Risk Factors

Applicants for the Offer/Issue Shares should carefully consider the foHowing factors, wh.ich may not be exhaustive and which lnay lk1ve an impacl 01\ l.he future perfonnance of lhe Comp,Uly, in addition to the oilier information contained elsewhere in this Prospectus, before applying for die Offernssue Shares: (i) No priur markl’1 for MSW Shares Prior \0 this Offer for Sale and Public Issue, tIlerc has been no public market for MSW Shares. There cnn be no assurance that an active market for MSW Shares will de\’elop upon MSW’s listing on the Main Board of Bursa Securities or, if developed, that such market will be sustained. TIle offer/issue price of RMI.30 per Offer/Issue Share has been determined after taking into consideration a number of factors including, but nOI limiled to, the Company’s operating and finandal history and conditions, ils prospects and the prospects of the industry III wroch ule Company operates, the management of Ute Company :md the pte\’ailing market conditions prior to the issue of this Prospectus. TIle price at which MSW Shares n;!Ilmde on t.he Main Board of Bursa Securities after the Offer for Sale and Public lssue may be influenced by a number of factors, including the deptll and liquidity of the market for MSW Shares and investors’ perception of MSW. There can be no assurance that the offerlissue price will correspond to the price at which the MSW Shares will trade on the Main Board of Bursa Securities upon or subsequent to its listing or tl1llt lUI active market for tl1e MSW Shares will dcvelop and continue upon or subsequent to i1s listing. (ii) Control by subSI:ultial shareholders Following the Offer for Sale and Public Issue, the substantial s.hareholders of MSW. namely SSCSB, Tai Ho Seng, Rooly bin Aziz, Dato’ Hamzah bin Mohd Salleh and Senator Data’ lkhwan Salim btll Dato’ Haji Sujak collectivel)’ bold approximately 61.99%1 of the Company’s elllarged issued and paid-up share capital. The afOfCStlid .shareholders, if the}’ act together, may be able to influence the outcome of ceTl<tin matters requiring the vote of the Company’s shareholders unless \.hey arc required to abstain from voting by law and/or by the relevant authorities. (iii) Business risks MSW is subject to certain risks inherent in the steel manufacturing industry. These include increase in costs of lllOOur and raw materials, labour and raw tlmteriat shortages, changes in general economic, business and credit conditions aoo fluctuation In foreign exchange rates, Although the Company seeks to limit these risks through, inter-alia, purchasing ITom repulable international suppliers and trading houses, optimising diversification of suppliers, maintaining long-l.enn business relationships with its suppliers and cuSiomers, increasing aulomatioll to reduce reliance 011 malluallabour and investing in modem high tcclmology equipment, no assurance can be given that any changes to these metors will llO{ have a material adverse effect on the Company’s business. (h’) Political and economic considerations MSW’s business activities are focused mainly in Malaysia. Any advcrse developments in the political and economic environment and any uncertainties in Malaysia may materially and adversely affect the financial performance of the Company. These include risk of war, global economic downturn and ullfavourablc changes in the Malaysian government’s policies such as changes in interest rates, methods of taxation, excbange cOlltrols or the introductioll of new rcgulations. There can be no assurance that any change to these factors \vill 1I0t have a malerial adverse effecl on the business of the Company. IV. RISK FACTORS (CONT’D) (\”) Fortlgn exchange nuctuation risk MS \V is exposed 10 foreign exchange fluctuation risks as some raw materials and spare parts for its machinery ate imported from overseas and are tr.rnsacte<! in USD. The imposition of CUrfellCY controls via the pegging of the RM to USD at the fixed exch,mge mte ofUSDI.OO to RM3.80 by Bank Negara Malaysia since September 1998 has stabilised the risks arising from foreign exchange fluctuation. There can be no assurance that the currency controls will remain and that future foreign exchange fluctuation arising from the lifting of the currency controls or lhe adjustment of the RJvf to USD peg will not adversely affect the financial results of the Company. (\i) Competition lbe steel industry is highly competitive in tenns ofproduct quality, service, timeliness of deliyery and price and the Company faces competition from boIh the local and foreig.n competitors. Although MSW has had long busilless track record since 1971 and its proximity to the market provides a competitive edge, there can be no assurance that the Company will be able to maimain or increase its existing market slUlre in the future. (vii) Iml);lct of AFTA According to tlle MISIF Report 2003, with the initiation of the Common Effective Preferential Tariff scheme under the AFTA, tariffs on steel products was reduced to a range of 0% to 5% froUl I January 2003. Although competition among steel producers is expected to intensify under the AFTA, the market. Hber3lisatioll of the steel indusby is expected to present opporlllnities to efficient steel manufacturers to increase their market shares both domestically and regionally if the)’ are able to emerge as low cost producers muler tllC AFTA regime. Presently, MSW has the advantage of having its own steel billets plant and employing the modem tccJUlology adopted from Germany and Switzerland in its manufacturing process. As a result of the above, MSW has been able to reduce its production costs and hence increases its cost competitiveness. Since the coming into effect of AFTA on 1 January 2003, there has been no significcU1t impon of steel products from oUler Association of South East Asian Nations (“ASEAN”) countries into Malaysia. In addition, MSW’s products which meet both the Malaysian and British standards and are of export quality, have enabled MSW to penetrate the ASEAN markets with the implementation of AFTA since January 2003 and resulted in additional sales (or tlle Company. However, lIlere is no assurance that lhe ifl11uence of AfTA will not have any adverse effect on the Company’s business and financial conditions in the future. (viii) Dependence on key p~rsonnel MSW believes that its col1\inued success will depclld, lo a significant extent, upon the abilities and continued effons of its existing Directors and senior management. The loss of any of its Directors or key members of the senior management could adversely affect the Company’s performance. The Directors of MSW recognise the imponancc of the Company’s nbility to attract and retain skilled persoilllel and hence h<l\’e in place a human resource strategy as wdl as a structured management SIIccession plan. Effons are also made (0 groom the existing staff members to funher support the senior management <Uld/or to shoulder furtJler responsibilities in prepararioll (or long lerm expansion. In addition. the Company’s middle mauagement team is constantly exposed to various aspects of its business i.n order to ensure that tlley understimd the Comp<UlY’s businesses and are adequately equipped with lhe knowledge necessflry fOT them to assume senior management positions. However, 1I1ere can be no assurance lh3t the above measures will always be successful in retaining key personnel or ensuring a smooth transition should changes occur. lV. RISK FACfORS (CONT’Dj (ix) Pricing and availability of raw materials TIle price of scrap metal ,,,hich is the main raw materml (or billet production is dependent upon the world’s demand and supply and is a commodity traded based on the rates quoted on th,= London Melal Exchange. A shonage of supply may increase the prici.ng of scrap metal and vice versa. MSW has established long lenn relationships with an extensive network of dealers and is able to source the scrap metal at competitive prices. Nonetheless, there is no assurance that the Company will be able to continually source the scrap metal at competitive prices or tllilt an increase in the price of scrap metal will not have a material adverse effect on the business or (UlUre earnings of the Company. TIle main raw materials used by MSW are scrap mClal, alloy additives lind lime. TIle billel plant’s requirement for scrap meta.l can be sourced both locally and abroad Scrap mctal is :lVailable in (he inleOlatiollal market 3S a basic commodity and is usually sourced from developed “od industrialised countries where steel consumption is high. To-date, MSW has not ellcounlered any shortage in the supply of scrap metal as the suppliers have been able to meet MSW’s requiremenl. However, there is no assurance that MSW’s operations will not be adversely affected if MSW is unable to obtain adequate supply of scrap met.al or on viable commercial terms to MSW. (x) Gm’el”llment regulatiolls TIle sleel manufacturing indusu;.’ is regulated by tIle MIn and MIDA The local steel industry presenlly enjoys tariff protection by the governrnellt in l,he form of customs import duty and approval permits on imponed billets and steel bars. NonetIleless, there can be no assurdflce thill the lariff prolection by the government will remain and Ihm the future price of the imported billels and steel arising from tlle lifting of the tariff protection by lhe Malaysian Go\’ernmenl will not have any adverse effect 011 the Compan,r’s financial performance, (n) Dellenden« on ,on”ru,lion ..,d ;nf,.,lruCloro ‘ttlnr MSW manufactures high tensile roond and defonned bars which are mainly used in the construction and infrastructure sectors. As such, l.he demand for MSW’s products is dependent on the prospects of the construction industry, which in tum, is affected by the general economic conditions in Malaysia. The cOllstructioll sector is forecast 10 incr~se by 1,8% in 2005, contributed panly by the civil-engineering sub-sector, following the implementation of lJe\Y and on·going infrastructure projecls Stich as the Phase Two of the East Coost Highway and Tanjung Bin Power Station ill Johor. The housing sub-sector is also envisaged to remain robust, underpilmcd by higher incomes, low interesl rates and easy access (0 loans (Sourc-e: Economic Repvrt 1(0412005). However. there can be no assurance that lhe grov.1h in the constmction industry can be sustaincd and that any change will not have a material adverse eITect on the business ofthe Company. (xii) Domestic borruwings The Company’s total 10llg·lenll and shorHenll borrowings as at 7 January 2005 amowllS to RMll6,21 million. AU the borrowings of the Company are interest bearing. As SUCh, OilY increase in inlerest r,ltes will increase the burden of tile Company with respect to interest payments of the borrowings depending on the total outslanding borrowings as at the point in time. Therc can be no assumnce that the performance of the Company would remain favourable in the event of adverse changes in thc imerest rate, IV. RISK FACTORS (CONT’D) (xiii) Openltiumll risks The Company faces certain operatiorol risks wruch are inherent in the n14Ulufacturing indmuy which include. amongst Olhers., disruption ofelearicity supply and fire ha7ards. As all of the production processes lm carried out at Its factories in Pet3ling Jaya and Buldt Raja. uninterrupted electricity supply is ess..'”tlool for the smooth operation of the nt.’\Chineries.. As a backup plan. Ute factor)’ in Boot Raja has a generator “ith a capaciJ:}’ of I Mega Voll Ampere which is c:ap.”ble of generating SOO Kil0\\3Us of clcclricity supply as and when required. The elearicit)’ supply generated by the b;ICkup generator is sufficient 10 complete the ongoing production cycle. As an additioual mitigating measure. a minimum buffer stock of billets of up to 7 days is maintained at the Bukit Raja £”tCtOI)’ to ensu.re th.1t the production of steel bars at the Peta1ing Jaya factory is not disrupt.cd. At the Petaling Jaya faetol’}’, in order to mitigate the risk of dectricity supply disruption, buffer stock for up 10 7 days is maimained 10 ensure the supply of steel bars to its customers are not signifiQmtly affected. As the steel manuf.1eturing process involves the use offumac:es to generale IlCal for the melting of scrap metal and billets, there ~ a rist of potential fire hazard. Both the Company’s factories are well equipped \\ith sprinkler systems and other fire fighting equipment !Klch as fire extillb’llishers and hose reels. Employees are also trained on the use of these equipment as weIl as basic fire-fighting techn.iques and regular fire drills are jointl)’ conducted ammally \’lith the Fire Department. llus is funher supplemented with annual inspections by the Fire Department 11)C Boord of Directors is of the “iew mat the opemtions of UM: Company will not be materially affected by disruptions in electricity ~pply as weU as occurrenCes of fire due to the mitigating measures thaI are in place. Save for the above, the Board of Directors are not aware of any operational risks which nilly have II material adverse effect on the opern1ions or financial perfonnance of the Company. While the Board of Directors has taken all reasonable steps to mitigate the operational risks as described above. lJ-.ere can be no assurance that the above measures taken will be adequate in the e\’enl of a disruption in eleetridly supply or fire and thm it \\il1 not have a material adverse effect on the Company’s business. (xiv) TNB Spcria.llndustry Tariff 011 17 November I99?, MSW enlered into an agreement wilh TNB for the supply of electricity 10 its billet plant located at Tapak Lot 2 (Part of LOl 13(39), Kawasan Perusaha.’U1 Bukit Raja, Selallgor Daml Ehsan (“Bukit Raja Platt!”) upon the tenns and couditions set out ill lite agreement (“TNB Supply Agrcemeltf’). Under the terms of Ihe TNB Supply Agreement, the applicable tariff rates ror MSW is E3 which is al a rale of Rl\<t20.80 per Kilowatt per montlt for maximum demand charge, RMO.198 per Kilowatl per hour during peak period and RMO.I 18 per Kilowan per hour during off-pe.1k period. As an incentive to high volume users of electricity, preferential rates Wider E3S rSpeci~1 Industry Tariff’) at M116.20 per Kilowatt per month for maximum demand charge, RMO.178 per Kilowatt pel hour during peak period and RMO.098 per Kitow~lII per hour during off-peak period may be granted by TNB 10 such users on application subject to, amongst others, an applicant compleling an appendix 10 evidence thai such applicant’s electricity usage equ.als or exceeds 5% of the applicant’s lotal cost and such appendix. is required to be verified br a finn o( mdependent auditors. MSW’s Bukil Raja Plant has fulfilled the crileria 10 qualify for the Specialll.lduslry Tariff as the COSI of consumption of electricity exc<:cds 5% of the aggregate of the COSIS of goods sold and operating expenses of the Bulat Raja Plant MSW has made the relevant applications to TNB and TNB had grdJtted MSW the Special Indusuy Rate since January 1999 up to 31 December 2004. The approval ror Lhe Special Indlli,1I)’ Tariff is required LO be SOUghl annually from TNB. Nonetheless, there can be 110 assurance thaL TNB will coluinu: 10 gram fl,·ISW tbe Special Indusuy Tariff inlhe future or impose more slringent qualifications for Ihe Special lndUSlJ)’ Tariff and lhat such events will nOl have a Il13teriaJ ad\-etse effecl on the Company’s financial perfonnance. lV. RISK FACTORS (CONT’Dj (;\:\’) Setilemcnl nfTNB ;lrrellrs On 13 September 2004, MSW entered into a Deed of Settlement with TNB (“Deed of Settlement”) wherein TNB has agreed 10 accept MSW’s proposal 10 settle the outsral’Kfing sum of Rlv137,975,995, being Ute arrears Ul electricity bills (“Anears”) subject to terms and conditions therein contained, inchtdlltg bUl not Imliled 10 the foHowing’ (a) settlemem of lhe Arrears via 15 mOAl.hly inslahnents commencing from 15 August 2004 in accordance with the prescnbed repayment schedule~
(b) in the event of default the Arrears less any amouni ”’lid as at the date of breach shall immediately become payable and TNB shall have the riglu to take legal action ag;:liost MSW for the recovery theroof if MSW fails to remedy any breach “\\’ithin 14 days from receipt ofTNB’s notice of such breach; :’lnd
(c) the parties have agreed lhat the Deed of Seulemenl slull not prejudice the rights of TNB arising from the TNB Supply Agreement dated 17 No\’ember 1997 andfor the Licensee Supply Regulation 1990 C’lhe Regulalion”), ~hich inter alia, inclndes the right 10 disconnect supply of electricll)’ (0 MSW in U’C’ event of an)’ breach of the tern,s and conditions of Ihe Deed of Settlement and U”,t TNB shall have Ute riglu to impose surcharge against the Arrears 3moum as stipulated in the TNB Supply Agreement dated 17 No\’cmber 1997 audlor the Rcgulallon.

As at 7 January 2005, MSW’s settlement of the instalments are up Iodate and no e\’cnt has occurred y,hich may result in any breach of the teons of thc Deed of SetllcrnenL Howev-er, there can be 110 assurance that MSW’s ope.mlions and financial performance will not be mnle.rially and advcrsely affected in the event TNB exercise lIS rights pursuant to the Deed of Settle.mem upon any breach of the lcrms and conditions of the Deed of SeulemenL (x\’i) Cef1lrteale of Fitness for OcCUltation (“CP’) As al the date hereof, tbe Company’s office and faclory buildings located at the Sukit Raja Indllstrial A,e.l ill Klang, Sclmtgor DaruJ Ehsnn has not been issued wirn a CF. An application Y,~IS made on 14 June 2004 to the Klang MWlicipaJ Council (“Council”) for the issuance of a CF after I..he tcons and conditions of the CmUleH’s leuer dated 5 September 1997 have been fully compiled with. TIte Board of Directors \\;11 undertake to comply \\lth further conditions, if any, laid down by the relev::tnl 3urnorities to facilitate the issuance of the CF. However, there ClIn be no assurance that the CF for LIte said property would be obtained. (x\’ii) AtlcqUllC)’ of insunmcecove”‘d~oeun the Company’s assct~ The major assets of Ule Company are its manufacturing facilities which include inler-alia, building, plaut and machinery, electncal installation, compUlers as well as stocks located within UlC r.,etories, The types of insurance CO\-erdge taken by the Company includes. 001 are nol. limited to, fire, fire consequential loss, machinery and equipmcnt. group person.11 accidettt, public liability and fidelity guarantee. Although the Company has taken the necessary measures to insure its lWCI.S adequately, there can be no assur.mce lhat \he insurance covernge woold be adequate for the rep1aceIocut COSt of the assets or any consequenUailoss arismg from the damage or loss of the 3SSC\S. IV. RISK FACTORS (CONT’D) (:n’iii) Re.stricti\'(~ connanh under credit facility llIgreements MSW has credit facilities amoUluing to RM2UO,60 million granted by vanous local financial institutions., out ofwhich an amount of RM116.21 million is outstarubng:iS at 7 January 2005, These credit facilities have various cO”cnants thal may limit the: Company’s operating and financial fle:dbiliQ’ in that the prior wnUen consent of lhe relevant financial institutiollS would ha\’e 10 be obtain~d. Any breach of these co\’cn<lnts commonly contained in such facility agreemenls noy give rise to a ngfll by the ronk to tenninate andlenforce any security granted in relation to the facilit}· given, Pursuant to the Listtng, the consenls of the fwancial institutions are required for. inler-alia, the followmg: (a) ch’lnges ill its major sharcholdm or ill the shareholdings of the major shareholders;
(b) declare or pay dividend or bonus issue or make any dtstnbution of share capital in any )’C3r or change its directors.
(c) amendments (0 the Memontndum and Artieles of Association;
(d) changes in the senior management and the composition of its bo3rd of directors: and
(e) alter-uion to the authorised or issued capital of lhe Company.

TIle management of MSW is aware of the covenants and is laking all precautions neccssaIy to pre\’ent such breaches aud has wTiuen 10 tJle banks to seek tbeir consenlS. Save for Bank Islam Malaysia Bcrtli\d which has oot consellled to waive the restriction on declaration of dividend, the fironcial institutions have reverted and gi\’en their consent subject 10 the condition that the sharcllOlding of SSCSB in MSW shall not be diluted to below 38% against irs present share-holding in MSW. Ne-vcnheless, as a mitigating factor, MSW is in a position to seek altenlativc facilities from olher sources should the remaining financial institutions refuse consent. However, there can be no assurance lhat new credit facilities that may be procured by Ihe Company would nOl have restriclive covenants thai lila)’ limit the Company’s operating and fimmcial Oexibility or mat U” existing provisions in existing facilities can or will be varied to relax or remove all or any of such reslJictivc covenants. (xix) Profit estimate and forecast This Prospectus contains the profiL estimate :md (orecast of MS W for the financial year ended 31 December 2()04 and the financial year elldil\g 31 December 2005 that have been prepared based all assumptions which the Directors of MSW believe to oc Te'”.l5Onable. However, these assumptions are subjecl to uncert;wtties and contingencies. Owing to the subjeclive Judgements and inherent uncenainties underlying the profit estimate lind forecast and given thai events and circumstlnces frequently do not occur as expected, there can be no assurance ID31 the estimate and forecast contained herein will be achieved and actual results Jll;ly be materially different from those estimated and forecasl Investors are deemed io have read and understood the assumptions and uncertaimies ullderlying lhe estimate and forecast contained herein. (u) failure/Dela)’ in the listing exertise The listing exercise is also exposed to the risk tllat 11 m,’ly fail or be delayed should the following e\’ents OCCllT’ (3) The eligible Directors and employees., customers and suppliers of I\1SW fail to subscribe for the portion of Issue Shares allocated to them;
(b) The Company is unable to meet the public spread requircmems i.e. at least 25% of the ISSUed and paid-up capital of the Comp;.lIly must be held by a minimum number of 1,000 public shareholders holding not less th:U1 100 shares each upon completion of the Offer for Sale and Pubhe Issue and al the point of listing;

IV. RISK FACTORS (CONT”D) (C) TIle Unden’ifiter fails 10 honour its obligations under the UndenHiting Agreement; and
(d) The bUlIIiputera inveslOJs approved by the MITI fail to lake up the portion of the Offer Shares allocated to them.

(ni) FOnl-‘arlllooking statements Certain statements in alis Prospectus are based on historical data which may not be reflective of the future results, and others are fonvard-looking in nature wh.ich are subject to utlccrt.1inties and contingencies. All forward-looking statements are based on estimates and assumptions made by lhe Board of Directors of the Company, and all.hoogh believed to be reasonable, are subject to known and unknown risks, wlcertaimies and o01er factors which ma)’ cause the actual results, perfonnance or aclUcvemellls to differ materially from the future results, performance or achievements expressed or implied in such forward-looking statements. Such factors include, inter-alia, the general cconomic and busincss conditions, competition, the ill1poct of new la\vs and regulations affecting MSW [md the industry, changes in interest rates and changes in foreign exchange rates. In light of these unccnainties, tile inclusion of fomard-looking sl<ltements in this Prospectus should not be regarded as a representation or warranty by tile COll\pallY or its advisers th:u lhe plans and objectives of MSW will be achieved. IThe remain tier of this page is inten1ionally left blank]

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