These were mainly by non-financial corporations and channelled primarily to finance asset acquisitions abroad. Intercompany loans, amounting to 77
88. RM100 billion or 14 .3% of FCY-denominated external debt, were typically on flexible and concessionary terms. Interbank borrowings and FCY deposits in the domestic banking system accounted for 37.7% (or RM263.2 billion) of FCY-denominated external debt. Around 82.1% of interbank borrowings were in the form of intragroup borrowings, which were generally more stable, thereby limiting rollover risks faced by banks. Meanwhile, foreign-currency risk, measured in terms of the net open position of FCY-denominated exposures, remained low at 4.9% of banks’ total capital. During the quarter, banks’ FCY-denominated short term external debt declined by RM9.8 billion driven by lower liquidity needs of onshore banks as bank funding of ringgit operations remained predominantly domestically sourced. The stable domestic funding and liquidity conditions which saw banks benefitting from lower funding costs following successive OPR cuts, an expansion of the deposit base and ample liquidity have further reduced attractiveness of external borrowings. However, the decline in borrowings by onshore banks was partly offset by higher borrowings by foreign bank branches in Labuan International Business and Financial Centre (LIBFC). Funds received by foreign LIBFC banks were mostly sourced from their parent banks and subsequently onlent to non-resident clients, a reflection of their ‘out-out’ business activities. From a maturity perspective, 58.7% of the total external debt was skewed towards medium- to long-term tenure (end-March 2020: 56.8%), suggesting low rollover risk. Short-term external debt accounted for the remaining 41.3% of external debt. Of which, 47.9% were intragroup borrowings among banks and corporations, which were generally stable and on concessionary terms. About another 12.1% were accounted by trade credits, largely backed by export earnings and are selfliquidating. As at 30 July 2020, international reserves stood at USD104.2 billion, sufficient to finance 8.4 months of retained imports, and is 1.1 times the short-term external debt. In addition, Malaysia maintained a sizable net foreign currency asset position. About 95.1% of external assets were denominated in foreign currency compared to 45% of total external liabilities. This demonstrates Malaysia’s ability in responding to external shocks. In particular, a depreciation in the ringgit exchange rate will result in a larger increase in external assets compared to external liabilities, thus enhancing Malaysia’s external position. (Source: Bank Negara Malaysia Quarterly Bulletin (Second Quarter 2020), Bank Negara Malaysia) Malaysian economy to recover gradually as the economy progressively reopens and external demand improves Economic activity in Malaysia contracted sharply in the first half of the year (8.3%) as the measures introduced to contain the pandemic globally and domestically resulted in a concurrent supply and demand shock to the economy. However, growth is expected to have troughed in 2Q 2020. Economic activity has resumed significantly since the economy began to reopen in early May. Monthly indicators such as wholesale and retail trade, industrial production, electricity generation, and gross exports all grew faster in June than in the period between March and May. 78
89. The improvement in growth in 2H 2020 will also be supported by the recovery in global growth and continued policy support . In particular, consumption and investment activities are expected to benefit from the wide-range of measures in the fiscal stimulus packages, continued financial measures and low interest environment. While there is upside potential to growth, the pace and strength of the recovery remain susceptible to downside risks emanating from domestic and external factors. Growth could potentially be lifted by a larger-than-expected impact from stimulus measures. Nevertheless, the prospect of secondary COVID19 outbreaks leading to the re-imposition of containment measures, more persistent weakness in labour market conditions, and a weaker-than-expected recovery in global growth pose downside risks to growth. (Source: Bank Negara Malaysia Quarterly Bulletin (Second Quarter 2020), Bank Negara Malaysia) 6.2 Overview of the gas industry In meeting the energy needs of a fast-growing country in an equally fast-growing region, Malaysia took on an integrated approach to develop key supply sources and infrastructure for the gas market. To further diversify Malaysia’s source of fuel and secure supply from the global gas market, LNG import and regasification terminals were commissioned in strategic locations in the west coast and south of Peninsular Malaysia. The implementation of TPA and the introduction of key amendments in the Gas Supply Act further augments the Energy Commission’s role as the regulator for the piped gas industry which is deemed to grow with newcomers’ market entry. In becoming a highly effective energy regulator, the Energy Commission continuously finds new and better ways to promote new players, create a competitive market, ensure supply reliability and enhance the overall piped gas industry. In support of gas as a major contributor to the nation's energy mix, the Government has approved the allocation of 800 MMscfd of gas for Peninsular Malaysia’s power sector from 2018 to 2020, with two of the most recent gas-fired power plants are located in Johor namely Pengerang Power Sdn. Bhd. which commenced operation in October 2017, and Southern Power Generation Sdn. Bhd. which will commence operation in 2020. The graph below shows the trend line for natural gas consumption via the transmission pipeline in Peninsular Malaysia for up to 2030. For the power sector, the decline in demand from 2019 to 2020 is due to the retirement of several gasfired power plants in the system which will be replaced by a new coal-fired power plant. Beginning 2021, the gas demand for power is likely to increase as a new gas-fired power plant will come into commission. The demand for the power sector will stabilise around 400 trillion Btu towards 2030. It is forecasted that growth in gas demand in sectors other than the power sector will be driven by the Pengerang Integrated Complex and by gas sold via reticulation pipelines, as well as exports to Singapore. 79
90. (Source: Peninsular Malaysia Gas Industry Outlook 2019, Energy Commission) THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK 80
91. SECTION 7 .0 7.1 OTHER MATERIAL INFORMATION Material litigation As at the LPD, the Issuer is not engaged in any material litigation, claims or arbitration either as plaintiff or defendant, and the Board is not aware of any proceedings pending or threatened against the Issuer or of any facts likely to give rise to any proceedings which may materially and adversely affect the financial position or business of the Issuer. 7.2 Related party transactions As at the LPD, the Issuer has not entered into any related party transactions outside the ordinary course of business save and except those which have been disclosed in the audited financial statements for the FYE2019 of the Issuer (attached herein as Appendix I). 7.3 Contingent liabilities and capital commitments As at LPD, there are no contingent liabilities and capital commitments incurred or known to be incurred by the Issuer which upon being enforceable, may have a material impact on the financial condition of the Issuer. 7.4 Potential Conflict of Interests None. THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK
92. APPENDIX I AUDITED FINANCIAL STATEMENTS OF THE ISSUER FOR THE FYE2019
154. APPENDIX II EXTRACT OF THE BASE CASE CASHFLOW PROJECTIONS
155. CASH FLOW PROJECTIONS Annual from Annual to 1-Jan-20 31-Dec-20 1 1-Jan-21 31-Dec-21 2 1-Jan-22 31-Dec-22 3 1-Jan-23 31-Dec-23 4 1-Jan-24 31-Dec-24 5 1-Jan-25 31-Dec-25 6 1-Jan-26 31-Dec-26 7 1-Jan-27 31-Dec-27 8 1-Jan-28 31-Dec-28 9 1-Jan-29 31-Dec-29 10 1-Jan-30 31-Dec-30 11 1-Jan-31 31-Dec-31 12 [RM Mil] [RM Mil] [RM Mil] [RM Mil] [RM Mil] [RM Mil] [RM Mil] [RM Mil] [RM Mil] [RM Mil] [RM Mil] 699.09 (171.60) 527.49 22.17 (5.16) (2.73) 6.79 (2.22) 546.34 705.23 (190.59) 514.64 (0.50) (57.40) (3.76) 6.33 459.30 705.60 (190.27) 515.33 (0.03) (0.03) (3.63) 5.40 517.05 656.48 (191.60) 464.87 4.04 0.11 (3.87) 6.08 471.23 656.22 (193.35) 462.87 0.02 0.14 (3.31) 5.76 465.49 652.20 (198.61) 453.59 0.33 0.43 (2.74) 5.81 457.42 608.32 (204.01) 404.31 3.61 0.44 (2.81) 6.10 411.65 608.43 (209.56) 398.86 (0.01) 0.46 (2.60) 5.28 401.99 610.17 (215.26) 394.91 (0.14) 0.47 (2.55) 5.10 397.78 577.54 (221.12) 356.42 2.68 0.48 (2.58) 5.27 362.27 577.65 (227.14) 350.51 (0.01) 0.49 (2.47) 4.83 353.36 577.76 (233.32) 344.44 (0.01) 0.51 (2.44) 4.76 347.26 Cash flows from investing activities Purchase of PPE Investment in subsidiaries Investment in associates Others Net investing cash inflow/(outflow) [RM Mil] [RM Mil] [RM Mil] [RM Mil] [RM Mil] (53.47) (53.47) (6.23) (6.23) (3.50) (3.50) (20.04) (20.04) (3.50) (3.50) (3.50) (3.50) (30.02) (30.02) (3.61) (3.61) (4.82) (4.82) (16.44) (16.44) (7.17) (7.17) (3.76) (3.76) Cash flows from financing activities JUA Lease Liability Drawdown of shareholder loan Repayment of shareholder loan Redemption of RPS Dividend paid (RPS) Dividend paid (Ordinary Shares) Interest paid - shareholder loan Drawdown of Sukuk Repayment Sukuk Interest paid for Sukuk Additons / (Deductions) to FSRA Net financing cash inflow/(outflow) [RM Mil] [RM Mil] [RM Mil] [RM Mil] [RM Mil] [RM Mil] [RM Mil] [RM Mil] [RM Mil] [RM Mil] [RM Mil] [RM Mil] (717.38) (1,659.41) (262.37) (47.75) (289.44) (80.67) 2,570.00 (24.42) (48.55) (560.01) (2.86) (26.76) (224.29) (140.00) (96.19) (137.62) (627.72) (26.53) (198.94) (170.00) (91.09) (26.99) (513.55) (26.53) (192.12) (160.00) (85.15) 12.61 (451.19) (26.53) (188.98) (165.00) (79.62) (1.86) (461.99) (26.53) (162.32) (180.00) (73.36) (11.71) (453.92) (26.53) (170.81) (150.00) (67.06) 32.76 (381.64) (26.53) (172.81) (145.00) (61.56) 7.52 (398.39) (26.53) (148.26) (155.00) (56.24) (6.93) (392.96) (18.44) (26.53) (128.11) (140.00) (50.38) 17.64 (345.83) (22.31) (25.05) (116.41) (140.00) (45.08) 2.66 (346.19) (16.97) (23.27) (116.30) (145.00) (39.67) (2.30) (343.50) Net cash balances Balance b/f Net operating cash inflow/(outflow) Net investing cash inflow/(outflow) Net financing cash inflow/(outflow) Balance c/f [RM Mil] [RM Mil] [RM Mil] [RM Mil] [RM Mil] Units Year 31-Dec-19 Cashflows from Operating Activities Total Revenue Total Operating Expenses Operating cash flows before changes in working capital (Increase) / decrease in inventories (Increase) / decrease in receivables Increase / (decrease) in payables Other income received Tax (paid) / refunded Interest Income Sukuk Issuance Fees Net operating cash inflow/(outflow) FSRA Balance FSCR with Cash Pre-Distribution [RM Mil] [x] [x] 271.78 204.65 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 546.34 (53.47) (560.01) 204.65 459.30 (6.23) (627.72) 30.00 517.05 (3.50) (513.55) 30.00 471.23 (20.04) (451.19) 30.00 465.49 (3.50) (461.99) 30.00 457.42 (3.50) (453.92) 30.00 411.65 (30.02) (381.64) 30.00 401.99 (3.61) (398.39) 30.00 397.78 (4.82) (392.96) 30.00 362.27 (16.44) (345.83) 30.00 353.36 (7.17) (346.19) 30.00 347.26 (3.76) (343.50) 30.00 48.55 186.17 213.17 200.56 202.42 214.12 181.37 173.85 180.78 163.15 160.49 2.71x 1.73x 2.98x 2.06x 2.84x 1.94x 2.73x 1.88x 3.16x 2.29x 3.03x 2.07x 2.89x 1.94x 3.13x 2.22x 3.01x 2.07x 2.92x 2.03x 1-Jan-32 31-Dec-32 13 1-Jan-33 31-Dec-33 14 1-Jan-34 31-Dec-34 15 1-Jan-35 31-Dec-35 16 1-Jan-36 31-Dec-36 17 1-Jan-37 31-Dec-37 18 1-Jan-38 31-Dec-38 19 1-Jan-39 31-Dec-39 20 1-Jan-40 31-Dec-40 21 1-Jan-41 31-Dec-41 22 1-Jan-42 31-Dec-42 23 [RM Mil] [RM Mil] [RM Mil] [RM Mil] [RM Mil] [RM Mil] [RM Mil] [RM Mil] [RM Mil] [RM Mil] [RM Mil] 547.47 (239.67) 307.80 2.49 0.52 (2.44) 4.82 313.19 546.12 (246.19) 299.92 0.11 0.54 (2.33) 4.38 302.62 546.24 (252.89) 293.34 (0.01) 0.55 (2.30) 4.32 295.90 498.33 (259.78) 238.55 3.94 0.57 (2.27) 4.25 245.03 499.78 (266.85) 232.93 (0.12) 0.58 (2.09) 3.57 234.87 498.57 (274.12) 224.46 0.10 0.60 (2.07) 3.52 226.61 417.38 (281.58) 135.80 6.67 0.61 (2.07) 3.59 144.61 417.51 (289.25) 128.26 (0.01) 0.63 (12.68) 2.67 118.87 417.28 (297.12) 120.15 0.02 0.65 (11.84) 2.49 111.47 404.06 (301.17) 102.89 1.09 0.33 (9.63) 3.47 98.15 404.13 (309.37) 94.76 (0.01) 0.67 (9.01) 4.96 91.38 Cash flows from investing activities Purchase of PPE Investment in subsidiaries Investment in associates Others Net investing cash inflow/(outflow) [RM Mil] [RM Mil] [RM Mil] [RM Mil] [RM Mil] (16.94) (16.94) (5.08) (5.08) (3.82) (3.82) (32.74) (32.74) (3.99) (3.99) (7.50) (7.50) (19.26) (19.26) (4.06) (4.06) (4.06) (4.06) (18.56) (18.56) (4.18) (4.18) Cash flows from financing activities JUA Lease Liability Drawdown of shareholder loan Repayment of shareholder loan Redemption of RPS Dividend paid (RPS) Dividend paid (Ordinary Shares) Interest paid - shareholder loan Drawdown of Sukuk Repayment Sukuk Interest paid for Sukuk Additons / (Deductions) to FSRA Net financing cash inflow/(outflow) [RM Mil] [RM Mil] [RM Mil] [RM Mil] [RM Mil] [RM Mil] [RM Mil] [RM Mil] [RM Mil] [RM Mil] [RM Mil] [RM Mil] (40.86) (21.91) (86.81) (130.00) (34.29) 17.62 (296.25) (35.45) (18.64) (86.89) (130.00) (29.12) 2.55 (297.55) (35.93) (15.81) (88.94) (130.00) (23.98) 2.59 (292.07) (60.48) (12.93) (41.90) (105.00) (19.03) 27.06 (212.29) (62.00) (8.09) (43.11) (105.00) (14.85) 2.16 (230.89) (3.14) (92.74) (110.00) (10.48) (2.74) (219.10) (14.84) (3.14) (62.61) (75.00) (6.32) 36.55 (125.35) (24.35) (1.95) (32.54) (60.00) (3.36) 16.99 (105.21) (32.71) (35.00) (0.37) 25.00 (43.08) (20.28) 35.00 14.72 (19.83) (19.83) 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 39.61 103.95 198.26 Balance c/f [RM Mil] [RM Mil] [RM Mil] [RM Mil] [RM Mil] 313.19 (16.94) (296.25) 30.00 302.62 (5.08) (297.55) 30.00 295.90 (3.82) (292.07) 30.00 245.03 (32.74) (212.29) 30.00 234.87 (3.99) (230.89) 30.00 226.61 (7.50) (219.10) 30.00 144.61 (19.26) (125.35) 30.00 118.87 (4.06) (105.21) 39.61 111.47 (4.06) (43.08) 103.95 98.15 (18.56) 14.72 198.26 91.38 (4.18) (19.83) 265.63 FSRA Balance [RM Mil] FSCR with Cash Post-Distribution Annual from Annual to Units Year NA NA Cashflows from Operating Activities Total Revenue Total Operating Expenses Operating cash flows before changes in working capital (Increase) / decrease in inventories (Increase) / decrease in receivables Increase / (decrease) in payables Other income received Tax (paid) / refunded Interest Income Sukuk Issuance Fees Net operating cash inflow/(outflow) Net cash balances Balance b/f Net operating cash inflow/(outflow) Net investing cash inflow/(outflow) Net financing cash inflow/(outflow) FSCR with Cash Pre-Distribution FSCR with Cash Post-Distribution Confidential [x] [x] 145.16 3.07x 2.13x 142.61 3.07x 2.15x 140.02 3.75x 2.61x 112.96 3.19x 2.23x 110.79 3.10x 2.16x 113.54 4.43x 3.25x 76.99 4.24x 2.97x 60.00 6.27x 4.61x 35.00 NA NA NA NA NA NA 162.78 3.25x 2.30x
156. APPENDIX III SUMMARY OF THE ASSUMPTIONS OF THE BASE CASE CASHFLOW PROJECTIONS
157. Pengerang LNG (Two) Sdn Bhd (the “Issuer”) The cash flow projections of the Issuer for the financial years ending 31 December 2020 to 31 December 2042 The principal bases and assumptions upon which the cash flow projections of the Issuer for the financial years ending 31 December 2020 to 31 December 2042 have been prepared are as follows: General assumptions 1. There will be no significant changes in the principal activities, composition and structure of the Issuer. 2. There will be no significant changes to the prevailing economic and political conditions that will adversely affect the activities and performance of the Issuer. 3. There will be no further imposition of a Movement Control Order (“MCO”) (previously 18 March 2020 until 3 May 2020) or a Conditional Movement Control Order (“CMCO”) (previously 4 May 2020 until 9 June 2020), or a lockdown or similar measures by the Government of Malaysia after the effective date of the Recovery Movement Control Order ending on 31 December 2020. The re-imposition of a MCO or CMCO is unlikely to have a material impact to the operations and results of the Issuer. 4. There will be no significant changes in the present legislation and government regulations, rates and duties, levies and taxes, which will adversely affect the operations of the Issuer or the market in which it operates. 5. There will be no significant changes in the prevailing inflation rates and exchange rates used in the translation of foreign currency transactions. 6. There will be no major breakdown or disruptions to the Issuer’s operating activities, industrial disputes or any other abnormal factors that will significantly affect the Issuer’s operations at its projected levels or disrupt its planned operations. 7. There will be no significant changes to the Issuer’s existing senior management, accounting, management and operational policies that will adversely affect the activities and performance of the Issuer. 8. The planned capital expenditure will be incurred in accordance to planned activities and there will be no material acquisitions or disposals of property, plant and equipment other than those planned. 9. There will be no material contingent liabilities and litigations which are likely to give rise to any proceedings which may materially affect the Issuer’s assets, financial position, operations and the profit projections. 10. There will be no adverse variations to the significant agreements of the Issuer, which would have a material adverse effect on the cash flow projections. 11. There will be no expropriation or termination events leading to termination of the Terminal Use Agreement prior to the end of the term of the Terminal Use Agreement. 12. The profit projections of the Issuer will be achieved. 13. There will be no changes to the credit rating of the Sukuk programme of up to RM3.0 billion in nominal value by the Issuer (“Proposed Sukuk Programme”) throughout the projected period.
158. A ) Cash flows from operating activities (i) Revenue assumptions Regulated revenue - Regasification revenue 1. 2. The tariffs used for the computation of regasification revenue are as follows: a) RM3.485/GJ for the financial years 2020 to 2022 as approved by the Energy Commission; and b) the tariffs assumed for the financial years 2023 to 2042 are calculated using the Incentive Based Regulation framework established by the Energy Commission. The projected reserved firm capacity is 515,068 mmbtu/day. Non-regulated revenue 3. Reloading services 3.1 For the financial years 2020 to 2024, revenue from reloading services is assumed to be as follows: Year 2020 2021 2022 2023 2024 RM’000 2,573 2,542 2,511 2,480 2,449 3.2 From the financial year 2025 onwards, revenue from reloading services will increase by 2% per annum. 4. Gas up cooling down (“GUCD”) services 4.1 For the financial years 2020 to 2024, revenue from GUCD services is assumed to be as follows: Year 2020 2021 2022 2023 2024 RM’000 2,075 3,690 4,050 4,400 2,370 4.2 There will be no revenue derived from GUCD services after the expiry of the current contract in the financial year 2024. 5. LNG trucking services 5.1 The Issuer will generate revenue from LNG trucking services for a period of 20 years from November 2020 to October 2040.
159. 5 .2 For the financial years 2020 to 2024, revenue from LNG trucking services is assumed to be as follows: Year 2020 2021 2022 2023 2024 RM’000 1,290 7,740 7,785 7,831 7,878 5.3 From the financial year 2025 to 2040, revenue from LNG trucking services will increase by 0.7% per annum. 6. Receivables turnover days is assumed to be 30 days throughout the projected period. (ii) Operating costs assumptions Regulated operating costs (“Regulated OPEX”) Regulated OPEX consist of internal gas consumption cost and other regulated operating costs: 1. Internal gas consumption cost 1.1 For the financial years 2020 to 2024, internal gas consumption cost is assumed to be as follows: Year 2020 2021 2022 2023 2024 RM’000 45,002 55,746 55,082 55,082 55,082 1.2 From the financial year 2025 onwards, internal gas consumption costs will increase by 2.5% per annum. 2. Other regulated operating costs 2.1 Other regulated operating costs consist of the following: RM’000 Total 2020 125,248 2021 130,203 2022 130,555 2023 131,864 2024 133,590 (i) Utilities expenses include electricity costs under the Electricity Supply Agreement dated 21 October 2019 with Pengerang Power Sdn Bhd and water charges. (ii) Repair and maintenance and professional purchased services costs relate to fees payable in accordance with the Operation and Maintenance Agreement dated 1 November 2017 between the Issuer and Regas Terminal (Sg. Udang) Sdn Bhd for Pengerang LNG Terminal as well as the operating expenses relating to the Jetty Usage Agreement (“JUA”).
160. (iii) Other operating expenses include insurance, license and permit fees and property tax assessment fees. (iv) Charge-in costs relate to charges from the PETRONAS group of companies for shared services such as Technical Services, Security, IT and Finance Services. (v) General and administrative expenses include amongst others, charges from PETRONAS Gas Berhad for management services including Commercial, Legal & Corporate Secretariat, Finance, Human Resource Management and others. 2.2 From the financial year 2025 onwards, other regulated operating costs in totality will increase by 2.8% per annum. 3. Non-regulated operating costs (“Non-regulated OPEX”) 3.1 Non-regulated operating costs consist of the following: RM’000 Total 2020 1,347 2021 4,636 2022 4,637 2023 4,657 2024 4,677 3.2 From the financial year 2025 onwards, non-regulated operating costs in totality will increase by 2.8% per annum. 4. Payables turnover days is assumed to be 30 days throughout the projected period. (iii) Interest income assumptions 1. Cash in the Finance Service Reserve Account (“FSRA”) will earn interest at a rate of 2.5% per annum. Interest is assumed to be received in the same year. 2. Excess cash (after taking into account working capital, capital expenditure, financing requirements, projected dividend payments and redemption of redeemable preference shares) will be placed in bank deposits to earn interest at a rate of 2.5% per annum. Interest is assumed to be received in the same year.
161. B ) Cash flows from investing activities (i) Purchase of property, plant and equipment 1. Payments to suppliers for the purchase of property, plant and equipment throughout the projected period are assumed as follows: RM’000 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 Total 53,467 6,234 3,500 20,040 3,500 3,500 30,015 3,605 4,820 16,444 7,174 3,763 16,937 5,076 3,825 32,744 3,989 7,504 19,258 4,057 4,057 18,558 4,179
162. C ) Cash flows from financing activities (i) Proposed Sukuk Programme 1. The Proposed Sukuk Programme of up to RM3.0 billion in nominal value will be lodged with the Securities Commission Malaysia and the drawdown of up to RM2.57 billion will be received by 30 September 2020. 2. The issuances of RM2.57 billion under the Proposed Sukuk Programme is based on the maximum debt that can be raised in accordance with the 80:20 Debt-to-Equity Ratio as allowed under the principal terms and conditions of the Proposed Sukuk Programme. The repayments of RM2.57 billion are as follows: Tranche 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Total Principal repayment RM’000 140,000 170,000 160,000 165,000 180,000 150,000 145,000 155,000 140,000 140,000 145,000 130,000 130,000 130,000 105,000 105,000 110,000 75,000 60,000 35,000 2,570,000 Maturity Date 30/Sep/2021 30/Sep/2022 30/Sep/2023 30/Sep/2024 30/Sep/2025 30/Sep/2026 30/Sep/2027 30/Sep/2028 30/Sep/2029 30/Sep/2030 30/Sep/2031 30/Sep/2032 30/Sep/2033 30/Sep/2034 30/Sep/2035 30/Sep/2036 30/Sep/2037 30/Sep/2038 30/Sep/2039 30/Sep/2040 3. The weighted average profit rate for the Proposed Sukuk Programme is 3.77% per annum. 4. Profit payments on the Proposed Sukuk Programme are payable semi-annually in March and September each year. 5. Proceeds from the Proposed Sukuk Programme will be utilised, amongst others, for the following purposes: (i) RM1,740.09 million will be used to repay the outstanding shareholders loan as at 30 September 2020 (including shareholder loan interest portion of RM80.67 million). (ii) RM717.38 million will be used to repay the outstanding liabilities under the Jetty Usage Agreement (JUA) as at 30 September 2020 (including interest portion of RM38.03 million).
163. (ii) Additions to / Deductions from FSRA 1. In compliance with the requirements of the principal terms and conditions of the Proposed Sukuk, a FSRA will be maintained with a minimum balance equivalent to the next six (6) months’ principal payment and next six (6) months’ Periodic Profit Payment due. (iii) Dividends 1. Subject to availability of profits and the Restricted Payments constraint in the principal terms of conditions of the Proposed Sukuk Programme, excess cash after taking into account working capital, capital expenditure and financing requirements, will first be used to pay dividends to the RPS holders, then to the ordinary shareholders. Any excess cash after the distribution of dividends will be used to redeem the RPS (see note (C)(iv)). 2. Dividend payments to the RPS holders and ordinary shareholders throughout the projected period are projected as follows: Year 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 Total 3. Retained earnings balance Dividend payments to Dividend payments to after dividend RPS holders ordinary shareholders payments (RM’000) (RM’000) (RM’000) 47,749 289,445 26,759 224,290 26,530 198,937 30,402 26,530 192,116 22,196 26,530 188,980 22,716 26,530 162,320 50,234 26,530 170,812 35,300 26,530 172,809 11,407 26,530 148,259 12,097 26,530 128,111 25,055 116,406 23,270 116,296 21,913 86,807 18,644 86,894 15,808 88,941 12,934 41,900 8,095 43,109 3,135 92,740 14,541 3,135 62,611 1,948 32,541 32,706 20,277 19,830 420,681 2,717,138 It is assumed that the Issuer will meet the requirements of the Companies Act 2016 (Subdivision 6 of Division 1 of Part III) in order to pay dividends as projected.
164. (iv) Redemption of redeemable preference shares (“RPS”) 1. Excess cash after taking into account working capital, capital expenditure, financing requirements and projected dividend payments, will be used to redeem the RPS. The RPS is projected to be redeemed as follows: Year 2020 2021 2029 2030 2031 2032 2033 2034 2035 2036 2038 2039 Total Amount redeemed RM’000 262,373 2,864 18,438 22,309 16,966 40,858 35,446 35,934 60,483 61,998 14,838 24,351 596,858 Balance RPS RM’000 334,485 331,621 313,183 290,874 273,908 233,050 197,603 161,669 101,187 39,189 24,351 - 2. The RPS are to be redeemed out of capital in accordance with Sections 72(4)(c) and 72(6) of the Companies Act 2016 (“Act”), and it is assumed that the Issuer will meet all relevant requirements of the Act. 3. The redemption of the RPS is subject to the conditions on “Restricted Payments” in accordance with the principal terms and conditions of the Proposed Sukuk Programme.
165. D ) Tax assumptions General assumptions 1. The Issuer will be subject to a corporate income tax rate of 24% and this rate is assumed to remain the same throughout the period in review. 2. It is assumed that the Issuer will not receive any deposits or advance payments (including deposit payments) which have not been taken into account in the Profit Before Tax (“PBT”) throughout the period in review. 3. The Issuer does not have any other business activities or other sources of income (e.g. investment or rental) apart from the above. 4. The interest expenses are wholly and exclusively incurred in the production of the Issuer’s income in accordance to Section 33(1) of the Malaysian Income Tax Act, 1967 (“MITA”). The monies borrowed by the Issuer are not utilised directly or indirectly for nonbusiness applications (e.g. the making of investments or loans). The interest expenses are due to be paid or payable in the relevant basis period in which the interest expenses are accrued. 5. All expenses claimed throughout the period in review are actual expenses incurred in the relevant year of assessment (“YA”) and are out-goings and expenses of a revenue nature wholly and exclusively incurred in the production of income and not specifically disallowed in the MITA. There are no nominal accounting adjustments (e.g. amortisation and depreciation), general provisions, capital expenditure and any non-tax deductible expenses included therein. 6. Pursuant to Income Tax (Exemption) (No. 5) Order 2013, effective from 10 October 2011 to 31 December 2021, the Issuer is exempted from the following payment of withholding tax (“WHT”) in relation to qualifying activities carried on in the RAPID complex: a. b. c. d. e. Payments falling under Section 4A of the MITA Interests Royalties Contract payments under Section 107A of the MITA; and Other gains or profits falling under Section 4(f) of the MITA. Notwithstanding the above, it is assumed that the Issuer will comply with WHT provisions, where applicable, on the payments made to non-residents other than the above payments subsequent to 31 December 2021 and the Issuer will not bear any WHT on behalf of the non-residents. 7. It is assumed that the Issuer did not obtain any financial assistance or debt financing from related foreign lenders and thus Earning Stripping Rules (“ESR”) do not apply.
166. 8 . It is assumed that the Issuer does not make payment to any Labuan companies which is not subject to tax under MITA. 9. It is assumed that Sales and Service Tax (“SST”) has been accounted for accordingly throughout the period in review. 10. It is assumed that all related party transactions are undertaken at arm’s length basis, i.e. at a rate that is no different than if the transaction is conducted between parties which are unrelated to each other or third parties and supported by contemporaneous transfer pricing (“TP”) documentation. Specific assumptions 1. The issuance cost of Sukuk of RM2.2 million is not tax deductible. 2. The Sukuk interest expenses are wholly and exclusively incurred in the production of the Issuer’s income in accordance to Section 33(1) of the MITA. 3. The interest income derived from Sukuk proceeds are minimal and therefore interest restriction has not been applied. 4. While the JUA liability will be prepaid in FY 2020, tax deduction for rental under the JUA will be based on the annual amortisation of the prepayment over the lease term of the JUA of RM29,537,000 commencing FY 2025 in accordance with Section 33(1)(b) of the MITA, being the rental payable for the relevant YA for the purpose of producing gross income for the business of regasification. The amortisation of right-of-use assets computed based on Malaysian Financial Reporting Standard (“MFRS”) 16 has been included in the depreciation expense and duly disallowed for tax deduction in the Financial Model. 5. On 28 December 2018, the Issuer received capital expenditure government grant amounting to RM150.0 million from the Government of Malaysia to develop the LNG Regasification Terminal in Pengerang, Johor. Based on the YAs 2017 and 2018 tax computations, no capital allowance has been claimed in respect of the qualifying cost of the assets financed by the government grant and the tax treatment is in accordance to the Income Tax (Exemption) (No. 22) Order 2006. During the period in review, amortisation of government grant over the life of the project of 25 years (i.e. RM6.0 million a year) is not subject to corporate income tax. 6. The Issuer has been granted 100% income tax exemption on its statutory income derived from the business of regasification of LNG to natural gas carried out in the RAPID Complex (i.e. the qualifying activity) for a period of 15 years pursuant to Income Tax (Exemption) (No. 7) Order 2013 (“the Pioneer Status”). The Pioneer Status shall commence from the first YA in the basis period in which the Issuer derives statutory income from its qualifying activity.
167. Subsequent to the Pioneer Status , the Issuer will be granted a 50% income tax exemption of its statutory income derived from a qualifying activity for 5 consecutive YAs commencing immediately after the expiry of the exemption period of 15 YAs (“extension to Pioneer Status”) as provided under the Income Tax (Exemption) (No. 2) Order 2014. It is assumed that the Issuer will comply with all the stipulated conditions that are attached to the Pioneer Status incentive. 7. The Issuer will derive interest income from cash placed in the bank deposits and the FSRA account. The direct attributable expenses incurred in deriving the said interest income would be eligible for tax deduction claim against the said interest income. However, there are no direct attributable expenses in relation to the interest income for the period in review. 8. It is assumed that there is no interest expense capitalised into the fixed assets addition throughout the period in review.
168. APPENDIX IV SITE MAP OF THE RGTP PROJECT
169. RGTP is one of the associated facilities that provide gas supply to Pengerang Integrated Complex (PIC) RGTP Site Map
170. RGTP Facilities (Terminal)
171. ISSUER PENGERANG LNG (TWO) SDN. BHD. Tower 1, PETRONAS Twin Towers, Kuala Lumpur City Centre, 50088 Wilayah Persekutuan Kuala Lumpur, Malaysia. LEAD ARRANGER/ LEAD MANAGER CIMB Investment Bank Berhad Level 13, Menara CIMB Jalan Stesen Sentral 2 Kuala Lumpur Sentral 50470 Kuala Lumpur SUKUK TRUSTEE AND SECURITY TRUSTEE FACILITY AGENT CIMB Investment Bank Berhad Level 13, Menara CIMB Jalan Stesen Sentral 2 Kuala Lumpur Sentral 50470 Kuala Lumpur MTrustee Berhad B-2-9 (2nd Floor) Pusat Perdagangan Kuchai No. 2, Jalan 1/127 Off Jalan Kuchai Lama 58200 Kuala Lumpur SHARIAH ADVISER CIMB Islamic Bank Berhad Level 13, Menara CIMB Jalan Stesen Sentral 2 Kuala Lumpur Sentral 50470 Kuala Lumpur SOLICITORS TO THE LA/ LM SOLICITORS TO THE ISSUER Messrs Adnan Sundra & Low Level 11 Menara Olympia No. 8 Jalan Raja Chulan 50200 Kuala Lumpur Messrs Kadir Andri & Partners Suite A-38-8, Level 38 Menara UOA Bangsar 5, Jalan Bangsar Utama 1 59000 Kuala Lumpur