Dear all,

As minority shareholder, we need to exercise our right to ask probing and difficult questions to the BOD/CFO/Auditor during AGM and held them accountable for their answers and complaint to  SC/Bursa if you think mismanagement or fraud are involved. Below is my email to SC and Bursa on HRC

https://klse.i3investor.com/blogs/Sslee_blog/209214.jsp

Dear CEO and Independent Directors,

The answers the board presented to my questions is unconvincing and bordered to whitewash and cover-up for incompetent or frauds. I appeal to the independent directors to start a comprehensive investigation to my below 3 questions.

Please discuss what are the actions the board intends to do after your next board meeting? Email me the board recommended actions. I am available for a face to face meeting if you need to further explain your finding to me.

Failure to take actions will leave me with no choice but make a formal complaint to SC and Bursa. 

Thank you

Yours Sincerely

Lee Soon Sheng

Question 1:

Refer Below summary:

2018 Q1 and Q3 gross profit is not logical. Average products sale price minus Dated Brent is USD 9.24 and 8.73 respectively per barrel. And the realize gross profit only USD 4.31 and 0.19 respectively. Please investigate.

Note: 2018 MTA is from 6^th august to 2th October. Hence Q3 sale is from 1^st July to 20^th august 2018 (2 weeks finish products stock) so if Q3 average sale price is USD 84 per barrel then how the purchase cost can be so high.

Question 2: How can 30tonnes/day H2 plant cost USD 66.4 million? Below is the budgetary quotation for 7,000 Nm3/hr (15.1 MT/Day) H2 plant from Mahler. Please investigate.

1 Kg of H2 is equal to 11.126 Nm3

7,000 NM3/hr H2 plant = 7X24/11.126 = 15.1 MT/Day H2

So for a 30 MT/Day H2 plant you need 2 x 7000 Nm3/hr plant.

2 units of 7,000 NM3/hr are recommended due to ability to run only one during low load (Greater Turn-down ratio) instead of one single plant and safety of 2 plants instead of one.Budgetary 2 X EU 7,250,000= USD 2 x 7,250,000 x 1.12 = USD 16,240,000.

This price is budgetary quotation and still can negotiate for discount (2 identical units) and during detail plant configuration discussion (Pressure requirement thus the compressors spec)

Refer attachment: Technical Specification 4289.pdf

Type of Plant: Hydrogen Generation Plant

With Combustion Air Preheating

Capacity: 7.000 Nm3/h (1,013 bar, 273,15 K)

Purity: min. 99,996 vol.%

Pressure: 15 bar (abs) exit PSA-unit

46 bar(abs) exit H2-booster compressors

(3x 2.500 Nm³/h, brand Mehrer)

Basis of feed: Natural Gas 

Bursa company announcement dated:  16 June 2017:

http://www.bursamalaysia.com/market/listed-companies/company-announcements/5462417

The Euro 4M plant can be further upgraded to produce Euro 5M mogas when the specification change is mandated, which is expected to be from 2025 onwards. The Total Investment Cost for the project is USD135 million +/- 10 %

This investment ensures HRC is well placed to meet the Euro 4M mogas specifications mandated by the Malaysian regulatory authorities by 1 October 2018.

https://www.nst.com.my/news/nation/2018/10/418195/introduction-ron95-euro4m-postponed-jan-1-2020

Question 3: The Euro 4M mogas original mandated is on: 1st October 2018. Fortunately Government postponed the implementation to Jan 2020. So HRC instead of claiming compensation from EPCM for late delivery on EURO 4M mogas project is now reward them with addition EURO 5M mogas contract for sum of addition US 76 million and EURO 5M mogas is only expected to be mandated from 2025 onward. Please investigate what is going on?

Dear SC, Bursa and HRC

Bursa Reference: CC/XXX/19

SC Case Reference: SC2019-XXXX

Refer to official HRC replied below:

“With reference to your email dated 20 June 2019, the Company has evaluated the questions forwarded in the email and after careful consideration, we regret to inform you that the Company is unable to release the information requested. 

Please note that the information requested is commercially sensitive in nature which, if released, may prejudice the Company's corporate interests, legal obligations and competitiveness. 

We take note of your concerns. The Company is committed to good governance in the conduct of its business and operations. The Company will comply with all applicable laws and regulations.”

I had done what I can as minority shareholder in demanding transparency and good governance from HRC management. (Request CEO to present compile information in the present of SC and Bursa to prove that business is transact and operate at arm’s length and above board). Unfortunately HRC management took it as requesting release of commercially sensitive information which, if released, may prejudice the Company's corporate interests, legal obligations and competitiveness.

It is now up to the SC and Bursa to use the oversight/regulatory power to comply HRC to do the request presentation below at SC office to prove that HRC management indeed practice good governance in the conduct of its business and operation.

1. Crude oil purchase contracts (with premium or discount to reference crude oil) and tally unaudited quarterly purchases cost for each quarter.
2. Get a quotation from Mahler and Air product that according to HRC specification. Compile the detail project cost break down for this H2GEN EPCC contract of USD66.4 million for presentation.
3. Compile Euro 4M Mogas contracts and identify which contracts failed the contract delivery dateline before 1 OCT 2018 and reason why no late delivery penalty imposed.
4. Compile Euro 5M Mogas USD 76 million contracts and justification/feasibility study to implement the project now instead of expect mandate from 2025 onward.

I refer: http://hengyuanrefining.listedcompany.com/misc/AGM_minutes_of_meeting.pdf

As late as 24 May 2018 at HRC 59^th AGM: The CFO then reported the key highlight of the following three (3) major capital investments the company would be undertaking in 2018 and 2019 and shared that the three investments were vital to the company’s long term sustainability and long-term profitability:

1. 2018 major turnaround
2. Project Atlas 2
3. Project E4M

I was caught off guard and surprise by the subsequent another three (3) big CAPEX USD (48+76+66.40) million.

Bursa company announcement dated: 05 Sept 2018

http://www.bursamalaysia.com/market/listed-companies/company-announcements/5906633

The Total Investment Cost for the CAR Project is estimated at USD48 million

Bursa company announcement dated: 02 Nov 2018

http://www.bursamalaysia.com/market/listed-companies/company-announcements/5964569

Separately, the Board of Directors approved an increase in funding of USD76 million for the Euro 4M Mogas project (“Project”), bringing the total investment to USD211 million +/- 10%.

Bursa company announcement dated: 16 Jan 2019

http://www.bursamalaysia.com/market/listed-companies/company-announcements/6037181

Full Fund Release of USD66.40 million for the H2GEN Project

My questions:

1. Isn’t the HRC BOD committed a serious misrepresentation to mislead shareholders in believing that what it take are (2018 MTA, Project Atlas 2 and Project E4M) to set the stage for HRC long term sustainability and long-term profitability?
2. Shouldn’t Bursa/SC issue show cause letter and reprimand HRC for such serious misrepresentation?

I’m sure HRC need more borrowing/fund rising to fund the addition CAPEX of USD 190.4 million which will affect it ability to pay dividend for many years to come and hence HRC’s market share price will stay depressed.

Thank you

Yours Sincerely,

Lee Soon Sheng