5. RISK FACTORS 5. RISK FACTORS Please take note that our operations are subject to the legal, regulatory and business environment in the countries in which we operate. Our operations are subject to a number of factors, many of which are outside our control. The risks and investment considerations set out below are not an exhaustive list of the challenges that we may face or may develop in the future that may have a significant impact on our future performance. These and other risks, whetherknown orunknown, may have a material adverse effect on us and/or our Shares. 5.1 Risk factors relating to the industry in which we operate 5.1.1 Our operations may be affected by fluctuation of O&G prices As our customers operate mainly in the offshore O&G industry, our operations are dependent on the level of activities in the offshore O&G industry. Historically, demand for offshore exploration, development and production services have been volatile and closely linked to O&G prices. O&G prices have a direct bearing on the level of activities in the O&G industry, thus affecting the level of offshore exploration, development and production activities. During the periods of upward movement in O&G prices, O&G exploration, development and production activities are expected to increase as the potential return from the upstream activities increase. O&G companies are likely to be motivated to explore and develop potential fields that are commercially feasible and profitable for the operators in the industry. In such event, we may experience higher demand for our products and services. Conversely, O&G exploration, development and production services may tend to slow down when O&G prices fall to a level where such activities are not commercially viable for O&G operators. Hence, the prolonged period of lower O&G prices may discourage various explorations, development and production activities resulting in lower demand for our products and services. This may result in a decrease in our business activities, and consequently affect our Group’s results of operations and financial conditions. 5.1.2 We operate in a global, competitive environment and may face substantial competition We face keen competition from local and global players providing similar products and services. The principal competitive factors in the market that our Group serves include experience, duration required for completion of projects, access to suitable equipment, machineries and vessels to carry out projects, established track record, financial strength and reputation, technical capability, price, range, quality of products and services, capability to deliver innovative products and services and/or greater economies of scale. Our competitors may have longer operating histories and experience, greater financial, technical and marketing capabilities, larger asset base and/or other resources than our Group. In addition, we are one of the few licensed contractors of offshore structures that are eligible to bid for any fabrication contracts tendered by the PSC operators in Malaysia. If PETRONAS group were to change its policies by either increasing the number of licensed companies or allowing non-Malaysian companies to bid for these fabrication contracts, our Group would face increased competition, especially from new entrants with advanced technology.
5. RISK FACTORS (cont’d) 5.1.3 We may be affected by implementation or changes in laws, regulations or policies of governments or other governmental activities in the countries that we operate and may not be able to obtain, renew or maintain the permits, licences and registrations required by our Group for our operations Our operations are subject to local and international laws, regulations and policies in jurisdictions where we operate. These laws, regulations and policies govern, among others, workers’ health and safety, immigration (visas and work permits for our Group’s workers), good practices and governance of business, security, manning, construction and environmental standards. In addition, our rigs and vessels are also required to comply with the prevailing standards and the costs of compliance with these standards may increase from time to time. New implementation or changes to current laws and regulations or the introduction of new laws or regulations by local and/or international bodies, or the imposition of additional conditions to our Group’s licences, permits and registrations to conduct business or operate in the jurisdiction which we conduct business or operate could cause us to incur significant or additional compliance costs. Any failure to comply with such legal or regulatory requirements may result in the termination of our contracts by our customers, failure to secure new contracts’ or the imposition of fines, penalties or sanctions, including stop work orders issued by the relevant authorities to our Group, revocation or non-renewal of our Group’s permits, licences or registration or prohibition from continuing our Group’s operations, each of which could have a material and adverse effect on our Group’s business and/or financial condition. Our qualification to tender for and secure various O&G projects locally and globally may be dependent on the permits, licences and registrations issued to our Group by various authorities. All of these permits, licences and registrations may be valid for certain periods of time with renewals SUbject to our compliance with the respective requirements imposed by the relevant authorities. Failure by us to obtain, renew or maintain the required permits, licences and registration may interrupt our Group’s operations and consequently have an adverse effect on our Group’s results of operations, financial condition and prospects. Our ability to carry out our projects is also dependent on our workers obtaining the necessary clearances, approvals and work papers from the immigration authorities of the jurisdictions which our Group has projects. Certain countries may restrict issuance of work papers for certain skill set and require us to utilise and/or train local resources to meet the relevant skills. Failure by us or our customers to obtain the necessary immigration clearances, approvals and work papers for our workers, especially experienced skilled workers, could adversely affect our ability to carry out our project smoothly or in a timely manner which may lead to an adverse effect on our Group’s operations. Whilst this risk has not materially and adversely affected the operations of our Group in the past, there is no assurance that the permits, licences, registrations, clearances, approvals and work papers will be obtained or renewed, and if they are obtained or renewed, that such new permits, licences, registrations, clearances, approvals and work papers would be effected within an anticipated time frame or without any terms and conditions imposed, which may materially and adversely affect the operations of our Group. 5. RISK FACTORS (cont’d) 5.1.4 Our business operations are subject to weather and natural hazards Our vessels and equipment are subject to weather and natural hazards. Adverse changes in weather such as monsoon and/or hurricane seasons may affect our Group’s ability to carry out offshore implementation either in whole or in part. In addition, any natural hazards such as the occurrence of any typhoon, tsunami and earthquake in the area where we operate may cause damage to our Group’s equipment, offshore structures, civil engineering works or other products and services provided by our Group. Our Group’s operations may be disrupted if any of our Group’s equipment or vessels suffers significant downtime. This may have a material adverse impact on our Group’s revenue and profits and our financial position.
5.1.5 Our operations may be affected by fluctuation in prices of raw materials The cost of materials represents a significant part of our Group’s aggregate operating costs. For example, among the major materials which our Group uses in various business segments is steel. We utilise steel products especially for our offshore installation, HUC, maintenance activities, fabrication of O&G production facilities, modules, process skid systems and other structures and equipment in our yards. Accordingly, there is a risk that the increase in the price of materials may have a negative impact on our Group’s operations. Most of the contracts which our Group enters with our customers are based on fixed rate or lump sum. In certain instances where we are required to procure the supply of materials as part of the lump sum contract and there is an increase in material prices prior to our Group purchasing such material, there can be no assurance that our Group may be able to pass on the increase in price to our customers. In such event, our Group’s financial results could be adversely and materially affected. Nevertheless, this risk has not materially and adversely affected us in the past. 5.1.6 The O&G industry is reliant on the continuous discovery of hydrocarbon reserves Our business is dependent on the continuous discovery of hydrocarbon reserves globally. However, hydrocarbon is non-renewable energy which depletes over time. In the event no new hydrocarbon reserve is discovered or the number of new hydrocarbon reserves declines, the O&G activities will correspondingly reduce. As a result, the demand for our products and services may also decline in tandem and adversely affect our Group’s financial position and performance.
5.2 Risk factors relating to our operations 5.2.1 The occurrence of major HSE and operational incidents may have a substantial adverse impact on our Group Major HSE and operational incidents could occur in the course of our Group’s operations which may affect, directly and/or indirectly, our business operations, financials and reputation in the event such incident is not contained or managed in a satisfactory or timely manner. The insurance coverage taken may not be sufficient to cover all exceptional and consequential costs, losses and damages that may arise therefrom. In addition, our Group may face litigation or penalties in respect of such incident. Further, substantial resources may have to be channeled towards defending and resolving such litigation. Aside from the substantial adverse impact on the business operations and financial position of our Group, we may face reputational damage which may have a long and continuing effect. 5. RISK FACTORS (conf’d) 5.2.2 We may not be able to fulfill our contractual obligations to our customers in a timely manner or within our cost constraints The delivery of our projects is dependent on various factors which include timely deliveries of critical equipment, weather conditions, obtaining the necessary relevant regulatory approvals, satisfactory performance of sub-contractors and suppliers and securing quality construction materials in adequate amounts. Any delay in completion of our projects may subject us to cost overruns, imposition of late penalties and liquidated and ascertained damages which may have an adverse effect on our Group’s operations, financial condition and results of operations. 5.2.3 We are dependent on the availability, timeliness and quality of delivery from third party sub-contractors In some of the contracts to be awarded to our Group, we may sub-contract certain portions of the scope of contract. Where we sub-contract such works, we may not be able to control timely delivery and the quality of the work sub-contracted to our sub-contractors. In the event that our Group’s sub-contractors are unavailable to perform the sub-contracted works, we may face delays in completion of our projects or may incur substantial costs to complete the projects on time. In addition, if the work performed by our Group’s sub-contractors do not meet contractual quality standards, the work will likely have to be redone, which may result in delays and higher costs. This may lead to our Group’s costs exceeding our estimates and we may not be able to pass on these higher costs to our customers, which may affect our Group’s profitability and our reputation.
5.2.4 We are exposed to foreign exchange fluctuation risks We are subject to foreign exchange fluctuation risks through revenue earned and purchases made that are denominated in foreign currencies, in particular, USD and AUD. The appreciation of the RM against foreign currencies may reduce our Group’s revenue in RM terms as well as raise the prices of our Group’s products and services against other currencies causing our Group’s products and services delivered abroad to be less competitive. On the other hand, the depreciation of RM against foreign currencies may increase the costs of the raw materials which we purchase from overseas and lead to consequential increase in the price of our Group’s products. In addition, 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, for example in respect of credit terms given to our Group’s customers and by our suppliers, we may incur foreign exchange losses. There is no assurance that our Group’s profitability and financial position will not be materially and adversely affected by foreign exchange fluctuation. 5. RISK FACTORS (cont’d) 5.2.5 We may face claim and incur additional rectification costs during the warranty period for defects and warranties arising from products delivered or services performed We may face claims by our customers in respect of defects, poor workmanship or non-conformity to our customers’ specifications in respect of products to be delivered or services to be performed by our Group. We typically grant a warranty of up to 24 months and during the warranty period, we are required to provide corrective services to resolve any problems that may arise from such defects. We recognise a provision at the end of each financial year for expected warranty claims based on our Group’s past experience of required levels of repairs and returns. These warranty provisions, or our Group’s insurance coverage, may not be sufficient to cover costs incurred that are in excess of our Group’s warranty provisions. If the costs of any rectification works exceed our Group’s warranty provisions or are not covered by our Group’s insurance policies, our operations, financial condition, results of operations and prospects may be adversely affected. 5.2.6 Maintenance and repair of our equipment and/or facilities may require substantial expenditure and breakdown of the key assets which we are dependent upon may cause losses to our Group We are required to maintain our equipment and/or facilities such as our rigs and/or vessels to certain standards. Such maintenance may involve substantial expenditure and result in loss of opportunity from downtime, which may materially and adversely affect our Group’s results of operations. In addition, we are dependent on a small number of rigs or vessels to provide our services. These rigs and vessels operate in a hazardous marine environment. In the event of a service disruption or damage to these rigs and vessels, our Group may incur losses which in turn may materially and adversely affect our Group’s financial condition and results of operation. Our operations are dependent on the operating efficiency and reliability of our equipment and/or facilities in terms of operational worthiness and compliance with safety standards. Breakdown maintenance of the equipment and/or facilities are costintensive and time-consuming which may result in significant tangible and intangible losses to our Group. Any unexpected breakdown or non-performance of equipment and/or facilities 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. 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 equipment and/or facilities may require our Group to incur substantial expenditure and may result in such equipment and/or facilities being out of service and being unable to generate revenue for our Group 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 Group’s reputation as well as our results of operations and financial conditions. 5. RISK FACTORS (cont’d) 5.2.7 Our ability to generate sufficient cash flow to fulfil our debt obligations is not assured Based on our unaudited proforma consolidated statement of financial position as at 31 January 2012, the total interest-bearing indebtedness of our Group (including the borrowings of approximately RM317 million incurred to fund the Clough Business Acquisition) stood at approximately RM4,498.9 million. There can be no assurance that our Group will be able to generate sufficient cashflow in the future to fulfil our debt obligations. Further, our Group’s indebtedness may, among others, limit our ability to obtain additional financing and require our Group to dedicate a substantial portion of our cash flow to service our current and future debt obligations, which will reduce funds available for other purposes. 5.2.8 Our development and operational plans may have significant Capex and financing requirements, which are subject to a number of risks and uncertainties We may incur significant Capex from time to time in connection with acquisition and/or upgrading of our equipment and facilities, including our rigs and vessels in order to undertake projects of larger scale. Failure to obtain sufficient financing on a timely and satisfactory basis could cause our Group to forfeit our interest in certain acquisitions or opportunities to tender for certain projects. There can be no assurance that debt or equity financing, or internal cash to be generated by our Group’s operations is available or sufficient to meet these requirements as our Group’s ability to obtain external financing, at terms reasonably acceptable to us, is subject to various uncertainties, such as future results of operations, financial conditions and cash flows of our Group and the condition of the global economy. In addition, any changes in interest rates for external fundings which our Group obtain may result in an increase in the cost of borrowings to our Group. If such change occurs, there is no assurance that the financial results of our Group will not be affected. 5.2.9 Our performance may be affected if we are unable to retain our key personnel or attract and retain new personnel Being in a highly specialised industry, our Group’s continued success and future performance is dependent to a large extent on our key management personnel and experienced skilled workers with specialised skills, particularly in design and engineering, project management and quality and safety assurance. Our Group is managed by a team of qualified key management personnel, including experienced skilled workers who have extensive knowledge and experience in the O&G industry. The loss of any of these individuals, or failure to attract, recruit and retain appropriate replacements and successors, may adversely affect the quality of our Group’s services, operational prospects, financial condition and ability to compete. 5. RISK FACTORS (cont’d) 5.2.10 Our insurance coverage may not be sufficient and may not adequately protect our Group against certain operating hazards While we have insurance coverage for various aspects of our businesses and projects undertaken by our Group which are considered to be of a high risk nature, such insurance will have limitations on liability that may not be sufficient to cover the full extent of such liabilities. In addition, some risks may not in all circumstances be insurable or, in certain circumstances, we may elect not to obtain insurance to deal with specific risks due to the high premium associated with such insurance or for other reasons. Claims arising from incidents involving an accident, failure or other incident arising from our Group’s operations may result in our Group incurring primary or secondary liability for significant amounts of damages, including from tort, statutory, regulatory or other types of claims that may be significantly in excess of our Group’s insurance coverage. If we incur substantial liability and the damages are not substantially covered by insurance or exceeds policy limits, or our Group is not able to obtain or has not obtained insurance, our operations, results of operations and financial condition could be materially and adversely affected. Even if certain risks are covered by insurance, there can be no assurance that such insurance will be generally available in the future or that premiums will be commercially justifiable. More stringent environmental and other regulations may also come into force, expanding the liability which our Group may face under our operations, and insurance against this new degree of risk may not be available at commercially reasonable rates, or at all. If our insurance is insufficient to cover these large claims and liabilities, our assets could be subject to attachment, seizure or other judicial processes.
5.2.11 We may face labour shortages and rising labour costs Our Group’s operations are dependent on skilled and experienced workers who are able to apply highly advanced technology and knowledge. The number of people with the required expertise and experience may be limited, whilst competition to acquire their services is usually intense within the O&G industry. With the rapid growth in the O&G industry in recent years, the industry has faced labour shortages, especially in relation to these skilled and experienced workers. As such, we will and could continue to experience difficulties in attracting, recruiting and retaining the appropriate number of skilled and experienced workers for our business activities. We may be required to increase our remuneration packages to attract and retain such personnel. As our Group’s future performance is dependent on the continued services of these skilled and experienced workers, a sudden loss of such workers could adversely affect the quality of our services, the growth of our business and result in increased costs. There can be no assurance that our Group will be able to maintain our existing workers, recruit new workers or obtain sufficient number of skilled and experience workers. Failure to maintain, recruit or secure sufficient numbers of skilled and experience workers could affect our Group’s ability to implement our projects in a timely manner with quality meeting the expectations of the customers, which may have a material and adverse impact on our Group’s operations and/or growth prospects. 5. RISK FACTORS (cont’d) 5.2.12 Our dependency on a limited number of major customers A substantial amount of our Group’s revenue is derived from PETRONAS and PSC operating in Malaysia. Whilst we expect to be awarded PETRONAS contracts in the future, there may be changes in the operations and policies of PETRONAS, which could have a material adverse effect on our Group’s prospects. We strive to increase our total business with PETRONAS while at the same time expand our Group’s business with other customers. However, our Group’s results of operations and financial conditions may be materially and adversely affected if the volume of contracts awarded by PETRONAS is decreased and we are unable to increase our business from other customers to offset such decreases in business. 5.2.13 We may not be able to replenish our order book There can be no certainty that our order book will be replenished in the future given that contracts are based on open tenders and are very competitive due to the numerous players in the O&G industry locally and globally. There can also be no assurance that the O&G industry will remain buoyant. Our inability to maintain a strong order book may have a material adverse impact on our Group’s profitability and financial performance. Additionally, given the forward-looking nature of the order book of our Group, it may not be necessarily indicative of our future earnings. For example, we may not achieve our expected margins, or may suffer losses on one or more of these contracts, in which case our Group’s earnings will be reduced. 5.2.14 We may face integration risks when integrating the operations of SapuraCrest Group and Kencana Petroleum Group post Completion Date Integration risks can arise when distinct companies are integrated under a single entity due to, among others, differences in culture, operation processes, practices and policies. For example, SapuraCrest Group and Kencana Petroleum Group have entered into various agreements and arrangements with various parties for various purposes e.g. strategic alliances, to collaborate on a venture and to lean on the expertise of the parties. Moving forward, our Group expects to enter into many similar agreements and arrangements; some of the terms of those agreements or arrangements may be in conflict with the provisions of SapuraCrest Group and/or Kencana Petroleum Group’s existing agreements or arrangements. In addition, there is no assurance that the anticipated benefits of the Merger, such as creating a platform for sustainable continuous growth or the strengthening of the balance sheet, will be realised, or if realised, will be realised within the expected timeframe. The anticipated benefits do not represent a forecast of our Group’s future performance and are subject to the assumptions set out under “Prospects” and “Future plans and business strategies of our Group” in Sections 7.3 and 7.4 of this Prospectus respectively. 5. RISK FACTORS (cont’d)
5.3 Risk factors relating to our Shares 5.3.1 Upon the crediting of our Shares to you, you are exposed to the performance of our operations Upon Completion, our operations cover multiple activities, including, development and production, drilling, EPC, IPF, marine services, operation and maintenance. Upon the crediting of our Shares to you, you are exposed to the inherent risks in these activities. These inherent risks are set out in Section 5.2 of this Prospectus. You should note that, depending on whether you were a shareholder of SapuraCrest or Kencana Petroleum, the income profile of your investment will change upon the crediting of our Shares to you. Shareholders of SapuraCrest (which was mainly involved in the development and production, drilling, IPF, marine services, operation and maintenance) who received our Shares are subject to greater exposures to EPC activities. Shareholders of Kencana Petroleum (which was mainly involved in the development and production, drilling, EPCIC, marine service and operation and maintenance activities) who received our Shares are subject to exposures to IPF activities. Nonetheless, you should note that whilst you will be subject to the risks inherent in the activities that you previously had no exposure or less exposure to, the varied and market lifecycles of our activities in the various segments of the O&G value chain will provide an opportunity for risk diversification. Further, you would also be able to have exposure to the collective performance of each activity, as well as the potential opportunities and benefits arising from the Merger. Our future plans and business strategies are set out in Section 7.4 of this Prospectus. 5.3.2 There has been no prior trading market for our Shares and our Listing may not result in an active or liquid market for our Shares Whilst a trading market had existed for the SapuraCrest Shares and Kencana Petroleum Shares prior to the suspension of their respective trading in conjunction with the Capital Reduction and Repayment, there has been no prior trading market for our Shares. There can be no assurance as to the liquidity of any market that may develop for our Shares, nor can we provide any assurance that the trading price of our Shares may reflect our financial and operating conditions, our prospects and the prospects of the industry in which we operate. We have no obligation to make a liquid public market in our Shares nor is there any assurance that we will be able to maintain our Listing. 5.3.3 Like all other companies listed on Bursa Securities, the market price of our Shares may be volatile and this may affect your investment in our Shares The market price of our Shares could be affected by numerous factors, inclUding: (i) General market, political and economic conditions;
(ii) Trading and liquidity of our Shares;
(iii) Changes in earnings estimates and recommendations by financial analysts; (iv) Changes in market valuations of listed securities in general and other securities exchanges’ shares in particular; 5. RISK FACTORS (cont’d) (v) Changes in governmental policy, legislation 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. The Malaysian, regional and global equity markets have experienced price and volume volatility that have affected the prices of securities of many public listed companies. Prices of securities of many public listed companies have experienced wide fluctuations that have often been unrelated to the operating performance of those companies. Such fluctuations in price may adversely affect the market price of our Shares.
5.3.4 Delay or failure in our Listing The occurrence of certain events, including the following, may cause a delay in or termination of our Listing: (i) The approval for our Listing is revoked by the authorities for whatever reason; or
(ii) The occurrence of certain events or circumstance beyond our Group’s control (including any legal suit filed by any party).
Following the crediting of our Shares to your CDS account, which is prior to the anticipated date of our Listing, the Entitled Shareholders of both Kencana Petroleum and SapuraCrest are now our shareholders even if the admission into and the commencement of trading of our Shares on the Main Market of Bursa Securities does not occur. Delays in admission and the commencement of trading in securities on Bursa Securities have also previously occurred.
5.3.5 Our ability to pay dividends will be affected by various factors Our ability to pay dividends or make any distributions to our shareholders will be dependent on the financial performance and cash flow position of our operating subsidiaries and may also be subject to any applicable law, licence and contractual obligations, including restrictions in financing contracts entered into by our Group. Terms of the financing contracts typically only allow for dividends to be declared provided that the financial covenants in these contracts continue to be complied with and there is no event of default and/or material adverse effect to our business. Historically, SapuraCrest and Kencana Petroleum declared and paid different amount of dividends to their respective shareholders. The single-tier dividend per SapuraCrest Share declared by SapuraCrest for the year ended 31 January 2009, 2010, 2011 amounted to 5.0 sen, 7.0 sen and 8.5 sen respectively whilst the singletier dividend per Kencana Petroleum Share declared by Kencana Petroleum amounted to 0.5 sen for each of the year ended 31 July 2008, 2009, 2010. SapuraCrest and Kencana Petroleum did not declare any dividend for the year ended 31 January 2012 and 31 July 2011 respectively, in view of the implementation of the Merger. SapuraCrest and Kencana Petroleum did not have a fixed dividend policy, As at the LPD, we also do not have a fixed dividend policy and our future dividend payments are not guaranteed and may be less or more than the dividends previously paid by SapuraCrest and Kencana Petroleum respectively, prior to the Merger. 5. RISK FACTORS (cont’d) There is no assurance that our Group will be able to record profits and have sufficient funds above our funding requirements, to pay dividends to our shareholders. In addition, changes in the applicable accounting standards may affect our ability to declare and pay dividends. 5.3.6 Our major shareholders’ interests may not be aligned with those of our other shareholders Our major shareholders may be able to influence the outcome of certain matters requiring the vote of our shareholders, including approval of final dividends, certain corporate exercises, business transactions and the appointment of directors, unless our major shareholders are required to abstain from voting by law and/or by the relevant authorities. There can be no assurance that the interest of our major shareholders will be aligned with the interest of our other shareholders. 5.4 Other risks 5.4.1 Forward-looking statements are subject to uncertainties and contingencies Certain statements in this Prospectus in relation to us 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 Group for future operations, which are forward-looking in nature, will be subject to uncertainties and contingencies. Although our Group believes 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 us or any other adviser that the plans and objectives of our Group will be achieved. 5.4.2 Impairment of goodwill Based on our unaudited proforma consolidated statement of financial position as at 31 January 2012, we have goodwill of approximately RM4.91 billion upon Completion, which is subject to impairment test every year. Some examples of events/changes in circumstances which may cause impairment of goodwill are as follows: (i) Evidence of obsolescence or physical damage of an asset in the cash generating units (“CGU”) which may materially affect the cash generating capability of such asset;
(ii) Significant changes in the event to which, or manner in which, an asset in the CGU is. used or is expected to be used, that have taken place in the period under review or soon thereafter and that will have an adverse effect on it. These changes include the asset becoming idle, plans to dispose of an asset sooner than expected, reassessing the asset’s useful life as finite rather than indefinite or plans to restructure the operation to which the asset belongs;
(iii) Significant adverse changes that have taken place during the period under review, or will take place in the near future, in the technological, market, economic or legal environment in which the CGU operates; and (iv) Economic performance of the CGU is, or will be worse than expected. In the event of goodwill impairment, the profitability of our Group may be adversely affected which may have a corresponding effect on our shareholders’ value.
5. RISK FACTORS (cont’d) 5.4.3 Our Group has significant indebtedness We incurred new borrowings of RM2.05 billion to fund among others the Cash Payments, upfront funding costs, fixed deposits of 3 months interest of the said borrowings and transaction expenses. Based on our unaudited proforma consolidated statement of financial position as at 31 January 2012, our total interest-bearing indebtedness (including the borrowings of approximately RM317 million) incurred by SapuraCrest to fund the Clough Business Acquisition) stood at RM4,498.9 million, which translates to a gross gearing ratio of approximately 0.88 times. In this respect, our Group’s indebtedness may, amongst others, limit our ability to secure new borrowings and will require us to dedicate a substantial portion of our cash flow to service our debt and other contractual obligations, hence reducing available funds for other purposes. (The rest of this page has been intentionally left blank)