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EMIRA PROPERTY FUND LIMITED - Announcement in respect of the provision of a guarantee, a consequence of which is a benefit to a related party

Release Date: 03/04/2020 17:30
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Announcement in respect of the provision of a guarantee, a consequence of which is a benefit to a related party

EMIRA PROPERTY FUND LIMITED
Incorporated in the Republic of South Africa
(Registration number 2014/130842/06)
JSE share code: EMI       ISIN: ZAE000203063
JSE Interest Rate Issuer Code: EMII
(Approved as a REIT by the JSE)
(“Emira” or “the Company”)

ANNOUNCEMENT IN RESPECT OF THE PROVISION OF A GUARANTEE, A CONSEQUENCE OF WHICH IS
A BENEFIT TO A RELATED PARTY


1.    INTRODUCTION

      Shareholders are referred to the Black Economic Empowerment (“BEE”) transaction concluded
      by Emira in May 2017, in terms of which 26 133 364 Emira shares in aggregate (“the
      Subscription Shares”) were issued for cash to Letsema Holdings Proprietary Limited (“Letsema”)
      and Tamela Holdings Proprietary Limited (collectively, “the BEE Shareholders”), such that, after
      such issue, each of the BEE Shareholders held 2.5% of Emira’s total shares in issue (“the BEE
      Transaction”).

      As shareholders were advised at the time, the BEE Transaction was funded as follows:
      - 10% cash;
      - 40% loan from a third party (“the Lender”) (“the Third Party Loan”); and
      - 50% vendor finance from Emira (“the Vendor Loan”).

      The Third Party Loan is secured by 100% of the Subscription Shares. The Lender has the ability
      to dispose of the Subscription Shares at any time if the market value thereof, based on the 5-
      day volume weighted average price (“VWAP”), is less than 1.6 times the Third Party Loan or if
      the closing price of Emira shares is less than 1.5 times the Third Party Loan (each a “Trigger
      Event”). The Vendor Loan is secured by a reversionary cession and pledge over the Subscription
      Shares.

      Emira’s share price has reached a level that a Trigger Event has occurred. Accordingly, the
      Lender is entitled, unless additional security is provided, to dispose of the Subscription Shares
      (“the Forced Disposal”).

      Although the Lender has no recourse to Emira in respect of the Third Party Loan, the board of
      directors of Emira (“the Board”) considers it critical, for a number of commercial reasons which
      are set out in paragraph 2 below, to provide credit support for the Third Party Loan in order to
      avoid the Forced Disposal. The credit support is to be in the form of a guarantee by Emira in
      favour of the Lender (“the Guarantee”).

2.    THE GUARANTEE

      In order to facilitate the provision of the Guarantee, Emira has today entered into a guarantee
      agreement ("Agreement") with the Lender. In terms of the Agreement, Emira irrevocably and
      unconditionally guarantees as a separate, principal and independent obligation to and in favour
      of the Lender, the payment and performance of the obligations of the BEE Shareholders arising
      in connection with the Third Party Loan, for a maximum guaranteed amount of c. R72.9 million
      for each of the BEE Shareholders, or c. R145.8 million in total.

3.    RATIONALE FOR THE GUARANTEE

      The independent directors of Emira (“the Independent Directors”) are of the view that the
      provision of the Guarantee is in the best interests of the Company and its shareholders for, inter
      alia, the following reasons:

      - in the event that the Guarantee was not provided, the Lender would be fully entitled to
        dispose of sufficient Emira shares to settle the outstanding balance of the Third Party Loan,
        in full or in part, meaning that, at the closing price of Emira shares yesterday, 2 April 2020,
        c. 21.1 million Emira shares would need to be disposed of in the market. The Forced Disposal
        is likely to have a materially negative impact on the price at which Emira shares trade, and is
        likely to result in swift value destruction for Emira shareholders;
      - the Forced Disposal would result in the loss of the reversionary cession and pledge that Emira
        enjoys over the Subscription Shares and would also negatively impact the ability of the BEE
        Shareholders to repay the Vendor Loan, with an outstanding balance of R86.2 million for
        each, or R172.4 million, at last reporting date, to the extent that the recoverability thereof
        would be called to question; and
      - the Forced Disposal would result in the loss of Emira’s 5% direct BEE ownership, which would
        have a material effect on Emira’s BEE rating. This is would negatively influence Emira’s
        desirability as a landlord and could impact tenant retentions and new letting activities in
        future.
       
      The Independent Directors have considered the impact of the COVID-19 pandemic on the
      financial markets and the South African and global economy and is of the view that, having
      regard for the strength of Emira’s balance sheet and taking other operational factors into
      account, it will be able to weather the storm. Accordingly, they expect the Emira share price to
      recover in the medium- to long-term to levels at which the Guarantee is no longer required. The
      Guarantee is a means to prevent permanent destruction of value for shareholders due to a
      circumstance that is expected to be of temporary nature, although the impact of the COVID-19
      pandemic is expected to be felt for some time to come still.

4.    CONDITIONS PRECEDENT

      The Guarantee is unconditional and is therefore not subject to the fulfilment of any conditions
      precedent.

5.    EFFECTIVE DATE OF THE GUARANTEE

      The Guarantee will be of full force and effect on the date of signature of the Agreement. The
      Guarantee and Emira’s obligations thereunder will terminate automatically on the earlier of:

      a) the first date on which the market value of the Subscription Shares, based on the 30-day
         VWAP, compared to the outstanding amount of the Third Party Loan is greater than or equal
         to 2.00:1.00 (two to one) (“Asset Cover Ratio”), provided that the spot 30 day VWAP Asset
         Cover Ratio is also greater than or equal to 2:00:1:00 (two to one) as at such date; or
      b) the date on which the Third Party Loan has been discharged.

6.    WARRANTIES AND OTHER SIGNIFICANT TERMS OF THE AGREEMENT

      The Agreement contains representations and warranties by Emira in favour of the Lender which
      are standard for an agreement of this nature.

7.    RELATED PARTY AGREEMENT

      While the Guarantee has been provided in order to preserve value for Emira Shareholders,
      Letsema, which is an associate of Mr. Derek Thomas (a director of Emira), has benefited as a
      consequence. Accordingly, the Agreement, insofar as it relates to Letsema’s indebtedness to
      the Lender, constitutes a small related party agreement in terms of the JSE Listings
      Requirements.

      The Independent Directors have appointed Moore Corporate Services Cape Town (Pty) Ltd as
      the independent professional expert ("Independent Expert"). The Independent Expert has
      considered the terms and conditions of the Guarantee embodied in the Agreement, as well as
      the circumstances under which it has been concluded, and is of the opinion that the Board’s
      actions in this regard are commercially reasonable. A copy of this opinion is available for
      inspection at the Company's registered office for a period of 28 days from the date of this
      announcement.


Bryanston
3 April 2020

Sponsor
Questco Corporate Advisory Proprietary Limited




                                                                                                

Date: 03-04-2020 05:30:00
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