| Wed 21 Oct 2009, 16:45 | | FGL - Finbond Group Limited - Acquisition of Investment Properties and |
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FGL
FGL
FGL - Finbond Group Limited - Acquisition of Investment Properties and
Withdrawal of Cautionary
Finbond Group Limited
(Formerly Finbond Property Finance Limited)
(Incorporated in the Republic of South Africa)
(Registration number: 2001/015761/06)
Share code: FGL & ISIN: ZAE000138095
("Finbond" or "the Company")
ACQUISITION OF INVESTMENT PROPERTIES AND WITHDRAWAL OF CAUTIONARY
1. Introduction
Shareholders are referred to the cautionary announcement issued by the Company
on 23 September 2009 and are advised that Finbond`s Property Investment Division
has entered into an agreement to purchase the following investment properties
("the investment properties"):
- portion 11;
- the remaining extent of portion 6 ( a portion of portion 1); and
- portion 10
- of the farm Swartkoppies 316 JT Mpumalanga measuring 926 hectares for an
amount of R12,5 million ("the transaction").
Shareholders are further advised that Finbond`s Property Investment Division has
also entered into a separate agreement in terms of which it has purchased an
outstanding call option against the investment properties ("the option") for an
amount of R3,6 million ("the option transaction").
The investment properties have been subject to options held since 2004 when the
land was still zoned agricultural as detailed in paragraph 2 below.
On 9 June 2008 the Mpumalanga Development Tribunal in terms of the Development
Facilitation Act 67 of 1995 approved the establishment of a land development
area on portion 11, the remaining extent of portion 6 (a portion of portion 1)
and portion 10 of the farm Swartkoppies 316 JT Mpumalanga (the "DFA Approval")
which approval included the development of the following:
- 932 residential stands;
- 61 special residential stands (2 dwellings per stand (i.e. 122 units));
- 20 residential (maximum of 10 units per stand(i.e. 200 units));
- 3 stands for golf course and ancillary land uses;
- 1 clubhouse stand;
- 1 stand for hotel purposes;
- 1 stand for a sports centre;
- 1 stand for access control;
- 2 stands for an equestrian and dairy centre; and
- 12 private open space stands.
Prior to the DFA Approval, on 17 October 2006 the Mpumalanga Provincial
Government`s Department of Agricultre and Land Administration Environmental
Management: Nkangala Region, granted authorisation to undertake a listed
activity in terms of section 22 of the Environment Conservation Act 73 of 1989
for the change of land use from agriculture to 6 star boutique hotel, golf
estate, polo estate, fly fishing estate and a diary estate on portion 11, the
remaining extent of portion 6 ( a portion of portion 1) and portion 10 of the
farm Swartkoppies 316 JT Mpumalanga.
In line with Finbond policy, two independent valuations have been obtained prior
to making the investment for the purpose of the board considering and assessing
the investment.
2. Rationale for transaction and the option transaction
As again reflected in both the circular to shareholders dated 28 July 2009
(where Finbond changed its main business and main object to "The advance of
short and medium term loans and investment in immovable property") that was
unanimously approved by all shareholders and in the 2009 Annual Report`s
segmental analysis, Finbond`s business activities span across three business
segments: micro finance and credit life insurance, property investment and
mortgage origination. Given Finbond`s strong liquidity and cash position
(approximately R80 million of cash and R50 million of undrawn facilities) the
Finbond board has approved an investment strategy that focuses on:
- strategically positioning Finbond as a Southern African Micro Finance
Institution;
- securing additional markets and revenue streams; and
- growing Finbond`s balance sheet.
In the current recessionary environment numerous opportunities present
themselves for the acquisition of assets that are substantially undervalued or
where cash strapped institutions or individuals are forced to sell assets at
prices far below their market value. With Finbond`s strong liquidity and cash
position it will exploit these opportunities and will continue to evaluate
investment opportunities that will grow its balance sheet, including property
investment opportunities which meet the following criteria: the investment is
priced at a significant discount to fair market value and this discount is
supported by two independent property valuations. Finbond`s anticipated
investment term in respect of the investment properties is approximately 5
years.
The transaction and the option transaction meet Finbond`s investment criteria
and objectives and will strengthen Finbond`s Balance sheet, thereby enhancing
the Company`s ability to obtain further funding both from local and foreign
institutions with which to grow its micro finance business and its lending book.
This increased asset base and increased ability to gear is extremely beneficial
to Finbond`s micro finance and micro insurance business where these additional
funds will be deployed.
3. Details of the transaction and the option transaction
The investment properties have been acquired from Mr. Samuel Johannes Lundall
("the vendor") for a total consideration of R12,5 million ("the transaction
consideration"). The transaction consideration will be funded from cash
resources currently at the Company`s disposal and will be settled in cash on the
date of registration of the transfer of the investment properties into the name
of Finbond. Legal title, occupation and possession of the investment properties
will transfer to Finbond upon registration of transfer into the name of the
Company.
The investment properties were subject to the option in terms of which Mr.
Albertus Benjamin Booysen ("the option holder") had the right up until 11
September 2010 to acquire a 50% interest in the investment properties for a
consideration of R7,75 million. In terms of an agreement between Finbond and
the option holder, Finbond has agreed to acquire the option for a consideration
of R3,6 million thereby extinguishing the option with effect from 6 October
2009. There are no outstanding conditions precedent to the option transaction
and the consideration in respect of the purchase thereof has been funded by
Finbond from cash resources at the Company`s disposal.
Due to the above environmental and zoning approvals, the investment properties
are currently valued far in excess of the strike prices of the respective call
options to which the investment properties were subject, because these options
were negotiated when the investment properties were zoned as agricultural land
and before any rezoning process commenced.
Dr W van Aardt, Finbond`s CEO previously held an option to acquire a 50%
interest in the investment properties on the same terms as the option holder.
This option was held via Moneyline 2027 (Proprietary) Limited which owns 39% of
the share capital in Finbond and was originally acquired together with the
option holder in January 2004 in an investment company which was wound-up in
2008. Dr van Aardt`s option expired on 11 September 2009 as Dr van Aardt did
not make the payment required to the vendor to renew the option, facilitating
Finbond`s entering into the transaction. Dr van Aardt received no consideration
or benefit of any form for allowing this option to lapse.
4. Financial effects of the transaction
Set out below are the pro forma financial effects of the transaction and the
option transaction on the audited results published by Finbond in respect of the
year ended 28 February 2009. The pro forma financial effects are the
responsibility of the directors of Finbond and have been prepared for
illustrative purposes only, to provide information on how the transaction and
the option transaction would have affected the previously published financial
results and because of their nature may not fairly present Finbond`s financial
position, changes in equity, results of operations and cash flows.
A B C D E F
Before Pro forma Pro forma Pro forma Pro forma Change
After the After the After the After the (between
Blue Chip transaction option transaction E and B)
transaction transaction and the
option
transaction
(Loss) / (23.0) (22.8) (1.9) (3.9) 17.0 174.6%
profit per
share
(cents)
Headline (1.0) (0.8) (1.1) (0.9) (1.1) (37.5%)
loss per
share
(cents)
Net asset 65.1 64.8 83.5 81.7 100.4 54.9%
value per
share
(cents)
Tangible 23.6 23.6 42.3 40.5 59.2 150.9%
net asset
value per
share
(cents)
Notes:
1. The amounts set out in the "Before" column have been extracted from
Finbond`s audited results for the year ended 28 February 2009.
2. The amounts set out in the "After the Blue Chip transaction" column
show the effects of the sale by Finbond of part of the business of
Blue Chip Finance No. 1 (Proprietary) Limited ("Blue Chip") resulting
in Finbond becoming the sole shareholder in Blue Chip as detailed in
the circular issued to Finbond shareholders on 21 July 2009.
3. The amounts reflected in "After the transaction" column show the
effect of the transaction on the numbers presented in the "After the
Blue Chip transaction" column and incorporate the following key
assumptions:
a. For the purpose of earnings and headline earnings per share it
has been assumed that the transaction was effective 1 March 2008.
For the purpose of net asset value per share and tangible net
asset value per share it has been assumed that the transaction
was effective 28 February 2009 and the payment of the transaction
consideration took place on that date.
b. The transaction consideration was funded from Finbond`s available
cash resources resulting in a reduction in interest income.
c. The investment properties have been valued at R140 million as at
17 August 2009 by O Bolweg, an independent registered
professional valuer and accordingly restated to fair value in
terms of the requirements of IFRS relating to investment
properties (IAS40). This adjustment, due its nature, can not be
expected to have a continuing effect of Finbond`s earnings going
forward.
d. A liability of R62,1 million has been accounted for in respect of
the option. This is equal to 50% of the fair value of the
properties less the option exercise price and option renewal
money of R125 000 that was payable by the option holder to the
owner of the investment properties prior to the conclusion of the
option transaction.
e. The transaction agreement was signed on 26 August 2009 and the
transaction will be accounted for in Finbond`s interim results in
accordance with IAS 40.16 which states that investment property
should be recognised as an asset when it is probable that future
economic benefit will flow to the entity and the cost of the
investment can be reliably determined.
f. Deferred taxation has been provided for on the revaluation of
investment properties at a rate of 14%.
4. The amounts reflected in "After the option transaction" column show
the effect of the option transaction on the numbers presented in the
"After the Blue Chip transaction" column and incorporate the following
key assumptions:
a. For the purpose of earnings and headline earnings per share it
has been assumed that the option transaction was effective 1
March 2008. For the purpose of net asset value per share and
tangible net asset value per share it has been assumed that the
option transaction was effective 28 February 2009 and the payment
of the consideration of R3,6 million in respect thereof took
place on that date.
b. The option transaction consideration was funded from Finbond`s
available cash resources resulting in a reduction in interest
income.
c. The option has been valued at 50% of the value of the investment
properties, as per 3c above, less the option exercise price of
R7,75 million and option renewal money payed to Finbond of R125
000 as referred to in 3d above, in terms of the requirements of
IFRS relating to investment properties (IAS40). This adjustment,
due its nature, cannot be expected to have a continuing effect on
Finbond`s earnings going forward.
d. The option transaction agreement was signed on 6 October 2009 and
the option transaction will accordingly be accounted for in
Finbond`s year end results.
e. Deferred taxation has been provided for on the revaluation of
option at a rate of 14%.
5. The amounts reflected in the "After the transaction and the option
transaction" column shows the combined effect of the transaction and
the option transaction on the numbers presented in the "After the Blue
Chip transaction" column.
5. Classification of the transaction
The transaction is, in terms of the JSE Limited Listings Requirements ("the
Listings Requirements"), classified as a Category 2 Transaction and is not, in
terms of paragraph 21.11(a) of the Listings Requirements, regarded as a related
party transaction due to its size. The option transaction is not categorized in
terms of the Listings Requirements.
6. Withdrawal of cautionary
Shareholders are referred to the cautionary announcement published on SENS on 23
September 2009 and are advised that they need no longer exercise caution when
dealing in Finbond shares.
Pretoria
21October 2009
DESIGNATED ADVISOR:
GRINDROD BANK LIMITED
Date: 21/10/2009 16:45:01 Produced by the JSE SENS Department.
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