Wrap Text
Issue of shares for cash, posting of circular and notice of general meeting
AVENG LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1944/018119/06)
ISIN: ZAE000111829
SHARE CODE: AEG
("Aveng" or "the Group")
Specific issue of shares for cash authority, posting of circular and notice of general
meeting
1. Introduction
Aveng shareholders are referred to the announcement on SENS, dated 16 July 2014, in
which Aveng announced the successful placement of ZAR 2 billion senior unsecured
convertible bonds with a coupon of 7.25% (the “Convertible Bonds”).
Aveng intends to use the net proceeds from the Convertible Bonds to repay certain existing
debt facilities, extend its debt maturity profile and for general corporate expenditure. The
offering forms part of Aveng’s strategy to manage its liquidity needs, diversify its funding
sources and reduce its reliance on bank debt, and to position itself to take advantage of
growth opportunities.
2. Rationale for the specific issue of shares upon conversion of the convertible bonds
The Convertible Bonds are currently cash-settled instruments, capable of being equity-settled
provided qualifying Aveng shareholders grant approval for a specific issue of Aveng ordinary
shares for cash (“Aveng Shares”) for settlement purposes.
Cash settlement of the Convertible Bonds will require significant cash reserves, which could
constrain the Group’s ability to invest in existing and new projects, fund ongoing business
activities, retire or service outstanding debt and pay dividends, all of which could adversely
affect its results of operations and financial condition.
Furthermore, while the Convertible Bonds remain cash settled, they must be accounted for
under IAS 39 and will be fully recorded as a liability. Any movements in the value of the equity
option must be accounted for on a mark-to-market basis through the statement of
comprehensive income for each reporting period. An increase in the value of the equity option
would negatively impact on earnings per share, while a decrease in the value of the equity
option would positively impact on earnings per share. This accounting treatment introduces
volatility in earnings which does not represent the underlying operational performance of
Aveng.
Subject to the approval of ordinary resolution 1 as set out in the notice of general meeting
contained in the circular posted to shareholders today (“Specific Authority”), the Convertible
Bonds will be convertible into Aveng Shares and must be accounted for as a compound
financial instrument under IAS 32 on an amortised cost basis with no requirement to account
for the equity option on a mark-to-market basis. Accordingly, there will be no volatility in
earnings relating to the Convertible Bonds once the Specific Authority has been obtained.
Subject to obtaining Specific Authority, the Convertible Bonds will be convertible into Aveng
Shares at an initial conversion price of R28.76 (“Initial Conversion Price”), representing a 30%
premium to the reference share price of R22.12. The period during which conversion rights
may be exercised by a Convertible Bondholder is from 2 September 2014 until 14 July 2019
(“Conversion Period”). At the Initial Conversion Price, the number of Aveng Shares to be
issued upon the conversion of R2 billion in nominal amount of Convertible Bonds will be
69,541,029 Aveng Shares, representing 16.69% of the number of existing Aveng Shares in
issue. The Issuer may redeem the Convertible Bonds in whole but not in part at their
principal amount together with accrued interest (i) on or at any time after 7 August 2017,
subject to the volume weighted average price of Aveng Shares exceeding 130% of the
conversion price on no less than 20 out of the 30 consecutive dealing days prior to
redemption; or (ii) at any time if less than 15% of the Convertible Bonds originally issued
remain outstanding (“Early Redemption Option”). Once the early redemption option has been
elected by Aveng, Convertible Bond Holders retain the right to convert into Aveng Shares at
the Conversion price subject to any adjustments.
The terms and conditions of the Convertible Bonds (“Terms and Conditions) provide that the
conversion price will be adjusted on the occurrence of certain events which include dividend
payments, payments to shareholders and where buybacks are done at more than a 5%
premium to the closing prices of the 5 trading days prior to the buyback. If such adjustments
result in the reduction of the conversion price, the number of Aveng Shares to be issued in
the event of a conversion of the Convertible Bonds will be increased.
Shareholders are accordingly requested to approve the Specific Authority for the board of
directors of the Aveng (the “Board”) to allot and issue a maximum of 83,500,000 Aveng
Shares, issuable upon conversion of the Convertible Bonds either at any time pursuant to the
Early Redemption Option exercised by Aveng or during the Conversion Period (the “Specific
Issue”).
3. Related party
As per the JSE Limited Listings Requirements (“Listings Requirements”) Allan Gray is
regarded as a related party, as it held, directly or indirectly, more than a 10% beneficial
interest in Aveng Shares at the commencement of the bookbuild process for the Convertible
Bonds, being 16 July 2014.
Allan Gray participated in the Convertible Bond offering, on the same terms as all other
participants, and was allocated Convertible Bonds with nominal amount of R300 million
through the bookbuilding process.
In terms of the Listings Requirements, an independent fairness opinion is required due to the
potential issue of Aveng Shares to a related party as a result of the conversion of the
Convertible Bonds. Furthermore Allan Gray is excluded from voting on the ordinary resolution
to be proposed at the general meeting.
4. Independent expert’s report
PricewaterhouseCoopers Corporate Finance Proprietary Limited (the “Independent Expert”)
has been appointed by the Board to determine whether the terms and conditions of the issue
of the Convertible Bonds and any issue of Aveng Shares upon conversion, are fair to Aveng
Shareholders. The Independent Expert has considered the Terms and Conditions and the
allocation of the Convertible Bonds to Allan Gray, and is of the opinion that the issue of Aveng
Shares on conversion of the Convertible Bonds is fair insofar as Aveng Shareholders are
concerned.
The Board has considered the Terms and Conditions, including the participation of Allan
Gray, together with the opinion of the Independent Expert and is of the opinion that the issue
of Aveng Shares is fair insofar as Aveng Shareholders are concerned.
The Board therefore recommends that qualifying Aveng Shareholders vote in favour of the
Specific Authority to issue Aveng Shares upon conversion of the Convertible Bonds.
5. Pro forma financial information
The pro forma financial effects set out below have been prepared to assist Aveng
Shareholders in assessing the impact of the Specific Issue on the earnings per share (“EPS”),
headline earnings per share (“HEPS”), and net asset value (“NAV”) and net tangible asset
value (“NTAV”) per Aveng Share. Due to the nature of these pro forma financial effects, they
are presented for illustrative purposes only and may not fairly present Aveng’s financial
position, changes in equity and results of its operations or cash flows after the Specific Issue.
The pro forma financial effects have been prepared in terms of the Listings Requirements and
the Guide on Pro Forma Financial Information issued by the South African Institute of
Chartered Accountants. These pro forma financial effects are the responsibility of the Board.
The material assumptions are set out in the notes following the table.
Pro forma financial effects
The table below sets out the summary pro forma financial effects of the issue of the
Convertible Bonds and the conversion into Aveng Shares, on Aveng’s EPS, HEPS, NAV and
NTAV per Aveng Share. The summary pro forma financial effects have been prepared to
illustrate the impact of the Specific Issue of shares for cash on the interim, published financial
information of Aveng for the period ended 31 December 2013, had the Specific Issue
occurred on 1 July 2013 for the purpose of the statement of comprehensive income and on 31
December 2013 for the purpose of the statement of financial position.
The summary 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 audited, published financial statements of Aveng for the year ended 30 June
2013. These accounting policies are also consistently applied in the unaudited consolidated
interim financial information of Aveng for the six months ended 31 December 2013.
Issue of the Approval of Conversion by Percentage
Before bond issue of Aveng bond holders change
(Note 1) (Note 2) shares (Note 3) (Note 4) (Note 6)
Cents Cents Cents Cents %
EPS
Basic 82.4 76.5 78.0 69.5 (16%)
Diluted 76.6 71.1 65.3 65.3 (15%)
HEPS
Basic 82.1 76.2 77.7 69.2 (16%)
Diluted 76.3 70.9 65.1 65.1 (15%)
NAV per share 35.4 35.4 36.5 34.3 (3%)
NTAV per share* 27.6 27.6 28.7 27.7 0%
* Not published
Notes and assumptions:
1. Extracted without adjustment from the unaudited consolidated interim financial
information of Aveng for the six months ended 31 December 2013
2. Adjustments in respect of the issue of the Convertible Bonds have been based on
the following assumptions:
2.1 Basic, diluted and headline earnings:
2.1.1 Assumes that the Convertible Bonds were issued on 1 July 2013
2.1.2 Effective interest expense of R23 million (before tax at 28%) on the
financial liability has been adjusted for interest savings due to the
settlement of legacy loans
2.1.3 Transaction costs (including the costs of the issue and listing of the
Convertible Bonds) amounting to R43 million have been capitalised and
subsequently expensed as part of the effective interest (noted above)
over the term of the Convertible Bonds in terms of IAS 39 Financial
Instruments: Recognition and Measurement
2.1.4 The effective interest rate of the Convertible Bonds is based on the
coupon of 7.25% combined with the amortisation of the conversion
premium plus the amortisation of the transaction costs, approximating in
total 13.31% and accounted for as required by IAS 39 Financial
Instruments: Recognition and Measurement
2.1.5 For purposes of the pro forma financial effects, an increase of R7.8
million relating to the derivative has been assumed. Due to the short
period of time from issue of the Convertible Bonds until the shareholders
meeting where granting and approval of a specific authority to the Board
to allot and issue up to a maximum of 83 500 000 Aveng Shares for
purposes of conversion of the Convertible Bonds is requested, the R7.8
million increase was based on a time value of money factor of 7.45% per
annum and all other market variables stayed constant
2.1.6 Refer to note 5 below for additional information relating to the accounting
policy for the issue of the Convertible Bonds
2.2 Net assets and tangible net assets:
2.2.1 Assumes that the Convertible Bonds were issued on 31 December 2013
2.2.2 The net increase of R219 million in liabilities arises due to:
2.2.2.1 Proceeds received from the issue of Convertible Bonds net of
transaction costs of R1.95 billion, resulting in an increase in loans
and borrowings of R1.5 billion and the recognition of a derivative
liability of R429 million; and
2.2.2.2 A cash payment of R1.7 billion to settle legacy loans
2.2.3 The net increase of R219 million in cash is due to:
2.2.3.1 Proceeds received from the issue of Convertible Bonds, net of
transaction costs, of R1.95 billion;
2.2.3.2 A cash payment of R1.7 billion to settle legacy loans; and
2.2.3.3 Transaction costs of R43 million were incurred at 31 December 2013
and proportionately allocated to the liability and the derivative based
on carrying values
2.2.4 Refer to note 5 below for additional information relating to the accounting
policy for the Convertible Bonds
3. Adjustments, when shareholder approval is obtained at the general meeting for
granting and approval of a specific authority to the Board to allot and issue up to a
maximum of 83 500 000 Aveng Shares for purposes of conversion of the Convertible
Bonds, have been based on the following assumptions:
3.1 Earnings and headline earnings:
3.1.1 The approval in respect of the issue of Aveng Shares if converted by the
holders of Convertible Bonds, was effective on 1 July 2013
3.1.2 The increase of R7.8 million recognised under 2.1.5 above was reversed
as the derivative is recognised in equity with no subsequent re-
measurements
3.1.3 For the purpose of calculating diluted earnings and diluted headline
earnings per share, the diluted weighted average number of shares in
issue have been increased by 69.6 million shares and the earnings for
the period have been adjusted to reverse the effective interest on the
Convertible Bonds
3.1.4 Refer to note 5 below for additional information relating to the accounting
policy for the Convertible Bonds
3.2 Net assets and net tangible assets:
3.2.1 Assumes that the approval for the issue of Aveng Shares if the
Convertible Bonds are converted at the option of the holders was
effective on 31 December 2013
3.2.2 A decrease in financial liabilities of R429 million and an increase in share
capital and share premium of R438 million and a decrease to retained
earnings of R9 million, being the reclassification of a portion of the
Convertible Bonds between debt and equity (net of transaction costs),
has been based on a fair value calculation of the derivative
3.2.3 The fair value relating to the derivative on the date of shareholders’
approval is reclassified to equity
3.2.4 Transaction costs of R9 million allocated to the derivative was incurred
by 31 December 2013 and reclassified to retained earnings
3.2.5 Refer to note 5 below for additional information relating to the accounting
policy for the Convertible Bonds
4. Adjustments in respect of the exercise of the conversion option by the holders of
Convertible Bonds have been based on the following assumptions:
4.1 The issue of Aveng Shares on conversion was effective on 1 July 2013
4.1.1 For the purpose of calculating earnings and headline earnings per share,
the issued weighted average number of shares in issue has been
increased by 69.5 million shares and the earnings for the period was
adjusted to reverse the effective interest on the Convertible Bonds
4.1.2 The effective interest expense of R23 million recognised under 2.1.2
above was reversed as the bond liability is reclassified to equity with no
subsequent re-measurements
4.2 Net assets and tangible net assets:
4.2.1 Assumes that the issue of Aveng Shares was effective on 31 December
2013
4.2.2 A further decrease in financial liabilities of R1.528 billion and an increase
in share capital and share premium of R1.56 billion and a decrease to
retained earnings of R34 million, being the reclassification of the liability
component on exercise of the conversion rights by the bondholders to
equity. In total share capital and share premium increased by R2 billion
(refer 3.2.2 above) on the transaction
4.2.3 Transaction costs of R34 million allocated to the loan has been incurred
by 31 December 2013 and reclassified to retained earnings
4.2.4 Refer to note 5 below for additional information relating to the accounting
policy for the Convertible Bonds
5. Accounting policy for the Convertible Bonds (in terms of IAS 32 Financial
Instruments: Presentation and IAS 39 Financial Instruments: Recognition and
Measurement:
5.1 Convertible Bonds (prior to approval for the issue of Aveng Shares)
5.1.1 Prior to approval for the issue of Aveng Shares, the Convertible Bonds
are cash-settled instruments. These instruments are accounted for as
two separate instruments as follows:
5.1.1.1 A financial liability at amortised cost disclosures under loans and
borrowings; and
5.1.1.2 An embedded derivative at fair value through profit and loss,
disclosed as part of trade and other creditors
5.1.2 At initial recognition, the embedded derivative is valued using option
pricing methodology. The balance of the cash received is classified as a
financial liability at amortised cost
5.1.3 The embedded derivative is revalued at every reporting period, with
gains or losses being accounted for as part of other income/expenses in
the statement of comprehensive income
5.1.4 The financial liability increases at every reporting period by an effective
interest charge that is accounted for as part of finance costs in the
statement of profit or loss and other comprehensive income
5.2 Convertible Bonds (after approval for the issue of Aveng Shares)
5.2.1 The accounting treatment of the Convertible Bonds will change in that it
will be treated as a compound financial instrument with two separate
instruments as follows:
5.2.1.1 A financial liability at amortised cost disclosure under loans and
borrowings; and
5.2.1.2 an equity portion
5.2.2 The financial liability linked to the Convertible Bonds continues to be
accounted for at amortised cost
5.2.3 The derivative liability (i.e. the conversion right) is re-measured to fair
value and thereafter reclassified as equity on the date of shareholders’
approval of the Specific Authority
5.2.4 The equity portion linked to the Convertible Bonds is not revalued or
restated after this reclassification
5.3 Convertible Bonds (exercise of conversion rights by bondholders)
5.3.1 After shareholders’ approval of the Specific Authority and on exercise of
the conversion rights by the bondholders, the carrying amount of the
liability is derecognised and reclassified to equity
5.3.2 No other re-measurement of the Convertible Bonds is carried out in
equity
6. Represents the percentage change between the revised before position, reflecting
the pro forma after the issue of the Convertible Bonds, the pro forma after the
approval for the issue of Aveng Shares and on exercise of the conversion rights of
the bondholders
7. All of the above adjustments with the exception of transaction costs are expected to
have a continuing impact
6. Posting of circular and notice of general meeting
A circular to Aveng Shareholders setting out full details of the proposed resolution and the
Specific Issue, incorporating a notice convening a general meeting of Aveng Shareholders to
consider and approve the proposed resolution has been posted to shareholders today.
7. Salient dates and times for the General Meeting
Last day to trade in Aveng Shares in order to
be recorded in the register of shareholders to
vote at the general meeting Friday, 5 September 2014
General meeting record date Friday, 12 September 2014
Form of proxy for the general meeting to be
received by 10:00 Wednesday, 17 September 2014
General meeting to be held at 10:00 at
Aveng’s registered office, 204 Rivonia Road,
Morningside, Sandton, Gauteng, South Africa
Friday, 19 September 2014
Results of general meeting released on Friday, 19 September 2014
SENS
8. Voting Restriction
As per Section 5.51 (g) of the Listings Requirements, voting at the above general meeting is
restricted to qualifying Aveng shareholders which are defined as Aveng shareholders that are not,
and whose associates are not, holders of Convertible Bonds from the period commencing on the last
day to trade date up to and including the date of the general meeting
Morningside, Sandton
18 August 2014
Sponsor:
J.P. Morgan Equities South Africa Proprietary Limited
Date: 18/08/2014 03:17:00 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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