SET Announcements

9th April 2007 Subject Opinion of Independent Financial Advisor Concerning the Disposition of Assets and the Connected Transactions To The Company's Shareholders CH. Karnchang Public Company Limited Summary of the opinion of the Independent Financial Advisor 7.1 The Valuation Range We conclude that a suitable guide to evaluate PTW's share price is the Discounted Cash Flow approach. From this approach, the fair value of PTW's shares would be between Baht 337.10 and 402.41 per share. This represents a premium of 1.54 - 21.21 per cent to the indicative selling price of Baht 332 per share. 7.2 Reasons for the shareholders to vote in favor of the transactions The sale of PTW ordinary shares to TTW is aimed at shareholding restructure in the tap water business of the CK group and at further listing of TTW on the SET. Given a successful listing of TTW, the Company's shareholders will directly enjoy gains on the listing premium for the listing status of TTW. 7.3 Other crucial information for decision-making 7.3.1 As the selling price for PTW shares in this transaction will be in a range of Baht 332 - 365 per share while CK's average cost of investment in PTW is Baht 228.77 per share, if CK sells its entire stake in PTW to TTW and/or persons and/or legal entities having no connection with the Company, the Company will enjoy an average gain on such sale of Baht 103.23 - 136.23 per share. CK can record this as gains on sale of investments in the accounting period that the transaction takes place. Meantime, given that TTW buys PTW shares from CK at the price of between Baht 332 and 365 per share, TTW will have to recognize the goodwill from the difference between the book value and the purchase value at transaction date (PTW's adjusted book value will be Baht 69.97 per share. Such difference value will depend on the operational of PTW from 1st March 2007 until the transaction takes place). TTW can be accounted two ways based on two scenarios that TTW amortize the goodwill within the period specified in the accepted accounting standards or write off the goodwill in total amount. However, it is depends on an interpretation of the shareholding restructure between TTW and PTW is a business integration under the same management or under separated management. Finally, the decision on which method is to be used will be made jointly by TTW and its auditor. The decision making in this regard, is likely impacting TTW's performance during such amortization period. As well, CK (owning a stake of 47.69% of TTW's paid-up capital) will have to recognize the working results of TTW pro rata with its investments in TTW. 7.3.2 The price of PTW shares set at a minimum of Baht 332 up to Baht 365 per share is within the range of the valuated price figured out by the appraiser by the Discounted Cash Flow Approach, with the final price to be agreed upon by the two parties after TTW has obtained the approval from the shareholders who have no vested interest therein. Meantime, the Company still has to wait for the share valuation results from the Independent Financial Advisor, the approval of the PTW share sale transaction from shareholders' meeting and also higher than the Company's average acquisition cost. Nonetheless, the reasonable share price range valuated by the Financial Advisor in 7.1 above is higher than the minimum selling price of Baht 332 per share by 1.54% - 21.2%. For the above reasons and to ensure fairness and transparency in this transaction, the Company agreed to undertake as the recommendation of its Financial Advisor as follows: 1. As the share price of between a minimum of Baht 332 and maximum of Baht 365 per share is still under negotiation, the persons authorized to negotiate for and determine the final price must firstly put forward the matter to the Audit Committee's meeting for discussion and consideration in details before proceeding with the transaction. 2. After the final price has been agreed upon, the Company must so notify the SET and/or the shareholders immediately. Upon considering all the factors outlined above, we are of the opinion that the indicative selling price is fair and reasonable and that the shareholders should accept this transaction. Far East Securities Co., Ltd., as the Independent Financial Advisor, hereby certify that we have rendered our opinion regarding the above transaction with due care in accordance with professional standards taking into account the best interests of the minority shareholders. According to the Board of Directors Meeting of CH. Karnchang Plc. (the "Company" or "CK") No. 4/2007 which held on 26th March 2007, passed the resolutions to propose that the Annual General Meeting of Shareholders 2007 consider the sale of not exceeding 5,567,371 ordinary shares in Pathum Thani Water Co., Ltd. ("Pathum Thani Water" or "PTW") (the number of shares after PTW decreased its registered capital), or representing not more than 46.39 percent of the decreased registered capital at the price not lower than Baht 332 per share, in the total amount of not less than Baht 1,848,367,172 to Thai Tap Water Supply Plc. ("Thai Tap Water" or "TTW") and/or persons and/or legal entities having no connection with the Company. In the meantime, the Board of Directors of CK passed the resolutions to propose that the Annual General Meeting of Shareholders consider the matter that TTW (associated company) would purchase the ordinary shares in PTW from the current shareholders as of actual purchasing date (except the Provincial Waterworks Authority or "PWA") wishing to sell their shares at the price ranging from Baht 332 to Baht 365 per share so as to restructure the shareholding of TTW before its Initial Public Offering for the purpose of listing on the Stock Exchange of Thailand (the "SET"). However, the transaction volume of the disposition of PTW's shares, if calculated pursuant to the SET Notification, Re: Rules, Procedures and Disclosure on Acquisition or Disposition of Assets of Listed Companies, according to the transaction value basis, would represent 6.70 percent. On the other hand, The transaction volume of the acquisition of shares in PTW by TTW, if calculated pursuant to the SET Notification, Re: Rules, Procedures and Disclosure on Acquisition or Disposition of Assets of Listed Companies, according to the transaction value basis, would represent 14.16 per cent. Upon combination of the acquisition transactions, the total transaction volume during the period of six months calculated according to the transaction value basis would represent 18.66 per cent which would fall on Type 2 Transaction. In this regard, the Company is required to prepare a report and disclose such transactions to the SET and to deliver the written notice to its shareholders within 21 days from the date of disclosure to the SET. Furthermore, TTW acquires shares in PTW by way of purchasing shares from the current shareholders (except PWA), comprising Mahasiri Siam Co., Ltd. ("Mahasiri Siam") and CH. Karnchang Holding Co., Ltd. ("CH. Karnchang Holding") which are major shareholders of CK, the transaction value, if calculated pursuant to the SET Notification, Re: Rules, Procedures and Disclosure on Connected Transactions of Listed Companies, would be 31.24 percent of the value of its net tangible assets. Since the sellers (Mahasiri Siam and CH. Karnchang Holding), the major shareholders of CK, enter into such transactions with their associated company (TTW), such transactions are not deemed as connected transactions. However, to ensure transparency and avoidance of conflict of interest, the Company wishes to disclose information on such transactions to the SET and to hold the Meeting of Shareholders to seek approval of the transactions. A resolution of the Shareholders' Meeting to approve a decision to enter into this connected transaction must consist of at least three-fourths of the total votes of shareholders attending the meeting and having voting right, excluding interested shareholders' equity. From the said above, the Board of Director resolved to approve the Company to appoint Far East Securities Co.,Ltd. to be an Independent Financial Advisor ("Financial Advisor") to give the opinions concerning on fair price and reasonable transactions and also to opine to the Audit Committee and/or the Company' shareholder related to acquisition or disposition of asset as well as the connected transactions. Far East Securities Co., Ltd., as a Financial Advisor approved by the Office of the Securities and Exchange Commission (the "SEC") and also independent from the Company, has studied the information related to this transactions including the Board of Directors' resolutions, Information Memorandum concerning the Transactions, financial statements and internal accounts, list of shareholders, Certificate of Incorporation, Memorandum of Association, operation agreements, financial projections and assumptions, interviews with executives and related persons, visits PTW's site and assessment to the industry overview and other economic factors. Our opinions expressed herein have been based on the assumptions that the information and documents obtained from the Company, PTW and its subsidiary company and the information has been disclosed to the SET are true and correct. In this regard, the Financial Advisor's opinion in connection with the transactions has been prepared and proposes to the Audit Committee and/or the shareholders concerning 1. reasonableness and benefits of transactions to the Company 2. Fairness of price and condition of transactions and 3. whether shareholders resolve to agree or disagree with transactions together with supporting reasons. The consideration is based on economic conditions and information known at present. Any future changes in the said information and any incidents arising may have a material impact on the Company's value as well as shareholders' decision on the transactions. The opinion of Financial Advisor can be summarized as follows: 1. Characteristics and details of transactions Shareholding structure in PTW before enter into transactions * CK holds 12,767,838 shares in PTW, representing 46.39% * Mahasiri Siam holds 8,399,396 shares in PTW, representing 30.52% * CH. Karnchang Holding holds 599,710 shares in PTW, representing 2.18% * Minority shareholders hold 5,753,056 shares in PTW, representing 20.91% * CK holds 1,549,839,400 shares in TTW, representing 47.69% Shareholding structure in TTW after transactions completed * CK holds 1,549,839,400 shares in TTW, representing 47.69% * TTW holds 11,759,738 shares in PTW, representing 98.00% * PWA holds 240,262 shares in PTW, representing 2.00% Notes : * Expected all current shareholders sell their shares to TTW 1.1. Types and sizes of transactions 1.1.1 The acquisition and disposition of assets The calculation of transaction size of the disposition of PTW's ordinary shares: This method shall consider the total value of consideration received (maximum), compared with total assets of the Company as at 31st December 2006. Measurement formula for asset disposal is as follows: = Total consideration (received) * 100 Total assets Where; CK will sell all of PTW but not exceeding 5,567,371 ordinary shares in PTW (the number of shares after PTW decreased its registered capital) at the price not lower than Baht 332 per share to TTW. Concurrently, TTW will purchase PTW shares from CK at the price ranging from not lower than Baht 322 and not higher than Baht 365 per share. = 2,032.09 * 100 = 6.70 30,313.91 The calculation of transaction size of the acquisition of PTW's ordinary shares: This method shall consider the total value of consideration paid (maximum), compared with total assets of the Company as at 31st December 2006. Measurement formula for asset disposal is as follows: = Total consideration (paid) * 100 Total assets Where; TTW would purchase the ordinary shares in PTW from the current shareholders as of actual purchasing date (except for ordinary shares in portion of PWA) in the amount of 11,759,738 shares (the number of shares after PTW decreased its registered capital) at the price ranging from not exceeding Baht 332 to not more than Baht 365 per share. Even though, there will be some current shareholders of PTW not sell PTW ordinary shares to TTW at the date that the transaction taking place. TTW still confirm to purchase all PTW ordinary shares which sell in such period. = 4,292.30 * 100 = 14.16 30,313.91 However, there are acquisition transactions taking place during six months prior to the BOD' Meeting date, in the total volume of Baht 1,407.22 million, would represent 4.50 per cent. Upon combination of the acquisition transactions value basis would represent 18.50 per cent which falls on Type 2 Transaction. The Company is required to prepare a report and disclose such transactions to the SET and to deliver the written notice to its shareholders within 21 days from the date of disclosure to the SET. 1.1.2 The Connected Transaction The entering into transactions that TTW acquires shares in PTW by way of purchasing shares from the current shareholders (except PWA), comprising Mahasiri Siam Co., Ltd. ("Mahasiri Siam") and CH. Karnchang Holding Co., Ltd. ("CH. Karnchang Holding") which are major shareholders of CK, the transaction value, if calculated pursuant to the SET Notification, Re: Rules, Procedures and Disclosure on Connected Transactions of Listed Companies, would be 31.24 percent of the value of net tangible assets. Since the sellers (Mahasiri Siam and CH. Karnchang Holding), the major shareholders of CK, enter into such transactions with their associated company (TTW), such transactions are not deemed as connected transactions. However, to ensure transparency and avoidance of conflict of interest, the Company wishes to disclose information on such transactions to the SET and to hold the Meeting of Shareholders to seek approval of the transactions. 1.2 Value of remuneration The Company shall receive the payment of the sell of net exceeding 5,567,371 ordinary shares in PTW, or representing 46.39 of the decreased its registered capital at the price not lower than Baht 332 per share, in the total amount of Baht 1,848,367,172. The Company will use the proceeds as working capital and repay partial loans. 1.3 Connected persons and their related persons 1.3.1 By connected persons and their related persons * Trivisvavet Group is major shareholder of 1. CK (3.31%) 2. Mahasiri Siam (91.71%) 3. CH. Karnchang Holding (62.50%) 4. CK Office Tower Co., Ltd. (62.50%) and 5. Bang Pa-in Land Co., Ltd. (41.67%). * Mahasiri Siam holds shares in 1. CK (22.10%) 2. CH. Karnchang Holding (25.00%) 3. CK Office Tower Co., Ltd. (25.00%) and 5. Bang Pa-in Land Co., Ltd. (25.00%). * CH. Karnchang Holding holds 11.53% of paid-up in CK. * CK Office Tower Co., Ltd. holds 1. 6.89% of paid-up in CK and 2. 25.00% of paid-up in Bang Pa-in Land Co., Ltd. * Bang Pa-in Land Co., Ltd. holds 1.74% of paid-up in CK. * 1. CK 2. Mahasiri Siam and 3. CH. Karnchang Holding holds 46.39%, 30.52% and 2.18%, respectively in PTW. * CK holds 47.69% of paid-up capital in TTW. * CK holds 14.71% of paid-up capital in Bangkok Expressway Plc. and Bangkok Expressway Plc. holds 12.50% of paid-up capital in TTW. 1.3.2 By common directors Company Related Companies Director CK PTW TTW Mahasiri CK.Karnchang CK.Office Bang BECL Siam Holding Tower Pa-in Land 1.Mr.Plew Trivisvavet // - // / / / / / 2.Mr.Kamthorn Trivisvavet - // - / / / / - 3.Mr.Prasert Trivisvavet - - - / / / / - 4.Mr.Ratn Santaannop / / - - - - - - 5.Mr.Narong Sangsuriya / - / - - - - - 6.Mr.Prasert Marittanaporn / - / - - - - - 7.Dr.Sombat Kitjalaksana / - / - - - - - // = Chairman / = Director 1.4 Details of disposed assets The ordinary shares of PTW not exceeding 5,567,371 shares (the total number of shares after PTW decreased its registered capital) or representing not more than 46.39 per cent of decreased registered capital at the price not lower than Baht 332 per share (par value at Baht 100 per share), in the total amount of not less than Baht 1,848,367,172. 2. Profile of CH. Karnchang Plc. and Thai Tap Water Plc. 2.1 Background The Company was incorporated as a limited company on 27th November 27 1972 with a start-up capital of Baht 1.40 million to engage in a general construction service business. Initially, the Company provided construction services of buildings and general civil works for main customers from the government sector such as the Royal Thai Army and the Royal Thai Air Force. Being aware of the necessity to broaden the scope of business to ensure prosperity in the long term, CK in 1981 entered a joint venture with Tokyu Construction Co., Ltd., one of the top ten contractors in Japan. By doing so, the Company benefited from technology transfer in construction and management know-how, as well as partnership with a competent strategic alliance. CK has consistently undertaken business expansion and capital increase. The Company converted into a public company on 10th October 1994 and listed on the SET on 3rd August 1995. Its current registered capital is Baht 1,450.00 million, of which Baht 1,247.19 million was paid-up capital. 2.2 Description of business 2.2.1 The Company's services CK is a contractor, mainly serving the government-promoted projects, whether large-scale infrastructures or buildings. It has also engaged in joint ventures in concession businesses such as Pathum Thani tap water production and distribution project, Samut Sakhon - Nakhon Pathom tap water production and distribution project, subway management project, and Nam Ngum 2 hydroelectric power plant designing, development, construction and operation project, each with a concession period of 25-30 years. Construction service revenues earned by CK from the government and the private sectors are in a ratio of 70:30. The Company's businesses are divided into three categories: production, construction and concession. Members of the CK group, comprising subsidiary, joint venture and associated companies, are classified by the nature of their business. CK currently has seven subsidiaries, thirteen joint venture companies, four associated companies, and one related company. As of 31st December 2006, the Company had total assets of Baht 30,313.91 million, total liabilities of Baht 25,511.82 million, and shareholders' equity of Baht 4,802.09 million, a net loss of Bt. 1,212.84 million or a net loss Baht 1.08 per share. 2.2.2 Competition The National Economic and Social Development Board have forecast Thai GDP growth for 2007 at a slower rate of 4.00% - 5.00% per year in line with the global economic expansion of 4.20%. Against this backdrop, investments have not fully picked up and exports have increased at a decelerating pace. Meantime, interest rates and oil prices are likely to decline. In 2007, the Thai government continues to focus on fund injection into the financial sector and also on acceleration of investment budget spending by pursuing several mega projects. At least two rail system projects will materialize in 2007, comprising the Rangsit - Bang Sue and the Bang Sue - Taling Chan Red Line. Meanwhile, the Bang Yai - Bang Sue Purple Line, the Bang Sue - Tha Phra - Bang Khae and Hua Lamphong - Tha Phra Blue Line will be included in the government's investment plans for 2008-2012. CK has the capability and readiness to undertake those mega projects on a continuous basis. (more)