Joint Venture/Acquisition

RNS Number:4613N
Tanjong PLC
11 July 2003


TANJONG PUBLIC LIMITED COMPANY ("Tanjong" or "Company")

*    Proposed joint venture

*    Proposed acquisition of assets from CargoLifter AG group of companies

1.   INTRODUCTION
     
Further to the announcement made on 20 June 2003, Tanjong announces that:
     
(a)  Tanjong Entertainment Sdn Bhd ("TESB"), a wholly owned
subsidiary of Tanjong, has entered into a joint venture agreement dated 11 July
2003 ("JVA") with Au Leisure Investments Pte Ltd ("Au Leisure"), a company owned
by Mr Colin Au ("CA"); and
              
(b)  JFVVG Dreiundvierzigste Vermogensverwaltungsgesellschaft mbH
(to be known as "Tropical Island Management GmbH") and JFVVG Funfundvierzigste
Vermogensverwaltungsgesellschaft mbH (to be known as "Tropical Island Asset
Management GmbH") (collectively referred to as the "German Companies"), both 50%
owned by TESB, have entered into a conditional purchase and loan contract with
Prof Dr Rolf-Dieter Monning ("Liquidator"), in his capacity as the insolvency
trustee of CargoLifter AG ("CargoLifter") group of companies ("CargoLifter AG
Group"), dated 11 July 2003 ("Conditional Purchase and Loan Contract").

For purposes of this announcement, an exchange rate of EUR1.00 : RM4.35 has been
adopted.

2.   DETAILS OF THE JVA
     
Pursuant to the JVA, TESB and Au Leisure shall hold equal equity interest of 50:
50 in Central Pacific Assets Limited, being the joint venture company ("JV
Company") that shall identify, develop and operate edutainment and leisure based
holiday destinations with tropical island setting ("Proposed Joint Venture").

The JV Company will be initially capitalised at EUR5 million comprising 5
million ordinary shares of EUR1.00 each and eventually an enlarged paid-up share
capital of up to EUR30 million. TESB shall subscribe for its interest in the JV
Company using internally generated funds.

CA shall be appointed as the Chief Executive Officer of the JV Company.  The
position of Chairman and Chief Financial Officer of the JV Company shall be
nominated by TESB.
     
3.   THE PROPOSED ACQUISITION OF ASSETS FROM CARGOLIFTER AG GROUP

Pursuant to the Conditional Purchase and Loan Contract, Tropical Island Asset
Management GmbH shall acquire, amongst others, all the pieces of land owned by
CargoLifter AG Group measuring approximately 500 hectares located at Briesen in
Brand, Germany, together with all such buildings erected thereon and all rights
attached thereto, including:

*    a free standing hangar measuring 360 metres (length) by 210 metres (width) 
     by 107 metres (height);

*    a visitors' centre and other operational and ancillary buildings; and

*    an option to purchase the adjoining parcels of land measuring an aggregate 
     of approximately 100 hectares for an option price of approximately EUR1.28 
     million (or approximately RM5.6 million), exercisable through 30 December      
     2008.

Further, Tropical Island Management GmbH shall acquire a 49% share in
Energieversorgung Brand GmbH which owns the on-site power station and certain
moveable fixtures and equipment owned by CargoLifter AG Group.

(Hereinafter, the above acquisitions shall be collectively referred to as the "
Proposed Acquisitions" and the subject of the Proposed Acquisitions shall be
collectively referred to as the "Assets")

3.1. Purchase Consideration
     
The total purchase consideration payable in respect of the Proposed Acquisitions
of EUR17.5 million ("Purchase Consideration"), which was arrived at following
negotiations with the Liquidator after the submission of the joint bid, shall be
wholly satisfied in cash as follows:
     
(a)  a non-refundable sum of EUR50,000 which had been paid at the
point of submission of the joint bid by Tanjong and CA on 13 June 2003;
     
(b)  a refundable deposit of EUR4.95 million (or approximately
RM21.5 million) which has been paid into an interest-bearing trust account upon
the execution of the Conditional Purchase and Loan Contract on 11 July 2003; and
     
(c)  the balance Purchase Consideration less the loan amounts as
detailed in Section 3.2 below which shall be payable within 14 days after the
rights of withdrawal as described in Section 3.5 below have lapsed.

The Purchase Consideration shall be funded by the German Companies through a
combination of equity funds and shareholder's advances.

No valuation has been undertaken by the German Companies on the Assets.

Save for the assumption of the employment of 12 permanent employees as required
under German laws, there are no liabilities relating to the aforesaid assets to
be acquired pursuant to the Proposed Acquisitions.

3.2. Loan amounts and contributions
     
Under the terms of the Conditional Purchase and Loan Contract, Tropical Island
Asset Management GmbH shall extend a loan of EUR1 million to the Liquidator at
an interest rate of 2.8 % per annum to enable the Liquidator to continue to
manage the Assets and maintain existing insurance and service contracts in
relation to the Assets pending completion of the Conditional Purchase and Loan
Contract. In addition, Tropical Island Asset Management GmbH undertakes to
extend a further loan amount of EUR1 million to the Liquidator if the Liquidator
is able to prove that the additional amount is required for the aforesaid
purpose.

The loans of up to EUR2 million and the deposit of EUR4.95 million, which shall
be repayable in the event the Conditional Purchase and Loan Contract is
terminated, are secured by a guarantee to be issued by the State of Brandenburg
or a major European bank.

The loans of up to EUR2 million shall however be set-off against part of the
balance Purchase Consideration upon completion of the Conditional Purchase and
Loan Agreement.

Tropical Island Management GmbH shall also make a contribution amounting to
EUR180,000 to the Liquidator over a period of six months commencing from August
2003. However, in the event the Conditional Purchase and Loan Agreement is
terminated, then the EUR180,000 together with interest accrued at a rate of 2.8%
per annum shall be repayable.

3.3. Taxes payable
     
In addition to the Purchase Consideration, a refundable value-added tax
equivalent to 16% of the Purchase Consideration or EUR2.8 million (approximately
RM12.2 million) is payable by the German Companies upon completion of the
Proposed Acquisitions.

A non-refundable real estate transfer tax amounting to EUR678,832 (or
approximately RM3.0 million) is also payable by the German Companies upon
completion of the Proposed Acquisitions.

3.4. Conditions precedent
     
The Proposed Acquisitions are subject to the fulfilment of certain conditions
precedent, including the receipt of approvals for the zoning and building plans
and permits for construction and buildings from the relevant German authorities
by 31 January 2004, with an extension of 3 months up to 30 April 2004 subject to
the payment to the Liquidator of an additional amount of EUR30,000 per month.

3.5. Rights of withdrawal
     
The German Companies are entitled to withdraw from the Conditional Purchase and
Loan Contract under the following circumstances:
     
(a)  If major defects to the Assets appear before the conditions
precedent have been fulfilled. In such an event, the German Companies may also
at their election, demand for an adjustment to the Purchase Consideration if the
amount of reduction in the Purchase Consideration does not exceed EUR3 million.
A defect is considered as major if the cost of remedial work exceeds EUR0.5
million for a single defect or an aggregate of EUR2 million for several defects.
     
(b)  If the construction and building permits are not granted by
31 January 2004 (which is extendable to 30 April 2004 as described above) or
within 2 months of such grant, appeals are lodged against one or more of the
permits.

(c)  The occurrence of any force majeure events prior to the
receipt of approvals for the construction and building permits.

(d)  If prior to the receipt of approvals for the construction and
building permits, the CargoLifter hangar is destroyed for reasons not
attributable to the German Companies.

In the event any right of termination is exercised by the German Companies, then
the German Companies shall be entitled to a refund of the deposit of EUR4.95
million, and the loan amounts granted to the Liquidator shall be repaid by the
Liquidator upon receipt of 4 weeks' notice from the German Companies.

4.   INFORMATION ON THE VENDOR
     
Prof Dr Rolf-Dieter Monning, Attorney-at-Law, is acting in his capacity as the
trustee (receiver) in the insolvency proceedings of the assets of CargoLifter AG
Group.

CargoLifter is a limited liability company in Germany, with its headquarters
located in Berlin. CargoLifter AG Group was principally involved in the
development, construction, operation and marketing of large airships for the
worldwide transportation of large and heavy goods. However, it has been under
receivership proceedings since June 2002.

5.   RATIONALE
     
The German Companies will develop and operate an edutainment and leisure based
tourist holiday destination with tropical island setting within the hangar
mentioned in Section 3 ("Tropical Island") which is located in Brand,
approximately 60km south of Berlin, Germany ("Project"). The entrance to the
Tropical Island is proposed to be on the north side of the hangar where the
ticket office, cloakrooms, souvenir shops, restaurants and bars will be located.
Following on from the entrance shall be located a tropical flower world, a
tropical village exhibition centre and a tropical lagoon. At the centre of the
hangar, there shall be transplanted thereon a rainforest on a hill which shall
contain trees and plants from various rainforest zones such as South America,
Africa, Asia and Australia, as well as streams, rivers and waterfalls. A
tropical sea with beach and terrace for sun loungers shall be created at the
south end of the hangar.

The Project would represent the Tanjong Group ("Group")'s first step towards the
development of new expertise in the identification, planning, development,
management and operation of edutainment and leisure based holiday destinations
with tropical island settings, and therefore create a new intellectual property
for the Group's leisure and entertainment business.

CA has 30 years of experience and expertise in international leisure and tourism
industries. Tanjong is already involved in the leisure and entertainment
business through the Group's interest in, inter-alia, Tanjong Golden Village Sdn
Bhd and has continuously evaluated further participation in this particular area
of business.

As such, we believe that the Project is an extension of the Tanjong Group's
expertise and existing involvement in the leisure and entertainment business.
The Project also meets Tanjong's investment criteria and is expected to enhance
the Group's earnings.

It is estimated that the Project shall incur a total cost of up to approximately
EUR70 million (or approximately RM304.5 million), which is inclusive of the
Purchase Consideration of EUR17.5 million. The project cost shall be funded
through a combination of equity funds, shareholder's advances and bank
borrowings to be secured by the German Companies.

6.   INFORMATION ON THE GERMAN COMPANIES
     
6.1. Tropical Island Management GmbH
     
JFVVG Dreiundvierzigste Vermogensverwaltungsgesellschaft mbH was established in
Germany on 22 August 2001 as a private limited company. The company is in the
process of changing its name to Tropical Island Management GmbH and shall be
principally involved in the operation of a leisure park.  As at 11 July 2003,
its authorised and issued and paid-up share capital is EUR25,000 comprising 1
ordinary share of EUR25,000 each.

6.2. Tropical Island Asset Management GmbH
     
JFVVG Funfundvierzigste Vermogensverwaltungsgesellschaft mbH was established in
Germany on 22 August 2001 as a private limited company. The company is in the
process of changing its name to Tropical Island Asset Management GmbH and shall
be principally involved in the acquisition and administration of the assets
which are required for the operation of a leisure park.  As at 11 July 2003, its
authorised and issued and paid-up share capital is EUR25,000 comprising 1
ordinary share of EUR25,000 each.

7.   EFFECTS ON TANJONG
          
7.1. Effects on share capital, shareholding structure and consolidated net 
tangible assets ("NTA")

The Proposed Joint Venture, Proposed Acquisitions and Project will not have any
effect on the share capital or shareholding structure of Tanjong, as they will
not involve the issuance of new ordinary shares by Tanjong.

The Proposed Joint Venture, Proposed Acquisitions and Project are not expected
to have any immediate effect on the consolidated NTA of Tanjong.

7.2. Effects on earnings
     
The Project is only expected to commence operations in the fourth quarter of
2004.  As such, the Project will not have any material effect on the Group's
earnings for the current financial year ending 31 January 2004.

Barring any unforeseen circumstances, the Project is expected to contribute
positively to the Group's earnings in the future years.
     
8.   INVESTMENT CONSIDERATIONS AND PROSPECTS

8.1. Investment considerations
     
Investment considerations relating to the Project include, but are not limited
to, the following:

*    Legal and regulatory risks

     Whilst there is no existing legal or regulatory requirement which would
     adversely affect the Project, there is no assurance that any unexpected 
     changes in the legislation and regulatory requirements in Germany would not 
     have a material adverse effect on the Project.

*    Competition risk and barrier to entry

     Whilst competition may stem from other outdoor theme parks or other tourist
     attractions particularly during the summer months, it is believed that 
     this "Tropical Island" holiday destination has an edge over any such 
     competition as the Project is ideally located within 60km of Berlin and it 
     is the first of its kind in terms of the tropical island concept.

     Further, the construction of a climatically controlled enclosed space would
     require a significant amount of cost and time and represents the single 
     most important barrier to entry. However, under the Project, such a 
     climatically controlled enclosed space is provided by the CargoLifter 
     hangar, which is already an existing structure to be purchased at a 
     fraction of its cost.

     Notwithstanding the above, there is no assurance that the Project will be 
     able to achieve its anticipated market share in the event of greater 
     competition from existing theme parks, other tourist attractions and/or 
     new entrants.

*    Environmental risk

     Whilst there are certain areas close to the site of the CargoLifter hangar 
     that have been contaminated by fuel oil, a declaration of indemnity against 
     liability has been given and the State of Brandenburg has taken over the 
     obligation to remedy possible existing residual pollution. Further, the 
     Conditional Purchase and Loan Contract provides for cancellation of the 
     said contract should other environmental problems or material defects 
     arise.

*    Foreign exchange risk

     Foreign exchange risk is expected to be minimised as any borrowings 
     obtained by the German Companies to finance the Project shall be 
     denominated in Euro to match the income stream.  Further, the Group's 
     equity participation shall also be sourced from the Group's funds held 
     offshore.

*    Risks relating to the repatriation of profits

     German laws currently do not restrict foreign investments in Germany nor 
     the repatriation of profits by foreign investors out of Germany.  Barring 
     any unforeseen circumstances, the Tanjong Group expects to repatriate 
     profits arising from the Project within a period of 5 years from the date 
     of commencement of operations of the Project.  However, there is no 
     assurance that there will not be any modifications to the existing German 
     laws which may impose restrictions or conditions on the repatriation of 
     profits by foreign investors out of Germany.

8.2. Prospects
     
The leisure and tourism industry is one of the largest sectors in the world.
Tropical islands are one of the most visited holiday destinations in the world.
This is especially true for tourists from cold temperate countries who are drawn
to the warm and sunny climate. Tourism is an important sector for the German
economy. In 2001, the tourism industry represented 8% of Germany's gross
domestic product and accounted for 8% of the nation's workforce (Source: German
National Tourist Board).

In view of the foregoing, the prospects for the Project are positive and it also
offers Tanjong the opportunity to extend its involvement in the leisure and
entertainment industry.

9.   APPROVALS REQUIRED
     
Save for the conditions precedent to the Conditional Purchase and Loan
Agreement, the Proposed Joint Venture and Proposed Acquisitions are not subject
to the receipt of any regulatory or shareholders' approvals.

10.  DIRECTORS' OPINION
     
After careful deliberation, the Directors of Tanjong are of the opinion that the
Proposed Joint Venture and Proposed Acquisitions are in the best interest of the
Group.

11.  INTERESTS OF THE DIRECTORS, MAJOR SHAREHOLDERS AND/OR ANY PERSONS CONNECTED 
     WITH THEM

None of the directors nor major shareholders of Tanjong and/or any persons
connected with them have any interest, whether direct or indirect, in the
Proposed Joint Venture and Proposed Acquisitions.

12.  TENTATIVE TIMING

Barring any unforeseen circumstances and assuming the approvals for the
construction and building permits are obtained by the end of the year and the
Conditional Purchase and Loan Contract is completed, works within the
CargoLifter hangar are expected to commence in the first quarter of 2004, and
operations of the Tropical Island are expected to commence in the fourth quarter
of 2004.

13.  THE SECURITIES COMMISSION'S POLICIES AND GUIDELINES ON ISSUE/ OFFER OF 
     SECURITIES

As far as Tanjong is aware, the Proposed Joint Venture and Proposed Acquisitions
do not fall within the ambit of the Securities Commission's Policies and
Guidelines on Issue/Offer of Securities.

14.  DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the JVA and the Conditional Purchase and Loan Contract shall be made
available for inspection at Tanjong's principal office located at Level 30,
Menara Maxis, Kuala Lumpur City Centre, 50088 Kuala Lumpur, during normal
business hours from Mondays to Fridays (inclusive) for a period of 1 month from
the date hereof.


This announcement is dated 11 July 2003.


                      This information is provided by RNS
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