Information Request

Online Q&A

MegaChem Limited

Management Online Q&A With Investors

Dear Investors,

Thank you very much for the questions and the opportunity for us to respond. We hope you have a better understanding of our business through this online exchange.

Your questions will be reposted in blue italics followed by our replies in black.

Rgds,
The Management Team
MegaChem Limited

Dear Jayster, you wrote:

MegaChem has incurred a total of $455,000 in interest on borrowings in 2008 on a total borrowing of $8.3M. The average interest rate works out to be 5.48%.

MegaChem has declared a final dividend of 0.3 cents which works out to be 1.28% cost of capital for an NAV of 23.4 cents.

MegaChem's return on equity is about 7.1%.

Has MegaChem considered paring down on its bank borrowings and turning to the shareholders for funding as the cost of capital is much lower?

MegaChem has not tapped into the equity market for funding since it was listed in 2003, is it still viable for MegaChem to maintain its listing status considering the reporting and maintenance cost of listing?

Market interest rate was higher in the early part of 2008. As interest rate has come down substantially, cost of borrowing will also come down.

While we believe that our borrowing is still at a comfortable level, as part of our strategy, we will bring down our level of borrowings to reduce our financial risk arising from the economic crisis. We have sinced pared down our borrowings but see no need to raise funds from shareholders given the current depressed state of the stock market.

We are confident of our resilience and stability of business model and are optimistic of our prospects over the next few years. As such, there is no intention to delist at this point in time.

Dear Serene Lim, you wrote:

Has the steep decline in oil prices helped to reduce the cost of sales for MegaChem?

Will the company benefit from the job credit and special risk-sharing initiative announced recently by the Singapore government?

Cost cutting measure is critical to protect the bottomline as revenue starts to drop due to the economic downturn. What steps has MegaChem taken towards reducing operating cost?

Given all other factors being constant, we expect lower oil prices to lower our cost of sales.

Yes, we will benefit from the job credits scheme but believe that there is no need to tap into the risk sharing scheme.

As part of an overall approach to manage the crisis, we have undertaken cost reduction measures to reduce total expenses by at least 10%. We have undertaken cost cutting measures in areas such as entertainment, staff benefits, travelling and finance costs. We have reduced bonus payment for 2008 and also adopted a wage freeze for 2009.

Dear Marcus Ng, you wrote:

Has the company encountered any difficulties in recalling trade receivables from its clients?

The company managed a net foreign exchange gain of $274,000. Does it hedge against its foreign exchange exposure?

Given the volatility of the currency market, has MegaChem considered changing its reporting currency to the USD since most overseas sales are made in this currency?

We have not seen a significant slowdown in collection of trade receivables but acknowledge that this is a potential risk arising from this crisis and have taken measures to step up our credit control and manage this.

Yes we have prudent hedging policy based on exposure in the underlying trade flows. Given the increasing currency volatility, we will continue to stay vigilant in hedging our exposures.

Although our USD revenue is increasing over the years, a significant portion is in SGD. We are not likely to change our reporting currency in the near future.

Dear Investors,

We thank you all for your questions and hope we have sufficiently addressed your concern. We would like to assure all shareholders that the management is committed to growing this company and to enhance our shareholders’ value.

Regards,
The Management Team
MegaChem Limited