5. RISK FACTORS 5. RISK FACTORS Before investing in our Shares, prospective investors should pay particular attention to the fact that, to a large extent, our Group and our operations are governed by the legal, regulatory and business environment in Malaysia, which may in some aspects differ from those which prevail in other countries. Our business is subject to a number of factors, many of which are beyond our control. Prior to making an investment decision, prospective investors should carefully consider, along with the other matters in this Prospectus, the risks and investment considerations set forth below. The risks and investment considerations set forth below are not an exhaustive list of all the risks that we are currently facing or that may develop in the future. Additional risks, whether known or unknown, may in the future have a material and adverse effect on us or our Shares. 5.1 Risks relating to our business and our operations 5.1.1 Our business is sUbject to extensive regulation and our licences have fixed terms and are subject to renewal Our business and operations are dependent on licences issued by the relevant authorities, which contain specified conditions. We currently possess licences issued under the CMA to provide, among others, multi-channel subscription TV and radio broadcasting services. Please refer to Annexure B of this Prospectus for further details of the licences. The CMA provides that the Minister may, at any time by declaration, take action to modify, vary or revoke the special conditions on existing individual licences issued under the CMA as well as impose further additional conditions to an existing individual licence. The CMA also allows the Minister, on the recommendation of the MCMC, to suspend or cancel an individual licence granted under the CMA in certain circumstances, including but not limited to failure to pay any amounts due under the licence, failure to comply with the licence conditions, failure to comply with the provisions of the CMA or any other written laws relevant to the communications and multimedia industry and also where it is in the public interest to make such suspension or cancellation. Section 197 of the CMA allows a licensee to set rates in accordance with the market rates provided that the rates charged to customers are published. The rates set must also be in compliance with the principles on rate setting set out in Section 198 of the CMA as further discussed in Section 7.18.1 of this Prospectus. Although the CMA allows licensees to set rates in general, there are prOVisions in the CMA which prescribe the circumstances in which the Minister, on the recommendation of the MCMC, may intervene to set rates. Section 199 of the CMA provides that the Minister may, on the recommendation of MCMC, intervene freely or frequently in determining and setting the rates for any competitive facilities or services for good cause or as the public interest may reqUire. In addition, Section 200 of the CMA provides that in certain circumstances (including where the rates are not set in accordance with the principles set out in Section 198 of the CMA), the Minister may, on the recommendation of the MCMC, determine special rate regulation regimes, which may include setting, reviewing and approving rates, or forbearing from the regulation of rates. Any intervention by the Minister in rate setting may restrict our ability to price our services competitively resulting in a material and adverse effect on our operations, business, results of operations and financial position. The licences held by us have fixed terms. While the CMA prOVides that licensees may apply for renewal of individual licences within a specified time period before expiry, there can be no assurance that such renewals would be on identical terms as the existing licences, or that the renewals would be granted at all. 5. RISK FACTORS (cont’d) In addition, there can be no assurance that the authorities will not attempt to vary, modify or impose further licence conditions on us. Such variation, modification or imposition of licence conditions or any suspension, cancellation, revocation or nonrenewal of our licences could have a material and adverse effect on our operations, business, results of operations and financial position. Although we have not received any notice of being in breach of our licence conditions or any relevant laws, there can be no assurance that we will not be in breach of our licence conditions, regulations and relevant laws. Furthermore, there is no assurance that we will not be in the future, subject to any equity conditions, nor is there any assurance that we would be able to comply with such equity conditions which the relevant authorities may impose on us. Any non-compliance may result in suspension or cancellation of our licences and this would have a material and adverse effect on our operations, business, results of operations and financial position. As our business is subject to extensive regulation and supervision by the Government, any changes to relevant laws and regulations in Malaysia affecting us, or the introduction of any new laws and regulation relating to the communication and broadcasting industry, could potentially have a material and adverse effect on us. For example, changes in laws, industry policies and implementation of Government instruments, or the imposition of stricter censorship laws, may have an impact on our ability to utilise content to generate revenue. Furthermore, our competitiveness depends on our ability to secure exclusive premium content. Recent announcements in early 2012 indicate that the regulators are considering measures to compel the sharing of specific sporting events which are deemed to be of national significance. Any regulatory intervention restricting exclusive content arrangements or requiring the sharing of exclusive content could have a material and adverse affect on our operations, business, results of operations and financial position. For further details on the regulatory environment in which we operate, please refer to Section 7.18 of this Prospectus. 5.1.2 We are dependent on two satellites, namely MEASAT·3 and MEASAT-3A, and we may not be able to provide back.up service in the event of a failure of the satellites We are currently dependent on MEASAT-3 and MEASAT-3A, which began commercial operations in February 2007 and July 2009, respectively, with life expectancies of up to 2021 and 2024, respectively. We use 11 and six high-powered Ku-band transponders on MEASAT-3 and MEASAT-3A, respectively, to provide OTH satellite broadcasting services in Malaysia and Brunei. We have the capacity to broadcast up to 179 TV channels, including 36 HO channels, over our OTH platform through MEASAT-3 and MEASAT-3A. Although MEASAT-3 and MEASAT-3A provide back-up and recovery functions for each other, in the event of a failure of either satellite or should the service levels of either MEASAT-3 or MEASAT-3A significantly degrade or the satellite becomes unavailable, we may not be able to provide full service to our customers. For instance, in the event that MEASAT-3 service levels significantly degrade or the satellite becomes unavailable, MEASAT-3A can only be used to provide 100.0% of HO services for our 36 HO channels but no SO channel, or be used to provide 78 SO channels but no HO channel or a combination of both (assuming six HO channels per transponder or 13 SO channels per transponder). In the event that the service levels of MEASAT-3A, which currently only carry HO services, significantly degrade or the satellite becomes unavailable, MEASAT-3 could be used to restore 100.0% of our HO services, using six transponders while the remaining five transponders could be used to maintain 65 SO channels, or other combinations of HO and SO channels (assuming six HD channels per transponder and 13 SO channeis per transponder). 5. RISK FACTORS (cont’d) Should MEASAT-3 and MEASAT-3A service levels significantly degrade or should the satellites become unavailable due to operational, commercial, regulatory or any other reasons, we may not be able to secure any replacement KU-band capacity to provide our DTH services to our subscribers and even if we were able to secure replacement Ku-band capacity, it may not be sufficient to provide an acceptable level of service to our subscribers. Alternative satellites with Ku-band capacity, which is currently limited in Southeast Asia, would need to be sourced and even if available, any such alternative satellite would need to be re-positioned to be co-located with MEASAT-3 or MEASAT-3A, at the orbital position of 91.5 degrees east. If such alternative Ku-band capacity could not be co-located with MEASAT-3 or MEASAT-3A, we would be required to physically reposition all subscribers’ out-door units to point at the new satellite(s) which could result in significant costs. The service levels of any of the satellites may be disrupted for various reasons, including: • transponder failure or other degradation of satellite electronics;
• exhaustion of fuel required to keep the satellite at the intended location and orientation;
• loss of power of the satellite as a result of premature ageing of the solar cells and/or loss of battery capacity during an eclipse;
• malfunctions or errors in the ground control station that cause the satellite to become unable to transmit signals to the designated broadcasting area;
• damage caused by space debris or excessive solar radiation;
• faulty systems, software, mechanical devices or latent faults in the design and construction of the satellite; and
• interference of signals transmitted from the satellite to the ground control station due to signals from adjacent satellites, terrestrial microwave links or the sun.
A failure of MEASAT-3 and/or MEASAT-3A that leads to a prolonged interruption of our services could result in a loss of subscribers and advertisers and may damage our reputation as a quality provider of pay-TV. In addition, there can be no assurance that our insurance will be adequate to cover any losses associated with such events. Please refer to Section 7.12 of this Prospectus for further information on our insurance coverage. Any of these events could have a material and adverse effect on our operations, business, results of operations and financial position. 5.1.3 A delay in or a failure of the launch of MEASAT-3B may delay our TV channel expansion plans To expand the number of TV channels, we require the use of additional Ku-band transponders. We have leased from MEASAT International (South Asia) Ltd (“MISA”), a subsidiary of MGB an additional 18 Ku-band transponders on MEASAT-3B, which is expected to be launched in 2014. Once MEASAT-3B commences its full commercial service, we expect to be able to expand our broadcasting capacity to a projected maximum capacity of 180 SD and 102 HD channels from the current capacity of 179 channels (inclUding 36 HD channels) as at the LPD. Please refer to Sections 7.6.2 and 7.19 of this Prospectus for further details of this arrangement. However, there can be no assurance that MEASAT-3B will be launched on time or at all or that once it is in orbit, it will be fUlly operational without disruption or will be capable of prOViding the capacity to support our TV channel expansion plans. In the event that there is a failure or delay in the launch or commencement of commercial operations of MEASAT-3B or if MISA fails for any reason to provide the MEASAT-3B Ku-band capacity to us, our TV channel expansion plans may be delayed, which could restrict the growth of our business, and have a material and adverse effect on our reputation and/or business, which could in turn have a material and adverse effect on our results of operations and financial position. 45 5. RISK FACTORS (cont’d) 5.1.4 A substantial part of our business is dependent upon our broadcast facilities, which may be vulnerable to business interruption We have two broadcast facilities that are located approximately 20 kilometres apart. One facility, AABC, is in Bukit Jalil, approximately 12 kilometres outside of Kuala Lumpur, and the other facility, CBC, is in Cyberjaya, approximately 30 kilometres from Kuala Lumpur. Our broadcast facilities are vulnerable to damage or cessation of operations due to fire, troods, severe storms, power loss, acts of terrorism and other potential catastrophic events. We may experience failures or shutdowns relating to the individual components of the broadcast facilities or catastrophic failure of all of our broadcast facilities. In additi.on, no alternative third-party Ku-band uplink facilities are currently available for lease in Malaysia and we have limited back-up broadcast facilities in AABC and CBC. In the event of a complete failure of either facility, we may only be able to provide 50.0% of our current TV play-out content and a prolonged period of time may be required to restore the remainder of our services depending on the nature and extent of the failure. For our radio broadcasting business, the transmission chain is dependent on the use of transmission towers. The transmission towers are VUlnerable to damage or cessation from fire, earthquakes, floods, severe storms, power loss, theft. acts of terrorism and other potential catastrophic events. ./ In addition, we are dependent on AABC for both our TV and radio broadcasts, due to the studios, equipment and personnel being located at AABC. In the event that AABC’s operations are disrupted by any of the events discussed above, we may experience a material delay in producing or aggregating content if we were unable to find an adequate substitute facility. In addition, there can be no assurance that our insurance will be adequate to cover any losses associated with the events described above. Failure of any of these systems and facilities leading to a prolonged interruption of services could result in loss of subscribers and advertisers which could have a material and adverse effect on our operations, business, results of operations and financial position and may damage our reputation as a quality provider of pay-TV and radio programming.
5.1.5 We may not be able to implement our strategies and future plans successfully Our business strategies and future plans are described in Section 7.4 of this Prospectus. The successful implementation of these strategies and future plans, including continuing to produce and procure high-quality content, bundling different content into attractive packages, providing attractive services, continuing to develop current and new delivery platforms to introduce innovative products and services, remaining competitive and continuing to attract subscribers to Astro B.yond, Astro On-The-Go and NJOI, and providing satisfying service experiences for our customers, depends on a number of factors including, among other things, changes in the Malaysian media markets, the availability of funds, competition, Government policies and our ability to retain and recruit employees with the relevant skills. Some of these factors are beyond our control and by nature, are subject to uncertainty. There can be no assurance that our strategies and future plans can be implemented successfully. Any failure or delay in the implementation of any or all of these strategies and future plans may have a material and adverse effect on our profitability and prospects. 5. RISK FACTORS (cont’d) There is a risk that we may not identify consumer trends correctly, or that any new product or service we launch will not be or may no longer be provided on a costeffective basis, or on a price-competitive basis because of our misreading of consumer demand or sentiment. These risks exist in particular with our anticipated future growth drivers in the media industry such as new technology. Developing and marketing a new product is costly, and with no assurance that we will predict trends correctly, there can be no assurance that a misjudgment will not adversely affect our results of operations and financial position. If we are unsuccessful in addressing the challenges and related risks and uncertainties facing our operations, our business, results of operations and financial position will be materially and adversely affected. 5.1.6 The security of media content delivered by us and of our encryption systems may be compromised by piracy We deliver media content that we develop or source from external content suppliers in an encrypted format and we rely on trademark, copyright and other intellectual property laws to establish and protect our rights over such content. However, there can be no assurance that such intellectual property rights will not be challenged, invalidated or circumvented. Furthermore, pay-TV operators face continuous and ongoing threats from content piracy, including third-party attempts to hack the encryption technology and/or circumvent content security systems as well as third parties uploading content on the Internet or distributing physical copies of pirated content. While we continue to monitor such activities and work with technology providers to mitigate such risks, there can be no assurance that the security and antipiracy measures used by us will be successful in preventing or reducing piracy. Third parties may be able to copy, infringe or otherwise profit from our rights or the content that we own or are licensed to us, without our, or the right holders’ authorisation. Moreover, these unauthorised activities can be easily facilitated over the Internet. Anonymity on the Internet makes enforcement of copyright challenging. The unauthorised use of our content may damage our reputation in the market, making our media content less attractive to subscribers and/or advertisers, or leading to higher costs of acquiring third-party content, termination of content provider contracts, damage and penalty claims by content providers and increased churn. Any of the above may adversely affect our business, results of operations and financial position. 5.1.7 Our broadcast and IT Infrastructure may be subject to security breaches and hacking Despite the implementation of security measures, our broadcast and IT infrastructure may be subject to computer viruses, hacking or similar disruptive problems, which could lead to, among others, interruptions, delays or termination of our service to our subscribers or impair or disrupt our ability to accurately invoice and collect service fees from our subscribers as well as damage our reputation. This, in turn, could result in loss of revenues and disgruntled subscribers and business customers. This risk exists across our entire business infrastructure. 5. RISK FACTORS (cont’d) To the extent we store and transmit proprietary information (e.g. credit card information), computer viruses or security breaches could damage our reputation and expose us to possible liability. Breaches of our conditional access security, including through hacking of conditional access software, may result in unauthorised access to our content. Although we work with our technology partn!lrs to monitor and take security measures to safeguard the conditional access system, there is no guarantee that such efforts will be successful in preventing hacking and signal theft. These events may also require us to incur further expenditure to put in place more advanced security systems to prevent unauthorised access to our infrastructure. Any of these events may have a material and adverse effect on our business, results of operations and financial position.
5.1.8 Complex technology used in our business could fail or become obsolete Technology in the TV and media industry is in a rapid and continuous state of change. We and our service suppliers may not be able to keep pace with technological developments or any urgent need to replace obsolete technology to remain competitive. We distribute content through new alternative platforms, such as via our IPTV or our OTT platforms in addition to our DTH satellite TV platform, and provide our customers with additional services such as HD or PVR. Distribution through new platforms may require sophisticated technologies and infrastructure facilities that may in turn require significant investment. There can be no assurance that we will have sufficient cash flow from operations or will be able to secure financing on commercially favourable terms to fund such investments. Furthermore, there can be no assurance that we will successfully implement and market any of these new alternative platforms. Moving from an older generation platform to a new generation platform usually involves legacy issues or problems that need to be addressed. Our ability to roll out the new generation HD/PVR services is hampered in households of some Multiple Dwelling Units (“MDUs”) which share a master satellite antenna such as the older apartment blocks and flats. Such older MDUs could either require re-cabling works as the existing infrastructure is not compatible with the HD/PVR set-top box, or must be accessed using an alternate delivery method to the DTH satellite TV platform such as IPTV. While we plan to deliver the HD/PVR services to such affected MDUs via highspeed broadband, there can be no assurance that we can gain access, on reasonable terms, to the high-speed broadband network owned by third-party telecommunications companies nor is there any assurance that the network of such telecommunications companies is able to provide sufficient bandWidth for our services. In cases where high-speed broadband access is not available at all, the MDU owner may choose to re-cable the building, but there can be no assurance that this will happen. In terms of the technology associated with our broadcast system, new applications and adaptations of existing and new technologies, such as compression, conditional access, on-screen programme guides and software after significant development, are integral to our broadcast system and may, at times, not function as expected. In addition, delays in the delivery of parts or other problems in our broadcast system may occur that could adversely affect the performance or operation of our broadcast system. Furthermore, a failure of IT systems such as customer relationship management or billing and collection systems could materially and adversely affect our reputation and business. 5. RISK FACTORS (cont’d)
5.1.9 We may be liable for information disseminated through our network We may be subject to claims for defamation, negiigence, copyright or trademark infringement, personal data violation or other legal claims relating to the information which we pubiish on our websites or disseminate through our network, including claims and actions under the censorship and national security laws of Malaysia. We could also be sUbjected to claims and enforcement actions based upon the content or data accessible from our websites through iinks to other websites or through content and materials that may be posted by members on our websites. We may incur substantial expenses in defending against such claims (regardless of our merit), which may adversely affect our business, results of operations and financial position. 5.1.10 We may be unable to adequately protect our intellectual property rights or may face intellectual property claims that may be costly to resolve We rely on a combination of trademarks and servicemarks, copyright protection and domain name registrations to estabiish and protect our brand names and logos, marketing designs and Internet domain names and programme rights. There can be no assurance that the steps we take in this regard will adequately protect our intellectual property rights. Third parties or persons may challenge our exclusive right to use our brand names and logos and we could incur substantial costs in defending any claims relating to our intellectual property rights. Issues relating to intellectual property rights can be complicated and there can be no assurance that disputes will not arise. Any disputes which are not resolved in our favour may adversely affect our reputation and business. 5.1.11 The pro forma consolidated financial information Included in this Prospectus may not accurately reflect our financial position, results and cash flows Our Group was formed folloWing the Reorganisation which was implemented in March 2011 and April 2011, the details of which are set out in Section 6.1 of this Prospectus. As such, there are no audited financial statements prepared for our Group for the financial years ended 31 January 2010 and 2011. We have included in this Prospectus the pro forma consolidated income statements for the financial years ended 31 January 2010, 2011 and 2012 and for the three month financial period ended 30 April 2011, the pro forma consoiidated statement of cash flows for the financial year ended 31 January 2012, and the pro forma consolidated balance sheets as at 30 April 2012 (collectively referred to as “pro forma consolidated financial information”), based on our Group’s structure as at 30 April 2012 and on the assumption that our Group had been in existence throughout the financial periods under review. As the pro forma consoiidated financial information is prepared for illustrative purposes only, such information, because of its nature, may not give a true picture of our financial position, results of operations and cash flows that would have occurred had the Reorganisation, IPO and Listing been effected on the dates assumed to have been effected, as set out in Section 12.6 of this Prospectus in the Reporting Accountants’ report on the pro forma consolidated financial information. We did not operate as a separate Astro Malaysia Group prior to the Reorganisation, and our subsidiaries formed part of AHSB Group’s businesses, which also included businesses other than our business. The pro forma consolidated financial information is, therefore, not necessarily indicative of the financial position, results of operations and cash flows that would have occurred if our subsidiaries had been operating as Astro Malaysia Group during the financial years under review. Further, the pro forma consolidated financial information does not purport to predict our Group’s future financial position, results of operations and cash flows. 49 5. RISK FACTORS (cont’d)
5.1.12 Competition may erode our market share We anticipate that there will continue to be new entrants into the TV and content provision market in Malaysia. Licences were issued under the CMA to various parties allowing the licensees to provide, among others, pay-TV sUbscription services in Malaysia. In 2011, we had a market penetration rate of approximately 50.0% of the Malaysia TV Households of which we had a market share of approximately 99.0% of Malaysia’s residential pay-TV market. However, there can be no assurance that any non-operational licence holder will not commence operation or that there will not be any new entrants as the pay-TV market develops. In addition, joint ventures and alliances among multi-channel subscription TV and telecommunication providers may result in the bundling of their services, competing with those provided by us. Furthermore, our exclusivity right for DTH broadcasting in Malaysia under our licence expires in 2017 and this may lead to an increase in competition. In addition, the Government is currently calling for the tender of the build-out of a Digital Terrestrial Television infrastructure over the next several years, which may enable a large number of free-to-air channels to be broadcast in Malaysia. These potential new competitors may have significantly greater financial and marketing resources than us, may increase our customer acquisition costs, or may cause an increase in content cost and, if successful, may erode our market share as well as our TV Adex share. In addition, we may also face competition from providers of digital media, such as companies that offer movies, TV shows and other video content online. Such online digital media platforms may cause our existing subscribers to disconnect their services or cause a decrease in the subscription of our services, which would have a material and adverse effect on our business, results of operations and financial position. Furthermore, we face competition in the TV Adex market. We cannot guarantee that we will maintain our share of viewership or of the TV Adex market or the effectiveness of our advertisement sales and an inability to do so may materially and adversely affect our profitability, business, results of operations and financial position. In terms of our radio operations, if we are not able to produce innovative and attractive radio content or develop and maintain radio talents, radio Adex may decrease and our profitability, business, results of operations and financial position may be materi”lIy and adversely affected. Please refer to Section 7.7 of this Prospectus for a discussion on our competitors. 5.1.13 We are susceptible to increases in content costs and other operational and Industry risks associated with the production of some of our content We produce some of our own local vernacular content and are subject to costs and risks associated with such activity. We may be required to increase spending on staff, talents or production equipment and facilities to continue to produce high quality local content and such costs may exceed our anticipated budget during the course of production. In addition, our production business is also dependent on our access to quality talent and there can be no assurance that we will in the future be able to obtain or retain quality talent for our content productions. In addition, the media industry is speculative by nature and historically has involved a substantial degree of risk. For example, the success of a particular piece of content depends upon unpredictable and changing factors, inclUding the success of promotional efforts, the availability of alternative forms of media consumption, general economic conditions, public acceptance, consumer preferences and other factors, many of which are beyond our control. We may be unable to produce products or services that receive sufficient market acceptance for us to be successful, and this could have a material and adverse effect on our business, results of operations and financial position. 5. RISK FACTORS (cont’d) 5.1.14 Our business is dependent on our ability to source/procure content at reasonable rates Our ability to retain existing subscribers and attract new subscribers depends in part . on our ability to deliver content that is popular with TV audiences and entices consumers to subscribe to our services. The emergence of new distribution platforms or competition from operators in the pay-TV industry or an increase in the cost of sourcing or procuring external content, especially relating to sports and premium content, may result in our inability to obtain attractive TV content from third parties at reasonable rates. Our ability to secure popular content in the past does not guarantee that we will be able to continue to secure or renew, on reasonable terms, rights to such content. For example, popular sporting events such as the Barclays Premier League, the FIFA World Cup and the UEFA European Football Championship are licensed for limited periods and with increasing competition, there can be no assurance that we can secure these rights in the future or secure such rights at reasonable rates. Similar risks also apply with regards to third-party channels which are licensed for a limited period and there can be no assurance that we can secure renewals of such content contracts in the future or to secure them at reasonable rates. Our subscribers may be unwilling to pay the prices for our services, if there is an increase in our subscription fees due to an increase in content acquisition cost or if other cheaper alternative means of consuming media content are available. In addition, our competitiveness also depends in part on our exclusive content arrangements with our content partners and there can be no assurance that there will not be any regulatory intervention restricting exclusive content arrangements or compelling the sharing of exclusive content. Furthermore, we may not be able to procure attractive content that appeals to our subscribers. The inability to procure or source content on an exclusive basis or content that is well-received by our subscribers at reasonable costs or changes in consumer taste, could cause our subscriber numbers to stagnate or decrease, and could have a material and adverse effect on our revenues, business, results of operations and financial position.
5.1.15 Our Residential ARPU and our profitability may decline Our ability to sustain and increase profitability is in part dependent upon our retaining a subscriber base large enough to generate revenue sufficient for profitability. The growth in the number of our subscribers and our revenue has been derived primarily from the affluent population in urban areas in Malaysia. We seek to increase our penetration rate in other demographics, for instance by attempting to gain new subscribers from relatively less affluent households in rural areas. This could result in a downward pressure on our Residential ARPU. Furthermore, increasing competition may put pressure on us to lower our prices. In addition, our Residential ARPU may decrease due to potential cannibalisation risks, for instance, subscriber migration from our pay-TV platform to our lower-cost NJOI service. As a result, our Residential ARPU may decline and our churn rate may increase, either or both of which could result in lower margins, slower revenue growth and lower profitability, and this may adversely affect our business, results of operations and financial position. 5. RISK FACTORS (cont’d) 5.1.16 Our cash requirements may be accelerated in the event our set·top box and out-door unit (collectively referred to as “set·top boxes”) deferred payment arrangements are discontinued Our deferred payment arrangements with respect to our set-top boxes purchases entail the issuance of promissory notes or letters of credit, as applicable, to the suppliers upon receipt of invoice or prior to delivery. The suppliers then indorse these promissory notes or present the letters of credit to the banks for payment. We are only required to make periodic interest payments up to the maturity of the applicable promissory note or letter of credit at the end of a 24 or 36-month period, as applicable, at which point the principal amount is due. k. at 31 July 2012, such vendor financing for our set-top boxes amounted to RM594.4 million and is reflected in our balance sheet under “payables”. In the event that our deferred payment arrangements with our suppliers are discontinued we may be required to accelerate our cash requirements to pay for the set·top boxes. This may also result in a material delay in the delivery of set-top boxes. If there were a material delay in the delivery of our set-top boxes, there could be a material and adverse effect on our reputation and business. Any of the above may have a material and adverse effect on our business, cash flows, results of operations and financial position. 5.1.17 Escalating rate of subscriber churn may decrease our profitability In Malaysia, churn arises mainly as a result of personal economic factors, and to a lesser extent, changes in consumers’ media consumption preference and competitive influences. In addition, churn tends to be cyclical as certain quarters of a year have a higher rate of subscriber disconnections. For example, churn tends to increase during the first and fourth quarters of any calendar year because typically, more disposable income is allocated by households towards events such as the start of the school year and key holidays falling during these times. Our ability to manage churn in the future will likely be dependent on our ability to execute our targeted retention programmes, compete with new entrants to the pay-TV sector, procure and create relevant content or provide differentiated customer service through our customer service channels. For example, any interruption of our services, the removal or unavailability of programming, which may not be under our control, or other customer service problems could lead to an increase in subscriber churn or cause us to not be able to meet our goal of reducing our level of subscriber churn. An increase in competition may also make it more difficult for us to gain new subscribers. Any increase in subscriber churn may lead to an increase in costs in retaining subscribers, and a reduction in revenue, which could have a material and adverse effect on our results of operations and financial position. 5.1.18 We expect that our costs associated with customer acquisition and conversion will increase We incur expenses in obtaining new subscribers, including sales and distribution expenses (including incentives), marketing and promotional expenses, installation costs, and set-top box costs. In addition, although the cost of k.tro B.yond set-top boxes is capitalised, we incur expenses, such as marketing and related set·top boxes expenses, in migrating our existing subscribers to the Astro B.yond set-top boxes. The average customer conversion cost is similar to the average customer acquisition cost, subject to certain differences arising from the manner in which we approach and market to our customers. Our customer acquisition and conversion costs are principally affected by (i) economies of scale, as we believe a large and growing customer base will allow us to use our scale to manage the per unit cost of set-top boxes and distribution expenses, (ii) fluctuations in foreign exchange rates as the cost of purchasing set-top boxes are typically incurred in USD, (iii) marketing activities and (iv) our customer acqUisition and conversion numbers. 5. RISK FACTORS (cont’d) Marketing efforts relating to the conversion of our existing subscribers to Astro B.yond set-top boxes commenced in the financial year ended 31 January 2011, have increased sUbstantially since then and are expected to continue until the financial year ending 31 January 2014, by which time we expect that a greater majority of our subscriber base will be using the Astro B.yond set-top boxes. We expect our customer conversion costs to continue to increase during the conversion period principally due to these marketing efforts, as well as the higher costs of the Astro B.yond set-top boxes and their related expenses, and increases in distribution expenses. We also expect increases in depreciation costs relating to the depreciation of the Astro B.yond set·top boxes. In addition, as the purchases of Astro B.yond set-top boxes are typically financed through vendor financing, we expect to have an increased level of vendor financing, and a corresponding increase in interest costs. If we are unable to effectively manage the factors affecting our customer acquisition cost and conversion cost, our operating costs may increase significantly, which may have a material and adverse effect on our results of operations and financial position. 5.1.19 Our pay-TV business is influenced by consumer spending patterns and prefllrences Our pay-TV business is influenced by consumer spending patterns and preferences. Changes in consumers’ taste or their media consumption patterns could lead to our subscribers ceasing to subscribe to our services or choosing altemative providers and our inability to attract new subscribers. For example, subscribers may prefer to access their desired content online from a variety of sources, legal or otherwise, rather than through us. In the event that there is a change in consumer spending preference to other types of media other than the services we offer, our business may be adversely affected. Further, the proliferation of unauthorised use of our content might also encourage subscribers to develop a preference for pirated content, which could have a material and adverse effect on our business, results of operations and financial position. 5.1.20 Our IPTV and OTT services may be affected by disruptions, delays and other difficulties from third-party network and broadband service providers Our IPTV and OTT products operate using network and broadband services provided by third parties. The performance of our IPTV and OTT services is dependent on the quality of the overall broadband connectivity from these third parties which is outside our control. The quality of our OTT and IPTV services may be materially and adversely affected should there be a disruption, delay or other difficulties from network and broadband service providers. Our OTT services and other digital products are accessed over an open Internet connection, on which we cannot guarantee quality of service and connectivity. High bandwidth traffic, poor network service by network providers or network outages, or any service degradation of broadband connection could negatively impact the ability of our subscribers to use our IPTV and OTT services effectively. This could lead to subscribers dissatisfaction which could in turn materially and adversely affect our reputation, business, results of operations and financial position. 5. RISK FACTORS (cont’d)
5.1.21 We depend on third parties to supply us with certain equipment and services We depend on third parties such as set-top box manufacturers, software vendors and other equipment suppliers, service providers and sales and distribution partners to supply us with the equipment and services that we require for our business. If these third parties cease to provide such equipment or services to us, or provide faulty equipment, or if these supplies are interrupted due to insolvency, non-renewal of contracts, technical difficulties or any other reasons, our business may be adversely affected. Furthermore, our vendors may request for changes in pricing, payment terms or more onerous terms, which could result in our having to make substantial additional payments. While alternative sources for this equipment and these services exist, we may not be able to develop these alternative sources quickly and cost effectively which could materially and adversely impair our ability to ensure timely delivery of our services to our subscribers and to operate our business. There can be no assurance that we will be able to find substitutes for these suppliers within a reasonable time, on commercially reasonable terms. Any inability to secure equipment or services could materially disrupt our business operations and could have a material and adverse effect on our reputation, business, results of operations and financial position.
5.1.22 Our rights to the land underlying the AABC may be compromised Astro Productions currently has an agreement to sub-lease the land underlying the AABC (“Agreement to Sub-Lease”) until 2025 (with an option to renew for a further 30 years) with Technology Park Malaysia Corporation Sdn Bhd (“TPMC”). Please refer to Annexure A for further details of the Agreement to Sub-Lease. Although Astro Productions has entered into negotiations with TPMC to execute a sub-lease agreement and to register the sub-lease following the registration of a lease granted by the Federal Lands Commissioner (“FLC”) to TPMC (“Principal Lease”), as at the LPD, Astro Productions does not have a registered interest in the land. It only has a contractual interest pursuant to the Agreement to Sub-Lease. Although we believe that the registration of the sub-lease under the National Land Code, 1965 to give full effect to the current agreement with TPMC, is a formality, we cannot guarantee that such registration will be successful. Non-registration of the sub-lease may consequently result in third parties having a competing interest in the sub-lease, if such third-party interest was legitimately obtained and without notice of Astro Productions’ prior interest. Further, there can be also no assurance that the Principal Lease would not at any time in the future be terminated due to any breach by TPMC of the terms of the Principal Lease. In the event that the Principal Lease is terminated, this would have a material and adverse effect on us given that the rights of Astro Productions under the sub-lease are derived from the Principal Lease. 5.1.23 Our ability to compete effectively will depend on our key management and the availability of a skilled workforce As media, broadcasting and telecommunications industries become increasingly competitive, both in Malaysia and elsewhere, we believe our success will depend to a significant extent upon, among other factors, our ability to continue to attract, retain and develop our human capital and talents across our operations. For example, our key management is critical for setting the directions of our business, our operations team is instrumental for carrying out our day-to-day operations, whilst our talent allow us to produce popular local content. Our inability to attract, retain and develop our human capital and talent could have a material and adverse effect on our business, prospects, results of operations and financial position. 54 5. RISK FACTORS (cont’d) 5.1.24 We are exposed to foreign currency exchange risks, Interest rate risks and credit risks . Our functional currency for financial reporting purposes is RM, and substantially all of our revenue is denominated in RM. We have incurred, and expect to continue to incur, significant expenses, such as purchases of set-top boxes, international content costs and transponder lease payments, which are denominated mainly in USD. As such, the movement of USD against RM may have a significant effect on our financial condition and results of operation. A depreciation of RM against USD could increase the costs of equipment and content necessary for the operation of our business. Conversely, an appreciation of RM against USD may reduce the costs of such equipment and content in RM terms. Changes in interest rates affect our interest expenses as all of our current debts are subject to floating interest rates. As at 31 July 2012, our total bank borrowings (including finance lease liabilities) and vendor financing amounted to an aggregate of RM4,235.8 million and RM594.4 million, respectively. The amounts drawn down under the RM and USD term loan facilities amounting to RM2,010.0 million and USD330.0 million had been fUlly hedged as at 31 July 2012. The RM2,010.0 million and USD330.0 million term loans had been swapped into RM fixed rates as at 31 July 2012, and the resulting all-in rate stood at 5.31% and 4.19% per annum, respectively. The RM500.0 million drawn down under the RM term loan facility amounting to RM1,000.0 million is unhedged as at 31 July 2012. The applicable interest margins under both the RM and USD term loan facilities vary from 1.0% to 1.75% based on a net debt to adjusted EBITDA ratio (as defined in the facilities agreements) of less than 2.0 times to greater than 4.0 times. Please refer to Note 25 of Section III(b) of the Accountants’ Report for further details. For the six month financial period ended 31 July 2012, vendor financing effective interest rates ranged between 1.2% and 4.6% per annum. We are therefore exposed to interest rate fluctuations, which may affect our results of operations and financial position. Our exposure to credit risks arises mainly from cash deposits and receivables. The maximum exposure to credit risks is represented by the total carrying amount of these financial assets in the balance sheet. Credit risks, or the risk of counterparties defaUlting, are controlled by the application of credit approvals, limits and monitoring procedures. As at 31 July 2012, our outstanding net trade receivables amounted to RM387.7 million. We are therefore exposed to credit risks, which may affect our results of operations and financial position. 5.1.25 Our ability to comply with the terms of our credit facilities may be impeded and we may require additional capital in the future Our total bank borrowings and finance lease liabilities were RM4,235.8 million as at 31 July 2012, comprising current debt of RM36.4 million and long term liabilities of RM4, 199.4 million. Events of default under the terms of any such indebtedness could give rise to the right of a creditor to accelerate the relevant indebtedness or enforce any security granted in relation to that indebtedness, and may result in a cross default on our other indebtedness, which would have a material and adverse effect on our results of operations and financial condition. After taking into consideration the existing level of cash and cash equivalents, the available lines of credit (including vendor financing), the expected cash flow from operations and the proceeds from the Public Issue allocated for working capital purposes, our Board is of the opinion that we will have adequate working capital for a period of 12 months from the date of this Prospectus. For further details, please refer to Section 12.2.9 of this Prospectus. However, subsequent to the IPO, we may need to raise additional capital to fund the on-going development and expansion of our business, the amount of which cannot be quantified at this time. 55 I 5. RISK FACTORS (cont’d) There can be no assurance that any additional funds required will be available to us on favourable terms, or at all. There can also be no assurance that our estimate of our anticipated liquidity needs is accurate or that new business developments or other unforeseen events will not occur, resulting in the need to raise additional funds. Estimating liquidity needs and capital expenditure are subject to various assumptions and involve known and unknown risks, uncertainties and other factors beyond our control, which may cause our actual results or performance to be materially different. In addition, certain of our credit facilities, contain covenants which may limit our financing activities and hence operations. Our ability to meet our payment obligations and to fund our planned capital expenditure will depend on the success of our business strategies and our ability to generate sufficient cash flow to satisfy our debt obligations, which are subject to many uncertainties and contingencies beyond our control, including those set out in this Prospectus. Any inability to meet our payment obligations or to fund our planned capital expenditure may have a material and adverse effect on our business, results of operations and financial position.
5.1.26 Impairment of goodwill and brands Based on our unaudited consolidated statement of financial position as at 31 July 2012, we have goodwill and brands of approximately RM1,393.0 million, which is subject to impairment test every year or more frequently if events or changes in circumstances indicate a potential impairment. Some examples of events/changes in circumstances which may cause impairment to our goodwill and brands are as follows: (i) significant adverse changes that have taken place during the period under review, or will take place in the near future, in the technological market, economic or legal environment in which our business operates; and (iI) economic performance of our business is, or will be worse than expected. Whilst any impairment of goodwill and brands will not have any effect on our cash flows, such impairment will adversely affect our profitability and financial position which may have a corresponding effect on our shareholders’ value.
5.1.27 Control by our substantial shareholder Upon the completion of the IPO (but prior to any transfer of shares pursuant to the Share Incentives), ANM will own 3,679,000,000 Shares, representing 70.8% of our enlarged issued and paid-up Shares (please refer to Section 9.3 of this Prospectus for further details on ANM’s shareholding in our Company) and thus will be able to exercise control over our Company. As at the date of this Prospectus, ANM is a wholly-owned subsidiary of our ultimate holding company, AHSB. The equity interest in AHSB, in turn, is held directly or indirectly by various parties which may have different objectives from each other. Details of these substantial shareholders are set out in Section 9.3 of this Prospectus. In the event that after the moratorium period, there is a change in the shareholding structure of ANM and/or AHSB (e.g. following the distribution of shares by ANM (the Selling Shareholder) pursuant to the agreement mentioned in Section 15.1(iv) of this Prospectus) which results in our Company having a different direct and indirect substantial shareholding composition, our business and growth strategies may be influenced and changed accordingly. 5. RISK FACTORS (cont’d) Our substantial shareholders, other than in respect of certain votes regarding matters, in which they are interested and must abstain from voting under the Listing Requirements, will be able to influence the election of certain of our Directors and the approval of any corporate proposals or transactions requiring the approval of our shareholders. While we will be required to comply with the Listing Requirements with regards to the mitigation of conflicts of interest, the interests of our SUbstantial shareholders may differ from or conflict with the interests of the other shareholders of our Company.
5.1.28 There may be conflicts of interest between our Group and our related parties The Listing Requirements define a related party as a director, a major shareholder or a person connected with such director or major shareholder (including a person that was a director or major shareholder within the preceding six months before the transaction was entered into). A “major shareholder” means a shareholder with shareholding of 10.0% or more of all the voting shares in our Company, our holding company or any of our subsidiaries or 5.0% or more where such person is the largest shareholder in our Company, our holding company or any of our subsidiaries. We have entered into various transactions with companies directly or indirectly controlled by or connected to our related parties. These are set out in Section 11 of this Prospectus. In addition, we expect that we will in the future enter into other transactions with our related parties. These transactions may, individually or in aggregate, involve conflicts of interest which may be detrimental to us. Further, some of our Directors and/or major shareholders have engaged and/or may in the future engage in businesses carrying on a similar trade as the business of our Group or businesses which are the customers or suppliers of our Group, from which potential conflicts of interest may arise. Details are set out in Sections 9.1.4 and 9.3 of this Prospectus. There can be no assurance that direct or indirect competition or conflicts of interest will not arise in the future between us and our related parties in any areas of business which may have a material and adverse effect on our business, results of operations and financial position. 5.1.29 Political, economic, social and other developments In Malaysia and Asia may adversely affect us Our business, prospects, financial position and results of operations may be adversely affected by political, economic, social and other developments in Malaysia. These developments, which may be uncertain, include but are not limited to the risks of war, terrorism, riots, expropriation, nationalisation, renegotiations or nullification of eXisting contracts, changes in law and regulations, changes in interest rates, foreign exchange control regUlations and methods of taxation. In November 2002, Malaysia and the rest of Asia were affected by an outbreak of Severe Acute Respiratory Syndrome (“SARS”), which caused a number of countries to implement restrictions on travellers and workers from, and traffic to, SARS-affected countries. In December 2004, a tsunami struck several countries in Southeast Asia, including Malaysia. A recurrence of a geological disaster similar to the tsunami of 2004 or an outbreak of SARS, avian influenza or a similar epidemic or adverse economic development could severely disrupt the Malaysian economy and undermine investor confidence, thereby materially and adversely affecting our results of operations or financial position. 5. RISK FACTORS (cont’d) 5.1.30 We may be affected by an adverse judgment or settlement in respect of any current or future claims against us or our Directors The operation of our business involves risks that may lead to claims being taken against us or the members of our key management or our Directors. Please refer to Section 15.7 of this Prospectus for a description of the material on-going litigation and claims against us. The full extent of any claims and liabilities (financial or otherwise) of our on-going litigation and claims cannot be accurately determined at this time. Further, an adverse judgment or settlement following any current or future claims against us may lead to negative publicity about us and may adversely affect our reputation and customers’ perception. There can be no assurance that the current or future claims faced by us as well as any adverse jUdgment or settlement in respect thereof will not have a material and adverse effect on our business, results of operations and financial position. Certain media reports have alleged that summonses have been issued by Indonesian authorities to our Non-Independent Non-Executive Deputy Chairman, Mr. Augustus Ralph Marshall (“Mr. Marshall”). MAN issued a press statement previously confirming that Mr. Marshall and his counsel in Indonesia have no knOWledge of these summonses, nor have they been provided with any details of the arrest warrant that had purportedly been issued against Mr. Marshall other than what has been reported in the media. Moreover, we understand that neither the Indonesian authorities referred to in such media reports nor the Malaysian authorities have approached Mr. Marshall or MAN to assist in any investigation. Mr. Marshall is the executive deputy chairman of MAN, which, together with AOL and certain of AOL’s subsidiary and affiliate companies, have been involved in an ongoing commercial dispute with an Indonesian party, and in respect of which, MAN and its affiliates were awarded approximately USD300 million in damages by an international arbitration tribunal (“Awards”). As at the LPD, no part of the Awards has been settled. The Awards have been registered in Malaysia, Singapore, Hong Kong, Indonesia and England and Wales. In addition, in connection with the enforcement proceedings, a worldwide Mareva injunction has been obtained from the Singapore courts and a garnishee order nisi obtained from the Hong Kong courts. The various proceedings for enforcement of the Awards in Singapore, Hong Kong and Indonesia are being challenged. Further details relating to the Awards, enforcement proceedings and challenges are contained in Sections 15.7(iii) to (vi) of this Prospectus. Further, we have learnt that a First Information Report (“FIR”) has been registered in October 2011 by the Central Bureau of Investigations of India against, among others, Mr. Marshall, commencing formal investigations relating to allegations of criminal conspiracy and corruption in relation to the acquisition of Aircel Limited (“Aircel”) by Maxis Communications Berhad (“MCB”) and the subscription of shares in Sun Direct TV Private Limited (“Sun Direct”) by a subsidiary of AOL. Media reports suggest that the allegation under investigation is that the subscription of shares in Sun Direct by AOL’s subsidiary, which was completed in December 2007, was an illegal gratification made for facilitating the acquisition of Aircel by MCB, which was completed in March 2006. To the best of our knowledge, as at the LPD, no charge or any criminal proceeding has been instituted against Mr. Marshall in any court of law. Neither MCB nor AOL is an entity within our Group. Furthermore, neither our Company nor any of our Group companies is or has been involved in the MCB-Aircel transaction, the subscription of shares in Sun Direct by AOL’s subsidiary or subject to any ongoing investigation in India in relation to the FIR: 58 5. RISK FACTORS (cont’d) The investigations in India were ongoing as at the LPD, and their conclusion, extent and outcome are uncertain. If charges are brought against Mr. Marshall, it may have an adverse impact on our Company, including Mr. Marshall’s resignation from our Board.
5.1.31 Unfavourable financial and economic developments in the global economy and in Malaysia may negatively impact us The on-going deterioration in the markets for sovereign debt of several European countries, including Greece, Spain, Italy and Portugal, has exacerbated the global economic crisis and raised a number of uncertainties regarding the stability and overall standing of the European Monetary Union. Events such as the continuing economic crisis in EUrope, downgrade of the US long-term sovereign credit rating by Standard & Poor’s and the earthquake in Japan in 2011 have continued to reduce investor confidence globally and resulted in frequent and significant disruptions to the financial markets. Beginning in July 1997 and lasting until 1999, Malaysia experienced a significant financial and economic downturn that resulted in, among other things, a significant devaluation of the RM and an increase in the number and size of companies filing for corporate reorganisation and protection from their creditors. More recently, Malaysia’s economy has been affected by the global economic crisis that began in late 2007, as evidenced by the 1.7% decline in Malaysia’s GDP in 2009 and the decline in the growth rate of Malaysia’s GDP to 4.6% in 2006, compared to 6.3% in 2007. The Malaysian economy recovered in 2010 and 2011, with its GDP growing at 7.2% in 2010 and 5.1% in 2011. There is no assurance that the global, Asian or Malaysian economies will continue to grow or that GDP in Malaysia will not decrease. On-going economic weakness and uncertainty in Malaysia or elsewhere could result in fewer gross new subscriber activations and an increase in churn rates due to lower discretionary spending amongst Malaysia consumers. With lower levels of disposable income, our subscribers may adjust their discretionary spending by downgrading to lower cost programming packages or choose not to purchase premium services, such as pay per-view movies or VOD services. Our subscribers may also choose to. replace our services with less expensive alternatives such as video content delivered via the Internet or pirated content. Such economic weakness and uncertainty may have a material and adverse effect on our business, financial condition and results of operations. Our profits may also be adversely affected by the increased customer acquisition and retention costs necessary to attract and retain customers during a period of economic weakness. More specifically, advertising spending by advertisers is particularly sensitive to changes in general economic conditions. For example, Adex typically decrease during periods of economic downturn as most companies will reduce their advertising spending. Due to such bUdget constraints, advertisers may reduce the amount of money that they spend to advertise on our platforms in favour of cheaper alternative media platforms. For instance, because of the relatively higher penetration rates of free-to-air content, advertisers may choose to advertise on free-to-air TV channels instead of on our channels. In addition, advertisers may determine that the targeted approach to certain targeted segments that we use is less effective and appealing during an economic downturn when a targeted segment is expected to spend less. Consistent with common practice in the markets in which we operate, we generally do not enter into long-term sales contracts with advertisers. Thus, there can be no assurance that we will maintain or increase our advertising sales to these advertisers or other large advertisers at current levels or at all. A decrease in demand for advertising in general or for advertising time on our platforms in particular, could affect our ability to generate revenue, which may have a material and adverse effect on our results of operations and financial position. 5. RISK FACTORS (cont’d) 5.1.32 There can be no assurance that we will continue to receive the tax benefits we currently enjoy The Ministry of Finance, Malaysia has granted MSC status to certain companies within our Group for digital content and distribution through a Direct-To-User network, the enhancement of existing digital radio broadcasting network and the introduction of terrestrial digital broadcasting technology, the production of motion pictures and content creation as well as the development of new software applications and systems connecting disparate technologies in a single coherent network. With the MSC status, the corporate tax incentives include either a tax exemption period of ten years or an investment tax allowance of 100.0% on qualifying capital expenditure incurred within five years to be offset against 100.0% of the statutory income from the approved projects. Notwithstanding the fact that the corporate tax incentive periods from the MSC incentives have ended, as at 31 January 2012, we had an unutilised investment tax allowance of RM25.6 million for the software development business that may be utilised against future taxable profits from the development of new software applications and systems. Furthermore, the MSC status also provides for indirect tax incentives including duty exemptions of the importation of production and multimedia equipment. If the Government authorities amend or promulgate new laws or regulations which prescribe a higher tax rate, introduce a new tax or introduce any change to the tax benefits which have been granted to our entities, our results of operations and financial position may be materially and adversely affected.
5.2 Risks relating to our Shares 5.2.1 There has been no prior market for our Shares and it is uncertain whether a market will ever develop or, if a market does develop, whether it will be sustained There has been no prior market for our Shares and it is uncertain whether a market will ever develop or, if a market does develop, whether it will be sustained. There can be no assurance as to the liquidity of any market that may develop for our Shares, the ability of holders to sell their Shares or the prices at which holders would be able to sell their Shares. Our Shares could trade at prices that may be lower than the Institutional Price or the Final Retail Price depending on many factors, including prevailing economic and financial conditions in Malaysia, our operating results and the markets for similar securities. In addition, markets for securities in emerging markets have been subjected to disruptions that have caused intense volatility in the prices of securities similar to our Shares. There can be no assurance that the market for our Shares, if any, will not be subject to similar disruptions. Any disruption in such markets may have a material and adverse effect on the price of our Shares. 5. RISK FACTORS (cont’d) 5.2.2 Our Share price and trading volume may be volatile The market price of our Shares may fluctuate as a result of, among others, variations in the liquidity of the market for our Shares, differences between our actual financial operating results and those expected by investors and analysts, changes in analysts’ recommendations or projections, changes in general market conditions and broad market fluctuations. The market price of our Shares is also susceptible to developments in the media industry, including new developments or technology advancements, corporate exercises, acquisitions or strategic alliances by our competitors. In addition, many of the risks described in Section 5 of this Prospectus could materially and adversely affect the market price of our Shares. Furthermore, if the trading volume of our Shares Is low, the price fluctuation may be exacerbated. In particular, no stabilising transaction will be undertaken in respect of our Shares in connection with the IPO or thereafter. Accordingly, there can be no assurance that our Shares will not trade at prices lower than the Institutional Price or the Final Retail Price. Over the past few years, the Malaysian, regional and global equity markets have experienced significant price and volume volatility which have affected the share price of many companies. Share prices of many companies have experienced wide fluctuations which were not always related to the operating performance of those companies. There can be no assurance that the price and trading of our Shares will not suffer similar fluctuations in the future.
5.2.3 We may not be able to pay dividends or realise dividends from our subsidiaries Dividend payments are not guaranteed and our Board may decide, at its absolute discretion, at any time and for any reason, not to pay dividends or to change our dividend policy. If our Company is unable to pay dividends in accordance with our dividend policy, or is unable to pay dividends at levels anticipated by investors, the market price of our Shares may be negatively affected and the value of any investment in our Shares may be reduced. Any payment of dividends may adversely affect our ability to fund unexpected capital expenditures as well as our ability to make interest and principal repayments on our debt and vendor financing if cash flow from operations is insufficient. As a result, we may be required to incur additional borrowings or raise new capital by issuing equity securities, which we may not be able to do on favourable terms or at all. Furthermore, in the event that we incur new borrowings SUbsequent to the Listing, we may be subject to covenants restricting our ability to pay dividends. Our Company is a hoiding company and we conduct substantially all of our operations through our subsidiaries. Accordingly, an important source of our Income, and consequently an important factor in our ability to pay dividends on the Shares, is the amount of dividends and other distributions that our Company receives from our subsidiaries. The ability of our subsidiaries to pay dividends or make other distributions to our Company in the future will depend upon their operating results, earnings, capital requirements and general financial condition. In addition, changes in MFRS may also affect the ability of our SUbsidiaries, and consequently, our ability to declare and pay dividends. Furthermore, as we are a shareholder of our subsidiaries, our claims against our subsidiaries will generally rank junior to those of all other creditors and claimants of our subsidiaries. In the event of a SUbsidiary’s liquidation, there may not be sufficient assets after paying creditors and claimants for us to recoup our investment and this may have a material and adverse effect on our business, results of operations and financial position. For a description of our dividend policy, please refer to Section 12.7 of this Prospectus. 61 5. RISK FACTORS (cont’d) 5.2.4 The sale or the possible sale of a substantial number of our Shares In the public market following this IPO could adversely affect the price of our Shares Following the Listing, 70.8% of our enlarged issued and paid-up share capital will be held by ANM, the Selling Shareholder (please refer to Section 9.3 of this Prospectus for further details on ANM’s shareholding in our Company) and 29.2% of our enlarged issued and paid-up share capital will be held by investors participating in the IPO. Our Shares will be tradable on the Main Market without restriction following the Listing. While ANM and our Company have entered into lock-up arrangements as set out in Section 4.10.2 of this Prospectus, and in addition, our Shares held by ANM are subject to a moratorium as described in Section 10.2 of this Prospectus, it is possible that we may issue additional Shares after the end of the lock-up period in connection with financing activities or otherwise in the future, and it is possible that ANM may dispose of a substantial number of Shares in the market (or otherwise reduce its shareholding in our Company) after the end of the lock-up period and moratorium period. Further, as set out in Section 5.1.27 of this Prospectus, in the event that there is a change in the shareholding structure of ANM and/or AHSB after the moratorium period (e.g. following the distribution of the Shares held by ANM (the Selling Shareholder) pursuant to the shareholders’ agreement mentioned in Section 15.1 (iv) of this Prospectus) which would result in our Company having a different substantial shareholding composition, there can be no assurance that our substantial shareholders then will not reduce their shareholding in our Company pursuant to their own investment objectives. If ANM or any party sells or is perceived as intending to sell a substantial amount of our Shares or otherwise SUbstantially reduces its shareholding in our Company, the market price for our Shares could be materially and adversely affected.
5.2.5 There may be a delay in or failure of the Listing The Listing may be potentially delayed or aborted upon the occurrence of certain events, including the following: (i) we are unable to meet the public shareholding spread requirement under the Listing Requirements of having at least 25.0% of our Shares for which Listing is sought being held by at least 1,000 public shareholders holding not less than 100 Shares each at the point of Listing; or (iI) the revocation of the approval of Bursa Securities for the Listing and/or admission to the Official List for whatever reason. If the Listing is aborted, investors will not receive any Shares and the Selling Shareholder and our Company will return in full, without interest, all monies paid in respect of any application for our Shares. If any such monies are not repaid in full within 14 days after the Selling Shareholder and our Company become liable to repay it, the provisions of subsections 243(2) and 243(6) of the CMSA shall apply accordingly. In the event that the Listing is aborted and our Shares have been allotted to the shareholders, a return of monies to holders of our Shares could only be achieved by way of a cancellation of share capital as provided under the Act and its related rules. Such cancellation requires the sanction of our shareholders by special resolution in a general meeting, consent of our creditors (unless dispensation with such consent has been granted by the High Court of Malaysia) and the confirmation of the High Court of Malaysia. There can be no assurance that such monies can be recovered within a short period of time or at all in such circumstances. 62