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Release Date: 04/05/2020 17:42
Code(s): SAR     PDF:  
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Southern Palace Update

(Incorporated in the Republic of South Africa)
(Registration number: 2000/015002/06
Share code: SAR
ISIN: ZAE000188280
(Approved as a REIT by the JSE)
(“Safari” or “the Company”)


Safari shareholders are referred to the circular dated 7 June 2017 relating to a capital raise in which the
company issued 99 552 633 shares at R7,60 per share, raising an aggregate sum of R756 600 011
from Grinrod Asset Management Pty Ltd (R160 million), Safari Hold Pty Ltd (R5 million), Southern
Palace Capital Pty Ltd (R501,6 million) (Southern Palace), Stanlib Asset Management Ltd (R40 million)
and WDB Investment Holdings Pty Ltd (R50 million).

The capital raised was used to reduce the company's bond debt, strengthening the Company's balance
sheet and cashflows. As set out in the circular, the subscription by Southern Palace was principally
funded by a financial institution, Sanlam Life Insurance Limited (acting through its Sanlam Capital
Markets Division) (Sanlam), through loans to the extent of approximately R451 million
(Sanlam Southern Palace Facility). The balance was raised separately by Southern Palace from
Sanlam through an equity bridge facility. As required by Sanlam, and as a condition to Southern
Palace's subscription, Safari provided financial support for the Sanlam Southern Palace Facility in the
form of a guarantee (Safari Guarantee), supported by a R250 million facility to Safari from ABSA Bank
Limited (ABSA Facility) under which ABSA provided Sanlam with a collateral guarantee in the amount
of R250 million. Any balance of the Safari Guarantee was covered by earmarked capacity within
Safari's other facilities.

Southern Palace's liability to Safari in relation to the Safari Guarantees and the amounts paid and
payable thereunder, is secured by a reversionary pledge and cession of the 53 million Safari shares
held by Southern Palace (prior to the default event described below in September 2018, the number of
shares subject to the pledge amounted to 66 million Safari shares) (Reversionary Pledge and
Cession), a guarantee by Southern Palace's holding company and a pledge and cession of all of the
shares in Southern Palace (collectively, Southern Palace Security). Safari's reversionary security is
subordinate to that of Sanlam, and becomes first-ranking security upon repayment of the amounts
outstanding on the Sanlam Southern Palace Facility and the full and final discharge of all obligations

We further refer shareholders to previous communication and our 2019 Integrated Annual Report for
more background to the history of the Southern Palace transaction.

Sanlam has called on Southern Palace for repayment of the outstanding balance under the Sanlam
Southern Palace Facility. Southern Palace has not made the required payment, and Sanlam has
consequently called on Safari under the Safari Guarantee for repayment of the outstanding debt of
approximately R221 million, which amount Safari will pay to Sanlam within the required 10 business
days (and which is expected to be on 6 May 2020). The funds will be drawn down from the balance of
the ABSA Facility and from Safari’s other existing debt facilities.

Safari will accordingly have a corresponding claim against Southern Palace (and, through the
guarantee, against its holding company) for repayment of the aforementioned amount following
payment to Sanlam, and for repayment of all other amounts paid and payable by Safari (including
interest, costs and fees) relating to this transaction (Southern Palace Indebtedness), secured by the
Southern Palace Security. As at the date of this announcement, following payment of the final amounts
to Sanlam, the amount owing by Southern Palace (and its holding company, as guarantor) to Safari will
be approximately R503 million, and carries base (i.e. non default) interest at a back-to-back rate equal
to Safari's borrowing costs for such funds.

Upon discharge of the amounts payable to Sanlam, the Reversionary Pledge and Cession will no longer
be subordinated to that of Sanlam, and consequently, Safari will hold a first ranking cession and pledge
over 53 million Safari shares (Pledged Shares) owned by Southern Palace, and will continue to hold a
first ranking cession and pledge over all of the shares in Southern Palace. In terms of the Southern
Palace Security, all distributions paid under the Pledged Shares are secured in favour of Safari and are
required to be applied in reduction of the Southern Palace Indebtedness while so held.

Safari's weighted average cost of funding (and the cost of the incremental additional borrowing to effect
the repayment) is lower than the cost of funding payable by Southern Palace to Sanlam, which was
secured by Safari and which was at a fixed interest rate of 9.55%. The exercise by Sanlam of its right
to accelerate maturity of the structure has accordingly improved Safari's effective funding costs
associated with the structure, with an estimated ongoing monthly saving of approximately R520 000 at
present interest rates (less once-off break fees of approximately R700 000).

With the structure having otherwise been due to mature in August 2020, the requirement to settle
Sanlam under the Safari Guarantee has been anticipated and accommodated for in Safari's debt
provisioning. The drawdown of these funds is thus not expected to adversely impact Safari's effective
net cashflows or its general operational financial provisioning.

In broad, simple, summary terms, the commercial position for Safari under the Southern Palace
transaction is thus that it received R501,6 million in equity subscriptions from Southern Palace (with
funding therefore being underwritten by Safari) against the issue of 66 million Safari shares, and Safari
applied the funds to reduce the Company's net debt at the time. Safari will have expended
approximately R503 million in aggregate in discharging the transaction funding it underwrote, including
interest and costs paid to ABSA for the monies available and drawn under the ABSA Facility. These
payments are funded through Safari's existing debt facilities. The funding raised by Southern Palace
for the transaction was also partly paid down by the sale of 13 million of the initial 66 million shares at
a price of approximately R4,67 per share, and from the dividends received by Southern Palace on the
Safari shares. The R503 million disbursed by Safari is, in turn, claimable from Southern Palace and its
holding company, and is recoverable from these parties as a debtor secured by the 53 million Safari
shares and the guarantee from Southern Palace's holding company. In realising the 53 million Safari
shares, Safari has the right to sell all or some of these by public or private sale, or to take all or some
of them over (and therefore cancel them) at fair market value. As noted below, the approach to be
taken by Safari is being evaluated by the Safari board, and will be subject to Safari shareholder
approval, as appropriate.

The minimum recovery for Safari in respect of the debt owed by Southern Palace will therefore be the
value of the shares, either on cancellation or on realisation. Cancellation of all or some of the shares
may have additional consequences for shareholders, e.g. dividend per share, which may be beneficial,
and which will be evaluated as part of the board's considerations.

The accounting treatment of the transaction in terms of IFRS is set out in the Company's Integrated
Annual Reports for financial years ending 31 March 2018 and 2019. Safari presently anticipates
releasing its annual financial statements and integrated report for the year ended 31 March 2020 in
around June, which will continue to set out the accounting treatment of the position, whether as a
subsequent balance sheet event or otherwise.

Safari will engage with Southern Palace and its holding company in respect of the amounts owing to
Safari by these companies, will continue to evaluate the position on an ongoing basis in light of
prevailing market circumstances, and will update shareholders on any material developments in due
course as required. Pending any such developments, Safari will accordingly continue to hold the
Southern Palace Security and will apply any distributions made on the Safari shares in reduction of the
Southern Palace Indebtedness. While so held, the shares will be classified as treasury shares for
purposes of the JSE Listings Requirements.

4 May 2020

PSG Capital

Date: 04-05-2020 05:42:00
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