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Wescoal Holdings Limited - A Proposed Black Economic Empowerment (bee) Transaction, Special Dividend Declaration And Withdrawal Of Cautionary

Release Date: 29/09/2016 10:05:00      Code(s): WSL     
Wescoal Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 2005/006913/06)
Share Code: WSL ISIN Code: ZAE000069639
(?Wescoal? or the ?Company?)

ANNOUNCEMENT RELATING TO:

     -      A PROPOSED BLACK ECONOMIC EMPOWERMENT (?BEE?) TRANSACTION;

     -      SPECIAL DIVIDEND DECLARATION; AND

     -      WITHDRAWAL OF CAUTIONARY

1.       INTRODUCTION TO THE PROPOSED TRANSACTION

         1.1.   Wescoal shareholders (?Shareholders?) are referred to the announcement released on the Stock
                Exchange News Service (?SENS?) on 17 August 2016, wherein Wescoal communicated that it had
                entered into a long term coal supply agreement (?Coal Supply Agreement?) in respect of coal from
                its flagship operation Elandspruit Colliery and Wescoal Processing Plant with Eskom Holdings SOC
                Limited (?Eskom?). In terms of the Coal Supply Agreement, the Company undertook to achieve and
                maintain a direct black ownership of at least 51% by the end of December 2016. Pursuant to this
                undertaking, the Company announced on SENS on 23 August 2016 that it had entered into
                negotiations to increase its black ownership to more than 51% by the end of December 2016.

         1.2.   The board of directors of Wescoal (the ?Board?) is pleased to inform Shareholders that Wescoal has
                entered into a subscription agreement (?Subscription Agreement?) with K2016316243 (South
                Africa) Proprietary Limited (registration number 2016/316243/07) (?BEE SPV?), whose shareholders
                comprise a consortium of existing Wescoal shareholders, namely Muthanyi Robinson Ramaite
                (?Ramaite?), Simeka Capital Holdings Proprietary Limited (?Simeka?) and Eric Nthuthuko Mzimela
                (?Mzimela?) (collectively the ?BEE Consortium? or ?BEE SPV Shareholders?) in terms of which the
                BEE SPV will, subject to the fulfilment and/or waiver of certain conditions precedent, subscribe for
                124 995 373 Wescoal shares (?Subscription Shares?), for an aggregate amount R211 410 862
                (?Subscription Amount?) (the ?Proposed Transaction? or the ?Specific Issue?).

         1.3.   The BEE Consortium will consolidate their existing shareholding in Wescoal under the BEE SPV. The
                BEE SPV has been incorporated for the sole purpose of holding shares in Wescoal and implementing
                the Proposed Transaction. The BEE Consortium?s aggregate shareholding in Wescoal, through the
                BEE SPV, will increase from ca.37% to ca.59% post implementation of the Proposed Transaction.

         1.4.   Accordingly, the Proposed Transaction will be implemented, subject to the fulfilment, or waiver of
                certain suspensive conditions, the material ones of which are detailed in paragraph 3 below, as
                follows:
                - the BEE Consortium and the BEE SPV will give effect to a restructuring in terms of which each
                  member of the BEE Consortium, pursuant to a share exchange agreement, will contribute all of
                  the Wescoal shares held by him to the BEE SPV (?Share Exchange Agreement?) in consideration
                  of the allotment and issue of new ordinary shares in the BEE SPV to the relevant BEE Consortium
                  member (the "Restructuring");
                - the BEE SPV will subscribe for the Subscription Shares, and Wescoal shall allot and issue such
                  Subscription Shares to the BEE SPV as a specific issue of shares for cash in accordance with the
                  applicable requirements of the Listings Requirements ("Listings Requirements") of the JSE
                  Limited ("JSE") and the provisions of the Companies Act, 71 of 2008, as amended ("Companies
                  Act") at a subscription price of ca. R1.69 per Wescoal share (?Subscription Price?), being a 10%             
                  discount to the 30-day volume weighted average price (?VWAP?) of Wescoal shares calculated
                  as at close of trade on Wednesday, 21 September 2016 (being the date on which the
                  independent board of Wescoal comprising Mrs DMT van Gaalen, Mrs KM Maroga and Dr MH
                  Mathe (the ?Independent Board?) resolved to set the price); and

                - the Restructuring will be implemented before the Specific Issue and the funding transactions
                  outlined below.

     1.5.   The Proposed Transaction constitutes a specific issue of shares for cash to a related party in terms
            of paragraph 10.1(b)(ii) of the Listings Requirements, as the BEE SPV will be majority-owned by
            Ramaite, who is also the non-executive Chairman of Wescoal. In terms of section 5.51(f) of the
            Listings Requirements, as the Proposed Transaction entails the issue of shares for cash to a related
            party at a 10% discount to the 30-day VWAP, the Board is required to provide the JSE with written
            confirmation from an independent professional expert (?Independent Expert?) that the terms of the
            Proposed Transaction are fair insofar as Shareholders are concerned (?the Fairness Opinion?).
            Accordingly, the Board has appointed an Independent Expert to provide the Fairness Opinion.
            Furthermore, as the BEE SPV is a related party to Wescoal, the Independent Board is responsible for
            providing guidance and oversight of the Proposed Transaction.

     1.6.   The Proposed Transaction will result in the BEE SPV controlling more than 35% of Wescoal shares.
            In terms of section 123 of the Companies Act, the BEE SPV may be required to make a mandatory
            offer to the minority shareholders of Wescoal, offering to acquire their shares at the Subscription
            Price (the ?Mandatory Offer?). It is intended that a request for a waiver of this requirement will be
            proposed to the Shareholders in terms of Regulation 86(4) of the Companies Regulations 2011,
            promulgated in terms of section 223 of the Companies Act and item 14 of Schedule 5 of the
            Companies Act. Accordingly the Board has appointed the Independent Expert to provide an opinion
            as to whether the terms and conditions of the waiver of the Mandatory Offer are fair and reasonable
            insofar as Shareholders are concerned (the ?Fair and Reasonable Opinion?).

     1.7.   The Fairness Opinion and the Fair and Reasonable Opinion will be provided to the Independent
            Board for the sole purpose of assisting the Independent Board in forming and expressing an opinion
            for the benefit of the Shareholders. The opinions will not purport to cater for each individual
            Shareholder?s perspective, but rather that of the general body of the Shareholders.

     1.8.   In order to give effect to the Proposed Transaction, the BEE Consortium, through the BEE SPV, has
            procured funding from the Industrial Development Corporation SOC Limited (the ?IDC?) in terms of
            which the IDC will subscribe for class A cumulative redeemable, preference shares in the BEE SPV
            for an aggregate amount of R178 121 292 to fund the Subscription Amount (?Class A Preference
            Share Subscription Agreement?). The BEE Consortium and the BEE SPV will provide certain security
            in connection with the Class A Preference Share Subscription Agreement to the IDC.
     1.9.   Wescoal will provide funding to the BEE SPV for the balance of the Subscription Amount and other
            related capitalised BEE SPV costs, in terms of which Wescoal will subscribe for class B cumulative
            redeemable, preference shares in BEE SPV for an aggregate amount of R35 500 000 (?Class B
            Preference Share Subscription Agreement?). The BEE Consortium and the BEE SPV will provide
            certain security in connection with the Class B Preference Share Subscription Agreement to
            Wescoal, which security will rank behind the IDC?s security.

2.   THE BEE CONSORTIUM AND THE BEE SPV

     2.1.   In terms of the Share Exchange Agreement, each of the members of the BEE Consortium who
            currently, collectively, hold 37.31% of Wescoal shares will give effect to the Restructuring which will
            result in the formation of the BEE SPV. Below are the details of the BEE SPV Shareholders.

      2.1.1   Ramaite
              - Ramaite is the current non-executive chairman of Wescoal and is the registered and
                beneficial holder of 18.76% of Wescoal shares. Pursuant to the Share Exchange
                Agreement, Ramaite will have a direct beneficial interest of 50.26% in the BEE SPV, thus
                making him the majority shareholder of the BEE SPV in his personal capacity.
              - In addition, Ramaite, through his family trust, holds a 38% non-controlling interest in
                Simeka.
              - Ramaite has a personal financial interest in the Proposed Transaction by virtue of his
                shareholding in the BEE SPV and in Simeka. Section 75 of the Companies Act requires
                that if a director has a personal financial interest in a transaction, he/she must not,
                among other things, take part in the consideration of the transaction. Accordingly,
                Ramaite has not taken part in the consideration of the Proposed Transaction by the
                Board.
      2.1.2   Simeka
              - Simeka is currently a registered and beneficial holder of 12.76% of Wescoal shares.
                Pursuant to the Share Exchange Agreement, Simeka will hold a direct interest of 34.19%
                in the BEE SPV.
              - Simeka became a shareholder of Wescoal in 2015 through underwriting a significant
                portion of the rights offer capital raising process undertaken at the time for an
                aggregate amount of R40 000 000 which saw the Company realising its objective of
                further developing the Elandspruit Colliery.
              - Founded in 2013, Simeka is an investment holding company with interests in the coal
                mining, pharmaceutical and property sectors in South Africa. The company is led by a
                number of investment professionals with extensive experience in various South African
                industries.
              - The company has concluded a number of acquisitions since its inception and these
                include, inter alia, the following:
                 ? a joint venture with Amayeza Abantu Biomedical Proprietary Limited to form Ameka
                   Health which focuses on the distribution of medical devices into the private and
                   public health sectors in South Africa and the rest of the African continent;
                 ? during June 2014, Simeka concluded a buyout transaction of Specpharm, a South
                   African based pharmaceutical company. The transaction was concluded in
                   partnership with the IDC, management as well as Specpharm staff; and
                 ? acquisition of a significant minority interest in Kangala Colliery, which is controlled
                   and managed by Universal Coal plc, an ASX-listed company.
      2.1.3   Mzimela
              - Mzimela is currently the registered and beneficial holder of 5.80% of Wescoal shares.
                Pursuant to the Share Exchange Agreement, Eric Mzimela will hold a direct interest of
                15.55% in the BEE SPV.

2.2   The Company, the BEE SPV and the BEE Consortium have finalised a relationship agreement, which
      agreement is currently being executed by the parties, whose purpose will be to regulate their
      relationship as direct and indirect Shareholders of the Company (?Relationship Agreement?). Below
      are some of the salient features of the Relationship Agreement:

      2.2.1   In terms of the Relationship Agreement, for at least a period of 5 years starting from when
              the Relationship Agreement becomes unconditional:

                   - the BEE SPV and the BEE SPV shareholders? ability to dispose of any of the Subscription
                     Shares or the BEE SPV shares or encumber any of the Subscription Shares or the BEE
                     SPV shares will be restricted; and

                   - the BEE SPV and the BEE SPV shareholders have undertaken to maintain their BEE status
                     as at the date of signature of the Relationship Agreement, save as otherwise agreed to
                     by the Company in writing; and

                   - for the duration of the Coal Supply Agreement, the BEE SPV and the BEE SPV
                     shareholders have undertaken to take all necessary steps to (i) maintain the
                     requirements imposed by Eskom in terms of the Coal Supply Agreement, insofar as
                     those requirements relate to black ownership; and (ii) prevent Wescoal from being in
                     breach of the Coal Supply Agreement, insofar as that breach relates to black ownership.

3.   SUSPENSIVE CONDITIONS TO THE PROPOSED TRANSACTION

     3.1   The implementation of the Proposed Transaction is subject to the fulfilment, by no later than 31
           March 2017 or such later date as the Company and the BEE SPV may agree upon in writing
           (?Longstop Date?), of the suspensive conditions that:
           - resolutions required to implement the Proposed Transaction are approved by the requisite
             majority of the voting Shareholders. In this regard it is noted that the BEE SPV shareholders will
             be precluded from voting (where applicable) on the resolutions relating to the Specific Issue and
             the resolution in connection with the waiver of the Mandatory Offer, due to their participation
             in the Proposed Transaction;
           - all necessary approvals from the Competition Authorities, in terms of the Competition Act, No
             89 of 1998, as amended, to enter into and implement the Proposed Transaction are obtained;
           - the Share Exchange Agreement, the Class A Preference Share Subscription Agreement and the
             Class B Preference Share Subscription Agreement are entered into and fully implemented in
             accordance with their terms; and
           - all and any necessary approvals from the Takeover Regulations Panel (?TRP?) to enter into and
             implement the Proposed Transaction are obtained, including the granting of the waiver ruling
             envisaged in the TRP guideline which is required for the waiver of the Mandatory Offer.
     3.2   The Company and the BEE SPV may, by written agreement, waive any suspensive condition, in full
           or in part, save for any suspensive condition which is regulatory in nature, unless both the Company
           and the BEE SPV are satisfied that such regulatory requirement is no longer applicable, in which case
           the applicable suspensive condition can be waived in full or in part by written agreement between
           the Parties on or before the Longstop Date.

4.   THE PROPOSED TRANSACTION RATIONALE

     4.1   The main rationale for the Proposed Transaction is the fulfilment of BEE requirements under the
           Coal Supply Agreement with Eskom, which requirement Wescoal is required to meet by 31
           December 2016. The Board believes that the Coal Supply Agreement is important to the success of
           Wescoal going forward.
     4.2   In addition to addressing Eskom?s BEE requirement, the implementation of the Proposed
           Transaction will result in the following benefits for all the Shareholders:
             - position Wescoal as a truly empowered publicly traded junior coal mining company, well
               positioned to potentially secure more medium to long term coal supply contracts with Eskom
               for its existing and future operations in the portfolio;
             - a sustainable BEE structure with the necessary lock-in provisions, thus securing the Company?s
               mining and prospecting rights required in terms of the Mineral and Petroleum Resources
               Development Act, 28 of 2002, as amended Mining Charter; and
             - provide highly sought after equity funding which Wescoal can deploy towards its organic and
               inorganic growth strategy, thus continuing along its current growth trajectory to become a mid-
               tier, sustainable and consistent dividend paying company on the JSE.
    4.3      The subscription of Wescoal shares by the BEE SPV, in terms of the Specific Issue, not only adds to
             the capital war chest of Wescoal, but also shows continued support by the BEE SPV Shareholders
             and their positive expectations on the growth prospects of the Company.
    4.4      An important differentiating feature of the Proposed Transaction is the low level of facilitation being
             provided by Wescoal relative to many precedent BEE transactions in the market. Wescoal?s
             facilitation will be limited to providing partial funding for the Subscription Amount, equivalent to
             only 16.79% of the Subscription Amount. No other facilitation, security, guarantee or support is
             required from the Company by the BEE SPV and/or the IDC.
    4.5      The direct cost of the Specific Issue to Shareholders is accounted for in terms of the guidance
             provided in IFRS 2: Share Based Payments and can be calculated as the difference between the
             market value of the Subscription Shares and the Subscription Amount as at 21 September 2016, i.e.
             the ?BEE discount?. The BEE discount represents only 2.62% of the Company?s market capitalisation
             as at 21 September 2016.
    4.6      The BEE SPV shareholders have a long association history with Wescoal. Through their stable
             shareholding and by virtue of being black people, Wescoal has over the last several years used,
             among others, the BEE SPV shareholders? BEE credentials in order to secure its mining and/or
             prospecting rights required in terms of the MPRDA, for the benefit of all Shareholders in the
             Company, without any direct and/or indirect benefit or preferential treatment given to these
             shareholders.
    4.7      Simeka, one of the BEE SPV shareholders, was introduced into the share register of the Company
             through the rights offer capital raising process undertaken in the last quarter of the 2015 calendar
             year wherein Simeka underwrote 61.54% of the targeted proceeds, which in turn was the minimum
             capital that was required by the Company at the time. Thus, the Proposed Transaction represents a
             further strengthening of the already strong relationship between Wescoal and the BEE SPV
             shareholders, which shareholders are actively supporting the growth ambitions of the Company for
             the benefit of all Shareholders.


5   INTENDED USE OF PROCEEDS

    The Board and management of Wescoal are committed to growing the asset base and earnings of the
    Company while driving shareholder value. The implementation of the Proposed Transaction will result in
    an injection of approximately R178 121 292 of fresh equity into Wescoal, thereby significantly
    strengthening the equity capitalisation and liquidity of the Company to facilitate this growth drive.

    The proceeds of the Proposed Transaction will be used to fund organic (capital expenditure projects)
    and/or inorganic (asset and business acquisitions) growth plans of Wescoal which may include inter alia:

    - the acquisition of resources adjacent or close to existing operations;
    - the acquisition of business or controlling stakes in identified listed mining companies;
    - the acquisition of or investments in businesses which have access to key strategic logistics infrastructure
      such as rail sidings;
    - brownfield capacity expansion in current mining assets, in particular the Elandspruit Colliery?s
      underground section and Khanyisa Colliery;
    - increasing existing coal beneficiation capacity through acquisitions or expansions at the existing
      Elandspruit Processing Plant; and
    - reducing short term debt as an interim measure, on the revolving credit facility via Wescoal?s invoice
      discounting facility, until drawn down, subject to board approval, over a period of time for purposes of
      the intended use as described above.

6   PRO FORMA FINANCIAL EFFECTS OF THE PROPOSED TRANSACTION

    The table below sets out the pro forma financial effects of the Proposed Transaction and related proposed
    subscription for the Class B Preference Shares on the published audited consolidated financial results of
    Wescoal for the year ended 31 March 2016.

    The pro forma financial effects are the responsibility of the directors of Wescoal and have been prepared
    for illustrative purposes only and because of their pro forma nature, may not fairly present Wescoal's
    financial position, changes in equity, results of operations or cash flows, nor the effect and impact of the
    Proposed Transaction and related proposed subscription for the Class B Preference Shares going forward.

                                                                             Before the        Pro forma           %
                                                                               Proposed        after the     Change
                                                                            Transaction         Proposed
                                                                            and related      Transaction
                                                                               proposed      and related
                                                                           subscription         proposed
                                                                          for the Class     subscription
                                                                                      B    for the Class
                                                                             Preference                B
                                                                                 Shares       Preference
                                                                               (cents)1           Shares
                                                                                                (cents)2
                                                                                     (A)              (B)       (B/A)
      Basic earnings per share                                                    26.23            13.65      (47.9%)
      Diluted earnings per share                                                  26.22            13.65      (47.9%)
      Headline earnings per share                                                 27.06            14.16      (47.7%)
      Diluted headline earnings per share                                         27.05            14.16      (47.7%)
      Net asset value per share                                                  171.32           168.35       (1.7%)
      Net tangible asset value per share                                         128.48           140.82         9.6%
      Weighted average number of Wescoal shares in issue ('000)                 197,361          322,356        63.3%
      Weighted diluted number of Wescoal shares in issue ('000)                 197,399          322,395        63.3%
      Number of Wescoal shares in issue ('000)                                  224,760          349,755        55.6%

     Notes and assumptions:

     1       The Wescoal information reflected in the "Before the Proposed Transaction and related proposed
             subscription for the Class B Preference Shares" column has been extracted from the published audited
             consolidated financial statements of Wescoal for the year ended 31 March 2016.
     2       The effects on basic earnings, diluted earnings, headline earnings and diluted headline earnings per
             share are calculated on the basis that the Proposed Transaction and related proposed subscription for
             the Class B Preference Shares was effective 1 April 2015, while the effects on the net asset value and
             net tangible asset value per share are calculated on the basis that the Proposed Transaction and related
             proposed subscription for the Class B Preference Shares was effective 31 March 2016.
     3       The Wescoal information reflected in the "Pro forma after the Proposed Transaction and related
             proposed subscription for the Class B Preference Shares" column has been calculated on the basis that
             the Proposed Transaction and related proposed subscription for the Class B Preference Shares has been
             implemented.
     4       The subscription by Wescoal for the Class B Preference Shares is accounted for as a non-current
             receivable.
     5       The Subscription Price for the Subscription Shares is at a 10% discount of the 30 -day VWAP Wescoal
             share price on 21 September 2016. The Specific Issue is accounted for in terms of the guidance provided
             in IFRS 2: Share Based Payments and consequently, the difference between the market value of the
             Subscription Shares and the Subscription Price is described as a ?BEE Discount? and is accounted for as
             a once-off, non-cash expense in the pro forma consolidated income statement. For accounting
             purposes, the BEE Discount will be calculated on the Subscription Date. For the purposes of these pro
             forma financial effects the BEE Discount was calculated on the last practicable date before this
             Announcement. The BEE Discount has no tax effect.
     6       The proceeds of the Specific Issue, net of the cash outflow from the subscription for the Class B Preference
             Shares, will initially be placed within existing short term debt facilities until drawn down over a period of time
             for purposes of the intended use as detailed in paragraph 5 of this announcement. The assumed interest
             saving has been limited to, and is based, on the actual interest incurred on short term debt facilities during
             the year ended 31 March 2016. Furthermore, no effect is given to potential interest income earned to the
             extent that net the proceeds of the Specific Issue exceeds the outstanding short term debt facility, as such
             interest savings cannot be factually supportable.
     7       It should be noted that the pro forma financial effects include the earnings effects of the application of the
             proceeds from the Specific Issue as described above. However, to the extent that amounts are drawn down
             for purposes of the intended use, the interest saving illustrated for purposes of presenting the pro forma
             financial information may not be realised in full.
     8       Transaction costs (non-recurring) of R7.7 million (including VAT) relating to the Proposed Transaction were
             assumed and capitalised to equity.


7   TIMING REGARDING DISTRIBUTION OF CIRCULAR AND NOTICE OF GENERAL MEETING

    Full details pertaining to the Proposed Transaction will be included in a circular to Shareholders regarding,
    inter alia, the Specific Issue and a waiver of the requirement for the BEE SPV and the BEE SPV Shareholders
    to make the Mandatory Offer to all other holders of Wescoal shares (excluding the BEE SPV) ("Circular"). It
    is anticipated that the Circular will be posted to Shareholders on or about Monday, 17 October 2016. The
    Circular will incorporate, among other things, (i) the Fairness Opinion; (ii) the Fair and Reasonable Opinion;
    (iii) a notice of general meeting to be held on or about Tuesday, 15 November 2016 for the purpose of
    considering and, if deemed fit, passing the resolutions required to implement the Proposed Transaction;
    and (iv) a form of proxy.

    A further announcement setting out the salient dates and times of the Proposed Transaction will be
    released on SENS in due course.

8   SPECIAL DIVIDEND ANNOUNCEMENT

    The Board has considered the financial position, the year-to-date operational performance and growth
    prospects of the Company, and has therefore resolved to distribute R10 million to Shareholders in the form
    of a special dividend (?Special Dividend?) to be paid out before the Proposed Transaction becomes effective
    on its own terms. A further announcement on the Special Dividend will be released on SENS in due course.

9   MANAGEMENT PRESENTATION

     A management presentation on the salient features of the Proposed Transaction will be uploaded and
     available for viewing on the Company?s website (www.wescoal.com) from Thursday, 29 September 2016.

10   WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT

     As this announcement sets out the full terms of the Proposed Transaction, caution is no longer required to
     be exercised by Shareholders when dealing in their Wescoal shares.



Woodmead, Johannesburg
29 September 2016

Enquiries:
Jacques De Bie - Investor Relations
Telephone: +27 (0) 82 691 5384

Investment Bank, Corporate Advisor and Sponsor:
Nedbank CIB

Legal Advisor:
Bowman Gilfillan Inc

Independent Expert
BDO Corporate Finance

Independent Reporting Accountants and Auditors:
PricewaterhouseCoopers Inc





Date: 29/09/2016 10:05:00 Supplied by www.sharenet.co.za                     
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