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BLUE FINANCIAL SERVICES LIMITED - Market Update

Release Date: 03/03/2016 14:00
Code(s): BFS     PDF:  
 
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Market Update

BLUE FINANCIAL SERVICES LIMITED
Incorporated in the Republic of South Africa
Registration Number: 1996/006595/06
JSE Code: BFS
ISIN: ZAE000083655
(“Blue” or “the Company” or “the Group”)


Shareholders are referred to the announcements published on the Stock Exchange News Service (“SENS”) since
26 June 2013, whereby shareholders were advised of the Company’s voluntary suspension of trading in Blue
Securities, as well as the various quarterly update and other announcements published on SENS since then,
whereby shareholders were updated on the developments at Blue.

Recapitalisation

The rescue package negotiated by Mayibuye Group (Pty) Ltd (“Mayibuye”) in December 2010, envisaged the
recapitalisation of the Blue Group, through the Subscription Agreement, and its ancillary agreements, to a
maximum value of ZAR 1, 319 billion consisting of:

-   The subscription by Mayibuye Group (Pty) Ltd (“Mayibuye”) through a suite of agreements including
    Amended and Restated Subscription Agreement (“Subscription Agreement”) in the amount of ZAR163
    million;
-   In terms of the Debt Rescheduling Agreement (“DRA”) a maximum of R1,156 billion as follows:
    o        The first conversion of debt into equity through the Early Conversion Agreement to the value of
             ZAR 275 million completed in the 2011 financial year;
    o        The second conversion of debt into equity through the Second Early Conversion Agreement to the
             value of ZAR 406 million completed in the 2013 financial year;
    o        A final conversion of up to ZAR475 million of debt depending on the Distribution plan as
             contemplated in the DRA resolved in the 2015 financial year.

As previously advised the debts in relation to the R475 million were derecognised as at December 2015 and can
now, in terms of the DRA, only be paid from impaired assets that has been recovered net after costs. There are
however litigation that may impact on this.

Banc ABC Litigation

Banc ABC Zambia, despite being party to the dispute resolution proceedings instituted by the lender committee
in respect of the Distribution Plan in South Africa during the 2014 financial year, also instituted legal action
against Blue in Zambia and Botswana.

The basis of their claim in Zambia was that the DRA merely constituted a ‘payment holiday’ and upon termination
of same the original facility agreements would once again be enforceable. In other words that there was no
capitalisation envisaged in terms of the DRA.

The Honourable Court found that
1.    The DRA as concluded amended the provisions of the original facility agreement concluded with Banc
      ABC. As such the original facility agreement was amended by the DRA and the entire DRA is incorporated
      into the original facility agreement ;
2.    Banc ABC Zambia would need to file a certificate of balance with the registrar of the court to prove the
      quantum of their claim;
3.    Banc ABC Zambia would be entitled to execute against their securities;
4.    Banc ABC Zambia would have no claim against those loan assets ring-fenced in terms of the
      recapitalisation by Mayibuye;
5.    Should there remain an amount due to Banc ABC Zambia subsequent to execution against the securities,
      Banc ABC can convert debt into equity or only be paid from impaired assets as per the DRA.

The DRA made provision for payment to the DRA Lenders in terms of the Distribution Principles from the
proceeds of the assets referred to in point 3 above, after deduction of the relevant cost incurred by Blue in
respect of its collections thereof and payment of certain pre-existing debts of the Blue Group. Unfortunately,
the Honourable Court did not clarify this aspect and in particular the issue of determining what gross assets may
be executed against in order to avoid indirect execution against the ring fenced assets as referred to in point 4.

Based on the aforegoing and the steps necessary in order to bring this matter to resolution, it is anticipated that
further litigation will flow from this process. This does have the effect that there will remain significant
uncertainty and as such the board is not confident that funding can be raised before this is not resolved.

Mayibuye Group – Liabilities

The Company and its various subsidiaries (“the Blue Group”) is currently indebted to various entities in the
Mayibuye Group (“Mayibuye”) in the capital amount of R 69,476,935.55 to which interest must still be added.
Securities in the form of pledge and cession of shares in its investments were provided by Blue to the Mayibuye.

The uncertainty resulting from the Zambia judgment referred to herein above and the resultant effect same
would have on the ability of the Blue Group to generate additional funding, has impacted negatively on the
funding plan that was anticipated to be implemented. As a consequence, and in terms of the agreement,
Mayibuye has called upon the Blue Group to make payment of the aforementioned amount, alternatively to
advance an acceptable proposal of how it will be paid within 90 days.

Pending receipt of payment in full Mayibuye has exercised its rights in terms of the securities by taking effective
control of the voting rights in the shares held by the Blue Group in all of its investments.

Cycas Investments – Liabilities

Cycas Investments (Pty) Ltd (“Cycas”) advanced funds to the Company which indebtedness as at 29th February
2016 equals of R 6 684 749.83 The aforementioned loan advance is secured over the Company’s interest in Blue
Financial Services Ltd Ghana (“Blue Ghana”).

Based on Mayibuye exercising its rights in respect of its securities, as referred to herein above, Cycas has similarly
called up its loan.
As such Cycas currently holds the voting rights in and to the shares held in Blue Ghana, until such time as it is
settled in full.

Conclusion

The Company is currently seeking input from its legal advisors and has appointed a subcommittee comprising of
independent directors in order to review and consider all available options.

It is anticipated that the Company will be able to publish its financials for the year ending December 2015 by
April 2016. The Company will also provide the market with an update in relation to the Company’s plan in order
to resolve the aforementioned issues and the anticipated way forward at the same time.


Johannesburg
3 March 2016

Designated Adviser
Grindrod Bank Limited

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