Go Back Email this Link to a friend

A E C I LIMITED - Disposal by AECI of its Surplus Property Assets at Modderfontein to Shanghai Zendai Pro

Release Date: 04/11/2013 17:45:00      Code(s): AFE     
Incorporated in the Republic of South Africa
(Registration No. 1924/002590/06)
Share code: AFE ISIN No. ZAE000000220
(?AECI? or ?the AECI Group?)



-   The Board of AECI is pleased to announce that it has reached agreement regarding the
    disposal by the AECI Group of its surplus property assets at Modderfontein, in Gauteng, to
    Shanghai Zendai.
-   The Transaction comprises the disposal of approximately 1 600ha of land and buildings
    thereon owned by the AECI Group, as well as Heartland?s property development business in
    respect of the aforementioned assets.
-   The Purchase Price amounts to R1 060 974 456 (inclusive of VAT), which will be payable in
    full by Shanghai Zendai to AECI upon fufillment of the Conditions Precedent, which include
    the transfer by the AECI Parties to the Zendai Parties of Acquisition Assets with an
    aggregate acquisition price of R513 000 000 (inclusive of VAT) (or such lesser amount as
    agreed by Shanghai Zendai) (the ?Effective Date?).
-   The Transaction is anticipated to be effective by 31 July 2014 (which date may be extended
    by a further two months thereafter to 30 September 2014).
-   It is anticipated that the remaining Acquisition Assets will be transferred by the AECI Parties
    to the Zendai Parties within a period of 24 months from the Effective Date (?Long Stop
    Date?). Under certain circumstances this period may be extended for a further period of up
    to 18 months.
-   The Transaction is line with AECI?s stated policy to realise value from its surplus property
-   Shanghai Zendai is an investment holding company listed on the Hong Kong Stock
    Exchange and is focused on developing, investing in and managing residential and
    commercial properties mainly in China.
-   Given the favourable location of the Acquisition Assets, Shanghai Zendai?s intention is to
    develop the available land for mixed end-uses that include residential, commercial and retail

*Capitalised terms used in this section have the same meaning as ascribed in this


    Shareholders of AECI (?Shareholders?) are referred to the cautionary announcements
    released on the Stock Exchange News Service (?SENS?) of the JSE Limited (?JSE?) on 8 July
    2013, 16 August 2013 and 27 September 2013.

    AECI has entered into a transaction framework agreement (the ?Framework Agreement?)
    with Shanghai Zendai Property Limited (?Shanghai Zendai?) and various other transaction
    agreements regarding the Transaction (the ?Transaction Agreements?). The Framework
    Agreement as well as the Transaction Agreements set out the basis on which South African
    subsidiaries of Shanghai Zendai, namely Zendai Development (South Africa) Proprietary
    Limited (?DevCo?) and Zendai Investment Management (South Africa) Proprietary Limited
    (?InvCo?) (jointly the ?Zendai Parties?), will acquire, subject to the fufillment or waiver of
    the conditions precedent to the Transaction:

-   approximately 1 600ha of land from AECI and two of its subsidiaries, Heartland Properties
    Proprietary Limited (?Heartland?) and AECI Real Estate Proprietary Limited (?ARE?) (jointly
    the ?AECI Parties?);
-   certain buildings on this land owned by the AECI Parties; and
-   Heartland?s property development business in respect of the aforementioned assets
    (collectively, the ?Acquisition Assets?).

    Post the completion of the Transaction, the AECI Group will retain approximately 1 300ha
    of land at Modderfontein for current and future operational requirements, and future
    disposals. It will also retain the Modderfontein Reserve, a 275ha area zoned as private
    open space. AECI will continue to manage the land and buildings it owns in Somerset
    West, Western Cape and Umbogintwini, KwaZulu-Natal, in the ordinary course of business.
   In terms of the Framework Agreement, AECI has agreed to provide Shanghai Zendai with a
   right of first refusal to acquire certain remaining Modderfontein assets held by AECI (the
   ?Remaining Assets?) for a period of 10 years post the Long Stop Date, and, if applicable the
   extension thereof. In addition, during this period AECI shall not directly compete with the
   Zendai Parties in the business of property development in respect of the Remaining Assets.
   However, AECI will not be prevented from realising value from its other assets outside the
   Remaining Assets in the ordinary course of business.


   Subject to the fulfillment or waiver of the conditions precedent as set out in paragraph 7
   below (?Conditions Precedent?), including the transfer of Acquisition Assets with an
   aggregate acquisition price of R513 000 000 or such lesser amount as agreed by Shanghai
   Zendai (the ?First Tranche?) within a maximum of 11 months from signature date of the
   Framework Agreement, the Zendai Parties will pay AECI R1 060 974 456 (the ?Transaction

   In addition to the Transaction Price, Shanghai Zendai will be responsible for reimbursing
   the AECI Group for any net improvement costs, plus VAT and interest thereon, incurred by
   the AECI Parties on the Acquisition Assets from 1 September 2013 until the Effective Date,
   which net improvement costs and VAT thereon are estimated to amount to no more than
   R227 069 044 (?Net Improvement Costs?).

   * rand amounts are inclusive of VAT


   AECI is a South African-based explosives and chemicals company which is focused mainly
   on providing specialty products and services to the mining and manufacturing sectors in
   Africa and in certain other emerging markets.

   ARE and Heartland are subsidiaries of AECI and are incorporated as proprietary limited
   entities.  ARE is an investment holding company.  Heartland is engaged primarily in
   preparing property assets that have become surplus to AECI?s operational requirements for
   alternative end uses.

   The Transaction represents a unique opportunity for the AECI Group to realise immediate
   value for the majority of the surplus land surrounding its operations in Modderfontein in a
   single transaction at what the Board of Directors of AECI (the ?Board of AECI?) considers
   an attractive valuation.

   The Board of AECI has not finalised how it will redeploy the proceeds realised from the
   Transaction in order to enhance shareholder value.  Alternatives could include the
   redeployment of the proceeds into its core explosives and specialty chemicals businesses or
   the return of cash to Shareholders, in the form of a dividend or a share buy-back.


   Shanghai Zendai is a diversified property development company listed on the Hong Kong
   Stock Exchange and is principally engaged in the construction, development, investment
   and management of residential and commercial properties for sale and ownership mainly in
   the People?s Republic of China (?PRC?). It also operates as a leasing and management
   agency of commercial and residential properties and owns a hotel business.

   Shanghai Zendai currently has property projects under development in 12 cities in the PRC
   which are located in northern China, Shanghai city and its surroundings and Hainan
   province. Apart from focusing on the PRC market, Shanghai Zendai has been actively
   exploring scalable investment opportunities in international real estate development

   In addition to Shanghai Zendai?s first overseas project located in New Zealand, the Board of
   Directors of Shanghai Zendai is of the view that the Acquisition Assets provide an attractive
   opportunity to diversify its landbank. The Transaction will provide Shanghai Zendai with a
   platform to build a growing and geographically diversified income stream for its


   5.1.   Properties

          In terms of the Transaction, the Zendai Parties will acquire approximately 1 600ha
          of land and buildings thereon located in Modderfontein, together with the leases
          related to these buildings.

          AECI has entered into a lease management services agreement with Shanghai
          Zendai whereby AECI will administer the leasing portfolio acquired by Shanghai
          Zendai pursuant to the Transaction, on a cost plus recovery basis.

   5.2.   The Heartland business

          The Zendai Parties will acquire the Heartland business of property development in
          respect of the aforementioned land and buildings thereon, as a going concern,
          including the moveable and certain intangible assets used or owned by Heartland in
          relation to the normal, ordinary and regular operation of its business.

          Employees engaged in Heartland?s development activities at Modderfontein will be
          transferred to Shanghai Zendai on the Effective Date.


  Under the terms of the Framework Agreement, subject to the fulfillment of the Conditions
  Precedent, upon the transfer by the AECI Parties of the First Tranche to the Zendai Parties,
  the Zendai Parties will settle the full Transaction Price of R1 060 974 456 and the value of
  the additional Net Improvement Costs incurred by AECI up to and including the Effective

  AECI will endeavour to transfer the remaining Acquisition Assets not transferred as at the
  Effective Date (?Remaining Acquisition Assets?) by the Long Stop Date. Both parties have
  the right, provided that the Performance Guarantee (referred to in paragraph 10 below)
  remains in force, to extend the transfer period for up to a further 12 months after the Long
  Stop Date (the ?Grace Period?) and for a further six months after the expiry of the Grace
  Period (?Extended Grace Period?). Should the Parties agree to the Grace Period and the
  Extended Grace Period, AECI will be liable for the Zendai Parties? funding costs in respect of
  the Remaining Acquisition Assets, up to a maximum of 10% per annum.

  In the event that the AECI Parties are unable to transfer any of the Remaining Acquisition
  Assets timeously the Parties shall attempt, in good faith, to consider alternative methods of
  placing Shanghai Zendai in the position it would have been had such Remaining Acquisition
  Assets been transferred timeously including, without limitation, the entering into of long-
  term leases. Shanghai Zendai shall be entitled to call up the Performance Guarantee after
  the Long Stop Date or, if applicable, the Grace Period or Extended Grace Period if the
  parties are unable to reach agreement on the transfer of the Remaining Acquisition Assets.

  * rand amounts are inclusive of VAT


  The Transaction is subject to inter alia the fufillment or waiver (where appropriate), as the
  case may be, of the following Conditions Precedent:

  7.1.   the unconditional approval in writing of the Competition Commission in South Africa,
         in terms of the Competition Act No. 89 of 1998, as amended, having been obtained
         (or if such approval is conditional, the Parties having each respectively in writing
         approved each such condition and delivered such written approval to the other

  7.2.   such shareholder resolutions of the Zendai Parties as may be necessary;

  7.3.   such Directors? resolutions of the AECI Parties as may be necessary;

  7.4.   Heartland Leasing Proprietary Limited, acting as an agent for AECI, and ImproChem
         Proprietary Limited (?ImproChem?) entering into a lease in respect of the
         ImproChem building in a form satisfactory to both Shanghai Zendai and AECI; and

  7.5.   provided that the Conditions Precedent listed above are met, the transfer of the
         First Tranche to InvCo and DevCo by 31 July 2014. Fufillment of this Condition
         Precedent may be extended up to and including 30 September 2014 if AECI?s
         attorneys are of the opinion that the required threshold will be met in the event of
         such an extension. The value of the First Tranche threshold may also be reduced
         by Shanghai Zendai, in its discretion.


   AECI has received an irrevocable undertaking from Mr Dai Zhikang (the Founder and
   Chairman of Shanghai Zendai) on behalf of companies he directly or indirectly controls
   which have a 38,67% shareholding in Shanghai Zendai, to vote in favour of the
   transactions contemplated in the Framework Agreement at the meeting of Shanghai Zendai
   shareholders called to approve those transactions in a form satisfactory to AECI.

   It is Shanghai Zendai?s intention to convene a meeting of its shareholders to consider and
   vote on all resolutions required to give effect to the Transaction by no later than
   28 February 2014.


    The Zendai Parties have furnished AECI with the following bank guarantees from the Bank
    of China Limited, a bank registered in South Africa:

-   a payment guarantee amounting to R1 060 974 456 for the sole purpose of fully satisfying
    the Transaction Price and VAT thereon; and
-   a net improvement cost guarantee for bulk infrastructure amounting to R227 069 044 for
    the sole purpose of fully satisfying the Net Improvement Costs and VAT and interest


    The Standard Bank of South Africa Limited has furnished on AECI?s behalf a guarantee to
    the Zendai Parties amounting to a maximum of R547 974 457 for the sole purpose of fully
    satisfying AECI?s obligations to transfer the Remaining Acquisition Assets (the ?Performance

    This Performance Guarantee is for a maximum period of 42 months from the Effective Date
    and will be reduced as each of the Remaining Acquisition Assets is transferred to the
    Zendai Parties.


    The unaudited pro forma financial effects of the Transaction set out below have been
    prepared to assist Shareholders in assessing the impact of the Transaction on the AECI
    Group?s earnings per share (?EPS?), headline earnings per share (?HEPS?), net asset value
    (?NAV?) and tangible net asset value per share (?TNAV?).

    The pro forma financial effects are the responsibility of the Board of AECI and are provided
    for illustrative purposes only. The pro forma financial effects have been prepared as if the
    Transaction had become fully effective and fully recognised on 1 January 2013 for purposes
    of the Statement of Comprehensive Income and at 30 June 2013 for purposes of the
    Statement of Financial Position. It does not purport to be indicative of what the
    consolidated financial results would have been had the Transaction been implemented on a
    different date. The material assumptions are set out in the notes following the table below.

    Due to their nature, the pro forma financial effects may not fairly present the financial
    position, changes in equity, results of operations or cash flows of the AECI Group after the
    implementation of the Transaction.
                                              Before the              After the         Percentage
                                             Transaction           Transaction              change

   EPS (cents)                                       356                    672              88,8
   HEPS (cents)                                      356                    508              42,7
   Weighted average number of
   shares in issue for EPS and
   HEPS                                      111 936 170            111 936 170                  0
   NAV (cents)                                     5 347                  5 641                5,5
   TNAV (cents)                                    4 283                  4 577                6,9
   Weighted number of shares in
   issue for NAV and TNAV                    116 291 400            116 291 400                 0


 i.      The "Before the Transaction" financial information has been extracted from AECI?s
         unaudited interim financial results for the half-year ended 30 June 2013 released on
         SENS on 24 July 2013.

ii.      The pro forma financial effects have been compiled using accounting policies that
         comply with International Financial Reporting Standards and that are consistent with
         those applied in the audited consolidated financial statements for AECI for the 12
         months ended 31 December 2012.

iii.     The Transaction has been recognised in the pro forma financial information as a single
         transaction with all conditions precedent and all recognition criteria assumed to be
         completely fulfilled or met on the day of recognition. The actual recognition may take
         place over a period and the Group?s reporting dates could occur within that period
         resulting in recognition of the Transaction in part in different reporting periods.

iv.      The AECI Parties hold surplus property in three classes, namely, development property
         which is property owned by Heartland, income generating leasing property and vacant
         land held as capital assets. The recognition of profits and tax effects indicated in the
         pro forma information follows the nature of the assets held with disposal of
         development property by Heartland being included in headline earnings as a normal
         operating activity and the disposal of leased and capital property being outside normal
         operating activities and excluded from headline earnings.

v.       Tax on the disposals follows the above treatment using the applicable normal and
         capital gains tax rates resulting in an effective tax rate of 23%.
vi.      VAT and interest effects have not been considered in the pro forma financial

 vii.    The Statement of Comprehensive Income would include adjustments for leasing
         revenue and costs that would not have been recognised had the Transaction occurred
         on 1 January 2013. No adjustments are made in respect of this in the Statement of
         Financial Position as the Transaction is implemented on 30 June 2013.

viii.    The effects of future net improvement costs, or interest thereon, have not been
         considered in the pro forma financial information.

 ix.     No costs or income have been estimated or included in respect of the service
         agreement in terms of which AECI will administer the leasing portfolio.

  x.     Estimated costs of the Transaction have been included in the pro forma financial


    In terms of the Listings Requirements of the JSE, the Transaction is categorised as a
    Category 2 transaction and accordingly approval by Shareholders is not required.


    Shareholders are advised that following the release of these full details of the Transaction,
    they no longer need to exercise caution when dealing in their AECI securities in this regard.

Woodmead, Sandton

4 November 2013

Investment Bank, Structuring Adviser and Transaction Sponsor

The Standard Bank of South Africa Limited

Legal Adviser

Webber Wentzel

Date: 04/11/2013 05:45:00 Supplied by www.sharenet.co.za                     
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.

Email this JSE Sens Item to a Friend.

Send e-mail to
© 2018 SHARENET (PTY) Ltd, Cape Town, South Africa
Home     Terms & conditions    Privacy Policy
    Security Notice    Contact Details
Market Statistics are calculated by Sharenet and are therefore not the official JSE Market Statistics. The calculation/derivation may include underlying JSE data.