4. RISK FACTORS 4. RISK FACTORS NOTWITHSTANDING THE PROSPECTS OF OUR GROUP AS OUTLINED IN THIS PROSPECTUS, YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS (WHICH MAY NOT BE EXHAUSTIVE) THAT MAY HAVE A SIGNIFICANT IMPACT ON OUR FUTURE PERFORMANCE, IN ADDITION TO OTHER INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS BEFORE INVESTING IN OUR SHARES. If you are in any doubt as to the infOlTIlation contained in this section, you should consult your stockbroker, bank manager, solicitors, accountants or other professional adviser. 4.1 RISKS RELATING TO OUR BUSINESS AND THE INDUSTRY IN WHICH WE OPERATE 4.1.1 Delay in Completion of Projects In line with industry practices, we launch and sell OUf property development projects prior to the completion of construction works. Any delay in completion may give rise to additional costs to us. The timely completion of our projects is dependent upon many factors, some of which are beyond our control such as obtaining permits with conditions which are acceptable to us, obtaining regulatory approvals as scheduled, adequate supply of labour, favourable weather conditions, ability to secure construction materials in adequate amounts and at reasonable prices, absence of or minimal disputes with contractors, absence of or minimal instances of accidents, changes in the priorities and policies of the Government) reliability and the satisfactory performance of building contractors appointed to complete our development projects. There can be no assurance that any adverse changes in these factors will not lead to unforeseen and significant delays in the completion of our projects. In the event of a failure or delay in the delivery of our properties to end purchasers, we may be liable for potential losses in the fonn of liquidated ascertained damages filed by end purchasers against our Group. There is no assurance that we will not experience significant delays in the completion and/or delivery of the properties to end purchasers. In the event that we encounter any delays in the delivery of our properties and incur or suffer any of the aforesaid damages and compensation requirements, the results of our operations, our profitability and our reputation may be adversely affected. In the past) there were several claims for liquidated ascertained damages filed against our Group. Nonetheless, those claims have had no material impact to our Group’s financial position. During the past two (2) years prior to the LPD, our Group has generally experienced up to four (4) months delay in the handing over of the vacant possession for the One SOHO (formerly known as Subang SOHO) project and phase 1 of the Subang Parkhomes project. The delay was due to delay caused by our Group’s third party contractors. Although liquidated ascertained damages amounting to RMO.84 million and RM0.42 million were paid out to the affected purchasers for the respective projects, our Group is able to claim back such liquidated ascertained damages from the third party contractors. As such, there was no material impact to our Group’s financial position. As at the LPD, vacant possession for the said projects have been delivered. The Directors and key management personnel of our Group have been monitoring and will continue to monitor the project schedules closely so that such delays are minimised and will appoint experienced, reliable and fmancially credible contractors and consultants to undertake our Group’s development projects.
4.1.2 Scarcity of Land in Prime Locations Property developers rely heavily on land bank to deliver sustainable growth in business operations and financial performance. As such, property developers constantly replenish their land bank for future development. Intense competition among property developers vying for strategically located parcels of land has resulted in scarcity of such land as well as corresponding increase in land cosl~. 4. RISK FACTOR’) (Conl’d) As at the LPD, we have approximately 470 acres of land located around Klang Valley held for ongoing and future development as set out in Sections 6.2 (ii) and 6.2 (iii) of this Prospectus. Although we were able to purchase relatively attractive and sizeable land parcels in the past, there can be no assurance that we will be able to continue to do so at commercially viable prices or terms. Replenishment of land bank is dependent on various factors, including, amongst others, size and suitability of the land, location, government policies and future prospects of the location. We may not be able to identify and acquire new sites at commercially acceptable prices which may impair our ability to compete effectively with other property developers and in tum may have a material and adverse effect on OUf profitability and business growth. Our Group will continue to look for strategic parcels of land as well as monitor the cost of land in our effort to sustain our Group’s business.
4.1.3 Property Development Land Conversion As at the LPD, our Group has launched certain property development projects as highlighted in Section
6.18.1 of this Prospectus although the land conversion for such property development projects has not been obtained. During the launch of these property development projects and upon signing the sales and purchase agreement, our Group had infonned the respective buyers of such non-compliance in the land conversion. However our Group had, via the respective sales and purchase agreements with the respective end purchasers, undertake to obtain the approval for such land conversion. In the event our Group is unabJe to obtain the approval for the respective land conversion, our Group will refund the monies paid by the respective end purchasers without any interest. Such refunds will not affect the profitability of our Group as the revenue from these property development projects has not been recognised as at the LPD. 4.1.4 Government Policies, Legislations and Regulations The property development and construction industry in Malaysia is governed by regulations, acts and requirements which have been established to regulate and protect individual consumers as well as to determine the minimum standard for the property development and construction industry. These regulations, acts and requirements include, amongst others, the following: (i) the National Land Code (Act 56 of 1965) & Regulations;
(ii) Malaysian Construction Industry Development Board Act 1994;
(iii) the Housing Development (Control and Licensing) Act 1966; (iv) the Housing Development (Control and Licensing) Regulations 1989;
(v) the Housing Development (Housing Development Account) Regulations 1991;
(vi) the Strata Titles Act 1985 & Rules & Order;
(vii) the Building and Common Property (Maintenance and Management) Act 2007; (viii) the Guidelines on the Acquisition of Properties by the Economic Planning Unit, Prime Minister’s Department; (ix) the Street, Drainage and Building Act 1974;
(x) the Town and Country Planning Act 1976 (Act 172); and
(xi) the Local Government Act 1976 and Subsidiary Legislation.
4. RISK FACTORS (Cont’d) Failure to comply with one or more of such regulations may affect our projects. Although to-date, we have been in compliance with all relevant legislations and regulations governing the conduct of our business, there can be no assurance that changes to and/or introduction of new regulations would not have any material and/or adverse effect on our business. However, we will closely monitor any changes as well as stay abreast of any updates in such regulations, via leveraging on our membership in REHDA, in order to keep up with the latest development in the property development industry. For example, the “Build-Then-Sell (“BTS”) 10:90″ mode of house ownership which is expected to be made mandatory by 2015 may have a material impact or pose a material risk to our Group. Nevertheless, the proposed timeframe for implementation of BTS by 2015 will provide our Group sufficient time to make the necessary changes to our current Group’s mode of operations with regard to BTS concept and put in place the necessary fmandal resources when such ruling is implemented. Upon implementation of the BTS concept and despite making the necessalY changes to our current Group’s mode of operations, our Group may still experience an adverse impact as our Group may launch its property development projects on a smaller scale in line with our cash flow position at that point in time. However, our Listing is expected to enhance our ability to raise fWlding and strengthen our financial resources so that we are well positioned to undertake projects based on the BTS concept. In an effort to further reduce the number of abandoned housing projects in Malaysia, the Ministry of Housing and Local Government is proposing to increase the existing deposit paid by developers from RM200,000 per project to 3% of construction costs prior to the issuance of the developers’ licence. As at the LPD, the proposal has yet to be implemented. In the event that the proposal is implemented, our Group may have to rely on a combination of internally generated funds and/or extelnal funding to comply with the said requirement, which will involve a significantly higher amoWlt than the amount that our Group would have normally incurred. Altbough the deposit is refundable upon completion of each project, our operating cashflows may be adversely affected and our Group may need to incur additional financing cost on bank borrowings, depending on the size of our new development projects and mode of funding for these projects. In addition to the above, as at the LPD, Bank Negara Malaysia had implemented the “Guidelines on Responsible Financing” in January 2012 with regard to financing of property purchases by end purchasers to manage the Malaysia household borrowings. In July 2013, Bank Negara Malaysia has reduced the maximum property loan tenure for end purchaser from a tenure of45 years to 35 years. For the past 12 months up to tbe LPD, our Group had experienced a total of 110 cancellations from prospective purcbasers which resulted in approximately RM58.16 million in loss opportunity for our Group as a result of the prospective purchasers being unable to secure fmancing for their purchases. Nevertheless, these units can be resold to other prospective purchasers. On 25 October 20 13, the Government announced in Budget 2014, amongst others the following: (a) Upward revision of Real Property Gains Tax (“RPGT”) -For properties disposed of witbin three (3) years of purchase, the RPGT rate has been revised from 20% currently to 30% effective I January 2014. For properties held and disposed in the fourth (4″‘) and fifth (5Ih) year of purchase, the new RPGT regime imposes a 20% and 15% tax on gains respectively while properties sold after five years are not subjected to RPGT for individual citizens and Malaysian permanent residents. For properties held by companies, a 5% tax on gains continues to be imposed for disposal made in the sixth (6th) and subsequent years. Meanwhile, for non-citizens, a flat rate RPGT of30% is imposed on gains for disposal of properties within five (5) years. For disposal made in the sixth (6Ih) and subsequent years, tbe RPGT rate for non-citizens is 5%;
(b) Probibition on property developers from implementing projects that has features of Developer Interest Bearing Scheme (“DIBS”) to prevent developers from incorporating the interest rates on loans in house price during the construction period. Financial institutions are prohibited from providing the final funding for projects involved in the DIBS scheme; and
4. RISK FACTORS (Cont’d)
(c) The minimum price of property that can be purchased by foreigners will be increased from RM500,000 to RM I,000,000.
32 Moving forward, Qur Group may experience slower take up rates for property development launches and/or higher cancellations from end purchaser due to the above guidelines and developments. 4.1.5 Political and Economic Conditions in Malaysia Adverse development in the political and economic conditions in Malaysia may materially and adversely affect our business and prospects. Such political and economic uncertainties include, but are not limited to, changes in political leadership, monetary and fiscal policies, taxation laws, and currency exchange controls, and nationalisation. While we adopt prudent financial management and operating procedures, there can be no assurance that such adverse political and economic developments which are beyond our control, will not materially and adversely affect our business operations and financial performance. 4.1.6 Performance of the Malaysian Property Market As all our projects are located within Malaysia, our financial perfonnance is largely dependent on the performance of the Malaysian property sector. Any adverse development affecting the Malaygian property sector such as downturn in property demand and property rental market in Malaysia, may affect our business and fmancial perfoffi1ance. This was evident when our revenue for FYE 30 June 2009 was affected as a result of uncertainties surrounding the global financial crigig which began in tile second half of 2008, which caused the property market to soften somewhat in early 2009. This is evident by the slower take-up rates in the first half of 2009 (lH 2009: Volume: 155,190 and Value: RM34,147.73 million; 2H 2008: Volume: 168,968 and Value: RM41,884.72 million) which affected the local property market as well as our profitability. We had to defer some of our property project launches in 2009 which had affected our revenue in FYE 30 June 2009 and FYE 30 June 2010, respectively. Further details of which are set out in Seetion 12.2.1 of this Prospectus. Nevertheless, in planning our future development, we will diligently monitor the development and changes within the Malaysian property sector in order to allow us to minimise the effects of any adverse economic conditions. 4.1.7 Property Overhang Property overhang is inherent in any uncontrolled property development in a particular area and is inter-alia caused by an oversupply and/or low demand for new property launches. Other factors contributing to property overhang include economic downturns and unfavourable financial conditions. Any occurrence ofproperty overhang will affect property developers. Whilst there can be no assurance that we will be able to maintain favourable take-up rates for our property development projects, we will continue to monitor market conditions of the property development industry as well as conduct feasibility studies prior to any new property launches. 4.1.8 Dependence on Key Personnel We believe that our continued success is, to a certain extent, dependent on the abilities, skills, experience, competency and continued efforts of our existing Directors and key management. Our Group will strive to continue attracting and retaining qualified and experienced personnel which is essential towards providing the required skills and services to support our operations. 4. RISK FACTORS (Cont’d) In addition, every effort is being made to groom the junior members of our management team to gradually take over from the senior members to ensure a smooth transition in the management team should changes occur. Any loss ofour key management without suitable and timely replacement or our inability to attract and retain other qualified personnel could adversely affect our Group’s ability to effectively compete in the property development industry. Details of our Executive Directors, key management personnel and our management succession plan are set out in Sections 8.2.1, 8.4.1 and 8.10.3 ofthis Prospectus, respectively. 4.1.9 Dependenee on Third Party Contractors and Consultants We engage third party contractors and consultants to provide us with various services such as design, construction) piling and foundation, mechanical and electrical engineering and interior design services. There can be no assurance that the services rendered by these third party contractors and consultants will be satisfactory or match the quality level expected by us and the end purchasers. Moreover, contractors may experience financial and/or other difficulties such as procuring labour that may affect their ability to carry out the work for which they were contracted for, thus giving rise to additional costs to be incurred as a result of the delay in completion of our projects. Delay by third party contractors may cause us to absorb the damages and not passed the cost to OUT customers. Any of these factors could materially and adversely affect the results of OUT Group’s operations and our reputation. Consequently, any adverse effect to our reputation may adversely affect the take up rate of our future development projects and hence, our future financial perfonnance. Our Group exercises prudent measures in selecting and monitoring our contractors and consultants and their work progress. Such measures include preliminary screening on the background of these third party contractors and consultants in terms of experience, track record and qualification as well as financial strength prior to engaging their services and periodic updates and reports on work progress. 4.1.10 Dependence on Supply of Foreign Workers As at the LPD, OUr Group does not employ any foreign workers. Foreign workers are usually employed by our third party contractors. Nevertheless, our business operations are indirectly dependent on foreign workers due to the shortage of local workers in the construction industry. The Government allows the hiring of foreign workers in the construction industry subject to certain conditions. The conditions imposed by the relevant authorities may change from time to time. Generally, applications to employ foreign workers will only be considered when efforts to find qualified local workers have failed. In the event that there is a shortage of supply of foreign workers or a restriction is imposed on the number of foreign workers allowed to be employed for OUT development projects, the completion of the construction of our property development projects may be delayed, resulting in an increase in overheads which may adversely affect our business operations and financial performance. However, moving forward, we anticipate that our third party contractors will be more receptive towards fully adopting the Industrialised Building System (“IBS”), a construction method where components are manufactured in a controlled environment (on or off site), transported, positioned and assembled into a structure with minimal additional site works. By adopting the IBS, manufactured components such as concrete wall and precast wall panels will be used, thus reducing the need for on site works, such as layering of bricks, carpentry and wall plastering. With lesser On site work, the number of construction workers required to work on our projects will be reduced and, consequently, our third party contractors will need to hire fewer foreign workers. 4. RISK FACTORS (CO/It’d) 4.1.11 Competition from Other Developers Whilst the property development industry generally has a higher barrier to entry, our Group faces competition from existing industry players as well as new market entrants in areas, such as securing strategically located land banle We have taken pro-active and responsive marketing strategies to mitigate such risks in response to the changing market conditions as well as adopting different concepts and innovative designs to correctly position ourselves in meeting the needs of our target market. Pro-active marketing strategy is undertaken during prelaunch period to create market awareness and to capture the interest of potential customers towards the property. For responsive marketing strategy, our Group gather feedbacks provided by end purchasers and incorporate such feedbacks, if practicable, into our Group’s new property development projects to enhance our Group’s competitiveness in the industry. One example of results from such initiatives is evident by our achievements as set out in Section 5.5 of this Prospectus. In addition to location and pricing, the track record and reputation of property developers play an important role in ensuring the successful launch ofnew property development projects. Although our Group seeks to remain competitive by taking such pro-active measures, there can be no assurance that these measures will be effective to mitigate the effects of competition on our business. 4.1.12 Claims During the Defect Liability Period We extend a defect liability period of up to 24 months for our propcrty development projccts. As a result, we will be exposed to claims by end purchasers during such period. Although the costs involved in rectification works are borne by third party contractors, there can be no assurance that these third party contractors will honour the rectification works or works are done in a timely manner. As a result, we may need to assume such rectification works ourselves and/or engaged other contractors to assume the rectification works. Costs of rectification works and/or cost of engaging other contractors to assume the rectification works which is borne by us may have a material and/or adverse effect on our financial position as well as reputation. However, we have the right to claim for the costs associated with such rectification works undertaken by us from the respective contractors. In the event the respective contractors do not honour such claims, it could materially affect our Group’s ability to grow our business and maintain profitability. During the past 12 months up to the LPD, our Group has experienced claims for rectification work during the defect liability period. However, there was no financial impact on our Group as such rectification was carried out by the respective contractors directly. 4.1.13 Fluctuation in Raw Material Prices We enter into fixed price contracts with third party contractors for all of our Group’s projects. However, if the costs of raw materials increase after the sale of our properties but prior to us entering into construction contracts with third party contractors, we would not be able to pass on such increase to our customers. This in tum may have a material and adverse effect on our Group’s financial perfonnance. Notwithstanding that a fixed price contract is entered into with the third party contractor, in the event that our Group is able to source building materials which meet our specifications at lower price, our Group may purchase such building materials to be utilised in our property development projects. As a result, our Group may be able to renegotiate the contract price with the respective third party contractor and enjoy the resuJtant cost savings. During the past 12 months up to the LPD, none of our Group’s 4. RISK FACTORS (Cont’d) third party contractors, which has been awarded a fixed contract by our Group, has renegotiated tile contract price as a result of fluctuation in raw material prices. OUf Board and Management have been monitoring and will continue to closely monitor our projects’ costing and budget prior to the sale of our properties. 4.1.14 Exposnre to Flnctuation in Interest Rates Significant fluctuations in interest rates may affect our financial performance as a certain portion of OUf Group’s working capital requirements are funded via borrowings as set out in Section 12.2.4 (iii) of this Prospectus. OUf Board and management will continue to closely monitor the movement in interest rates in an effort to minimise any risk associated with rising interest rates. Notwithstanding this, there can be no assurance that any fluctuation in the interest rates will not affect OUf Group’s financial perfonnance in the future. Fwther thereto, most of our purchasers would obtain financing to fund their purchases. They are also subject to interest rate fluctuations. Should interest rates increase substantially, this may affect their decision to acquire properties as instalments made for purchases may increase due to unfavourable monetary policies. This may be further aggravated by economic uncertainties. As at the LPD, our Group has not been materially affected by any unfavourable movement in interest rates and has not experienced having substantially unsold units for our Group’s property development. 4.1.15 Covenants on Bank Borrowings Pursuant to credit facility agreements that we may have entered into and/or will enter into with banks and/or financiers, we may be bound by certain covenants which may limit our operating and financial flexibility. The aforesaid covenants are commonly contained in credit facility agreements. Any of our actions falling within the ambit Or scope of such covenant will require the consent of the relevant bank or financiers. Breach of such covenants may give rise to a right by the bank and/or financier to tenninate the relevant credit facility and/or enforce any security granted in relation to that credit facility. During the past 12 months up to the LPD, our Group has not breached any terms and conditions or covenants associated with our credit facility agreements which resulted in any of our credit facilities being terminated due to such breaches. Our Board is aware of such covenants and has taken and shall continue to take all precautions necessary to prevent any breaches. 4.1.16 Adequacy orInsurance Coverage and Timely Claims There are certain losses for which insurance coverage is not available as it is not commercially viable to do so, such as losses due to natural disasters, war or civil disorders. If we suffer any uninsured losses and/or delays in claims for damages and liabilities in the course of our operations and property development, we may not have sufficient funds to cover any such losses, damages or liabilities or to replace any property development which has been destroyed. In addition, any payment we make to cover any losses, damages or liabilities could have a material adverse effect on our business, operations and financial condition and put a strain on our cash flows for other development projects. Our Group is aware of the adverse consequences arising from inadequate insurance coverage given that our Group’s operations are vulnerable to general risks such as fire breakouts, flood and other accidents. In ensuring that such risks are maintained at a minimum, our Group has insured and/or caused to be insured our material assets including all on-going projects under construction and completed properties. 4. RISK FACTORS (Cont’d) There can be no assurance that these risks will continue to be insurable in the future and/or that the amount insured would equal the replacement cost of these insured assets or the predictability on the timely claims process. We will nevertheless continue to review on a regular basis and ensure adequate coverage for OUf GrouP’8 material assets. During the past 12 months up to the LPD, our Group has not submitted any insurance claims. We will nevertheless continue 10 review on a regular basis and ensure adequate coverage for our Group’s material assets. 4.1.17 Material Litigation, Claims or Arbitration Proceedings As at the LPD, save as disclosed in Section 16.4 of this Prospectus, we are not engaged in any material litigation, claims or arbitration proceedings, either as a plaintiff or defendant, and we are currently unaware of any proceeding, pending or threatened or of any fact likely to give rise to any proceeding whieh may materially affect our business Or financial position. There can, however, be no assurance that there will be no proeeedings in the future that could adversely affect our operations and profitability. Our Board is aware of sueh risks and has taken and shall continue to take all precautions necessary to prevent the oecurrence of any event whieh may lead to such claims arising. 4.1.18 Adoption of IC Interpretation 15: Agreements for the Constrnction of Real Estate by the Malaysian Accounting Standards Board The adoption of Ie Interpretation 15 may result in signifieant changes in the preparation of our financial statements. The Malaysian Financial Reporting Standards (“MFRSs”) are mandatory for adoption by all entities other than private entities for annual periods beginning on or after I January 2012, with the exception of entities subject to the application of MFRS 141 Agriculture and/or IC Int 15 Agreements for the Construction of Real Estate (“Transitioning Entities”). The Transitioning Entities are given an option to defer adoption of the MFRSs for an additional three (3) years. Aecordingly, our Group which is a Transitioning Entity has chosen to defer adoption of the MFRSs framework to the financial year ending 30 June 2016. Pursuant to the adoption oflC Interpretation 15, our revenue and corresponding development costs will be recognised only upon completion of our development project(s), as opposed to the percentage of completion method as presently adopted by the industry. In the event we do not complete any property development project in any given financial year, our profitability for the said fmancial year may be materially and adversely affected. Hence, the timing for the eompletion of our development projects will be crucial in ensuring our eontinued profitability after the adoption oflC Interpretation 15. Notwithstanding the above measures, steps and efforts undertaken by our Group to mitigate the abovementioned risks relating to our business and industry, there can be no assurance and guarantee that we can successfully manage all the risks iucluding our ability to compete successfuny in the future, and our ability to obtain sufficient supply of services and materials from our regular suppliers. Further, there is no assurance that our future property development projects will continue to attract buyers at the same levels as we had experienced previously, or our ability to attract and to retain our key management personnel with similar level of experience and capabilities. Failure to do so could have a material and adverse impact on our business, financial condition and the results of our operations. 4. RISK FACTORS (Cont’d) 4.2 RISKS RELATING TO INVESTMENT IN OUR SHARES 4.2.1 Delay or Abortion of our Listing Our Listing may be potentially delayed or aborted in the event of the following: (a) OUf Underwriter exercising its rights pursuant to the Underwriting Agreement to discharge itselffrorn its obligations; or (b) We are unable to meet the public spread requirement of at least 25% of our enlarged issued and paid-up share capital to be held by a minimum of 1,000 public shareholders holding not less than 100 Shares each, at the time ofour Listing. We expect to meet the public shareholding requirement at the point of Listing by allocating the IPO Shares to the required number of public shareholders during the banoting/private placement processes. However, in the event that we are unable to meet the above requirement, monies paid in respect of any application accepted will be returned to you without interest within fourteen (14) days after we become liable to repay it in compliance with the provisions of subsection 243(2) and 243(6) of the CMSA. In the event that the Listing is aborted and our Shares have been allotted to the shareholders, a return of monies to holders of our Shares could only be achieved by way of a cancellation of share capital as provided under the Act and its related rules. Such cancellation requires the sanction of our shareholders by special resolution in a general meeting) consent of our creditors (unless dispensation with such consent has been granted by the High Court of Malaysia) and the confirmation of the High Court of Malaysia. There can be no assurance that such monies can be recovered within a short period of time or at all in such circumstances. 4,2.2 Risk of Failure of Redemption of the RCPS The registered holder will have the rights to convert the RCPS at the conversion price into new fully paid-up Shares in Titijaya at any time from the issue date until the maturity date of thc RCPS. Any RCPS not converted or redeemed shall, on tl,e maturity date, be automatically redeemed by Titijaya by payment in cash to the holder of RCPS an amount equivalent to the issue price of each RCPS held. In the event of no conversion of the RCPS, Titijaya will be obligated to redeem the entire RCPS. The failure of Titijaya to raise adequate funds, whether internal funds or external funds, to redeem the RCPS will result in Titijaya having to convene a class meeting of the RCPS to amend the provisions of the Articles of Association governing the rights of the RCPS.
4.2.3 Risk of Dilution Upon Conversion of RCPS The Acquisitions were satisfied partly by the issuance of the RCPS after taking into consideration that Titijaya Group will ouly commence developing its current land bank in the future. The issuance of RCPS will mitigate the immediate dilutive effect on the EPS of Titijaya Group. Any conversion of RCPS at any time from the issue date to the maturity date by our Promoters to Shares will increase their respective shareholdings within our Company. Assuming our Promoters fully convert their RCPS holdings, our Promoters will collectively hold approximately 65.09% of our enlarged issued and paid-up share capital. Any conversion of RCPS at any time from the issue date to the maturity date to Shares would also result in a dilution in the EPS and NA per Share of our Group, as disclosed in Sections 2.4.1, 2.4.2, 11.1 and 11.2 of this Prospectus. However) as set out in the salient terms of the RCPS, the conversion of the RCPS are staggered over a period of five (5) years and hence such dilution would be minimised. Please refer to Section 3.10 of this Prospectus for the salient terms ofthe RCPS. 4. RISK FACTORS (Com’d)
4.2.4 No Prior Market for our Shares and Possihle Volatility of our Share Price There is no prior market for our Shares. Accordingly, there can be no assurance that an active market for our Shares will develop upon our Listing or if developed, that such market will be sustained. In addition, our Shares could trade at pIices that may be lower than our IPQ Price as a result of many factors, some of which are not within our control and may be unrelated or disproportionate to our operating results. These include, amongst others, prevailing global and local economic conditions, the depth and liquidity of the market for our Shares and investors’ individual perceptions of our Group.
4.2.5 Control hy Promoters Upon Listing, our Promoters will collectively hold approximately 6 L66% of our enlarged issued and paid-up share capital of 340,000,000 Shares. Depending on how they choose to vote and because of their shareholdings, our Promoters will generally be expected to have significant influence on the outcome of certain matters requiring the vote of our shareholders, unless they are required to abstain from voting by law and/or as required by the relevant authorities, Nevertheless, as a step towards good corporate governance, we have appointed three (3) Independent Non-Executive Directors and set up an Audit Committee to ensure that, inter-alia, any future transactions involving related parties are entered into on ann’s length basis and on nonnal commercial tenns which are not more favourable to the related parties than those generally available to the public and are not detrimental to our minority shareholders.
4.2.6 Dividend Payments Our Company, being an investment holding company derives income mainly from dividends received from our subsidiary companies. Hence, our ability to pay future dividends is largely dependent on the perfonnance of our subsidiary companies. In detennining the size of any dividend recommendation, we will also take into consideration a number of factors, including but are not limited to our financial perfonnance, cash flow requirements, debt servicing and fmancing commitments, future expansion plans, loan covenants and compliance with regulatory requirements. Whilst we endeavour to make payments of dividends, no assurance can be given that we are able to pay any dividends in the future as a result of factors stated above. Please refer to Section 12.7 ofthis Prospectus for further infonnation on our dividend policy.
4.2.7 Risk on Additional Funding Although we have identified our future plans as set out in Section 6.19 ofthis Prospectus as avenues to pursue growth in our business, the proceeds from the Public Issue may not be sufficient to fully cover the estimated costs of implementing these future plans, We may also find opportunities to grow through acquisitions that cannot be predicted at this juncture. Under such circumstances, secondary issue(s) of securities after the Listing may be necessary to raise the required capital to develop these growth opportunities. If we then fail to utilise the new equity to generate an increase in earnings, our EPS will be diluted, and this could lead to a decline in our share price. Any additional debt fmancing may increase our Group’s interest expense and gearing, contain restrictive covenants with respect to dividends payment, future fund-raising exercises and other financial and operational matters, which may adversely affect our Group’s financial perfonnance or our growth.