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CHOPPIES ENTERPRISES LIMITED - Announcement in respect of the disposal of interests in South African subsidiaries and withdrawal of cautionary

Release Date: 03/12/2019 17:05
Code(s): CHP     PDF:  
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Announcement in respect of the disposal of interests in South African subsidiaries and withdrawal of cautionary

CHOPPIES ENTERPRISES LIMITED                                                     Co. Reg: 2004/1681
Incorporated in the Republic of Botswana under Company Number 2004/1681
(“the Company” or “the group”)
JSE Share Code: CHP
ISIN Number: BW0000001072


   Shareholders are referred to the Cautionary Announcement published on XNews and SENS on 18
   November 2019 (“the Cautionary”) and the Announcement published on XNews and SENS on 26
   November 2019 (“the Announcement”).
   Shareholders are advised that on 22 November 2019, the Company and its wholly owned
   subsidiaries, Choppies Supermarkets SA Proprietary Limited, Choppies Warehousing SA Proprietary
   Limited, Choppies Logistics Proprietary Limited and Motopi Holdings S A Proprietary Limited,
   (collectively the SA Subsidiaries) entered into agreements with Kind Investments Proprietary
   Limited (the Purchaser) in terms of which the Purchaser will purchase all the issued shares held by
   the Company and the loan accounts advanced by the Company to each of the Subsidiaries (the

   The Purchaser is a company incorporated in the Republic of South Africa, incorporated particularly
   for the Disposal.

   The SA Subsidiaries have been trading at a substantial loss for the last two years.
   Lack of cash flow resulted in trade creditor suppliers not being paid on their applicable due date
   and hence refusing to supply stock, causing stores in South Africa to become understocked and lose
   market share, exacerbating the losses.
   The Company was not able to continue to fund the losses of the SA Subsidiaries from Botswana.
   Continuing failure to service debt owing to trade creditors exposed the Company to guarantees
   issued to suppliers and lessors for monies due by the SA Subsidiaries, and threats of application for
   the winding up of the SA Subsidiaries.
   Such a scenario would have had negative consequences for the liquidity of the Company, and the
   relationship of the Botswana business entities with critical suppliers.

   The purchase consideration is ZAR1 for all the issued shares held by the Company in, and all claims
   of the Company on loan accounts against, each SA Subsidiary (“the Sale Equity”).
   In addition, the Purchaser undertakes to release the Company from all the guarantees issued by it
   to trade and lessor creditors and indemnifies the Company in relation to any claims under the
   aforesaid guarantees (until they are released as aforesaid). As security therefor, the sole director
   of the Purchaser has guaranteed the obligations of the Purchaser under such indemnity in favour
   of the Company.

   The claims of Choppies Warehousing SA Proprietary Limited and Choppies Logistics SA Proprietary
   Limited against Nanavac Private Limited, the Company’s subsidiary in Zimbabwe, of approximately
   ZAR43,000,000, and the claims of those companies against Choppies Supermarkets Zambia Limited,
   the Company’s subsidiary in Zambia, of approximately ZAR17,000,000, will be ceded to the
   Company to collect for its own account.

   The Purchaser is obliged to make an immediate, interest-free loan to Choppies Supermarkets SA
   Proprietary Limited in an amount of ZAR100,000,000 to be utilised to fund immediate working
   capital requirements and purchase stock. The SA Companies are obliged to use their best
   endeavours to pay suppliers that are owed by any SA Company with a view to re-establishing credit
   lines. In this way, the SA Companies will be able to increase stock levels in its stores and take
   advantage of the seasonal increase in trading in December 2019 and January 2020.

   The Disposal is subject to inter alia the following outstanding conditions precedent: -
   5.1 The approval of the Disposal from the Lenders to the Company, (Absa Bank Limited,
       Barclays Bank of Botswana Limited, First National Bank Botswana Limited, Standard
       Chartered Bank Botswana Limited, Stanbic Bank Botswana Limited, The Standard Bank
       of South Africa Limited) and consent by the Lenders to the release of any security that
       they may have in relation to the Sale Equity and the assets of the SA Companies;
   5.2 The approval of the Competition Authority of South Africa;
   5.3 compliance by the Company with the requirements of the BSEL and/or the JSE.

   The Fulfilment Date is the date when the Conditions Precedent have been fulfilled, which date, the
   parties to the Sale of Share Agreement have agreed, should be 28 February 2020.
   Delivery, ownership of and all risk in and all benefit accruing to the Sale Equity will take place on
   the first business day of the month immediately following the month in which the Fulfilment Date
   occurs (Effective Date).

   In terms of a written license agreement, the Company will on the Effective Date grant to the SA
   Subsidiaries, a non-transferable licence to continue to use the Choppies name and brand in South
   Africa for three years from the Effective Date.

   In terms of a written agreement, the Company is to underwrite any negative equity value in the SA
   Subsidiaries which is yielded by applying a formula agreed upon by the Parties, subject to a
   maximum of ZAR150,000,000, which amount is payable in 15 equal monthly instalments, provided
   that each instalment is not less than ZAR10,000,000, commencing in the month following the
   Effective Date.

   The Company provided certain Warranties and Indemnities to the Purchaser which are usual in
   disposals and acquisitions of this nature, in the Sale of Shares and Claims Agreement. In particular,
   indemnities were given in respect of known risks identified by the Purchaser, being a potential
   exchange control contravention and reportable irregularities identified by the auditors of the SA
   Companies, all of which have been disclosed to the relevant authorities without any sanction being
   imposed at the current time. The Company’s liability under the Sale of Shares and Claims
   Agreement is limited as follows: (1) A claim or claims under the Warranties or Indemnities will expire
   on 30 September 2021; (2) all such claims under the Sale of Shares and Claims Agreement cannot
   exceed ZAR125,000,000 (Maximum Cap); (3) any claim or claims not exceeding, in aggregate,
   ZAR50,000,000 is/are payable upon the successful resolution of the claim or claims; (4) any claim
   or claims of amounts exceeding ZAR50,000,000 in aggregate is/are payable in ten equal monthly
   instalments commencing after the successful resolution of such claim or claims (subject to the
   aforesaid Maximum Cap).

   Based on the unaudited management accounts of the SA Subsidiaries as at 30 June 2019: -
   8.1. The Company intends to sell the shares it owns in its subsidiaries for ZAR 1. The carrying value
        of the investments in the SA Subsidiaries is NIL according to the management accounts as at
        30 June 2019;
   8.2. There were no net profits attributable to the sale of investment in SA Subsidiaries due to
        ongoing losses in the subsidiaries;
   8.3. The net asset value of the SA Subsidiaries was negative (liabilities exceeded stock in trade and
        fixed assets). The sale value of the shares is ZAR 1. As a result, no pro forma effect on the net
        assets of the Company, per share of the Company and on the headline earnings per share of
        the Company has been calculated and presented;
   8.4. The transaction does not entail the Company to appoint any new directors on its board or enter
        into any service contracts with the directors; and
   8.5. The transaction does not involve any exchange of shares or other securities.

   9.1. The Board, acting on advice of Redford Capital its advisors in respect of the Disposal, and
        considering the current trading performance of the Group in Botswana, is satisfied that the
        Company can meet its obligations in terms of the Disposal and related agreements.
   9.2. The Board is satisfied that after impairment of the investment and loans to the SA Subsidiaries,
        the Company remains technically solvent, i.e. its assets exceed its liabilities.

    The BSEL has determined that the Disposal is a Category 2 Transaction in terms of the BSEL Listing

    By virtue of the fact that particulars of the Disposal have now been announced, the Cautionary is
    hereby withdrawn and the undertaking in the Announcement complied with.

The Company's primary listing is on the BSEL and its secondary listing is on the JSE. The listings on
both exchanges are suspended.

By order of the Board
3 December 2019

BSEL Sponsoring Broker
African Alliance Botswana Limited

JSE Sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)

Date: 03-12-2019 05:05:00
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