Date: 21 November 2018

OTHERS KRONOLOGI ASIA BERHAD ("KAB" OR "THE PURCHASER" OR "THE COMPANY") - PROPOSED SUBSCRIPTION OF NEW SHARES IN QUANTUM CHINA LIMITED


Type Announcement
Subject OTHERS
Description KRONOLOGI ASIA BERHAD ("KAB" OR "THE PURCHASER" OR "THE COMPANY") - PROPOSED SUBSCRIPTION OF NEW SHARES IN QUANTUM CHINA LIMITED

(In this Announcement, "RM" refers to Ringgit Malaysia, "USD" refers to United States Dollars. Unless stated otherwise, the exchange rates of RM1.00: USD0.2385 based on Bank Negara Malaysia as at 12:00 noon on 16 November 2018 are used throughout this Announcement for illustration purposes.)

1.INTRODUCTION

The Board of Directors of KAB wishes to announce that the Company had on 21 November 2018, entered into an Agreement with Yang Lanjiang ("Agreement"), to subscribe for 20 new ordinary shares ("Shares") at USD1/- each in Quantum China Limited (Company No. 1980361) ("QCL"), representing 16.67% of the issued and paid up share capital of QCL, for a total consideration of USD3.00 million (or equivalent to approximately RM12.579 million) ("Proposed Subscription").

2.INFORMATION ON QCL

QCL was incorporated in British Virgin Islands ("BVI") on 24 May 2018 with an issued and paid up capital of 100 ordinary shares. QCL has a 100% owned subsidiary, namely Quantum Storage Technology (Shenzhen) Co., Ltd., a company incorporated in Republic of China.

QCL and its subsidiary ("QCL Group") are principally engaged in EDM infrastructure technology business providing data storage, protection and archival solutions to enterprises.

As at the date of this Announcement, Yang Lanjiang is the sole shareholder and operator of QCL. Yang Lanjiang is a Chinese national, whom together with some of her team members, had been previously employed by Quantum Corporation for its China operations. The director of QCL is Wong Gang, a nominee director appointed by Yang Lanjiang as part of corporate secretarial services provided to the QCL Group. The nominee director is not and will not be involved in any financial or operational matters or management of QCL Group.

Based on the unaudited financial statements for the financial period from 24 May 2018 to 30 September 2018, QCL Group recorded a profit after taxation of USD196,206 and net assets position of USD196,838. The operations of QCL commenced on 1 July 2018.

3.SALIENT TERMS OF THE AGREEMENT

KAB and Yang Lanjiang, collectively referred as "the Shareholders") hereby agree:

(a) to increase the issued and paid capital of QCL to USD120 only comprising of 120 shares of USD1.00 each;

(b) to subscribe for such number of shares to give effect to the equity structure sets out below whereupon KAB shall cause QCL to issue and allot 20 unit of ordinary shares. The new shareholdings will be as follows:-

Shareholders 
			
Number of shares
			
Percentage of shares
			
Yang Lanjiang
			
100
			
83.33
			
KAB
			
20
			
16.67
			
Total
			
120
			
100.00
			

(c) Upon completion of the equity structure sets out above, the Shareholders agree and acknowledge that KAB shall have the right to appoint one person as director in QCL and/or its subsidiary.

(d) The Agreement shall be deemed terminated upon occurrence of any of the following events:

(i) termination of the Agreement by mutual written consent of all the Shareholders; or (ii) a winding-up of QCL.

4.BASIS AND JUSTIFICATION FOR ARRIVING AT THE CONSIDERATION

The total consideration for the Shares was arrived at on a willing buyer-willing seller basis after taking into consideration, among others, the following: (i) The consideration paid is in line with the internal assessment of management based on common valuation methodologies such as enterprise value (EV) over earnings before interest, tax, depreciation and amortisation ("EBITDA") multiples of trading and transaction comparable; (ii) The earnings potential and growth of QCL Group; and (iii) The rationale of the Proposed Subscription as set out in Section 7 of this Announcement.
5.SOURCE OF FUNDING

The Proposed Subscription shall be funded via internally generated funds and funds raised from the private placement.


6.LIABILITIES TO BE ASSUMED

KAB does not expect to assume any liabilities, including contingent liabilities and guarantees arising from the Proposed Subscription.


7.RATIONALE AND PROSPECT FOR THE PROPOSED SUBSCRIPTION

The rationale of the Proposed Subscription is as follows:-

(i) Strategy - Key opportunity in the expansion of footprint The Proposed Subscription is in line with the KAB's business expansion strategy in Asia after the successful acquisitions of Quantum Storage (India) Pte Ltd and Quantum Storage (Hong Kong) Limited, where the focus was to efficiently tap on expanding market opportunities in South and North East Asia. The Management is of the opinion that it is now timely to explore and capitalise on growth opportunities offered by the QCL platform in North Asia, providing KAB with greater accessibility and control over a wider network in Asia.

(ii) Synergy - Group synergy opportunity With the Proposed Subscription, the anticipated synergies will be as follows:

(a) Improving efficiency, flexibility and scale in sourcing of equipment and components from principals such as Quantum Corporation; and (b) Providing greater ability to support current and future customers with existing regional operations as well as facilitating their regional plans. The Proposed Subscription also demonstrates the Board's initiative in pursuing growth and sustainability in the Group, leading to a future expansion of the Company's operational footprint.


8.RISK FACTORS

(i) Investment risk

There is no assurance that the anticipated benefits of the Proposed Subscription will be realised or that KAB will be able to generate sufficient returns from this investment to offset the costs of this investment. There is also no assurance that the expected financial performance of QCL Group would be achieved post completion of the Proposed Subscription.

(ii) Political, economic and regulatory considerations

QCL Group's financial and business prospects may be materially affected by any changes in the economic, political and regulatory environment in China and BVI. Such risks include, but are not limited to, changes in political leadership, industry policies, expropriation, nationalism, war, riots, economic uncertainties, adverse changes in tax laws and controls of foreign ownership, repatriation of profits and dividends and foreign exchange regulations. There can be no certainty that any adverse developments in the economic, political and regulatory requirements of China and BVI will not have a material adverse effect on the QCL's financials thus limiting its to make dividend payments.

While acknowledging that our Company may not be able to prevent some of the abovementioned events from occurring, it has adopted and will continue to adopt a proactive approach in keeping abreast of political, economic, and regulatory developments of these countries.


9.EFFECTS OF THE PROPOSED SUBSCRIPTION

The Proposed Subscription will not have any effect on the issued share capital and substantial shareholders' shareholdings of KAB as it will be fully satisfied in cash.

In addition, the Proposed Subscription is not expected to have a material effect on the earnings per share, net assets and gearing of KAB for the financial year ending 31 December 2018. Barring any unforeseen circumstances, the Proposed Subscription is expected to contribute to KAB's earnings and net assets in the future.


10.APPROVALS REQUIRED

The Proposed Subscription is not subject to the approvals of any authority and/or the shareholders of the Company.


11.ESTIMATED TIMEFRAME FOR COMPLETION OF THE PROPOSED SUBSCRIPTION

The Agreement will come into force and effect on 21 November 2018. Whereas, the Proposed Subscription is expected to complete by end of 2018.


12.HIGHEST PERCENTAGE RATIO

The highest percentage ratio applicable to the Proposed Subscription pursuant to Rule 10.02(g) of the ACE Market Listing Requirements of Bursa Malaysia Securities Berhad is 11%, based on the latest audited consolidated financial statements of KAB for the financial year ended 31 December 2017.


13.INTEREST OF DIRECTORS, MAJOR SHAREHOLDERS AND/OR PERSONS CONNECTED TO THEM

None of the Directors, Major Shareholders of KAB and/or persons connected to them have any interest, direct or indirect, in the Proposed Subscription.


14.DIRECTORS' STATEMENT

The Board of KAB, having considered all aspects of the Proposed Subscription, including but not limited to the salient terms and conditions of the Agreement is of the opinion that the Proposed Subscription is in the best interest of the Company.


15.DOCUMENTS AVAILABLE FOR INSPECTION

The Agreement will be available for inspection at the registered office of the Company at Third Floor, No. 79 (Room A), Jalan SS21/60, Damansara Utama, 47400 Petaling Jaya, Selangor Darul Ehsan for a period of 3 months from the date of this Announcement.


This announcement is dated 21 November 2018.

 

		                            


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