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Participation by Brimstone in a BEE consortium to invest in Grindrod Limited and cautionary announcement
Brimstone Investment Corporation Limited
(Incorporated in the Republic of South Africa)
Registration number 1995/010442/06
Share Code: BRT ISIN: ZAE000015277
Share Code: BRN ISIN: ZAE000015285
("Brimstone" or the “Company”)
ANNOUNCEMENT REGARDING THE PARTICIPATION BY BRIMSTONE IN A BLACK ECONOMIC
EMPOWERMENT (“BEE”) CONSORTIUM TO INVEST IN GRINDROD LIMITED (“GRINDROD”)
AND CAUTIONARY ANNOUNCEMENT
1. Introduction
Shareholders are advised that Brimstone has entered into a binding memorandum of
understanding with Grindrod, Calulo Investments Proprietary Limited (“Calulo”), Calulo Newco
Proprietary Limited (“Calulo Newco”) and Solethu Investments Proprietary Limited (“Solethu”)
relating to the establishment of a consortium special purpose vehicle (the “Consortium SPV”) for
the purpose of concluding an aggregate R1.6 billion equity investment in Grindrod (the “BEE
Transaction”), resulting in the Consortium SPV having a shareholding in Grindrod of between
8% and 8.5%.
2. Background
The Board of Directors of Grindrod (“Grindrod Board”) has approved, subject to the approval of
Grindrod ordinary shareholders, an equity capital raising process that will lead to the total issue
of Grindrod ordinary shares (“Grindrod shares”) of up to R4 billion, with net cash proceeds to
Grindrod of up to R3 billion (the “Equity Capital Raising”). The proposed Equity Capital Raising
is intended to fund capital projects and to facilitate certain additional transactions. As part of the
Equity Capital Raising, the Grindrod Board has resolved to conclude a material BEE transaction
at the listed company level with a consortium of black strategic investors comprising Brimstone
(or such other subsidiary of Brimstone as Brimstone may nominate (“Brimstone SPV”)), Calulo
Newco and Solethu.
Grindrod has further agreed with Calulo and Solethu to acquire their interests in certain
operating subsidiaries of Grindrod in exchange for cash (“Share Transactions”). Calulo and
Solethu will reinvest a portion of the proceeds received from the Share Transactions in the BEE
Transaction. Shareholders are referred to today’s announcement by Grindrod which sets out
the terms of the Equity Capital Raising and Share Transactions in more detail. This
reinvestment will be augmented by equity invested by Brimstone and supported by third party
debt and vendor funding.
The Equity Capital Raising is intended to be implemented through a combination of an
accelerated bookbuild offering to qualifying investors (“Bookbuild Placement”) and a specific
issue of shares to the Consortium SPV (“Consortium Placement”). Through the Bookbuild
Placement, qualifying investors will submit their price and volume orders into a book of demand
and a single clearing price will be established (“Bookbuild Price”). Following the Bookbuild
Placement, it is the intention of Grindrod to implement the Consortium Placement in terms of
which Grindrod intends to issue R1.6 billion worth of Grindrod shares to the Consortium SPV at
the Bookbuild Price by way of a specific issue of shares for cash.
3. Terms of the BEE Transaction
3.1 The Consortium SPV will be established on the basis that:
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3.1.1 Brimstone SPV will have between a 59.2% and 65.1% shareholding in the
Consortium SPV at an aggregate subscription price of between R450 million and
R495 million, depending on the quantum of equity invested by Calulo and
Solethu as set out below;
3.1.2 Calulo Newco and Solethu will in aggregate have between a 34.9% and 40.8%
shareholding in the Consortium SPV at an aggregate subscription price of
between R265 million and R310 million;
3.1.3 the Consortium SPV will raise additional funds through the issue of senior
preference shares to third party financiers for an aggregate subscription price of
up to R450 million, allowing for costs and other disbursements. The Consortium
SPV will also issue preference shares to Grindrod (or one of its direct or indirect
subsidiaries) for an aggregate subscription price of R400 million (“Vendor
Preference Shares”);
3.1.4 the memorandum of incorporation of the Consortium SPV will contain such
restrictive conditions as are necessary to render it a ring-fenced company in
terms of the Companies Act, No 71 of 2008; and
3.1.5 the shareholders of the Consortium SPV shall not be entitled to dispose of their
shares in the Consortium SPV during the period ending 60 months after the
issue of the Preference Shares and/or whilst the Vendor Preference Shares
remain outstanding (“the Restricted Period”), save if Grindrod’s Ownership
Score is not negatively affected in terms of the Codes of Good Practice of the
Broad-Based Black Economic Empowerment Act, No 53 of 2003 by a disposal,
in which case the shareholders of the Consortium SPV may dispose of their
shares, or part thereof, to any party at any time between the period commencing
36 months after the issue of the Preference Shares and the expiry of the
Restricted Period, subject to Grindrod approving such party.
3.2 After the successful conclusion of the Bookbuild Placement and Consortium Placement,
the Consortium SPV expects to have a shareholding in Grindrod of between 8% and
8.5%. The exact shareholding percentage will depend on the Bookbuild Price.
3.3 The effective date of the BEE Transaction is expected to be not later than 30 June 2014.
The diagram below illustrates the BEE Transaction:
4. Overview of Grindrod
Grindrod’s business principally involves the movement of cargo by road, rail, sea and air
through integrated logistics services utilising specialised assets and infrastructure. Grindrod’s
service offerings are provided by four operating divisions, namely: Freight Services, Trading,
Shipping and Financial Services.
With a 100-year heritage, Grindrod is a global business represented in 38 countries. Given its
South African origins, Grindrod is uniquely positioned to serve African trade flows, with regional
and international focus on dry-bulk and liquid bulk commodities, containerised cargo and
vehicles.
5. Rationale for Brimstone’s investment in the BEE Transaction
Brimstone continues to seek investment opportunities which will create long-term value for its
shareholders. The BEE Transaction allows Brimstone to establish infrastructure as a new area
of focus (alongside healthcare, food and financial services) which it has been investigating for
some time. With its diversified suite of well-placed quality assets, Grindrod represents a long-
term investment in African infrastructure development which is an attractive and growing asset
class.
Grindrod has a significant pipeline of expansionary capital projects, the execution of which will
require additional equity capital and substantial debt funding. Further details regarding
Grindrod’s capital project pipeline can be found in the Grindrod SENS announcement released
on 28 March 2014 as well as in the Grindrod circular to shareholders posted on the same day
(the “Circular”). Brimstone’s investment in the BEE Transaction will help partially fund these
capital projects which will enable Grindrod to grow and diversify its earnings base. Grindrod
shares are currently tightly held and it is difficult to acquire a substantial shareholding in
Grindrod. The BEE Transaction enables Brimstone to acquire a meaningful stake in Grindrod
on a leveraged basis that is also facilitated by the Company.
6. Consideration for the BEE Transaction
Brimstone shall pay a cash consideration of between R450 million and R495 million for between
a 59.2% and 65.1% shareholding in the Consortium SPV, which shares will be held by
Brimstone SPV. Brimstone will utilise its long-term funding facilities in order to capitalise the
Consortium SPV.
7. Conditions precedent
The BEE Transaction is subject to the fulfilment or waiver of the following conditions precedent
on or before 30 June 2014 (or such later date as Brimstone, Grindrod, Calulo, Calulo Newco
and Solethu may agree in writing):
7.1 the Consortium SPV is established on the basis contemplated in paragraph 3.1;
7.2 a shareholders’ agreement is concluded in respect of the Consortium SPV, between
Calulo Newco, Solethu, Brimstone SPV and the Consortium SPV;
7.3 a “relationship agreement” is concluded between Grindrod, Calulo, Calulo Newco,
Solethu, Brimstone, Brimstone SPV and the Consortium SPV, to govern the relationship
between Grindrod (on the one hand), and the Consortium SPV and its direct and indirect
shareholders (on the other hand);
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7.4 Calulo Newco, Solethu and Brimstone SPV all enter into subscription agreements with
the Consortium SPV on the basis contemplated in paragraphs 3.1.1 and 3.1.2 and such
subscription agreements become unconditional in accordance with their respective
terms;
7.5 all of the written agreements necessary to give effect to the Share Transactions are
concluded by the parties thereto and become unconditional in accordance with their
respective terms;
7.6 the transactions contemplated in the Circular are all completed on the basis
contemplated therein;
7.7 the Consortium SPV and Grindrod conclude a written subscription agreement, in terms
of which the Consortium SPV will subscribe for R1.6 billion worth of Grindrod shares and
such agreement becomes unconditional in accordance with its terms; and
7.8 all necessary regulatory, shareholder and board approvals required to give effect to the
BEE Transaction and each of the transactions contemplated in the Circular that are
necessary to be completed to give effect to the BEE Transaction, are duly obtained,
without limitation, including all necessary fairness opinions.
8. Unaudited pro forma financial effects of the BEE Transaction
The unaudited pro forma financial effects of the BEE Transaction, as required in terms of the
JSE Listings Requirements will be determined and announced once the Bookbuild Price has
been determined.
9. Categorisation of the BEE Transaction
The BEE Transaction is categorised as a Category 2 transaction for Brimstone in terms of the
JSE Listings Requirements.
10. Cautionary announcement
Brimstone shareholders are advised to exercise caution when dealing in their Brimstone shares
until the financial effects of the BEE Transaction are determined and announced.
8 April 2014
Cape Town
Investment Bank and Sponsor
Nedbank Capital
Legal Advisers
ENS
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