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”).
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.
CIG announced 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.
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”).
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.
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.
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 below.
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.
The Conversion Rights resulting in the Specific Issue
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.
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.
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.
Key terms of the Conversion Rights
The key terms of the Conversion Rights are explained in the relevant SENS note.
Conditions precedent to the Proposed Transaction
The Proposed Transaction (excluding the Upfront Loan) is subject to timeous fulfilment or waiver (where legally permissible) of, amongst others, the following conditions precedent:
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.
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.
The Rights Offer and the Conversion Rights are not inter-conditional.
Documentation and salient dates
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.
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.
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.
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.
Six months to 28 February 2018 and Comparative period
- Loss/earnings per share – Loss between 611c – 622c per share; Earnings of 111c per share
- Headline loss/earnings per share – Headline loss between 411c – 422c per share; Headline earnings of 111.1c
- NAV per share – 1 272c – 1 369c; 1 956c
- Tangible NAV per share – 836c – 900c; 1 286c
The Group expects to release its full set of interim results on 23 May 2018.