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ERB - Erbacon Investment Holdings Limited - Debt restructure plan and trading
update
Erbacon Investment Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number: 2007/014490/06)
Share code: ERB
ISIN: ZAE000111571
("Erbacon" or "the Company")
DEBT RESTRUCTURE PLAN AND TRADING UPDATE
1. DEBT RESTRUCTURE PLAN
1.1 Shareholders are hereby advised that Erbacon entered into an agreement
on 23 March 2012, with Paladin Capital Financial Services (Proprietary)
Limited ("Paladin Capital"), Medu Capital Fund II Partnership and Medu
II Development Fund Trust (collectively "Medu"), David Boyd Erskine
("Erskine"), Alexis Hertzog Henning ("Henning"), the Ramsay Family Trust
and Sean Joseph Flanagan ("Flanagan") (collectively "the Parties") in
terms of which Erbacon`s debt owing to Erbacon shareholders will be
restructured through a recapitalisation plan consisting, inter alia, of
the conversion of outstanding loans payable and preference shares into
ordinary shares in Erbacon ("the Debt Restructure Plan"), on the terms
and conditions set out below.
1.2 RATIONALE FOR THE DEBT RESTRUCTURE PLAN
Erbacon and its major stakeholders, which include related parties to the
Company, have entered into the Debt Restructure Plan in order to
recapitalise the balance sheet of the Company and enable the business to
implement its growth plans.
1.3 THE EFFECTIVE DATE OF THE DEBT RESTRUCTURE PLAN
The effective date of the Debt Restructure Plan is close of business 23
March 2012, subject to the fulfillment of the conditions precedent as
detailed in paragraph 1.6 below.
1.4 PARTICULARS OF THE DEBT RESTRUCTURE PLAN
1.4.1 In terms of the Debt Restructure Plan an additional R25 million in
total will be advanced to the Company by Erskine, Henning, Medu and
the Ramsay Family Trust ("the Additional Loan"). The Additional
Loan together with the current outstanding loan balance of R63
million (plus accrued interest) from the Parties will be converted
into Erbacon ordinary shares ("the Loan Conversion").
1.4.2 In terms of the Loan Conversion, Erbacon will issue Erbacon
ordinary shares to the Parties at a price equal to R0.40 per
Erbacon ordinary share.
1.4.3 The Parties have acknowledged that the authorized but unissued
share capital of Erbacon is insufficient for Erbacon` s purposes
and that it will be increased from the current 500,000 ordinary
shares to 1,500,000 ordinary shares.
1.4.4 Furthermore, as part of the Debt Restructure Plan, the Erbacon
preference shares held by Medu will be converted into ordinary
shares in Erbacon ("the Preference Share Conversion"). The 67 410
000 Erbacon preference shares held by Medu will be converted into
283 122 000 Erbacon ordinary shares based on such Preference Share
Conversion being at an implied conversion rate of R0.40 per Erbacon
ordinary share.
1.5 The senior members of the management team of Erbacon ("the Management
Team") will be entitled to participate in a management co-investment
share plan ("the Management Co-Investment Share Plan"). In terms of the
Management Co-Investment Share Plan, the Management Team will be
entitled to acquire 2 additional Erbacon ordinary shares for each one
Erbacon ordinary share ("Base Shares") acquired by each member of the
Management Team pursuant to the Loan Conversion. The maximum value of
loans that can be converted into Base Shares is R8.5 million (plus
accumulated interest). The 2 additional Erbacon ordinary shares will be
issued as follows:
i) one additional Erbacon ordinary share on the first anniversary of
the signature date of the Debt Restructure Plan agreement ("the
Signature Date"), provided the member is still in the employ of
Erbacon at such date; and
ii) one additional Erbacon ordinary share on the later of a) the second
anniversary of the Signature Date; and b) the date of approval by
the Erbacon Board of the audited annual financial statements of
Erbacon for the financial year ended 28 February 2014, provided, 1)
the member is still in the employ of Erbacon at such date; and 2)
the operating profit for the financial year ended 28 February 2014
exceeds a pre-determined hurdle.
1.6 CONDITIONS PRECEDENT TO THE DEBT RESTRUCTURE PLAN
The Debt Restructure Plan is subject, inter alia, to the fulfillment of
the following remaining suspensive conditions:
i) the required approval of the Debt Restructure Plan by the requisite
majority of Erbacon shareholders; and
ii) the obtaining of any other regulatory approvals necessary to
implement the Debt Restructure Plan, but not limited to approvals
from the JSE Limited ("JSE"), the Takeover Regulation Panel and the
South African competition authorities.
All the corporate actions included as part of the Debt Restructure Plan
including, inter alia, The Loan Conversion, Preference Share Conversion
and the Management Co-Investment Share Plan are interlinked. Should any
aspect requiring shareholder or regulatory approval not be approved,
then none of the corporate actions will be implemented.
1.7 PRO FORMA FINANCIAL EFFECTS
The pro forma financial effects of the Debt Restructure Plan on the
Company will be disclosed to Erbacon shareholders in due course.
1.8 FURTHER DOCUMENTATION
Erbacon shareholders are advised that, in accordance with the JSE`s
Listings Requirements, a circular to shareholders incorporating revised
listings particulars, together with a notice convening a general meeting
of Erbacon shareholders to obtain the requisite shareholders` approval
will be issued in due course containing further details of the Debt
Restructure Plan.
1.9 CAUTIONARY ANNOUNCEMENT
Shareholders are advised to exercise caution in the trading in Erbacon
shares until a further announcement is made, which will set out the
detailed particulars and the pro forma financial effects on Erbacon of
the Debt Restructure Plan.
2. TRADING UPDATE
2.1 In terms of the Listings Requirements of the JSE Limited, 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 period to be reported upon next will differ by at least 20% or
more from those of the previous corresponding period.
2.2 The board has now established with reasonable certainty that the group
will report a basic loss per share for the year ended 29 February 2012,
which is expected to increase by more than 100% than that of the prior
corresponding period. The headline loss per share will be less than the
basic loss per share primarily due to the exclusion of losses arising
from the small plant hire disposal transaction. The Company will revert
to shareholders with a further trading update once more certainty exists
with regards to the financial results for the year ended 29 February
2012.
2.3 During the year under review the Group incurred losses in its small
plant hire business and on a number of contracts. The losses in the
small plant hire business were accounted for in the interim results
wherein the business was treated as a discontinued operation. The
problematic contracts, on which estimated contract losses to completion
have been taken to book in the Group`s results to 29 February 2012, are
all anticipated to be complete by end June 2012. In terms of IAS 11
(Accounting for Construction Contracts), the Group maintains a
conservative policy in respect of the recognition of un-agreed contract
claims. A number of commercial claims in favour of the Company are
still to be agreed with our clients, the finalisation of which will
improve the relevant contract results in the 2013 financial year.
2.4 As advised to shareholders via the SENS on the 14th March 2012, Erbacon
Small Plant (Pty) Ltd was disposed of with effect from 29th February
2012. The disposal enabled Erbacon`s borrowings to be reduced by R30
million.
2.5 Trading conditions in both the South African industrial building and
civil engineering markets are improving with an increased quantum of
tenders coming to market. The implementation of the Group`s medium-term
strategy of `Best-in-Class` (comprising Order Book Development, Project
Execution, and Business Sustainability) is progressing well. In
particular, the business imperatives of sustainability as relating to
the risk assessment process, a culture of safe behaviour, Black Economic
Empowerment, corporatisation initiatives, and together with the above
mentioned balance sheet restructuring, are the main focus of the Board.
2.6 The Group has a secured forward order book of R1,150 billion, of which
in excess of 90% is to be completed within the period to 28 February
2013. In tandem with the recovering market conditions, the Board has
also focused on ensuring that the Group has the management capacity to
close-out current contracts to our clients` satisfaction, and to
successfully deliver the newly awarded tenders.
2.7 The information in this trading statement has not been reviewed or
reported on by the company`s auditors.
2.8 The audited condensed provisional results for the year ended 29 February
2012 are expected to be released on SENS on or about 18 May 2012.
27 March 2012
Midrand
Designated and Corporate adviser
PSG Capital (Pty) Limited
Date: 27/03/2012 17:29:03 Supplied by www.sharenet.co.za
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