| General Announcement|
Reference No O&-061012-44181
|Submitting Merchant Bank||:||K & N KENANGA BHD |
|Company Name||:||REXIT BERHAD (MESDAQ Market)|
|Stock Name ||:||REXIT|
JOINT VENTURE BETWEEN REXIT BERHAD ("REXIT" OR THE "COMPANY") AND
MARUBENI CORPORATION OF JAPAN ("MARUBENI") ("PROPOSED JOINT VENTURE")|
We refer to the Company's announcement dated
25 May 2006 in relation to the memorandum of understanding signed
between Rexit and Marubeni ("MOU").
On behalf of the Board of Directors of Rexit ("Board"), K&N Kenanga Bhd is pleased to announce that the Company had on 12 October 2006 entered into a Joint Venture Agreement ("JV Agreement")
with Marubeni to form a joint venture company to promote, market and
sell Rexit's software products and services to potential customers in
the international markets ("Proposed Joint Venture"). The Foreign Investment Committee ("FIC") had vide its letter dated 21 September 2006 stated that it had no objections to the Proposed Joint Venture.
As stated in the MOU, Marubeni intends to
participate in Rexit through a purchase of 10% of the issued paid-up
share capital of Rexit. As such, Rexit Venture Sdn Bhd ("Rexit Venture"),
a substantial shareholder of Rexit had informed the Company that it had
on 12 October 2006 entered into a share purchase agreement with
Marubeni wherein Rexit Venture agreed to sell 18,930,000 ordinary
shares of RM0.10 each in Rexit representing approximately 10% of the
issued and paid-up share capital of Rexit to Marubeni on the date ten
(10) trading days from the Closing of the JV Agreement (as defined in
Section 4.2 herein) ("Proposed Share Purchase").
2. DETAILS OF THE PROPOSED JOINT VENTURE
The Proposed Joint Venture will encompass
the setting up of a joint venture company incorporated under the laws
of Malaysia under the name of "Rexit International Sdn Bhd" ("JV Company") or such other name that is acceptable by Rexit and Marubeni (the "Parties").
The JV Company will be involved in promoting,
marketing and selling Rexit's software products and services to
potential customers in any region of the world, save and except
Malaysia ("Joint Venture Territories")
on an exclusive basis. Save as otherwise provided in the JV Agreement,
the Parties shall not be engaged in any competing business in the Joint
Venture Territories during the term of the JV Agreement.
The authorised, issued and paid-up share capital of
the JV Company and the percentage of ownership of the Parties in the JV
Company shall be as set out in Table 1 below.
The board of directors shall consist of four (4)
directors, with two (2) being appointed from Rexit and two (2) from
Marubeni. The chairman of the board of directors shall be nominated by
Rexit, but in the event that the shareholding ratio changes from that
disclosed above, then a director shall be nominated by the shareholder
who holds the largest proportion of the shares in the JV Company. The
chairman shall also act as the managing director of the JV Company.
After Closing (as defined in Section 4.2 herein),
any unissued shares within the authorised share capital of RM22,000,000
and in excess of the paid-up share capital stated above shall only be
issued in one or more series as and when additional funding is
reasonably necessary in order to develop or carry on the business of
the JV Company. The additional shares shall be issued at the same price
and in the same proportion as stated above. After the additional shares
have been fully subscribed and paid up by the shareholders, the number
of shares subscribed and aggregate price contributed and ownership
percentages of the respective parties shall be as set out in Table 2
2.1 Transfer of existing and future foreign interests
Rexit shall assign and/or transfer to the JV Company, all of Rexit's shares and interests in PT Rexit Indonesia ("PT Rexit").
Such transfer shall be an absolute and irrevocable transfer from Rexit
to the JV Company of all Rexit's present and future rights, titles,
interests, benefits, obligations and liabilities imposed or vested in
PT Rexit at the date of the transfer.
Upon any successful negotiations of any joint or
business venture in Thailand, Hong Kong, China and in any other Joint
Venture Territory, which is the result of any ongoing negotiations
prior to Closing (as defined in Section 4 herein) with third parties,
shall be transferred to or assigned with effect from Closing to the JV
2.2 Incorporation of foreign subsidiaries in Joint Venture Territories
The JV Company may either acquire or procure
the establishment of subsidiary companies in the Joint Venture
Territories mutually identified by the shareholders of the JV Company
under the respective local laws, to carry out its business in the
respective Joint Venture Territory ("Subsidiaries").
The first Subsidiary anticipated to be formed will
be in Japan and shall undertake to promote, market and sell Rexit's
software products and services in the Japanese market.
3. INFORMATION ON MARUBENI
Marubeni was founded in 1858 and
incorporated on 1 December 1949. Marubeni is listed on the stock
exchanges of Tokyo, Nagoya and Osaka. Marubeni is a large conglomerate
with diversified business interests and investment interests. Marubeni
possess established global networks and marketing systems in many
As at 31 March 2006, Marubeni's total paid-in
capital and total number of shares issued and outstanding stand at
Japanese Yen (¥)262,685,964,870 (RM8,195,802,104) and 1,683,953,165
shares (comprising common stock of 1,607,218,514 shares and Class I
preferred shares of 75,500,000 shares), respectively. Based on the
unaudited financial results of Marubeni and its subsidiaries ("Marubeni Group")
for the three (3) months period ended 30 June 2006, the net income and
shareholders' equity of Marubeni Group is ¥34.8 billion (RM1.086
billion) and ¥667.3 billion (RM20.82 billion) respectively. (Foreign exchange rate conversion at ¥1 = RM0.0312)
Marubeni Group's major business segments comprise
agri-marine products; textile; forest products and general merchandise;
chemicals; energy; metals and mineral resources; transportation &
industrial machinery; power projects; plant, ship & infrastructure
projects; information & communication; development and
construction; finance, logistics & new business, iron & steel
strategies & coordination and overseas corporate subsidiaries.
4. SALIENT TERMS OF THE JV AGREEMENT
The salient terms of the JV Agreement are as follows:
4.1 Conditions precedent
The obligation of the Parties to proceed
with the Closing (as defined in Section 4.2) shall be conditional upon
the following being fulfilled within three (3) months (or such further
period as may be agreed in writing by the Parties) from the date of
execution of the JV Agreement:-
(a) The incorporation of the JV Company under the
laws of Malaysia wherein the Articles of Association of the JV Company
shall be in accordance with the provisions of the JV Agreement;
(b) The passing of a resolution by the board of
directors of the respective Parties approving the entry into the JV
Agreement and the participation in the Proposed Joint Venture;
The passing of a resolution by the shareholders of Rexit at a general
meeting to be convened approving, in each case, if necessary:-
(d) Written consent by PT Swadayanusa
Kencana Raharja, one of the shareholder of PT Rexit, that it consents
to the transfer of PT Rexit from Rexit to the JV Company; and
(i) the entering into the JV Agreement; and
(ii) the participation in the Proposed Joint Venture.
(e) Any other relevant authorities, if any, for the setting up of the JV Company and the operation of the joint venture.
Closing shall take place at Rexit's office at 10
a.m. Kuala Lumpur time within ten (10) Business Days (as defined in the
JV Agreement) (or such time period as may be agreed by the Parties) of
the date of receipt by the Parties, or the JV Company, of the last of
all relevant approvals, consents, permits or licences within the time
period provided in the JV Agreement (or such extension of tie that may
be agreed by the Parties mutually), whether prior to or after the
appeal, as the case may be ("Closing").
At Closing, the following shall occur:
(a) Each Party shall pay to the JV Company the
subscription monies for the shares respectively agreed to be subscribed
and accepted by it in accordance with the shareholding ratios as set
out in the JV Agreement;
(b) Rexit and the JV Company shall execute the Initial Targeted Business Agreement (as stipulated in the JV Agreement);
(c) Rexit, Marubeni, the JV Company and the relevant
secondees (as stipulated in the JV Agreement) shall execute the
respective Secondment Agreements (as stipulated in the JV Agreement);
(d) The JV Company, Rexit and Marubeni shall enter into the Accession Side Letter (as stipulated in the JV Agreement);
(e) The relevant party shall execute the Key Man Side Letter (as stipulated in the JV Agreement); and
(f) The Intellectual Property Licence (as stipulated in the JV Agreement) shall be executed by the relevant parties thereto.
4.3 Dividend policy
The Parties agree that, save as otherwise
agreed in writing, and as far as practicable, fifty per centum (50%) of
the annual distributed profits of the JV Company, if any, after due
provision have been made for income tax and working capital,
requirements of the JV Company, shall be declared as annual dividend.
The Proposed Joint Venture is a major development in Rexit and its subsidiaries' ("Rexit Group")
plan to accelerate its international sales growth and will provide the
Rexit Group with a strong platform to penetrate global markets. Rexit
will be able to leverage on Marubeni's established global networks,
marketing systems and international recognition for the distribution of
Rexit's proprietary solutions worldwide.
The Board believes that the Proposed Joint Venture
with Marubeni, will considerably shorten the time that Rexit takes to
enter foreign markets. It will also help to lower and diversify the
risks faced by Rexit from business ventures into foreign markets.
The Board is of the opinion that the Proposed Joint
Venture will contribute positively to the future earnings of Rexit
Group. The Board is encouraged by the large market potential in the
overseas markets. In the Japanese market alone, the Board estimates
that premiums for general insurance in Japan amount to approximately 9
trillion yen (approximately RM270 billion), compared to RM9 billion in
The Group will also benefit from a lower capital outlay than would otherwise be required for international expansion.
6. SOURCE OF FUNDS
Rexit will finance the Proposed Joint Venture via internally generated funds.
7. PROSPECTS AND INDUSTRY REVIEW
7.1 Overviews and prospects of the Global Economy
7.2 Prospects of the Information and Communication Technology ("ICT") industry
In 2005, global economic expansion was
sustained at s strong pace of 4.3%. Growth was remarkable resilient
against the backdrop of higher oil prices, rising interest rates, large
balance of payment imbalances and disruption from natural disasters.
While the economics of the United States of America and People's
Republic of China remained major drives of global growth, the recovery
in Japan and the Euro Area in the second half-year gained momentum,
providing additional support to the global economy.
Going forward, the outlook for 2006 remains positive
and the world output and world trade are projected to expand at a firm
pace of 4.3% and 7.4% respectively 2006. Global growth is anticipated
to broaden across the major economics, with the major economics of
Japan and Europe providing a more significant role. Another notable
feature is the stronger investment uptrend seen in several major
economics. For the Asian region, the global electronics up-cycle is
expected to strengthen further in view of higher Information and
Communication Technology-related spending in the industrial economics
and stronger intra-regional demand. While monetary stimulus has been
reduced due to increased interest rates, monetary conditions continue
to remain accommodative to growth.
(Source: Bank Negara Malaysia's Annual Report 2005)
The ICT industry is expected to grow by 6%
in 2006 and, looking ahead, highest growth will be driven by
Internet-related Investments, Linux servers, digital storage, personal
digital assistants and new portable consumer products. But any return
to the heady days of 20% and 30% growth in many products and market
segments in the 1990s are unlikely.
ICT trade is also growing even faster than
production and sale. There is a shift in manufacturing activities
within the OECD area, particularly towards assembly in Mexico and
Eastern European. Between 1996 and 2004, total OECD ICT goods trade
increased by 6.5% a year, while that of Mexico and Eastern European
OECD countries increased by 17.4% a year.
With the emergence of new growth economies in
Eastern European and non-OECD developing countries, world ICT spending
was up to 5.6% a year between 2000 and 2005. China was the sixth
largest ICT market in 2005 at USD 118 billion (after the United States,
Japan, German, United Kingdom and France), although total ICT spending
there is still only about one-tenth of the United States but about two
and a half times the spending of India (USD 46 billion). ICT spending
in non-OECD countries is still more focused on hardware than on
services as the basic physical ICT infrastructure is still being built.
(Source: OECD's IT Outlook 2006, www.oecd.org)
8. RISK FACTORS
The risk factors associated with the Proposed Joint Venture are as follows:-
8.1 Business Risks
8.2 Industry Risks
The business of the JV Company is exposed to the
general business risks as well as certain risks inherent in the broad
sector of IT. These may include, amongst others, general economic
conditions, increase in interest rates, timing and market acceptance of
the software, constraints in labour supply, inability to control
unforeseen costs, rapid technological change in the software and IT
market and other business risks common to going-concerns.
In mitigating such risks, the JV Company will
constantly keep abreast with new technologies and market trends and
also keep close eye on customers' requirements.
8.3 Investment Risks
Other than the business risks from IT sector as
mentioned above, the business of the JV Company will also depend and
rely on the performance of the financial and insurance industries. Any
loss or deterioration in relationship and/or termination of contracts
by the financial and insurance companies any result in severe
disruptions to the JV Company's business operations.
8.4 Competition Risks
Notwithstanding the terms and conditions stated in
the JV Agreement, there is no assurance that the anticipated benefits
from the investment by Rexit in the JV Company will be realized. Risk
associated with Rexit's investment in the JV Company include but is not
limited to the uncertainty of acceptance of the JV Company's software
and services in the overseas market, and the inability of Rexit to
protect its intellectual property. Any of these risks could result in
delay or loss of customer or revenue and cause additional expenditure
to rectify the problems.
The JV Company may face competition from foreign
companies which offer similar products and services outside Malaysia.
In view of the competition market environment, the JV Company is
expected to continuously develop new measures to counter competition
which will include among others products enhancement and products
differentiation. Despite the said measures being taken to maintain and
strengthen its competitive position in the international market, the
ability to main or increase its market in the future is not guaranteed.
9. FINANCIAL EFFECTS
10. APPROVALS REQUIRED
9.1 Share capital and substantial shareholders' shareholdings
The Proposed Joint Venture will not have any
effect on the issued and paid-up share capital and substantial
shareholders' shareholdings of Rexit Group.
The Proposed Joint Venture will not have an impact on the earnings of Rexit for the financial year ending 30 June 2007.
The Proposed Joint Venture is expected to contribute positively to the future overseas sales and earnings of Rexit Group.
9.3 Net assets
The Proposed Joint Venture is not expected to have
any material impact on the net assets of Rexit Group for the financial
year ending 30 June 2007.
11. DIRECTORS' AND SUBSTANTIAL SHAREHOLDERS' INTERESTS
The Proposed Joint Venture is subject to approvals being obtained from the following:-
(a) Shareholders of Rexit;
(b) Written consent by PT Swadayanusa Kencana
Raharja, shareholder of PT Rexit for the transfer of PT Rexit from
Rexit to the JV Company; and
(c) Any relevant authorities and/or regulators.
FIC approval had vide its letter dated 21 September 2006 stated that it had no objections to the Proposed Joint Venture.
As a consequence of the Proposed Share
Purchase stated in Section 1 above, and in view of the interests of
certain directors and substantial shareholders as set out below, the
Proposed Joint Venture is deemed to a related party transaction.
Accordingly, in compliance with Paragraph 10.08 (2) (a) of the Listing
Requirements of Bursa Malaysia Securities Berhad ("Bursa Securities")
for the MESDAQ Market, the Board, had on 9 October appointed OSK
Securities Berhad as Independent Adviser to advise the independent
directors and non-interested shareholders of Rexit in relation to the
Proposed Joint Venture. The appointment of OSK Securities Berhad is
subject to the confirmation of Bursa Securities.
as disclosed below, none of the directors and/or substantial
shareholders and/or persons connected to the directors and/or
substantial shareholders of Rexit have any interest, direct or
indirect, in the Proposed Joint Venture.
The Proposed Joint Venture is a related party
transaction as a result of the Proposed Share Purchase in which the
following directors and/or substantial shareholders have interests:
(i) Rexit Venture is a major shareholder of Rexit
and is deemed a related party by virtue of it being a party to the
Proposed Share Purchase and a body corporate associated with Chung Hon
Cheong and Si Tho Yoke Meng;
(ii) Chung Hon Cheong is an executive director of
Rexit and Rexit Venture. He is an indirect substantial shareholder of
Rexit by virtue of his substantial shareholdings in Rexit Venture. He
is also a direct shareholder of Rexit.
Si Tho Yoke Meng is an executive director of Rexit and Rexit Venture.
He is an indirect substantial shareholder of Rexit by virtue of his
substantial shareholdings in Rexit Venture. He is also a direct
shareholder of Rexit.
(iv) Tong Tin Heng, Wong Keng San and Looi Hooi Teck are shareholders of Rexit Venture and Rexit.
(Rexit Venture, Chung Hon Cheong, Si Tho Yoke Meng,
Tong Tin Heng, Wong Keng San and Looi Hooi Teck are collectively
referred to as the "Interested Parties")
Chung Hon Cheong and Si Tho Yoke Meng have abstained
and will continue to abstain from all deliberations and voting on the
Proposed Joint Venture at the relevant Board meetings.
The Interested Parties will also abstain from voting
in respect of their direct and indirect shareholdings in Rexit, if any,
on the ordinary resolution pertaining to the Proposed Joint Venture, at
the forthcoming EGM. The Interested Parties will also ensure that
persons connected to them, if any, will abstain from voting on the
ordinary resolution pertaining to the Proposed Joint Venture at the
12. DEPARTURE FROM THE SECURITIES COMMISSION'S POLICIES AND GUIDELINES ON ISSUE/OFFER OF SECURITIES ("SC GUIDELINES")
The Proposed Joint Venture is not subject to
the approval of the Securities Commission. To the best knowledge of the
Board, the Proposed Joint Venture has not departed from the SC
13. DIRECTORS' RECOMMENDATION
The Board, save for Chung Hon Cheong and Si
Tho Yoke Meng, having considered all the relevant factors in respect of
the Proposed Joint Venture is of the opinion that the Proposed Joint
Venture is in the best interest of Rexit.
14. ESTIMATED TIME FRAME FOR COMPLETION
The establishment of the Proposed Joint
Venture is expected to be completed in the second half of the financial
year ending 30 June 2007.
15. ADVISERS AND SPONSOR
Newfields Advisors Sdn Bhd and Kenanga have
been appointed as advisers to Rexit in relation to the Proposed Joint
Venture. Kenanga is also the sponsor to Rexit.
16. DOCUMENTS FOR INSPECTION
This announcement is dated 12 October 2006.
The JV Agreement relating to the Proposed
Joint Venture will be made available for inspection at the registered
office of Rexit at 42, Jalan BM 1/2, Taman Bukit Mayang Emas, 47301
Petaling Jaya, Selangor Darul Ehsan, during normal office hours from
Monday to Friday (except public holidays) for a period of three (3)
months from the date of this announcement.
© 2006, Bursa Malaysia Berhad. All Rights Reserved.