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ECSPONENT LIMITED - Terms announcement of divestment in Capitis Equities Proprietary Limited and withdrawal of cautionary announcement

Release Date: 11/06/2020 17:20
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Terms announcement of divestment in Capitis Equities Proprietary Limited and withdrawal of cautionary announcement

Incorporated in the Republic of South Africa
Registration number: 1998/013215/06
JSE Code: ECS - ISIN: ZAE000179594
Debt Issuer Code: ECSD
Hybrid Issuer Code: ECSH
(“the Company” or “Ecsponent”)

Terms announcement in respect of a divestment in Capitis Equities Proprietary Limited
and withdrawal of the cautionary announcement

The board of directors of Ecsponent (“the Board”) advises shareholders that it has concluded an
agreement (“the Agreement”) with Capitis Equities Proprietary Limited (“Capitis”) and Poloko
Holdings Proprietary Limited (“Poloko”) to:
     -    sell its interest in Capitis’ Class E1 shares (“Class E Shares”), subscribed for and acquired by
          the Company during the course of 2018, back to Capitis; and
     -    sell its interest in Capitis’ Class A shares (“Class A Shares”), also subscribed for and acquired
          by the Company during the course of 2018, to Poloko, an entity owned by Mokotudi Jennifer
(collectively, “the Divestment”).

1.       Description of the business of Capitis

Capitis is a South African domiciled Section 12 J investment holding company, incorporated in 2017.
Its principal activity is to invest, on behalf of individual and corporate investors, in a range of companies
that are considered to be ‘qualifying investments’ in accordance with its investment mandate. The
investments are typically held for a minimum of 5 years and are 100% tax deductible for the benefit
of the investors.

Capitis has, to date, invested ZAR12.2million into qualifying investments on behalf of Ecsponent. The
investments relate mainly to a media and marketing group which specialises in the electronic and
social media space.

2.       Rationale for the Divestment

The purpose of the original investment in Capitis was to enable Capitis to invest, on behalf of
Ecsponent, into a pipeline of potential investments identified by Capitis, as detailed in a circular to
Ecsponent shareholders dated 2 August 2018. The lack of qualifying investments identified and
executed, together with the current financial position of Ecsponent, has necessitated the exit by
Ecsponent from its investment in Capitis. In addition, the investment in Capitis does not meet the
Company’s minimum return thresholds.

The Board further believes that the Divestment will assist with a recovery of the Company’s financial
position and overall solvency levels.

3. Financial information in relation to Capitis

As at 28 February 2020, being Capitis’ last financial year end, Capitis had a net asset value of
ZAR276,376 and ZAR156,118,802 which was attributable to the Class A Shares and Class E Shares,
respectively. Capitis reported a net profit after tax of ZAR59,118 and ZAR44,690,186 for the financial
year ended 28 February 2020, attributable to the Class A Shares and Class E Shares, respectively.

The above financial information is based on unaudited management accounts for the year ended 28
February 2020, prepared in accordance with International Financial Reporting Standards. Ecsponent is
satisfied with the quality of the unaudited management accounts.

4.     Terms of the Agreement

4.1.    Divestment structure and consideration

Sale of Class E Shares
The Class E Shares in Capitis will be disposed of by Ecsponent to Capitis for a purchase consideration
equal to the Loan Account (“Consideration”) (as described below) due by Ecsponent to Capitis,
effective on the Effective Date (as defined below).

The Consideration shall be settled by way of Capitis offsetting the Loan Account payable by the
Company to Capitis (including any related interest incurred) on the Effective Date, such that no further
amounts shall be payable by Ecsponent under Loan Account.

A loan account between Ecsponent and Capitis arose following Ecsponent’s original investment in the
Class A and Class E Shares in Capitis, which funding was returned to Ecsponent on loan account (“the
Loan Account”), following failure to deploy the funding into qualifying investments. The funding
received by Ecsponent through the Loan Account was used for working capital purposes. The Loan
Account carried interest at a rate of 8% per annum, which interest income was capitalised by Capitis
to the Class E Shares. As at the date of this announcement, the balance on the Loan Account was
ZAR146,752,802 (including accrued interest).
In addition to the above, Ecsponent will settle, by payment to Capitis, all outstanding taxes in relation
to interest accruing on the Loan Account amounting to ZAR171,931.93.

Sale of Class A Shares
Ecsponent shall sell all of the Class A shares to Poloko for a purchase consideration of ZAR100.00.

4.2. Conditions precedent and Effective Date

The Divestment is not subject to any conditions precedent. The effective date is the date of signature
of the Agreement by both parties, being 9 June 2020 (“Effective Date”).

4.3. Other material terms of the Agreement

Ecsponent shall indemnify Capitis against all taxation liabilities due to the South African Revenue
Service arising from either:
     -    the initial agreement entered into between the Company and Capitis;
     -    the agreement entered into between the Company and Capitis giving effect to the Loan
          Account; and
     -    the agreement entered into between the Company and Capitis giving effect to the Divestment.

The Agreement provides for warranties, terms and conditions that are normal for a transaction of this

5.       Application of the Consideration proceeds

As noted in paragraph 4.1 above, the Consideration will be off-set against the Loan Account, thereby
enabling a cashless transaction.

6.       Categorisation and approvals required for the Divestment

In terms of the JSE Listings Requirements, the Divestment is categorised as a Category 2 transaction
and involves no related parties (as defined by the JSE Listings Requirements) and is accordingly not
subject to approval by shareholders.

7. Withdrawal of cautionary announcement

Shareholders are referred to the announcement containing the results of the general meetings of
ordinary and preference shareholders issued on 27 May 2020, which advised, inter alia, of the outcome
of the proposed amendments to the Company’s memorandum of incorporation, and of the conversion
of certain classes of preference shares into ordinary shares.
Having regard to the above information, the cautionary announcement is withdrawn.

For more information about this announcement or the Ecsponent group, email or visit

11 June 2020

Sponsor to Ecsponent

Questco Corporate Advisory (Pty) Ltd

Date: 11-06-2020 05:20:00
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