Contents :
1. Introduction
On 26 October 2005, Southern Investment Bank Berhad (SIBB) had, on behalf of the Board of Directors of DiGi (DiGi Board), announced on Bursa Malaysia Securities Berhad the following proposals:
(1) Proposed capital repayment of RM0.75 for every ordinary share of RM1.00 each in DiGi via a reduction of the issued and paid-up share capital of DiGi of RM750,000,000 comprising 750,000,000 ordinary shares of RM1.00 each by RM562,500,000 to RM187,500,000 comprising 750,000,000 ordinary shares of RM0.25 each pursuant to Section 64 of the Companies Act, 1965 (Act) (Proposed Capital Repayment 1); and
(2) Proposed amendments to the Memorandum and Articles of Association of DiGi to facilitate the implementation of the Proposed Capital Repayment 1.
The shareholders of DiGi had approved the above proposals at an extraordinary general meeting convened on 24 January 2006 and the said proposals are currently pending the relevant confirmation order of the High Court of Malaya.
Subsequent to the above proposals, on behalf of the DiGi Board, SIBB is pleased to announce that the Company is proposing a further capital repayment of RM0.60 for every ordinary share in DiGi via the following:
(1) Reduction of the resulting issued and paid-up share capital of DiGi of RM187,500,000 comprising 750,000,000 ordinary shares of RM0.25 each (upon the Proposed Capital Repayment 1 taking effect) by RM112,500,000 to RM75,000,000 comprising 750,000,000 ordinary shares of RM0.10 each, representing a capital repayment of RM0.15 for every ordinary share of RM0.25 each;
(2) Reduction of DiGi’s share premium account by an amount of RM337,500,000 which translates to a capital repayment of RM0.45 for every ordinary share of RM0.25 each; and
((1) and (2) are collectively referred to as the Proposed Capital Repayment 2)
(3) Proposed further amendments to the Memorandum and Articles of Association of DiGi (after the Proposed Capital Repayment 1) to facilitate the implementation of the Proposed Capital Repayment 2 (Proposed Amendments).
((1), (2) and (3) are collectively referred to as the Proposals)
The Proposed Capital Repayment 2 will be satisfied wholly in cash to DiGi’s Entitled Shareholders (as defined below).
2. Information on the Proposals
2.1 Information on the Proposed Capital Repayment 2
The Proposed Capital Repayment 2 involves a proposed capital repayment of RM0.60 for every ordinary share of RM0.25 each (upon the Proposed Capital Repayment 1 taking effect) to the Entitled Shareholders (as defined below), in cash, via a reduction of the share capital and share premium account of DiGi pursuant to Sections 60 and 64 of the Act. The total capital repayment under the Proposed Capital Repayment 2 will amount to RM450,000,000. Upon completion of the Proposed Capital Repayment 2, the par value of the ordinary shares in the Company will be reduced from RM0.25 each (after the Proposed Capital Repayment 1) to RM0.10 each and the Memorandum and Articles of Association of the Company will be amended accordingly.Based on the audited financial statements of the Company for the financial year ended 31 December 2005, the proforma effects of the Proposals on the share premium account of DiGi are set out below: 
Pursuant to Section 60(2) of the Act, the provisions relating to reduction of share capital shall also apply to the share premium account as if the share premium account were paid-up share capital of the Company.
The Proposed Capital Repayment 2 is intended to be funded via the proceeds from a proposed capital repayment by DiGi Telecommunications Sdn Bhd (DiGiTel), a wholly-owned subsidiary of the Company, which will be undertaken in conjunction with the Proposals. Based on the 100% shareholdings of the Company in DiGiTel, DiGi is expected to receive approximately RM451,501,000 from DiGiTel pursuant to the proposed capital repayment by DiGiTel.
The cash will be paid to the shareholders of the Company whose names appear on the Record of Depositors of Bursa Malaysia Depository Sdn Bhd on the entitlement date (Entitled Shareholders). The entitlement date will be determined later by the DiGi Board after the necessary approvals for the Proposals have been obtained.
The Proposals are expected to be completed by the fourth quarter of 2006.
2.2 Information on the Proposed Amendments
It is proposed that further amendments to the Memorandum and Articles of Association of the Company (after the Proposed Capital Repayment 1) be made to reflect the change in the par value of the ordinary shares in the Company from RM0.25 each to RM0.10 each pursuant to the Proposed Capital Repayment 2. This is to facilitate the implementation of the Proposed Capital Repayment 2 in view of the reduction in the par value of the ordinary shares in the Company.
3. Rationale for the Proposals
On 26 October 2005, SIBB had on behalf of the DiGi Board, made an announcement to undertake a proposed capital repayment of RM562,500,000 to its Entitled Shareholders as an integral part of DiGi’s proactive capital management initiative to achieve an efficient capital structure, to increase the Company’s value and consequently, shareholders’ value. The Proposed Capital Repayment 2 reflects the continuous effort of DiGi to achieve an efficient capital structure and the DiGi Board is of the view that such an exercise is an efficient method of rewarding the shareholders.
The Proposed Capital Repayment 2 also represents the Company’s initiative to reward its shareholders for their continuous support of the Company. The quantum of the Proposed Capital Repayment 2 has also taken into account the dividend policy of DiGi that was announced on 26 October 2005 and the implementation of the Proposed Capital Repayment 2 is not expected to have an impact on the said policy.
The financial position of the Group is expected to remain robust notwithstanding the Proposed Capital Repayment 2 in view of the income stream to be generated by the DiGi group of companies (DiGi Group) which is expected to be buoyed by the continuing growth of the telecommunications industry in Malaysia and the brand recognition awareness that DiGi has established in the local market.
Further, DiGiTel has in place a proposal to issue Commercial Papers and Medium Term Notes with an aggregate nominal value of up to RM700 million, an exercise which has received the approval from the Securities Commission on 29 November 2005.The availability of such facilities is expected to accord further financial flexibility to the DiGi Group. Accordingly, the DiGi Board is of the view that the Company is in a position to return part of the shareholders’ investment in DiGi, having taken into consideration the operating requirements and financial obligations of the DiGi Group.
The Proposed Amendments are relevant so as to reflect the new par value of the ordinary share in DiGi upon the implementation of the Proposed Capital Repayment 2.
4. Effects of the Proposals
The effects of the Proposals are set out below:
(i) Share Capital
The proforma effects of the Proposals on the share capital of DiGi are set out below:
(ii) Net Assets and Gearing
The proforma effects of the Proposals on the net assets and gearing of the DiGi Group based on the audited consolidated balance sheet of DiGi as at 31 December 2005 are set out below:
Notes: a Par value of RM0.25 each
b Par value of RM0.10 each
* Interest-bearing borrowings over shareholders’ funds
+ After deducting estimated expenses of RM450,000 for the Proposals
(iii) Earnings
The Proposals are expected to be completed by the fourth quarter of 2006 and will not have any material effect on the earnings of the DiGi Group for the financial year ending 31 December 2006.
(iv) Major Shareholding Structure
The Proposals will not have any effect on the shareholdings of the major shareholders of DiGi as the reduction of DiGi’s share capital will be effected via a proportionate reduction of the par value of all ordinary shares of DiGi from RM0.25 each (after the Proposed Capital Repayment 1) to RM0.10 each.
(v) Dividends
The Proposals are not expected to have any adverse effect on the dividend policy of the Company.
(vi) Return on Equity (ROE)
The Proposals are expected to have a positive impact on the ROE of the DiGi Group. Based on the audited consolidated balance sheet of DiGi as at 31 December 2005, the proforma effects of the Proposals on the ROE of the DiGi Group are set out below:
Note: + After deducting estimated expenses of RM450,000 for the Proposals
5. Approvals required
The Proposals are conditional upon the following being obtained:
(i) the approval of the shareholders of DiGi at an extraordinary general meeting to be convened;
(ii) the approval of DiGi, the sole shareholder of DiGiTel, in relation to the proposed capital repayment by DiGiTel;
(iii) the order of the High Court of Malaya confirming the proposed capital repayment by DiGiTel pursuant to Sections 60 and 64 of the Act;
(iv) the order of the High Court of Malaya confirming the Proposed Capital Repayment 2 pursuant to Sections 60 and 64 of the Act; and
(v) the approval/consent of any other relevant authorities and/or parties, if required.
The Proposals are also conditional upon the proposed capital repayment by DiGiTel as well as the relevant confirmation order of the High Court of Malaya being granted in relation to the Proposed Capital Repayment 1.
6. Adviser
SIBB has been appointed as the corporate adviser to DiGi for the Proposals.
7. Directors’ and major shareholders’ interests
None of the Directors or major shareholders of the Company and/or persons connected to them as defined in the Listing Requirements of Bursa Malaysia Securities Berhad has any other interests, direct or indirect, in the Proposals, save for their respective entitlements as shareholders pursuant to the Proposed Capital Repayment 2, which is on the same basis as that of the other Entitled Shareholders.
8. Directors’ Statement
The DiGi Board is of the view that the Proposals are in the best interests of the Company and its shareholders.
9. Circular to Shareholders
A circular to shareholders on the Proposals will be despatched to shareholders in due course. Notes: a Par value of RM0.25 each * Interest-bearing borrowings over shareholders’ funds
