ข่าวแจ้งตลาดหลักทรัพย์

(Translation) No. CK-06-0000-PO-L-0441 December 29, 2006 Re: Additional Clarification on Restructuring of Pathum Thani Water Co., Ltd. (Additional Edition) Attn.: President of the Stock Exchange of Thailand Reference is made to the fact that CH. Karnchang Public Company Limited ("CK") informed the Stock Exchange of Thailand of resolutions of the Board of Directors Meeting No. 6/2006 on December 25, 2006. CK hereby submits additional clarification in support of consideration of investors, as follows: 1. Details of capital increase of Pathum Thani Water Co., Ltd. ("PTW") 1.1 Former registered capital Baht 1,102 Million (11,020,000Shares) at the par value of Baht 100 per share; Increased capital Baht 1,650 Million (16,500,000 shares) at the par value of Baht 100 per share; New registered capital Baht 2,752 Million (27,520,000 shares) at the par value of Baht 100 per share. 1.2 PTW shall allocate new shares to the existing shareholders according to their shareholding ratio at the par value of Baht 100 per share and schedule the period for subscription of and payment for such capital increase shares to be made by January 19, 2007. In case there are shares remaining from such allocation, the remaining shares shall be further allocated to the remaining shareholders according to their ratio. 2. O&M Agreement executed between PTW and OPCO 2.1 Details of the O&M Agreement Essence of the Agreement: PTW engaged OPCO to manage and maintain the Pathumthani-Rangsit Water Supply Project under the Concession Agreement of the Provincial Waterworks Authority. That is, OPCO shall manage the production of tap water in accordance with the specified volume so that PTW would be able to distribute such tap water to the Provincial Waterworks Authority. The minimum availability on the commencement date shall be the minimum purchased volume of 140,000 cubic meters plus the reserved volume at the rate of 30 percent of the minimum purchased volume but in aggregate not exceeding 288,000 cubic meters, which is the maximum production volume of PTW. Furthermore, OPCO shall maintain buildings, machinery, equipment and property in the Pathumthani-Rangsit Water Supply Project throughout the term of the Agreement. Term of the Agreement: 25 years from the date on which PTW issues a letter informing OPCO to commence the operation (December 1, 1998 - December 1, 2013). Service fee under the Agreement: In the year 2006, the service fee under the O&M Agreement was at the rate of Baht 2.82 per cubic meter and shall be increased every year throughout the forecast period according to the growth rate of the General Consumer Price Index ("CPI") of the previous year. Reasons for subcontracting BJT: This is due to the fact that the primary business of OPCO is to provide services of management and maintenance of public utilities of the "Pathumthani-Rangsit Water Supply Project", whereby OPCO engaged BJT, which has experience and expertise in tap water production system, to provide services in relation to maintenance and quality control of public utilities, namely, wastewater treatment system, tap water production and distribution system, as well as provide engineering services and services for projects relating to tap water production and wastewater treatment for public and private sectors. Early termination of O&M Agreement: Given that the Service Agreement between PTW and OPCO neither clearly specifies the condition on termination of the Agreement nor the compensation amount nor compensation calculation method, both parties to the Agreement are thus required to enter into negotiations on the compensation amount or damages which should be at the reasonable rate and not be higher than the benefit to be obtained by PTW in case of termination of such Agreement. Consideration to ensure the optimum benefit to PTW and realization of the significance of OPCO's cost of opportunity loss would result in substantial cost saving for PTW. CK therefore engaged Far East Securities Company Limited as its financial advisor to evaluate the compensation fee for termination of the Service Agreement with OPCO so as to serve as supporting information for PTW to negotiate on the compensation fee for the optimum benefit of PTW. The O&M Agreement is an engagement for a period of 25 years. Early termination of the Agreement would cause OPCO to sustain damage and be entitled to fee for opportunity loss (compensation fee), compensation fee must therefore be at the rate as mutually agreed upon by both parties. 2.2 Payment for early termination of the Agreement In respect of payment for termination of the said agreement to OPCO in the amount of Baht 390 Million, CK appointed Far East Securities Company Limited as financial advisor to evaluate the compensation fee on December 21, 2006 by using the net present value method of cash flow with significant assumptions as follows: a. Period of forecast: calculated from the net present value of cash flow in the years 2006 - 2023. (Evaluation of compensation by Far East Securities Company Limited is the forecast of cash flow from the year 2007 by using the actual information in the year 2006 from January - September as basis for calculation. The figures of October - December are the estimated figures.) b. Main revenue: according to the O&M Agreement, whereby the calculation method, service fee rates would be set out based on inflation rate. The average production rates from 2006 to the end of concession, namely, year 2023, would be as follows: Year 2006: at the average of 0.293 million cubic meters per day (average production volume from January 1, 2006 to December 31, 2006); Year 2007: at the average of 0.330 million cubic meters per day; Year 2008: at the average of 0.345 million cubic meters per day; Years 2009 - 2023: at the average of 0.358 million cubic meters per day. c. Cost of sale 1) Average costs of chemicals and energy: From January 1, 2006 - September 30, 2006, the costs of chemicals and energy increased according to the inflation rate. During 2007 - 2023, the forecast of inflation rate would be fixed at 3 percent. 2) Administrative expenses: In the year 2006, the administrative expenses were approximately Baht 5 Million and would constantly increase every year at the rate of 6 percent. 3) Investment expenses: In the year 2006, the forecast of additional investments in machinery and equipment was in the amount of Baht 0.5 Million and would constantly increase every year in the amount of Baht 0.2 Million per year. 4) Expenses for management fee: In the year 2006, such expenses were approximately Baht 85 Million. The service fee would increase according to the inflation rate. During 2007 - 2023, the forecast of inflation rate would be fixed at 3 percent. d. Various factors for calculation, comprising: WACC (Weighted Average Cost of capital) WACC = D/V (Kd)+E/V (Ke), whereas: D/V = percentage of debt financing = 0.00 % E/V = percentage of equity financing = 100.00 % Ke = Rf + ? (Rm - Rf), whereas: Risk Free Rate (Rf) = 5.14 % Beta (?) = 0.420 Risk Premium (Rm) = 12.02 % Equity Risk Premium (Rm - Rf) = 6.88 % Ke = 8.02 % Discount to Liquidity Risk 20 % Therefore: Ke = 9.62 % Kd = Weighted Average Interest Rate of the Company (1 - Tax Rate), whereas: Weighted Average Interest Rate of the Company = 0.00 Tax Rate = 30.00 % Therefore: Kd = 0.00 % Therefore: WACC = 9.62 % Description - D/V is percentage of debt financing. - E/V is percentage of equity financing. - Rf is the rate of returns of 17-year government bond as at December 14, 2006, which equals 5.14 percent. - Rm - Rf is risk compensation rate which the financial advisor assumes to equal 6.88 percent per year, taking into account various factors which may affect the returns of the market (Rm), such as, average dividend rate of listed companies and rate of returns expected to receive from investment in the stock exchange. - Tax rate is equal to 30 percent which is equivalent to tax rate of other companies. In conclusion, WACC of OPCO equals 9.62 percent. The financial advisor provided an opinion that OPCO should receive the reasonable compensation fee in the amount of approximately Baht 528.19 - 564.19 Million should PTW terminate the Agreement. As for payment for termination of the Agreement, the date of such payment has not yet been scheduled. CK will subsequently give notice of the details of payment for compensation fee and payment method of the compensation fee. 3. PTW's purchase of shares from the existing shareholders of BJT at the price of Baht 600 per share 3.1 Reason for PTW not directly enter into the O&M Agreement with BJT With respect to the adjustment of structure for management and production of tap water during the beginning of business operation, Thames Water Group, as major joint investor having experience and expertise, and being a leader in the business of management and adjustment of structure for the entire management and production of tap water, had PTW enter into the O&M Agreement with OPCO, and OPCO would be required to subcontract BJT for such operations. The purchase of all shares in BJT would enhance the efficiency in the cost management of PTW and cause the management structure of PTW to be adjusted which would be beneficial to the company in case of further listing on the Stock Exchange of Thailand. 3.2 PTW's purchase of shares in BJT, rather than shares in OPCO PTW does not purchase shares in OPCO but purchases shares in BJT because according to the O&M Agreement, OPCO shall manage and maintain the Pathumthani-Rangsit Water Supply Project and shall be responsible for costs of chemicals and energy only in the production for BJT. BJT is a party to an agreement with OPCO, having obligations in relation to maintenance and quality control of public utilities. Purchase of shares in OPCO would therefore not save any cost for PTW as targeted by PTW. 3.3 Significant assumptions Financial advisor used the following methods for valuation of shares in BJT: Business Valuation Method Business Value Share Value (Baht) 1.Book value method 109.69 219.38 2.Net asset value method after adjustment 109.69 219.38 3.Market comparison method* - Method based on ratio of price to net earnings on average in the past 322.55-381.01 645.10-762.02 - Past average book price ratio method 135.14-154.44 270.28-308.89 - Net present value method of cash flow 390.62-430.01 781.23-860.03 Note: * Compared with a company operating business similar to BJT's business, namely, Eastern Water Resources Development and Management Public Company Limited, which is a listed company in the category of energy and public utilities. The financial advisor valuates the business by way of net present value method of cash flow, which is the only one method reflecting the potential growth of the business in the future. The share value of the business derived from such method will show the actual value in the long term, as this method will include impact from business operation and impact on every transaction in financial statements of the business in the future. However, reliability of the value of the business as calculated by the discounted cash flow method will mainly depend on correctness and reasonableness of assumptions used for preparation of financial forecast, as well as selection of variables to be used for calculation of the discount rate. The assumptions are as follows: a. Period of forecast: calculated from the net present value of cash flow in the years 2007 - 2023. b. Main revenue: according to the O&M Agreement, whereby the calculation method, as well as service fee rates would be set out based on inflation rate. The average production rates from 2006 to the end of concession, namely, year 2023, would be as follows: Year 2006: at the average of 0.293 million cubic meters per day (average production volume from January 1, 2006 to December 31, 2006); Year 2007: at the average of 0.330 million cubic meters per day; Year 2008: at the average of 0.345 million cubic meters per day; Years 2009 - 2023: at the average of 0.358 million cubic meters per day. c. Costs of service 1) Costs of service, comprising salary, security fee and other expenses, would increase on a yearly basis at the rate of 6 percent, and the service fee for disposal of sludge and sediment, as well as the service fee for water quality testing would increase according to the inflation rate, whereby the forecast of inflation rate would be fixed at 3 percent. 2) Administrative expenses: In the year 2006, the administrative expenses were approximately Baht 4 Million and the forecast would constantly increase at the rate of 6 percent. Other expenses in the year 2006 were approximately Baht 9 Million and the forecast would constantly increase at the rate of 4.5 percent. 3) Investment expenses: In the year 2006, the forecast of additional investments in machinery and equipment was in the amount of Baht 3 Million and would be fixed throughout the forecast period. 4) Turnover of current assets and current liabilities - Trade accounts receivable - OPCO at the average of approximately 45 days; - Other trade accounts receivable at the average of approximately 30 days; - Trade accounts payable - CK Project at the average of approximately 60 days; - Other trade accounts payable at the average of approximately 30 days. Assumptions for forecast of revenue and costs would be based on actual cost in the year 2006. d. Various factors for calculation, comprising: WACC WACC = D/V (Kd)+E/V (Ke), whereas: D/V = Debt to Total Value Ratio = 0.00 % E/V = Equity to Total Value Ratio = 100.00 % Ke = Rf + ? (Rm - Rf), whereas: Risk Free Rate (Rf) = 5.14 % Beta (?) = 0.420 Risk Premium (Rm) = 12.02 % Equity Risk Premium (Rm - Rf) = 6.88 % Ke = 8.02 % Discount to Liquidity Risk 20 % Therefore: Ke = 9.62 % Kd = Weighted Average Interest Rate of the Company (1 - Tax Rate),whereas: Weighted Average Interest Rate of the Company = 0.00 Tax Rate = 30.00 % Therefore: Kd = 0.00 % Therefore: WACC = 9.62 % Description - D/V is debt to total value ratio. - E/V is equity to total value ratio. - Rf is the rate of return of 17-year government bond as at December 14, 2006, which equals 5.14 percent. - Rm-Rf is risk compensation rate which the financial advisor assumes to equal 6.88 percent per year, taking into account various factors which may affect the returns of the market (Rm), such as, average dividend rate of listed companies and rate of returns expected to receive from investment in the stock exchange. - Tax rate is equal to 30 percent which is equivalent to tax rate of other companies. In conclusion, WACC of BJT Water Co., Ltd. equals 9.62 percent. The financial advisor provided an opinion that the reasonable value of BJT as calculated based on CAPM theory would be Baht 409.38 Million or Baht 818.76 per share (valuated as at December 21, 2006). 3.4 Nature of business operation of BJT BJT Water Co., Ltd. ("BJT") was incorporated in December 1993, for providing services of maintenance and quality control of public utilities, namely, wastewater treatment system, tap water production and distribution system, as well as providing engineering services and services for projects in relation to tap water production and wastewater treatment for public and private sectors, such as, provision of services of wastewater treatment and production of tap water for Amata Corporation Public Company Limited. BJT currently has its registered capital of Baht 50,000,000, divided into 500,000 ordinary shares, at the par value of Baht 100 per share. (Unit: Million Baht) Description Audited Unaudited December 31,2004 December 31,2005 September 30, 2006 Current assets 114.20 65.80 43.00 Non-current assets 7.03 9.78 75.54 Total assets 121.23 75.58 118.54 Total liabilities 40.73 11.57 8.85 Registered capital 50.00 50.00 50.00 Issued and paid-up capital 50.00 50.00 50.00 Shareholder's equity 80.50 64.01 109.69 Total liabilities and shareholder's equity 121.23 75.58 118.54 Total revenue 152.35 96.96 92.27 Total expenses 115.14 63.65 46.59 Net earnings 37.21 33.31 45.68 1/ Net earnings per share (Baht) 74.42 66.62 91.36 1/ Book value per share (Baht) 160.99 128.03 219.38 1/ Note: 1/ Net earnings, Net earnings per share and Book value per share as of September 30, 2006 are the earnings before corporate income tax. 4. Details of changes in shareholding structure of OPCO from April 30, 2006 to date: Shareholding structure as at April 30, 2006* List of Shareholders Number of Shares Held Ratio (Shares) 1. CH. Karnchang Holding Co., Ltd. 17,998 35.9960 % 2. Capital Rice Company Limited 7,705 15.4100 % 3. Mahasiri Siam Co., Ltd.20,045 40.0900 % 4. Thai-scandic Steel Co., Ltd.4,249 8.4980 % 5. Mr. Chareon Assaviroteruang 1 0.0020 % 6. Mr. Sombat Kitjalaksana 1 0.0020 % 7. Mr. Prasert Marittanaporn 1 0.0020 % Total 50,000 100.0000 % Note: * List of Shareholders, Department of Business Development, Ministry of Commerce Shareholding structure as at June 30, 2006* List of Shareholders Number of Shares Held (Shares) Ratio 1. CH. Karnchang Holding Co., Ltd.17,998 35.9960 % 2. Capital Rice Company Limited7,705 15.4100 % 3. Mahasiri Siam Co., Ltd.24,293 48.5860 % 4. Mr. Sombat Kitjalaksana 1 0.0020 % 5. Mr. Prasert Marittanaporn 1 0.0020 % 6. Mr. Nopadol Intralib 1 0.0020 % 7. Miss Sawitree Treenawarut 1 0.0020 % Total 50,000 100.0000 % Note: * List of Shareholders, Department of Business Development, Ministry of Commerce Shareholding structure as at July 21, 2006* List of Shareholders Number of Shares Held (Shares) Ratio 1. Rayong Real Estate Co., Ltd .17,998 35.9960 % 2. Capital Rice Company Limited 7,705 15.4100 % 3. Best Plan Technology Co., Ltd. 24,293 48.5860 % 4. Mr. Sombat Kitjalaksana 1 0.0020 % 5. Mr. Prasert Marittanaporn 1 0.0020 % 6. Mr. Nopadol Intralib 1 0.0020 % 7. Miss Sawitree Treenawarut 1 0.0020 % Total 50,000 100.0000 % Note: * List of Shareholders, Department of Business Development, Ministry of Commerce Shareholding structure as at July 24, 2006* (more)