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AFRICAN PHOENIX INVESTMENTS LIMITED - Voluntary Transaction and Cautionary Announcement

Release Date: 07/09/2018 16:18
Code(s): AXL AXLP     PDF:  
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Voluntary Transaction and Cautionary Announcement

Incorporated in the Republic of South Africa
(Registration number 1946/021193/06)
Ordinary share code: AXL       ISIN: ZAE000221370
Hybrid instrument code: AXLP      ISIN: ZAE000221388
(“API” or “the Company”)


1. Overview

   1.1. API is an investment holding company with 1 427 005 272 ordinary shares with a par value
        of R0.025 per share (“Ordinary Shares”) and 13 523 029 non-redeemable, non-
        cumulative, non-participating preference shares with a par value of R0.01 per share
        (“Preference Shares”) listed on the securities exchange (“JSE”) operated by the JSE
        Limited. The Preference Shares are, in terms of section 20 of the JSE Listings
        Requirements (“Listings Requirements”), listed on the JSE as hybrid financial instruments.

   1.2. API wishes to advise holders of Ordinary Shares (“Ordinary Shareholders”) and holders
        of Preference Shares (“Preference Shareholders”) (collectively “Shareholders”) that it
        proposes to implement certain strategic transactions, the details of which are set out
        below. The transactions are subject to obtaining all necessary approvals from
        Shareholders and regulatory authorities, including the JSE Limited (which is currently
        formally considering certain structuring elements of the transactions).

2. Proposed Transactions

   2.1. API has been in confidential discussions with certain of its major Shareholders to obtain
        support to implement certain proposed strategic transactions that include:

       2.1.1. a voluntary repurchase of up to all of API's Preference Shares from the Preference
              Shareholders (“Repurchase”) in terms of sections 48, 114 and 115 of the
              Companies Act, 2008 as amended (“Companies Act”). The consideration payable
              to the Preference Shareholders is proposed to be left outstanding on loan account,
              which loan claim will be settled in cash (“Repurchase Consideration”). Preference
              Shareholders may also elect to retain their Preference Shares;

       2.1.2. the acquisition by API of a limited partnership interest in a private equity fund to be
              established as a South African en commandite partnership, to be known as the
              “API Capital Fund” (“API Fund”), through the contribution of cash only to the API
              Fund. The API Fund will be managed by a black-owned fund manager (“BFM”), in
              accordance with the Codes of Good Practice on Broad-Based Black Economic
              Empowerment issued under the Broad-Based Black Economic Empowerment Act,
              2003 as amended. The API Fund will be established through API (as a limited
              partner of the API Fund) entering into a limited partnership agreement (“Partnership
              Agreement”) with the BFM (as the general partner of the API Fund) (“BFM

       2.1.3. amendments to API's memorandum of incorporation (“MOI”) to (i) create a new
              class of unlisted, non-voting, non-participating convertible ordinary shares (“Class
              B Shares”) which Class B Shares are to be issued to the management team of the
              BFM for purposes of settling performance participation entitlements of the
              management team (see paragraph 4 below); and (ii) re-classify the Ordinary
              Shares as “Class A Shares” in order to distinguish the existing Ordinary Shares
              from the Class B Shares. The re-classification of the Ordinary Shares as Class A
              Shares will not vary or amend the rights or the terms of the Class A Shares
              (collectively the “MOI Amendments”); and

       2.1.4. the proposed change of JSE classification of API to an “investment entity” (“Re-
              Classification”) pursuant to section 15 of the Listings Requirements and the
              adoption of a new investment policy for API, which new investment policy will be
              approved by the Shareholders as part of the Proposed Transactions, resulting in
              the Company, subject to the requisite approvals being obtained from the JSE
              Limited, being classified under the “Investment Companies” sub-sector of the
              FTSE Global Classification System.

   2.2. The Repurchase, the BFM Structure, the MOI Amendments and the Re-Classification are
        collectively referred to hereinafter as the “Proposed Transactions”.

3. Repurchase Consideration

   It is currently anticipated that the Repurchase Consideration will be an amount of R37.00 per
   Preference Share, but such Repurchase Consideration (i) is subject to final determination by
   the API board of directors; and (ii) will be informed by the findings of an independent expert's
   opinion as envisaged in section 114 of the Companies Act and which is required to be prepared
   in relation to the Repurchase. The independent expert's opinion will be included in a circular to
   be issued by API in due course.

4. BFM Structure

   As is customary in private equity structures, it is currently proposed that:

   4.1. the BFM will be entitled to receive a management fee (“GP Fee”) of 1.00% per annum of
        the API Fund's invested net asset value (“NAV”), provided that the minimum annual fee
        will amount to R19 million for the financial year ended 30 September 2019 (and increasing
        by inflation for each subsequent financial year); and

   4.2. in addition to the GP Fee, the management team of the BFM will be entitled to performance
        participation (“Performance Participation”), subject to certain hurdles and requirements
        being met. The Performance Participation is to be facilitated through the Class B Shares
        to be issued by API to the management team of the BFM in order to incentivise the BFM
        to maintain and grow the value of API Fund's investments and the market capitalisation of
        API. At the end of each six year performance period, a certain number of Class B Shares
        (to be determined in accordance with a formula linked to the value of the Class B Shares)
        shall automatically convert in accordance with the terms of the Class B Shares into
        Ordinary Shares in API (to be designated as “Class A Shares” at that time), and will be
        distributed to the management team of the BFM. The Performance Participation will allow
        the holders of the Class B Shares to receive 16% of the amount by which the aggregate
        of (i) 75% of the growth in API Fund’s invested NAV and (ii) 25% of the growth in API's
        Class A Share price, exceeds the performance hurdle (10% compound annual growth rate
        (CAGR) calculated over the six year performance period) through the conversion of the
        Class B Shares into Class A Shares.

5. Key objectives of the Proposed Transactions

   The key objectives of the Proposed Transactions include the following:

   5.1. that the Repurchase of potentially all of the issued Preference Shares will simplify API's
        current capital structure;

   5.2. the BFM Structure will lead to capital preservation for investments in line with API's
        investment holding company classification;

   5.3. the establishment of a broad-based black economic empowerment investment platform,
        in the form of the API Fund, will provide Shareholders with access to unique investment
        opportunities not typically available to public market investors;

   5.4. the BFM Structure will allow for funding of a growing pipeline of investments without
        negatively impacting on the broad-based economic empowerment status of API and/or its
        investee companies; and

   5.5. the Proposed Transactions will ensure the long-term alignment of the interests of API, the
        BFM and Shareholders.

6. Shareholder support

   API has obtained shareholder support from Ordinary and Preference Shareholders to vote in
   favour of the Proposed Transactions, jointly constituting 51% of the total issued Ordinary and
   Preference shares.

7. Salient dates and shareholder documentation

   A detailed transaction announcement, including salient dates and additional information
   regarding the shareholder documentation, will be published in due course.

8. Cautionary announcement

   Shareholders are advised that, until such time as the structure of the Proposed Transactions
   has been finalised and the aforementioned detailed transaction announcement has been
   published, which may have a material effect on the price of the Company’s securities, caution
   should be exercised by shareholders when dealing in the Company’s securities.

9. Disclaimer

   The information contained in this voluntary transaction and cautionary announcement:

   9.1. is not for publication, distribution or release, in whole or in part, directly or indirectly, in or
        into any jurisdiction where to do so would constitute a violation of the relevant laws of such

   9.2. does not constitute or form a part of any offer or an invitation or solicitation or
        advertisement to purchase and/or subscribe for securities in South Africa, including an
        offer to the public for the sale of, or subscription for, or an invitation or the solicitation of
        an offer to buy and/or subscribe for, securities as defined in the Companies Act or
        otherwise and will not be distributed to any person in South Africa in any manner that could
        be construed as an offer to the public as contemplated in the Companies Act. Accordingly,
        the information contained in this voluntary transaction and cautionary announcement does
        not, nor does it intend to, constitute a "registered prospectus", as contemplated by the
        Companies Act and no prospectus has been, or will be, filed with the South African
        Companies and Intellectual Property Commission in relation to the Proposed
        Transactions; and

   9.3. may include forward-looking statements about API, its prospects and/or the Proposed
        Transactions, which are based on current expectations and projections about future
        events. These statements may include, without limitation, any statements preceded by,
        followed by or including words such as "target", "believe", "expect", "aim", "intend", "may",
        "anticipate", "estimate", "plan", "project", "will", "can have", "likely", "should", "would",
        "could" and other words and terms of similar meaning or the negative thereof. These
        forward-looking statements are subject to risks, uncertainties and assumptions about the
        Company, its subsidiaries or affiliates and the Proposed Transactions, including, among
        other things, the development of API's strategy. In light of these risks, uncertainties and
        assumptions, the events in the forward-looking statements may not occur. No
        representation or warranty is made that any forward-looking statement will come to pass
        and, in particular, no representation or warranty is made that the Proposed Transactions
        will be implemented (either wholly or in part). No one undertakes to publicly update or
        revise any such forward-looking statement. The information contained in this voluntary
        transaction and cautionary announcement is provided as at the date of this voluntary
        transaction and cautionary announcement and is subject to change without notice. The
        Company expressly disclaims any obligation or undertaking to disseminate any updates
        or revisions to any forward-looking statements contained herein to reflect any change in
        its expectations with regard thereto or any change in events, conditions or circumstances
        on which any of such statements are based.

10. A presentation to shareholders is available on the website of the Company at

7 September 2018

Transaction advisor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)

Legal advisor
Webber Wentzel

Merchantec Capital

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