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CALGRO M3 HOLDINGS LIMITED - Clarification regarding the public censure instituted by the JSE Limited

Release Date: 05/11/2019 08:45
Code(s): CGR     PDF:  
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Clarification regarding the public censure instituted by the JSE Limited

Calgro M3 Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number: 2005/027663/06)
JSE Share code: CGR ISIN: ZAE000109203
(“Calgro M3” or “the Company”)

CLARIFICATION REGARDING THE PUBLIC CENSURE INSTITUTED BY THE JSE LIMITED

Calgro M3 notes the public censure issued by the JSE on 5 November 2019 wherein the public was
advised that the Company had breached certain rules of the JSE Listings Requirements, all of which
relate directly to the cancellation, on 31 August 2018, of the Company’s 2015 Executive Share
Incentive Scheme (“the 2015 Scheme”). We do however believe that shareholders need to be
informed of the context surrounding the public censure.

The following background is relevant:

    1. The Company raises its operational capital primarily through debt instruments (notes) listed
       on the JSE's interest market.

    2. In terms of the programme memorandum (“the programme”) relating to the abovementioned
       notes, the Company must comply with stringent covenants, of which a net debt-to-equity ratio
       is the most significant.

    3. The cross-default clause contained in the programme furthermore provides that, should any
       covenant be breached, the immediate repayment of all notes issued by the Company would
       be triggered.

    4. The perilous economic environment which prevailed at the relevant time had an adverse
       effect on the construction sector and this, combined with the implementation of IFRS 15 and
       IFRS 9, both of which had to be implemented for the first time, had a significantly negative
       effect on the Company’s retained earnings, which was immensely exacerbated by the 2015
       Scheme.

    5. The cumulative effect of the above became apparent towards the end of the Company’s half-
       year (i.e. 31 August 2018), when the Company was in the planning and preparation phase of
       its un-audited interim results.

    6. At this time, the Company realized that it was dangerously close to breaching the net debt-to-
       equity ratios referred to above and an urgent audit committee and board meeting was called
       for 30 August 2018 because the Company appreciated that it had to take immediate action to
       ensure that the abovementioned debt covenants were not breached.

    7. The Company had to find an immediate solution either to reduce debt, increase cash on hand
       or increase retained earnings in order to avoid the potential breach and the negative
       consequences associated therewith, especially in view thereof that the half-year reporting
       was on hand.

   8. Due to the obvious time constraints there was no time to reduce debt or increase cash on
      hand and accordingly the option of cancelling the 2015 Scheme, which had the effect of
      reversing a share-based payment reserve to retained earnings and thereby immediately
      improving the Company’s retained earnings substantially, was the most sensible and effective
      way to achieve the required result under the prevailing circumstances.

   9. The decision was accordingly taken on 30 August 2018 to cancel the 2015 Scheme and, by so
      doing, the Company made sure that it retained a permissible net debt-to-equity ratio, and also
      ensured compliance with debt covenants, so as not to place the Company at risk.

As far as the breaching of the relevant JSE Listings Requirements is concerned, the Company wishes
to point out the following:

   1. The Company had a genuine and bona fide belief, after seeking independent 3rd party advice,
      that it was in fact complying with all relevant JSE Listings Requirements and it also believed
      that certain of the JSE Listings Requirements, for which it is now being censured, were not
      relevant to its actions.

   2. The Company furthermore believed, in good faith, that the requisite shareholder approvals
      were in place, that it did not require fresh approvals for the decisions that were being made,
      and that it had the required authority to take the actions that were taken.

   3. The public, all shareholders, stakeholders, affected 2015 Scheme participants (and the market
      in general) had complete access to all information relating to the cancellation of the 2015
      Scheme. This was made available by the Company through its transitional report published on
      27 September 2018, the interim financial results for the six months ended 31 August 2018,
      published on 22 October 2018 and the audited consolidated financial results for the year
      ended 28 February 2019, published on 13 May 2019, all of which are available on SENS and
      the Calgro M3 website at www.calgrom3.com. Furthermore, executive representatives of the
      Company had numerous direct engagements with major stakeholders during the above
      periods to ensure that they were fully informed.

   4. No 2015 Scheme participant, stakeholder or shareholder (or any other relevant person) has
      been prejudiced by the Company’s actions. In fact, the Company’s actions have been to the
      exclusive benefit of the Company, its shareholders, funders and stakeholders.

   5. Moreover, to date, no 2015 Scheme participant, shareholder, stakeholder or other person has
      raised any concerns or unhappiness about the actions taken by the Company.

In light of the above, and whilst the Company accepts the JSE’s censure, the actions of the Company
were at all times directed towards protecting the interests of the Company, its shareholders and
stakeholders, and for absolutely no other reason.
The Board of Calgro M3 remain resolute that they acted timeously and in the best interest of ensuring
the sustainability of the Company and successfully prevented a much worse and catastrophic event
from playing out.

Johannesburg
5 November 2019
Corporate Advisor: Grindrod Bank Limited

Date: 05/11/2019 08:45:00
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