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Release Date: 02/02/2017 08:45
Code(s): BFS     PDF:  
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Quarterly Update

Incorporated in the Republic of South Africa
Registration Number: 1996/006595/06
ISIN: ZAE000083655
(“Blue” or “the Company” or “the Group”)

Quarterly Update

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

1.   Prior to December 2010 Blue had, under previous management, suffered a loss of over R1
     billion which was caused by inter alia:
     a.      A failed operating model;
     b.      Inadequate capital structure;
     c.      Significant corporate maleficence;
     d.      Significant amount of individual entity annual financial statements not having been
2.   The turnaround journey commenced in December 2010 with the conclusion of
     recapitalisation agreements, including the Mayibuye subscription agreement (“Subscription
     Agreement”) which was conditional on the conclusion of a funders recapitalisation
     agreement (“DRA”).
3.   The turnaround journey, with the conclusion of the recapitalisation agreements, focused on:
     a.      introducing a sustainable operating model;
     b.      addressing the backlog of financial statements; and
     c.      launching forensic investigations into the events leading up to the aforementioned
             need for recapitalisation.
Turn around objectives achieved
4.   In relation to the objectives set-out hereinabove, and as previously reported in SENS
     announcements, Blue was successful in, amongst others:
     a.    introducing a new operating model;
     b.    obtaining a detailed forensic investigation was conducted the results of which was
           reported to all relevant regulators.

Publication of financial information
5.   As previously advised the JSE has formally approved during or about July 2016 that the
     Company may provide shareholders with a combination of audited and unaudited financial
6.   The Company has previously advised and is still of the intent to release financial information
     to shareholders as soon as all the remaining 2012 audits conducted by Deloitte have been
     completed. At present, what remains of the Deloitte audited annual financial statements is
     almost all the South African based entities.
7.   Excluding the SA based audits as recorded in 6 above and in relation to the subsequent
     audits after 2012 and up to December 2015, the Company wishes to report that all relevant
     audits have been completed other than the following:
     a.       Blue Financial Services Namibia (Pty) Ltd (“Blue Namibia”)
              A significant issue that remains to be resolved to complete the accounts relate to
              an alleged overcharge of interest on customer accounts for periods 2008 – 2010
              i.e. prior to the Mayibuye 2010 recapitalisation of the Blue Group. Discussions with
              the Namibian regulator NAMFISA in respect of the are continuing.
     b.       Blue Financial Services Ltd Malawi (“Blue Malawi”)
              The audits up to December 2014 is anticipated to be completed by 15 March 2017
              Thereafter the auditors will commence with December 2015 and 2016.
     c.       Blue Financial Services Ltd Zambia (“Zambia”)
              In respect of Blue Zambia, the auditors have confirmed that they have commenced
              with the audit of the financials for the 2015 financial year. In addition to this, a key
              issue to be resolved is the Bank of Zambia’s concerns regarding the capital
              structure of the Zambian entity.

Failed recapitalisation

8.   As referred to herein above the Blue Group reported a loss more than R 1 billion in 2010
     and was both factually and commercially insolvent. The rescue and recapitalisation of the
     Blue Group was originally anticipated to be up to R1,335 billion as per the Subscription
     Agreement and DRA. This consisted, in aggregate, of:
      a.         R163 million via the subscription of shares by Mayibuye in Blue;
      b.         R229 million in terms of the first early conversion in terms of an addendum to the
                 DRA; and
      c.         R943 million via participant in the DRA;

9.    The initial subscription of R163 million from Mayibuye was paid in cash on the 10th
      December 2010, but of the R1,172 billion anticipated to be recapitalised, only R635.2 million
      of the recapitalisation was effected.
10.   Whilst certain parties adhered to the DRA, other parties to the DRA representing R475
      million of the required recapitalisation, repudiated the DRA.
11.   It was always understood that the DRA was a key to the sustainability of Blue and
      accordingly Mapula Solutions (Pty) Limited (“Mapula”) the ultimate holding company of Blue
      instituted legal action for recovery of damages caused by the repudiation of the DRA, from
      those very defaulting parties to the DRA. A judgement has been handed down in favour of
      Mapula for payment of the sum of R163 million against those offending parties to the DRA.
      Execution process have now commenced.

Related Party Liabilities

12.   As advised in terms of previous SENS announcements and as a direct consequence of the
      failed recapitalisation, Mayibuye has also called up the debts that the Blue Group has to it.
13.   A settlement agreement has been reached in terms whereof payment of the aforementioned
      liabilities will be effected from Blue’s assets.
14.   Implementation of the aforegoing is conditional on various regulatory approvals being
      obtained and which is anticipated to be received forthwith.

Forensic Report

15.   As previously reported the forensic investigation mandated by, amongst others the
      Company, into the events surrounding Leonox Investments (Pty) Ltd (in liquidation) were
      completed and a final executive summary report has been provided to the Company.

Closure of certain investments

16.   As advised in previous SENS announcements a decision had been taken to proceed with
      the liquidation and/or closure of the following investments of the Company due to their lack
      of viability:

      a.     Blue Ltd Kenya;

      b.     Blue Financial Services Lesotho Ltd;
      c.   Blue Financial Services Ltd Mauritius;

      d.   Blue Financial Services Swaziland (Pty) Ltd;

      e.   Blue Employee Benefits Ltd Uganda;

      f.   Mobile U (Pty) Ltd.

Way forward

17.   Whilst we are working to obtain regulatory approvals where relevant in respect of the related
      party liabilities, the Company is also endeavouring to complete the remaining audits.
18.   As previously reported the Company is also still involved in significant litigation which
      remains ongoing.
19.   We anticipate making a further announcement as to the way forward, once the regulatory
      approvals referred to have been obtained.

02 February 2017

Date: 02/02/2017 08:45:00 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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