Wrap Text
Proposed transaction, waiver of mandatory offer and trading update
Consolidated Infrastructure Group Limited
(Incorporated in the Republic of South Africa)
(Registration number: 2007 / 004935 / 06)
JSE share code: CIL ISIN: ZAE000153888
("CIG" or the "Group")
PROPOSED TRANSACTION, WAIVER OF MANDATORY OFFER AND TRADING UPDATE
1. INTRODUCTION AND BACKGROUND
1.1. CIG shareholders ("CIG Shareholders") are referred to the announcement released by CIG on the Stock
Exchange News Service ("SENS") on Tuesday, 15 February 2018, in which it stated that it had reached
agreement with its funders (the "CIG Funders") to extend, until 28 February 2019, the waiver granted as
a result of CIG being in breach of certain funding covenants (the "Debt Standstill").
1.2. Notwithstanding the Debt Standstill, as well as certain extensive operational initiatives undertaken in order
to turn around the performance of Conco, CIG commenced a process to review and evaluate its funding
requirements and optimal long-term capital structure.
1.3. CIG is pleased to announce that it has concluded this process, after having assessed various strategic
alternatives available to the Group. To this end, CIG has determined that it requires a capital injection in
order to protect the sustainability of its operations, enable the optimal turn around and optimisation of
Conco and to maximise value for all CIG Shareholders over the medium to long term.
1.4. In order to facilitate this capital injection, CIG has entered into a suite of agreements (the "Definitive
Agreements") with Fairfax Africa Investments Proprietary Limited ("FSA"), a wholly owned subsidiary of
Fairfax Africa Holdings Corporation ("Fairfax Africa"), to implement a transaction (the "Proposed
Transaction"), consisting of the following three components:
- Component 1: A R300 million loan to be advanced by FSA to CIG (the "Upfront Loan").
- Component 2: An R800 million non-renounceable rights offer to CIG Shareholders, fully underwritten
by FSA at a fixed price of R4.00 per CIG ordinary share ("CIG Share(s)") issued (the "Rights Offer"),
representing a c.2% premium to the 30-day VWAP as at 16 May 2018 of R3.94.
- Component 3: Conversion rights under which FSA has an option to convert the Upfront Loan into
CIG Shares and, under certain circumstances, CIG has an option to convert the Upfront Loan into
CIG Shares (the "Conversion Rights").
1.5. Simultaneously with the Proposed Transaction, CIG has agreed revised terms with respect to the Debt
Standstill which significantly relaxes the default trigger covenants and reverts the cost of debt to what was
originally agreed whilst the amended capital repayment profile, as previously agreed, remains in place.
1.6. Fairfax Africa is an investment holding company, listed on the Toronto Stock Exchange (under the symbol
"FAH.U") with a market capitalisation of c.USD660 million. Fairfax Africa's investment objective is to
achieve long-term capital appreciation, while preserving capital by investing in public and private equity
securities and debt instruments in Africa and African businesses or other businesses with customers,
suppliers or business primarily conducted in Africa.
1.7. The implementation of the Rights Offer and the Conversion Rights are subject to the fulfilment of various
conditions precedent, including those set out in paragraph 6.1 below.
1.8. The purpose of this announcement is to provide CIG Shareholders with an overview of the rationale of the
Proposed Transaction as well as its key terms.
2. RATIONALE FOR THE PROPOSED TRANSACTION
2.1. CIG's management team and board of directors (the "Board") believes that the capital received through
the Proposed Transaction is important for CIG's strategy to ensure that it is able to optimally turn Conco
around whilst continuing to operate its other businesses in an efficient manner which aims to maximise
value for CIG Shareholders and protecting the sustainability of CIG as an enterprise.
2.2. Implementation of the Proposed Transaction will ensure that:
2.2.1 Conco is optimally turned around and that its value is preserved and maximised for CIG
Shareholders through:
2.2.1.1 right-sizing Conco and optimising its business model;
2.2.1.2 providing prospective customers, suppliers and insurers with the necessary comfort
with respect to CIG's solvency and liquidity so that Conco can continue with business
as usual; and
2.2.1.3 attracting and retaining the right senior personnel;
2.2.2 a sustainable long-term capital structure, suited to CIG's business risk profile, is established whilst
the current funding, provided by the CIG Funders, remains in-tact and its costs are normalised;
2.2.3 significant CIG Shareholder value is unlocked given CIG's Share price currently being under
pressure, in part because of the financial risk inferred by the unsustainable capital structure;
2.2.4 significant additional value is created by:
2.2.4.1 providing CIG with much needed headroom to continue operating its other businesses
in the normal course;
2.2.4.2 pursuing growth initiatives within CIGenCo and Conlog, which will focus on increasing
the annuity income generated within the Group; and
2.2.4.3 partnering with a like-minded, financially strong investor with a long-term perspective,
which creates significant strategic optionality.
2.3. CIG did consider and investigate other strategic alternatives, including asset sales and other investment
options. The Board and the management team firmly believe that the Proposed Transaction represents
the best opportunity available to CIG in order to maximise CIG Shareholder value over the medium to long
term.
3. OVERVIEW OF THE PROPOSED TRANSACTION
3.1. Components of the Proposed Transaction and Proposed Transaction mechanism
3.1.1 The Proposed Transaction consists of three components:
3.1.1.1 Component 1 – The Upfront Loan: This will be extended to CIG prior to CIG
Shareholders voting on the resolutions required to approve the Proposed Transaction
(i.e. the Upfront Loan doesn't require separate CIG Shareholder approval). As the
Definitive Agreements have already been signed, the Upfront loan will be disbursed to
CIG in due course, providing CIG with necessary liquidity in order to cover certain
short-term funding requirements.
3.1.1.2 Component 2 – The Rights Offer: This will be offered to all CIG Shareholders pro-rata
to their shareholding in CIG. Implementation of the Rights Offer requires certain CIG
Shareholder approvals. The resolutions to give effect to the Rights Offer will be voted
on by CIG Shareholders at an extraordinary general meeting (the "General Meeting")
after which a circular containing the terms of the Rights Offer will be posted to CIG
Shareholders (the "Rights Offer Circular"). In terms of the Rights Offer Circular, CIG
Shareholders will be afforded a time period, as prescribed by the JSE Limited ("JSE")
Listings Requirements (the "Listings Requirements"), within which to follow their
rights.
3.1.1.3 Component 3 – The Conversion Rights: Given that the Upfront Loan may be converted
into CIG Shares, such conversion will constitute a specific issue of shares to FSA (the
"Specific Issue"), which requires CIG Shareholder approval in terms of the Listings
Requirements. The resolutions to permit the creation of the Conversion Rights will be
voted on by CIG Shareholders at the General Meeting. Subject to such resolutions
being approved, the Upfront Loan will be capable of conversion into CIG Shares in
accordance with the Conversion Rights, as explained below in paragraph 3.2.3.
3.1.2 The resolutions required to be approved by CIG Shareholders to implement the Proposed
Transaction are set out in paragraph 6.1 below (the "Transaction Resolutions").
3.2. Key terms relating to each of the components of the Proposed Transaction
3.2.1 The key terms of the Upfront Loan are as follows:
- Quantum - R300 million.
- Upfront fee - 2.5% payable upon disbursement.
- Coupon rate – Prime plus 4%, with interest serviced monthly. In the event that the
Conversion Rights are approved, the coupon rate reduces to Prime plus 2%.
- Term – 12 months. In the event that the Conversion Rights are approved, the term is
extended to 60 months following the date of disbursement.
- Security – A pledge and cession of the entire issued share capital of Conlog.
3.2.2 The key terms of the Rights Offer are as follows:
- Rights – Non-renounceable.
- Allocation – Pro-rata to existing CIG shareholding (with no over-allocation/excess
applications).
- Quantum – R800 million.
- Number of CIG Shares to be issued – 200 000 000.
- Price – R4.00 per CIG Share issued.
- Underwrite – Fully underwritten by FSA.
- Underwrite fee – 2.5% of the entire quantum of R800 million.
- Guarantor – Fairfax Africa.
3.2.3 The key terms of the Conversion Rights are as follows:
- Conversion price – R5.20 per share.
- Number of CIG ordinary shares – 57 692 308, being R300 million converted at R5.20 per
CIG Share.
- FSA option – The Upfront Loan can be converted at the sole discretion and option of FSA
at any time during the 60 month period following the date of disbursement of the Upfront
Loan, (other than in certain prescribed circumstances in which CIG can require conversion
in lieu of repayment, as described below).
- CIG option – The Upfront Loan can be converted at the sole discretion and option of CIG
after the third anniversary of the disbursement of the Upfront Loan and provided that the
CIG Shares have, at the time of such conversion, traded at more than a 20% premium to
the conversion price of R5.20, i.e. at a price in excess of R6.24 per CIG Share for no less
than 90 consecutive calendar days.
4. THE CONVERSION RIGHTS RESULTING IN THE SPECIFIC ISSUE
4.1. Overview of the Conversion Rights
The Conversion Rights, if approved, will be attached to the Upfront Loan, which will give FSA the option to
convert the Upfront Loan into CIG Shares in accordance with its terms, as explained in paragraph 3.2.3
4.2. Rationale for the Conversion Rights
The rationale for the Upfront Loan is to inject liquidity into CIG for its short term requirements. The rationale
for the Conversion Rights is to convert FSA's exposure into equity and to introduce a strategically aligned
investor for the long term, in order to maximise the value unlock for existing CIG Shareholders, which is
the ultimate substance of and rationale for the Proposed Transaction, when considered holistically.
4.3. Intended use of funds
The funds received from the Upfront Loan will be used by CIG to fund short term liquidity requirements,
most notably certain rationalisation costs at Conco.
4.4. Key terms of the Conversion Rights
The key terms of the Conversion Rights are explained in paragraph 3.2.3 above.
5. WAIVER OF MANDATORY OFFER
5.1. As part of the Proposed Transaction, CIG will seek the required approval from the requisite majority of
independent CIG Shareholders of the ordinary resolutions required for the waiver of any obligation to
extend a mandatory offer to CIG Shareholders arising from or in any way connected to the Proposed
Transaction, in accordance with the Companies Regulations, 2011 (the "Company Regulations") and,
specifically, Regulation 86(4), consisting of a waiver pertaining to the Rights Offer (the "Rights Offer
Waiver Resolution") and a waiver pertaining to the Specific Issue pursuant to the Conversion Rights (the
"Conversion Rights Waiver Resolution”) (jointly referred to as the "Mandatory Offer Waiver Resolutions").
5.2. The Mandatory Offer Waiver Resolutions are required as Fairfax Africa do not wish to make an offer to all
the CIG Shareholders whilst still providing CIG with the amount of capital Fairfax Africa, and the CIG
management team, believe the Group requires, as explained throughout this announcement.
5.3. Below is an indicative illustration of the potential impact of the Proposed Transaction and passing of the
Mandatory Offer Waiver Resolutions on Fairfax Africa and its subsidiaries' CIG shareholding (the ultimate
impact on said shareholding is dependant on rights not followed by CIG Shareholders):
100% of rights 50% of rights No rights
followed by followed by followed by
CIG CIG CIG
Shareholders Shareholders Shareholders
Current Shareholding
Number of CIG Shares (million) 8.8 8.8 8.8
Percentage of CIG Shares 4.5% 4.5% 4.5%
Impact of Rights Offer
Additional number of CIG Shares received (million) (1)(2) 9.0 104.5 200.0
Additional percentage of CIG Shares received (1) 0.0% 24.1% 48.2%
Indicative shareholding after Rights Offer
Number of CIG Shares (million) 17 829 000 113 329 000 208 829 000
Percentage of CIG Shares 4.5% 28.6% 52.7%
Impact of Specific Issue pursuant to the
Conversion Rights
Additional number of CIG Shares received (million) (3) 57 692 308 57 692 308 57 692 308
Additional percentage of CIG Shares received 12.1% 9.0% 6.0%
Indicative shareholding after the Specific
Issue pursuant to the Conversion Rights
Number of CIG Shares (million) 75 521 308 171 021 308 266 521 308
Percentage of CIG Shares 16.6% 37.6% 58.7%
Notes:
(1) R800 million Rights Offer x percentage of rights followed / R4.00.
(2) Includes c.9 million CIG Shares by virtue of FSA following their rights pursuant to the Rights Offer.
(3) R300 million Upfront Loan converted at R5.20 per CIG Share.
6. GENERAL INFORMATION
6.1. Conditions precedent to the Proposed Transaction
6.1.1 The Proposed Transaction (excluding the Upfront Loan) is subject to timeous fulfilment or waiver
(where legally permissible) of, amongst others, the following conditions precedent:
6.1.1.1 With respect to the Rights Offer -
- approval by the requisite majority of CIG Shareholders of the resolution to
increase CIG's authorised Share capital to enable the Rights Offer, in accordance
with Section 36 of the Companies Act (the "Act");
- approval by the requisite majority of CIG Shareholders of the resolution to permit
the issue of CIG Shares in order to give effect to the Rights Offer, in accordance
with Section 41 of the Act;
- approval of the Rights Offer Waiver Resolution;
- all relevant approvals from the Takeover Regulation Panel (the "TRP") being
obtained including the granting of an exemption by the TRP exempting any
requirement to make a mandatory offer in terms of Section 123 of the Act, to
acquire all the CIG Shares held by CIG Shareholders, including the;
- the Board obtaining a fair and reasonable opinion from an independent expert
(the "Independent Expert Report"), in accordance with Regulation 86(7) in
respect of the Rights Offer Waiver Resolution;
- all relevant JSE approvals being obtained;
- counterparties to material contracts furnishing their consent to the Proposed
Transaction; and
- approval by the competition authorities in certain jurisdictions, to the extent legally
required.
6.1.1.2 With respect to the Conversion Rights -
- approval by the requisite majority of CIG Shareholders of the resolution to
increase CIG's authorised Share capital to enable the Specific Issue potentially
resulting from the Conversion Rights, in accordance with Section 36 of the Act;
- approval by the requisite majority of CIG Shareholders of a resolution to permit
the Specific Issue of CIG Shares upon the potential exercise of the Conversion
Rights, in accordance with Section 41 of the Act;
- approval of the Conversion Rights Waiver Resolution;
- all relevant approvals from the TRP being obtained including the granting of an
exemption by the TRP exempting any requirement to make a mandatory offer in
terms of Section 123 of the Act, to acquire all CIG Shares held by CIG
Shareholders;
- the Board obtaining an Independent Expert Report, in accordance with
Regulation 86(7), in respect of the Conversion Rights Waiver Resolution;
- approval by the CIG Shareholders of the resolution required in terms of
paragraphs 5.51 and 5.53 of the Listings Requirements, to approve the granting
of the Conversion Rights; and
- approval by the JSE of the Conversion Rights including the ability for the relevant
CIG Shares (to which the Upfront Loan could ultimately be converted into) to be
listed on the stock exchange operated by the JSE.
6.1.2 The Rights Offer and the Conversion Rights are not inter-conditional.
6.1.3 CIG will release an announcement on SENS of the TRP Waiver Ruling (the "TRP Waiver
Announcement"), informing CIG Shareholders that they may request the Takeover Special
Committee to review the TRP Waiver Ruling within 5 business days of issue of the TRP Waiver
Announcement.
6.1.4 If the aforementioned conditions precedent are fulfilled then there will be no requirement for
Fairfax Africa, including FSA, its associates or concert parties (if any), to make a mandatory offer
to the remaining CIG Shareholders, nor to make any comparable offer, whether pursuant to the
Rights Offer or the Specific Issue resulting from the Conversion Rights (and the Specific Issue).
6.1.5 It is noted that Fairfax Africa, including FSA, and its associates or concert parties (if any) will be
precluded from voting on the resolution required under the Listings Requirements to approve the
Conversion Rights, due to their participation in the Conversion Rights. Furthermore, Fairfax Africa,
its associates and concert parties (if any) will also be precluded from voting on the Rights Offer
Waiver Resolutions.
6.2. Documentation and salient dates
6.2.1 A circular, containing the details of the Conversion Rights and the Waiver of Mandatory Offer,
incorporating a notice of the General Meeting, as well as the Independent Expert Report,
expressing the opinion of an independent expert in terms of the Rights Offer Waiver Resolution
and the Conversion Rights Waiver Resolution (in accordance with Regulation 86(7) of the Act),
will be distributed to CIG Shareholders in due course (the "EGM Circular"). This announcement
contains a summary of the Proposed Transaction and CIG Shareholders should read the EGM
Circular in full for a comprehensive understanding of the Proposed Transaction.
6.2.2 The salient dates pertaining to the Proposed Transaction, including the Conversion Rights and
the General Meeting, will be released on SENS and published in the EGM Circular.
6.2.3 In the event that CIG receives the necessary approvals required in order to effect the Rights Offer,
the Rights Offer Circular will be posted to CIG Shareholders in due course after the General
Meeting.
7. RECOMMENDATION AND RESPONSIBILITY STATEMENT
7.1. The Board will duly consider the opinion expressed in the Independent Expert Report with respect to the
Rights Offer Waiver Resolution and the Conversion Rights Waiver Resolution. The Independent Expert
Report will be included in the EGM Circular.
7.2. Notwithstanding the above, for the reasons highlighted in this announcement, the Board firmly believes that
the Proposed Transaction is in the best interests of CIG and CIG Shareholders and recommends that CIG
Shareholders vote in favour of all the Transaction Resolutions to be proposed at the General Meeting.
7.3. The directors intend to vote in favour of the Transaction Resolutions to be proposed at the General Meeting
in respect of their personal holdings of CIG Shares.
7.4. The directors, individually and collectively, accept full responsibility for the accuracy of the information
contained in this announcement which relates to the Proposed Transaction as well as the extracts of
information relating to CIG and certify that, to the best of their knowledge and belief, such information is true
and this announcement does not omit any facts that would make any of the information false or misleading
or would be likely to affect the importance of any information contained in this announcement. The directors
have made all reasonable enquiries to ascertain that no facts have been omitted and that this Announcement
contains all information required by law.
8. TRADING UPDATE
In terms of the Listings Requirements, companies are required to publish a trading statement as soon as they are
satisfied that a reasonable degree of certainty exists that the financial results for the reporting period will differ by
at least 20% from the financial results for the previous corresponding period.
In the Joint Chairman and CEO's report contained in the 2017 Integrated Annual Report, mention was made that
the 6 months to February 2018 were expected to remain challenging for the Group. Further, mention was made
that the restructuring of Conco will have a short term negative impact on profitability and come at great cost. The
anticipated negative impact on profitability continued in the 6 months ending 28 February 2018.
As a result of aforegoing, the Group's earnings per share for the interim period ended 28 February 2018 are
expected to be 650% - 660% lower compared to the 111.0 cents per share for the interim period ended 28
February 2017. Headline earnings per share for the interim period ended 28 February 2018 is expected to be
470% - 480% lower compared to the 111.1 cents per share for the interim period ended 28 February 2017.
The losses incurred for the interim period will result a decline of 30% to 35% of NAV and Tangible NAV per share
compared to 31 August 2017.
Reporting metric Six months to 28 February Comparative period
2018
Loss/earnings per share Loss between 611c – 622c per Earnings of 111c per share
share
Headline loss/earnings per Headline loss between 411c – Headline earnings of 111.1c
share 422c per share per share
NAV per share 1 272c – 1 369c 1 956c
Tangible NAV per share 836c – 900c 1 286c
Conco
During the period under review, the adverse effects of the restructuring process resulted in low levels of execution
and disruption of operations. In addition, turnover continued to be severely impacted by poor macro trading
conditions. Conco recorded a loss of R852 million.
Although the steps taken to fixing Conco for the long term are anticipated to return the business to profitability,
the short term impact of decreased margins because of cost overruns, labour underutilisation and project delays
impacted the interim period. Furthermore, an under-recovery of fixed overhead, an increase in provisions relating
to bad debt and potential customer claims coupled with inadequate commercial management continued to impact
the profitability of the business. The retrenchment process, required to right size the business, has resulted in
uncertainty amongst staff and decline in morale. These events have had a negative impact on the life to date
margins of multi-year projects, the outcome of which affects the interim results by c.R500 million.
As result of the aforegoing, CIG has impaired the entire goodwill of R397 million and raised a provision of R100
million to facilitate retrenchment and restructuring costs.
The critical steps identified to restructure Conco outlined in the Joint Chairman and CEO's report are in the final
stages of implementation, the impact of which will be beneficial in future periods.
Looking ahead, a re-energised sustainable Conco will be well positioned to take advantage of the improved
outlook in South Africa as well as selected opportunities across Africa, particularly in areas of clean energy.
AES
The number of rigs drilling in Angola continued to drop in the period under review. This has had a negative impact
on revenue and has resulted in a 69% decrease in equity accounted profits recorded in the prior period. In the
2017 Integrated Annual Report, reference was made to the devaluation of the Angolan Kwanza to the US Dollar.
This too has impacted the interim results. Consequently, an impairment of the carrying value of the investment of
R134 million has been recognised.
Rest of Group
The remaining CIG companies performed in line with expectations, as previously conveyed to the market.
The Group expects to release its full set of interim results on 23 May 2018.
The Board and management team would like to thank CIG Shareholders for their on-going support.
By order of the Board
Frank Boner Raoul Gamsu
Chairman CEO
18 May 2018
Financial adviser and transaction sponsor to CIG
Rand Merchant Bank, a division of FirstRand Bank Limited
Legal adviser to CIG
ENS Africa
Legal adviser to FSA and Fairfax Africa
Bowmans
Legal adviser to CIG Funders
Webber Wentzel
Company sponsor
Java Capital
Date: 18/05/2018 08:40:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
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