The Opinion of Independent Financial Advisor regarding the Acquisition of Assets of BTS Group Holdings Public Company Limited by Capital Plus Advisory Co., Ltd. 15 February 2017 The Opinion of Independent Financial Advisor regarding the Acquisition of Assets Glossary The MRT Pink Line Project The MRT Pink Line Project (Khae Rai - MinBuri) The MRT Yellow Line Project The MRT Yellow Line Project (Lat Phrao - Samrong) SET The Stock Exchange of Thailand Independent Financial Advisor or IFA Capital Plus Advisory Co., Ltd The Company or BTS BTS Group Holdings Public Company Limited PISU Act Private Investments in State Undertakings Act B.E. 2556 (2013) MRTA The Mass Rapid Transit Authority Thailand SRT The State Railway of Thailand OTP The Office of Transport and Traffic Policy and Planning (OTP) BEM Bangkok Expressway and Metro Public Company Limited BLAND Bangkok Land Public Company Limited BTSC Bangkok Mass Transit System Public Company Limited BTSGIF BTS Rail Mass Transit Growth Infrastructure Fund BSR BSR Joint Venture CAGR Compound Annual Growth Rate EBIT Earnings Before Interest and Taxes EBITDA Earnings Before Interest, Tax, Depreciation and Amortization EBT Earnings Before Tax FDR 6-month Fixed Deposit Interest Rate for personal of 4 main commercial banks as at 31 October 2016 or 7 days prior to the submission of proposal IRR Internal Rate of Return NPV Net Present Value PPP Net Cost Public-Private Partnership Net Cost RATCH Ratchaburi Electricity Generating Holding Public Company Limited STEC Sino-Thai Engineering & Construction Public Company Limited TOR Term of Reference WACC Weighted Average Cost of Capital Capital Plus Advisory Co., Ltd. The Opinion of Independent Financial Advisor regarding the Acquisition of Assets Table of Contents Executive Summary ............................................................................................................................................ 8 Part 1. The General Characteristics of the Transaction ................................................................................ 18 Part 2. Details of the Company.......................................................................................................................... 47 Part 3. Appropriateness and Advantages of the Transaction ........................................................................ 58 Part 4. The Reasonableness of the Price ......................................................................................................... 72 Part 5. Conclusion of the IFA’s opinion ......................................................................................................... 122 Enclosure 1 : Sensitivity Analysis .................................................................................................................. 127 Enclosure 2: 30-Year Inflation Rate (1987-2016) .......................................................................................... 143 Capital Plus Advisory Co., Ltd. The Opinion of Independent Financial Advisor regarding the Acquisition of Assets This English Transaction has been prepared solely for the convenience of foreign shareholders of BTS Group Holdings Public Company Limited and should not be relied upon as the definitive and official opinions of the independent financial advisor on the Acquisition of Assets transaction. The Thai language version of the Opinion of the Independent Financial Advisor is the definitive and official document of the advisor and shall prevail in all respects in the event of any inconsistency with this English translation. (Translation) 15 February 2017 Subject: The Opinion of Independent Financial Advisor regarding the Acquisition of Assets for the bidder who had proposed the best offers for the MRT Pink Line Project and the MRT Yellow Line Project To: Independent Directors, Audit Committee, and Shareholders of BTS Group Holdings Public Company Limited According to the Board of Directors Meeting of BTS Group Holdings Public Company Limited (“the Company” or “BTS”) No. 12/2016 held on 19 October 2016 approved the establishment the BSR Joint Venture (“BSR”) under the BSR Joint Venture Agreement which comprises of the Company (holding 75% of BSR), Sino-Thai Engineering & Construction Public Company Limited (“STEC”) (holding 15% of BSR), and Ratchaburi Electricity Generating Holding Public Company Limited (“RATCH”) (holding 10% of BSR) in order to participate in the bidding of the concession contracts for the MRT Pink Line Project (Khae Rai – MinBuri) (“the MRT Pink Line Project”), the entire route is about 34.5 kilometers, and the MRT Yellow Line Project (Lat Phrao –Samrong) (“the MRT Yellow Line Project”), the entire route is about 30 kilometers, which are under public private partnership with the Mass Rapid Transit Authority of Thailand (the “MRTA”), and for each concession, MRTA is responsible for the acquisition of land ownership whereas the concessionaire is responsible for investment, the design, civil works, mechanical and electrical systems and rolling stock, including the operation and maintenance services of both line, the term of investment is 33 years 3 months (3 years and 3 months of construction, 30 years of operation and maintenance). On 7 November 2016, BSR submitted the proposals for the investment on the concession for the MRT Pink Line Project and the MRT Yellow Line Project, which had 2 bidders, the MRTA opened the offer on 17 November 2016. Thereafter, on 14 December 2016, the MRTA issued Letters Nos. MRTA 004/3227 and MRTA 004/3228 stating that BSR Joint Venture was the bidder who had proposed the best offers for the MRT Pink Line Project and the MRT Yellow Line Project, the investment value according the approval of public sector was in the total investment approval by the Cabinet of 105,300 million baht (includes the acquisition of lands), consists of the MRT Pink Line Project of 53,490 million baht and the MRT Yellow Line Project of 51,810 million baht (“the main concession contract”), besides the main concession contract, BSR had also proposed the extension of the MRT Pink Line Project which has total investment of 2,500 million baht and the extension of the MRT Yellow Line Project which has total investment of 3,000 million baht. The Company with STEC and RATCH, under the BSR Joint Venture Agreement, will establish the 2 JV Companies to invest in each project (the “JV Company” or “JV Companies”). The JV Companies will be subsidiaries of the Company. Capital Plus Advisory Co., Ltd. Page 1 The Opinion of Independent Financial Advisor regarding the Acquisition of Assets Moreover, total value of consideration (exclude the acquisition of land of 7,000 million baht for the MRT Pink Line Project and 6,000 million baht for the MRT Yellow Line Project, Source: MRTA1), according to the proposals BSR submitted to MRTA and the subsidies for civil works from public sector can be summarized as follows: (1) The MRT Pink Line Project has the estimated investment cost of approximately 47,564 million baht for the main concession contract and the extension. The detail is as follows: MRT Pink Line Project Amount (million baht) The main concession contract Civil Works 22,000 Mechanical and Electrical systems 23,764 Pre-operating Expenses 300 Revenue Sharing to MRTA throughout the term of concession 250 Total Investment for the main concession contract 46,314 The Extension Civil Works 1,800 Mechanical and Electrical systems 700 Less Fund from private company * 1,250 Total Investment for the extension 1,250 Total Investment 47,564 Remark * Refer to Memorandum of Agreement between the Company and Bangkok Land Public Company Limited (“BLAND”) dated 7 November 2016, which was disclosed to the SET on 8 November 2016. The subsidies from the public sector is not exceeding 20,135 million baht for the main concession contract of MRT Pink Line Project, which is the present value as agreed in the concession contract (discount rate = interest rate (FDR) + 1%) and the JV Companies will receive by yearly installments for the period of not less than 10 years after the start of train operation services. (2) The MRT Yellow Line Project has the estimated investment cost of approximately 46,654 million baht for the main concession contract and the extension. The detail is as follows: MRT Yellow Line Project Amount (million baht) The main concession contract Civil Works 23,000 Mechanical and Electrical systems 20,104 Pre-operating Expenses 300 Revenue Sharing to MRTA throughout the term of concession 250 Total Investment for the main concession contract 43,654 The Extension Civil Works 1,900 Mechanical and Electrical systems 1,100 Total Investment for the extension 3,000 Total Investment 46,654 1 https://mrta.co.th/th/MRTAproject/pinkLine.php and https://mrta.co.th/th/MRTAproject/yellowLine.php Capital Plus Advisory Co., Ltd. Page 2 The Opinion of Independent Financial Advisor regarding the Acquisition of Assets The subsidies from the public sector is not exceeding 22,354 million baht for the main concession contract of MRT Yellow Line Project, which is the present value as agreed in the concession contract (discount rate = interest rate (FDR) + 1%) and the JV Companies will receive by yearly installments for the period of not less than 10 years after the start of train operation services. According to the information received from the management of the Company as of 14 February 2017, the investment of the main concession contract of MRT Pink Line Project and MRT Yellow Line Project are accepted by MRTA and is in the process of negotiation on the extension of both project with MRTA. Status of the concession contract for the MRT Pink Line Project At present, BSR Joint Venture is in the process of negotiating the draft concession contract, as set out in the Terms of Reference, for the MRT Pink Line Project with the MRTA (the “Draft Concession Contract for the MRT Pink Line Project”). The material issues are, among others, the following: (1) variation or change of works by the MRTA and (2) delay in the provision of land by the MRTA (these two issues may have an impact on the investment cost and the implementation of the works under the concession contract as well as the ability of the JV Company to perform its obligations under the concession contract and to collect revenues in the future), and (3) right of the MRTA to purchase the buildings and the mass transit railway system after the termination of the concession contract (which may have an impact on the investment of the JV Company and the overall performance of the Company). Therefore, the terms and conditions of the executed version of the concession contract for the MRT Pink Line Project may differ from the Draft Concession Contract for the MRT Pink Line Project. For this purpose, the Company will propose to its shareholders meeting to delegate the power to the Executive Committee, or any persons designated by the Executive Committee, to negotiate the concession contract for the MRT Pink Line Project and the extension of the MRT Pink Line Project, as well as to carry out any other acts necessary for or in relation thereto on behalf of the JV Company in order to successfully complete the Acquisition of the MRT Pink Line Project Concession, by taking into consideration the appropriateness, benefits and the impacts on the Company and its shareholders. As BSR Joint Venture has submitted an additional proposal relating to the extension of the MRT Pink Line Project together with the main proposal for the investment in the MRT Pink Line Project to the MRTA, the Company anticipates that the terms and conditions of the extension of the MRT Pink Line Project will be included in the concession contract for the MRT Pink Line Project. However, if the negotiations for the extension of the MRT Pink Line Project are delayed, the Company may decide to enter into the concession contract for the MRT Pink Line Project with the MRTA first, without the details relating to the extension of the MRT Pink Line Project, if such action would be more beneficial to the Company. Status of the concession contract for the MRT Yellow Line Project At present, BSR Joint Venture is in the process of negotiating the draft concession contract, as set out in the Terms of Reference, for the MRT Yellow Line Project with the MRTA (the “Draft Concession Contract for the MRT Yellow Line Project”). The material issues are, among others, the following: (1) variation or change of works by the MRTA and (2) delay in the provision of land by the MRTA (these two Capital Plus Advisory Co., Ltd. Page 3 The Opinion of Independent Financial Advisor regarding the Acquisition of Assets issues may have an impact on the investment cost and the implementation of the works under the concession contract as well as the ability of the JV Company to perform its obligations under the concession contract and to collect revenues in the future), and (3) right of the MRTA to purchase the buildings and the mass transit railway system after the termination of the concession contract (which may have an impact on the investment of the JV Company and the overall performance of the Company). Therefore, the terms and conditions of the executed version of the concession contract for the MRT Yellow Line Project may differ from the Draft Concession Contract for the MRT Yellow Line Project. For this purpose, the Company will propose to its shareholders meeting to delegate the power the Executive Committee, or any persons designated by the Executive Committee, to negotiate the concession contract for the MRT Yellow Line Project and the extension of the MRT Yellow Line Project, as well as to carry out any other acts necessary for or in relation thereto on behalf of the JV Company in order to successfully complete the Acquisition of the MRT Yellow Line Project Concession, by taking into consideration the appropriateness, benefits and the impacts on the Company and its shareholders. As BSR Joint Venture has submitted an additional proposal relating to the extension of the MRT Yellow Line Project together with the main proposal for the investment in the MRT Yellow Line Project to the MRTA, the Company anticipates that the terms and conditions of the extension of the MRT Yellow Line Project will be included in the concession contract for the MRT Yellow Line Project. However, if the negotiations for the extension of the MRT Yellow Line Project are delayed, the Company may decide to enter into the concession contract for the MRT Yellow Line Project with the MRTA first, without the details relating to the extension of the MRT Yellow Line Project, if such action would be more beneficial to the Company. The Company disclosed the details of the acquisition of assets transaction to the SET on 14 December 2016, 10 February 2017 and 17 February 2017. The total consideration value is 94,218 million baht which is regarded as an acquisition of assets according to the Notification of the Capital Market Supervisory Board No. TorChor. 20/2551Re: Rules on Entering into Material Transactions Deemed as Acquisition or Disposal of Assets, and the Notification of the Board of Governors of the Stock Exchange of Thailand Re: Disclosure of Information and Other Acts of Listed Companies Concerning the Acquisition and Disposal of Assets B.E. 2547, as amended. In this regard, the transaction value is 102.3% of the total assets of the Company and its subsidiaries as at 31 December 2016 (quarter 3/2017). In addition, after combining the transaction value with other asset acquisition transactions of the Company occurring during the past six months prior to the entering into these transactions, the total transaction value calculated based on the Total Value of Consideration Basis is equivalent to 108.4%, which is classified as type-4 transaction which the value of transaction is above 100%. However, the entering into the Acquisition of the MRT Pink Line Project Concession and the Acquisition of the MRT Yellow Line Project Concession does not constitute an indirect listing on the SET pursuant to the Notifications on Acquisition and Disposal of Assets because it falls under the exception of Clause 24 of the Notifications on Acquisition and Disposal of Assets where the transaction meet all the following requirements, the SET may not treat it as a new listing application, which are Capital Plus Advisory Co., Ltd. Page 4 The Opinion of Independent Financial Advisor regarding the Acquisition of Assets (1) The acquired business is in a similar line of business and supports the business of the Company The Acquisition of the MRT Pink Line Project Concession and the Acquisition of the MRT Yellow Line Project Concession are in a similar line of business and support the business of the Company. The Company’s businesses consist of 4 main businesses, namely mass transit business, media business, property business and services business. The Company operates its mass transit business through Bangkok Mass Transit System Public Company Limited (“BTSC”) engaging as the service provider for the MRT Green Line Project as well as the extension thereof. The nature of business of the MRT Green Line Project is in a similar line of business as those of the MRT Pink Line Project (including the extension of the MRT Pink Line Project) and the MRT Yellow Line Project (including the extension of the MRT Yellow Line Project). In addition, the Company operates its media business through VGI Group, which comprises VGI Global Media Public Company Limited (“VGI”) and its subsidiaries, providing media network services as well as commercial development and other commercial activities both inside and outside of the stations and the rolling stocks, etc. The Company also engages in services business which supports the core businesses of the Company and its subsidiaries. Therefore, the Acquisition of the MRT Pink Line Project Concession and the Acquisition of the MRT Yellow Line Project Concession will support, enhance and create new business opportunities for the existing media business and services business of BTS Group. In addition, they will also enhance the opportunities for the property business of BTS Group in investing in new property development projects along the MRT routes. (2) The Company does not have a policy to make a major change in its main business, The Company does not have a policy to change its main business. The Acquisition of the MRT Pink Line Project Concession and the Acquisition of the MRT Yellow Line Project Concession, which have a concession term of 30 years, will enable the Company to continuously operates the mass transit business, which is its main business. (3) The Company still has suitable qualifications for listing on the SET after the acquisition of assets The Acquisition of the MRT Pink Line Project Concession and the Acquisition of the MRT Yellow Line Project Concession are acquisitions of businesses that do not engage in any illegal activities. In addition, after the Acquisition of the MRT Pink Line Project Concession and the Acquisition of the MRT Yellow Line Project Concession, the Company still has suitable qualifications to maintain its listing status on the Stock Exchange of Thailand (the “SET”), i.e. (a) the directors, executives and controlling persons of the Company have the required qualifications and do not have any prohibited characteristics or any characteristics indicating the lack of suitability to be trusted to manage a business whose shares are held by the public; (b) the Company has in place a good corporate governance system in which the independent directors and the Audit Committee have the required composition and qualifications as prescribed; (c) the Company’s auditor is on the approved list of the Office of the Securities and Exchange Commission (the “SEC”); (d) the Company has in place a sufficient and appropriate internal control system; (e) the Company and its subsidiaries do not have any conflict of interest; (f) the Company maintains its free float requirement; and (g) the Company has set up a provident fund in accordance with the law governing provident funds. Capital Plus Advisory Co., Ltd. Page 5 The Opinion of Independent Financial Advisor regarding the Acquisition of Assets (4) There is no material change in the composition of the Board of Directors, shareholders or controlling persons of the Company. The Company has no material change in the composition of the Board of Directors, shareholders, or controlling persons of the Company. Currently, Mr. Keeree Kanjanapas Group, which holds 41.27 percent of the total number of voting shares of the Company, is a major shareholder and a controlling person of the Company. After the Acquisition of the MRT Pink Line Project Concession and the Acquisition of the MRT Yellow Line Project Concession, Mr. Keeree Kanjanapas Group will remain as a major shareholder and a controlling person of the Company, and does not have a policy to change the members of the Board of Directors and the executives of the Company in the near future. Therefore, the Company is required to disclose the information memorandum regarding the Transaction to the Stock Exchange of Thailand (“SET”), appoint an independent financial advisor to provide the opinion to shareholders, and hold the shareholder meeting to consider and approve the Transaction. The Transaction must be approved by a resolution of no less than three-fourth (3/4) of the total number of votes of the shareholders who have the rights to vote or proxy (if any) who attending the meeting and entitled to vote. However, in order to entering into the aforesaid Transaction, the Company shall not asking for the approval from shareholders before entering into the Transaction since the disclosure of amount of money for the auction or relating information such as investment budget, and sources of funds, and financial projection and return on investment in advance because it may undermine BSR to participate in the auction. During the time of the auction, there are the uncertainty that BSR could win the MRT Pink Line Project and the MRT Yellow Line Project and how much value of the auction. Therefore, the Company needs to take an action before getting approval of the Transaction from shareholders. To be legally binding for the Acquisition of the MRT Pink Line Project Concession and the Acquisition of the MRT Yellow Line Project Concession, the Board of Directors Meeting No. 2/2017 held on 10 February 2017 has resolved to determine the Extraordinary General Meeting of the Shareholders No. 1/2017, which contains of the agenda To approve the entering into the material transaction of acquisition of aforesaid assets in Agenda 3 (The more details has shown in the invitation letter for the Extraordinary General Shareholders’ Meeting No. 1/2017 which is attached together with this IFA Report) before officially singed the concession contract with MRTA, which is estimated to be singed in June 2016. The Company has appointed Capital Plus Advisory Co., Ltd (“Independent Financial Advisor” or “IFA”) to be an independent financial advisor to provide the opinion to shareholders on the appropriateness of the Transaction and the reasonable of prices and terms of the Transaction to shareholders. In preparing this report, IFA relied on the information and details from Information Memorandum which the Company submitted to SET and other information received from the Company such as the financial statements of the Company which have been audited by a Certified Public Accountant, the summary performance of the mass transit business, the projections, business practices and investment of the MRT Pink Line Project and the MRT Yellow Line Project, the feasibility analysis of the MRT Pink Line Project Capital Plus Advisory Co., Ltd. Page 6 The Opinion of Independent Financial Advisor regarding the Acquisition of Assets and the MRT Yellow Line Project which was prepared by financial advisor according to PISU Act2 and the Systra MVA (Thailand) (“MVA”), providing consultancy that specializes in providing consultancy for transportation services both domestically and international, who is a consultant of the Company to estimate the ridership for the MRT Pink Line Project and the MRT Yellow Line Project. MVA has 17 branches around the world. For Thailand, MVA provided consultancy for Bangkok mass transit system, express way system, high way and railway system with clients in public sector and well-known organizations such as MRTA, Don Muang Tollway Public Company Limited, Bangkok Expressway and Metro Public Company Limited (at the present is BEM). The study of MVA overview provided the analysis of population along the MRT line, the connection to other transit systems such as main roads, expressway, and other Mass Transit lines, and also the environment of area such as the traffic, residential and shopping malls, including the economics of Thailand such as GDP growth, Inflation rate and population growth. IFA considered to refer this study for the valuation. In addition, IFA considered Act and Regulations Related to the auction including Private Investments in State Undertakings Act B.E. 2556 (2013) and Notification of the Private Investments in State Undertakings Policy Committee B.E. 2557 (2014), including the public information such as mass rapid transit industry, mass rapid transit construction plan of public sector, economic situation, other information relating to the consideration of entering into the transaction together with the interview of the Company’s staffs, specialized officers and management related to this transaction. However, the analysis and opinion of IFA is under the assumption that all information received from the Company as well as the management interview are complete and accurate. In this case, IFA does not verify the accuracy and completeness of all disclosure information. In addition, BSR is during the process of negotiation with MRTA, which may cause IFA consideration differ from the actual condition of investment. Therefore, IFA can not certify or guarantee or liability, either directly or indirectly related to the accuracy or completeness of the information and certifications that the Company provided to the IFA. IFA is not responsible for any profits or losses and various impacts resulting from this transaction. The sole purpose of this report is to provide opinion to independent director, audit committee, and the Company’s shareholders regarding fairness of price and appropriateness of entering into the transaction based on the current information. Therefore, the opinion of IFA could not verify the impact of any changes or any event subsequent to the transaction which could significantly impact the business operations and financial projections which has been prepared for consideration of the reasonableness of the acquisition of assets as mentioned above. 2 For the MRT Pink Line, TEAM Consulting Engineering and Management Co., Ltd., TEAM Logistics and Transport Co., Ltd., SEA Consult Engineering Co., Ltd., New Model Engineering Consultant Co., Ltd., and Tonichi Engineering Consultants, Inc. For the MRT Yellow Line, Asian Engineering Consultants Corporation Limited, Hamburg – Consult GmbH, 1D2 Group Co., Ltd., Wisit Engineering Consultants Co., Ltd., Enrich Consultants Co., Ltd. and Prime Street Advisory (Thailand) Co., Ltd. Capital Plus Advisory Co., Ltd. Page 7