Risk Factors

4. RISK FACTORS 4. RISK FACTORS
Before investing in our Shares, you should pay particular attention to the fact that our Company, and to a large extent our activities, are governed by the legal, regulatory and business environment in Malaysia and other countries in which we operate whether presently or in the future. Our business is sUbject to a number of factors, many of which are outside our control. Prior to making an investment decision, you should carefully consider, along with the other matters set forth in this Prospectus, the risks and investment considerations below. You should note that the following list is not an exhaustive list of al/ the risks that we face or risks that may develop in the future. Risks relating to the industry in which we operate 4.1.1 We are subject to global economic conditions Growing concerns over the slowing of China’s economic growth, and tapering of the United States Federal Reserve’s quantitative easing policy, could mean that global growth is unlikely to return to levels prior to the 2007’s global financial crisis in the next few years, depending on amongst others, the effectiveness of the economic measures put together by various countries’ government to stimulate the economy. Any further worsening of global economic conditions could reduce the consumption of good and services, impact the growth of international trade and ultimately reduce the demand for O&G and O&G related services. Declines in the global price of crude oil, may occur in the event of lower demand and/or excess supply of crude oil in global markets. The key drivers of lower demand include, but not limited to, slowdown in the economies of major energy consumer countries like United States, Europe and China, and use of alternative energy sources such as hydropower, solar, wind and nuclear energy. The key drivers of excess supply of crude oil include, but not limited to, new major discoveries of oil and gas fields, increased production of shale oil and gas, release of oil reserves, and higher production quota from producing countries, for example members of Organisation of the Petroleum Exporting Countries (OPEC). Decline in global price of crude oil is not cyclical but dependent on factors like supply and demand for crude oil and general economic, social and political conditions. As such, declines in the global price of crude oil, if any, may have negative effect on the long-term outlook of the marine transportation and storage of O&G in Malaysia as O&G industry operators respond to the decline in prices by reducing their long-term capital investment plans and exploration activities. For example, we may be adversely affected by, amongst others, cancellation of contracts, reduction in the number of new contracts secured and reduction in demand for ship or vessel construction. Whilst we continue to take effective measures such as prudent financial management and efficient operating procedures, there can be no assurance that any adverse macroeconomic conditions will not materially affect our operations. 4. RISK FACTORS (Cont’d) 4.1.2 We are dependent on the O&G industry which will ultimately affect the demand for our services as we are primarily an O&G support services provider We are principally involved in the charter of various types of tankers for the transportation and storage of O&G, charter of marine support vessels for the provision of port marine services mainly to O&G ports, and charter of OSV in the form of fast crew boats. For the FYE 31 December 2013 and five (5)-month FPE 31 May 2014, our total revenue derived from O&G trading companies were 43.6% and 43.8%, respectively, whereas the total revenue derived from O&G ports and refinery operators were 33.2% and 28.9%, respectively. As our revenue is currently mainly derived from the O&G industry in Malaysia, our operations are dependent on the level of activity as well as the level of capital spending in the O&G industry in Malaysia, which is mainly driven by government initiatives and PETRONAS’s long term strategies for the development of the O&G sector in Malaysia. In addition, the O&G sector is expected to be impacted by global factors such as changes in demand for and supply of oil, which in turn is determined by, among others, fluctuations in current and future crude oil prices, the number, size and location of oil fields discovered, the demand for and supply of alternative fuels or energy supply, the prices of alternative fuels or energy supply, changes in capital expenditure by customers in the O&G industry, and general economic, social and political conditions, (for example, further social! political unrest in the Middle East, global growth or recessions, among others). Consequently, the demand for our services may also rise and decline in tandem with these global factors. In the event of any slowdown in the O&G industry and O&G support services industry or in global or regional economic conditions, our operations and financial performance may be materially and adversely affected due to reduced demand for our vessels and services. 4.1.3 The O&G industry is subject to government regulations The transport of O&G at sea is subject to inherent risks such as, fire explosion, equipment defects, discharge of pollutants and oil spills, equipment failure, malfunction and/or misuse that could cause significant environmental damage, personal injury or loss of life and damage to our assets or other public and/or private assets. As such, the O&G industry, which we operate in, is heavily regulated by laws, regulations, and policies aimed to govern these risks. Additionally, our vessels are also required to meet relevant requirements such as shipping licences, safety certificates and compliance with a variety of international conventions issued by IMO, as well as any future changes in governing regulations, laws and policies. In general, laws and regulations applicable to the O&G industry have become more stringent with penalties and potential liabilities increasing over the years. Furthermore, there is no guarantee that the O&G industry will not be affected by future regulatory and legal changes which may include:­(i) New implementation or changes to current laws, regulations and policies;
(ii) Introduction of new laws, regulations and policies by authorities; and/or

(iii) Imposition of additional conditions to our existing licences, permits and registrations to conduct or operate in. Company No. 256516-W] 4. RISK FACTORS (Cont’d) The above could increase the cost of our operations or those of our customers and reduce the area of operations for the O&G industry, which could, in turn, reduce the demand for our services resulting in material and adverse effect on our operations and financial performance. To participate in the O&G industry in Malaysia, it is mandatory that appropriate licences are obtained from PETRONAS. As licencing is a critical factor in our industry, we constantly review our licences to ensure that we meet the requirements. We have not experienced any failure or rejection in the renewal of our licences which has materially and adversely affected our operations and financial position in the past. Notwithstanding the above, there can be no assurance that we will always be able to obtain or renew these licences in the future despite our best efforts. 4.1.4 We are subject to competition from local offshore O&G support service providers providing similar services We face keen competition from local offshore O&G support service providers providing similar products and services. The competitive factors include management’s capability and experience, availability of suitable vessels, established safety track record, financial strength, reputation of vessel operators and crew, technical ability and capability to construct ships in accordance with technical specifications as well as price and quality of services. Operators with a healthy financial position are more likely to retain and attract new customers. Potential customers commonly emphasise financial strength as a key criterion in evaluating of a prospective vessel operator or service provider as they would not want any disruption in their shipment and supply of products and services, particularly if the charter contracts are longer than one (1) year. Our competitors may have longer operating history and track record, greater financial, technical and marketing capabilities, larger asset base and/or access to better financial and technical resources compared to our Group. If PETRONAS were to change its policies by either increasing the number of licenced companies or allowing non-Malaysian companies to bid for these contracts, our Group would face increased competition, especially from new entrants. In order to remain competitive, we intend to grow our asset base and are expecting to complete the construction of six (6) additional new vessels by mid-2015 to service our contracts which we have secured (please refer to Section 11.3.5 of this Prospectus for further information of our contracts in-hand). Our in-house shipbuilding, ship repair and maintenance capability allows us to react to favourable market conditions, by way of constructing new vessels and carrying out regular maintenance and repair works· on our own. The regularity of maintenance will increase the lifespan of our marine vessels and inadvertently lower our operating costs and reduce the downtime of our vessels. Save for our FSU, which has an estimated lifespan of approximately ten (10) years from the time it was converted into FSU, the average life span of our other marine vessels is approximately 25 years. The frequency of maintenance will depend on the condition of each vessel. Our vessels typically undergo routine scheduled dry docking twice every five (5) years for our product tankers and tugboats, once every year for our crew boats and once every five (5) years for our FSU. In addition, we also undertake periodic maintenance based on the running hours of the vessels as well as ad-hoc maintenance of the vessels as and when required. Over the past three (3) years, the average downtime of our vessels is apprOXimately 22 days per annum including dry-docking, regular maintenance and repairs for accidents. 29 4. RISK FACTORS (Cont’d) Should our existing and/or new competitors offer services at a lower cost or engage in aggressive pricing in order to increase their market share, our turnover may be negatively impacted if we are unable to match their cost or aggressive pricing. Most of our charter contracts are traditionally awarded through competitive bidding process where we submit our tender based on the request of our customers. The pricing of the tender quote is determined after evaluating the indicative market price in the industry and all the related operational costs including crew cost, vessel operation and maintenance cost, depreciation and finance costs, mobilisation and de­mobilisation of vessels and charter in cost, if applicable. Our ability to continuously remain competitive in order to retain our existing customers and attract new customers is key to our Group’s operations and financial stability. However, there can be no assurance that we will be able to compete successfully against our competitors as well as new marketentrants in the future.
4.2 Risks relating to our business and our operations 4.2.1 Our business is subject to compliance with the licences, registration and certification requirements Our Group requires certain licences, permits and certifications to· operate. Please refer to Annexure A of this Prospectus for further information on our major licences and permits. In Malaysia, the operators or service providers who wish to operate in the O&G industry and provide services to PETRONAS or other licenced operators are required to possess the relevant licences issued by PETRONAS, without which, we are not allowed to participate in the bidding/tendering process. Our Group is also required to adhere and conform to the Malaysian legislation and international standards for safety management, operation as well as pollution controls. Any failure to maintain the standards may result in the cancellation of our present contracts, failure to bid or win new contracts, regulatory authorities imposing· fines, penalties· or sanctions on us, revocation of our licences and permits, or prohibition from continuing our operations, each of which could have a material and adverse effect on our business operations and financial position. There has been no cancellations of our present contracts or fines, penalties and sanctions imposed on our Group by regulatory authorities over the past three (3) years up to the LPD which has had an adverse effect on our business operations and financial position. We had however incurred a penalty for the late submission of building plan on the Hutan Melintang land for the amount of RM16,800 in January 2014. In addition, our licences, permits and certifications may be valid for certain periods of time where renewals are subject to our compliance with the respective requirements imposed by the relevant authorities. Failure to comply with the respective requirements at the point of renewal may result in our licences, permits or certifications to be suspended, revoked or not renewed, or our vessels may not be allowed to operate, hence materially and adversely affecting our operations and financial position. As such, there can be no assurance that our existing licences, permits and certifications will be renewed in the future. 4. RISK FACTORS (Cont’d) 4.2.2 We are subject to compliance of environmental regulations The O&G industry is subject to laws and regulations relating to environmental and safety matters pursuant to a variety of international conventions set out by Assembly of the International Maritime Organisation (“IMO”) such as:­(i) International Convention for Safety of Life at Sea (“S0lAS”);
(ii) MARPOL;

(iii) International Convention for the Seafarers’ Training, Certificates and Watchkeeping (“STCW”); (iv) ISM Code;
(v) International Ship and Port Facility Security (“ISPS”) Code; and
(vi) Maritime Labour Convention (“MlC”), which came into force in August 2014. However, our Group has received certification in respect of compliance of the MLC.

All of these conventions have been ratified by the majority of maritime nations, including Malaysia. Compliance with such regulations can require significant expenditure and any non-compliance may give rise to liabilities and result in the incurrence of cost to rectify such non-compliance including possible imposition of fines, penalties or sanctions, including revocation or non-renewal of our Group’s licences or registrations or prohibition from continuing our operations, each of which could have a material and adverse effect on our business and/or financial condition. There has been no such occurrence in the past three (3) years up to the LPO. Any discharge of pollutants into air or water may give rise to liabilities to governmental authorities and/or third parties which may result in the incurrence of costs to remedy such discharge. New implementation or changes to current environmental laws and regulations may expose us to liability for the conduct of or conditions caused by others, or for acts which we were in compliance with all applicable laws at the time such actions were taken. There is also no assurance that environmental laws and regulations will not result in a curtailment of production or a material increase in the costs of production and development or exploration activities which may in turn affect in our ability to charter our vessels to upstream O&G companies.
4.2.3 We are subject to weather and natural hazards Our vessels are also subject to weather and natural hazards. Adverse changes in weather and natural hazards such as the occurrence of monsoon seasons, typhoons and tsunamis in the areas where we operate may cause damage to our vessels resulting in delays or suspension in our operations. Our operations may experience disruption if any of our vessels suffer significant downtime. This may have a material adverse impact on our business operations and financial position.
4.2.4 We are subject to a number of contractual risks Our charter contracts are based on a OCR which has been agreed with our customers, subject to specific terms and conditions which includes minimum performance requirements. If we do not perform to our contract obligations, we may not be able to optimise our revenue or suffer· from reduced profitability on the contracts. We may suffer damage to our reputation Which will affect our future ability to secure new contracts. 31 4. RISK FACTORS (Cont’d) Contractual risks are inherent in our industry and include, but are not limited to:­Inability to maintain the condition of our vessels to the satisfaction of the charterer; and Inability to meet delivery performance requirements of our contracts which may result in potential penalties or liquidated damages. For example, if we are unable to achieve a guaranteed speed, certain compensation may be provided by us to the charterer, thus reducing our profitability. 4.2.5 Our charter contracts may be terminated upon the occurrence of certain events Our charter contracts are for varying periods of time. In line with industry practice, our charter contracts ordinarily contain clauses which could, amongst others, give the customer the right of early termination. Some of our charter contracts may be terminated under specified conditions, with corresponding compensation clauses and in certain cases termination may be due to causes upon the occurrence of certain events, such as non-performance, events of force majeure. loss or seizure of vessels or unavailability of vessels which could be due to, but not limited to, reasons such as confiscation or requisition by the government of the jurisdiction under which the vessels are registered and/or operate. As we operate in a competitive industry, with no assurance that the O&G industry will remain buoyant, our inability to maintain a strong orderbook may have material adverse impact on the results of our operations and financial conditions. Furthermore, there can be no assurance that the contracts in our orderbook will be executed and will generate sufficient revenue. The contracts that make up our orderbook as at the LPD amounted to RM1.283 billion (including optional extensions of approximately RM452.0 million). Given the forward-looking nature of our orderbook, the amount stated therein is not necessarily indicative of our future earnings. For example, we may not achieve our expected margin or we may suffer losses on one or more of these contracts, in which case our profit would be reduced. Any operational issues with the performance of our contracts, cancellation or delays could materially and adversely affect our business, financial condition and results of operation. 4.2.6 Our marine transport and support services are SUbject to operating risks Our contracts are usually structured to secure an acceptable return on the investment within the contract period, with a fixed period of contract and a further optional extension period. There can be no assurance that our vessels will achieve the returns expected due to technical risks, unforeseen operational problems,unexpectedly high operating costs, additional capital expenditure and penalty payments, accidents such as human errors, weather conditions, faulty construction, among other risks. The probability of our contract extension options being exeroised, new contracts being obtained, or the terms of new contracts being agreed may be negatively impacted by factors such as reductions in oil reservoir reserves, changes in vessel specifications. lower oil prices and reduced demand in port activity. When our contracts expire, or are terminated early, we may encounter difficulties re-deploying our marine vessels at existing charter rates, or re-deploying our marine vessels at all. Furthermore such re-deployment, if achieved, may require us to incur additional capital expenditure that may not be recoverable from our customers. In the event that we do not achieve adequate financial returns during our contract period or if, our contracts are not extended, or if our marine vessels cannot be re-deployed, our operations and financial condition may be materially and adversely effected. 4. .RISK FACTORS (Cont’d) Notwithstanding the above, it is pertinent to note that we usually meet our customers’ performance expectations and have our existing charter contracts with the option extension period extended for the duration of the option period in the past.  4.2.7  Our shipbuilding may face delay in completion of vessel  Shipbuilding process is a complex process that requires, amongst others, extensive technical capabilities, skills and know-how, forward logistical planning for timely delivery of raw materials, engines and equipment and construction of the hull and structures of a vessel including forward part, engine room, deck and transom block (back part of the vessel). Any unplanned delays arising from these and other factors may potentially affect the completion date for the vessel. As our shipbLiilding engages sub-contractors, as such, failure of our sub-contractors to complete their work based on an agreed time schedule may give rise to the delay. However, we are able to claim from our sub-contractors in the event of such delays, subjects to our contracting arrangements.  As our shipbuilding expertise and capabilities mainly serve as in-house needs, the risk to our shipbuilding operations and delay in expansion of our fleet is limited, as we have the option to commission external shipbuilders when we are faced with shipyard capacity constraints, or we can charter in third party vessels to ensure performance of contracts. Hence, any delay in the completion of vessels will not materially and adversely affect the business, financial condition and results of the operations.  4.2.8  We are dependent on major customers  We have entered into long term contracts with the PETRONAS Group being our major customer. For the FYE 31 December 2013 and the five (5)-month FPE 31 May 2014, PETRONAS Group, namely PETCO and Sungai Udang Port Sdn Bhd collectively accounted for 63.0% and 53.8% of our total revenue, respectively. Please refer to Section 6.15 of this Prospectus for details of the major customers’ revenue contribution for the respective financial years under review and the length of relationship with our Group.  .  The loss of contracts from PETRONAS Group, if not replaced, may adversely affect our financial condition· and results of operations. Nevertheless, our Group has established a· stable business relationship with PETRONAS Group since 1997. However, no assurance can be given that the loss of anyone or more of our major customers resulting from, among others, cessation of business relations or otherwise, would not have a material adverse effect on our business operations and financial conditions in the future.  We continue to serve our other customers and have undertaken various steps to expand our customer base. In July 2013, we secured a contract from Northport, a bulk and containerised goods port in Selangor, for a contract value of approximately RM260.0 million (including optional extension of approximately RM41.0 million). As at the LPD,the outstanding contract sum is approximately RM244.0 million (including optional extension of approximately RM41.0 million), representing 19.0% to the total outstanding orderbook of approximately RM1.283 billion (including optional extension of approximately 452.0 million). In addition, we foresee our business and customer base to grow in line with the expansion ·of our asset base as .well as shipbuilding capabilities, thus reducing our dependency on our major customers. Nevertheless, there can be no assurance that any loss of these major customers will not have any material adverse effect to our Group’s revenue of profitability.  33
~ Company No. 256516-W II 4. RISK FACTORS (Cont’d) 4.2.9 We require significant capital investment in our business and we are exposed to the risks related to capital funding In general, the O&G support services industry as well as the shipbuilding industry are capital intensive in nature. This is mainly due to high costs associated with the acquisition and construction of vessels. As at 31 May 2014, our total borrowings stood at approximately RM288.5 million, with a gearing ratio of approximately 1.5 times. This is mainly because of our business strategy of fleet expansion which has resulted in significant acquisition of vessels during the financial period under review. Our ability to service our debts and other contractual obligations will depend on our future operations and cash flow generation, which in turn will be affected by various factors, many of which are beyond our control. As we operate in a capital-intensive industry, we have historically required capital to acquire or carry out improvement work on our vessels and may require additional capital in the future to fund the acquisition or construction of additional vessels. Generally, expenditures necessary to maintain a vessel in good operating condition increases with the age of the vessel, but are difficult to predict with precision. As at the LPD, four (4) of our O&G tankers have an average age of six (6) years while two (2) of our O&G tankers, namely M.T. Princess Sofea (formerly known as M.T. Nautica Kluang) and M.T. Nautica Muar (which has been converted into a FSU) are significantly older at 22 years. For our marine support vessels such as harbour and utility tugboats, and mooring boats, the average age is approximately 4.4 years. Save for the FSU, which has an estimated lifespan of approximately ten (10) years from the time it was converted into FSU, the average life span of our other marine vessels is approximately 25 years. In addition, unanticipated changes in governmental regulations and safety or other equipment standards may require unanticipated expenditures for alterations or the addition of new equipment to older vessels. Consequently, our vessels may be dry­docked for longer periods of time or more often than planned in order to perform necessary repairs or modifications in order to meet such regulations. Generally, our vessels drydocking period ranges from two (2) to four (4) weeks depending on the type of vessels, which is in line with the industry average. For the past three (3) FYE 31 December 2011,2012 and 2013,and the five (5)-month FPE 31 May 2014, our Group incurred cost of dry dock of RM3.5 million, RM3.2 million, RM8.8 million and RMO.9 million, respectively. There can be no assurance that our vessels will not require extensive repairs which would result in significant expenses and extended periods of time during which these vessels would be out of commission. Such an occurrence could therefore have material adverse effects on our business,· results of operations and financial condition. We are also exposed to interest/profit rate risk, primarily from borrowings bearing variable interest/profit. As at 31 May 2014, approximately RM213.3 million or 74.0% of our total borrowings bear a variable rate of interest/profit whilst approximately RM75.2 million or 26.0% of our total borrowings bear a fixed rate of interest/profit. Changes in economic conditions could result in higher interest/profit rates, thereby increasing our finance cost and reducing our profitability and funds available to meet capital and operational expenditure or other purposes. Our Group’s ability to meet our payment obligations and to fund planned capital expenditure will depend on the success of our business strategy and our ability to generate sufficient revenues to satisfy debt obligations, which are subject to many uncertainties and contingencies beyond our control. 34 4. RISK FACTORS (Cont’d) 4.2.10 Maintenance and repair for our vessels and equipment may require substantial expenditure We are required to maintain our vessels and/or our equipment to certain standards and to maintain the certification of such vessels and/or certain equipment. Such maintenance may involve substantial costs and result in loss of hire, which may materially and adversely affect our business operations and financial conditions. Our operations are dependent on the operating efficiency and reliability of our vessels and/or our equipment in terms of operational worthiness and safety. Any unexpected breakdown or non-performance of vessels and/or equipment is difficult to predict and in the event of downtime, additional costs and losses may be incurred by our customers arising from the disruption of our workflow and scheduled activities and some of these costs may be passed back to us. Rectification of the breakdown or non-performance, depending on its severity, may also require replacement or repair of key components and there may be long lead times required in the procurement of these components. Such rectification on the affected vessels and/or equipment may require us to incur significant costs and may result in such vessels and/or equipment being out of service and being unable to generate revenue for us over extended periods of time. In such an event, we may be unable to meet our contractual obligations with our customers, which in turn may materially and adversely affect our reputation as well as our business operations and financial conditions. 4.2.11 We are exposed to acts of piracy Merchant ships or vessels run the risk of being targeted by pirates during a voyage, especially for ships that carry large quantities of high-value goods including CPP. According to the International Maritime Bureau, global piracy and armed robbery decreased from 297 incidents in 2012 to 264 incidents in 2013. This was mainly attributed to improved anti-piracy operations and security measures undertaken by the relevant authorities and vessel operators. Our Company operates within piracy prone areas. We have shipping insurance policies to ensure that we are compensated for some of the losses incurred in the event of piracy attack. In addition, we have adopted the necessary anti-piracy measures including installation of the press alert button. Further, GPS is installed to track down the vessels in the event of pirate attack. Our Group had encountered a pirate attack incident in 2011 where armed men boarded our vessel in the Straits of Singapore. With the assistance of Malaysia Maritime Enforcement Agency and Royal Malaysian Navy, the vessel was found within a few hours. There was no financial or operational impact to our Group. Although our risk could be mitigated through security arrangements and insurance, such arrangements may be unavailable, may only be available at increased costs or may prove to be insufficient. In addition, crew costs could also increase if piracy continues to be a risk. Detention hijacking as a result of an act of piracy against our vessels, or an increase in cost or unavailability of insurance for our vessels could have a material adverse impact on our business operations and financial conditions. 4. RISK FACTORS (Cont’d)
4.2.12 We are dependent on our key management as well as our ability to hire and retain skilled and specialised employees Our continued success will depend significantly on the ability, expertise and continued efforts of our key management. Having a team of experienced management staff and skilled personnel is critical in maintaining the quality of our services and our relationship with our customers. We operate in the O&G industry focusing on marine transportation services and offshore storage of O&G, which require trained and experienced crew, whilst for our shipyard operations we require naval architects and marine engineers. A high turnover of such personnel would adversely affect our operations and competitiveness. Our success is also dependent on the continued efforts of our key personnel, in partiCUlar, Dato’ Hak, our Managing Director, who has more than 20 years of experience in the shipping and O&G industry, and has built credible networking relationships within these industries, which we leverage on. Since 2006, our Company has entered into a service agreement with Dato’ Hak for services rendered to our Company for a fixed term of three (3) years and sUbject to a three (3)-yearly term renewal. In 2012, his service contract was renewed for a fixed term of three (3) years commencing from 1 January 2013 until 31 December 2015. Upon expiry on 31 December 2015, our Company has the option to renew his employment tenure. Our Managing Director, together with other key management are instrumental to our Company’s growth and expansion. Accordingly, any loss of these key personnel without suitable and timely replacements and an inability to attract or retain qualified and suitable personnel would have an unfavourable impact on our business. Recognising the importance of our people, we will continuously develop and implement appropriate measures so as to attract and retain our key personnel. We have in place a management succession plan to groom and develop in-house talent in preparation for our long-term expansion. However, there can be no guarantee that the above measures will be successful in attracting and retaining key personnel or ensuring a smooth transition should changes occur.
4.2.13 We are exposed to risks relating to growth and expansion Our future operating results will depend on our management’s ability to manage our growth, which includes recruiting and retaining qualified employees, controlling costs and expanding our fleet of vessels and facilities and their capacity utilisation. As part of our future plans set out in Section 6.21 of this Prospectus, we intend to invest in new vessels and our shipyard operations. Further, we may invest in new business ventures relating to the provision of marginal oilfield solution as disclosed in Section 6.21.4 of this Prospectus, however we do not foresee the amount to be significant as we are still at the planning stage as at the LPD. Any such expansion carries with it, inherent risks and uncertainties and requires significant management attention and resources and may not yield the results we expect. Although we endeavour to exercise due care in assessing the risks and merits of investing in new ventures, there is always the potential risk that the return from these investments may require longer than expected payback period or such business venture may fail. 4. RISK FACTORS (Cont’d) There is no assurance that our business expansion will be successful or lead to an increase in our profits. Our expansion could also result in an increase in the fixed costs of our operations. Our ability to maintain or increase our profitability will continue to depend, in part, on our ability to generate increasing revenues and to maintain or increase the utilisation rates of our facilities and vessels. In addition, the growth of our operations will place additional demands on our management team, our in-house design and technical teams, and our ,procurement and financial reporting. The expansion of our operations will also require significant attention from our management and other human resources and may divert such resources from other aspects of our business. We may also not be able to find qualified high-level management to oversee our expansion into new markets or to find managers who will understand and be able to integrate into our corporate culture. There is no assurance that our profitability will increase significantly or that we will generate sufficient returns to offset our capital expenditure for our growth and operations. 4.2.14 We may have inadequate insurance coverage The operation of our vessels involves inherent risks such as oil spills, damages to and loss of vessels and cargo sustained in collisions, property loss and interruptions to operations caused by adverse weather and environmental conditions, mechanical failures and crew negligence. The occurrence of any of these events may result in damage to or loss of our vessels and our vessels’ cargo or other property and injury to passengers and personnel on board. Such occurrences may also result in a significant increase in operating costs or liability to third parties. In addition, concerns about other factors (including hijacks or attacks), have caused significant increases in the cost of insurance coverage and may result in higher insurance premiums and in turn, higher operating costs in the future. We are also susceptible to various operational risks for our shipyard operations, such as accidents, riots and pickets, power shortage, outbreaks of fire or floods and/or other natural disasters, which may cause disruption and/or loss of damage to our shipyard facilities and equipment. Any occurrence of any of these accidents and outbreaks may disrupt our business operations. While we have insurance coverage for various aspects of our business, due to the high risk nature of the industry in which we operate in, such insurances will have limitations on liability that may be insufficient to cover the full extent of such liabilities. There may also be some risks which are not insurable or, in certain circumstances, we may elect not to insure a specific contract due to high premium associated with such insurance or for other reasons. If we incur substantial liability and the damages are not SUbstantially covered by insurance or exceeds the insurable limit or we are unable to obtain or have not obtained insurance, our financial standing could be materially and adversely affected. As more stringent environmental and other regulations may come into force, insurance against the new degree of risks may not be available at commercially reasonable rates, or at all. Even if certain risks are covered by insurance, there can be no assurance that such insurance will be available in the future. 4. RISK FACTORS (Cont’d) 4.2.15 Our cash flow may be adversely affected by delays in collection or non­recoverability of trade receivables Cash flow constraints may arise due to delays in collection or non-recoverability of trade receivables. This may affect our ability to pay our suppliers and potentially affect our operations which may have a material and adverse effect on our financial position. We generally grant credit terms to our customers, and are therefore exposed to potential payment delays and default by such customers. There is no assurance that we will be able to collect such debts on time, or at all. If our customers experience cash flow difficulties or a decline in their business performance, they may default in their payments to us. Further, during economic downturns, our customers may be materially and adversely affected financially and the possibility of defaults in payment to us may be greater. As a result, we may experience payment delays or in more severe cases, non-recovery of debts from our customers. We would then have to make provisions for doubtful debts, or incur debt write-offs, which may have a material adverse impact on our financial results. 4.2.16 We may be adversely affected by any change in the current taxation regulations in the jurisdiction in which we operate Any changes in the current tax regime and/or laws, rules and regulations pertaining to the taxation of companies, or the interpretation thereof, which have a retrospective, current and/or prospective effect, will affect the tax paid or payable by us arising from a tax reassessment on our financial results. Currently, under Section 54A of the Income Tax Act, 1967, income arising from the business of transporting passengers or cargo by sea on a Malaysian ship or from letting out on charter of a Malaysian ship on a voyage or time charter basis such as our product tankers is exempted from tax. A Malaysian ship is defined under the Income Tax Act, 1967 as a sea-going ship registered as such under the Merchant Shipping Ordinance, 1952 which excludes ferries, barges, tug boats, supply vessels, crew boats, lighters, dredgers, fishing boats or other similar vessels. Further, in Malaysia’s BUdget 2014, the Government stated that the sales tax and service tax will be abolished and will be replaced by the Goods and Services Tax (G~), which will be effective from 2015. The Malaysian Goods and Services Tax Act 2014 was gazetted on 19 June 2014. The GST will be applied to all goods and services unless they are not within the scope of GST. GST is to be charged and levied on supply of goods or services made or provided in Malaysia, such as marine transportation and supporting services. We cannot at this point of time ascertain the actual impact of GST on our business, however, our preliminary views are that the impact will not be material as any input tax (GST charged on the purchase of goods and services used in the business activities) should be offset against output tax (GST charged and collected on sales/supplies of good and services rendered). 4. RISK FACTORS (Cont’d) 4.2.17 We are exposed to risks arising from foreign exchange fluctuations Our revenue is mainly denominated in RM save for some charter contracts that are denominated in USD. This foreign cu’rrency revenue accounted for 10.8% and 22.7% of our revenue for the FYE 31 December 2013 and the five (5)-month FPE 31 May 2014. As at the LPD, we have four (4) contracts with outstanding contract sum of approximately USD79,4 million (excluding extension option period). These four (4) charter contracts (excluding extension option period) will be completed between 2017 and 2019. Further, some of our purchases are denominated in foreign currencies, which include USD, SGD, EUR and JPY, and accounted for 11.2% and 10.5% of our total purchases for the FYE 31 December 2013 and five (5)-month FPE 31 May 2014, respectively. As our reporting currency is in RM, we are also exposed to foreign exchange fluctuations in the event of mismatches between the amount and timing of receipts and payments in foreign currencies. To the extent there are any such mismatches, a significant fluctuation in the applicable foreign currencies against the RM arising from such timing differences, may result in us incurring foreign exchange losses. Based on the past three (3) FYE 31 December 2011, 2012 and 2013, and the five (5)-month FPE 31 May 2014, our Group’s profitability and financial position has not been materially affected. Please refer to Section 11.3.4 of this Prospectus for the historical impact of foreign exchange fluctuations on our profitability. 4.2.18 An adverse judgment or settlement in respect of any future claims against us could have an adverse effect on our financial condition and the results of our operations The operation of our vessels involves the risk of accidents and other incidents that may lead to claims against our Group. An adverse judgment or settlement in respect of any future claims against our Group may lead to negative publicity about us and adversely affect our reputation and customers’ perception of our safety record as well as have a material and adverse effect on our cash flow, financial condition and results of operations. 4.3. Risks relating to our Shares 4.3.1. There has been no public market for our Shares There has been no public market for our Shares. 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 IPO Price depending on many factors, including prevailing economic and financial conditions in Malaysia, our operating results and the markets for similar securities. In addition, the market for securities in emerging markets has been subject 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 holders of our Shares. 4. RISK FACTORS (Cont’d) . 4.3.2. There may be a potential delay or failure of the Listing The occurrence of anyone or more of the following events, which may not be exhaustive, may cause a delay in our Listing or our Listing to be aborted: (i) the identified investors fail to subscribe to the portion of IPO;
(ii) our Underwriter exercising their rights pursuant to the Underwriting Agreement to discharge themselves from their obligations thereunder; or

(iii) we are unable to meet the public spread requirements as determined by Bursa Securities Le. at least 25% of our enlarged issued and paid-up share capital must be held by a minimum of 1,000 public shareholders holding not less than 100 ShC!res each at the point of Listing. In the event of a failure of our Listing, all monies paid in respect of any application accepted from you will be returned in full without interest within 14 days, failing which, the provision of sub-section 243(2) and 243(6) of the CMSA shall apply accordingly. Nevertheless, our Directors will endeavor to ensure compliance with the various requirements for our successful Listing. 4.3.3. Our Share price and trading volume may be volatile The market price of our Shares may fluctuate as a result of 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. In addition, many of the risks described elsewhere in this Prospectus could materially and adversely affect the market price of our Shares. Accordingly, there can be no assurance that our Shares will not trade at prices lower than the IPO Price. Over the past few years, the Malaysian, regional and global equity markets have experienced significant price and volume volatility that have affected the share price of many companies. Share prices of many companies have experienced wide fluctuations that have often been unrelated to the operating performance of those companies. There can be no assurance that the price and trading of our Shares will not be subject to such fluctuation in the future. 4.3.4. We may not be able to pay dividends Dividend payments are not guaranteed and our Board may decide, at its sole and absolute discretion, at any time and for any reason, not to pay dividends. If we do not pay dividends, or pay dividends at levels lower than that 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. As a result, we may be required to borrow additional money or raise capital by issuing equity securities, which may not be possible or may not be on favourable terms or at all. Further, in the event we incur new borrowings subsequent to the Listing, we may be subject to covenants restricting our ability to pay dividends. 4. RISK FACTORS (Cont’d) 4.3.5. Continued control by our Promoters may limit your ability to influence the outcome of decisions requiring the approval of shareholders Following the Listing, an aggregate of 375,000,000 Shares representing 74.4% of our enlarged issued and paid-up share capital will be held by our Promoters, and 126,000,000 Shares, representing 25.0% of our enlarged issued and paid-up share capital will be publicly held by investors participating in our IPO. As a result, they will be able to, in the foreseeable future, effectively control the business direction and management of our Group as well as influence the outcome of certain matters requiring the voting of our shareholders, unless our Promoters are required to abstain from voting by law and/ or by the relevant guidelines or regulations. Nevertheless, as good corporate governance, we have appointed four (4) independent Directors and established an Audit Committee to ensure all future transactions involving related parties, if any, are entered into on an arm’s-length basis or normal commercial terms that are not more favourable to the related parties than those generally available to third parties and not to the detriment of our minority shareholders. 4.4. Other risks 4.4.1. Forward-looking statements are subject to uncertainties and contingencies Certain statements in this Prospectus are based on historical data, which may not be reflective of the future results. Other statements, including, without limitation, those regarding. our financial position, business strategies, prospects, plans and objectives of our Company for future operations, which are forward looking in nature, are subject to uncertainties and contingencies. Although we believe that the expectations reflected in such forWard looking statements are reasonable at this time, there can be no assurance that such expectations will sUbsequently materialise. Their inclusion in this Prospectus should not be regarded as a representation or warranty by our Company, the Promoters, Selling Shareholders, Principal Adviser or any other advisers that the plans and objectives of our Group will be achieved. THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK

 

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