Risk Factors

5. RISK FACTORS 5. RISK FACTORS Before investing in our Shares, you should pay particular attention to the fact that we, and to a large extent our operations, are subject to the legal, regulatory and business environment in Malaysia. Our business is subject to a number of factors, many of which are outside our control. Before making an investment decision, you should carefully consider, along with the other matters in this Prospectus, the risks and investment considerations set out below. The risks and investment considerations set out lJelow are not an exhaustive list of the challenges that we currently face or that may develop in the future. These and other risks, whether known or unknown, may have a material adverse effect on us or our Shares. 5.1 RISKS RELATING TO THE PETROCHEMICALS INDUSTRY 5.1.1 Cyclical changes in the petrochemicals industry and the volatility of international market prices for petrochemical products may adversely affect our sales We operate in the petrochemicals industry, which has historically been cyclical in nature. The industry is characterised by periods of tight supply, when utilisation rates and margins are high, followed by periods of oversupply, primarily resulting from significant capacity additions. If such additions in capacity are not matched by a corresponding growth in demand, average industry utilisation rates and margins will fall. We expect that the prices for petrochemical products will continue to reflect this cyclicality, and thus our operating margins will also be affected by these cycles. Following the onset of the global economic crisis, the global petrochemicals industry experienced a down-cycle due to lower demand growth coupled with supply additions that led to overcapacity in the industry. For a more detailed description of this cyclicality and the current state of the petrochemicals industry, refer to Section 6 of this Prospectus. We cannot assure you whether or when the petrochemicals industry will recover from its current position, and a prolonged down-cycle in the petrochemicals industry would have a material adverse effect on our business, financial condition and results of operations. In addition, our operating results are affected by the prices of our products in the international market, which historically have been volatile. These fluctuations may impact the prices that we receive for our products, and as a result, may cause significant fluctuations in our margins and have an adverse effect on our results of operations. 5.1.2 Demand and supply for petrochemical products are dependent on general economic conditions, and deterioration in such conditions would adversely affect our results Demand for petrochemical products is typically dependent on the level of general economic actiVity because petrochemicals are used in a wide range of industries across the economy. Petrochemicals are used to produce fertilisers, resins, adhesives, plastics, textiles, packaging materials, as well as many other industrial and consumer products. If general economic conditions are weak, the demand for petrochemical products will be adversely affected. In addition, the supply of petrochemical products is affected by additions to production capacity, and the ability of petrochemical companies to expand their capacity is dependent to a significant extent on the general health of the economy. 5. RISK FACTORS (cont’d) It is not possible to predict accurately the supply and demand balances, general economic and market conditions and other factors that may affect industry operating rates and margins in the future. The recent global financial crisis has contributed to the reduction in demand growth and in the price for certain petrochemical products. It is not clear if and when economic growth in Malaysia, Asia or globally will be as strong as it was in the past. The uncertainty as to the growth trend of international trade and the general global economic climate may continue to have an adverse impact on our business, financial condition and results of operations. 5.1.3 We operate in a global, competitive environment and face substantial competition We operate in a highly competitive marketplace, competing against a number of Malaysian and foreign producers and traders. Most of our petrochemical products are of commodity grade and competition is principally on price. Competition for certain of our more specialised petrochemical products is based on performance, quality, manufacturing flexibility, delivery time and customer service as well as price. The relative importance of these factors. is determined·by the needs .of. particular customers and the characteristics of particular products. A number of our competitors have a larger scale of operations and greater financial resources than we do. These competitors may also be able to maintain considerable operating flexibility, and therefore may be better equipped to withstand changes in general economic conditions than we are. Some of these competitors also have a broader range of products and a different mix of product that may make them less susceptible to cyciical downturns. Emerging companies attempting to obtain a share of the existing markets may also act as competitors, creating price pressure on our products. Additionally, competitors’ pricing decisions could compel us to decrease our prices, which could reduce our margins and profitability. Other changes in the competitive environment could also have a material adverse effect on our business and operations. These changes could include significant capacity expansion by competitors, entry of new competitors into our key markets in Southeast Asia (including into Malaysia as a result of the removal of tariffs on petrochemical products under the ASEAN Free Trade Agreement), intensification of price competition from other producers (in particUlar, producers with access to cheaper feedstock), adoption of new trade restrictions and the adoption of new environmental laws and regulatory requirements. For example, in recent years, certain petrochemicals producers in the Middle East have expanded their capacity, leveraging on their competitive advantage in feedstock cost. Thus, increased competition could have a material adverse effect on our business, results of operations and financial conditions, and we cannot assure you that we will be able to compete successfully against either current competitors or new competitors in the future. For details on competition, refer to Section 7.13 of this Prospectus. 5. RISK FACTORS (cont’d) 5.1.4 The manufacturing processes for our products are complex and hazardous The operation of our facilities for the production of petrochemical products entails the use of complex manufacturing processes that involve a variety of safety and other operating risks, including the handling, production and transportation of highly flammable, explosive and toxic materials. For a more detailed description of our production processes, refer to Section 7.8 of this Prospectus. Because our business operations involve certain inherently hazardous activities, we are exposed to a number of additional risks, including fires, explosions, release of toxic fumes and other unexpected or hazardous conditions that could cause personal injuries or death, property damage, environmental damage or interruption of operations. Our employees, as well as employees of our service providers, suppliers and customers, and residents in the vicinity of our production facilities are exposed to these hazards. Although we believe that we have taken adequate steps to minimise these risks, and that we have appropriate insurance coverage in place, these types of risks cannot be completely eliminated. We may experience difficulties in achieving targeted production levels for our products as a result of any of these risks. The likelihood of facing difficulties in achieving targeted production levels is higher when we are transitioning to new methods of production. If we are unable to run our production facilities at our targeted capacity utilisation rates for a prolonged period because of a technical failure at our production plants, a disruption to our raw material supplies or for any other reason, and we are unable to shift sufficient production to other plants or draw on inventories, our production and sales would be adversely affected, which could have a material adverse effect on our business, financial condition and results of operations. 5.1.5 Due to the integrated nature of our production facilities, problems in one part of our facilities may cause disruption to other parts of the production facilities Many of our production processes at our facilities are highly integrated such that many of the products we produce are used as raw materials to make other products at our plants. Because of this integration, any problems that may develop in the production of one product may adversely affect the production of other petrochemicals in the same production chain. Production problems of this type would cause disruptions at downstream facilities and result in temporary shutdowns and reduced production. In addition, many of our highly integrated production processes also rely on shared common utilities and infrastructure, meaning that any problem with these shared utilities or infrastructure may adversely affect our production at multiple production facilities. Many of our facilities are located close to one another in our 2 IPes in Kertih and Gebeng, Malaysia. For details of our production facilities, refer to Section 7.7 of this Prospectus. The concentration of our production facilities in these two sites makes us particularly vulnerable to any unexpected interruptions. In particular, extensive damage at Kertih, whether as a result of an industrial accident or explosion or a major flood, earthquake, hurricane or other natural disaster, would severely affect our ability to conduct our business operations and, as a result, could have a material adverse . effect on our business, financial conditions and results of operations. Although production disruptions in the past have been dealt with expeditiously and they have not had a material impact to our Group, financially or otherwise, we cannot assure you that any future disruptions that may occur will not have a material adverse effect on our business, financial conditions and results of operations. 5. RISK FACTORS (cont’d) 5.1.6 We are exposed to costs arising from environmental compliance and clean-up, and these costs may have a material adverse effect on our business, financial condition and results of operations Our business involves the transport, handling, production and use of substances and compounds that may be considered toxic or hazardous within the meaning of environmental laws. Furthermore, our manufacturing operations generate gaseous chemical wastes, liquid wastes, wastewater and other industrial wastes at various stages of the manufacturing process. As a result, we are subject to stringent environmental, health and safety laws and regulations addressing air pollutant emissions and discharge of treated wastewater and establishing standards for the treatment, storage and disposal of solid and hazardous wastes. Some of these laws and regulations require our facilities to operate under permits that are subject to renewal or modifications. Typically, these laws and regulations provide for monetary fines or terms of imprisonment, or both, in the event of violations. Violations of these laws and regulations could also result in permit revocation and/or shutdown of facilities. For a more detailed description of health, safety and environmental matters, refer to Section 7.14 of this Prospectus. We cannot assure you that any of our new projects will not be delayed or significantly modified as a result of environmental concerns. As part of our normal business operations, we have incurred and expect to continue to incur capital and operating costs to comply with health, safety and environmental laws and regulations. In addition, introduction of new laws and regulations, stricter enforcement of, or changes to, existing laws and regulations, or the imposition of new clean-up requirements could require us to incur additional costs, or affect our production or revenues, in ways that may have an adverse effect on our financial condition or results of operations. Although we believe that we are in compliance in all material respects with applicable environmental laws and regulations, we cannot assure you that material capital expenditures, costs or operating expenses beyond those currently anticipated will not be required under applicable health, safety and environmental laws and regulations, or that developments with respect to such laws and regulations will not adversely affect our production or revenues. 5.1.7 Our products may become subject to anti-dumping or countervailing duties, import quotas or tariffs in various countries, which may have a material adverse effect on our export sales The imposition of anti-dumping or countervailing duties, import quotas or tariffs, whether adopted by individual governments or addressed by regional trade blocs, may impact the competitive position of our products or prevent us from being able to sell our products in certain countries. The export of methanol to China by suppliers from the Middle East and Asia-Pacific (including us) is currently the subject of anti­dumping investigations by the Chinese authorities. The imposition of anti-dumping or countervailing duties, quotas or tariffs on our exports to China or elsewhere may limit our exports to these regions in the future and may have a material adverse effect on our business, financial condition or results of operations. 5. RISK FACTORS (cont’d) 5.1.8 Our insurance coverage may not be sufficient and may not adequately protect us against certain operating hazards The hazards inherent in our operations may result in fires, explosions, release of toxic fumes and other unexpected or dangerous conditions causing personal injuries or death, property damage, environmental damage and interruption of operations. In addition, some of these risks may result in personal injury and loss of life or environmental damage, and may also result in suspension of our operations and the imposition of civil or criminal penalties, which may not be covered by our insurance policies. In addition to the foregoing hazards, we are subject to additional risks of mechanical failure and power outages, prolonged equipment breakdown, labour difficulties, transportation interruptions and terrorist attacks. These instances may result in disruptions to our operations, or disruptions or damage to our production facilities. To the extent that we suffer losses or damages that are not recoverable by insurance or exceed our insurance coverage, our results of operations and cash flows may be adversely affected. In addition, our insurance carriers have created exclusions for losses resulting from terrorism from our “all risk” property insurance policies. While separate terrorism insurance coverage is available, premiums for this type of coverage are expensive, especially for petrochemical facilities, and the policies are subject to high deductibles. Available terrorism coverage typically excludes coverage for losses from acts of foreign governments as well as nuclear, biological and chemical attacks. We have determined that it is not economically prudent to maintain terrorism insurance, and accordingly, damage to our properties from acts of terrorism is currently not covered by insurance. If a terrorist attack were to affect a substantial part or all of our facilities, our business, results of operation and cash flows could be adversely affected, and we could become liable for any contamination or for personal or property damage due to exposure to hazardous materials caused by any catastrophic release that may result from a terrorist attack.

5.2 RISKS RELATING TO OUR BUSINESS 5.2.1 We depend on the PETRONAS Group for our supply of natural gas and processed gas as feedstock; if we are no longer able to obtain necessary feedstock from the PETRONAS Group at acceptable prices or at all, we may not be able to obtain it from other sources or on acceptable terms To operate our business we must obtain sufficient quantities of high quality raw materials in a timely manner and at acceptable prices. Feedstock cost is the largest component of our operating costs, accounting for 53.5%, 55.8% and 58.0% of our cost of revenue for the years ended 31 March 2008, 2009 and 2010, respectively, and 51.2% and 53.6% of our cost of revenue for the 4 months ended 31 July 2009 and 2010, respectively. As a result, our operations are vulnerable to changes in the supply and prices of raw materials, primarily natural gas and its various streams. We obtain all of our processed gas feedstock, namely the ethane and propane used by our gas crackers as their main raw materials, from other companies in the PETRONAS Group. The PETRONAS Group also supplies all of the methane, butane and heavy naphtha that we use in our other production facilities. 5. RISK FACTORS (cont’d) Historically, we purchased feedstock from the PETRONAS Group under long-term supply contracts at attractive prices. However, in keeping with the Government of Malaysia’s overall policy of gradually phasing out the discounted gas prices available to various sectors of the Malaysian economy, the PETRONAS Group recently adjusted the pricing terms under our supply agreements for methane, butane and propane for some of our Subsidiaries. As a result, the unit feedstock cost for methane, butane and propane for these operating companies increased. In respect of ASEAN Bintulu Fertilizer, pending renegotiation of terms of the previous gas supply contract which expired in October 2005, we agreed to apply these new pricing terms effective from 1 October 2005. The adjustments to the pricing terms of our other feedstock supply agreements were phased in commencing from 1 August 2008 but were not applied retrospectively for any periods prior to this date. Our two ethane feedstock agreements are due to expire in 2016 and 2023. Although we intend to seek to renew these contracts on competitively priced terms, we cannot provide any assurance that our prices for ethane will remain similar to current levels. If prices of feedstock from the PETRONAS Group increase further, such price increases may have a material adverse effect on our liquidity, working capital, financial condition and results of operations. In addition, if there are material interruptions in supply from the PETRONAS Group and we are unable to obtain raw materials of an acceptable quality in a timely and cost-effective manner from alternative sources, our production and delivery schedules may be delayed, which may result in loss of customers and revenues. Although we have not experienced any significant difficulties in obtaining sufficient feedstock from the PETRONAS Group to satisfy our production requirements to date, we cannot assure you that an adequate supply of natural gas will continue to be available to the PETRONAS Group in order to supply us with sufficient feedstock. 5.2.2 We depend on a few key suppliers to provide the electricity and water that we require for our production facilities Our manufacturing business is also dependent upon the supply of electricity to meet our energy needs. A majority of our facilities use electricity that are generated in the CUFs located within our manufacturing complexes or in our own power plants. We purchase natural gas from the PETRONAS Group to fuel those power plants that we operate. Energy and utilities cost accounted for 8.8%, 13.5% and 11.6% of our cost of revenue in the years ended 31 March 2008, 2009 and 2010, “respectively. . To reduce the loss of work-in-progress and to facilitate smooth resumption of electricity supply, we have back-up system arrangements, which vary among our facilities, to provide electricity to our machinery and equipment until they can be safely turned off or switched to an alternate electricity supply. Tenaga Nasional Berhad, Malaysia’s main electric power company, supplies electricity that we do not produce ourselves, including back-up power supplies to address situations in which our own power generation facilities are unavailable. However, we cannot assure you that our results of operation or financial condition will not be adversely affected by power interruptions. PETRONAS Gas is the primary provider of water and sewage disposal services to a majority of our production facilities that do not have their own source of water or sewage disposal capabilities for their facility. Any material increase in the price we pay for electricity from utility facilities, for natural gas to fuel our power plants or in the tariffs charged. by the utility company or material interruptions in the supply of electricity, water or sewage disposal could have an adverse effect on our business, financial condition and results of operations.

 

5. RISK FACTORS (cont’d) 5.2.3 Our development and operational plans have significant capital expenditure and financing requirements, which are subject to a number of risks and uncertainties The petrochemical business is capital intensive. Our ability to maintain and increase our revenues, net income and cash flows depends upon continued capital spending. Our current business strategy contemplates capital expenditures for the year ending 31 March 2011 of approximately RM699 million and as of 31 July 2010, our capital commitments for investments in property, plant and equipment were RM776 million, which we expect to fund through funds generated from our operations, financing activities and the net proceeds to us from the Public Issue. Our actual capital expenditures may vary significantly from these planned amounts due to various factors, including our ability to generate sufficient cash flows from operations to finance capital expenditures, ability to finance such expenditures through borrowings, other necessary investments and other factors that may be beyond our control. In addition, we cannot assure you whether, or at what cost, our capital projects will be completed or the success of these projects if they are completed. We may incur substantial capital expenditures from time to time in connection with projects intended to expand our production capacity or operational capabilities and improve our business. These projects may include, but are not limited to, de­bottlenecking, modernising and increasing production capacity of our existing manufacturing plants and construction of new facilities. Failure to successfUlly and timely complete these projects due to inadequate capital resources or otherwise may have an adverse effect On our operations and in executing our business plans. In addition, if we are not able to obtain sufficient funding for our planned capital expenditures, our business, results of operations and financial conditiOn could be adversely affected. Our ability to obtain external financing and to make timely repayments of our debt obligations are subject to various uncertainties, including our future results of operations, financial condition and cash flows; the condition of the Malaysian economy and the markets for our products; the cost of financing and the condition of financial markets; the issuance of relevant government approvals and other project risks associated with the development of infrastructure in Malaysia; and the continuing Willingness of banks to provide new loans. We cannot assure you that any required additional financing, either On a short-term or long-term basis, will be made available to us on satisfactory terms, if at all. If adequate funds are not available on satisfactory terms, we may be forced to curtail expansion plans, which could result in a loss of customers, an inability to successfully implement our business strategies and limitations On the growth of our businesses. In addition, our investments in our Subsidiaries, Associates and Jointly Controlled Entity could require us to make significant additional capital contributions, shareholder financing or contingent support, such as the provision of guarantees for bank financing activities, to fund these Subsidiaries’, Associates’ or Jointly Controlled Entity’s operations or expansion. 5. RISK FACTORS (cont’d) 5.2.4 New projects and capital expenditures may expose us to large-scale project­related risks . Any new projects and capital expenditures we decide to undertake in the future may expose us to large-scale project-related risks that may be beyond our control. Actual costs and expenditures related to any project could exceed planned costs and expenditures, and any delays in completion of these projects could adversely affect our operations. For example, when our new methanol plant in Labuan was commissioned in January 2009, facilities to provide additional water supplies were to have been completed by that time to meet the anticipated increase in water usage at the Labuan facilities. However, the construction of such facilities, which was undertaken by a third party, was delayed, and we decided to shut down our eXisting methanol plant at Labuan until the additional water supplies become available so that the water needs of both the new and the existing plants could be met. In addition, these types of projects may result in overcapacity in the market for some of our products and decreased margins. These types of effects could also result from the completion of projects by our competitors. Moreover, we cannot assure you that market conditions will be favourable as and when projects are completed or that projects will be completed on time. 5.2.5 Changes in the exchange rate between the USD and the RM could have a negative impact on our results of operations and financial condition A substantial portion of our revenues is denominated in USD. For the year ended 31 March 2010, 57% of our revenue was denominated in USD. The RM operates on a managed float basis, and an appreciation of the RM against the USD may materially and adversely affect our financial performance because it may reduce our revenue in RI\II terms and raise the prices for our products against other currencies. Accordingly, changes in the USD to RM exchange rate could have an adverse impact on our results of operations and financial condition, including as a result of translation adjustments in converting USD amounts to RM for financial statement purposes. 5.2.6 There may be risks relating to acquisitions, new projects or new partnerships and joint ventures We have previously expanded our business, including the production and sale of new products, through joint ventures. We may seek to grow our businesses in similar ways in the future, as well as by making acquisitions or embarking on projects or entering into partnerships. Acquisitions, projects, partnerships or joint ventures may require us to make significant cash investments, issue stock or incur substantial debt. In addition, acquisitions, projects, partnerships or investments may require significant attention from our management, which may stretch our managerial resources. Furthermore, any projects, joint ventures or acquisitions of businesses or facilities could entail a number of additional risks, including problems with effective integration of operations, limited influence or control over the joint venture, failure of our joint venture partners to perform their obligations and inability to maintain key pre­acquisition business relationships. 5. RiSK FACTORS (cont’d) 5.2.7 We are controlled by PETRONAS, whose interests may not be aligned with those of the other shareholders of our Company Upon the successful completion of the IPO, PETRONAS will own no less than 69.00% of our Shares and thus will continue to be the controlling shareholder of our Company. The Government of Malaysia is the sole shareholder of PETRONAS. As the controlling shareholder of our Company, other than in respect of certain votes regarding matters in which it is an interested party and must abstain from voting under the Bursa Securities LR, PETRONAS will control the approval of all corporate matters requiring a shareholder resolution under the Act without the approval of other shareholders of our Company. This includes the approval of all final dividends and the appointment of directors. As the sole shareholder of PETRONAS, the Government of Malaysia exercises similar control over PETRONAS, and thus the Government of Malaysia also indirectly exercises control over our Company. There can be no assurance that PETRONAS or the Government of Malaysia will not take actions in the future that would have an adverse effect on us. 5.2.8 We rely on skilled management and technical. personnel and our performance may be affected by our ability to attract and retain skilled personnel Competition for highly qualified management and technical personnel is intense in our industry. Our future performance and operations are largely dependent upon our ability to recruit and retain key technical, support, sales and management personnel. Historically, we have a good track record of recruiting and retaining the skilled personnel necessary for our business and operations, although we have experienced aggressive efforts by new and rapidly expanding competitors to hire our employees, particularly our experienced technical personnel. To counter these efforts, we have had to enhance in the past, and may be required to enhance in the future, our remuneration package to retain our skilled personnel, and we will continue to devote significant time and resources to train new employees until they attain the requisite level of skill for our operations. Our continuing ability to recruit and retain skilled personnel is critical to our success,especially during periods where there is a shortage of skilled personnel, and our inability to do so could have a material adverse effect on our business, financial condition and results of operations. 5.2.9 Our businesses are concentrated in Malaysia and the Asia-Pacific Region Our production is concentrated in Malaysia, and sales of our products are concentrated in Malaysia and other countries in the Asia-Pacific region. As a result, our revenues and results of operations and future growth depend, to a large extent, on the growth of the economies of Malaysia and other countries in the Asia-Pacific region. As our business is affected by economic conditions in these markets and by the global markets generally, any decline in the economies of Malaysia and/or the Asia-Pacific region could adversely affect our business, financial condition, results of operations and future growth. 5. RISK FACTORS (cont’d) 5.2.10 If we are not able to renew or maintain the permits and approvals required to operate our business, this may have a material adverse effect on our business We require certain permits and approvals to operate our business and facilities. In the future, we may be required to renew these permits and approvals or to obtain new permits and approvals. While we have not experienced any difficulty in renewing and maintaining these permits and approvals in the past, as and when required, we cannot assure you that in the future the relevant authorities will issue any required permits or approvals in the time-frame we anticipate or at all. Failure by us to renew, maintain or obtain the required permits and approvals may interrupt our operations or delay or prevent the implementation of any capacity expansion or other new projects and may have a material adverse effect on our business, financial condition and results of operations. 5.2.11 We depend on intellectual property and technology licences to operate our business We depend upon a wide range of intellectual property to support our business and have obtained licences for certain technologies that we use in our manufacturing processes. Any cancellation of or inability to maintain a material technology’licence or disputes related to its use could require us to cease using the relevant technology and, therefore, adversely affect our ability to produce the relevant products. Our inability to maintain any head licence that is the subject of a sub-licence of technology to any of our subsidiaries or affiliates and which are necessary to develop new products and product enhancements, could require us to cease using the technology and to license these rights from other third parties on less favourable commercial terms, if at all, or obtain substitute technology of lower quality or performance standards at greater cost. Furthermore, new technologies and processes are being continuously developed in the petrochemicals sector worldwide. Significant developments in technology could result in the technologies and processes that we currently use becoming uncompetitive, while changes in laws and regulations may prohibit the use of certain products or technologies that we currently use, either of which could adversely affect our business, financial condition and results of operations. 5.2.12 Changes in laws, regulations or policies of governments or other governmental activities in the countries that we export to could reduce demand for or our ability to sell our products New legal or regulatory requirements may be enacted in various jurisdictions to which we export our products that may have an adverse effect on our ability to successfully market and sell our products in those jurisdictions. While we take steps to ensure compliance with all applicable requirements, if we are unable to fUlly comply with any such requirements for any reason, it could have an adverse effect on our business, financial condition and results of operations. In addition, if any new legislation or regulation were to be adopted and implemented in those jurisdictions that prohibit or mandate extra fees or taxes in respect of our products or other end products for which we supply feedstock, demand for our products would be reduced, and as a result, our business, financial condition and results of operations could be adversely affected. 5. RISK FACTORS (cont’d) 5.2.13 Certain tax incentives or exemptions from the Government of Malaysia may no longer be available in the future Some of our operating companies are eligible for certain tax incentives and exemptions allowed by the Government of Malaysia, including investment tax allowances and re-investment allowances. For those operating companies to benefit from these tax incentives and exemptions, certain conditions must be satisfied during the period in which these tax incentives are in effect. The conditions imposed under these tax incentives relate to such matters as production levels, capital expenditures and investment amounts. To the extent that these conditions are not met before the respective expiry date, these tax incentives and exemptions may no longer be available to us. Loss of such tax incentives and exemptions could have an adverse effect on our business, financial condition and results of operations.
5.3 RISKS RELATING TO OUR SHARES 5.3.1 There has been no prior market for our Shares There has been no prior market for our Shares and there can be no assurance as to the liquidity of any market that may develop for our Shares, the ability of holders to sell our Shares or the prices at which holders would be able to sell our Shares. Neither we nor the Promoter and Selling Shareholder and the Managing Underwriter and Retail Underwriters have an obligation to make a market in our Shares. Application will be made to Bursa Securities for the listing of and quotation for our entire share capital (including the IPO Shares) on the Main Market and it is expected that there will be an approximate 12 Market Day gap between closing of the Retail Offering and trading of our Shares. We cannot assure you that that there will be no event or occurrence that will have an adverse impact on the securities markets, our industry or us during this period that would adversely affect the market price of our Shares when they begin trading. 5.3.2 Our Share price may be volatile The market price of our Shares could be affected by numerous factors, inclUding: (i) general market, political and economic conditions;
(ii) trading liquidity of our Shares;

(iii) changes in earnings estimates and recommendations by financial analysts; (iv) changes in market valuations of listed shares in general and other securities exchanges’ shares in particular;
(v) changes in government policy, leg.islation or regulation; and
(vi) general operational and business risks.

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 Institutional Price or the Retail Price. 5. RISK FACTORS (cont’d) Over the past few years, the Malaysian, regional and global equity markets have experienced significant price and volume volatility that have affected the share prices 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 fluctuation.
5.3.3 There may be a delay or failure in trading of our Shares The occurrence of certain events, inclUding the following, may cause a delay in or termination of our Listing: (i) we are unable to meet the minimum pUblic spread requirements as determined by Bursa Securities, Le. having at least 25% of our issued and paid-up Shares in the hands of at least 1,000 public shareholders holding at least 100 Shares each at the point of Listing; or
(ii) we are not able to obtain the approval of Bursa Securities for the Listing for whatever reason.

In such an event, investors will not receive any IPO Shares and we and the Selling Shareholder will be jointly and severally liable to return in full, all monies paid in respect of any application for the IPO Shares. If such monies are not paid within 14 days after we and the Selling Shareholder become liable to repay it, then pursuant to sub-section 243(2) of the CMSA, we and the Selling Shareholder will become jointly and severally liable to repay the monies with interest at the rate of 10% per annum or such other rate as may be prescribed by the SC upon expiration of that period until full refund is made.
5.3.4 We may not be able to pay dividends We intend to adopt a policy of active capital management. We propose to pay dividends out of cash generated by our operations after setting aside necessary funding for capital expenditures and working capital needs. . Dividend payments are not guaranteed and our Board may decide, at its sole absolute discretion, at any time and for any reason, not to pay dividends or to pay smaller dividends than we currently propose. 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 the investment in our Shares may be reduced. Further, our 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 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. 5. RISK FACTORS (cont’d)

 

5.3.5 We have significant discretion as to how we will use the net proceeds of the Public Issue, and you may not necessarily agree with how we use them The net proceeds to be received by us from the Public Issue will be RM3,535 million. We may spend the net proceeds from the Public Issue in ways you may not agree with or that may not yield a favourable return to our shareholders such as an investment that we decide to make, which at the time of investment decision we believed in good faith would be beneficial to our Company and maximise returns to our shareholders, but for whatever reason, the benefits of the investment may not be realised as expected. We plan to use the net proceeds from the Public Issue for expansion of business and other general corporate purposes. We will have discretion as to the actual application of our net proceeds, detailed further in Section 4.12 of this Prospectus, and you are providing your funds to us, upon whose judgment you must depend, for the specific uses we will make of the net proceeds from the Public Issue. 5.3.6 We are a holding company and, as a result, are dependent on dividends from our Subsidiaries to meet our obligations and to provide funds for payment of dividends on our Shares We are a holding company and conduct substantially all of our operations through our Subsidiaries. Accordingly, dividends and other distributions received from our Subsidiaries are our principal source of income. Consequently, the amount of these dividends and distributions are an important factor in our ability to pay dividends on our Shares (to the extent declared by our Board). The ability of our Subsidiaries to pay dividends or make other distributions to us is subject to the availability of distributable reserves, applicable legal restrictions contained in their loan agreements and to these companies’ having sufficient funds that are not needed to fund their operations, other obligations or business plans. In addition, changes in Malaysian FRS may affect the ability of our Subsidiaries (and consequently us) to declare and pay dividends. As we are a shareholder of our Subsidiaries, our claims as a shareholder will generally rank junior to all claims of our Subsidiaries’ creditors and claimants. In the event of a liquidation of a subsidiary, there may not be sufficient assets for us to recoup our investment in that subsidiary.
5.3.7 The sale or the possible sale of a substantial number of our Shares in the public market following the IPO could adversely affect the price of our Shares Following the sale of up to 2,480 million IPO Shares, up to 31.00% of our Shares will be publicly held by investors participating in the IPO, and 5,520 million Shares, or 69.00% of our Shares, will be held by PETRONAS. The IPO Shares sold in the IPO (other than the IPO Shares sold to the Cornerstone Investors) will be tradable on the Main Market without restriction following the Listing. The Shares may also be sold in the United States, subject to the restrictions of Rule 144A, or outside the United States subject to the restrictions of Regulation S. We and the Cornerstone Investors have entered into the lock-up arrangements as described in Section 4.7.3 of this Prospectus and PETRONAS, as the Promoter and Selling Shareholder, is sUbject to a moratorium in accordance with the SC’s requirements and the lock-up arrangements described in Section 4.7.3 of this Prospectus. 5. RISK FACTORS (cont’d) However, notwithstanding our Group’s existing level of cash and cash equivalents. we may issue additional Shares after the end of the lock-up period in connection with financing activities or otherwise, and it is possible that PETRONAS or the Cornerstone Investors may dispose of some or all of their Shares pursuant to their own investment objectives. If we, PETRONAS or the Cornerstone Investors sell or are perceived as intending to sell a substantial amount of Shares, the market price for our Shares could be adversely affected. 5.3.8 Because the Retail Price is higher than our NTA per Share, purchasers of our Shares in the IPO will experience immediate and substantial dilution. Purchasers of our Shares may experience further dilution if we issue additional Shares in the future The Retail Price is higher than the NTA per Share. Therefore, purchasers of our Shares in the IPO will experience an immediate dilution in NTA of RM3.08 per Share at the Retail Price of RM5.05,· and our existing shareholders will experience an increase in the NTA per Share. In order to meet our funding requirements, we may consider offering and issuing additional Shares or equity-linked securities in the future. Purchasers of our Shares may experience further dilution in the net tangible book value per share if we issue additional Shares or equity-linked securities in the future. 5.4 OTHER RISKS 5.4.1 Unfavourable financial and economic developments in Malaysia may have an adverse effect on us We are incorporated in Malaysia, and most of our assets are located or registered in Malaysia. As a result, we are subject to political, social, economic, legal and regulatory risks specific to Malaysia. Also, general economic conditions in Asia may have an effect on our business, financial condition and results of operations, as well as our future prospects. The recent global financial crisis, the recent European sovereign debt crisis, recent developments in the Middle East, higher oil prices, the general weakness of the global economy and the occurrence of avian flu and swine flu in Asia and other parts of the world have increased the uncertainty of global economic prospects and may continue to adversely affect the Malaysian economy. Any future deterioration of the Malaysian and global economy could adversely affect our business, financial condition and results of operations. 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. 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 GOP in 2009 and the decline in the growth rate of Malaysia’s GOP to 4.6% in 2008, compared to 6.3% in 2007. We cannot assure you that the Malaysian economy will continue to grow or that GOP in Malaysia wiflnot decrease. 5. RISK FACTORS (conf’d) Terrorist attacks and other acts of violence or war may negatively affect the Malaysian market in which our Shares will trade and may also adversely affect financial markets globally. These acts may also result in a loss of business confidence, decrease the demand for our products and ultimately adversely affect our business. In addition, any such activities in Malaysia or its neighbouring countries in Southeast Asia might result in concern about the stability in the region, which could adversely affect the price of our Shares.
5.4.2 Forward-looking statements in this Prospectus may not be accurate This Prospectus contains forward-looking statements. All statements, other than statements of historical facts, included in this Prospectus, including, without limitation, those regarding our financial position, business strategies, plans and prospects of our management for future operations are forward-looking statements. Such forward­looking statements are made based on assumptions that we believe to be reasonable as at the date hereof. Forward-looking statements can be identified by the use of forward-looking terminology such as words “may”, “will”, “would”, “could”, “believe”, “expect”, “anticipate”, “intend”, “estimate”, “aim”, “plan”, “forecast” or similar expressions and include all statements that are not historical facts. Such forward­looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of our Group, or industry results, to be materially different from any results, performance expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding our present and future business strategies and the environment in which we will operate in the future. Such factors include, inter-alia, general economic and business conditions, competition, the impact of new laws and regulations affecting our industry and the Government of Malaysia initiatives. In light of these uncertainties, the inclusion of such forward-looking statements in this Prospectus should not be regarded as a representation or warranty by us or our advisers that such plans and objectives will be achieved. (The rest of this page has been intentionally left blank)

 

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