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THE PROPOSED DISPOSAL BY EQSTRA OF THE EXCESS ASSETS OVER A PERIOD OF 24 MONTHS TO THIRD PARTIES
EQSTRA HOLDINGS LIMITED
(Incorporated in South Africa)
(Registration number 1998/011672/06)
Share code: EQS ISIN: ZAE000117123
(“Eqstra”)
TERMS ANNOUNCEMENT RELATING TO THE FOLLOWING:
. THE PROPOSED DISPOSAL BY EQSTRA OF THE EXCESS ASSETS OVER A PERIOD OF
24 MONTHS TO THIRD PARTIES, SUCH DISPOSAL CONSTITUTING A CATEGORY 1
TRANSACTION IN TERMS OF THE JSE LISTINGS REQUIREMENTS; AND
. WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT RELATING TO SALES OF EXCESS
ASSETS AS RELEASED ON 3 FEBRUARY 2016 AND RENEWED ON 15 MARCH 2016 AND 3
MAY 2016
1. INTRODUCTION
Shareholders of Eqstra (“Shareholders”) are referred to the cautionary announcement released on
SENS on 3 February 2016, and renewed on 15 March 2016 and 3 May 2016, wherein it was advised
that Eqstra Moçambique Limitada (“EML”) signed a Memorandum of Intent with Minas de Benga
Limitada (“MBL”) to purchase the mining equipment used by Eqstra at the Benga Coal Mine in
Mozambique that were identified as held for sale as at 31 December 2015 (“Benga Excess Assets”).
To date the Memorandum of Intent could not be concluded and management decided to dispose of
the Benga Excess Assets, and the mining equipment owned by Eqstra in South Africa that were
identified as held for sale as at 31 December 2015 (“Local Excess Assets”), collectively (“the Excess
Assets”), to third parties for an amount in the aggregate not less than ZAR802.9 million (“the Disposal
Consideration”) (“the Disposal”).
The Excess Assets will be sold through an auction process. Reputable auction houses had been
approached and a list of units with each item's floor price had been provided. These auction houses
will then sell the assets at best, but not below the floor price. The floor prices in aggregate equates
to the minimum price of R802.9 million. Management will approve all sales offers prior to releasing
the units. Given the nature and the size of the equipment it is unlikely that the units will all be sold in
one transaction and multiple transactions over a period of time (24 months) was envisaged. The
buyers and the specific selling prices per unit that would be achieved would be unknown at the time
of the circular being issued. All sales will be made through local and/or international auctions. It must
also be noted that the R802.9 million is an indicative price and that the consideration received could
be less or more depending on prevailing market conditions.
Eqstra hereby confirm that it is currently unclear to whom the excess assets will be sold to or the
exact proceed amounts. All the units will be disposed of through auction houses given that the assets
are very large mining equipment. It is imperative that the assets be sold to improve the group’s
liquidity position. Eqstra already received an expression of interest for some of the Local Excess
Assets through auction houses, subject to shareholder approval.
All sales will be made through auction houses therefore no sales will be made to related parties.
Management will also only approve sales once the purchaser had been identified as a non-related
party.
Due to the Disposal being a category 1 transaction in terms of the JSE Listing Requirements, the
Disposal requires the approval of shareholders in general meeting.
The impaired value of the assets held for sale, being the Excess Assets, is R1 147 million and the
consolidated total assets of Eqstra were worth ZAR13 454 million as at 31 December 2015.
Therefore, the Disposal does not constitute a disposal of the greater part of Eqstra's assets or
undertaking as contemplated in section 112 of the Companies Act, 2008 (Act No. 71 of 2008), as
amended, and as such the Disposal does not need to be approved by a special resolution of Eqstra
Shareholders.
2. BACKGROUND INFORMATION ON THE EXCESS ASSETS
2.1 Benga Excess Assets
MBL is the titleholder and owner of the Benga Coal Mine located at Benga in the Tete Province,
Mozambique (Mine). MBL and EML (“Parties”) were parties to the Benga Coal Project Mining
Contract (“Contract”), pursuant to which EML agreed to perform open pit mining and associated
services at the Benga mine. The Contract expired in accordance with its terms on 31 December
2015. As announced previously, the Parties entered into a Memorandum of Intent with regard to the
Contract, in terms of which EML sells the Benga Excess Assets to MBL. The Memorandum of Intent
was entered into on 29 January 2016.
To date the Parties have not reach finality on this sale and the Board has therefore resolved that the
Benga Excess Assets be sold partially or in whole to any third party over a 2 year period.
Since termination of the Contract with effect from 31 December 2015, the mining operations ceased,
and the Benga Excess Assets were impaired to an asset held for sale value of ZAR782.0 million, as
at 31 December 2015. These assets were previously classified as leasing assets and valued as
assets in use.
Below is a summary of the Benga Excess Assets.
Asset held for sale value at 31
December 2015
ZAR’m
Zambia Road Estate 9.3
Plant, equipment and fixed assets 746.2
Inventory 26.5
Total Benga Excess Assets 782.0
All the Benga assets were acquired on inception of the contract in 2010.
2.2 Local Excess Assets
Further, it was announced that Eqstra is also in the process of closing or selling other non-core
operations as part of its strategy to refocus the group. This includes the Local Excess Assets in
Eqstra's Contract Mining and Plant Rental division as it was unlikely that these assets will deliver
desired return over the short term. These assets were previously valued as part of leasing assets.
Following the decision to sell the assets, the assets were classified as held for sale and impaired by
R736 million to the value of ZAR365.0 million as at 31 December 2015. All the local excess assets
were purchased prior to 2011.
3. THE DISPOSAL TERMS AND CONDITIONS
3.1 Terms
Eqstra impaired the Benga Excess Assets to an asset held for sale value of ZAR782.0 million. The
disposal amount of the Benga Excess Assets is capped at not lower than 70% of the valuation
amount, being ZAR547.4 million.
Eqstra has also impaired the Local Excess Assets in the Contract Mining and Plant Rental division
to the value of ZAR365 million as at 31 December 2015. The disposal amount of the Local Excess
Assets is capped at not lower than 85% of the valuation amount, being ZAR255.5.
Net asset values for the Excess Assets that were identified as held for sale, as at 31 December 2015:
Entity Asset held Disposal
for sale value Consideration
(R’ million) (R’ million)
MCC Plant Hire 84.0 58.8
MCC Contracts 281.0 196.7
EML 782.0 547.4
Total Excess Assets 1 147.0 802.9
The Board has therefore resolved to approve the disposal of the Excess Assets owned by MCC
Contracts Proprietary Limited, EML and Mutual Construction Company (Transvaal) Proprietary
Limited, trading as MCC Plant Hire, provided that –
. the aggregate consideration for all the Excess Assets to be disposed of by the Contract
Mining and Plant Rental division shall not be less than ZAR802.9 million, being an amount
equal to 70% (seventy percent) of the Asset held for sale value of such Excess Assets; and
. the Excess Assets shall be disposed of within a period of 24 (twenty-four) months,
calculated from the date upon which the shareholder resolution approving the Disposal
has been adopted.
3.2 Conditions precedent
The Disposal will be subject to the fulfilment or waiver, as the case may be, of the following
conditions precedent:
. the Shareholders approving the sale of the Excess Assets at the general meeting with the
requisite majority in terms of the Listings Requirements (at least 50% + 1 by number of
votes, present and voting).
3.3 Rationale for the Disposal
The intention to dispose of the Excess Assets was previously discussed at the September 2015
annual results presentation of Eqstra and re-emphasised during the interim results presentation in
March 2016. The proposed sale of the Excess Assets is in line with Eqstra’s stated strategy to reduce
its exposure to the mining industry. The proceeds of the proposed sale of the Excess Assets would
enhance the Group’s cash liquidity position.
The Benga Excess Assets are largely mine specific and assembled on site. Throughout the Contract
period the intention was to either:
. sell the assets to the mine owner (MBL) at the end of the period;
. extend the contract mining agreement; or
. find alternative contracts or buyers for the equipment.
Eqstra considered the various options. It became clear towards the end of the Contract term that the
mine owner had some liquidity constraints based on the low coal prices and the last option was most
likely to succeed. MBL continued to express an interest to purchase the Benga Excess Assets for
the impaired carrying value.
Eqstra engaged with MBL for a sale of the Benga Excess Assets, but such sale has not been
successfully concluded to date, hence Eqstra's decision to consider alternative buyers for the Benga
Excess Assets.
Eqstra changed the manner in which the assets are valued from assets in use included in leasing
assets to assets held for sale, in the 31 December 2015 interim results. An impairment on the Benga
Excess Assets of R449 million was recorded and the operations which had been closed down were
classified as discontinued operations in line with the requirements of IFRS.
Eqstra changed the strategy of the Group in June 2015 to become a services-focussed group. As
part of the process, Eqstra started to reconsider the current business model.
In addition, approximately 18 months ago the Contract Mining and Plant Rental division of Eqstra
reported the termination of two major contract mining projects. The mining environment had been in
a decline in South Africa and opportunities for contract mining has become less frequent. Pricing
also became more competitive. The combination of these factors resulted in equipment to the value
of approximately ZAR700 million being in excess of the then current operational requirements. This
resulted in an impairment of ZAR97.0 million being recorded in the South African operations in
June 2015 for some of these Local Excess Assets, as a portion had then been earmarked for future
opportunities. It was noted that no excess assets existed prior to the June 2014 financial year.
The change in strategy, the current mining environment as well as the cost of maintaining and
repairing these assets resulted in management changing direction. These assets, as well as
underutilised assets on sites, were then classified as assets held for sale by December 2015. This
change resulted in an impairment of ZAR736 million as the Local Assets were impaired to fair value,
being the current anticipated selling price less cost to sell.
The intention is to dispose of the Excess Assets over a period of 24 months to various parties. In
aggregate the Excess Assets will not be sold for less than the Disposal Consideration.
Eqstra is also in a tight liquidity position and the cash from the Disposal would greatly alleviate the
constraints. The proceeds of the Disposal will be utilised to repay debt.
All proceeds from the sales of Local Excess Assets will be utilised to repay RSA bank debt and
proceeds from the sales of Benga Excess Assets will be utilise to repay Rest of world funding.
3.4 Categorisation and Shareholder approval
Based on the value of the Excess Assets to be sold relative to the market capitalisation of Eqstra, in
terms of the JSE Listings Requirements, the Disposal is classified as a category 1 transaction and
Shareholders will be asked for approval to sell these Excess Assets over a two-year period, details of
which will be included in the notice of the general meeting forming part of the circular referred to in
paragraph 5 below. Eqstra believes that the Disposal Consideration for the Excess Assets of
ZAR802.9 million should be realisable (subject to market conditions), over the next 24 months after
Shareholder approval.
3.5 Opinion by the Directors
The Directors having carefully considered the rationale for and terms and conditions of the Disposal
are unanimously of the opinion that the terms and conditions of the Disposal are fair and reasonable
to the Shareholders, are beneficial for Eqstra and in the best interest of the Shareholders and
accordingly recommend that Shareholders vote in favour of all Resolutions to be considered at the
general meeting. The Directors who hold shares intend voting in favour of the relevant resolutions.
4. PRO FORMA FINANCIAL EFFECTS OF THE DISPOSAL
The pro forma financial effects of the Disposal are presented below. The pro forma financial effects
are presented in accordance with the Listings Requirements of the JSE, the Guide on Pro Forma
Financial Information issued by The South African Institute of Chartered Accountants, ISAE 3420 and
the measurement and recognition requirements of International Financial Reporting Standards
(“IFRS”).
The pro forma financial effects have been presented for illustrative purposes only to provide
information on how the Disposal might have impacted the financial results and position of the Eqstra
Group and, because of their nature may not fairly present Eqstra’s financial position, changes in
equity, or results of operations or cash flows after the Disposal.
The pro forma financial effects have been prepared using accounting policies that are consistent with
IFRS and with the basis on which the historical financial information has been prepared in terms of
the Group’s accounting policies.
The Directors of Eqstra are responsible for the preparation of the pro forma financial effects.
Pro forma effects on the six months to 31 December 2015
Unaudited
31 December
2015 Pro forma
Excess
Before the Asset After the
transaction transaction transaction
Note 1 Note 2
Ordinary weighted (millions) 391.16 391.16
Ordinary in issue (millions) 405.50 405.50
Earnings per share - continuing operations (cents) (112.5) 4.3 (108.2)
Headline earnings per share - continuing operations (cents) 22.2 10.0 32.2
Earnings per share -discontinued operations (cents) (174.9) 17.4 (157.5)
Headline earnings per share - discontinued operations (cents) (24.4) (2.9) (27.3)
Note 3
Net asset value per share (cents) 704.8 (1.5) 703.3
Tangible net asset value per share (cents) 648.3 (1.5) 646.9
Reconciliation of headline earnings
Unaudited
31 December
2015 Pro forma
Before the After the
transaction transaction
Note 1
Basic Earnings from continuing operations
Basic Earnings (440) (423)
Impairment of leasing assets 530 -
Loss on sale of Excess Assets - 552
Profit on sale of property, plant and equipment (3) (3)
87 126
Basic Earnings from discontinued operations
Basic Earnings (684) (616)
Impairment of leasing assets 588 6
Loss on sale of Excess Assets - 497
Withholdings tax on dividends - 6
(96) (107)
Basic Earnings from total operations
Basic Earnings (1 124) (1 039)
Impairment of leasing assets 1 118 6
Loss on sale of Excess Assets - 1 049
Profit on sale of property, plant and equipment (3) 3
(9) 19
Notes:
1. Extracted from the unaudited condensed consolidated financial results of Eqstra for the six months ended 31 December
2015.
2. Pro forma earnings and pro forma headline earnings per share are presented based on the following principal
assumptions:
a. The loss on sale of Excess Asset from continuing operations is calculated based on proceeds of R365 million and
the net book value of the assets on 1 July 2015.
b. The loss on sale of Excess Asset from discontinued operations is calculated based on proceeds of USD 50 million
and the net book value of the Excess Assets on 1 July 2015. An exchange rate of USD1:R12.14 was used.
c. Interest saved on loan repayments is calculated at 9.5% pa
d. Exchange rate of USD1:R15.637 (31 December 2015) and USD1:R12.14 (1 July 2015) was used.
e. Once-off transaction costs of R1 119 000 are assumed and expensed.
3. Pro forma net asset and pro forma net tangible asset value per share are presented based on the following principal
assumptions:
a. The Transaction was effective 31 December 2015;
b. Exchange rate of USD1:R15.637 (31 December 2015)
c. Excess Assets at 31 December 2015 assumed to have been disposed of on 31 December 2015.
d. The net proceeds from the sale of Excess Assets in Mozambique, after repayment of Mozambique debt and the
equity loan with Eqstra, is subject to withholding tax at 8%.
e. Sale proceeds are used to settle debt.
4. All effects are of a recurring nature except where otherwise stated.
5. CIRCULAR AND SALIENT DATES AND TIMES
Details of the Disposal will be included in a circular to be sent to shareholders on or about 10 June
2016. The salient dates and times regarding the general meeting of Shareholders will be published
on the date of posting of the circular.
6. WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
Shareholders are referred to the previous cautionary announcements referred to in paragraph 1
above, and are advised that they are no longer required to exercise caution when dealing in the
Eqstra’s securities. Shareholders are advised that this cautionary being withdrawn today is unrelated
to the cautionary announcement released on 8 April 2016 and renewed on 24 May 2016.
6 June 2016
Johannesburg
Transaction Sponsor: Legal Advisor Independent Reporting
Deloitte & Touche Sponsor Werksmans Accountants and Auditors:
Services Proprietary Limited Deloitte & Touche
Date: 06/06/2016 03:38:00 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
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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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