IFA's Opinion regarding the connected transaction of TTW

- TRANSLATION - Attachment 4 The Opinion Report of the Independent Financial Advisor Regarding the Connected Transaction of Thai Tap Water Supply Public Company Limited Proposed to The Shareholders of Thai Tap Water Supply Public Company Limited Prepared by Country Group Securities Public Company Limited July 3, 2009 The Opinion Report of the Independent Financial Advisor Table of Contents Page 2 Executive Summary The Opinion Report of the Independent Financial Advisor 1. Characteristics and details of the Transaction 7 2. Reasonableness of the Transaction 40 3. Fairness on pricing and conditions of the Transaction 54 4. Conclusion of the IFA's opinion 73 Appendix 1 Summary on the drafted agreement on production, distribution and service rights, 75 dated July 2, 2009 2 Summary on the key assets under the Company's rights of operation and 83 management 3 The Shareholder Structure of Thai Tap Water Supply Plc. as of June 16, 2009 and 85 details of related parties 4 The projected net cash flow using the base discount rate 92 Page 1 of the total 92 pages The Opinion Report of the Independent Financial Advisor Executive Summary The Board of Directors Meeting of Thai Tap Water Supply Plc. ("the Company" or "TTW") No. 5/2552 held on May 29, 2009, with the directors with vested interests, Mr. Plew Trivisvavet, Mr. Narong Sangsuriya, Mr. Prasert Marittanaporn, and Mr. Sombat Kitjalaksana, not attending and voting at the meeting, passed a resolution approving for the Company to seek approval from the Extraordinary General Meeting of Shareholders No. 1/2552 for a purchase of rights to operate and manage treated water and waste water services at Bangpa-in Industrial Estate for the period of 30 years ("Operating Rights") from Bangpa-In Land Development Co., Ltd. ("BLDC") at the price of Bt. 1,400 million. In accordance with the Notification of the Stock Exchange of Thailand ("SET"), Re: Disclosure of Information and Acts of Listed Companies Concerning Acquisition or Disposal of Assets, B.E. 2547, and the amendment thereto under the Notification of the Capital Market Supervisory Board No. ThorJor. 20/2551, as well as Section 89/29 of the Securities and Exchange Act B.E. 2551, the transaction size of the Transaction is 7.34% of the total asset value of the Company and its subsidiaries according to the consolidated financial statements ended March 31, 2009 and is lower than 15%, hence not being treated as an acquisition of assets that must be disclosed to the SET. However, the said Transaction is treated as the Connected Transaction as the Company and BLDC have the same directors and major shareholders and the total size of the Transaction is equivalent to 16.25% of the net tangible asset value of the Company and its subsidiaries according to the consolidated financial statements ended March 31, 2009, which is in line with the SET Notification, Re: Disclosure on Information and Acts of the Listed Company concerning the Connected Transaction, B.E. 2546, and the amendment thereto under the Notification of the Capital Market Supervisory Board No. ThorJor. 21/2551, as well as Section 89/12 of the Securities and Exchange Act B.E. 2551. Therefore, the Transaction requires approval from a shareholders meeting with at least three-fourths of the total votes of the shareholders or their proxies (if any) attending the meeting and having the right to vote, excluding shares of the shareholders with vested interests. Moreover, the Company will have to engage the Independent Financial Advisor to give the Opinion on the reasonableness of the Transaction for proposing to the Audit Committee and the Shareholders. Accordingly, the Board of Directors of the Company has appointed Country Group Securities Plc. to be the Independent Financial Advisor ("CGS" or "the IFA") to provide opinions with respect to reasonableness of the Transaction and fairness on pricing on the Transacton to the Audit Committee and the Shareholders of the Company. CGS, as the Financial Advisor accredited by the Securities and Exchange Commission ("SEC") and being independent to the Company, has considered and studied the information on the Transaction based on the Page 2 of the total 92 pages The Opinion Report of the Independent Financial Advisor resolution of the Meeting of the Board of Directors of the Company No. 5/2552 held on May 29, 2009, the consolidated financial statements audited/reviewed by the Company's auditor, the financial statements audited by BLDC's auditor, company affidavit, list of shareholders, articles and memorandum of association, all relevant agreements, the independent advisor reports, other supporting information and documents, assumptions obtained from the Company and BLDC, and interviews with the Management and the relevant staff, including consideration on the overall industry situation and related economic factors. Hence the Opinion on the said Transacton is summarized as followed. 1. Reasonableness of the Transaction The Independent Financial Advisor has the Opinion that the acquisition of Operating Rights at Bangpa-in Industrial Estate is aligned with the Company's tap water business objective as the Company can enlarge its tap water distribution coverage from Nakhon Pathom and Samut Sakhon provinces to Bangpa-in Indutrial Estate in Phra Nakhon Si Ayutthaya province, thus helping to promote the Company's image as the biggest privately owned producer of tap water in Thailand. In addition, to purchase such right will enable the Company to run a comprehensive tap water business, ranging from production to distribution and service charge collection from customers in Bangpa-in Indutrial Estate. Therefore, the Company's service coverage will be expanded and mitigate risk from reliance on a sole customer, PWA. The Company will also be authorized to render a waste water treatment service to the operators in Bangpa-in Indutrial Estate, which corresponds with its policy to diversify into other related business. Accordingly, this Transaction will be a starting point and give it an opportunity to expand the scope of services to the private sector customers. This will at the same time help to boost its income from the business operations and relatively strengthen its income stability in the long run through the 30-year term of the Operating Rights. The Company can then exploit its experience and skill in the tap water production for a successful operation at Bangpa-in Industrial Estate. However, as mentioned in Item 2.4 - Risk Factors to make the Transaction page 47, the Independent Financial Advisor is of the opinion that there are the risk factors which the Company and its shareholders should cautiously consider before entering into this transaction since if the clarifications on the risk factors provided by the Company and BLDC were different as disclosed, it might impact the Company's the operation and the operating performance at Bangpa-In Industrial Estate. As a result, it might cause the Company can't receive the expected return from investment. 2. Fairness of price and appropriateness of payment terms for the Operating Rights The Independent Financial Advisor has the Opinion that the price of the Operating Rights of Bt. 1,400 million is reasonable because under the assumption used herein the Company will obtain the net present value of cash flow greater than zero, or in a range of Bt. 25.75 million - Bt. 139.60 million, which yield higher return than the Page 3 of the total 92 pages The Opinion Report of the Independent Financial Advisor investment cost, whereas the average rate of return on investment is equal to 12.80%. However, the Independent Financial Advisor is of opinion that the investment value of Bt. 1,400 million is quite close to the fair value computed under the determined assumptions and thus, when the Company starts actual operation and the assumed factors have been deviated, especially the factor about the growth rate of demand for tap water volumes of the entrepreneurs in Bangpa-In Industrial Estate , it might effect the return from investment of this project. Considering the Condition of the Transaction, the Independent Financial Advisor has the Opinion that the payment term is by no means a disadvantage to the Company, but is considered fair and in line with the business norms. Moreover, the other conditions specified in the Operating Rights are agreed between both parties and in line with the business norm, as per the above Opinion of the Independent Financial Advisor. Taking into account all above facts, objectives of the Transaction, business justification, advantages and disadvantages, reasonableness of the transaction, fairness of price and payment term, and given that all factors of concern described in Item 2.4 - Risk factors to make the Transaction appear to be as clarified by TTW and BLDC and all conditions to be set out in the final Operating Rights Agreement are no less inferior to those specified in the draft agreement, The Independent Financial Advisor has the Opinion that the Connected Transaction to be made with BLDC is appropriate and therefore would like to recommend that the shareholders vote in favor of such Transaction. As the IFA, CGS hereby certify that CGS have performed the study and analysis of the information mentioned above with prudence and under the professional standards and have given rationales fairly based on the information and analytical outcome, with consideration of benefits for the interest of minority shareholders. The Opinion is provided according to the information available from the documents and/or interviews with the management and concerned staff of the Company and BLDC, as well as the publicly disclosed information and all other relevant information. CGS have assumed that all such information is true and correct. Therefore, if the information is not correct and/or not true and/or will significantly change in the future, it might affect on the Opinion given herein. We accordingly cannot affirm the effects likely posed by such factors on the Company and its shareholders in the future. Moreover, the opinions herein are provided solely for proposing to the Company's Board of Directors and Shareholders regarding the above mentioned Transaction. Nonetheless, the final decision whether to approve the Transaction rests primarily with the Shareholders. The shareholders should study the information and the rationales, advantages & disadvantages, risk factors and opinions on other additional issues provided in the documents attached to the Notice of Shareholders Meeting, to consider suitably approval on the Transaction. Page 4 of the total 92 pages The Opinion Report of the Independent Financial Advisor No. WorNor. 87/2552 July 3, 2009 Subject The Opinions of the Independent Financial Advisor on the Connected Transaction of Thai Tap Water Supply Plc. To The Audit Committee and the Shareholders Thai Tap Water Supply Plc. The Board of Directors Meeting of Thai Tap Water Supply Plc. ("the Company" or "TTW") No. 5/2552 held on May 29, 2009, with the directors with vested interests, Mr. Plew Trivisvavet, Mr. Narong Sangsuriya, Mr. Prasert Marittanaporn, and Mr. Sombat Kitjalaksana, not attending and voting at the meeting, passed a resolution approving for the Company to seek approval from the Extraordinary General Meeting of Shareholders No. 1/2552 for a purchase of rights to operate and manage treated water and waste water services at Bangpa-in Industrial Estate for the period of 30 years ("Operating Rights") from Bangpa-In Land Development Co., Ltd. ("BLDC") at the price of Bt. 1,400 million. In accordance with the Notification of the Stock Exchange of Thailand ("SET"), Re: Disclosure of Information and Acts of Listed Companies Concerning Acquisition or Disposal of Assets, B.E. 2547, and the amendment thereto under the Notification of the Capital Market Supervisory Board No. ThorJor. 20/2551, as well as Section 89/29 of the Securities and Exchange Act B.E. 2551, the transaction size of this Transaction is 7.34% of the total asset value of the Company and its subsidiaries according to the consolidated financial statements ended March 31, 2009 and is lower than 15%, hence not being treated as an acquisition of assets that must be disclosed to the SET. However, the said Transaction is treated as the Connected Transaction as the Company and BLDC have the same directors and major shareholders and the total size of the Transaction is equivalent to 16.25% of the net tangible asset value of the Company and its subsidiaries according to the consolidated financial statements ended March 31, 2009, which is in line with the SET Notification, Re: Disclosure on Information and Acts of Listed Companies concerning the Connected Transaction, B.E. 2546, and the amendment thereto under the Notification of the Capital Market Supervisory Board No. ThorJor. 21/2551, as well as Section 89/12 of the Securities and Exchange Act B.E. 2551. Therefore, the Transaction requires approval from the shareholders meeting with at least three- fourths of the total votes of the shareholders or their proxies (if any) attending the meeting and having the right to vote, excluding shares of the shareholders with vested interests. Moreover, the Company will have to engage the Independent Financial Advisor to grant opinions on the reasonableness of the Transaction for proposing to the Audit Committee and the Shareholders. Page 5 of the total 92 pages The Opinion Report of the Independent Financial Advisor Accordingly, the Board of Directors of the Company has appointed Country Group Securities Plc. to be the Independent Financial Advisor ("CGS" or "the IFA") to provide the Opinion with respect to reasonableness of the Transaction and fairness of the Transaction price to the Audit Committee and the Shareholders of the Company. CGS, as the Financial Advisor accredited by the Securities and Exchange Commission ("SEC") and being independent to the Company, has considered and studied the information on this Transaction based on the resolution of the Meeting of the Board of Directors of the Company No. 5/2552 held on May 29, 2009, the Company's audited/reviewed consolidated financial statements, BLDC's audited financial statements, company affidavit, list of shareholders, articles and memorandum of association, all relevant agreements, the independent advisor reports, other supporting information and documents, assumptions obtained from the Company and BLDC, and interviews with the management and concerned staff, including consideration on the overall industry situation and related economic factors. Here are the details of the Transaction and the Opinion on the said Transacton: Page 6 of the total 92 pages The Opinion Report of the Independent Financial Advisor 1. Characteristics and details of the Transaction 1.1 Date of the Transaction and relevant parties Date of the Transaction The Company will acquire the Operating Rights from BLDC after approval is obtained from the Extraordinary General Meeting of Shareholders No. 1/2552 to be held on July 31, 2009 and the agreement on the rights to operate and manage treated water and waste water services between the Company and BLDC is concluded. The Transaction is expected to take place by September 2009. Relevant parties and the relationship Assignor : Bangpa-In Land Development Co., Ltd. ("BLDC") Assignee : Thai Tap Water Supply Plc. ("the Company" or "TTW") The Relationship : Major shareholder and director of BLDC, i.e. Mr. Plew Trivisvavet, is also a director and major shareholder of the Company. The relationship of the connected persons is summarized as follows: 1. Mr. Plew Trivisvavet and his close relatives are directors of the Company and altogether hold directly and indirectly 594,848,628 shares in CH. Karnchang Plc. ("CK"), representing 41.14% of CK's paid-up registered capital (data as of May 6, 2009). They also directly and indirectly own 2,200,000 shares in BLDC or 91.67% of its paid-up registered capital (data as of April 29, 2008). 2. CH. Karnchang Plc. ("CK") CK is TTW's major shareholder with direct and indirect holding of 1,777,527,400 shares or 44.55% of the Company's paid-up registered capital (divided into direct holding of 1,408,777,400 shares and indirect holding of 368,750,000 shares through Bangkok Expressway Plc. ("BECL"), representing 35.31% and 9.24% respectively of the Company's paid-up registered capital) (data as of June 16, 2009). At the same time, CK directly and indirectly holds 127,525,890 shares in BECL or 16.56% of BECL's paid- up registered capital (divided into direct holding of 117,974,750 shares and indirect holding of 9,551,140 shares through CH.Karnchang-Tokyu Construction Co., Ltd., representing 15.32% and 1.24% of BECL's paid-up registered capital respectively) (data as of April 16, 2009). 3. BECL is a shareholder of the Company holding 368,750,000 shares or 9.24% of the Company's paid-up and registered capital (data as of June 16, 2009). 4. the List of the connected persons who are directors of the Company, CK, BECL and BLDC (data as of June 16, 2009) is tabulated below: Page 7 of the total 92 pages The Opinion Report of the Independent Financial Advisor Name of connected persons Position in the Company Position in CK Position in Position in BECL BLDC 1. Mr. Plew Trivisvavet Director Chairman of the Board of Chairman of Director Management and Chief Executive Executive Officer Committee 2. Mr. Narong Sangsuriya Director and Chairman of Director and Senior - - Executive Committee Executive Vice President, Operation Group 3. Mr. Prasert Marittanaporn Director, Member of Risk Director and Senior -* - Management Committee, and Executive Vice President, Member of Nomination and Administration Group Remuneration Committee 4. Mr. Sombat Kitjalaksana Director and Member of Director and Executive - - Executive Committee Vice President, Business Development Note: *Spouse of Mr. Prasert Marittanaporn is the Managing Director of BECL. 5. The Shareholding Structure of the connected persons is illustrated below: Mr.Plew + Connected Persons + 99.78% His Close Relatives 60.00% 40.00% 50.00% 60.00% 75.00% 93.10% Ekamthorn Co., Ltd. (more)