Wrap Text
Capital restructuring of EquityCo and its subsidiaries, impact on AF Pref and withdrawal of cautionary announcement
Alexander Forbes Preference Share Investments Limited
(Incorporated in the Republic of South Africa)
(Registration number: 2006/031561/06)
ISIN: ZAE000098067
Share Code: AFP
(“AF Pref”)
PROPOSED CAPITAL RESTRUCTURING OF THE ALEXANDER FORBES EQUITY HOLDINGS
PROPRIETARY LIMITED (“EQUITYCO”) AND ITS SUBSIDIARIES (COLLECTIVELY “THE
GROUP”), IMPACT ON AF PREF AND WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
1. INTRODUCTION
Further to the cautionary announcement released on the Stock Exchange News Service on 21
January 2014, the linked unitholders of AF Pref (“Linked Unitholders”) are advised that the
current capital structure of the Group will be restructured (“Capital Restructuring”). In response
to this restructuring by EquityCo, AF Pref will be redeeming and converting all debentures
issued by AF Pref (“Debentures”) and will issue further preference shares in AF Pref
(“Preference Shares”). Linked Unitholders will not be required to make any further cash
contributions and on a net basis will be in receipt of cash proceeds.
2. RATIONALE
The Capital Restructuring aims to optimise and simplify the capital structure of the Group and to
ensure compliance with pending regulatory changes to be brought about by the interim
measures for insurance groups, as set out in the proposed Insurance Laws Amendment Bill,
which is expected to come into force during this calendar year, and which provides for
insurance group supervision. Furthermore, the Capital Restructuring serves to align the
interests of EquityCo shareholders in the Group’s capital structure and to facilitate the ultimate
realisation by EquityCo shareholders in due course.
3. SALIENT TERMS OF THE CAPITAL RESTRUCTURING
The current AF Pref and Group shareholding and capital structure is set out in diagrammatic
form in the press version of this announcement, to be published in the Business Day tomorrow,
25 February 2014.
The Capital Restructuring contemplates:
- the redemption of the preference shares issued by Alexander Forbes PIK Funding
Proprietary Limited (“PIKCo”) (“PIKCo Preference Shares”). In order to effect this
redemption, EquityCo will acquire the PIKCo Preference Shares from all their
holders, including AF Pref, and will settle the redemption consideration through the
issue of 45,009,150 new ordinary shares in EquityCo (“EquityCo Ordinary Shares”);
- the acquisition by EquityCo of the high yield loan instrument (“HY Loan”) and the
preference shares issued by AF Funding Proprietary Limited (“HYCo”) (“HYCo
Preference Shares”). All the holders of the HY Loan and the HYCo Preference
Shares, including AF Pref, will accordingly dispose of the HY Loan instruments and
HYCo Preference Shares to EquityCo at their face value, including accrued but
unpaid interest. Simultaneously, ordinary shareholders of EquityCo (or their affiliated
nominees) will subscribe for 380,199,473 new EquityCo Ordinary Shares, with a total
value equal to the HY Loan and the HYCo Preference Shares;
- the redemption of the A Preference Shares issued by EquityCo (“EquityCo A
Preference Shares”). EquityCo will redeem the EquityCo A Preference Shares,
including those held by AF Pref, at their redemption amount of R2,696,255,305, by
issuing 448,131,183 new EquityCo Ordinary Shares with a value equal to the
redemption amount as consideration for the redemption; and
- PIKCo will fully redeem the unsecured fixed rate “Pay-in-Kind” debentures issued by
PIKCo (“PIK Debentures”) for R2,235,419,214 in cash by using a combination of
proceeds from asset disposals (including the disposal of Guardrisk Holdings Limited
and its associate, Euroguard Insurance Company PCC Limited, to MMI Holdings
Limited (“the Guardrisk Sale”)), accumulated cash resources available on the
balances sheet and term funding.
The Capital Restructuring will also result in a sustainable level of senior debt for the Group in
compliance with the capital requirements of pending regulatory changes. Alexander Forbes
Acquisition Proprietary Limited (“AF Acquisition”) will therefore redeem its senior preference
shares (“Senior Preference Shares”) for R891,963,620.
Upon the completion of the Capital Restructuring, EquityCo will have, in its issued share capital,
1,250,698,296 ordinary shares in issue (of which 355,178,339 ordinary shares, equivalent to
c.28.4% of the EquityCo issued ordinary shares capital, will be held by AF Pref) and 21,161,113
B Preference Shares (“EquityCo B Preference Shares”), held by Golden Falls Trading 485
Proprietary Limited, in issue.
4. IMPACT OF THE CAPITAL RESTRUCTURING ON AF PREF
As a result of the Capital Restructuring, AF Pref is proposing the restructure of its own capital
structure, in order to align it with its underlying investments post the Capital Restructuring.
In response to the Capital Restructuring by EquityCo, AF Pref intends to, following the above
mentioned disposal of the HY Loan and the HYCo Preference Shares by their holders, including
AF Pref, to EquityCo in exchange for EquityCo Ordinary Shares:
- partially redeem each Debenture by utilising the after-tax cash proceeds from the full
redemption of the PIK Debentures by PIKCo in terms of the Capital Restructuring
(“Debenture Redemption”). In terms of the Debenture Redemption, it is proposed that
holders of Debentures (“Debenture Holders”) will receive a cash payment of
R9.29577 per Debenture, which will be allocated firstly in respect of outstanding
interest on all the Debentures and secondly in partial redemption of the capital of the
Debentures; and immediately thereafter
- fully redeem the balance of each Debenture by the issue of new, fully paid
Preference Shares (ranking pari passu with the existing Preference Shares) at
market value (“Debenture Conversion”). In terms of the Debenture Conversion, it is
proposed that Debenture Holders will receive 0.37045 Preference Shares per
Debenture.
The Debenture Redemption and Debenture Conversion will result in the redemption of each and
every Debenture in full, and all Linked Unitholders as at the Record Date (which is expected to
be Friday, 11 April 2014) will have an equal opportunity to participate in the Debenture
Redemption and Debenture Conversion.
Hereinafter the Capital Restructuring, Debenture Redemption and Debenture Conversion are
collectively referred to as the “Transaction”.
In order to achieve the Debenture Redemption and Debenture Conversion, certain amendments
to the Memorandum of Incorporation of AF Pref (“MOI”) and the Trust Deed containing the
terms of the Debentures (“Debenture Trust Deed”) are needed to allow for inter alia the partial
redemption of each Debenture through the issue of Preference Shares; and to generally reflect
the new capital structure of AF Pref following the full redemption of the Debentures and the
assets underlying the Debentures. Approval for these amendments will be sought from Linked
Unitholders in terms of the circular referred to in paragraph 10 below.
Following the Transaction, AF Pref will remain listed as an asset backed security, holding
c.28.4% of the issued EquityCo Ordinary Shares.
The AF Pref and Group capital structure following the Transaction is set in diagrammatic form in
the press version of this announcement, to be published in the Business Day tomorrow, 25
February 2014.
5. LINKED UNITHOLDER SUPPORT
The following Linked Unitholders, holding in aggregate 83.79% of the AF Pref Linked Units in
issue, have undertaken in writing to vote and, where applicable, to recommend to their clients to
vote, in favour of the resolutions necessary to implement the Transaction.
Number of Linked Percentage
Linked Unitholders Units eligible to held
vote
Allan Gray 75,765,497 32.01%
Abax Investments 38,000,000 16.05%
Stanlib Asset Management 26,762,181 11.31%
RMB 18,777,123 7.93%
Peregrine Capital 16,570,102 7.00%
Ethos 11,250,000 4.75%
CoroCapital 11,211,651 4.74%
Total 198,336,554 83.79%
6. PRO FORMA FINANCIAL EFFECTS
6.1. Pro forma financial effects on AF Pref
The table below sets out the pro forma financial effects of the Transaction on AF Pref, based on
its published unaudited results for the six months ended 30 September 2013.
The pro forma financial effects are the responsibility of the Directors of AF Pref and have been
prepared for illustrative purposes only to provide information about how the Transaction may
have affected the results of AF Pref. Due to their nature, the pro forma financial effects may not
provide a fair reflection of the financial position of AF Pref, changes in equity, results of
operations or cash flow after the implementation of the Transaction.
Unaudited Guardrisk Pro forma Adjustment Pro forma Percentage
interim Sale and before the due to the after the change from
1 4 5,6
results redemption Transaction Transaction Transaction the pro forma
(before the of Senior before the
Transaction) Preference Transaction
2,3
Shares
Earnings per
Linked Unit 88 85 173 (68) 105 (39%)
(cents)
Headline
earnings per
88 4 92 (50) 42 (54%)
Linked Unit
(cents)
Net asset
and net
tangible
13.73 0.79 14.52 (10.08) 4.44 (69%)
asset value
per Linked
Unit (Rand)
Number of
Linked Units
237 - 237 88 325 37%
in issue
(millions)
Weighted
average
number of
237 - 237 88 325 37%
Linked Units
in issue
(millions)
Notes:
While the effects in the table above are disclosed per Linked Unit for comparability, at the end of the Transaction, Linked
Unitholders will hold approximately 1.37 Preference Shares per Linked Unit previously held.
1. Based on the published unaudited interim financial results of AF Pref for the six months ended 30 September
2013.
2. The Guardrisk Sale has been announced on 4 November 2013 and is subject to certain conditions precedent
which have yet to be met. The adjustment above is made assuming the disposal was effective 1 April 2013 for
earnings per Linked Unit effects and 30 September for net asset per Linked Unit effects. It is further assumed that
the proceeds on disposal are partially utilised to redeem Senior Preference Shares in AF Acquisition and related
interest rate swap. The balance of the cash proceeds is assumed to be placed on call by the Group and earn
interest at 5.5% pa before taxation. AF Pref equity accounts its share of EquityCo’s earnings and headline
earnings effects arising from the Guardrisk Sale.
3. The assumed profit on the Guardrisk Sale is reversed in the adjustment for headline earnings per Linked Unit
effect.
4. Represents the pro forma effects after the Guardrisk Sale and before the Transaction.
5. Earnings and headline earnings per Linked Unit effects of the Transaction are based on the following principal
assumptions:
- The Transaction was effective 1 April 2013;
- AF Pref equity accounts its share of EquityCo’s earnings and headline earnings effects arising from the
Capital Restructuring (refer paragraph 6.2 for principal assumptions underlying the pro forma effects of
the Capital Restructuring);
- EquityCo will acquire the PIKCo Preference Shares from the current holders, of which AF Pref is one,
giving rise to capital gains tax in AF Pref of R13 million;
- EquityCo will settle the HY loan and related liabilities, which results in a R59 million reduction of AF Pref’s
investment income together with a non-recurring credit of R83 million to investment income in respect of
the unwind of the discount on the HY loan; and
- AF Pref will redeem its Debentures at face value, including accrued interest, resulting in AF Pref’s finance
costs reducing by R218 million, partly offset by a non-recurring R108 million finance cost in respect of the
unwind of the discount on the Debentures. The redemption of the Debentures will be settled through a
combination of cash and Preference Shares. An additional 87,691,800 of Preference Shares will be
issued based on the Conversion Ratio (refer paragraph 4 for further details).
6. Net asset and net tangible asset per Linked Unit effects of the Transaction are based on the following principal
assumptions:
- The Transaction was effective 30 September 2013;
- AF Pref equity accounts its share of EquityCo’s net asset and net tangible asset effects of the Capital
Restructuring (refer to paragraph 6.2 for principal assumptions underlying the pro forma effects of the
Capital Restructuring);
- EquityCo will acquire the PIKCo Preference Shares from the current holders, of which AF Pref is one,
giving rise to capital gains tax in AF Pref of R13 million;
- EquityCo will settle the HY loan and related liabilities at face value, of which AF Pref's share is R558
million. AF Pref will utilise the cash from the settlement to subscribe for additional shares in EquityCo.
The subscription does not change AF Pref's percentage shareholding in EquityCo;
- AF Pref will receive cash on the Group redeeming the PIK Debentures at face value, plus accrued
interest, being R2,061 million at 30 September 2013; and
- AF Pref will redeem its Debentures at face value, plus accrued interest, being R2,597 million at 30
September 2014, through the application of proceeds received from the settlement of the PIK Debentures
and the issue of new Preference Shares. An additional 87,691,800 of preference shares will be issued
based on the Conversion Ratio (refer paragraph 4 for further details).
6.2. Pro forma financial effects on EquityCo
The table below sets out the pro forma financial effects of the Capital Restructuring of the Group
on EquityCo, based on the EquityCo results for the six months ended 30 September 2013.
The pro forma financial effects are the responsibility of the directors of AF Pref and have been
prepared for illustrative purposes only to provide information about how the Capital
Restructuring may have affected the results of EquityCo. Due to their nature, the pro forma
financial effects may not provide a fair reflection of the financial position of EquityCo, changes in
equity, results of operations or cash flow after the implementation of the Capital Restructuring.
Unaudited Guardrisk Pro forma Adjustment Pro forma Percentage
interim Sale and before the due to the after the change from
1
results redemption Capital Capital Capital the pro forma
4 5,6
(before the of Senior Restructuring Restructuring Restructuring before the
Transaction) Preference Capital
2,3
Shares Restructuring
Earnings
per share (9) 200 191 (121) 70 (63%)
(cents)
Headline
earnings
(8) 7 (1) 14 13 >100%
per shares
(cents)
NAV per
ordinary
(142) 188 46 350 396 >100%
share
(cents)
Net
tangible
(1,480) 188 (1,292) 1,285 (7) 99%
asset value
per
ordinary
share
(cents)
Number of
ordinary
shares in 377 - 377 873 1,250 >100%
issue
(millions)
Weighted
average
number of
ordinary 377 - 377 873 1,250 >100%
shares in
issue
(millions)
Notes:
1. Based on the published unaudited interim financial results of EquityCo for the six months ended 30 September
2013.
2. Represents the pro forma adjustments relating to the Guardrisk Sale assuming the disposal was effective 1 April
2013 for earnings per ordinary share effects and 30 September for net asset per ordinary share effects. It is further
assumed that the proceeds on disposal are partially utilised to redeem Senior Preference Shares and the related
interest rate swap in AF Acquisition. The balance of the cash proceeds is assumed to be placed on call and earn
interest at 5.5% pa before taxation. The Guardrisk Sale is a condition precedent of the Capital Restructuring.
3. The assumed profit on the Guardrisk Sale is reversed in the adjustment for headline earnings per share effect.
4. Represents the pro forma effects after the Guardrisk Sale and before the Capital Restructuring.
5. Earnings and headline earnings per share effects of the Capital Restructuring are based on the following principal
assumptions:
- The Capital Restructuring was effective 1 April 2013;
- AF Acquisition will raise new debt, assumed at R1,900 million for a 36 month period, bearing interest at an
average cost of 7.73% per annum;
- The excess cash from the Guardrisk Sale will be used to settle the bridge financing raised to facilitate the
Capital Restructuring. As a result, the interest assumed to be earned from the balance of the proceeds
from the Guardrisk Sale (refer note 2 above) will no longer be earned; and
- Transaction costs are assumed to be R30 million, which are non-recurring. Of these costs R10 million is
capitalised to the new debt in terms of IAS 39 Financial Instruments: Recognition and Measurement, with
the balance being expensed through the income statement. Amortisation of R2 million of the capitalised
costs has been expensed to earnings for the period.
6. Net asset and net tangible asset per share effects of the Capital Restructuring are based on the following principal
assumptions:
- The Capital Restructuring was effective 30 September 2013;
- EquityCo will acquire the PIKCo Preference Shares from the holders and settle the consideration through
the issue of 45,009,150 EquityCo ordinary shares;
- EquityCo will settle the HY loan at face value, being R2,108 million at 30 September 2013, through a
bridge facility, which bridge facility will be settled through the issue of 380,199,473 ordinary shares;
- EquityCo A Preference Shares will be redeemed at their face value, being R2,696 million at 30 September
2013 through the issue of 448,131,183 ordinary shares; and
- The Group will redeem the PIK Debentures at their accrued value, assumed at R2,061 million, for cash
and will raise new debt, assumed at R1,900 million, to refinance existing debt. It has been assumed that
the debt will be for a 36 month period, bearing interest at an average cost of 7.73% per annum.
7. CONDITIONS PRECEDENT
The Capital Restructuring, the Debenture Redemption and the Debenture Conversion are inter-
conditional.
The Transaction is subject to:
- the passing of the requisite resolutions required to authorise the implementation of
the Capital Restructuring by the holders of Preference Shares (“Preference
Shareholders”) at the class meeting of Preference Shareholders (“Class Meeting”)
and the holder of ordinary shares (“Ordinary Shareholder”) and Preference
Shareholders at the general meeting of the Ordinary Shareholders and Preference
Shareholders (“General Meeting of the Ordinary Shareholder and Preference
Shareholders”);
- the passing of the special resolutions required to implement the amendment of the
MOI by the Ordinary Shareholder and Preference Shareholders at the General
Meeting of the Ordinary Shareholder and Preference Shareholders, and the filing of
the amendment to the MOI with the Companies and Intellectual Property
Commission;
- the passing of the extraordinary resolutions required to implement the amendment of
the Debenture Trust Deed by the Debenture Holders at the general meeting of
Debenture Holders (“General Meeting of Debenture Holders”) (collectively with the
General Meeting of the Ordinary Shareholder and Preference Shareholders, “the
General Meetings”);
- EquityCo providing its prior written consent to the variation of the rights or privileges
attached to the Preference Shares;
- the legal agreements relating to the transaction becoming unconditional in
accordance with their terms;
- all necessary regulatory approvals required for the implementation of the Transaction;
and
- completion of the Guardrisk Sale.
8. EFFECT ON JSE LISTING
Currently 236,715,741 Linked Units are listed on the securities exchange operated by the JSE
Limited (“JSE”). The Debenture Redemption and Debenture Conversion will result in the full
redemption of Debentures held by Linked Unitholders, who will receive new Preference Shares
in partial redemption of their Debentures. Application will be made to the JSE for an amendment
to the listing of AF Pref to reflect Preference Shares only. Commencement of the listing of the
new Preference Shares ranking pari passu with the existing Preference Shares will be with
effect from Monday, 7 April 2014.
9. SALIENT DATES AND TIMES
2014
Last day to trade to be entitled to attend and vote at the Class Meeting Friday, 7 March
Record date to determine which Preference Shareholders are entitled to
attend and vote at the Class Meeting Friday, 14 March
Last day to lodge forms of proxy for the Class Meeting by 11:00 on
Wednesday, 19 March
Last day to trade to be entitled to attend and vote at the General Meetings Friday, 7 March
Record date to determine entitlement to attend and vote at the General
Meetings Friday, 14 March
Last day to lodge forms of proxy for the General Meeting of the Ordinary
Shareholder and Preference Shareholders by 11:15 on Wednesday, 19 March
Last day to lodge forms of proxy for the General Meeting of Debenture
Holders by 11:30 on Wednesday, 19 March
Class Meeting to be held at 11:00 on Monday, 24 March
General Meeting of the Ordinary Shareholder and Preference
Shareholders to be held at 11:15 (or as soon thereafter as the Class Monday, 24 March
Meeting is concluded) on
General Meeting of Debenture Holders to be held at 11:30 (or as soon
thereafter as the General Meeting of the Ordinary Shareholder and
Preference Shareholders is concluded) on Monday, 24 March
Results of Class Meeting and General Meetings released on SENS on Monday, 24 March
Results of Class Meeting and General Meetings published in the press on Tuesday, 25 March
If the Debenture Redemption and the Debenture Conversion become
unconditional
Debenture Redemption and the Debenture Conversion finalisation Monday, 31 March
announcement
Last day to trade in Linked Units in order to participate in the Debenture
Redemption and the Debenture Conversion Friday, 4 April
Commencement of trading ex the Debenture Redemption and the
Debenture Conversion entitlement under the new ISIN ZAE000188942
and trading on the JSE is amended to reflect the listing of the additional
Preference Shares, which will no longer be linked units as Linked
Unitholders will be left holding an increased number of Preference Shares
only. The JSE Code will remain as AFP. It will be necessary for all Monday, 7 April
certificated Linked Unitholders to surrender their certificates and obtain
new share certificates in respect of the Preference Shares
Record Date for the Debenture Redemption and the Debenture Friday, 11 April
Conversion
Operative date for the Debenture Redemption and the Debenture Monday, 14 April
Conversion
The accounts of Dematerialised Linked Unitholders at their CSDPs or
brokers are updated to reflect the receipt of cash in respect of the
Debenture Redemption and additional Preference Shares in respect of Monday, 14 April
the Debenture Conversion
The cash portion of the Debenture Redemption sent to certificated Linked
Unitholders by electronic funds transfer or by cheque and share
certificates in respect of the additional Preference Shares posted on or Monday, 14 April
about
Notes:
1. All times shown in this notice are South African local times.
2. Linked Unit certificates may not be dematerialised or rematerialised between Monday, 7 April 2014 and Friday, 11 April
2014.
10. POSTING OF THE CIRCULAR
AF Pref Linked Unitholders are advised that a circular containing the full details of the terms of
the Transaction and notices of Class Meeting and General Meetings containing the necessary
resolutions to be approved by the AF Pref Ordinary Shareholder, Preference Shareholders and
Debenture Holders in order to implement the Transaction, has been posted to all AF Pref Linked
Unitholders today, 24 February 2014.
11. WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
AF Pref Linked Unitholders are advised that, as a result of the publication of this announcement,
the cautionary announcement is now withdrawn and caution is no longer required to be
exercised by AF Pref Linked Unitholders when dealing in their Linked Units.
Sandton
24 February 2014
Joint Financial Adviser to Alexander Forbes and AF Pref
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
Joint Financial Adviser to Alexander Forbes and AF Pref
Deutsche Bank
Legal Adviser to Alexander Forbes and AF Pref
Bowman Gilfillan Inc.
Reporting Accountants to AF Pref
PricewaterhouseCoopers Inc.
Sponsor to AF Pref
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
Date: 24/02/2014 09:11:00 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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