Dear JRB IR,

Thank you for your responses to my email address to SC and Bursa on my objections to JRB revised RI. I’m glad to read your reassuring promise to address my queries/comments at JRB upcoming EGM on 24th September 2020.

 

Before you do so, please allow me to paraphrase my questions for clarity and precision. Please kindly forward my questions to the Board for BOD to prepare the answers.

 

Since the proposed cash call RI announcement on 22 May 2020 the proposal was revised two times:

Revise Rights shares increase from 402,277,057 to 1,287,286,584 to 2,413,662,345.

Revise free warrants sweetener increase from 201,138,528 to 643,643,292 to 1,206,831,172 with up to 151,906,604 Additional Warrants B

5-day VWAMP of JRB deteriorated from RM 1.0706 to RM 0.9443 to RM 0.76

Revise Issue price reduced from RM 0.40 to RM0.225 to RM 0.12

Revise TERP of JRB diluted from RM 0.85 to RM 0.50 to RM 0.28

Revise: 2 Rights Shares together with 1 Warrant for every 4 JRB Shares to 8 Rights Shares together with 4 Warrants for every 5 JRB Shares to 3 Rights Shares for every 1 JRB Share held, together with 1 Warrant for every 2 Rights Shares

 

Refer Circular dated 9 September 2020

https://www.bursamalaysia.com/market_information/announcements/company_announcement/announcement_details?ann_id=3086741

Page: 19

Premised on the above and after taking into consideration the following rationale for the Revisions, the Board has resolved to undertake the Revisions which was announced on 13 July 2020:-

i. in view of the improved equity market conditions subsequent to the announcement in relation to the Original Proposed Rights Issue with Warrants made on 22 May 2020.

 

Question1: What are the supporting evidence and matrix used to claim improved equity market conditions subsequent to the announcement in relation to the Original Proposed Rights Issue with Warrants made on 22 May 2020?

Note: The 6-months moratorium on bank loan repayments due to Covid-19 MCO will expire at the end of September. The very purpose for this moratorium is to ease the financial strains on individuals and companies during this unprecedented time. It is fairly reasonable to assume that some of the JRB minority shareholders too are financially stressed and do not have financial means to subscribe in full their respective entitlement

 

Page: 38

HISTORICAL SHARE PRICES

2020

January: 1.480 - 1.180

February: 1.540 - 1.240

March: 1.290 - 0.675

April: 1.050 - 0.790

May: 1.140 - 0.875

June: 1.000 - 0.860

July: 0.975 - 0.770

August: 0.810 - 0.750

 

I had bought 80,000 JRB shares to increase my equity participant from open market on my free will and free choice at the beginning of year in anticipation that JAKS Hai Duong Power Plant will bring in profit or free cash-flow of RM 150-250 million to JRB. Base on published information from AES Mong Duong:

BOT 1200MW coal-fired power plant, cost of US$1.95bn project with 25 years concession and power purchase agreement with Viet Nam Electricity (EVN).

75%:25% debt to equity financing: AES (51%), Posco Energy Corporation (30%) and China Investment Corporation (19%)

Operation: April 22, 2015

From AES quarterly financial presentation:

Subsidiary (Mong Duong) Cash Distributions to AES (equity 51%)

2016: Mong Duong: US$ 46 million

2017: Mong Duong: US$ 51 million

2018: Mong Duong: US$ 45 million

2019: Mong Duong: US$ 76 million

 

But alas an ill advised super disruptive and value diluting JRB cash call RI had forced me to dispose 79,000 units at loss recently because I lose my confidence on JRB BOD and Management to do the right things in taking care of minority shareholders interest and afraid I will incur more losses if I subscribe in full my entitlement RI.

 

Question 2: To those loaded up during beginning of year at RM1.20 and still hold on the shares, what is the Board advice option?

Question 3: If Board advice option C then in Board view, need to wait how long before the ex-rights holding of 4,000 units of JRB and 1,500 warrant can be sold not less than RM 1,560 in order to make some profit disregard interest need to be paid on borrow RM 360 per 1,000 units of JRB shares originally invested?

 

Question 4: It is morally right to held shareholders hostage with only option A, B and C as not doing anything will see the RM1200 per 1000 unit initial investment diluted/destroyed to RM 280 the theoretical ex-rights price RM 0.28?

 

Question 5: If the revised RI is approved by the EGM then another option D is to sell the JRB shares and use the money to buy the JRB-OR entitlement during the 1 week window from desperate sellers in open market and subscribe to the 3 Rights Shares, together with 1 free Warrant.

My question to the Board; is this the only option and faster way to recover the initial investment? And is it ethical to do so in taking advantage of desperate JRB-OR sellers?

 

Question 6: Am I right to say the whole revised RI will benefit outsiders with deep pocket to buy as much JRB-OR entitlement during the 1 week window from desperate sellers and with JRB-OR subscribe to the Rights Shares and then sell the 3 Rights Shares, together with 1 free Warrant post listing for profit at the expense of JRB-OR desperate sellers? Did the Board have any mitigation plan to prevent this? Example a guarantee from underwriters to purchase the JRB-OR at not less than (5-day VWAMP- TRP)/3 = (0.76-0.28)/3 = RM 0.16.

Note: With 2,413,662,345 JRB-OR open for trading in the 1 week widow desperate sellers will just sell their OR at desperate price.

 

Page: 40

DIRECTORS’ RECOMMENDATION

The Board, having considered all aspects of the Proposed Rights Issue with Warrants (including but not limited to the rationale and justification as well as the effects of the Proposed Rights Issue with Warrants), is of the opinion that the Proposed Rights Issue with Warrants is in the best interests of the Company. As such, the Board recommends the shareholders of JRB to vote in favour for the resolution pertaining to the Proposed Rights Issue with Warrants to be tabled at the forthcoming EGM of the Company

 

Question 7: Did the Board take into consideration whether the Proposed Rights Issue is in the best interest of shareholders before recommends the shareholders of JRB to vote in favour for the resolution?

 

Question 8: Can the Board look into shareholders’ eyes and tell them the proposed disruptive and value diluting RI that has caused the following is in the best interest of JRB shareholders?

 

Page: 14-15

On 3 August 2015, Golden Keen was awarded the EPC Contract valued at USD454.50 million (equivalent to approximately RM1, 904.36 million) for the construction of the Power Plant. In anticipation of the EPC Contract being completed by the first quarter of 2021, and leveraging on the Group’s experience in undertaking the EPC Contract and various other construction projects in Malaysia, the Group intends to expand its business in the construction industry and as such, is in the midst of identifying opportunities for the Group to venture into construction projects in Vietnam. These construction projects include, amongst others, wastewater treatment plants and water supply, power and energy related infrastructures and roads, bridges and other related infrastructures.

 

The Group intends to use up to RM25.00 million for the preliminary expenses relating to exploring construction projects in Vietnam. The expenses will mainly comprise of, amongst others, feasibility and engineering studies (including geotechnical and topographical studies), environmental and social impact assessment, professional fees as well as legal and regulatory related expenses. The project feasibility studies comprise of financial, technical and site assessment, and will be used to determine the suitability of the construction projects to be undertaken.

 

Question 9: How many Malaysians managers were seconded and key Vietnam staffs employed with Golden Keen for them to gain experience in undertaking EPC contract and now ready to leverage that experience to compete with local Vietnam and Chinese contractors for constructions jobs in Vietnam?

 

Question 10: On Group’s experience in undertaking various other construction projects in Malaysia, for the record what are constructions projects in Malaysians contribute to JRB top and bottom line in the past two financial years?

 

Question 11: On the Group intends to use up to RM25.00 million for the preliminary expenses relating to exploring construction projects in Vietnam. Should the Board be more prudent and priority shall be given to conserve cash for the purposes of, amongst others, to meet the working capital requirements of the Group as well as to build up sizeable cash. I suggest since experience gain by management in undertaking EPC contract will not be lost, this RM 25 million should be postponed till better time where JRB can generate positive cash flow from JAKS Pacific Power Limited?

 

Page 17:

Fundraising exercises in the past 12 months

The Company had utilised approximately RM10.00 million for its venture into Renewable Energy Projects. The said proceeds were utilised for the preliminary expenses relating to exploring Renewable Energy Projects which mainly comprise, amongst others, feasibility and engineering studies (inclusive of geotechnical and topographical studies), environmental and social impact assessment as well as legal and regulatory related expenses

 

Question 12: Did any reports were prepared on the above subject for Board study and what is the outcome of this Renewable Energy Projects study?

Did auditing and verification were carried out by external auditors to make sure the expenses were indeed for renewable energy projects feasibility study?

 

Page 39:

To incorporate Bursa Securities’ comments in respect of the draft circular to shareholders – Complied.

 

Question 13: May I know what Bursa Securities’ comments are? And in what way did circular comply to incorporate Bursa Securities’ comments?

 

JRB IR advice me to refer to available public information, analyst reports, official announcements, press releases and any other reliable news flow on the company:

Refer JAKS website Media News

http://jaks.irplc.com/medianews.htm?filepath=JAKS/JAKS-Nanyang-12072020.pdf

洪楠堡指，公司截至2019财年末季的净负债，仍处于约0.28倍的低水平。“这让公司有能力融资，供未来收购业务

Translate: Ang pointed out that the company's net debt as of the end of the 2019 fiscal year is still at a low level of about 0.28 times. "This gives the company the ability to raise funds for future business acquisitions

 

Question 14: Since CEO Mr. Ang told Nanyang reporter on 12 July 2020 the company's net debt as of the end of the 2019 fiscal year is still at a low level of about 0.28 times. Then why go through so much trouble to propose and revise Cash Call to such disruptive and value diluting RI.

Should the Board’ recommend borrowing instead of RI since interest rate is at record low level and Jaks Hai Duong Power Plant (JHDP) is guaranteed to make profit starting year 2021 for the next 25 years?

Note: MFCB Management borrows short term borrowing of RM 718,211,000.

7 Jul 2020 - In a statement, Maybank said its BR would be lowered to 1.75% per annum from 2% at present, while its BLR will be revised to 5.40% from 5.65%

 

Question 15: A personal question to CEO Mr. Ang: I believe you too need to borrow money in order to subscribe in full your entitlement. May I know what your borrowing interest rate compare to JRB borrowing interest rate?

 

Question 16: Should The Board insist on cash call RI. I appeal to the Board to consider making not more than 10% discount for the issue price of Rights Issue exercise pursuant to general mandate under Section 75 and 76 of the Companies Act 2016. And sweetener free warrants distribute to the non RI subscribing shareholders and subscribers of Rights Shares. In this case The RI will be more equitable and fair and less disruptive and value diluting/destroying to those cannot afford to subscribe their entitlement in full.

For illustration purpose: My suggest propose Rights Issue with Warrants may now entail an issuance of up to 402,277,057 Rights Shares together with 402,277,057 free Warrants based on the above mentioned enlarged number of 804,554,115 Shares in issue, a revised illustrative entitlement basis of 2 Rights Shares for every 4 JRB Shares held with 1 warrant for every 4 JRB shares currently held and 1 warrant for every 2 Rights shares subscribe and a revised illustrative issue price of RM0.65 per Rights Share, which represents a discount of RM0.07 or approximately 10% to the TERP of JRB Shares of RM 0.72, calculated based on the 5-day VWAMP of JRB Shares up to and including the LPD of RM0.76. The exercise price of the Warrants is assumed at TERP of JRB Shares of RM0.72

 

Question 17: Will the Board kindly email me a copy of Board replied to my EGM questions submitted in advance of EGM after the EGM?

 

Thank you. Have a good day

 

Best Regards

Lee Soon Sheng