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ECSPONENT LIMITED - Terms Announcement Regarding Various Transactions

Release Date: 29/06/2018 15:44
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Terms Announcement Regarding Various Transactions

ECSPONENT LIMITED
Incorporated in the Republic of South Africa
Registration number: 1998/013215/06
JSE Code: ECS - ISIN: ZAE000179594
Debt Issuer Code: ECSP
(“Ecsponent” or “the Company”)

TERMS ANNOUNCEMENT REGARDING THE ACQUISITIONS AND DISPOSALS OF
INVESTMENTS, AN UNDERWRITING AGREEMENT, ASSET ACQUISITION AND CONCLUSION
OF AN INVESTMENT MANAGEMENT AGREEMENT

1.   INTRODUCTION

     Shareholders are referred to the announcement released on the Stock Exchange News
     Services (“SENS”) dated 22 May 2018, wherein shareholders were advised that the board of
     directors of the Company (“the Board”) had undertaken a strategy of investing in assets that
     will provide the Ecsponent group (“Group”) with medium to long-term capital growth, and
     specifically transactions that will, inter alia:
     -      position the Group for future value-enhancing investment opportunities;
     -      create an efficient and professional management structure for the Group’s equity
            investments;
     -      improve the balance sheet concentration exposure;
     -      provide a balance between the Group’s short-term cash generative assets and longer-
            term growth assets; and
     -      increase the Group’s equity holding in assets considered to have high growth potential.

     In furtherance of this strategy, the Board is pleased to advise that:

     a)     Ecsponent Treasury Services Proprietary Limited (“Ecsponent Treasury Services”),
            a wholly owned subsidiary of Ecsponent, has entered into an acquisition agreement to
            subscribe for 100% of the issued ordinary shares (“Acquisition Shares”) of Pink
            Orchid Limited (“Pink Orchid”), an investment holding company yet to be incorporated,
            from Purple Orchid Limited (“Purple Orchid”), a wholly owned subsidiary of Ecsponent
            Capital (RF) Limited (“Capital”), a related party, for a total consideration of R280 million
            (“the Pink Orchid Acquisition”);
     b)     Ecsponent has entered into a subscription agreement (“Subscription Agreement”)
            with Invest Solar Africa Limited (“Invest Solar Africa”), a related party, in terms of
            which the Company has agreed to subscribe for a maximum of 40 000 000 shares in
            Invest Solar Africa at a subscription price of BWP1.00 (one Botswana Pula) per share,
            pursuant to a private placement of such shares (“Private Placement”);
     c)     Ecsponent has entered into an underwriting agreement with Invest Solar Africa, in
            terms of which Ecsponent has agreed to underwrite and subscribe for all the shares in
            Invest Solar Africa which are not taken up during the initial public offering of Invest
            Solar Africa pursuant to the listing of its ordinary shares on the Venture Capital Board
            of the Botswana Stock Exchange (“BSE”) (“Underwriting Agreement”);
     d)     Ecsponent has entered into an investment management agreement (“Investment
            Management Agreement”) with MHMK Capital Botswana Limited (“MHMK Capital”),
            a related party, which is controlled by George Manyere, a material shareholder and a
            non-executive director of the Company, in terms of which MHMK Capital will manage
            the portfolio of assets and investments owned by Ecsponent Limited incorporated in
            Botswana (“ECS Botswana”) a wholly owned subsidiary of the Company;
     e)     Return on Innovation Proprietary Limited (“ROI”), a wholly-owned subsidiary of
            Ecsponent has entered into an agreement with GetBucks Proprietary Limited
            (“GetBucks SA”), in terms of which ROI has agreed to purchase specified loan claims
            from GetBucks SA (“Asset Acquisition”); and
     f)     Ecsponent has disposed of its 50% equity holding in Cryo-Save South Africa
            Proprietary Limited and Salveo Swiss Technologies Ltd to Go Life International for R10
            million.
     (collectively “the Transactions”).

2.   RATIONALE FOR THE TRANSACTIONS

     In line with the Company’s strategy to develop and expand its operations into the rest of Africa
     and to invest in entrepreneurs and companies with proven track records for building
     diversified, well-managed and high growth opportunities, the Group has identified the
     Transactions as a gateway, which will present new opportunities for the Group including, inter
     alia:
     -     procurement of in-country local currency funding for Botswana operations, thereby
           reducing foreign currency risk and exposure;
     -     enabling the Group to increase its market share in the targeted small to medium
           enterprises (SMEs) and enterprise development credit sectors
     -     enabling the Group to further develop commercially beneficial relationships with large
           corporates;
     -     providing access to asset management and/or collective investment scheme licenses in
           South Africa and Botswana in order to enhance its investment services offering; and
     -     providing the Group with an offshore hard-currency investment; and
     -     improve the Group’s investment rate of return and increase cash flow through
           deployment of new funding model.

3.   TERMS OF THE PINK ORCHID ACQUISITION

3.1. Overview of Pink Orchid
     Pink Orchid will be an investment holding company, holding the following material investments
     at the effective date (as defined in paragraphs 3.3 below), either directly, or indirectly through
     its Botswana based, wholly-owned subsidiary, Fodnort Proprietary Limited:

     -      16.55% of the issued ordinary share capital of MyBucks S.A. (“MyBucks”), a financial
            technology company listed on the Frankfurt Stock Exchange;
     -      58% of the issued ordinary share capital of Invest Solar Africa, a renewable energy
            company focused on the development and financing of renewable energy projects in
            Africa;
     -      51% of the issued ordinary share capital of Energy Systems Group Proprietary Limited,
            a company with a renewable energy infrastructure, and a supplier and implementation
            expert in Botswana (“Energy Systems”);
     -      40% of the issued ordinary share capital of MHMK Capital, a private equity investment
            management and advisory company in Botswana; and
     -      34.95% of the issued ordinary share capital of GetBucks Zimbabwe Micro Finance Bank
            Limited (“GetBucks”), a technology driven, a deposit-taking and money lending
            microfinance institution incorporated in Zimbabwe and listed on the Zimbabwe Stock
            Exchange, offering a range of products from micro-finance loans, a mortgage loans,
            SME banking products and saving and money market accounts.

     In addition to the above investments, Pink Orchid has certain net loan payables expected to
     equal circa R478 million.

3.2. Consideration

     Ecsponent Treasury Services will acquire the Acquisition Shares for a total purchase
     consideration of R280 million, which consideration will be set-off against a loan liability due by
     Capital to Ecsponent Treasury Services.

3.3. Conditions Precedent and Effective Date

     The Pink Orchid Acquisition agreement is subject to the fulfilment or waiver of the following
     conditions precedent (“the Conditions”) on or before 31 August 2018, or such later date as
     notified by Ecsponent Treasury Services in writing, upon providing at least 5 (five) business
     days’ notice:

     i.     the incorporation of Pink Orchid;
     ii.    approval by the shareholders of Pink Orchid;
     iii.   approval by the board of directors of Capital;
     iv.    approval by the shareholders of Capital;
     v.     obtaining shareholder approval from the requisite majority of shareholders of Ecsponent
            at a general meeting, to the extent required by the JSE;
     vi.    providing the JSE with a fairness opinion from an independent professional expert
            acceptable to the JSE, confirming whether the terms of the Pink Orchid are fair as far
            as the shareholders of Ecsponent, other than the related party, are concerned; and
     vii.   approval by the JSE and other regulatory bodies to the extent necessary.
     The effective date of the Pink Orchid Acquisition will be the close of business on the last
     business day of the month in which the last of the Conditions has been fulfilled, or waived, as
     the case may be.


3.4. Conditions Subsequent

     The agreement giving effect to the Pink Orchid Acquisition agreement is subject to the
     fulfilment or waiver of the following conditions subsequent on or before 30 September 2018,
     or such later date as notified by Ecsponent Treasury Services in writing, but no later than 6
     months following the effective date:

     i.     approval by the South African Reserve Bank, to the extent necessary;
     ii.    Pink Orchid having delivered to Ecsponent Treasury Services the share certificates in
            respect of the Acquisition Shares, accompanied by share transfer forms currently dated
            and executed in blank by the registered holder thereof, so as to enable the Acquisition
            Shares to be registered in the name of Ecsponent Treasury Services, or a sworn affidavit
            if the original share certificate is lost; and
     iii.   Purple Orchid procuring its board representatives’ resignation from the board of directors
            of Pink Orchid, if any.

3.5. Other significant terms

     Further terms, conditions and warranties that are usual for a transaction of this nature are
     contained in the agreement giving effect to the Pink Orchid Acquisition.

3.6. Financial information of Pink Orchid

     Pink Orchid is not yet incorporated and accordingly has no profits or losses, assets or
     liabilities.

     The historic financial information of its material investments that it will hold on the effective
     date is summarised below:

       Investment     Financial         Net profit / (loss)    Net asset      Source of financial
       name           period end        after tax              value          information
       GetBucks       6 months          USD2.58m               USD15.5m       Unaudited interim historic
                      ended 30          (being R35.4m)         (being         financial information of
                      December                                 R213m)         GetBucks for the 6 months
                      2017                                                    period ended 30 December
                                                                              2017, prepared in
                                                                              accordance with International
                                                                              Financial Reporting
                                                                              Standards (“IFRS”), the
                                                                              Companies Act (Chapter
                                                                              24:03) of Zimbabwe and the
                                                                              Microfinance Act of
                                                                              Zimbabwe. Management is
                                                                              satisfied with the quality of
                                                                              those management
                                                                              accounts.

      Invest Solar   7 months        BWP0                    BWP100           Unaudited and unreviewed
                     ended 31        (being R0) 3            (being           historic financial information
                     December                                R131)            for the 7 months ended 31
                     2017 2                                                   December 2017, prepared in
                                                                              accordance with IFRS.
                                                                              Management is satisfied with
                                                                              the quality of those
                                                                              management accounts.

      Energy         31 December     BWP1.24m (being         BWP2.24m         Unaudited and unreviewed
      Systems        2017            R1.62m)                 (being           historic financial information
                                                             R2.93m)          for the 7 months ended 31
                                                                              December 2017, prepared in
                                                                              accordance with IFRS.
                                                                              Management is satisfied with
                                                                              the quality of those
                                                                              management accounts.

      MyBucks        6 months        (€2.74m) (being -       €7.46m           Unaudited historic                                                                         
                     ended 30        R43.76m1) of which      (R119.14m)       condensed interim financial                                                                           
                     December        a loss of €2.14m        (excluding       information of MyBucks for                                                                          
                     2017            (being R34.18m1)        non-controlling  the six months ended 31                                                                          
                                     related to continuing   interest)        December 2017, prepared in
                                     operations.                              accordance with IFRS as     
                                                                              adopted by the European
                                                                              Union. Management is
                                                                              satisfied with the quality of
                                                                              those management accounts.
                                                                           
                                                                           
                                                                           
      MHMK           31 December     BWP0 (being R0)(2)       BWP100-          Unaudited and unreviewed
                     2017 (2)                                 (being R131)     management accounts at 31                 
                                                                               December 2017, prepared in
                                                                               accordance with IFRS.
                                                                               Management is satisfied with
                                                                               the quality of those management 
                                                                               accounts.
                                                                   
                                                                   
1. Based on the Rand to Euro, Rand to US Dollar (USD) or Rand to Botswana Pula
   (BWP) exchange rates, applicable on the date immediately preceding this
   announcement.
2. These entities have recently been incorporated and remain dormant at the last
   financial year end.

4.   TERMS OF THE SUBSCRIPTION AGREEMENT

4.1. Description of Invest Solar Africa

     Invest Solar Africa is a renewable energy company focused on developing and financing
     income generating renewable energy projects in selected markets within Africa, with a vision
     to being the leading developer of renewable energy projects in these markets.
     Invest Solar Africa is pursuing its listing on the BSE by way of both the Private Placement and
     an initial public offering (“IPO”) (“Listing”).

     Ecsponent has agreed to subscribe for a maximum of 40 million shares in Invest Solar Africa
     at a subscription price of BWP1.00 (one Botswana Pula) per share, in respect of the Private
     Placement.

4.2. Consideration

     The total consideration payable by Ecsponent to Invest Solar Africa in respect of the Private
     Placement will be an amount of BWP40 million (R52.4 million at the exchange rate at the date
     of this announcement), being a subscription price of BWP1 per subscription share, payable in
     cash.

4.3. Effective Date

     The effective date of the Private Placement is as soon as reasonably practicable following
     Ecsponent receiving approval from its shareholders for its subscription for shares pursuant to
     the terms of the JSE Listing Requirements (“JSE LR”).


4.4. Conditions Subsequent

     The Private Placement is subject to Invest Solar Africa listing on the BSE within six months of
     obtaining informal approval from the BSE or such later date as Ecsponent and Invest Solar
     Africa may agree.

     Should the Listing not proceed, the Subscription Agreement will be deemed to have been
     terminated by mutual consent.

4.5. Other significant terms

     Further terms, conditions and warranties that are usual for a transaction of this nature are
     contained in Subscription Agreement.


5.   TERMS OF THE UNDERWRITING AGREEMENT

5.1. Introduction

     Invest Solar Africa has appointed Ecsponent to underwrite the IPO and Ecsponent has agreed
     in terms thereof to fully underwrite and subscribe for all the shares not taken up during the
     IPO, which could accordingly result in Ecsponent acquire a further maximum of 30 000 000
     Invest Solar Shares.

5.2. Consideration

     The maximum subscription price payable by Ecsponent in terms of the Underwriting
     Agreement, will be BWP30 000 000 (R39.3 million at the exchange rate at the date of this
     announcement), being for the subscription of a maximum of 30 million shares at a subscription
     price of BWP1 per Invest Solar Share.

     Ecsponent shall be entitled to a fee of BWP0.9 million (R1.2 million at the exchange rate at
     the date of this announcement) in respect of the Underwriting Agreement.


5.3. Conditions Precedent and Effective Date

     The Underwriting Agreement is subject to the fulfilment or waiver of the following condition
     precedent:

     -     approval of the BSE, Registrar of Companies or any other regulatory authorities in
           respect of the IPO; and
     -     approval by the shareholders of ECS Botswana and the Company pursuant to, so far as
           applicable, the terms of each such company’s constitutional documents, applicable laws
           by which each is bound and governed and the requirements of the JSE LR.

     The effective date of the Underwriting Agreement is within 2 days (not including weekends or
     public Holidays) of 17 October 2018 whereby if Invest Solar has not received valid applications
     for all of the new ordinary shares, Invest Solar shall notify Ecsponent of the number of
     uncommitted shares. In such eventuality, Ecsponent shall be liable to purchase and subscribe
     for those uncommitted shares.

5.4. Other significant terms

     Further terms, conditions and warranties that are usual for a transaction of this nature are
     contained in the Underwriting Agreement.


6.   TERMS OF THE INVESTMENT MANAGEMENT AGREEMENT

6.1. Overview of MHMK Capital and ECS Botswana

     MHMK Capital is a privately held Africa-focused private equity investment and advisory firm
     that manages and provides advice on investments across multiple sectors. MHMK Capital is
     setting up to hold a significant portfolio of assets and has a pipeline of deals in several sectors
     and countries which will assist in achieving the objectives of the Group. As at the date of this
     announcement, MHMK Capital has invested in excess of US$700 million in sub-Saharan
     Africa and manages a portfolio of investments in excess of US$300 million.

     MHMK Capital is managed by Mr. George Manyere and Mr. Walter Kambwanji who serve as
     the Chief Executive Officer and the Chief Financial Officer of MHMK Capital respectively.

     George is a Chartered Accountant (Zimbabwe) and a holder of a Bachelor and Honours
     degree in Accounting Science from the University of South Africa and a Certificate in Theory
     of Accounting from the Institute of Chartered Accountants Zimbabwe. George is a director of
     several companies, including some which are listed on the Frankfurt Stock Exchange, JSE
     and Zimbabwe Stock Exchange and previously served as an investment professional with the
     International Finance Corporation, headquartered in Washington DC.
     Walter is a Chartered Accountant (Zimbabwe) and holds a Bachelor of Accounting Science
     degree from the University of South Africa and a Postgraduate Diploma in Applied Accounting
     from the University of Zimbabwe. Walter has significant experience in finance and operations
     in Zimbabwe and internationally.

     ECS Botswana serves as a local investment holding company for the Group. The operations
     of ECS Botswana mirror those in South Africa. Capital is raised in country through institutional
     sources only.

6.2. Management fees

     MHMK Capital will be entitled to an annual management fee equal to 2% (two percent) of the
     value of the total assets of ECS Botswana, as it appears in the most recent audited financial
     accounts of ECS Botswana.

     Ecsponent and ECS Botswana will be jointly and severally liable for the payment of the fee
     due to MHMK Capital.

6.3. Conditions Precedent

     The Investment Management Agreement is subject to the following conditions precedent, on
     or before 30 June 2018, or such later date as may be agreed between the parties:

     -   approval by the shareholders of Ecsponent (excluding the related party and its
           associates) at a general meeting; and
     -   approval by the South African Reserve Bank and other regulatory authorities as required.

     The effective date of the Investment Management Agreement will be the close of business on
     the last business day of the month in which the last of the conditions precedent thereto has
     been fulfilled, or waived, as the case may be.


6.4. Duration

     The MHMK Management Agreement will be for a term of 10 years, following which it will be
     renewable by the mutual consent of the parties on a yearly basis on the anniversary of the
     effective date.

     The MHMK Management Agreement may be terminated by 3 months’ written notice from
     either party or the occurrence and non-remediation of certain events that constitute a breach
     of the terms of Investment Management Agreement.

6.5. Financial information of ECS Botswana

     ECS Botswana reported gross assets of BWP246.3 million (R322.7 million at the exchange
     rate at the date of this announcement), net assets of BWP1.4 million (R1.8 million at the
     exchange rate at the date of this announcement) and net profit after tax of BWP1.5 (R2 million
     at the exchange rate at the date of this announcement) for the 15 months ended 31 March
     2017, being the last financial year-end of ECS Botswana.
     The above financial information is based on ECS Botswana’s audited Annual Financial
     Statements for the financial year ended 31 March 2017, which have been compiled in
     accordance with IFRS.


7.   TERMS OF THE ASSET ACQUISITION

7.1. Introduction

     GetBucks SA, a financial technology company that embraces technology as a means to
     provide financial products and services to the low and middle-income consumer segment,
     predominantly in emerging markets of Sub-Saharan Africa, has agreed to sell certain of its
     loan claims to ROI, as set out in the Asset Acquisition. The loan claims constitute all of
     GetBucks SA’s rights under any loan agreements it may have entered into, including its rights
     to, inter alia, claim payment of:

     -   the principal amount lent and advanced by GetBucks to any borrowers;
     -   interest accruing on outstanding amounts; and
     -   any other permitted fees and charges,

     (“Specified Loan Claims”).

7.2. Consideration

     The amount payable by ROI to GetBucks SA in respect of the Specified Loan Claims is an
     amount of R120 million.

7.3. Conditions Precedent and Effective Date

     The Asset Acquisition is subject to the fulfilment or waiver of the following conditions precedent
     on or before the effective date:

     -   approval by the boards of directors of each of GetBucks SA and ROI in writing;

     -   approval by way of special resolution by the shareholders of GetBucks SA in general
         meeting (in accordance with sections 112 and 115 of the Companies Act 71 of 2008, as
         amended) to the extent that the Specified Loan Claims constitute all or the greater part
         of the assets of GetBucks SA at the effective date;

     -   delivery of the Specified Loan Claims to ROI; and

     -   payment of the purchase price of R120 million by ROI to GetBucks.

     The effective date of the Asset Acquisition is 29 June 2018.

7.4. Other significant terms

     Further terms, conditions and warranties that are usual for a transaction of this nature are
     contained in the Asset Acquisition.

7.5. Financial information of GetBucks SA
     GetBucks SA reported gross assets of R405.2 million, net assets of R44.1 million and net loss
     after tax of R10.7 million for the 12 months ended 30 June 2017, being the last financial year-
     end of GetBucks SA.

     The above financial information is based on GetBucks SA audited Annual Financial
     Statements for the financial year ended 30 June 2017, which have been compiled in
     accordance with IFRS.


8.   DISPOSAL OF INVESTMENTS IN BIOTECHNOLOGY AND ACQUISITION OF SHARES IN
     GO LIFE INTERNATIONAL

     The Company has disposed of its 50% equity holding in Cryo-Save South Africa (Pty) Ltd and
     Salveo Swiss Technologies Ltd to Go Life International for R10 million on 25 June 2018.

     This transaction is not categorisable per the JSE LR.


9.   CATEGORISATION AND APPROVALS REQUIRED

     In terms of the JSE LR:

     -   the Pink Orchid Acquisition is, on a stand-alone basis, a category 1 transaction and,
         notwithstanding that at the current market capitalisation and when aggregated with other
         transactions relating to the same assets and parties within the 12 months preceding this
         announcement, it would not constitute a reverse take-over, the Company has elected to take
         a conservative view based on its market capitalisation over preceding months and categorise
         it accordingly;

     -   the Subscription Agreement and the Underwriting Agreement are, on a stand-alone basis
         and when aggregated with other transactions relating to the same assets and parties within
         the 12 months preceding this announcement, category 2 transactions;

     -   the Investment Management Agreement is, on a stand-alone basis a category 1 transaction;
         and

     -   the Asset Acquisition is, on a stand-alone basis, a category 2 transaction.

         In addition to the above, the Pink Orchid Acquisition, Subscription, Underwriting and the
         Investment Management Agreement constitute related party transactions in terms of
         paragraph 10.1(b)(vii) of the Listings Requirements, as:

     -   Capital, being an associate of the vendor of the Pink Orchid Acquisition, was a major
          shareholder in Ecsponent in the previous 12 months;

     -   G Manyere is a director and controlling shareholder of Invest Solar and a director and major
          shareholder of Ecsponent; and

     -   MHMK Capital, being a party to the Investment Management Agreement, is an associate of
         G Manyere, a director and major shareholder of Ecsponent.
     Accordingly, the Pink Orchid Acquisition, Subscription, Underwriting and the Investment
     Management Agreement are subject to the approval of shareholders by way of an ordinary
     resolution, requiring the approval of 50% + 1 vote of those shareholders present in person or
     represented by proxy, excluding any related parties and their associates. In addition, as the
     Pink Orchid Acquisition is classified as a reverse take-over in terms of the Listings
     Requirements, shareholders are advised that the Company will require confirmation from the
     JSE that it is satisfied that the Company continues to qualify for listing on the Main Board of
     the JSE as if it is a new listing. Shareholders are hereby made aware of the uncertainty of
     whether or not the JSE will allow Ecsponent’s listing to continue following the Pink Orchid
     Acquisition.


10.   CIRCULAR TO SHAREHOLDERS

      A circular, setting out all the details of the Pink Orchid Acquisition, Subscription, Underwriting
      and the Investment Management Agreement and incorporating revised listing particulars, the
      requisite fairness opinions and a notice of a general meeting, will be distributed to
      shareholders of the Company in due course.


      Pretoria
      29 June 2018

      Sponsor and Corporate Advisor
      Questco Corporate Advisory (Pty) Ltd
      and
      Questco Proprietary Limited

Date: 29/06/2018 03:44:00 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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