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Capitec Specific Issue Of Shares For Cash
CAPITEC BANK HOLDINGS LIMITED
Registration number: 1999/025903/06
Incorporated in the Republic of South Africa
Registered bank controlling company
JSE share code: CPI ISIN: ZAE000035861
JSE preference share code: CPIP ISIN: ZAE000083838
“Capitec”
CAPITEC BANK LIMITED
Registration number 1980/003695/06
Incorporated in the Republic of South Africa
Registered bank
Company code: BICAP
Stock Code: CBL29, ISIN: ZAG000158874
Stock Code: CBL30, ISIN: ZAG000180977
“Capitec Bank”
CAPITEC SPECIFIC ISSUE OF SHARES FOR CASH
Shareholders are referred to the Stock Exchange News Service (“SENS”)
announcement published on 19 January 2022, wherein Capitec informed
shareholders of a broad-based black economic empowerment (“B-BBEE”)
transaction involving the specific issue of Capitec ordinary shares
(“Shares”) to the value of R1 000 000 000 to employees (“Specific Issue”)
(“Transaction“).
Shareholders are also referred to the SENS announcement published on 24
January 2022 regarding the general meeting of shareholders to be held
on 22 February 2022 to consider the relevant resolutions relating to
the Specific Issue (“General Meeting”) and in which announcement matters
relating to the impact of the Specific Issue on shareholders were
explained.
The Specific Issue aims to reward employees for supporting the
performance of Capitec over the years by giving them the opportunity to
become shareholders and to improve Capitec’s B-BBEE ownership status.
Aligning employees’ interests with those of shareholders will further
incentivise employees to serve the best interests of the Capitec group
of companies (“Group”).
The boards of Capitec and its wholly-owned subsidiary, Capitec Bank,
have approved adjustments to the Transaction structure with the aim of
optimising the Transaction for all stakeholders. It is important to note
that the adjustments to the Transaction structure will not have any
significant impact on shareholders whilst Capitec and employees will be
in a better position.
It is important that the Transaction be approved and implemented by no
later than Capitec Bank’s financial year-end on 28 February 2022, to
allow the increased black ownership to be taken into account for Capitec
Bank’s next B-BBEE scorecard.
PROPOSED CHANGES AND RATIONALE
Original transaction structure
The original Transaction structure is detailed in the circular to
shareholders dated 24 January 2022 (“Circular”) and would have involved
the following:
• new Capitec Shares would be issued to several thousand participating
Capitec group employees. The intention is to reward and incentivise
employees and also to increase Capitec’s B-BBEE ownership (and that
of its wholly-owned subsidiary, Capitec Bank;
• if approved by shareholders, the Shares would be issued in terms of
a specific issue authority to each participating employee at a 50%
discount to the Opening Price (as defined in the Circular), being the
opening price of the Shares on the JSE stock exchange on 22 February
2022, the date of the General Meeting;
• the 50% subscription price would be funded by a loan granted by
Capitec to the participating employees (“Loan”);
• at the end of a 5-year lock-in period, the participating employees
would be required to repay the Loan and interest thereon; and
• it is anticipated that participating employees would need to sell a
portion of their shares at that point to fund the Loan repayment as
well as the applicable income tax liability.
Proposed new transaction structure (“New Transaction Structure”)
Capitec proposes adjusting the Transaction structure to optimise it for
all stakeholders. Instead of issuing the Shares to participating
employees at a 50% discount to the Opening Price, the Shares will be
issued to participating employees at the full Opening Price of the
Shares. Participating employees will still pay 50% of the subscription
price utilising the Loan proceeds, whilst the remaining 50% of the
subscription price will be settled by Capitec Bank on behalf of the
participating employees. While the details of the Transaction structure
would change, the commercial essence remains exactly the same.
Under the original Transaction structure, since participating employees
are restricted from disposing of the Shares for 5 years, the Shares are
"restricted equity instruments" for the purposes of section 8C of the
Income Tax Act, No 58 of 1962. In the circumstances, employees will have
an employees’ tax liability at the end of the 5-year lock-in period,
should the market value of the Shares at that time exceed their cost.
Under the New Transaction Structure, an upfront taxable fringe benefit
will arise in the hands of participating employees when Capitec Bank
pays 50% of the subscription price on their behalf, but they will be
exposed to a smaller tax liability when the restriction on the disposal
of their Shares is lifted. In terms of the New Transaction Structure
Capitec Bank will furthermore fund the upfront employee taxes that arise
from the New Transaction Structure and will not seek to recover the
funding from the employee.
The New Transaction Structure is considered preferable for the employees
as it provides them with a more predictable cash flow requirement, while
simultaneously providing Capitec with a more favourable outlook on its
B-BBEE and employee ownership upon expiry of the lock-in period. This
is because the New Transaction Structure allows for a greater
shareholding by employees post the lock-in period as employees will be
required to sell fewer Capitec shares than they would otherwise have
had to under the original Transaction structure.
The change to the New Transaction Structure has no banking regulatory
impact.
Commercial Impact
While certain details of the Transaction structure would change, the
commercial essence remains exactly the same. In this regard:
• The Opening Price on 22 February 2022 will remain the reference point
for determining the subscription price and number of Shares issued.
In light of this and as the maximum aggregate Transaction value remains
R1 billion, the number of Shares issued in terms of the New Transaction
Structure will be identical to the number of Shares that would have
been issued in terms of the original Transaction structure, meaning
that the change in structure will not result in a change in dilution
for existing shareholders;
• Where Capitec would issue the Shares at a 50% discount under the
original Transaction structure with the expense recorded in Capitec
Bank’s accounts for accounting purposes, under the New Transaction
Structure, Capitec will issue the Shares at the full Opening Price
with Capitec Bank paying 50% thereof and the expense still being
recorded in Capitec Bank’s accounts. In the circumstances, employees
will still only be liable to pay 50% of the Opening Price and the
exposure for the Group remains unchanged;
• Capitec will continue to provide the Loans to employees in respect of
the 50% portion of the subscription price for which they are liable;
• The 5-year lock-in remains in place and the New Transaction Structure
has no impact on the pledge and cession to be held by Capitec over
the Shares as security for the Loans; and
• The impact on the previously communicated pro forma financial effects
is as set out below. The said impact is not significant. There will
continue to be an IFRS 2 charge in respect of the New Transaction
Structure, and the expense of R524 million will reduce to R491 million
under the New Transaction Structure (a 6.3% reduction), which is
positive. This, in turn, has the following impact on the earnings
reflected in the pro forma condensed consolidated income statement
set out in Circular, in respect of the 6 months ended 31 August 2021:
Unaudited pro forma Unaudited pro % difference
after the effect of forma after the between the
the Specific Issue effect of the original
and Loans (as Specific Issue and Transaction and
reflected in the Loans New Transaction
Circular, based on (based on the New Structure
the original Transaction
Transaction Structure)
structure)
Basic earnings 2 934 2 962 0.95%
per Share
(cents)
Diluted 2 925 2 953 0.96%
earnings per
Share (cents)
Basic headline 2 995 3 024 0.97%
earnings per
Share (cents)
Diluted 2 986 3 015 0.97%
headline
earnings per
Share (cents)
The above must be read in conjunction with the pro forma financial
effects and the notes and qualifications thereto, as contained in the
Circular and in Capitec’s SENS announcement dated 19 January 2022 and
the further explanations included in the SENS announcement dated 24
January 2022. It was prepared for illustrative purposes only and is the
responsibility of Capitec’s directors.
Template agreements
The proposed New Transaction Structure will require some consequential
adjustments to the template Transaction Participation Agreements (as
defined in the Circular), which are due to be concluded with
participating employees following receipt of shareholder approval and
prior to implementation of the New Transaction Structure. The updated
Transaction Participation Agreements are available for inspection by
Shareholders on the Company’s website (www.capitecbank.co.za) and at
the registered office of Capitec and at the offices of PSG Capital,
during normal office hours.
Impact on the resolutions proposed in the Notice of General Meeting
contained in the Circular (“Notice”)
In terms of the Notice, the General Meeting was convened to, inter alia,
consider and, if deemed fit, pass with or without modification, the
shareholders’ resolutions contained therein.
Pursuant to the above-mentioned changes to the Transaction structure,
in terms of which Capitec will now issue the Specific Issue Shares (as
defined in the Circular) at the full Opening Price with Capitec Bank
settling 50% of this price and participating employees still paying 50%
of the said Opening Price utilising the Loan provided by Capitec,
Ordinary Resolution 1 is required to be modified accordingly. In the
circumstances, shareholders are hereby notified that the following
modified Ordinary Resolution 1 (with capitalised words and terms bearing
the meaning ascribed thereto in the Circular) will be proposed at the
General Meeting:
Ordinary Resolution 1 as modified
“RESOLVED THAT the Directors of the Company be and are hereby
authorised, by way of a specific authority in terms of paragraph
5.51 of the Listings Requirements, to issue and allot up to 625 000
Specific Issue Shares out of the unissued but authorised Shares in
the share capital of the Company to Participating Employees, for
cash, at the subscription price payable per Specific Issue Share of
an amount equal to the Opening Price, as detailed in the Circular
to which the Notice of General Meeting is attached and modified in
terms of the SENS announcement published by the Company on 21
February 2022.”
For Ordinary Resolution 1 to be adopted, a 75% majority of the voting
rights exercised on Ordinary Resolution 1, as modified herewith, by
shareholders present in person or represented by proxy and entitled to
vote on this resolution at the General Meeting must be cast in favour
of Ordinary Resolution 1, excluding all participating employees and
their associates who shall not be entitled to vote hereon. The reason
for Ordinary Resolution 1 is to approve the Specific Issue in terms of
paragraph 5.51(g) of the JSE Listings Requirements. The effect of
Ordinary Resolution 1, if passed, is that the Specific Issue will be
approved and, if the Transaction becomes operative, Capitec will issue
the Specific Issue Shares to the participating employees in accordance
with the New Transaction Structure.
The General Meeting will continue to be held on Tuesday, 22 February
2022 at 14:00 and will occur entirely by electronic communication.
Shareholders are referred to the guidance in the Circular and Notice on
how to attend, participate in and vote at the General Meeting, which
remains unchanged.
Since the nature of the Transaction remains substantially the same,
Capitec will treat all proxies received prior to the SENS announcement
as valid and effective for purposes of the General Meeting. Shareholders
who have submitted their proxies prior to the SENS are however reminded
that should they wish to change their votes on the resolutions they may
do so by withdrawing their proxy forms and submitting an updated proxy
form at any time prior to the voting on any resolution proposed at the
General Meeting. Such updated proxy forms are to be submitted in
accordance with the instructions in the Notice and proxy form annexed
thereto, and also dealt with in the “Action required by Shareholders”
section of the Circular.
Shareholders that have questions relating to the New Transaction
Structure must please send their queries to
investorrelations@capitecbank.co.za.
Stellenbosch
21 February 2022
Corporate Advisor and JSE Equity and Debt Sponsor
PSG Capital
Attorneys
Webber Wentzel
Independent Reporting Accountants
PricewaterhouseCoopers Inc.
Date: 21-02-2022 04:07:00
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