To view the PDF file, sign up for a MySharenet subscription.

CONDUIT CAPITAL LIMITED - Acquisition of Property Development Company and Cautionary Announcement

Release Date: 11/02/2020 16:17
Code(s): CND     PDF:  
Wrap Text
Acquisition of Property Development Company and Cautionary Announcement

Incorporated in the Republic of South Africa
(Registration number 1998/017351/06)
Share code: CND   ISIN: ZAE000073128
(“Conduit Capital” or “the Company”)



   The Board of directors of Conduit Capital (“the Conduit Capital Board”) would like to advise shareholders
   that Constantia Risk and Insurance Holdings Proprietary Limited (“Constantia”), a wholly-owned
   subsidiary of the Company, has entered into a binding share sale and subscription agreement
   (“Agreement”) with Trustco Property Holdings Proprietary Limited (“Trustco Properties”). Trustco
   Properties is a wholly-owned subsidiary of Legal Shield Holdings Limited (“LSH”), which is in turn a
   subsidiary of Trustco Group Holdings Limited (“Trustco”). In terms of the Agreement and subject to
   certain suspensive conditions, Constantia has agreed to acquire 100% of the issued ordinary shares and
   all loan accounts (if any) (“Sale Shares”) of Herboths Property Development Proprietary Limited
   (“Herboths”) in consideration for Constantia issuing shares to Trustco Properties (“the Transaction”).

   The Transaction requires approval from the Conduit Capital Board and constitutes a Category 1 related
   party transaction in terms of section 9.5(b) of the Listings Requirements of JSE Limited (“JSE Listings
   Requirements”), which will require approval by ordinary resolution of the shareholders of Conduit Capital
   in a general meeting (“Conduit Shareholders Approval”). Conduit Capital will issue a circular convening
   a shareholders meeting and containing full details of the Transaction (“Conduit Transaction Circular”) in
   due course.

   The effective date per the agreement is 30 December 2019 or the soonest practical date thereafter and
   the closing date of the Transaction shall be the 5th business day after the fulfilment of the suspensive
   conditions set out in paragraph 3 below (“Closing Date”).


   2.1   Nature of the business of Constantia and Herboths

         2.1.1   Constantia

                 Constantia is Conduit Capital’s wholly-owned insurance business that operates across
                 three insurance licences. It offers insurance and risk management solutions, covering
                 areas such as medical malpractice, primary health insurance and medical gap cover
                 products, funeral and life insurance, guarantee and indemnity solutions, medical
                 evacuation insurance, property and casualty, heavy commercial vehicle, small business
                 and other niche lines.

                 Constantia’s products are distributed through underwriting management agencies,
                 administrator managed (binder based) broker distribution, and certain direct broker
                 relationships. Over the past three years, Conduit Capital has invested significantly in
                 capacity, skills and infrastructure at Constantia to improve the underwriting, distribution and
                 innovation capability, thereby building its competitive advantage.

      2.1.2      Herboths

                 Herboths is the holder of the property described as the remainder of the Farm Herboths
                 No.485, situated in the Settlement Area of Kapps Farm in the Windhoek District, Khomas
                 Region, Namibia, measuring 2605.0513 (two thousand six hundred and five point zero five
                 one three) hectares and to be known as the Herboths Blick Township (“HB Property”).

                 Trustco Properties is in the process of undertaking a number of activities to develop the
                 HB Property including planning, registration as a township, subdivision and servicing of the
                 HB Property via the installation of internal service infrastructure including, water, roads,
                 sewerage, drainage and electricity connections and ultimately the sale of the residential
                 and business erven to third party purchasers (“HB Development”).

                 On 7 October 2019, the Need and Desirability for Township establishment on the
                 HB Development was approved in terms of Section 5(5) (a) (i) of the Townships and
                 Division of Land Ordinance (Ordinance No. 11 of 1963), of Namibia as amended.

                 Shareholders are encouraged to read Volume Two of Trustco’s 2019 Integrated Annual
                 Report ( as well as the Trustco announcement dated
                 11 February 2020, which provides more detail about this development.

2.2   Rationale for the Transaction

      2.2.1      Trustco Properties is one of the largest private land developers in Namibia. It is the
                 business of Trustco Properties to develop properties and sell the developed properties to
                 third parties. In terms of the Transaction, Trustco Properties will sell the property at a market
                 related value of NAD 1 000 000 000 (one billion Namibia Dollars), in the ordinary course of

      2.2.2      Through the Transaction, Constantia’s net equity value and solvency capital increases
                 substantially, thereby enabling Constantia to consolidate its existing business, grow
                 premium volume significantly, and pursue new organic and inorganic growth opportunities.

      2.2.3      The Transaction will further create opportunities for the businesses of LSH and Constantia
                 to leverage each other’s respective skills, asset bases and mutually beneficial growth

2.3   Purchase Consideration

      Subject to any adjustment made to the Purchase Consideration as set out in paragraph 2.4 below,
      the purchase consideration payable by Constantia to Trustco Properties in respect of the Sale
      Shares is an amount of R1 000 000 000 (one billion Rand) (“Purchase Consideration”). The
      Purchase Consideration will be settled as follows:

      2.3.1 Constantia shall pay R50 000 000 (fifty million Rand) in cash (“Cash Consideration”) as

   R20 000 000 (twenty million Rand) on or about the date hereof; and

   the balance of the Cash Consideration within 90 days from the date of signature of
                    the Agreement (“Signature Date”).

            At any time before the Closing Date, the Cash Consideration constitutes a refundable deposit
            that will become non-refundable and become part of the payment of the Purchase
            Consideration on the Closing Date.

      2.3.2 The issue and allotment of newly issued ordinary shares in Constantia (“Subscription
            Shares”) to the value of the Purchase Consideration less the Cash Consideration to Trustco
            Properties. For the purposes of the issuance of the Subscription Shares, the parties have
            agreed that the current value of the total issued ordinary shares in Constantia is
            R2 000 004 232 (two billion four thousand two hundred and thirty-two Rand), which value of
            Constantia will increase by the amount of the Purchase Consideration less the Cash
            Consideration. Subject to any adjustment made to the Purchase Consideration as set out in
            paragraph 2.4, the value of the Subscription Shares to be issued to Trustco Properties shall
            be R950 000 000 (nine hundred and fifty million Rand), and result in TrustCo Properties
            owning approximately 32.20% of Constantia, post issuance (now valued at R2 950 004 232
            (two billion nine hundred and fifty million four thousand two hundred and thirty two Rand)) of
            the Subscription Shares.

   2.4   Adjustment to the Purchase Consideration

         Trustco Properties and Constantia will each obtain a valuation of the HB Property and the HB
         Development within 4 (four) weeks of Signature Date. The aforesaid valuations must be prepared
         by an accredited valuator in Namibia experienced in the valuation of publicly listed entities in the
         real estate sector.

         If the value determined for the HB Property and the HB Development in terms of either of the
         valuations prepared as aforesaid is less than R950 000 000 (nine hundred and fifty million Rand)
         or greater than R1 050 000 000 (one billion and fifty million Rand), the Purchase Consideration will
         be increased or decreased (as applicable) to be equal to the average of the values determined in
         terms of the two valuations obtained as aforesaid (“Average Property Valuation”); provided
         always that either party will have an option to cancel the Agreement by giving 5 (five) days’ notice
         to the other party, if the Average Property Valuation is R800 000 000 (eight hundred million Rand)
         or less.

         Under no circumstances will the Subscription Shares to be issued to Trustco Properties in terms of
         the Sale and Subscription Agreement exceed 49.9% of the issued share capital of Constantia post
         the subscription.


   The Transaction is subject to the fulfilment or waiver of the following suspensive conditions on or before
   31 March 2020 or such later date as the parties may agree before such date:

   3.1 Constantia has taken all required corporate action and obtained all required corporate approval for
       the issue and allotment of the Subscription Shares to Trustco Properties as payment in full to Trustco
       Properties for the Sale Shares, including approval of the Conduit Capital Board.

   3.2 The parties obtain all regulatory approvals required for the execution of the Transaction by both

   3.3 The parties and/or their nominees entering into an arm’s length market-related Property Services and
       Management Agreement in form and substance acceptable to each of the parties, including to provide
       for the payment of a property management fee in an amount equal to 1% of the value of HB Property
       and the HB Development, which agreement must be completed within 4 (four) weeks from the
       Signature Date.


   4.1 Constantia

        The audited net asset value of Constantia as at 30 June 2019 was R699 million. The audited loss
        after tax attributable to Constantia for the year ended 30 June 2019 was R582 million.

        The financial statements were prepared in accordance with International Financial Reporting
        Standards and the Companies Act, 2008 (Act 71 of 2008), as amended.

   4.2 Herboths

        The unaudited net asset value of Herboths as at 30 September 2019 was NAD 137.5 million. The
        unaudited profit after tax attributable to Herboths for the six months ended 30 September 2019 was
        NAD 0.4 million. The exchange rate of NAD to ZAR is 1:1.

        The financial statements were prepared in accordance with International Financial Reporting

   The pro forma financial effects of the Transaction will be detailed in the Conduit Transaction Circular.


   As set out in section 1 of this announcement, the Transaction constitutes a Category 1 related party
   transaction in terms of the JSE Listings Requirements. The Conduit Transaction Circular will contain full
   details of the Transaction, including without limitation a notice to convene a general meeting of
   shareholders of Conduit Capital in order to consider and, if deemed fit to pass, with or without modification,
   the resolutions necessary to approve and implement the Transaction will be issued in due course.

   Sean Riskowitz, Chief Executive Officer of Conduit Capital, controls Protea Asset Management
   (“Protea”). Protea is the Investment Advisor to the Riskowitz Value Fund LP and other accounts (“RVF”).
   RVF is a material shareholder of Conduit Capital. RVF, through its material shareholding in both Trustco
   and LSH indirectly controls in excess of 35% of the votes able to be cast at general meetings of LSH and
   therefore LSH is considered to be an associate of RVF. As Trustco Properties is a wholly-owned subsidiary
   of LSH, it is also considered to be an associate of RVF and a related party to Conduit Capital in terms of
   paragraph 10.1(b) of the Listings Requirements. Protea, RVF and their associates will accordingly be
   precluded from voting on the Transaction.


   Shareholders are referred to the “Disposal of Assets and Withdrawal of Cautionary Announcement”
   released on SENS on 9 December 2019. Given the intention to conclude the Transaction in advance of
   implementing the previous transaction contemplated therein and that the Transaction may have an effect
   on the terms and structure required to implement the previously announced transaction, shareholders are
   advised to exercise caution when dealing in the Company’s securities until a further announcement relating
   to the terms and structure of the previous transaction is made.

11 February 2020

Corporate Adviser and Sponsor to Conduit Capital
Merchantec Capital

Legal Adviser to Conduit Capital
Africa Solved Advisory Proprietary Limited

Date: 11-02-2020 04:17:00
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.

Share This Story