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Disposal by AECI of its Surplus Property Assets at Modderfontein to Shanghai Zendai Pro
AECI LIMITED
Incorporated in the Republic of South Africa
(Registration No. 1924/002590/06)
Share code: AFE ISIN No. ZAE000000220
(“AECI” or “the AECI Group”)
ANNOUNCEMENT RELATING TO THE DISPOSAL BY AECI OF ITS SURPLUS PROPERTY ASSETS AT MODDERFONTEIN
TO SHANGHAI ZENDAI PROPERTY LIMITED (THE “TRANSACTION”) AND WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
TRANSACTION SUMMARY*
- 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
assets.
- 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
developments.
*Capitalised terms used in this section have the same meaning as ascribed in this
announcement.
1. INTRODUCTION
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.
2. TRANSACTION PRICE*
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
Price”).
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
3. RATIONALE FOR THE TRANSACTION
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.
4. BACKGROUND INFORMATION ON SHANGHAI ZENDAI
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
projects.
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
shareholders.
5. THE TRANSACTION ASSETS
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.
6. PAYMENT STRUCTURE*
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
Date.
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
7. CONDITIONS PRECEDENT
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
Party);
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.
8. IRREVOCABLE UNDERTAKINGS FROM SHANGHAI ZENDAI SHAREHOLDERS
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.
9. SHANGHAI ZENDAI FUNDING
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
thereon.
10. AECI PERFORMANCE GUARANTEE
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
Guarantee”).
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.
11. UNAUDITED PRO FORMA FINANCIAL EFFECTS OF THE TRANSACTION
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
Notes:
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
information.
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
information.
12. CATEGORISATION OF THE TRANSACTION
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.
13. WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
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 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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