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GRINDROD LIMITED - Specific repurchase by Grindrod of 64m Grindrod Shares and acquisition of 1.6m Grindrod Shipping Shares

Release Date: 21/07/2020 17:09
Code(s): GND GNDP     PDF:  
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Specific repurchase by Grindrod of 64m Grindrod Shares and acquisition of 1.6m Grindrod Shipping Shares

GRINDROD LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1966/009846/06)
Share code: GND and GNDP
ISIN: ZAE000072328 and ZAE000071106
("Grindrod" or the “Company")


SPECIFIC REPURCHASE BY GRINDROD OF 64 MILLION GRINDROD ORDINARY SHARES AND
ACQUISITION OF 1.6 MILLION GRINDROD SHIPPING HOLDINGS LIMITED ORDINARY SHARES


1. Background to the 2014 BEE Transaction

   During 2014, Grindrod completed a BEE transaction in terms of which Newshelf 1279 (RF) Proprietary
   Limited (“BEE SPV”) invested an aggregate of R1.6 billion into Grindrod in exchange for 64 million
   Grindrod ordinary shares (“BEE Placement Shares”), which resulted in BEE SPV holding 8.39% of the
   total issued ordinary share capital of Grindrod (“2014 BEE Transaction”). BEE SPV is a wholly owned
   subsidiary of Friedshelf 1534 Proprietary Limited (“Consortium SPV”).

   In order to partially fund the 2014 BEE Transaction, Grindrod provided preference share funding to BEE
   SPV by subscribing for vendor preference shares in the share capital of BEE SPV (“Vendor Preference
   Shares”) and subsequently, via Grindrod Holdings (South Africa) Proprietary Limited (“Grindrod
   Holdings”), by subscribing, for class C preference shares in the share capital of BEE SPV (“Class C
   Preference Shares”) (“Funding Structure”).

   During June 2018, Grindrod spun-off its shipping business via the listing of Grindrod Shipping Holdings
   Ltd. (“Grindrod Shipping”) (“Spin-Off”). In terms of the Spin-Off, Grindrod sold all of the shares in its
   shipping subsidiaries to Grindrod Shipping in exchange for compulsorily convertible notes (“CCN’s”). The
   CCN’s were distributed to Grindrod ordinary shareholders (“Grindrod Shareholders”) in the same
   proportion as they held their existing ordinary shares in Grindrod (“Grindrod Shares”). The CCN’s
   subsequently converted into ordinary shares in Grindrod Shipping (“Grindrod Shipping Shares”), in the
   hands of Grindrod Shareholders. As at the date of this announcement, BEE SPV holds 1.6 million
   Grindrod Shipping Shares (“GSHL Securities”), equating to 8.39% of the issued share capital of Grindrod
   Shipping.


2. Unwind of the 2014 BEE Transaction

   Due to the significant decline in the Grindrod Share price over the past two years, the aggregate
   outstanding redemption value and value of accrued, unpaid dividends in respect of the Vendor Preference
   Shares and the Class C Preference shares is c. R1.4 billion whilst the market value (based on closing
   prices on 20 July 2020) of the BEE Placement Shares and the GSHL Securities is c. R0.3 billion as at
   the date of this announcement.

   The level of debt in the Funding Structure, which is in excess of the assets held by BEE SPV, in addition
   to guarantees and cash collateral provided by Grindrod over the years, resulted, from an accounting
   perspective, in BEE SPV (and as a result, the BEE Placement Shares and the GSHL Securities held by
   BEE SPV), being consolidated in Grindrod’s financial statements since December 2018.

   Grindrod Shareholders have been appraised of the above developments over the years, as per the
   disclosures contained in Grindrod’s annual financial statements. The administrative process to unwind
   the 2014 BEE Transaction has therefore already commenced, and the board of directors of Grindrod
   (“Board”) has subsequently resolved that the most efficient and cost-effective method to legally bring the
   Funding Structure to an end, and to bring to a close the 2014 BEE Transaction would be via the specific
   repurchase of the BEE Placement Shares (“Repurchase”) and the acquisition of the GSHL Securities
   (“Acquisition”) from BEE SPV (collectively, the “Transaction”). As such, the Transaction does not result
   in any material financial effect for Grindrod.


3. Terms of the Repurchase

   3.1. The Implementation Steps

        3.1.1. On 21 July 2020, the following agreements were concluded:
               3.1.1.1. an implementation agreement entered into between Grindrod, Grindrod Holdings,
                        BEE SPV and Consortium SPV (“Implementation Agreement”);
               3.1.1.2. a share repurchase agreement entered into between Grindrod and BEE SPV
                        (“Repurchase Agreement”); and
               3.1.1.3. a share purchase agreement entered into between Grindrod and BEE SPV
                        (“Acquisition Agreement”).

        3.1.2. On the basis set out in the Implementation Agreement, read with the Repurchase Agreement
               and the Acquisition Agreement, the parties intend to effect (i) the Repurchase and the
               Acquisition, (ii) the redemption by BEE SPV of certain of the Vendor Preference Shares and
               certain of the Class C Preference Shares; and (iii) the winding up of BEE SPV, via the
               following key steps (“Implementation Steps”) to be implemented on the next business day
               after fulfilment of the last of the Conditions Precedent (as defined in paragraph 3.4 below)
               (“Closing Date”):
               3.1.2.1. the release by Grindrod (to the extent necessary) and Grindrod Holdings of the
                        security held by each of them in respect of the Vendor Preference Shares and the
                        Class C Preference Shares, being the BEE Placement Shares and the GSHL
                        Securities;
               3.1.2.2. the Repurchase undertaken, in terms of the Repurchase Agreement and at a price
                        which is left outstanding on interest free loan account (“Repurchase Loan
                        Account”);
               3.1.2.3. the redemption by BEE SPV of certain of the outstanding Vendor Preference
                        Shares with the redemption price settled by way of set off against a corresponding
                        portion of the Repurchase Loan Account;
               3.1.2.4. the Acquisition undertaken, in terms of the Acquisition Agreement at a
                        consideration which is left outstanding on interest free loan account (“Purchase
                        Loan Account”);
               3.1.2.5. the redemption by BEE SPV of certain of the outstanding Class C Preference
                        Shares with the redemption price settled in full by way of a cession by BEE SPV,
                        to Grindrod Holdings, of BEE SPV’s right to receive payment of the balance of the
                        Repurchase Loan Account remaining after the set-off referred to in
                        paragraph 3.1.2.2 above, and the Purchase Loan Account; and
               3.1.2.6. the filing with the Companies and Intellectual Property Commission of a special
                        resolution passed by the ordinary and preference shareholders of BEE SPV for
                        the voluntary winding up of BEE SPV (“Winding-Up Resolution”).
3.2. The Repurchase

     In terms of the Repurchase Agreement, Grindrod repurchases the BEE Placement Shares from BEE
     SPV with effect from the Closing Date, for R3.278350 per BEE Placement Share, for a total
     consideration of R209 814 400 (“Repurchase Price”).

     The Repurchase Price shall be left outstanding on interest free loan account and settled in
     accordance with the Implementation Steps.

3.3. The Acquisition

     In terms of the Acquisition Agreement, Grindrod purchases the GSHL Securities from BEE SPV with
     effect from the Closing Date, for R48.606169 per GSHL Security, for a total consideration of
     R77 769 870 (“GSHL Purchase Price”).

     The GSHL Purchase Price shall be left outstanding on interest free loan account and settled in
     accordance with the Implementation Steps.

     The Acquisition constitutes a uncategorisable transaction for Grindrod in terms of the JSE Listings
     Requirements and does not require any shareholder approval. However, the Acquisition is inter-
     conditional with the Repurchase. Therefore, if the Repurchase is not implemented, the Acquisition
     will not be undertaken, and vice versa.

3.4. Conditions Precedent

     The Repurchase Agreement and the Acquisition Agreement are subject to the fulfilment of the
     condition precedent that by no later than 17:00 on 5 October 2020, the Implementation Agreement
     has become unconditional in accordance with its terms.

     The Implementation Agreement is subject to the outstanding conditions precedent (“Conditions
     Precedent”) that by 17:00 on 7 August 2020:
     3.4.1. the various authorising resolutions required for the conclusion and implementation of the
            Transaction are duly passed (other than the resolution required from the Grindrod
            Shareholders, which is dealt with under paragraph 3.4.9);
     3.4.2. the Winding-Up Resolution is duly passed;
     3.4.3. the Winding-Up Resolution and certain specified documents relating to the contemplated
            winding up of BEE SPV are provided to Grindrod;
     3.4.4. The appointed independent expert, BDO Corporate Finance (Pty) Ltd (“Independent
            Expert”) compiles a report as required in terms of section 114(3) of the Companies Act,
            2008 (“Companies Act”), in respect of the Repurchase;
     3.4.5. Grindrod and Grindrod Holdings each consent in writing to the conclusion by BEE SPV of
            the Implementation Agreement and the Repurchase and Acquisition Agreements, and to
            the implementation by BEE SPV of all the transactions contemplated in such
            aforementioned agreements, as required in terms of BEE SPV’s memorandum of
            incorporation;
     3.4.6. the circular to be issued by Grindrod to its shareholders in accordance with the JSE Listings
            Requirements, in respect of the Repurchase (“Circular”) is approved by the JSE;
     3.4.7. the Takeover Regulation Panel established by section 196 of the Companies Act, has
            approved and issued a compliance certificate in respect of the Transaction;

            and, by no later than 5 October 2020:
     3.4.8. the general meeting of Grindrod shareholders for the purpose of, inter alia, approving the
            Repurchase and any other resolutions that may be necessary for the implementation of the
            Transaction (“General Meeting”) is held and attended by the requisite quorum of Grindrod
            Shareholders;
     3.4.9. the special resolution by Grindrod Shareholders (“Shareholder Approval Resolution”) is
            approved -
               3.4.9.1. at the General Meeting by the requisite majority of Grindrod Shareholders
                        present and voting thereon;
               3.4.9.2. if required in terms of section 115(3) of the Companies Act, by a court of
                        appropriate jurisdiction;
     3.4.10. the Shareholder Approval Resolution has not been revoked, in terms of the special
             resolution of Grindrod Shareholders providing that if there are any dissenting shareholders
             exercising their appraisal rights in accordance with sections 164(5) to (8) of the Companies
             Act, then the Board is authorised, but not obliged, to revoke the Shareholder Approval
             Resolution as contemplated in section 164(9)(c) of the Companies Act.


4. Pro forma financial effects of the Transaction

   The pro forma financial effects below are provided for illustrative purposes only and, because of their
   nature, may not fairly present the financial position or results of operations or cash flows of Grindrod and
   its subsidiaries (“Group” or “Grindrod Group”). The pro forma financial effects have been prepared to
   illustrate the impact of the Transaction on the published financial information of the Group for the year
   ended 31 December 2019, based on the assumption that the Transaction took place on 1 January 2019
   for purposes of the pro forma consolidated statement of comprehensive income and on 31 December
   2019 for purposes of the pro forma consolidated statement of financial position.

   The pro forma financial effects have been prepared using the accounting policies of the Grindrod Group,
   which comply with IFRS and are consistent with those applied in Grindrod’s consolidated annual financial
   statements for the year ended 31 December 2019.

   The pro forma financial effects are the responsibility of the Board and have not been reviewed nor
   reported on by the Company’s external auditors.

   The detailed pro forma financial effects will be included in the Circular.

                                                               Before the       After the      % Change
                                                               Transaction      Transaction

     Total number of Grindrod Shares in issue                  762 553 314      698 553 314    (8.39)

     Number of treasury shares held¹                           82 269 444       18 269 444     (77.79)
       Held by BEE SPV                                         64 000 000       -              (100.00)
       Held by Grindrod subsidiaries and share scheme          18 269 444       18 269 444      -

     Number of Grindrod Shares in issue net of Grindrod        680 283 870      680 283 870     -
     Shares held by Subsidiaries

     Weighted average number of Grindrod Shares in             680 442 490      680 442 490     -
     issue
     Diluted weighted average number of Grindrod               681 304 098      681 304 098     -
     Shares in issue

     Basic earnings/ (loss) per Grindrod Share (cents):
     From continuing operations                                44.1             44.5            0.91
     From discontinued operations                              (104.0)          (104.0)         -

     Diluted earnings/ (loss) per Grindrod Share (cents):
     From continuing operations                                44.0             44.4            0.91
     From discontinued operations                              (104.0)          (104.0)         -

     Headline earnings/ (loss) per Grindrod Share
     (cents):                                                  77.2             77.6            0.52
     From continuing operations                                (69.1)           (69.1)          -
     From discontinued operations

     Diluted headline earnings/ (loss) per Grindrod Share
     (cents):                                                  77.1             77.5            0.52
     From continuing operations                                (69.0)           (69.0)          -
     From discontinued operations

     Net asset value per Grindrod Share (cents)                1 175            1 174           (0.09)

     Net tangible asset value per Grindrod Share (cents)       1 156            1 155           (0.09)


   ¹ The BEE Placement Shares are treated as treasury shares due to the consolidation of BEE SPV into
   Grindrod’s financial results in respect of the year ended December 2018.


5. Circular and General Meeting

   In terms of section 5.69 of the JSE Listings Requirements, the Repurchase constitutes a specific
   repurchase of shares. In addition, as the Repurchase will result in the Company acquiring in excess of
   5% of the entire issued share capital of the Company, the Repurchase is, in terms of section 48(8)(b) of
   the Companies Act, subject to the provisions of section 114, read with sections 115 and 164 of the
   Companies Act.

   Therefore, the Repurchase requires (i) the distribution of the Circular to Grindrod Shareholders, which is
   required to include, inter alia, the detailed pro forma financial effects of the Transaction and a report by
   the Independent Expert, on the Repurchase; and (ii) the approval by way of a special resolution to be
   passed by Grindrod Shareholders at the General Meeting.

   The Circular will be distributed to Grindrod Shareholders before or during the month of August 2020. The
   Circular as well as the announcement notifying Grindrod Shareholders of the dispatch of the Circular will
   include the relevant times and dates pertaining to, inter alia, the General Meeting and the date on which
   the Repurchase is to be made and the date on which the repurchased securities will be cancelled and
   the listing thereof terminated.


6. Responsibility statement

   The Board accepts responsibility for the information contained in this announcement insofar as it relates
   to Grindrod. To the best of its knowledge and belief, the information contained in this announcement is
   true and the announcement does not omit anything likely to affect the importance of the information.


21 July 2020

Investment Bank, Corporate Advisor and Sponsor
Nedbank Corporate and Investment Banking

Legal Adviser
Edward Nathan Sonnenbergs Inc

Independent Expert
BDO Corporate Finance (Pty) Ltd

Date: 21-07-2020 05:09:00
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