| Tue 20 Oct 2009, 7:48 | | SOV - Sovereign - Announcement Regarding: A Proposed Partially Underwritten |
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SOV
SOV
SOV - Sovereign - Announcement Regarding: A Proposed Partially Underwritten
Rights Offer; Notice Of General Meeting; And Further Cautionary Announcement
Sovereign Food Investments Limited
Incorporated in the Republic of South Africa
Registration number 1995/003990/06
JSE code: SOV ISIN: ZAE000009221
("Sovereign" or "the Group" or "the Company")
ANNOUNCEMENT REGARDING:
* A PROPOSED PARTIALLY UNDERWRITTEN RIGHTS OFFER;
* NOTICE OF GENERAL MEETING; AND
* FURTHER CAUTIONARY ANNOUNCEMENT
1 Introduction
During the past three years Sovereign has embarked on an intensive
expansion drive focussing on increasing its production and processing
capacity. The expansion drive and concomitant capital expenditure have lead
to an increased level of debt within the Group.
Notwithstanding Sovereign`s recent favourable trading results and the
benefits of the expansion drive becoming visible, the board of directors of
Sovereign ("the Board") has considered it prudent to undertake a
comprehensive assessment of the Group`s capital structure and gearing
position, in view of, inter alia, the current global debt and capital
markets` assessment of gearing risk.
Sovereign`s shareholders ("Shareholders") are advised that Sovereign
intends to implement a capital and debt restructuring programme ("the
Programme") to improve the gearing level of and enhance the cash flows
within the Group.
The Programme involves the raising of equity capital through a partially
underwritten rights offer to Shareholders ("the Rights Offer").
The majority of the funds raised through the Rights Offer will be applied
towards existing debt within the Group ("the Debt Reduction"). The Debt
Reduction will reduce the Group`s debt servicing requirements and
favourably alter the debt servicing profile. The remaining proceeds from
the Rights Offer will be utilised to fund working capital requirements of
the Group and, to a lesser extent, some minor capital expenditure
requirements (including committed contractual capital expenditure).
Sovereign is in the process of negotiating more favourable terms and
conditions pertaining to certain of its banking facilities as a consequence
of the Rights Offer. The objectives of the Debt Reduction are to decrease
Sovereign`s absolute cost of debt as well as to secure more competitive
borrowing costs on existing debt.
2 The Rights Offer
2.1 Terms of the Rights Offer and Irrevocable Shareholder Undertakings
Shareholders are advised that Sovereign has finalised the terms upon which
it proposes to proceed with the Rights Offer. In terms of the Rights Offer,
Sovereign would extend an offer to Shareholders to subscribe for a maximum
of 16 997 070 new ordinary shares ("the Rights Offer Shares") at a
subscription price of 850 cents per ordinary share ("the Subscription
Price") in order to raise a maximum total amount of R144.475 million in new
capital (before accounting for costs pertaining to the Rights Offer) ("the
Rights Offer Amount"). The Subscription Price represents a 25% discount to
the 30 day volume weighted average traded price of Sovereign`s shares on
the JSE Limited ("JSE") as at 16 October 2009.
The Rights Offer will be partially underwritten by Prudential Portfolio
Managers ("Prudential") and Old Mutual Investment Group (South Africa)
(Pty) Limited ("OMIGSA") (collectively "the Underwriters") limited to an
amount of R80 million ("the Underwriting Amount"), representing
approximately 55.4% of the Rights Offer Amount ("the Underwriting").
In addition to securing the Underwriting, Sovereign has received
irrevocable undertakings from existing Sovereign shareholders:
- currently holding approximately 48.9% of Sovereign`s issued share
capital, to vote in favour of the necessary resolutions to implement
the Rights Offer ("Shareholder Voting Undertakings"); and
- currently holding approximately 20.1% of Sovereign`s issued share
capital, to subscribe for their pro rata rights in terms of the Rights
Offer ("Shareholder Subscription Undertakings").
As such, Sovereign has obtained Underwriting and Shareholder Subscription
Undertakings amounting to approximately 75.5% of the Rights Offer Amount.
The Board is therefore confident that the Rights Offer will succeed and has
purposefully limited the amount of underwriting in order for Sovereign not
to incur unnecessary underwriting costs. Further information pertaining to
the Underwriting is set out in paragraph 2.3 below.
Shareholders may not apply for Rights Offer Shares in excess of their pro
rata entitlement allocated to them in terms of the Rights Offer.
2.2 Rationale
The Rights Offer will allow Sovereign to, inter alia,:
* achieve a more sustainable gearing ratio and to strengthen its balance
sheet;
* match its debt repayment profile with its operating cash generation
capacity;
* match its debt and expansion profiles; and
achieve more competitive funding terms and more sustainable future
borrowing capacity.
2.3 Underwriting
In terms of underwriting agreements entered into between Sovereign and
Prudential and OMIGSA, respectively, on 19 October 2009 ("the Underwriting
Agreements"), the Underwriters have committed R80 million to Sovereign for
the purpose of partially underwriting the Rights Offer. The Underwriters
will be paid a fee of 2.5% of the Underwriting Amount.
The Underwriting Agreements are subject to the following conditions:
* Shareholders approving a resolution placing the authorised but
unissued ordinary share capital of the Company under the control of
the Board for purposes of the Rights Offer;
* the Underwriters shall not be bound by the Underwriting Agreements
should any other corporate action that directly affects Shareholders
(including an offer to Shareholders), be publicly announced by
Sovereign or same be unconditionally approved by the Shareholders
between the date of the Underwriting Agreements and the implementation
date of the Rights Offer;
* no excess applications shall be granted to any party in terms of the
Rights Offer; and
* a circular setting out full details and terms of the Rights Offer
("the Rights Offer Circular") being issued to Shareholders within two
months from the signature date of the Underwriting Agreements.
2.4 Application of the proceeds of the Rights Offer
The Board has committed a minimum of 75% of the expected total proceeds
from the Rights Offer (after deduction of related costs), to the Debt
Reduction. The Debt Reduction would result in an increase in the Group`s
liquidity of approximately R2 million per month, in addition to providing
the Group with additional working capital funding.
The remaining funds raised from the Rights Offer will be utilised to fund
working capital commitments and, to a limited extent, capital expenditure
requirements. In order to achieve the objectives of the Programme, the
Board has limited the Group`s immediate capital expenditure requirements
to:
* contractually committed capital expenditure:
* capital expenditure that has a direct revenue impact; and
* critical capital maintenance expenditure.
2.5 Suspensive conditions
The Rights Offer remains conditional upon the fulfilment of the following
suspensive conditions:
* Shareholders placing the entire authorised but unissued share capital
of the Company under the control of the Board, for purposes of the
Rights Offer, at a general meeting of Shareholders;
* the necessary regulatory documentation including, inter alia, the
Rights Offer Circular and Letters of Allocation being approved and
registered by the JSE and the Companies and Intellectual Property
Registration Office; and
* the JSE approving the listing of the Rights Offer Shares.
An announcement will be released on SENS and published in the press as soon
as the suspensive conditions have been fulfilled and the Rights Offer has
become unconditional.
2.6 Pro forma financial effects of the Rights Offer
The unaudited pro forma financial effects are provided for illustrative
purposes only to provide information about how the Rights Offer may impact
on Sovereign`s results and financial position. Due to the nature of the
unaudited pro forma financial information, it may not give a fair
presentation of the Group`s results and financial position after the Rights
Offer.
The unaudited pro forma financial effects are based on the unaudited
financial information for the six months ended 31 August 2009 as announced
on SENS on 29 September 2009 and have been prepared in accordance with the
accounting policies of Sovereign at that date.
The unaudited pro forma financial effects have been included in terms of
the Listings Requirements of the JSE. The directors of Sovereign are
responsible for the preparation of the unaudited pro forma financial
effects.
Unaudited
results Unaudited
for the Pro forma
six months After the
ended Rights
Offer
31 August 31 August Percentag
e
2009 2009 Change
(%)
Earnings per share (cents) (1) 70,5 55,3 (21,6)
Headline earnings per share 70,5 55,3 (21,6)
(cents) (1)
Net asset value per share 937,8 901.3 (3,9)
(cents) (2)
Net tangible asset value per 937,8 901.3 (3,9)
share (cents) (2)
Weighted average number of 33 002 930 50 000 51.5
shares 000
Shares in issue 33 002 930 50 000 51.5
000
Notes:
(1) The unaudited pro forma financial effects on the Income Statement were
prepared on the basis that the Rights Offer was fully subscribed and
completed on 1 March 2009 and the unaudited pro forma financial effects on
the Balance Sheet were prepared on the basis that the Rights Offer was
fully subscribed and completed on 31 August 2009.
(2) Earnings and headline earnings per share are based on the weighted average
number of shares in issue at 31 August 2009 and have been adjusted to take
into account an interest saving of R6,1 million (before taxation) based on
the repayment of interest bearing debt of R108,7 million at the company`s
weighted average cost of debt of 11,3%.
(3) Net asset value per share and net tangible asset value per share have been
adjusted to include the net cash proceeds of the Rights Offer, assumed to
be R141,0 million, the reduction of debt by R108,7 million and the increase
in share capital and share premium arising from the issue of 16 997 070
ordinary shares of 1 cent each at an issue price of 850 cents per share.
Estimated costs of R3.3 million pertaining to the Rights Offer (inclusive
of Underwriting Fees) have been written off against share premium.
3 Circular to shareholders and notice of general meeting
A circular, containing details of the ordinary resolution placing the
entire authorised but unissued ordinary shares of Sovereign under the
control of the Board for purposes of the Rights Offer, will be posted to
Shareholders on Tuesday, 20 October 2009.
Notice is hereby given that a general meeting of Shareholders will be held
at 10:00am on Wednesday, 4 November 2009 ("the General Meeting") at the
Company`s registered offices at 9 Kruis River Road, Uitenhage, Eastern Cape
in order to vote on the ordinary resolution necessary to implement the
Rights Offer.
Shareholders are referred to paragraph 2.1 above regarding the Shareholder
Voting Undertakings and the Shareholder Subscription Undertakings received
by the Company.
4 Salient dates and times for the General Meeting
2009
Circular posted to Shareholders on Tuesday, 20 October
Last day for Shareholders to lodge forms
of proxy for the General Meeting at
10h00 or alternatively to be handed to
the chairman of the General Meeting at Monday, 2 November
least 10 minutes before the commencement
of the General Meeting
General Meeting to be held at 10h00 on Wednesday, 4 November
Results of General Meeting to be Wednesday, 4 November
released on SENS on
Results of General Meeting to be Thursday, 5 November
published in the press on
Note:
Any material changes to these dates and times will be released on SENS and
published in the South African press. Any reference to time is a reference
to South African time.
5 Further cautionary announcement
Shareholders are advised that Sovereign remains involved in discussions
which, if successfully concluded, may have a material effect on the price
of the Company`s securities.
Accordingly, Shareholders are advised to continue to exercise caution when
dealing in the Company`s shares until a further announcement is made.
19 October 2009
Port Elizabeth
Corporate Advisor and Sponsor:
Barnard Jacobs Mellet Corporate Finance (Pty) Limited
Reporting Accountants
PKF
Date: 20/10/2009 07:48:01 Produced by the JSE SENS Department.
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