SET Announcements

(Translation) No. CK-07-0000-AFD-L-0226 April 25, 2007 Re: Clarification on Additional Information of Consolidated Financial Statements as at December 31, 2006 Attn: President of the Stock Exchange of Thailand Reference: 1) Letter of the Stock Exchange of Thailand No. BorJor.102/2550 dated March 30, 2007 2) Consolidated Financial Statements for the Year Ended December 31, 2006 of CH. Karnchang Public Company Limited, Subsidiaries and Joint Ventures 3) The Notification of the Board of Governors of the Stock Exchange of Thailand, Re: Disclosure of Information and Other Acts of Listed Companies Concerning Connected Transactions B.E. 2546 (2003) Reference is made to CH. Karnchang Public Company Limited's submission of its Consolidated Financial Statements for the year ended December 31, 2006 which was audited by the Certified Public Accountant to the Stock Exchange of Thailand, whereby the Stock Exchange of Thailand has requested the Company to provide additional clarification as follows: 1. Loans to Subcontractors Note 11 to Financial Statements indicates that Joint Venture CKAE Consortium, the "Joint Venture/CKAE", entered into a loan agreement in the form of promissory notes with Modern Construction Material Company Limited, "MCM", and Best Plan Technology Company Limited, "BPT" (collectively referred to as the "Borrowers"), which were the former subcontractors of CKAE (the names of such Borrowers and the lender just appeared in the Consolidated Financial Statements for the year 2006) in the amount of Baht 602 Million (in proportion to the Company's participation in the Joint Venture), subject to interest at the Minimum Loan Rate (MLR) per annum and due for repayment by December 31, 2007. Given such lending is not the core business of CKAE and might incur risk to the Company and its shareholders (the Company holds 98 percent of shares) should the Borrowers not be able to make repayment. Furthermore, according to the Company's letter as per Reference 2 which was disclosed via the electronic media of the Stock Exchange of Thailand on December 29, 2006, the Company clarified that BPT did not have any connection with the Company and that the Company's staff holding shares in BPT represented their personal investment. According to the copy of the list of shareholders from the Ministry of Commerce, as at June 22, 2006, the Stock Exchange of Thailand found that MCM's shareholders were the same persons as BPT's and the Company's staff were also shareholders, and in the audited financial statements for the years 2004 and 2005, BPT and MCM had revenue only from interest income from loans to directors and other companies and sustained operating loss, the Company was thus requested to provide additional clarification as follows: 1.1 Details of the Borrowers, namely, major shareholders and their shareholdings, the boards of directors, nature of current business operation (in case of any change in the nature of business operation, please specify the time of such change), relation between the Company and such companies in terms of cross-shareholding, management or trading relation in the past, namely, one year prior to the execution date of the loan agreements up to the present time, and the Company was also requested to consider whether or not such lending transactions were considered as connected transactions as per the requirements in Reference 3. The Company hereby clarifies that Joint Venture CKAE Consortium, the "Joint Venture", entered into the loan agreements in the form of promissory notes with its subcontractors, comprising: a. Best Plan Technology Company Limited,"BPT", has Mr. Monchai Hongsuparak as its director and managing director, holding shares representing 99.99 percent of the total registered capital. Its nature of business operation is acceptance of engagement in construction and investments. At present, it derives revenue from construction, interest income and dividend from investments. BPT is a subcontractor for the Energy Complex Project with the contract value of approximately Baht 200 Million, whereby BPT would start to recognize the revenue from construction in the second and third quarters of the year 2007. Prior to becoming a subcontractor of the Joint Venture, BPT was a subcontractor of Joint Venture BCKT (Joint Venture BCKT comprises Bilfinger + Berger Bauaktiengesellschaft, CH. Karnchang Public Company Limited, Kumagai Gumi Limited and Tokyu Construction Co., Ltd., at 25 percent each). In respect of being a subcontractor of the Joint Venture, in the ordinary course of business for the employment agreement, advance payment would be made to the contractor. In addition, since BPT did not have sufficient fund for construction but had expertise in construction, the Joint Venture therefore made an advance payment to BPT by way of execution of a loan agreement with promissory note and interest as security. The promissory note was first issued in the year 2001. Thereafter, BPT has been informing that it would repay the loan and the Joint Venture thus has been demanding for such loan repayment. In this year, the Joint Venture requested BPT to confirm the repayment of the loan in full by the end of this year, together with additional interest of two percent on the loan from the borrowing date until the date on which the repayment is made in full to the Joint Venture. In this regard, BPT is merely a subcontractor for the construction project of the Joint Venture, and is in no way a company having any connection with the Company as per the Stock Exchange of Thailand's Notification. b. Modern Construction Material Company Limited, "MCM", has Mr. Natthapong Khummee as its director and managing director, holding shares representing 99.99 percent of the total registered capital. Its nature of business operation is acceptance of engagement in construction and investments. At present, it derives revenue from construction, interest income and dividend from investments. MCM is a subcontractor for road construction project in Cambodia with the contract value of approximately Baht 300 Million, whereby MCM would start to recognize the revenue from construction in the second and third quarters of the year 2007. Prior to becoming a subcontractor of the Joint Venture, MCM was a subcontractor of Joint Venture BCKT. In respect of being a subcontractor of the Joint Venture, in the ordinary course of business for the employment agreement, advance payment would be made to the contractor. In addition, since MCM did not have sufficient fund for construction, but had expertise in construction, the Joint Venture therefore made an advance payment to MCM by way of execution of a loan agreement with promissory note and interest as security. The promissory note was first issued in the year 2001. Thereafter, MCM has been informing that it would repay the loan and the Joint Venture thus has been demanding for such loan repayment. In this year, the Joint Venture requested MCM to confirm the repayment of the loan in full by the end of this year, together with additional interest of two percent on the loan from the borrowing date until the date on which the repayment is made in full to the Joint Venture. In this regard, MCM is merely a contractor for the construction project of the Joint Venture, and is in no way a company having any connection with the Company as per the Stock Exchange of Thailand's Notification. 1.2 Details of the transactions, indicating: 1.2.1 Reasons for lending, sequence of events in respect of the lending, indicating such time when these Borrowers requested for the loans from the Joint Venture, and the execution date of the loan agreements with the Borrowers; 1.2.2 The Joint Venture's sources of fund for lending; 1.2.3 The Board of Directors' opinion in regard to the approval of such transactions, providing reasons, necessity and justifications for entering into the transactions, benefits and risks from the lending, including financial position of the lending (if any), and whether there be any directors abstaining from voting or offering any different opinions (and if so, please list their names and opinions). The Company hereby clarifies that Joint Venture CKAE entered into agreements engaging BPT and MCM as its subcontractors in the construction works of the Joint Venture. In February 2001, at which time the competition in construction business was quite intense, the grant of credit for purchase of goods to contractors who were not major contractors was less in number, and most transactions must be paid in cash, BPT and MCM thus did not have sufficient funds to invest in the construction. They then issued letters requesting the Joint Venture to provide financial support in the form of advance payment secured by promissory notes and subject to interest, whereby such payment would be gradually requested for investment in carrying out such works of the said projects. In this regard, the Joint Venture then proposed the matter to its board of directors on February 20, 2001 to consider approving the transactions. The Joint Venture's board of directors considered the cause of accelerating the works of the projects, including the competition and credits of the subcontractors for accelerating the works, as well as their employment agreements made with the Joint Venture by which the contract price could be deducted for repayment. Moreover, BPT and MCM never had any problem on construction with other joint ventures of the Company and any third party. Such transactions were also executed in the ordinary course of business, like the provision of advance payment to construction contractors under general construction contracts. Given that at such time, the Joint Venture had working capital in its business, it therefore considered using its working capital as the source of funds. The Joint Venture's board of directors then approved the loans to BPT in the amount of Baht 265 Million and to MCM in the amount of Baht 456 Million, for use as working capital in their businesses, in the form of advance payments with promissory notes and interest for the Joint Venture, in the manner of borrowings. However, such funds provided by the Joint Venture were the advance payments for use in the construction of works of the Joint Venture under the employment agreements. Although the said transactions were within the scope of power of the Joint Venture, the Joint Venture proposed the matter to the Company's Executive Board Meeting No. 3/2001 held on March 20, 2001 for acknowledgment. 1.3 Details of the loan agreements, security (if any) and debt serviceability of the respective Borrowers, indicating: 1.3.1 Details of promissory notes, interest rates, period for payment in installments of the principal and interest and term of such promissory notes; 1.3.2 Movements of the loans and interest, receipt of loan repayment and interest; 1.3.3 The Borrowers' ability to pay the principals and interest, and should there be any outstanding payment, please specify the Company's action in demanding for repayment. The Company hereby clarifies that BPT and MCM entered into the loan agreements in the form of promissory notes with repayment on demand, with the Joint Venture, at the interest rate of MLR+0.25 percent per annum, whereby the Borrowers agreed to be additionally charged at the rate of 0.25 percent from the borrowing date until the date on which the repayment is made in full, and additional interest rate of two percent per annum on the loans from the borrowing date until the date on which the repayment is made in full to the Joint Venture. In this respect, the Joint Venture has been issuing notices demanding BPT and MCM to repay the loans since 2002, and entering into negotiations with the management of BPT and MCM to accelerate the repayment and to provide additional security to the Joint Venture. Such loans were partially repaid in the amount of Baht 83.68 Million in the year 2001, in the amount of Baht 6.42 Million in the year 2002, in the amount of Baht 2.17 Million in the year 2003, and in the amount of Baht 17.75 Million in the year 2004, totaling Baht 110.02 Million, with interest periodically paid with each repayment in the total amount of Baht 107.81 Million (in proportion to the shareholding in the Joint Venture). In January 2007, BPT and MCM issued letters confirming to partially repay the loans in the amount of not less than Baht 20 Million to the Joint Venture by no later than April 30, 2007 and would repay the loans in full to the Joint Venture by no later than December 30, 2007. Furthermore, major shareholders of BPT and MCM also gave their personal guarantee in the full amount of the loans, together with security by providing to the Joint Venture share certificates of a company listed on the Stock Exchange of Thailand, owned by BPT and MCM, worth approximately Baht 15.7 Million and Baht 28.8 Million, respectively, which were endorsed for blank transfer as security. Upon due date, should the repayment not be made, the Joint Venture may immediately transfer such shares to become vested in the Joint Venture as debt repayment. As for the outstanding amount, the Joint Venture will further take legal actions against BPT and MCM in accordance with the promissory notes and the guarantee agreements, whereby the Joint Venture will consider taking legal actions immediately once BPT and MCM fail to comply with their confirmation letters for such loan repayment. 1.4 Policy of the Company and/or the Joint Venture on provision of loans to other companies in the future. The Company hereby clarifies that the Company has set out a policy for the Joint Venture on provision of loans to other companies in the future by prohibiting Joint Venture CKAE from providing loans to any other legal entities in the future. 2. Long-term loans due within one year granted to other companies Note 11 to Financial Statements indicates that during the year 2003, Joint Venture CKET (CKET) entered into long-term loan agreements with two companies, namely, Rayong Real Estate Company Limited (Rayong Real Estate) and Private Inter Construction Company Limited (PIC) (collectively referred to as the "Borrowers"), totaling Baht 1,264 Million (in proportion to the Company's participation in the Joint Venture), subject to interest at the rate of MLR+Margin per annum, and due for repayment by June 2005. Subsequently, the repayment schedule was extended to June 2007. In this regard, the companies provided security in the form of certain plots of land and construction thereon and mortgage of such land title deeds, with the values of approximately Baht 1,036 Million and Baht 361 Million, respectively, as appraised by the independent appraiser as at December 2002, for the Company to use as security for issuance of a bank guarantee in the amount of Baht 500 Million and the Company's borrowing from the bank in the amount of Baht 650 Million, and the Borrowers also guaranteed the Company's borrowing from the bank. Due to the fact that such lending transaction is not the core business of CKET and might incur to the Company and its shareholders (in which the Company holds 80 percent of shares and Expert Transport Co., Ltd. (a subsidiary in which the group of major shareholders holds 90 percent of shares) holds 20 percent of shares) should the Borrowers not be able to make repayment or the security not cover the debt. According to the Company's letter as per Reference 2 which was disclosed via the electronic media of the Stock Exchange of Thailand on December 29, 2006, the Company clarified that Rayong Real Estate did not have any connection with the Company and the Company's staff holding shares in Rayong Real Estate represented their personal investment. According to the copy of the list of shareholders as at April 28, 2006 from the Ministry of Commerce, PIC had major shareholders holding 99 percent of shares with certain minority shareholders also holding shares in Rayong Real Estate, and the Company's staff were also shareholders, and in the audited financial statements for the years 2004 and 2005, Rayong Real Estate and PIC sustained operating loss. The Company was therefore requested to make further clarification as follows: 2.1 Details of the Borrowers, namely, major shareholders and their shareholdings, the boards of directors, nature of current business operation (in case of any change in the nature of business operation, please specify the time of such change), relation between the Company and said companies in terms of cross-shareholding, management or trading relation in the past since the execution date of the loan agreements up to the present time. Additionally, the Company was also requested to consider whether or not such lending transactions were considered as connected transactions as per the requirements in Reference 3. The Company hereby clarifies that Joint Venture CKET, "Joint Venture", entered into the long-term loan agreements with the following two companies during the year 2003: a. Rayong Real Estate Company Limited, "Rayong Real Estate", has Mrs. Piyaphon Setha-olan as director and managing director, holding shares representing 99.97 percent of its registered capital. Its business operation relates to land development, investment in construction of golf course, resort and golf club, and development of premium grade real estate for sale with buildings. Currently, Rayong Real Estate has not yet derived revenue from the golf course business because such golf course, resort, golf club and premium grade real estate have not yet been completed for service and sale. Rayong Real Estate is merely a debtor of the Joint Venture and is in no way a company having any connection with the Company according to the Stock Exchange of Thailand's Notification. b. Private Inter Construction Company Limited, "PIC", has Mr. Phoom Suksathian and Mrs. Piyaphon Setha-olan as directors, whereby Mrs. Piyaphon Setha-olan holds shares representing 99.99 percent of the total registered capital. It operates the business of construction, and at present, has construction revenue, interest income and dividend from investments to be received in the future, as well as an agreement for construction of building steel structure for H.R.H. Princess Maha Chakri Sirindhorn Building, Ramathibodi Hospital, with the contract value of approximately Baht 168 Million which was recognized as revenue in the first quarter of the year 2007. With respect to the said loan, the loan agreement was first entered into with PIC in the year 2003, and PIC is in no way a company having any connection with the Company according to the Stock Exchange of Thailand's Notification. In this regard, PIC has never had any relation with the Joint Venture, but PIC is a company in the group of shareholders of Rayong Real Estate. Rayong Real Estate and PIC jointly borrow the loans from the Joint Venture in the total amount of Baht 1,755 Million. 2.2 Details of the transactions, indicating: 2.2.1 Reasons for lending, sequence of events in respect of lending, indicating the time of request for the loans from the Joint Venture and the execution date of the long-term loan agreements with the Borrowers 2.2.2 The Joint Venture's sources of funds for lending 2.2.3 The Board of Directors' opinion in regard to the approval of such transactions, providing reasons and justification for entering into the transactions, benefits and risks from lending, including financial position and operational results of the Borrowers, risk management measures and valuation of property used as security for the loans, and whether there be any directors abstaining from voting or offering any different opinions (and if so, please list their names and opinions) The Company hereby clarifies that in the year 2002, Rayong Real Estate planned to carry out land development, investment in construction of three 18-hole golf courses, resort and golf club, as well as development of premium grade real estate for sale with buildings, in the (more)