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STELLAR CAPITAL PARTNERS LIMITED - Announcement in respect of a proposed R1 billion capital raise

Release Date: 22/10/2015 10:18
Code(s): SCP     PDF:  
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Announcement in respect of a proposed R1 billion capital raise

STELLAR CAPITAL PARTNERS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1998/015580/06)
("Stellar Capital" or the "Company")
Share code: SCP
ISIN: ZAE000198586


ANNOUNCEMENT IN RESPECT OF A PROPOSED R1 BILLION CAPITAL RAISE


1     INTRODUCTION

1.1     The board of Stellar Capital is pleased to announce its plans to raise up to R1 000 000 000
        through –

1.1.1    an underwritten, renounceable rights issue to its shareholders in terms of which the Company
         intends to raise R400 000 000 ("Rights Issue"); and

1.1.2    the creation and underwritten offer of 600 cumulative, non-participating, redeemable,
         convertible preference shares of no par value (“Preference Shares”) at an issue price of
         R1 000 000 per Preference Share to qualifying investors in order to raise R600 000 000
         ("Preference Share Issue"),

         (the Rights Issue and the Preference Share Issue are collectively referred to in this
         announcement as the "Capital Raise").

2     RATIONALE AND APPLICATION OF PROCEEDS FROM THE CAPITAL RAISE

2.1     The proceeds from the Capital Raise will primarily be applied towards Stellar Capital’s
        immediate pipeline investments which include:

2.1.1    investment in certain proprietary high-yielding credit funds;
2.1.2    follow-on equity investment in established investment platforms; and
2.1.3    further large strategic investments targeted for 2016 that will enhance the scale and quality of
         the Company’s portfolio.
3     POSTING OF CIRCULAR AND NOTICE OF GENERAL MEETING

3.1     In order to facilitate the Capital Raise, the board has convened a general meeting ("General
        Meeting") in order to:

3.1.1    amend its memorandum of incorporation ("MOI") to increase the authorised ordinary share
         capital of the Company by the creation of an additional 1 000 000 000 ordinary shares;

3.1.2    amend its MOI to increase the authorised share capital of the Company by the creation of 600
         Preference Shares; and

3.1.3    authorise the issue of the 600 Preference Shares to qualifying investors and underwriters,
         who will include certain parties related to the Company (refer to paragraph 5.3 below).

3.2     In addition, shareholders will be requested to approve revised terms of the management
        agreement between the Company and its appointed management company, Thunder
        Securitisations Proprietary Limited ("ManCo"). The proposed amendments, detailed in
        paragraph 6 below, will reduce the base management fee and align the incentives of ManCo
        more effectively with the interest of the Company.

3.3     Shareholders are advised that a circular containing the particulars of the Capital Raise and the
        notice of General Meeting including the resolutions required to implement the Capital Raise
        ("Notice Circular") has been approved by the JSE and will be posted to shareholders and
        made available on the Company’s website (www.stellarcapitalpartners.co.za) with effect from
        today.

3.4     Salient Dates and times of the General Meeting

        The expected salient dates and times in respect of the General Meeting are set out in the table
        below.

                                                                                                                      2015
        Record date in order to be eligible to receive the Notice of
        General Meeting                                                                                 Friday, 16 October
        Circular and Notice of General Meeting posted to
        shareholders on                                                                               Thursday, 22 October
        Last date to trade in Stellar Capital shares in order to be recorded
        in the register to vote at the General Meeting on                                               Friday, 6 November
        Voting Record Date by close of trade on                                                        Friday, 13 November
        Last date to lodge forms of proxy in respect of the General
        Meeting by 10:00 on                                                                           Tuesday, 17 November
        General Meeting to be held at 10:00 on                                                       Thursday, 19 November
        Results of General Meeting released on SENS on                                               Thursday, 19 November
        Filing of special resolutions relating to the amendments of the
        MOI with CIPC on or about                                                                      Friday, 20 November

        Notes:

        1. All times indicated in this SENS are local times in South Africa.
        2. The dates and times indicated in the table above are subject to change. Any material changes will be released on
           SENS and published in the press.
        3. Share certificates in the name of Stellar Capital will not be able to be rematerialised or dematerialised between
           Monday, 9 November 2015 and Friday, 13 November 2015 both days inclusive.
        4. To be valid, the completed forms of proxy must be lodged with the Transfer Secretaries by no later than Tuesday,
           17 November 2015 at 10:00, alternatively, such forms of proxy may be handed to the Company Secretary or
           chairperson of Stellar Capital prior to the commencement of the General Meeting.

4     THE RIGHTS ISSUE

          The Company intends issuing such number of ordinary shares as is equal to an aggregate
          subscription price of R400 000 000. Details of the Rights Issue are contained in the rights
          issue declaration announcement which has also been published on SENS today.

5     PREFERENCE SHARE ISSUE

5.1     Introduction and Rationale

5.1.1     The Rights Issue will be supplemented by the book-build offering of 600 Preference Shares
          with qualifying investors at an issue price of R1 000 000 per Preference Share. The
          Preference Share Issue is therefore expected to raise R600 000 000.

5.1.2     Stellar Capital considers the Preference Shares to be an attractive form of financing as they
          will allow the Company to diversify its balance sheet while utilising the gearing capacity of the
          Company. The Preference Shares will also allow the Company to raise capital at a lower cash
          cost than traditional debt with a predictable yield and a reduced level of shareholder dilution
          (should the holders of the Preference Shares convert these into equity) as compared to that
          which would be required through an equity issuance.

5.1.3     An offering circular in relation to the Preference Share Issue will be sent to select qualifying
          investors ("Offering Circular") on or about 20 November 2015. The results of the Preference
          Share Issue will be released on SENS and the Offering Circular made available on the
         Company’s website (www.stellarcapitalpartners.co.za) post the book-build which is expected
         to be on or about 24 November 2015.

5.2     Preference Share Terms

5.2.1    The Preference Shares will be a class of shares as contemplated in section 36(1)(d) of the
         Companies Act. The preferences, rights, limitations and other terms associated with the
         Preference Shares will therefore be determined by the board prior to the issue thereof, except
         for the conversion and voting rights attaching to the Preference Shares, which are included in
         the proposed amendments to the MOI. The authority to issue the Preference Shares will
         further be subject to certain limitations as set out in paragraph 5.2.4 below.

5.2.2    The holders of Preference Shares will be afforded the right to convert their Preference Shares
         into new ordinary shares at a conversion price equal to the greater of R2.40 and a 20%
         premium to the closing price of ordinary Stellar Capital shares on the day before the book-
         build for the Preference Share Issue, subject to adjustment on the occurrence of specific
         events as more fully set out in the Offering Circular.

5.2.3    The intention of the board is that the Preference Shares will have such further features as are
         typically associated with such instruments in the South African market. In this regard,
         shareholders are advised that the dividend rate, ranking, issue price, redemption price,
         financial covenants, negative pledge, events of default and redemption events will be in line
         with South African standards for such instruments.

5.2.4    The shareholders will be requested to authorise the board to issue the Preference Shares
         subject to the following limitations:

5.2.4.1.1   the authority being valid from the date of adoption of the relevant special resolution until
            the next annual general meeting of the Company;

5.2.4.1.2   the amount to be raised by the issue of the Preference Shares being R600 000 000;

5.2.4.1.3   the conversion price is set at the greater of R2.40 and 20% above the closing ordinary
            share trading price the day before the date of the book-build for the Preference Share
            Issue. The maximum number of ordinary shares into which the Preference Shares may
            convert being 250 000 000 ordinary shares, in the event the Preference Shareholders
            elect to convert;

5.2.4.1.4   Preference Shares may only be issued if the board is of the opinion that the terms of the
            issuance as negotiated and agreed with the qualifying investors are at arm’s length, and
            that, having taken prevailing market conditions into account that the commercial and
            technical terms and features of the Preference Shares are typically associated with such
            instruments in the South African market.

5.2.5    The Preference Shares will have no ordinary equity voting rights save as provided for in the
         amended MOI (as approved by shareholders). Upon conversion the ordinary shares into
         which the Preference Shares convert will rank pari passu with the other ordinary shares in all
         respects, including in respect of voting rights.

5.2.6    The Company will not apply for a listing of the Preference Shares on the JSE at this stage but
         may do so within 6 months of the date of their issue.

5.2.7    The creation of the Preference Shares, as a change to the authorised share capital of the
         Company, will become effective on the date on which the required resolutions amending the
         MOI are registered with CIPC.

5.3     Underwriting

5.3.1    The Preference Share Issue will be fully underwritten by Titan Financial Services Proprietary
         Limited ("Titan"), Thunder Capital Proprietary Limited ("Thunder Capital") and Shanike
         Investments No 322 (Pty) Limited ("Shanike"), related parties of Stellar Capital, either as
         material shareholders of the Company or by virtue of them being associates of directors of the
         Company (the "Underwriters").

5.3.2    The Company will pay underwriting fees to the Underwriters equal to 1% of the underwritten
         amount upon fulfilment of the underwriting and subscription commitment of the Underwriter.

5.3.3    The Underwriters and Cornelius Roodt, an independent non-executive director of Stellar
         Capital and accordingly a related party to the Company, have indicated that they wish to
         participate in the Preference Share Issue, subject to the approval of other Stellar Capital
         shareholders and the provision of a fair fairness opinion by an independent expert.

5.4     Conditions Precedent

5.5     The implementation of the Preference Share Issue will be subject to the fulfilment of the
        conditions that:

5.5.1    all requisite Stellar Capital shareholder and regulatory approvals have been obtained relating
         to the increase in the authorised ordinary share capital, the creation and issuing of the
         Preference Shares, the amendment of the MOI and the authority to issue the Preference
         Shares; and

5.5.2    to the extent applicable, a fairness opinion for the issue of Preference Shares to any related
         parties of the Company and/or the Underwriters to the extent they participate or fulfil their
         obligations under the underwriting agreements is obtained, and that such opinion confirms
         that the issue of the Preference Shares to such parties is fair insofar as the shareholders of
         the Company are concerned.

5.6     Reservation of Rights

         The board reserves the right to accept or refuse any application(s), either in whole or in part
         or to abate any or all application(s) (whether or not received timeously) in such manner as
         they may, in their sole discretion determine.

5.7     Restrictions

5.7.1    The distribution of the documents related to the Preference Share Issue in jurisdictions other
         than South Africa may be restricted by law. Foreign shareholders and persons in whose
         possession this document comes may be affected by the Preference Share Issue, having
         regard to prevailing laws in their relevant jurisdictions. It is the responsibility of such foreign
         shareholders and/or persons to inform themselves about and to observe any applicable legal
         requirements of such jurisdiction in relation to all respects of the Preference Share Issue that
         may affect them.

5.7.2    This announcement does not constitute or form an offer of securities in the United States or
         any other jurisdiction.

5.8     Pro Forma Financial Effects of the Preference Share Issue

5.8.1    The pro forma financial effects of the Preference Share Issue and the conversion of the
         Preference Shares (having taken the Cadiz Acquisition, the Digicore Disposal, Torre
         Acquisition, as previously disclosed to shareholders on SENS, into account) on Stellar Capital
         ("Transactions") have been prepared to illustrate the impact of the proposed Transactions.

5.8.2    The pro forma financial information has been prepared using the most recent financial period
         of the Company for the unaudited six month period ended 31 May 2015 in terms of the
         Listings Requirements and guidelines issued by the South African Institute of Chartered
         Accountants.
5.8.3    The directors of the Company are responsible for the preparation of the pro forma financial
         information contained in this announcement. The unaudited pro forma financial effects have
         been prepared for illustrative purposes only.


                                                                              After the
                                                                            Preference
                                                                                       1
                                                              Before       Share Issue            Change

 Basic loss per ordinary share from continuing
                                                               (2.16)             (8.46)        (291.07)%
operations (cents)

 Diluted basic loss per ordinary share from
                                                               (2.16)             (8.46)        (291.07)%
continuing operations (cents)

 Headline and diluted headline loss per ordinary
                                                               (2.01)             (8.31)        (313.02)%
share from continuing operations (cents)

 Diluted headline loss per ordinary share from
                                                               (2.01)             (8.31)        (313.02)%
continuing operations (cents)

 Basic loss per ordinary share from discontinued
                                                               (1.27)             (1.27)                -
operations (cents)

 Diluted basic loss per ordinary share from                                                             -
                                                               (1.27)             (1.27)
discontinued operations (cents)

 Headline loss per ordinary share from discontinued                                                     -
                                                               (0.55)             (0.55)
operations (cents)

 Diluted headline loss per ordinary share from                                                          -
                                                               (0.55)             (0.55)
discontinued operations (cents)



Weighted average number of shares                        690 511 048        690 511 048                 -

Diluted weighted average number of shares                690 511 048        940 511 048            36.21%



Net asset value per share (cents)                             197.79             202.11             2.18%

Tangible net asset value per share (cents)                    197.36             201.68             2.19%




Notes and assumptions:

The amounts set out in the "Before" column have been extracted from the "After the Transaction Pro
Forma" column of Annexure 1 of the circular to Stellar Capital shareholders dated 4 September 2015
which includes the pro forma financial effects effect of the Cadiz Acquisition, Digicore Disposal and
Torre Acquisition based on the unaudited interim results of the Company for the six months ended 31
May 2015, as published on SENS on 31 July 2015.

1.   Preference Share Issue:

     The issue of 600 Preference Shares at nominal value of R1 000 000 per share for a total
     consideration of R600 000 000. Preference Share dividends are settled semi-annually at 95% of
     the Prime Rate. The Preference Shares are convertible into ordinary shares on or before 3 and a
     half years after their issue date at the instance of the holders thereof at an initial conversion price
     which will be at a premium no lower than 20% to the closing ordinary share price the day before
    the book-build. The conversion price has herein been assumed to be R2.40 per share, which
    represents a 20% premium to the reference price of R2.00 per share. The maximum number of
    ordinary shares to be issued under the conversion terms is 250 000 000 at R2.40.

    The issue of the Preference Shares has not been treated as dilutive in calculating diluted earnings
    and headline earnings per shares as the conversion thereof will result in a decrease in loss per
    share from continuing operations (i.e. the conversion is antidilutive) in accordance with par 41 of
    IAS 33. The impact of the Preference Share Issue on the statement of financial position is that it
    results in an increase in cash and cash equivalents of R600 million, an increase in non-
    distributable reserves (equity balance) of R32 437 000, and an increase in Other Financial
    Liabilities in the amount of R567 563 000 in accordance with par 15 of IAS 32. A discount rate of
    115% of Prime Rate was used to discount the cash flows attributable to the compound instrument
    over its 3 and a half year maturity term with payment of semi-annual preference share dividends
    in the amount of R27 075 000, in order to calculate the fair value of a similar instrument with no
    conversion rights in accordance with the accounting policy stated above.

    The impact of the Preference Share Issue on the statement of comprehensive income is that, for
    the six months ended 31 May 2015, management fees in the amount of R162 000 (calculated as
    1% of net asset value in accordance with the amendments as proposed), transactions costs of
    R12 326 140 and finance costs of R31 003 000 would have been recognised in profit or loss from
    continuing operations attributable to equity holders of the parent.

2. It has been assumed that the Transactions were implemented on 31 May 2015 for purposes of
   compiling the statement of financial position and on 1 December 2014 for purposes of compiling the
   statement of comprehensive income.

3. Tax consequences in relation to the Transactions have been taken into account.

4. All adjustments, other than transaction costs described above, will have a continuing effect. This is a
   direct result of the fact that the management fee expense is determined with reference to the net
   asset value of Stellar Capital. As a result of this any change in the net asset value will have an impact
   on the management fee expense.


6    AMENDMENT TO THE MANAGEMENT AGREEMENT

6.1.1   ManCo was established to incentivise the management of Stellar Capital and specifically to
        contain the fixed costs of the Company through the management agreement dated 8
        December 2014 ("Management Agreement"). The terms of the Management Agreement
        however, could be perceived to be onerous in light of the rapidly growing Company asset
        base and planned Capital Raise and accordingly, the Company and the shareholders of
        ManCo have agreed to amend the terms ("Amendments").

6.1.2   Under the proposed new terms, the overall fee structure will be reduced from a sliding scale
        based on net asset value ("NAV") to a flat fee of 1% of NAV, with reduced fees being charged
        in relation to cash, third-party and own-managed funds. Performance fees will continue to be
        subject to a high water mark and in addition a 10% annual return hurdle will be added. The
        termination fee payable to ManCo on the Company’s election to terminate the Management
        Agreement, will be reduced from 15% of the shares in issue to a capped number of 50 000
        000 Stellar Capital shares, subject to certain adjustments for share capital restructures.

6.1.3   Further details of the Amendments will be included in the Notice Circular and will require
        approval from Stellar Capital shareholders.



JOHANNESBURG

22 OCTOBER 2015
Joint Adviser and Transaction Sponsor
Stellar Advisers Proprietary Limited

Joint Adviser, Independent Sponsor and Arranger
Rand Merchant Bank


Legal Adviser to Arranger and to Stellar Capital
Cliffe Dekker Hofmeyr Incorporated

Independent Expert
Questco Proprietary Limited

Date: 22/10/2015 10:18:00 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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