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AFGRI LIMITED - The Unwinding of and Extension to the Broad Based BEE transaction implemented in 2004, as revised in 2010.

Release Date: 04/06/2013 17:31
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The Unwinding of and Extension to the Broad Based BEE transaction implemented in 2004, as revised in 2010.

AFGRI Limited
(Incorporated in the Republic of South Africa)
Registration Number: 1995/004030/06
JSE share code: AFR 
ISIN: ZAE000040549
(“AFGRI”)

     THE UNWINDING OF AND EXTENSION TO THE BROAD BASED BLACK ECONOMIC
     EMPOWERMENT (“BEE”) TRANSACTION IMPLEMENTED IN 2004, AS REVISED IN 2010

1.   INTRODUCTION AND RATIONALE

     AFGRI continues to support the South African government’s BEE initiatives and over the years
     has been successful in introducing black partners into many of its operating companies. In line
     with its commitment to transformation, in 2004 AFGRI, through AFGRI Operations Limited
     (registration number 1995/005827/06) (“AFGRI Operations”), formed a partnership with its
     BEE partner, the Agri Sizwe Empowerment Trust (Master’s reference no. IT 9911/04) (“AST”)
     (“2004 BEE Transaction”). As a result of this transaction, AST held a 26,77% undivided
     interest in the assets and liabilities of AFGRI Operations, which was operated through the Agri
     Sizwe partnership (“Partnership”).

     On 4 June 2010, Izitsalo Employee Investments Proprietary Limited (registration number
     2004/024831/07) (“Izitsalo”), which at that stage was a 19,90% beneficiary of AST, entered
     into an agreement with certain Exiting BEE Beneficiaries, as defined in the circular to AFGRI
     shareholders dated 6 August 2010 (“2010 AFGRI Circular”), Izitsalo, AFGRI Operations and
     AFGRI and pursuant to which Izitsalo acquired the Exiting Beneficiaries’ remaining 80,10%
     right, title and interest to existing or future distributions of capital and/or income of the Trust
     which it did not already own (“2010 BEE Transaction”) at a purchase consideration of R211
     485 303.25 (“the 2010 BEE Transaction Purchase Consideration”) . The 2010 BEE
     Transaction Purchase Consideration was distributed to the Exiting BEE Beneficiaries in cash.
     Consequently Izitsalo became the sole beneficiary of AST in respect of all existing or future
     distributions of capital and/or income.

     AST together with Izitsalo (collectively known as the “BEE Consortium”) established an eight
     year partnership with AFGRI Operations during which time it supported the management of
     AFGRI in realising AFGRI’s growth objectives. The board of directors of AFGRI (“Board”) has
     recognised its valuable contribution and the need for this relationship to be maintained. The
     unwinding of and extension to the 2004 BEE Transaction, as amended by the 2010 BEE
     Transaction (“Original BEE Transaction”), will also ensure that AFGRI’s BEE status is
     preserved, reinforcing AFGRI’s stated commitment to transformation and its reputation as a
     good corporate citizen. The Board has further taken cognisance of the fact that the loan from
     the Land and Agricultural Development Bank of South Africa (“Land Bank”) to AST in terms of
     which the Original BEE Transaction has been financed (“the Land Bank Loan” ) has matured
     and that in order to avoid a negative financial impact on the BEE Consortium s the Land
     Bank Loan had to be renegotiated .

     AFGRI shareholders are referred to the announcement dated 7 December 2012, whereby the
     Land Bank extended the maturity date of the Land Bank Loan in terms of the Original BEE
      Transaction in the interim to ensure the successful negotiation and completion of the
      refinancing and extension of the Original BEE Transaction for a further 20 years
      (”Transaction”).


2.    THE ORIGINAL BEE TRANSACTION

      The 2004 BEE Transaction’s net purchase consideration of R502 million (“Purchase
      Consideration”) was discharged at the time in cash to AFGRI Operations, which cash was
      raised in AST by means of the Land Bank Loan and for which the Land Bank acquired the
      following security:
      - cession in security of all the assets in AST; and
      - an amount of R100 million in the form of redeemable preference shares, which AFGRI
           subscribed for from the proceeds of the Purchase Consideration and pledged to the Land
           Bank (“Collateral Investment”).

      In terms of the Original BEE Transaction, AFGRI Operations acquired the right and option to
      call on AST to sell to AFGRI Operations its undivided interest in the assets and liabilities of the
      Partnership (“Call Option”). The formula to determine the Call Option price is further detailed in
      the 2004 AFGRI Circular. The Call Option may be exercised by AFGRI Operations in a number
      of circumstances including, inter alia, for an indefinite period from the date on which the Land
      Bank Loan shall have been repaid, which occurred on 31 May 2013.

      The Call Option was accordingly exercised on 31 May 2013 and AFGRI Operations was
      required to settle the Call Option price by issuing such number of new fully paid-up AFGRI
      Operations shares to AST as would constitute, after their issue, 26.77% of all the issued
      AFGRI Operations shares. The formula to determine the Call Option price is based on the 30
      day volume weighted average price (“VWAP”) of AFGRI prior to the date of exercising the Call
      Option as further detailed in the 2004 AFGRI Circular.

      The 2010 BEE Transaction’s Purchase Consideration was discharged in cash, which was
      raised in Izitsalo by means of a loan (“Izitsalo Loan”) from GroCapital Financial Services
      Proprietary Limited (“GroCapital”), a wholly-owned subsidiary of AFGRI Operations.

      For further detailed information on the Original BEE Transaction, shareholders are referred to
      the 2004 AFGRI Circular and 2010 AFGRI Circular, respectively.

3.    THE TRANSACTION

3.1   Sale of AFGRI International

      On 30 May 2013 but prior to the implementation of 3.2, 3.3, 3.4 and 3.5, the BEE Consortium
      sold its 26.77% undivided interest in the foreign domiciled subsidiaries and associates of
      AFGRI Operations held through the Partnership (“AFGRI International”) to Betakilo Garage
      Proprietary Limited, a wholly owned subsidiary of AFGRI (“AFGRI Subco”) for a net cash
      purchase consideration payable to the BEE Consortium of R55.7 million as part of the
      restructuring of AFGRI International (“AFGRI International Sale”).

      For further information on the AFGRI International Sale, shareholders are referred to the SENS
      announcement of 4 May 2013.
3.2   Partnership distribution

      On 30 May 2013, the Partnership made a special partnership distribution which was settled in
      cash, utilising after tax retained earnings to each partner in its proportional undivided
      partnership interest. As a result, a special partnership distribution of R100 million was paid to
      the BEE Consortium and an amount of approximately R273.5 million to AFGRI Operations.

3.3   BEE Consortium shareholding in AFGRI Operations

      In accordance with the terms of the Original BEE Transaction, the BEE Consortium sold its
      26,77% undivided interest in the assets and liabilities of the Partnership to AFGRI Operations
      in exchange for the issue of 26,77% of the shares in AFGRI Operations’ share capital to the
      BEE Consortium, with the result that all the partnerships will be dissolved (“AOL Swop”).

3.4   Special AFGRI Operations cash dividend

      On 31 May 2013 but after the AOL Swop, AFGRI Operations declared a special cash dividend
      utilising retained earnings to each shareholder in its proportional shareholding interest. As a
      result, a special cash dividend of R94.3 million was paid to Izitsalo and an amount of
      approximately R257 million to AFGRI.

3.5   The New Land Bank Loan

      On 31 May 2013, the BEE Consortium utilised the R250 million cash received pursuant to the
      sale, partnership distribution and special cash dividend referred to in 3.1, 3.2, and 3.4, to:

      -   repay the R50 million interest free loan owed by it to GroCapital (“GroCapital Loan”);
      -   settle a portion of the outstanding balance of the Land Bank Loan; and
      -   provide collateral of R110 million to the Land Bank as detailed in this paragraph.

      On 31 May 2013, the Land Bank refinanced the remaining portion of the Land Bank Loan and
      extended further finance to the BEE Consortium by way of a new maximum facility of R800
      million (“New Land Bank Loan”). The BEE Consortium utilised a portion of the proceeds of the
      New Land Bank Loan to settle the full capital and accumulated accrued interest of the Izitsalo
      Loan, owed to GroCapital.

      To facilitate the New Land Bank Loan the Collateral Investment would no longer be required to
      be pledged as security by AFGRI but was replaced by a new collateral investment of R110
      million that was pledged as security by the BEE Consortium to the Land Bank over a period of
      20 years, using the cash received pursuant to 3.1, 3.2 and 3.4 (“New Collateral
      Investment”).The New Collateral Investment, totalling R110 million, is in the form of a cash
      deposit by the BEE Consortium with the Land Bank. All interest received by the BEE
      Consortium on the New Collateral Investment will be for the benefit of the BEE Consortium and
      will not form part of the New Collateral Investment.

      Should any event of default occur in terms of the New Land Bank Loan, the Land Bank will hold
      security interests in the following order:
      - cession and pledge of 100% of the shares in AFGRI Operations held by the BEE
         Consortium, being its 26.77% shareholding interest in that company;
      - cession in security by the BEE Consortium of:
               o all distributions (in the form of dividends or otherwise) to be received in respect of
                   the AFGRI Operations shares held by the BEE Consortium;
               o all balances of deposit accounts in the name of the BEE Consortium; and;
                o all deposits in bank accounts in the name of the BEE Consortium;
      -     the New Collateral Investment.




4.    UNAUDITED PRO FORMA FINANCIAL EFFECTS


4.1   Unaudited pro forma financial effects

      The table below sets out the unaudited pro forma financial effects on AFGRI’s earnings per
      share (“EPS”), headline EPS (“HEPS”), net asset value per share (“NAV”) and tangible NAV
      (“TNAV”).

      The unaudited pro forma financial effects have been prepared using accounting policies that
      comply with International Financial Reporting Standards and that are consistent with those
      applied in the interim group results of AFGRI for the six months ended 31 December 2012.


      The unaudited pro forma financial effects, which are the responsibility of the Board, are
      provided for illustrative purposes only and, because of their pro forma nature, may not fairly
      present AFGRI’s financial position, changes in equity, results of operations or cash flow.

                                                     After AFGRI
                                                 1                            3          After             5,6
                                        Before       International   Change                   4   Change
          For the six months ended 31                            2                Transaction
                                                            Sale
          December 2012
                                        (cents)           (cents)        (%)           (cents)          (%)

              7
          EPS                             33.5               32.1      -4.2%              29.1       -9.3%
                    7
          HEPS                            31.3               29.9      -4.5%              26.9      -10.0%
                8
          NAV                            515.1              502.6      -2.4%             692.5      37.8%
                    8
          TNAV                           419.1              406.6      -3.0%             596.5      46.7%
          Weighted average number
          of AFGRI shares in issue       335.8              335.8      0.0%              335.8       0.0%
          (millions)
          Number of AFGRI shares in
                                         357.4              357.4      0.0%              357.4       0.0%
          issue (millions)


      Notes and assumptions:

      1. The AFGRI financial information reflected in the “Before” column has been extracted from
         the interim group results of AFGRI for the six months ended 31 December 2012.
      2. The AFGRI financial information reflected in the “After AFGRI International Sale” column has
         been calculated on the basis that the AFGRI International Sale would be implemented
         based on the interim group results of AFGRI for the six months ended 31 December 2012.
         AFGRI Shareholders are also referred to the announcement released by AFGRI on 4 June
         2013 in relation to the AFGRI International Sale.
      3. The change reflects the difference between the position before and after the AFGRI
         International Sale on a percentage basis.
      4. The AFGRI financial information reflected in the “After Transaction” column has been
         calculated on the basis that the Transaction would be implemented based on the interim
         group results of AFGRI for the six months ended 31 December 2012.
      5. The change reflects the difference between the position after the AFGRI International Sale
        and after the Transaction on a percentage basis.
     6. The negative impact on EPS and HEPS is a once off impact as a result of the professional
        fees incurred in respect of the Transaction.
     7. The pro forma adjustments to the published interim group statement of comprehensive
        income have been calculated on the assumption that the Transaction was implemented on 1
        July 2012.
     8. The pro forma adjustments to the published interim group statement of financial position
        have been calculated on the assumption that the Transaction was implemented on 31
        December 2012.


5.   SUSPENSIVE CONDITIONS OF THE TRANSACTION

     The Transaction was conditional on the fulfilment or waiver (where capable of waiver) of, inter
     alia, the following suspensive conditions, all of which have been fulfilled or waived on or before
     31 May 2013:
     - the completed AFGRI International Sale
     -    the approval of the Transaction by:
               o AST;
               o the board of directors of Izitsalo;
               o the Board;
               o the board of directors of AFGRI Operations;
               o the board of directors of each of the South African subsidiaries;
     - the passing of a special resolution by AFGRI Operations amending its MOI in order to
          accommodate the requirements of the Transaction and the filing of such new MOI at the
          Companies and Intellectual Properties Commission;
     - the signing by all the parties thereto of the New Land Bank Loan agreement.

6.   DIRECTORS’ RECOMMENDATION AND RESPONSIBILITY STATEMENT

     Taking into account the background information, the Board is of the opinion that the
     Transaction will benefit AFGRI shareholders.

     With respect to the information provided in the announcement, the Board:
     - has considered all statements of fact and opinion in this announcement;
     - collectively and individually accept full responsibility for the accuracy of the information
         provided;
     - certify that, to the best of their knowledge and belief, there are no other facts or omissions
         that would make any statement in this announcement false or misleading;
     - confirm that they have made all reasonable enquiries in this regard; and
     - confirm that this announcement contains all the necessary information required in terms of
         the Listings Requirements of the JSE Limited.



7.   SALIENT DATES AND TIMES

     The salient dates and times of the Transaction were as follows:

                                                                                            2013
     Proceeds from AFGRI International Sale to BEE Consortium                     Thursday, 30 May
     Special cash partnership distribution on or before                           Thursday, 30 May
     Call Option price calculated and settled with the issue of new                   Friday, 31 May
     AFGRI Operations shares on or about
     Special AFGRI Operations cash dividend                                        Friday, 31 May
     Repayment by BEE Consortium of GroCapital Loan and a portion
     of the Land Bank Loan                                                         Friday, 31 May
     New Land Bank Loan extended to the BEE Consortium                             Friday, 31 May
     Izitsalo Loan repaid by BEE Consortium to GroCapital                          Friday, 31 May

       Notes:
       a)      The above dates and times are subject to change. Any material changes will be
               released on SENS and published in the South African press.
       b)      All times given in this document are local times in South Africa.


Centurion
04 June 2013


Investment Bank and Sponsor to AFGRI:   Investec Bank Ltd

Legal advisor to AFGRI:  Brink Falcon Hume          

Independent auditors:  PWC

Tax Advisor:    KPMG

Legal advisor to the BEE Consortium:  Van der Merwe Attorneys

BEE Consortium:  Izitsalo
Date: 04/06/2013 05:31:00 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.

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