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Proposed New Black Economic Empowerment Transaction and Cautionary Announcement
PPC Ltd
(Incorporated in the Republic of South Africa)
(Company registration number: 1892/000667/06)
JSE and ZSE Code: PPC
ISIN: ZAE000170049
("PPC" or the "Company")
PROPOSED NEW BLACK ECONOMIC EMPOWERMENT TRANSACTION AND
CAUTIONARY ANNOUNCEMENT
1. Introduction and background
1.1. The main business conducted by PPC comprises of the mining and processing
of limestone and aggregates; and manufacturing, sale and distribution
of cementitious, calcitic, ash and readymix products. The key input
ingredient into the manufacturing of cementitious products, the mainstay
of the PPC business, is limestone. PPC has 10 such operating limestone
and aggregates mining and processing sites in South Africa alone.
1.2. PPC is required to comply with, among other elements, equity
shareholding requirements in respect of its South African mining
operations, which are mainly limestone operations, in terms of the
Broad-Based Socio-Economic Empowerment Charter for the South African
Mining Industry gazetted during 2004 by the Minister of Minerals and
Energy in terms of section 100(2)(a) of the Mineral and Petroleum
Resources Development of Act No. 28 of 2002 (“MPRDA”), as amended in
September 2010 and as may be further amended from time to time (“Mining
Charter”), as a condition to either apply for, maintain/retain or renew
mining and/or prospecting mineral rights.
1.3. Further, as a commercial imperative, PPC has to comply with, among other
elements, equity shareholding requirements in respect of its South
African manufacturing operations, which are mainly cementitious products
operations, in terms of the Broad-Based Black Economic Empowerment Act
No. 53 of 2003 and the related Department of Trade and Industry (“DTI”)
Codes, which allows the Company to tender competitively for business
with government departments, state-owned entities and private sector
companies.
1.4. In order to achieve the abovementioned objectives and to meet the 26.0%
BEE equity shareholding in respect of its South African operations, PPC
implemented two (2) Black Economic Empowerment (“BEE”) transactions as
follows:
1.4.1. a 2008 transaction at the PPC listed level (“Listco”), which
resulted in 15.3% BEE equivalent equity shareholding of the South
African operations (“BEE 1”); and
1.4.2. a further 2012 transaction at Listco, which resulted in the BEE
equivalent equity shareholding of the South African operations
increasing from 15.3% to 26.0% (“BEE 2”).
1.5. In 2016, BEE equity shareholding in PPC was significantly reduced due
to the following events, leaving PPC being non-compliant with the
requirements of the MPRDA and the Mining Charter:
1.5.1. the rights issue equity capital raising concluded at Listco in
September 2016, as the BEE 1 and BEE 2 shareholders were
contractually restricted from following their rights; and
1.5.2. the planned maturity of BEE 1 in December 2016, which resulted
in the unwinding of a significant portion of the equity shareholding
in the structure.
1.6. In order to address non-compliance with the Mining Charter, the board
of directors of PPC (the “Board”) has approved a framework for a top-up
BEE transaction to restore BEE equity shareholding in respect of the
South African operations (the “Proposed BEE Transaction”).
1.7. The purpose of this announcement is to provide PPC shareholders with an
overview of the Proposed BEE Transaction framework.
2. Overview of the Proposed BEE Transaction
2.1. Transaction structure
2.1.1. A top-up transaction at PPC’s wholly-owned South African
subsidiary, PPC South Africa Holdings (Proprietary) Limited (“PPC
SA”), which will result in PPC achieving an effective 30.0% BEE
equity shareholding in respect of PPC’s South African operations,
made up of:
2.1.1.1. the existing residual BEE 1 and BEE 2 equity
shareholding that continue to contribute indirectly
an effective 5.4% BEE equity shareholding in PPC SA;
and
2.1.1.2. the Proposed BEE Transaction size of 24.6% directly
into PPC SA, resulting in PPC’s equity shareholding
in PPC SA being reduced from 100% to 75.4%.
2.1.2. Similar to BEE 1 and BEE 2, the Proposed BEE Transaction will be
broad-based in nature from inception, comprising of employees,
communities and black entrepreneurs.
2.2. Transaction structure rationale
2.2.1. BEE 1 and BEE 2 were implemented at Listco and both transactions
experienced significant downside risks, including the following:
2.2.1.1. vulnerability to normal market volatility of a listed share
price, which negatively affected the BEE 1 beneficiaries
when the structure matured in December 2016;
2.2.1.2. BEE 1 was funded largely by third party funders with a
strong reliance on PPC’s balance sheet support and therefore
limited the ability of PPC to raise debt for growth projects;
and
2.2.1.3. significant dilution of BEE equity shareholding as BEE 1
and BEE 2 shareholders were contractually restricted to
follow their rights during the rights offer equity capital
raising in September 2016, leaving PPC with BEE equity
shareholding that was far less than the required 26.0% in
terms of the Mining Charter.
2.2.2. In order to mitigate against the risks identified in BEE 1 and
BEE 2 respectively, it was deemed prudent to implement the Proposed
BEE Transaction at the unlisted PPC SA level in order to ensure,
inter alia, that:
2.2.2.1. the transaction will be based on intrinsic value rather
than the market price of listed shares which are susceptible
to normal market volatility;
2.2.2.2. Listco retains the ability to raise equity capital from
its shareholders with minimal dilution effect on the BEE
equity shareholding;
2.2.2.3. the transaction, which will be funded through a notional
vendor funding (“NVF”) structure, does not create any
liability, contingent or otherwise, on either PPC’s or the
participants’ balance sheets. The NVF structure was also
used in BEE 2;
2.2.2.4. there is a sustainable structure that provides PPC with
guaranteed BEE equity shareholding credentials for its South
African operations for a fixed tenure; and
2.2.2.5. the transaction will not result in dilution of equity
shareholding for PPC shareholders at Listco however they
will receive lower PPC SA earnings as a result of PPC’s
reduced equity shareholding in PPC SA.
2.3. Transaction value and costs
2.3.1. The transaction value will be disclosed when detailed terms of
the Proposed BEE Transaction are announced.
2.3.2. The cost of the Proposed BEE Transaction, determined in
accordance with International Financial Reporting Standards
(“IFRS”) 2: Share Based Payments (“IFRS 2 Cost”), will be disclosed
when the detailed terms of the Proposed BEE Transaction are
announced. It is intended that the IFRS 2 Cost related to the
Proposed BEE Transaction will be in line with market precedents for
transactions of this nature and size.
2.4. Transaction participants and PPC SA equity shareholding allocation
2.4.1. PPC’s South African employees will participate in the transaction
through an Employee Share Ownership Plan (“ESOP”) Trust and the
ESOP Trust will hold equity shareholding directly into PPC SA. It
is intended that the ESOP Trust will be a fully vesting trust.
2.4.2. A Community Development Trust (“Community Trust”) which will in
turn have direct equity shareholding into PPC SA. It is intended
that the Community Trust will not be a vesting trust and communities
will derive benefits from the Community Trust through dividends
paid to the Community Trust by PPC SA.
2.4.3. A special purpose vehicle (“BEE SPV”) which will be incorporated
for purposes of holding equity shareholding directly into PPC SA
on behalf of black entrepreneurs.
2.5. Transaction funding structure
2.5.1. New shares in PPC SA will be issued to the participants’ equity
shareholding vehicles for a nominal subscription price per share.
2.5.2. The transaction will be implemented through the NVF structure,
at a fixed escalation rate.
2.5.3. The NVF will be serviced through dividends payable to
participants and participants would be entitled to receive a certain
portion of their dividends as a trickle cash payment during the
term of the transaction and to the extent that PPC SA declares a
dividend.
2.5.4. The outstanding balance on the NVF shall be settled at maturity
through a repurchase of shares held by the participants in PPC SA,
based on a pre-agreed NVF formula and at the same nominal
subscription price at which the shares were issued.
2.6. Transaction tenure
2.6.1. ESOP Trust – 10 years.
2.6.2. Community Trust – evergreen or perpetual.
2.6.3. Black Entrepreneurs – 10 years.
2.7. Transaction implementation timeline
It is envisaged that the detailed terms of the Proposed BEE Transaction
will be announced during the first quarter of the 2018 calendar year.
2. Cautionary announcement
As the detailed terms of the Proposed BEE Transaction have not yet been
determined and disclosed, PPC shareholders are advised to exercise
caution when dealing in securities of PPC until a detailed announcement
is made.
Sandton
14 December 2017
Investor contacts:
PPC:
Anashrin Pillay
Tel: +27 (0) 11 386 9000
Anashrin.Pillay@ppc.co.za
Siobhan McCarthy
Group Manager Corporate Affairs
Siobhan.mccarthy@ppc.co.za
Tel: +27 (0) 11 386 9000
Sponsor to PPC
Merrill Lynch South Africa (Pty) Ltd
Investment Bank, Corporate Advisor and Transaction Sponsor to PPC
Nedbank Limited, acting through its Corporate and Investment Banking Division
Legal Advisor to PPC
Tshisevhe Gwina Ratshimbilani Inc.
Financial Communications Advisor:
Instinctif Partners
Gift Dlamini
Gift.dlamini@instinctif.com
Mobile: +27 (0) 11 050 7536
Date: 14/12/2017 08:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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