Contents :

We refer to the announcement dated 10 December 2007 in relation to the Previous Proposals (as defined below) (“Previous Announcement”). Unless otherwise stated, all definitions shall have the same meanings as those stated in the Previous Announcement.


1. INTRODUCTION

1.1 On behalf of the Board of Directors (“Board”) of TM, CIMB Investment Bank Berhad (“CIMB”) is pleased to announce that on 6 February 2008, TM’s wholly-owned subsidiary, TM International, and TM International’s indirect wholly-owned subsidiary, Indocel, entered into a Sale and Purchase Agreement (“SPA”) with Khazanah to acquire all of Khazanah’s equity interests in SunShare and XL, to be satisfied through the issuance of new ordinary shares of RM1.00 each in TM International (“TM International Shares”).

1.2 CIMB, on behalf of TM, had also announced on 10 December 2007 that TM’s Board had, amongst others, approved the final terms of the Proposed Demerger, which comprises the Proposed Internal Restructuring and Proposed Distribution.

Following the Proposed Demerger, the entire issued and paid-up ordinary share capital of TM International is proposed to be listed on the Main Board of Bursa Malaysia Securities Berhad (“Bursa Securities”).

1.3 On 10 December 2007, CIMB also announced that TM’s Board proposes to undertake the Shareholders’ Mandate, Proposed Option Scheme and Special Dividend. The Special Dividend was paid on 31 January 2008.

(The Proposed Demerger, Proposed Listing, Shareholders’ Mandate, Proposed Option Scheme and Special Dividend shall collectively be referred to as the “Previous Proposals”).

Unless otherwise stated, the exchange rates of Singapore Dollars (“SGD”) 1.00:RM2.2796 and Indonesian Rupiah (“IDR”) 100:RM0.0345, being the respective middle rates prevailing on 15 January 2008 as published by Bank Negara Malaysia have been applied for the purpose of the illustrations presented in this announcement.


2. DETAILS OF THE PROPOSED ACQUISITION

2.1 On 6 February 2008, TM’s wholly-owned subsidiaries, TM International and Indocel, entered into the SPA with Khazanah (collectively referred to as the “Parties”) for the following:

(i) proposed acquisition by TM International from Khazanah of 35,965,998 redeemable convertible preference shares of United States Dollar (“USD”) 0.01 each in SunShare (“SunShare RCPS”) and 2 Class A ordinary shares of USD1.00 each in SunShare (“SunShare Shares”), collectively representing approximately 49% of the issued and paid-up share capital of SunShare for a purchase consideration of RM155 million; and

(ii) proposed acquisition by Indocel from Khazanah of 1,191,553,500 ordinary shares of IDR100 each in XL (“XL Shares”), representing approximately 16.81% of the issued and paid-up share capital of XL for a purchase consideration of RM1,425 million,

whereby the aggregate consideration of RM1,580 million will be satisfied through the issuance of:

(i) 176,000,000 new TM International Shares at an issue price of approximately RM8.98 per TM International Share if the Proposed Demerger becomes unconditional in accordance with the terms and conditions of the agreement dated 10 December 2007 in relation to the Proposed Internal Restructuring (“Demerger Agreement”) (“Scenario 1”); or

(ii) 4,500,000 new TM International Shares at an issue price of approximately RM351.11 per TM International Share if the Proposed Demerger does not become unconditional in accordance with the terms and conditions of the Demerger Agreement (“Scenario 2”).

2.2 The aggregate purchase consideration of the SunShare RCPS, SunShare Shares and XL Shares (collectively referred to as “Sale Shares”) (“Purchase Consideration”) and issue prices of the new TM International Shares (“Consideration Shares”) under the Proposed Acquisition were arrived at on a willing buyer-willing seller basis after taking into consideration the following:

(i) SunShare’s profit after taxation (“PAT”), net assets (“NA”) and bank borrowings of SGD57.0 million, SGD180.6 million and SGD540.0 million respectively (equivalent to RM129.9 million, RM411.6 million and RM1,231.0 million respectively) based on SunShare’s audited financial statements for the financial year ended 31 December 2006;

(ii) the 3-month volume weighted average market price of MobileOne Ltd (“M1”) shares up to 15 January 2008 of approximately SGD1.97 per share (equivalent to RM4.49 per share or a market capitalisation of RM3,973.7 million). As at 31 December 2007, SunShare had a 29.7% equity interest in M1;


(iii) XL’s PAT and NA of IDR651.9 billion and IDR4,281.2 billion respectively (equivalent to RM224.9 million and RM1,477.0 million respectively) based on XL’s audited consolidated financial statements for the financial year ended 31 December 2006;

(iv) the purchase consideration entailed in a recent transaction as announced by Emirates Telecommunication Corporation (“Etisalat”) on 11 December 2007, whereby Etisalat, through its subsidiary, acquired 15.97% equity interest in XL from Bella Sapphire Ventures Ltd for a total purchase consideration of USD438 million (equivalent to RM1,452 million based on the exchange rate of USD1.00:RM3.3140 prevailing on 11 December 2007);

(v) the proposed TM International Group after the Proposed Demerger‘s (“RegionCo”) proforma PAT after minority interest (“PATAMI”) and NA of RM1,150.1 million and RM8,150.0 million respectively based on TM International’s proforma consolidated financial statements after the Proposed Demerger for the financial year ended 31 December 2006 and the market prices of the public listed subsidiaries and associated companies of RegionCo; and

(vi) the TM International Group’s PATAMI and NA of RM629.3 million and RM3,222.8 million respectively based on TM International’s audited consolidated financial statements for the financial year ended 31 December 2006 and the market prices of the public listed subsidiaries and associated companies of the TM International Group.

2.3 The other salient terms of the SPA are as follows:

(i) Khazanah shall sell and transfer to TM International (in relation to SunShare RCPS and SunShare Shares) and Indocel (in relation to XL Shares), and TM International and Indocel, relying on the warranties and representations by Khazanah contained in the SPA, shall purchase the Sale Shares at the Purchase Consideration free from all encumbrances and all liabilities and with all rights, benefits and advantages attaching thereto, including all bonuses, rights, dividends and distributions declared, made and paid as from the completion date of the Proposed Acquisition (“Completion Date”). The Completion Date shall be a date falling within 1 month from the date when all the conditions precedent in relation to the Proposed Acquisition are fulfilled or such other date as the Parties may mutually agree in writing;

(ii) the Parties agree that TM International and Indocel shall only be required to acquire the Sale Shares if TM International and Indocel are able to acquire all, and not part of, the Sale Shares in the manner stated in the SPA;

(iii) the Proposed Acquisition is conditional upon, amongst others, TM International having been notified of the outcome of the last condition precedent for the Proposed Demerger as set out in the Demerger Agreement and in the event that the Proposed Demerger becomes unconditional, the Proposed Acquisition is conditional upon the approval of the Securities Commission (“SC”) and TM’s shareholders for the Proposed GO Waiver (as defined in Section 2.6 below). In addition, the Proposed Acquisition is conditional upon the approvals as set out in Section 6 below being obtained by the relevant Parties within 3 months from the date of the SPA or such other extended period as the Parties may mutually agree, failing which the SPA shall lapse and be of no further effect;

(iv) the Parties, subject to the extent permitted by law or the rules of the relevant regulatory authorities, may waive any of the conditions precedent at any time by notice in writing to the other Parties; and


(v) on the Completion Date, TM International and Khazanah shall take all necessary steps to terminate the joint venture and shareholders’ agreement dated 17 August 2005 entered into by TM International, Khazanah and SunShare in relation to the acquisition by SunShare of shares in M1, which was restated on 23 September 2005 pursuant to a subscription agreement dated 23 September 2005 entered into by TM, Khazanah and SunShare in relation to subscription by TM and Khazanah of SunShare RCPS.

2.4 Since the Proposed Acquisition involves the acquisition by TM International of additional stake in companies in which the TM Group already holds equity interest and has Board representation, the warranties and representations from Khazanah to TM International and Indocel in respect of the purchase of the Sale Shares under the SPA are limited to the following:

(i) Khazanah has the legal right, and authority and power to enter into the SPA and to bind itself to the SPA and to exercise its rights and perform its obligations thereunder;

(ii) the Sale Shares are free from any claims, charges, liens, encumbrances or equities and Khazanah has and will, until the Completion Date, continue to retain the unrestricted rights to transfer the Sale Shares and there is not and will not be any option over or right to acquire any of the Sale Shares;

(iii) compliance with the terms of the SPA does not and will not result in a breach of, or constitute a default under any agreement or document to which SunShare and/or XL are a party, nor result in the creation of any encumbrances on any assets of SunShare and/or XL, nor result in any present or future indebtedness of SunShare and/or XL being due and payable or capable of being declared due and payable prior to its stated maturity; and

(iv) Khazanah is not aware of any circumstances which might adversely affect its inability to perform its obligations under the SPA.

2.5 Diagrammatical Illustration

Based on the assumption that 137.6 million ordinary shares of RM1.00 each in TM (“TM Shares”), representing approximately 4% of TM’s existing issued and paid-up share capital, will be issued under the Proposed Option Scheme before the completion of the Proposed Demerger and/or Proposed Acquisition, diagrammatical illustrations of the Proposed Acquisition with respect to Scenario 1 and Scenario 2 are presented in Appendix I.

2.6 Implications of the Malaysian Code on Take-Overs and Mergers, 1998 (“Code“)

2.6.1 If the Proposed Demerger becomes unconditional (Scenario 1), Khazanah’s equity interest in TM International after the Proposed Demerger would increase by more than 2% as a result of the Proposed Acquisition. In accordance with the Code, Khazanah would then be required to carry out a mandatory take-over offer to acquire the remaining TM International Shares not held by Khazanah.

2.6.2 Whilst it is the intention of the TM International Group to increase its equity stakes in SunShare and XL, any take-over offer on TM International may lead to the privatisation of TM International, which is not in line with the objectives of the Proposed Demerger. In this respect, Khazanah will be seeking the approval of the SC and shareholders of TM for an exemption under Practice Note 2.9.1 of the Code from the obligation to carry out a mandatory take-over offer to acquire the remaining TM International Shares not held by Khazanah (“Proposed GO Waiver”).

2.6.3 There are no take-over implications with respect to Scenario 2 (i.e. if the Proposed Demerger does not become unconditional).

2.7 Conditionality

The Proposed Acquisition is not conditional upon any other corporate proposal and vice versa.

Nonetheless, the number of Consideration Shares to be issued under the Proposed Acquisition is dependent on the outcome of the Proposed Demerger.

2.8 Ranking of the TM International Shares

The Consideration Shares shall, upon allotment and issuance, rank equally in all respects with the existing TM International Shares except that they shall not entitle Khazanah to any dividend, right, allotment and/or other distributions in respect of which the entitlement date is before the date of allotment of such new TM International Shares.

It is TM’s Board’s intention that the Consideration Shares be listed on the Main Board of Bursa Securities in conjunction with the Proposed Listing under Scenario 1.

2.9 Information on SunShare

SunShare was incorporated in Labuan under the Offshore Companies Act 1990 as a private limited company on 7 June 2005. As at 15 January 2008, the principal activity of SunShare is investment holding.

SunShare is a joint venture company formed by the TM Group and Khazanah. As at 15 January 2008, the TM Group and Khazanah have an economic benefit of 51% and 49% respectively over SunShare.

In 2005, SunShare, having acquired 12.1% of the equity interest in M1 from Great Eastern Telecommunications Ltd, became a strategic shareholder in M1. Subsequently, up to March 2006, SunShare made on-market purchases, bringing its total equity interest in M1 to 29.7%. As at 31 December 2007, SunShare has a 29.7% equity interest in M1.

M1 is a public company listed on the Singapore Exchange Securities Trading Limited offering a full range of mobile voice and data communications services over its 2G/3G/3.5G network. As at 30 September 2007, M1 was the third largest mobile telecommunications service provider in Singapore with approximately 1.5 million subscribers, representing approximately 27.8% market share (according to Frost & Sullivan (M) Sdn Bhd (“Frost & Sullivan”) based on data published by the Infocomm Development Authority of Singapore(“IDA”)).

2.10 Information on XL

XL was incorporated as a limited liability company under the laws of Indonesia and was established under the Deed of Establishment No. 55, dated 6 October 1989, as amended by Deed No. 79, dated 17 January 1991. XL was previously established under the name PT Grahametropolitan Lestari and has its legal domicile in Jakarta, Indonesia. In 1995, XL changed its name to its present name. In 1996, XL commenced commercial operations and was the first private company to provide mobile telephony services in Indonesia. In September 2005, it was listed on the Jakarta Stock Exchange (now known as Indonesia Stock Exchange) and became an indirect subsidiary of TM International through a series of acquisitions in 2005 and 2006 by TM International’s wholly-owned subsidiaries, TM International (L) Limited and Indocel.


XL’s business primarily consists of providing voice, data and other value-added mobile telecommunications services. XL operates its network under a GSM 900 and GSM 1800 license from the Minister of Communications and Information in Indonesia and has been allocated two bands of spectrum pursuant to which it operates its GSM 900 and GSM 1800 networks. XL has also been allocated 3G spectrum and in September 2006, XL introduced its 3G service, which is currently available in 73 cities throughout Indonesia. XL’s current network covers more than 90% of the populated areas of Indonesia. XL also provides leased line and corporate services which include internet service provider and voice over internet protocol services.

2.11 Information on Khazanah

Khazanah was incorporated in Malaysia under the Companies Act, 1965 on 3 September 1993 as a public limited company. Khazanah is the investment holding arm of the Government of Malaysia entrusted to manage the assets held by the Government of Malaysia and to undertake strategic investments. Khazanah’s primary objectives are:

(i) to hold and manage investments entrusted to it by the Government of Malaysia; and

(ii) to undertake new investments in strategic, high technology and national interest projects.

As at 15 January 2008, the directors of Khazanah are as follows:

(i)	Dato' Seri Abdullah Haji Ahmad Badawi
(ii)	Tan Sri Dato' Seri Nor Mohamed Yakcop
(iii)	Tan Sri Dato' Sri Dr Zeti Akhtar Aziz
(iv)	Tan Sri Md Nor Md Yusof
(v)	Dato' Mohammed Azlan Hashim
(vi)	Dato' Mohamed Azman Yahya
(vii)	Raja Datuk Seri Arshad Raja Tun Uda
(viii)	Dato' Azman Mokhtar

Save for one share owned by Pesuruhjaya Tanah Persekutuan (the Federal Land Commissioner), all of the share capital of Khazanah is owned by the Minister of Finance, Incorporated (“MoF Inc”).

2.12 The TM International Group will not be assuming any liability under the Proposed Acquisition. Nonetheless, the TM International Group may be required to assume the credit support currently provided by Khazanah and TM to the lenders of SunShare, pursuant to the Proposed Acquisition and Proposed Demerger respectively.

2.13 Barring any unforeseen circumstances, the Proposed Acquisition is expected to be completed by the end of the 2nd quarter of 2008.



3. RATIONALE OF THE PROPOSED ACQUISITION

The Proposed Acquisition would allow the TM International Group to increase its effective equity stakes in M1 and XL, which is in line with TM International's strategy for earnings enhancement and stability.

The acquisition of SunShare RCPS and SunShare Shares under the Proposed Acquisition would allow the TM Group or RegionCo, as the case may be, to increase the economic benefit it derives from M1 from an effective equity interest of 15.15% to a more meaningful level of 29.7% upon completion of the Proposed Acquisition. This will allow the TM Group or RegionCo, as the case may be, to continue to strengthen its regional footprint in Singapore where M1 is the third largest mobile telecommunications service provider as at 30 September 2007.

As at 15 January 2008, the TM International Group held a 66.99% equity interest in XL, which represents one of its key subsidiaries in a high growth market. Upon completion of the Proposed Acquisition, the TM International Group’s equity interest in XL would increase to 83.80%. The 3-year compounded annual growth rate ("CAGR") of XL's revenue between 2004 and 2006 is 34.4%. Based on XL's prospects as set out in Section 5.1.2 below, TM International’s Board expects that the additional stake in XL would increase the TM International Group's earnings per share in the near term and enhance its growth profile.


4. PROSPECTS

4.1 SunShare

SunShare, being a joint venture company between the TM Group and Khazanah set up for the purpose of investing in M1, a mobile telecommunications service provider in Singapore, holds a total equity interest of 29.7% in M1 as at 15 January 2008. Under the Proposed Acquisition, the TM Group’s or RegionCo’s, as the case may be, stake in SunShare will increase from 51% to 100%, resulting in the increase of effective equity interest in M1 (through SunShare) from 15.15% as at 15 January 2008 to 29.7% upon completion of the Proposed Acquisition. The prospects relating to the mobile telecommunications market in Singapore is as set out below:

Prospects relating to the mobile telecommunications services market in Singapore

According to Frost & Sullivan, with a penetration rate of 112.8% as at 30 September 2007, the mobile telecommunications services market in Singapore can be considered as one of the most saturated markets in the South East Asian region. Although the market has reached saturation, the subscriber growth in the first 9 months of 2007 grew substantially at a rate of 13.8% to 5.3 million subscribers due to the influx of foreign workers and robust growth in the prepaid segment. Prepaid subscribers, which accounted for 44.2% of total mobile subscribers in Singapore, grew by 30.0% over the same period. Frost & Sullivan projects mobile subscriber base in Singapore to grow at a CAGR of 7.4% between 2006 and 2011. Subscriber growth is envisaged to be from the prepaid segment which caters to the lower-end market as well as the influx of foreign workers. Revenue growth is likely to stem from a larger addressable market resulting from the growth in population base and emergence of mobile broadband services, and greater emphasis for value-added services and convergent services. The emphasis of competition has gone beyond pricing, and is heavily placed on network quality, breadth of value-added services, and service convergence.

The emergence of mobile broadband would expand the addressable market opportunity for the mobile telecommunications industry, particularly for mobile operators that do not currently own a fixed broadband business. The introduction of mobile broadband services over High Speed Downlink Packet Access (“HSDPA”) networks is expected to expand the addressable market for mobile operators and to tap on the residential broadband market. In line with increased need for further market segmentation, mobile operators are turning to value added services such as addressing the high growth enterprise market and non-Short Messaging Services (“SMS”) segments for other revenue streams.

Competition in Singapore’s mobile telecommunications market has intensified, given its high market saturation and the introduction by the IDA of a 10-year masterplan, known as the Intelligent Nation 2015, which would reduce demarcation between the wireless (mobile) and wired (fixed-line) telecommunications market. Singapore Telecommunications Ltd and StarHub Mobile Pte Ltd (“StarHub”), which hold significant market share over wired broadband services, are expected to face competitive pressures from new wireless broadband access entrants and M1’s mobile broadband HSDPA services.

(Source: Executive Summary of the Mobile Telecommunications Market in Singapore, Frost & Sullivan, December 2007)

4.2 XL

XL is a mobile telecommunications service provider in Indonesia, in which the TM International Group holds an effective equity interest of 66.99% as at 15 January 2008. Under the Proposed Acquisition, the TM International Group will increase its effective equity interest to 83.80%. The prospects relating to the mobile telecommunications services market in Indonesia is as set out below:

Prospects relating to the mobile telecommunications services market in Indonesia

Indonesia is one of the fastest growing mobile markets in Asia Pacific, with total number of subscribers growing at a staggering CAGR of 50.9% between 2003 and 2006. Several factors are expected to drive the robust growth of Indonesia’s mobile telecommunications market. The present low mobile penetration, the lack of fixed-line infrastructure and the anticipated price competition resulting from the entry of new players are expected to spur demand for mobile services. With major cities already experiencing mobile saturation, the reduction in cost of entry-level handsets is expected to enhance affordability particularly in rural areas and lower-end segments of the market. While the Indonesian mobile market is showing robust growth, it is still in its growth stage, with a mobile penetration rate of approximately 33% as at 30 September 2007. Meanwhile, subscriber penetration for fixed-line services in Indonesia is still very low, at approximately 4% as at 30 September 2007. The lack of fixed-line infrastructure and the increasing preference for mobility are expected to accelerate the pace of fixed-to-mobile substitution effect where more users are expected to adopt mobile services over fixed-line services.

With major cities experiencing mobile saturation, the reduction in cost of entry-level handsets is expected to spur affordability particularly in rural areas and lower-end segments of the market. Given this, mobile subscriber base in Indonesia is expected to grow at a CAGR of 22.4% from 2006 to 2011, to 175 million users and a mobile penetration of over 66% by 2011.

(Source: Executive Summary of the Mobile Telecommunications Market in Indonesia, Frost & Sullivan, December 2007)



5. RISK FACTORS

As the TM Group or RegionCo, as the case may be, is already involved in M1’s (through SunShare) and XL’s mobile telecommunications business, the risk factors described in Sections 5.1 and 5.2 below already exist in TM Group or RegionCo, as the case may be.

5.1 Risk factors relating to SunShare

A summary of the risks (which may not be exhaustive) relating to SunShare and M1’s business is set out below:

5.1.1 Dependence on dividend income

As an investment holding company, SunShare is dependent on the dividend income from M1 and accordingly, any adverse impact on the results of the operations or financial performance of M1 will affect the dividend income from SunShare to the TM Group or RegionCo, as the case may be.

Nonetheless, given the scale of the TM Group’s and/or RegionCo’s operations and the relative contribution of SunShare at the consolidated group level, it is expected that any such adverse impact will be less significant as a whole.

5.1.2 Competition faced by M1

M1 competes with 2 other mobile operators in Singapore, namely, Singapore Telecom Mobile Pte Ltd (“SingTel Mobile”), a subsidiary of Singapore Telecommunications Ltd (“SingTel”), and StarHub Mobile Pte Ltd (“StarHub”). SingTel and StarHub are full service providers, offering services ranging from mobile to fixed-line, broadband and pay TV. M1, on the other hand, only offers mobile services but has recently entered into the residential broadband segment with the deployment of its HSDPA broadband services.

Further, along with its competitors, M1 faces two immediate threats from Voice over Internet Protocol (the transmission of voice through the Internet) and new Wireless Broadband Access (“WBA”) licensees (including WiMAX deployment). Nevertheless, poor commercial readiness for mobile WiMAX and the lack of a viable business plans have been the key obstacles for the said license holders to launch commercial WBA services.

(Source: Executive Summary of the Mobile Telecommunications Market in Singapore, Frost & Sullivan, December 2007)

5.1.3 Rapid technology changes

The mobile telecommunications industry is susceptible to technology changes. This may require significant changes to the mobile operators’ business model, development of new products and substantial investments in next-generation infrastructure to accommodate growth in its business and the adoption of new technologies and services. A new generation network is a packet-based network where service-related functions are independent from the underlying transport-related technologies. The effect of emerging and future technological changes on the competitiveness of mobile operators’ business cannot be accurately predicted. There can be no assurance that technologies employed by M1 will not become obsolete or be subject to competition from new technologies in the future.

(Source: Executive Summary of the Mobile Telecommunications Market in Singapore, Frost & Sullivan, December 2007)


5.1.4 Regulations and licenses

The operation of mobile telecommunications networks and the provision of related services in Singapore are subject to statutory licensing requirements and regulated by the Singapore Government via the IDA. Changes in laws, regulations or government policy in Singapore, or in relation to the telecommunications industry in Singapore, or changes in the licenses held by M1 or its competitors by the IDA, could adversely affect M1’s results of operations and prospects. Any breach of the terms and conditions of its licenses or authorisation by M1 or failure to comply with applicable regulations on M1’s part may result in such licenses or authorisation being revoked and/or relevant penalty being imposed upon M1. Any revocation or unfavorable amendment of the licenses or authorisation, or any failure to remedy the breach or renew the licenses or authorisation on comparable terms, could have a material adverse effect on M1’s business, financial condition, results of operations and prospects.

5.2 Risk factors relating to XL

A summary of the risks (which may not be exhaustive) relating to XL’s business is set out below:

5.2.1 Competition

The Indonesian telecommunication market is highly competitive with 8 mobile operators and 3 fixed wireless operators according to Frost & Sullivan. Competition in the mobile telecommunications industry is based mainly on factors such as network coverage, quality, price and customer service. XL’s most prominent competitors are PT Telekomunikasi Selular (“Telkomsel”) and PT Indosat Tbk. (“Indosat”).

In addition, the regulatory reform in the Indonesian telecommunications sector, which was initiated by the Government of Indonesia in 2003, has to a certain extent resulted in the liberalisation of the telecommunications industry. Other competitors, potentially with greater resources than XL, may enter the Indonesian telecommunications sector and compete with it in providing mobile telecommunications services.

Along with its competitors, XL may also be subject to competition from providers of new telecommunication services as a result of technological developments and the convergence of various telecommunication services. New and existing mobile telecommunications service providers may significantly increase subscriber acquisition costs by offering more attractive product and service packages, resulting in higher average monthly churn, lower average revenue per user (“ARPU”) or a reduction, or slower growth, in XL’s customer base.

(Source: Executive Summary of the Mobile Telecommunications Market in Indonesia, Frost & Sullivan, December 2007)

5.2.2 Rapid technology changes

The mobile telecommunications industry is subject to rapid, ongoing technological changes. Emerging and future technological changes may adversely affect the viability or competitiveness of XL’s business. Furthermore, changing market demand and consumer trends may require XL to adopt new technologies that could render its existing technologies less competitive or obsolete. At present, it is expected that XL will continue to invest in enhancing its network and coverage for its customers. However, there is no assurance that services enabled by new technologies that XL implements will achieve commercial acceptance or be cost effective.

The introduction and availability of new services offering mobility such as Code Division Multiple Access (“CDMA”) based cellular services as well as Fixed Wireless Access (“FWA”) have increased competition based on prices, product and service packages among mobile service providers.

These operators who are paying lower regulatory/frequency fees than GSM mobile operators are offering their services at lower tariffs and their service quality may also exceed GSM-based mobile services due to more efficient spectrum usage.

Fixed wireless services, particularly those offered without significant regulatory restrictions regarding mobility are able to be more competitive (through savings from lower frequency fees) which can be passed on to consumers in the forms of cheaper tariffs. This may have a material adverse effect on XL’s business, resulting in, among other things, higher average monthly churn, lower ARPU, slower growth in total customers and increased subscriber acquisition cost.

5.2.3 Regulations and licenses

Through the Ministry of Communications and Information of Indonesia (“MOCI”), the Government of Indonesia exercises regulatory power over the telecommunication market in Indonesia. The Government of Indonesia may have objectives that are not necessarily consistent with the maximisation of profits by industry participants. Changes in laws, regulations or government policy in Indonesia, or in relation to the telecommunications industry in Indonesia could adversely affect XL’s results of operations and prospects.

The MOCI is also responsible for the setting and adjustment of tariff guidelines. Since a significant portion of XL’s revenues is dependent upon tariff guidelines formulated by the Indonesian government, any future change, or a lack of change, in the Indonesian government’s tariff guidelines could adversely affect XL’s business, financial condition, results of operations and prospects.

XL also relies on licenses issued by the MOCI for the provision of its mobile telecommunications services as well as for the utilisation of its allocated spectrum frequencies. The MOCI, with due regard to prevailing laws and regulations, may amend the terms of XL’s licenses at its discretion. Any breach of the terms and conditions of XL’s licenses or failure to comply with applicable regulations could result in fines being imposed on it or its licenses being cancelled by the Government of Indonesia. Any revocation or unfavorable amendment of the terms of the licenses, or any failure to renew them on comparable terms, could have a material adverse effect on XL’s business, financial condition, results of operations and prospects.


5.2.4 Funding needs and revenue growth

XL’s business is capital intensive in nature and will require substantial capital to build, maintain and operate its mobile telecommunications network as well as to expand and modernise its network to remain competitive and continue to provide technologically innovative and compatible services.

XL’s investment of significant financial resources to expand its network in Indonesia to increase its customer base has resulted in an increase in the number of its customers without a corresponding increase in its revenues. XL believes that this is partly due to declining voice usage, the industry trend of increasing SMS usage, increased penetration into the lower income segments of the Indonesian market comprised principally of low usage users and the requirement that it offers discounts to its normal tariffs in connection with its marketing, loyalty and retention programs. There is no assurance that further expansions of its customer base will result in corresponding increases to its revenues.

5.2.5 Significant indebtedness

XL has and will continue to have substantial indebtedness. Based on its unaudited consolidated financial results for the 9-month period ended 30 September 2007, XL has a gearing level of 1.98 times. As a result of this substantial indebtedness, XL will require substantial cash flow to meet its obligations under its current and anticipated indebtedness. Therefore, a substantial part of its cash flow from operations will not be available for its business.

There can be no assurance that XL’s substantial indebtedness and cash flow restrictions will not materially and adversely affect its ability to finance its future operations or capital needs or to engage in other business activities, or otherwise adversely affect its business, financial condition, results of operations and prospects and consequently any dividends or distributions to the TM International Group as its ultimate shareholder.

5.2.6 Investigation by the Indonesian Anti-Monopoly Committee

On 1 November 2007, the Commissioner for the Supervision of Business Competition (“KPPU”) issued a determination to commence a preliminary investigation against XL and seven other telecommunication companies suspected of having established price-fixing of SMS and allegedly breaching Article 5 of Antimonopoly Law (Law No.5/1999).

On 15 November 2007, the KPPU sent a summons letter to XL for a hearing session scheduled on 16 November 2007, which was subsequently postponed to 12 December 2007. Other telecommunication companies also received similar summons letters. The KPPU has completed its preliminary investigation and decided to proceed with the second stage investigation against all operators, including PT Natrindo Telepon Seluler, which was initially not included in the preliminary investigation. If the KPPU believes that it requires further information from XL, XL may be summoned to appear before the KPPU or requested to provide such information. Under Indonesian Law, the KPPU is required to complete this stage of the investigation within 60 days, although this may be extended for an additional period of up to 30 days. The KPPU has the obligation to decide whether there is a violation or not to the Antimonopoly Law within 30 days.

If XL and the other operators are found liable for price-fixing, based on Article 47 of Law No. 5/1999, they may be ordered to terminate or abandon the minimum price arrangement and to pay certain fines. Such a decision may also force Indonesian mobile operators to lower tariffs for SMS services and may lead to a decrease in XL’s revenues generated from SMS services and affect its profitability.

5.3 Risk factors relating to the Proposed Acquisition

The TM International Group will be exposed to the following risk factors (which may not be exhaustive) pertaining to the Proposed Acquisition which are set out below:

5.3.1 Completion of the Proposed Acquisition

The completion of the Proposed Acquisition is conditional upon the issuance of TM International Shares under the Proposed Shareholders’ Mandate and is subject to the fulfilment of the various terms and conditions of the SPA as detailed in Section 2.3 above. The Proposed Acquisition may not be completed if any of the conditions precedent are not fulfilled (some of which are beyond TM International’s control). There is no assurance that the Proposed Acquisition will be completed as contemplated by TM and TM International.

5.3.2 Acquisition risk

There are inherent risks relating to acquisitions of companies. There is no assurance that the expected benefit arising from the acquisition of the remaining stake in SunShare and additional stake in XL will be fully realised or at all.

5.3.3 Fluctuations in the exchange rate

A weakening or strengthening of the Singaporean dollar or Indonesian Rupiah may impact the profits of SunShare and XL in RM terms which will be consolidated as part of the earnings of the TM International Group as well as on the receipt of any dividend to be received from M1 (through SunShare) and/or XL. There can be no assurance that any significant fluctuation in the exchange rate will not adversely affect the financial position of the TM International Group with respect to the additional interest in SunShare and XL to be acquired under the Proposed Acquisition.


5.3.4 Foreign investment

The TM International Group’s investment in M1 and XL will be subject to the foreign investment policies of the Singaporean and Indonesian Government respectively. For example, Indonesia recently enacted Presidential Regulation No. 77 of 2007 as amended by Presidential Regulation No. 111, which restricts foreign ownership in Indonesian telecommunications companies depending on the line of business of the relevant company. There are a number of different restriction thresholds applicable to XL's various services, with the most stringent restriction being 49% maximum allowable foreign ownership applicable to companies providing Voice over Internet Protocol services. As a matter of practice, the above limitation is generally not applied to publicly-listed companies such as XL. In addition, currently such practice has not been formalised into or officially recognised in any legislation, decree, rulings or guideline, circulars and other forms of statutory products of the relevant regulatory authorities. There can be no assurance that the relevant Indonesian regulatory authorities will continue observing such practice.

Further, the ability of SunShare and the TM International Group to repatriate profits arising from their investments in M1 and XL respectively will depend largely on the relevant legislation relating to repatriation of profits prevailing at the point of repatriation. There is no assurance that any change to these policies will not materially and adversely affect the performance of the TM International Group.

5.3.5 Credit profile

Upon completion of the Proposed Acquisition, the TM Group or RegionCo, as the case may be, will consolidate all the assets and liabilities of SunShare, including SunShare’s borrowings of SGD540.0 million (equivalent to RM1,231.0 million) based on SunShare’s audited financial statements for the financial year ended 31 December 2006. This may potentially affect the credit profile and financial capacity of the TM Group or RegionCo, as the case may be.

A diminution in the credit profile or financial capacity of the TM Group or RegionCo may restrict the relevant group’s access to debt and equity markets, which may lead to a relatively higher cost of capital. In addition, if adequate financing is not available, the prospects of the relevant group may be adversely affected.



6. APPROVALS REQUIRED

The Proposed Acquisition is subject to the following:

(i) approval of the SC;

(ii) approval of the SC (on behalf of the Foreign Investment Committee (“FIC”));

(iii) approval of Bursa Securities for the listing of and quotation for the Consideration Shares on the Main Board of Bursa Securities in conjunction with the Proposed Listing (if applicable);

(iv) approval of TM’s shareholders at an extraordinary general meeting (“EGM”) to be convened;

(v) approval of the TM International Group’s creditor/lenders (where applicable); and

(vi) approvals/consents of any other relevant authorities.

In addition, the Proposed Acquisition is subject to the Proposed GO Waiver being approved by the SC and TM’s shareholders at the EGM to be convened.

The applications to the SC and the SC (on behalf of the FIC) in relation to the Proposed Acquisition and Proposed GO Waiver are expected to be submitted within 1 month from the date of this announcement.


7. EFFECTS OF THE PROPOSED ACQUISITION

In view of the Previous Proposals, the effects of the Proposed Acquisition on TM and TM International have been presented, for illustrative purposes only, after incorporating effects for the Previous Proposals, where applicable.

Further, the proforma effects of the Proposed Acquisition on TM and TM International have been presented, for illustrative purposes only, based on the following assumptions:

(i) issuance of 137.6 million TM Shares, representing approximately 4% of TM’s issued and paid-up share capital, under the Proposed Option Scheme, which is assumed to be completed before the Proposed Demerger, with an assumed Option exercise price of RM10.30 (based on the 5-day volume-weighted average market price of TM Shares up to 31 January 2008 at a discount of approximately 10%);

(ii) for Scenario 1, issuance of 357.7 million new TM International Shares pursuant to the Shareholders’ Mandate (“Proposed Issue”), representing approximately 10% of TM International’s issued and paid-up share capital after the Proposed Demerger, at an illustrative issue price of approximately RM2.28 per TM International Shares, representing the proforma net book value per TM International Share after the Proposed Demerger as at 31 December 2006; and

(iii) for Scenario 2, issuance of 3.6 million new TM International Shares under the Proposed Issue, representing approximately 10% of TM International’s existing issued and paid-up share capital, at an illustrative issue price of RM90.27 per TM International Shares representing the net book value per TM International Share as at 31 December 2006,

(collectively referred to as the “Assumptions").


With respect to the Proposed Issue, the actual timing and number of new TM International Shares to be issued (if any) will be determined at a later date. Accordingly, this assumption is made solely for the purpose of illustrating the effects of the issuance of new TM International Shares (if any) on TM International and is not an indication of the valuation of RegionCo or TM International Group, which would depend on the market conditions then and the outcome of a bookbuilding exercise (if any).

The inclusion of such information should not be regarded as a representation, warranty or prediction by TM, TM International or any other person with respect to the accuracy of the underlying assumptions or that such results will be or are likely to be achieved.

For the purposes of illustrating effects of the Previous Proposals and Proposed Acquisition on the earnings, net assets and gearing of the TM Group and TM International Group, the following matters have not been taken into consideration:

(i) the Proposed Option Scheme is expected to have an impact on the TM Group’s earnings in view of the adoption of the Financial Reporting Standard 2 (“FRS2”) “Share-Based Payment”. In accordance with FRS2, the cost arising from the issuance of Options under the Proposed Option Scheme will be measured by the fair value of the Options at the date of offer of such Options (“Offer Date”), thereby reducing TM’s consolidated earnings. The fair value is dependent on, amongst others, the exercise price of TM Shares at the Offer Date, the tenure of the Option and volatility of TM Share price. The charge will be recognised over the vesting period. The fair value of the Options will be considered using the same valuation model applied in computing the fair value of the options granted under the TM Group’s previous employees’ share option scheme.

Other than the cost effects pursuant to FRS2, the effects of the Proposed Option Scheme on TM’s consolidated earnings per share would depend on the use of the proceeds to be received upon the exercise of the Options by eligible employees under the Proposed Option Scheme.

The Proposed Option Scheme is also expected to potentially have an impact on TM International’s consolidated earnings by virtue of the cost that TM charges to its relevant subsidiaries based on the allocation of Options to the eligible employees of the said subsidiaries;

(ii) with respect to the Proposed Acquisition, no fair valuation adjustment have been performed on the asset and liabilities of SunShare. Instead, these assets and liabilities are based on the carrying values of assets and liabilities in SunShare’s audited financial statements;

(iii) with respect to the Proposed Issue and Proposed Acquisition, the issue prices of new TM International Shares used may not be measured at their respective fair values. Instead the issue prices used in the proforma illustration were based on TM International’s audited/proforma net assets per share before and after the Proposed Demerger and the transaction price as detailed in the SPA. Any adjustments arising from the valuation to ascertain the fair value of TM International Shares may have significant effect on the recording of the share proceeds received, the cost of acquisition, and the corresponding goodwill and share premium balances.

For Scenario 1, upon completion of the Proposed Demerger and Proposed Acquisition, TM International will consolidate all the asset and liabilities as well as financial results of SunShare. However, for Scenario 2, it is assumed that TM International will only equity account for SunShare in view that it only has 49% of the economic benefit derived from SunShare, while TM will consolidate all the asset and liabilities as well as financial results of SunShare.

Please refer to Appendix II for the proforma effects of the Proposed Acquisition on TM and TM International.


8. MAJOR SHAREHOLDERS’ AND DIRECTORS’ INTERESTS

Save as disclosed below, none of TM’s major shareholders, Directors, and/or persons connected to them have any interest, direct or indirect, in the Proposed Acquisition.

Khazanah, being a major shareholder of TM and a party to the SPA in relation to the Proposed Acquisition, is interested in the Proposed Acquisition. MoF Inc, being the major shareholder of Khazanah, is also deemed interested in the Proposed Acquisition.

Accordingly, Datuk Zalekha Hassan, who is MoF Inc’s representative on TM’s Board, and Puan Dyg Sadiah Abg Bohan, who is the alternate Director to Datuk Zalekha Hassan are deemed interested in the Proposed Acquisition. Dato’ Azman Mokhtar is the Managing Director of Khazanah and also Khazanah’s representative on TM’s Board.

[Please refer to the attachment to view the table]


Khazanah, MoF Inc, Datuk Zalekha Hassan, Puan Dyg Sadiah Abg Bohan and Dato’ Azman Mokhtar will abstain from voting in respect of their direct and/or indirect shareholdings (if any) in TM on the resolution pertaining to the Proposed Acquisition to be tabled at TM’s forthcoming EGM and have also undertaken to ensure that persons connected to them will abstain from voting in respect of their direct and/or indirect shareholdings (if any) in TM on the resolution pertaining to the Proposed Acquisition to be tabled at TM’s forthcoming EGM.

Datuk Zalekha Hassan, Puan Dyg Sadiah Abg Bohan, and Dato’ Azman Mokhtar (“Interested Directors”) have abstained and will continue to abstain from deliberation and voting on the Proposed Acquisition at TM’s relevant Board meetings.


9. ADVISERS

CIMB and UBS Securities Malaysia Sdn Bhd have been appointed by TM as the Joint Advisers for the Proposed Acquisition.

Public Investment Bank Berhad have been appointed by TM as the Independent Adviser to the non-interested shareholders of TM for the Proposed Acquisition and Proposed GO Waiver, subject to the approval of the SC.


10. DIRECTORS’ STATEMENT

The Directors of TM (other than the Interested Directors who have abstained from deliberation for the reasons set out in Section 8 above), having considered all aspects of the Proposed Acquisition, is of the opinion that the Proposed Acquisition is in the best interest of TM.


11. DEPARTURE FROM THE SC'S POLICIES AND GUIDELINES ON ISSUE/OFFER OF SECURITIES (“SC GUIDELINES”)

There is no departure from the SC Guidelines in respect of the Proposed Acquisition.


12. DOCUMENT AVAILABLE FOR INSPECTION

A copy of the SPA is available for inspection at TM’s registered office at Level 51, North Wing, Menara TM, Jalan Pantai Baharu, 50672 Kuala Lumpur, Malaysia, during normal business hours from Mondays to Fridays (except for public holidays) for a period of 3 months from the date of this announcement.

This announcement is dated 6 February 2008.


This announcement is not an offer for sale of securities in any jurisdiction, including in the United States of America (“US”). Securities may not be offered or sold in the US absent registration or an exemption from registration under the US Securities Act 1933, as amended. None of TM, TM International or any seller of securities intends to register any portion of the offering in the US or to conduct a public offering of securities in the US.