Unwind of 2007 broad-based black economic empowerment equity transaction and resultant transfer of shares
Tongaat Hulett Limited
Registration number 1892/000610/06
Share code: TON
UNWIND OF 2007 BROAD-BASED BLACK ECONOMIC EMPOWERMENT
EQUITY TRANSACTION AND NOTIFICATION OF RESULTANT TRANSFER OF
In June 2007, Tongaat Hulett entered into a 10-year Broad-Based Black Economic
Empowerment (“B-BBEE”) equity transaction whereby two B-BBEE SPVs, TH Development
Infrastructure SPV (RF) Proprietary Limited (“Infrastructure SPV”) and yoMoba SPV (RF)
Proprietary Limited (“yoMoba SPV”), subscribed for around 25,1 million ordinary shares in
Tongaat Hulett (“the TH Subscription Shares”), pursuant to which they held 18% of the then
issued shares (“the Transaction”). Infrastructure SPV held a 10% shareholding and yoMoba
SPV held an 8% shareholding.
The ordinary shareholders of the B-BBEE SPVs were as follows:
- Tongaat Hulett’s strategic partner companies, Ayavuna Women’s Investments Proprietary
Limited (“Ayavuna”) and Sangena Capital and Investment Holdings Proprietary Limited
(“Sangena”). Ayavuna and Sangena (“the Strategic Partners”) held a 30% interest in
Infrastructure SPV and yoMoba SPV respectively; and
- Two trusts representing communities in certain of Tongaat Hulett’s land conversion and
cane growing areas, the Mphakathi Trust and the Masithuthukisane Trust. The Mphakathi
Trust and the Masithuthukisane Trust (“the Community Trusts”) held a 70% interest in
Infrastructure SPV and yoMoba SPV respectively.
The subscription for the TH Subscription Shares was funded as follows:
- The Strategic Partners invested R9 million as equity and R9 million as interest-free
shareholder loans (“Strategic Partner Shareholder Loans”) in the B-BBEE SPVs;
- FirstRand Bank Limited, acting through its Rand Merchant Bank division (“RMB”), and
Depfin Investments Proprietary Limited, a wholly owned subsidiary of Nedbank Limited
(“Nedbank”) (“the Preference Share Funders”) subscribed for redeemable preference
shares (“Preference Shares”) issued by the B-BBEE SPVs; and
- Tongaat Hulett provided notional vendor funding (“NVF”).
No funds were invested by the Community Trusts.
The Transaction contemplated that certain of the TH Subscription Shares would be disposed
of to fund the redemption of the Preference Shares and, thereafter, the repayment of the
Strategic Partner Shareholder Loans.
The B-BBEE SPVs’ obligation to redeem the Preference Shares was secured by a cession and
pledge of the ordinary shares in the B-BBEE SPVs. The Preference Share terms required a
minimum share cover ratio of 2 times based on the 10-day volume weighted average price of
the TH Subscription Shares (“Share Cover Ratio”). The Preference Share Funders did not have
any recourse to Tongaat Hulett for payment of the redemption amount.
In July 2014, after the initial seven year vesting period of the Transaction, a share repurchase
calculation was performed in accordance with the terms of the Transaction agreements. Given,
inter alia, that the Tongaat Hulett share price had not appreciated sufficiently over the initial
seven year vesting period, this calculation determined that:
- Tongaat Hulett had the right, though not the obligation, to repurchase up to 23,4 million of
the TH Subscription Shares for a consideration of 1 cent per share to settle the NVF. This
share repurchase right could only be exercised to the extent the B-BBEE SPVs still held
shares after the disposal of TH Subscription Shares to fund the redemption of the
Preference Shares and, thereafter, the repayment the Strategic Partner Shareholder Loans;
- the B-BBEE SPVs were not entitled to retain any of the TH Subscription Shares, and so
would no longer hold any shares after settlement of the Preference Shares, the Strategic
Partner Shareholder Loans and the NVF.
Tongaat Hulett explored possible ways of restructuring the Transaction. Any restructuring
would have required shareholder approval. In order to facilitate the possibility of a restructure,
the redemption date of the Preference Shares was extended ultimately to 31 January 2019.
The Preference Shares were not redeemed on 31 January 2019, the Share Cover Ratio was
breached in February 2019 and subsequent to a continued decline in the Tongaat Hulett share
price the Strategic Partners and the Community Trusts were formally notified by the Preference
Share Funders that the redemption amount of the Preference Shares was due.
In April 2019, the Preference Share Funders exercised their security rights by acquiring the
ordinary shares in the B-BBEE SPVs and indicated that they were in the process of transferring
the TH Subscription Shares into their own names, towards redemption of the Preference Shares.
Based on the number of Tongaat Hulett shares required to redeem the Preference Shares, there
would no longer be any Tongaat Hulett shares available for the repayment of the Strategic
Partner Shareholder Loans and for Tongaat Hulett to repurchase in terms of its repurchase right.
In terms of Section 3.83(b) of the JSE Listings Requirements and Section 122 of the Companies
Act No. 71 of 2008, shareholders are accordingly advised that Tongaat Hulett has received
formal notification that:
- Infrastructure SPV has disposed of a 10,08% interest in the ordinary shares of Tongaat
Hulett, retaining a 0,24% interest therein;
- yoMoba SPV has disposed of an 8,06% interest in the ordinary shares of Tongaat Hulett,
retaining a 0,20% interest therein;
- RMB has acquired a 9,07% interest in the ordinary shares of Tongaat Hulett; and
- Nedbank has acquired a 9,07% interest in the ordinary shares of Tongaat Hulett.
The transfer of securities will not adversely affect Tongaat Hulett’s B-BBEE ownership score
because currently no B-BBEE ownership scorecard points are claimed for the Transaction
given that, as determined in 2014, the BEE SPVs were not in any event entitled to retain any
of the TH Subscription Shares.
The Community Trusts will operate on a socio-economic basis (without ownership), with
Tongaat Hulett channelling a portion of its socio-economic development expenditure through
B-BBEE continues to be a fundamental imperative for Tongaat Hulett.
14 May 2019
Investec Bank Limited
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