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1. Concession Agreement Between Malaysia Airports (SEPANG) Sdn Bhd (MA SEPANG), A Wholly-Owned Subsidiary Of Mahb, And Cooling Energy Supply Sdn Bhd (CONCESSIONAIRE) 2. Shareholders Agreement Between Airport Ventures Sdn Bhd (AVSB), A Wholly-Owned Subsidiary Of Mahb, Tnb Engineering Corporation Sdn Bhd (TNEC), A Wholly Owned Subsidiary Of Tenaga Nasional Berhad (TNB), And The Concessionaire

BackDec 23, 2020
Type Announcement
Subject OTHERS
Description

MALAYSIA AIRPORTS HOLDINGS BERHAD (MAHB)

1. CONCESSION AGREEMENT BETWEEN MALAYSIA AIRPORTS (SEPANG) SDN BHD (MA SEPANG), A WHOLLY-OWNED SUBSIDIARY OF MAHB, AND COOLING ENERGY SUPPLY SDN BHD (CONCESSIONAIRE) 2. SHAREHOLDERS AGREEMENT BETWEEN AIRPORT VENTURES SDN BHD (AVSB), A WHOLLY-OWNED SUBSIDIARY OF MAHB, TNB ENGINEERING CORPORATION SDN BHD (TNEC), A WHOLLY OWNED SUBSIDIARY OF TENAGA NASIONAL BERHAD (TNB), AND THE CONCESSIONAIRE

 

1. INTRODUCTION

 

The Board of Directors of MAHB (“Board”) is pleased to announce that MA Sepang, a wholly-owned subsidiary of MAHB, has on 23 December 2020 entered into a concession agreement (“Concession Agreement”) with the Concessionaire for the operation, maintenance and upgrade of a district cooling co-generation plant (“Plant”) for the business of, amongst others, producing, selling, marketing, distributing and supplying energy in the form of chilled water that is produced by the Plant (“Cooling Energy”) and electricity at Kuala Lumpur International Airport (“KLIA”), Sepang, Selangor for a period of 20 years (“Concession Period”) (“Joint Venture Project”). The Concession Period will commence on 1 July 2021 or such later date when all of the conditions precedent under the Concession Agreement have been satisfied or waived (“Conditions Satisfactions Date”) and the Concession Agreement has not been terminated (“Commencement Date”). The Concessionaire was formed to undertake the Joint Venture Project. Further details on the Joint Venture Project are described in Section 4.1.4.

 

On the same date, AVSB, another wholly-owned subsidiary of MAHB, TNEC and the Concessionaire have entered into a shareholders’ agreement (“Shareholders’ Agreement”) to regulate AVSB’s and TNEC’s relationship as shareholders of the Concessionaire in relation to the Joint Venture Project. Under the joint venture undertaken pursuant to the Shareholders’ Agreement (“Joint Venture”), AVSB will hold 30% equity while TNEC will hold the remaining 70% equity in the Concessionaire.

The Plant will operate as a co-generation plant from the Commencement Date until such date on which the engineering, procurement, construction, testing and commissioning works in relation to the:

(a)   decommissioning of the existing co-generation district cooling plant at the site;

(b)   dismantling, removal and relocation of such number of steam absorption chillers; and

(c)   installation of new electric chillers and one (1) thermal energy storage tank such that the Concessionaire will be able to supply Cooling Energy to the customers by way of production through electric chillers only and in accordance with the Concession Agreement and the cooling energy supply agreement(s) between the Concessionaire and the customer(s).

 

(Collectively, the “Conversion Works”),

 

are completed as certified accordingly (“ETC Completion Date”).

 

The ETC Completion Date is targeted to be achieved within twenty-four (24) months of the Commencement Date (“Pre-Conversion Period”) during which the Plant will supply electricity to MA Sepang. Following completion of the Conversion Works, the Plant will generate and supply Cooling Energy to the customers and offtake electricity from MA Sepang for the remainder of the Concession Period (“Post-Conversion Period”). The total project cost for the Joint Venture Project is approximately RM183 million and will be funded through a combination of external borrowings by the Concessionaire and shareholders’ equity.

 

On the last day of the Concession Period, the Concessionaire shall, at no cost to MA Sepang, transfer the Plant, the Joint Venture Project site and such other assets more particularly described in Section 4.1.8 to MA Sepang or its nominee in a state and condition that meets the transfer requirements set out in the Concession Agreement.

 

2. BACKGROUND INFORMATION

 

The Plant is currently operated by Gas District Cooling (KLIA) Sdn Bhd (“GDC”) pursuant to a concession granted by MA Sepang to GDC effective from 1 July 1998 and which is due to expire on 30 June 2021. Under the terms of the current concession with GDC, the Plant together with all the rights and entitlements in respect of the Plant shall be transferred by GDC to Malaysia Airports (Properties) Sdn Bhd, a wholly-owned subsidiary of MAHB, at no cost in accordance with the agreed ‘build-operate-transfer’ arrangement under the current concession.

 

Following a comprehensive strategic and technical assessment on the Plant conducted by MAHB, MAHB had by way of an invitation to bid document dated 5 January 2018 (“ITB”) invited pre-selected bidders to submit proposals to operate, maintain and upgrade the Plant and supply electricity and Cooling Energy to KLIA and other designated facilities.

 

On closing of the ITB on 2 May 2018, MAHB had received submissions from five (5) qualifying parties. TNEC submitted an offer dated 2 May 2018 (which was amended by the revised alternative bid submission submitted on 28 February 2020 following further negotiations) in response to the ITB. The bid submissions were evaluated based on the criteria of levelized tariff, technical and financial deliverability, project financials and document amendments.

 

Based on the above criteria, TNEC was selected as the preferred bidder and its proposal was subsequently accepted via the award of the Concession Agreement to the Concessionaire. The salient terms of the Concession Agreement are set out in Section 4.1.

 

Pursuant to Paragraph 10.08(11)(j) of the Main Market Listing Requirements of Bursa Malaysia Securities Berhad (“Listing Requirements”), the award of the Concession Agreement is not deemed to be a related party transaction as the Concession Agreement was awarded following a public tender process.

 

3. INFORMATION ON TNEC, AVSB AND THE CONCESSIONAIRE

 

3.1 INFORMATION ON TNEC AND THE CONCESSIONAIRE

 

Incorporated in October 1993, TNEC has grown from being power plant related contractor to sustainable energy solution provider with expertise that includes designing, constructing, financing, operating and maintaining District Cooling System (“DCS”) domestically and internationally. TNEC currently operates and maintains six (6) DCS in Malaysia including at Kuala Lumpur International Airport 2 (klia2). Internationally, TNEC has developed two (2) DCS plants in Abu Dhabi, United Arab Emirates.

 

The Concessionaire is a limited liability company incorporated on 15 December 2020 under the laws of Malaysia and is currently a wholly-owned subsidiary of TNEC. On the Conditions Satisfactions Date, TNEC and AVSB will procure that the Concessionaire will have an issued share capital of RM52,350,374 divided into 52,350,374 ordinary shares (“Shares”) held by TNEC and AVSB in the following proportions:

 

Shareholders No. of Shares Shareholding Percentage (%)
TNEC 36,645,262 70
AVSB 15,705,112 30
Total 52,350,374 100

 

3.2 INFORMATION ON AVSB

 

AVSB is a private limited company incorporated in Malaysia on 25 April 2000 and has an issued share capital of RM2 comprising 2 ordinary shares held by MAHB. AVSB is principally an investment holding company.  

 

4. SALIENT TERMS OF THE CONCESSION AGREEMENT AND THE SHAREHOLDERS’AGREEMENT

 

4.1 Concession Agreement

 

The salient terms of the Concession Agreement are as follows:

 

4.1.1 The right, licence and authority granted to the Concessionaire to supply Cooling Energy to the customers in the concession area is exclusive.

 

4.1.2 The right, licence and authority granted to the Concessionaire to supply electricity to MA Sepang during the Pre-Conversion Period is not exclusive. The Concessionaire acknowledges and agrees that MA Sepang may purchase electricity from other electricity supplier(s) during the Pre-Conversion Period only after MA Sepang has purchased or offtaken:

 

(a)   the entire electricity generated by the Plant which is not consumed by the Plant; or

(b)   25 megawatt of electricity,

 

whichever is lower.

 

The right, licence and authority referred to above and in Section 4.1.1 are collectively referred to as the “Concession Rights”.

 

4.1.3 In consideration of the Concession Rights, licence and authority being granted to the Concessionaire, the Concessionaire agrees to undertake the Joint Venture Project in accordance with the Concession Agreement and pay to MA Sepang activity fee of 5.7% of the total revenue generated by supply of Cooling Energy to the customers or from the supply of any by-product (including steam) generated by the Plant to each person other than MA Sepang or KL Airport Hotel Sdn Bhd (“Activity Fee”).

 

4.1.4 As part of the Joint Venture Project, the Concessionaire shall:

 

(a)   supply Cooling Energy to the customers in accordance with the cooling energy supply agreements (“CESA”);

(b)   supply electricity to MA Sepang during the Pre-Conversion Period in accordance with the pre-conversion electricity supply agreement (“ESA”);

(c)   offtake electricity from MA Sepang during the Post-Conversion Period in accordance with the post-conversion ESA;

(d)   carry out and complete the relevant improvement works to the Plant no later than the relevant scheduled improvement works completion date, which means with respect to the improvement works to be completed by the Concessionaire at the Plant and/or the premises of the customers under the relevant CESAs 12 months from the Commencement Date or 12 months from the date of execution of the relevant post-commencement CESA, whichever is applicable, or such other date as may be extended in accordance with the Concession Agreement;

(e)   carry out and complete the Conversion Works no later than the scheduled ETC Completion Date, which means a date falling 24 months from the Commencement Date or such other date as may be extended in accordance with the Concession Agreement;

(f)    if applicable, carry out and complete any connection works to connect a customer’s designated facility to the Plant; and

(g)   perform the Plant operations in accordance with the Concession Agreement.

 

4.1.5 As part of the consideration of MA Sepang granting  the Concession Rights, licence and authority to the Concessionaire, the Concessionaire agrees that AVSB shall be entitled to subscribe 30% equity in the Concessionaire on the Conditions Satisfactions Date for a total amount equal to RM15,705,112.00 (“AVSB Initial Equity Funding”) which shall be satisfied in the manner described in Sections 4.1.6(ii) and 4.2.1(b)(ii).

 

4.1.6 The Concessionaire further agrees and acknowledges that:

 

(i)   the AVSB Initial Equity Funding was arrived at on the basis that it shall equal to 30% of the total initial equity contribution required of the shareholders under the Shareholders’ Agreement; and

(ii)  AVSB shall be deemed to have satisfied its payment obligation to pay the AVSB Initial Equity Funding under the Shareholders’ Agreement by reason of MA Sepang granting the right, authority and concession to the Concessionaire to undertake the Joint Venture Project under the Concession Agreement.

 

4.1.7 The conditions precedent under the Concession Agreement are described in more detail under Section 8.

 

4.1.8 The Concessionaire shall, at no cost to MA Sepang, transfer the Joint Venture Project site, the Plant and the entire new high tension underground cable network and associate 33kV switchgears to be completed by the Concessionaire as part of the Conversion Works to MA Sepang or its nominee on the last day of the Concession Period in a state and condition that meets the transfer requirements set out in the Concession Agreement.

 

4.1.9 The Concession Agreement is governed by the laws in force in Malaysia.

 

4.2 Shareholders’ Agreement

 

The salient terms of the Shareholders’ Agreement are as follows:

 

4.2.1 On the Conditions Satisfaction Date, the shareholders shall provide funding to the Concessionaire in the form of equity in the following manner:

 

(a)     TNEC shall provide equity contribution in the amount of RM36,645,262.00 (“TNEC Initial Equity Funding”) and  AVSB shall provide equity contribution in the amount equal to the AVSB Initial Equity Funding, (collectively, "Initial Equity Funding"). The Initial Equity Funding may be paid to the Concessionaire in more than one tranche during the Initial Equity Period.

(b)     The payment for each shareholder’s respective share of the Initial Equity Funding shall be made in the following manner:

          (i)      with respect to TNEC, in cash to the bank account designated by the Concessionaire; and

          (ii)     with respect to AVSB, TNEC and the Concessionaire acknowledge and agree that AVSB shall be deemed to have satisfied its payment obligation with respect to the AVSB Initial Equity Funding by reason of MA Sepang granting the right, authority and concession to the Concessionaire to undertake the Joint Venture Project under the Concession Agreement.

 

4.2.2 The Board of Directors of the Concessionaire (“Board of Concessionaire”) shall comprise a total of 6 Directors, out of which 4 Directors will be appointed by TNEC and 2 Directors appointed by AVSB.

 

4.2.3 The Chairman shall be appointed by TNEC from one of the Directors.

 

4.2.4 Management of the Concessionaire shall be vested in the Board of Concessionaire, which shall be responsible for the administration, compliance and operation of the Concessionaire in accordance with the Shareholders’ Agreement, the Constitution and the provisions of law.

 

4.2.5 The Plant manager, operations manager, general manager or such other person who is responsible to oversee and manage the operations of the Plant shall be appointed, replaced or substituted by the Concessionaire from a nominee nominated by TNEC.

 

4.2.6 The Shareholders’ Agreement terminates:

         (a)        in respect of the rights and obligations of all parties:

                     (i)       in the event that the conditions precedent under the Concession Agreement are not satisfied or waived by the Scheduled Conditions Satisfaction Date (as defined in the Concession Agreement) and as a result, the Concession Agreement is terminated on the date falling seven (7) days from the occurrence of such event;

                     (ii)      on the date on which the Concessionaire is wound up;

                     (iii)     on the date on which one person becomes the beneficial owner of all the Shares;

                     (iv)     on the date on which a shareholder serves a default notice under the Shareholders’ Agreement; or

                     (v)      on the date on which all parties agree in writing to terminate the Shareholders’ Agreement; and

         (b)       in respect of the rights and obligations of a shareholder, on the date on which that shareholder ceases to hold any Shares.

 

 

5. RATIONALE AND PROSPECTS OF THE JOINT VENTURE

 

The Joint Venture will facilitate the co-operation between MAHB and TNB for the Plant to supply Cooling Energy to KLIA’s surrounding facilities.

 

As part of MAHB’s long-term sustainable cost containment plans through the modernisation of the Plant in producing Cooling Energy with higher efficiency, TNEC will be investing in technology and system upgrades for the existing plant that serves KUL's main terminal to run fully on electricity. With the Concessionaire investing approximately RM183 million for the plant upgrades, the initiative will be a cash conservation and low execution risk exercise for MAHB.

 

MAHB will be able to benefit from a significant reduction in cost due to amongst others, overall input cost of electricity which is lower and more stable as compared to natural gas as well as the sharing of the 5.7% Activity Fee, which fits in well with MAHB’s cash conservation initiatives. Another important cost saving factor for MAHB is the agility of the system to cater to the variable cost charging mechanism, which allows MAHB to periodically reassess its energy requirements and adjust the cost required accordingly.

 

Aside from cost containment benefits, MAHB also stands to gain from its 30% stake in the Joint Venture’s earnings contribution and dividend stream in the future. The new partnership venture with TNB will also have the added advantage of enhancing operational efficiency by consolidating MAHB’s energy requirements under one provider.

 

The upgraded Plant will enhance and strengthen the entire power grid at KUL by leveraging on another TNEC operated plant that is using similar technology and resources to serve klia2, the airport’s second terminal. This will enable MAHB to benefit from scale and redundancy assurance, and provides value add to potential KLIA Aeropolis projects.

 

6. RISKS OF THE JOINT VENTURE

 

The Joint Venture is not expected to materially change the business risk profile of the MAHB Group except for general business risks and risks associated with the management, operation and maintenance of the cooling plant, for which the MAHB Group is already exposed to. However, as with any ordinary course of business, the Joint Venture is subject to inherent risk in business and industry including but not limited to those associated with the changes in the operational, market, economic, political and regulatory conditions.

 

7. FINANCIAL EFFECTS

 

The Joint Venture is not expected to have any material effect on the share capital, substantial shareholdings, net assets per share, earnings per share and gearing of MAHB for the financial year ended (“FYE”) 31 December 2020.

 

8. APPROVALS REQUIRED

 

The following are the conditions precedent which must be satisfied on or prior to the Conditions Satisfactions Date:

 

(i)   the Concessionaire having obtained a licence under the Electricity Supply Act 1990 to supply electricity to MA Sepang;

(ii)  the subscription of 30% of the issued share capital of the Concessionaire by AVSB, and the allotment by the Concessionaire to AVSB of such number of shares, upon MA Sepang granting the right, authority and concession to the Concessionaire to undertake the Joint Venture Project under the Concession Agreement;

(iii) the subscription of 70% of the issued share capital of the Concessionaire by TNEC and the allotment by the Concessionaire to TNEC of such number of shares, upon TNEC paying to the Concessionaire a total consideration based on the TNEC Initial Equity Funding;

(iv) the execution of a CESA between MA Sepang and the Concessionaire and the other CESA between the Concessionaire and KL Airport Hotel Sdn. Bhd.;

(v)  the execution of a sub-lease agreement between MA Sepang and the Concessionaire;

(vi) the execution of a pre-conversion ESA between MA Sepang and the Concessionaire;

(vii) the execution of the post-conversion ESA between MA Sepang and the Concessionaire (“Post-Conversion ESA”) on the terms and conditions consistent with the following:

       (a)   the obligations and risks accepted by the Concessionaire under the Post-Conversion ESA will be “back-to-back” with those accepted by MA Sepang under the a new electricity supply agreement pursuant to which TNB shall supply electricity to KLIA and KLIA2 (by or via the existing main intake substations) during the entire Post-Conversion Period (“TNB ESA”);

       (b)   only such charges charged by TNB that are applicable for the supply of electricity to the Concessionaire under the TNB ESA (which may be adjusted from time to time) will be entirely passed through to the Concessionaire under the Post-Conversion ESA; 

       (c)   MA Sepang shall only be liable to the Concessionaire for any losses as may be incurred or suffered by the Concessionaire as a result of any breach by MA Sepang of any of its obligations under the Post-Conversion ESA which is caused or contributed by an act, omission, negligence and/or default by TNB to the extent that MA Sepang has recovered and received from TNB the equivalent amount of losses that the Concessionaire seeks to claim and recover from MA Sepang;

       (d)  the Concessionaire shall, as a condition precedent to the supply of electricity and other obligations of MA Sepang under the Post-Conversion ESA, provide to MA Sepang an irrevocable and unconditional on demand bank guarantee with an initial value of RM4,200,000. MA Sepang shall be entitled from time to time in its absolute right and discretion to revise the required value of the bank guarantee in the event of any variation in the Concessionaire’s monthly electricity consumption and/or changes in tariff under the Post-Conversion ESA;

       (e)   the costs of testing any of the meters if requested by the Concessionaire under the Post-Conversion ESA shall be borne by the Concessionaire unless the results of the tests indicate that the accuracy of the meters are not within the range of +/- 0.4%, in which case such tests shall be at the costs of MA Sepang;

       (f)   in the event the Post-Conversion ESA is terminated as a result of or for a reason attributable to:

             (aa)    any negligence, breach or default by the Concessionaire under the Post-Conversion ESA, and the Concessionaire’s sole remedy for or in respect of such termination is set out in the Concession Agreement;

             (bb)   any negligence, breach or default by MA Sepang under the Post-Conversion ESA, and the Concessionaire’s sole remedy for or in respect of such termination is set out in the Concession Agreement; and

             (cc)   a force majeure or any other reason (other than the reason set out in sub-paragraphs (aa) and (bb) above), and the Concessionaire’s sole remedy for or in respect of such termination is set out in the Concession Agreement.

 

Save as otherwise expressly set out above, the Concessionaire shall not be entitled to claim for any losses as may be incurred or suffered by the Concessionaire as a result of the termination of the Post-Conversion ESA for any reason;

 

(viii) the Concessionaire to execute a gas sales agreement with a gas supplier for the supply of gas to the Concessionaire for the operation of the Plant during the Pre-Conversion Period;

(ix)  MA Sepang to obtain the necessary approvals from the Federal Lands Commissioner and the Ministry of Transport for the grant of a sub-lease for the site in favour of the Concessionaire;

(x)   the execution of a water supply agreement between MA Sepang and the Concessionaire; and

(xi)  the execution of the TNB ESA between TNB and MA Sepang on the terms and conditions consistent with the TNB’s letters to MA Sepang dated 15 May 2020 and 17 December 2020.

 

The above are collectively referred to as the “Conditions Precedent”.

 

The following are other consents and/or approvals to be obtained in relation to the Joint Venture Project:

 

(xii)  MA Sepang to obtain the distribution license issued by the Energy Commission in respect of the distribution and supply of electricity to the Plant during the Post-Conversion Period;  and

(xiii) in a timely manner, MA Sepang to obtain or to procure the Concessionaire to obtain all necessary approvals to be obtained from the relevant regulatory authorities for the works associated with the Joint Venture Project.

 

Save for the above Conditions Precedent, consents and/or approvals, the Joint Venture and the Joint Venture Project are not subject to the approval of the shareholders of MAHB or any other relevant regulatory or government authorities.

 

9. INTEREST OF DIRECTORS, MAJOR SHAREHOLDERS AND PERSONS CONNECTED

 

Khazanah Nasional Berhad (“KNB”) and Employees Provident Fund Board (“EPF”), being major shareholders of both TNB and MAHB, are deemed interested in the Joint Venture. Ms Wong Shu Hsien is the nominee of KNB while Y.Bhg. Dato’ Mohamad Nasir bin Ab Latif is the nominee of EPF on the Board. Both Directors are deemed interested in the Joint Venture (“Interested Directors”).

 

Ms Wong Shu Hsien has abstained and will continue to abstain from all deliberation and voting at Board meetings of MAHB in respect of the Joint Venture. As Y.Bhg. Dato’ Mohamad Nasir bin Ab Latif was only recently appointed to the Board on 1 October 2020, he will continue to abstain from all deliberation and voting at Board meetings of MAHB in respect of the Joint Venture.

 

Save as disclosed above, none of the directors and/or major shareholders of MAHB and/or persons connected with the directors and/or major shareholders of MAHB have any interest, either direct or indirect, in the Joint Venture.

 

10DIRECTORS’ STATEMENTS

 

Save for the Interested Directors, the Board, after having considered all aspects of the Joint Venture, is of the opinion that the Joint Venture is in the best interests of MAHB.

 

11. HIGHEST PERCENTAGE RATIO PURSUANT TO PARAGRAPH 10.02(G) OF THE LISTING REQUIREMENTS

 

The highest percentage ratio applicable to the transaction pursuant to paragraph 10.02(g) of the Listing Requirements is 0.17%, which is based on the latest audited consolidated financial statements of MAHB for the FYE 31 December 2019.

 

12. ESTIMATED TIMEFRAME FOR COMPLETION

 

Barring any unforeseen circumstances, the Conditions Precedent and other consents and/or approvals are expected to be satisfied or obtained on or prior to 30 June 2021 or such other dates as the Concessionaire and MA Sepang may mutually agree upon. The Concession Period will commence on 1 July 2021 for a period of 20 years.

 

13. DOCUMENTS AVAILABLE FOR INSPECTION

 

The Concession Agreement and the Shareholders’ Agreement are available for inspection at the registered office of MAHB at Malaysia Airport Corporate Office, Persiaran Korporat KLIA, 64000 KLIA, Sepang, 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.

 

This announcement is dated 23 December 2020.




Announcement Info

 

Company Name MALAYSIA AIRPORTS HOLDINGS BERHAD
Stock Name AIRPORT
Date Announced 23 Dec 2020
Category General Announcement for PLC
Reference Number GA1-23122020-00071