| Wed 23 Dec 2009, 15:00 | | IPS - IPSA Group Plc - Trading and working capital update and |
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IPS
IPSA
IPS - IPSA Group Plc - Trading and working capital update and
conditional turbine sale agreement
IPSA GROUP PLC
(Incorporated and registered in England and Wales)
(Registration Number 5496202)
AIM Share Code IPSA & ISIN GB00BOCJ3F01
JSE Share Code IPS & ISIN GB00B0CJ3F01
("IPSA" or "the company")
TRADING AND WORKING CAPITAL UPDATE AND CONDITIONAL TURBINE SALE
AGREEMENT
IPSA PLC (AIM:IPSA), the developer, owner and operator of power
generation capacity in Southern Africa, announces an update as regards
its current trading and working capital position, and a conditional
related party agreement to sell one of its turbines.
TRADING AND WORKING CAPITAL UPDATE
Over the last year the Company has been actively seeking to sell one or
more of its four Siemens Westinghouse 701 DU turbines (formerly referred
to as the Fiat Avio 501 D turbines, and now upgraded) ( the "Turbines")
which were originally acquired for the delayed Coega project at Port
Elizabeth, South Africa.
Whilst strict cost containment measures have been implemented, with no
revenues currently being generated the Company`s working capital
position remains extremely tight, with little visibility beyond the next
few months unless further working capital can be raised in the
intervening period.
As previously announced, the most advanced discussions that have been
taking place with regard to realising value from the Turbines have been
with Independent Power Corporation PLC (`IPC`), a company with
significant experience in developing and operating power projects in a
number of countries including in Latin America. IPC is controlled by
Peter Earl, chief executive of IPSA and IPC.
In the last few weeks, the Company has been informed that IPC have
advanced an opportunity to develop a gas-fired power plant at Huaricana
near La Paz, Bolivia, using one of the Company`s Turbines, which will
require IPC to acquire conditionally the Turbine with immediate effect.
Finance for the Huaricana project has been offered by local Bolivian
banks and contractors. Corporacion Andina de Fomento ("CAF"), the Andean
Development Corporation has expressed an interest in participating in
the financing of the project. Financial close and the commencement of
construction are both expected at the end of the first quarter of 2010.
However, it must be emphasised that completion of this development is
dependent on, inter alia, appropriate financing being available to IPC
and on its obtaining appropriate approvals in the coming months from the
Bolivian Electricity Control Authority to install and develop the power
plant.
Given the difficulty of the Company`s present working capital position,
and after discussions with the Company`s bank, the directors of IPSA
believe that entering into a contract to sell a Turbine to IPC for the
purposes of the Huaricana power project is in the best interests of
shareholders.
CONDITIONAL SALE OF ONE OF THE TURBINES
On 22 December 2009, the Company therefore entered into a conditional
agreement with IPC and IPOL Bolivia Sucursal ("IPOL"), a branch office
of a subsidiary of IPC, for the sale of one of its four Turbines to IPOL
for USD 30 million. The consideration is consistent with an independent
valuation carried out in January 2009 on behalf of Standard Bank. The
agreement provides for a deposit of USD 1 million, a further USD 20
million payable within 90 days thereafter (the "Completion Date"), and
the final USD 9 million payable by 31 March 2011.
The deposit has been recognised by IPSA through the extinguishing of USD
1 million of existing sterling indebtedness of IPSA to IPC. The deposit
is refundable at IPSA`s option should it wish to terminate the agreement
prior to the Completion Date, and at IPOL`s option if two conditions
precedent are not satisfied (or waived by IPOL) relating to the Company
obtaining consent for the transaction from the Company`s bank, Standard
Bank, and from Turbocare (which holds the Turbines). Upon satisfaction
of the conditions precedent, completion is due to take place upon the
payment of the second instalment of USD 20 million, by which time, in
the first quarter of 2010, formal Bolivian governmental approvals for
the Huaricana project are expected to be granted and construction is
expected to have commenced. The directors of IPSA have been advised
that the Huaricana plant could enter into commercial operations in the
first quarter of 2011, being the point at which the final balance of
funds are due for payment under the contract.
The funds payable on completion will be used by the Company to make a
partial repayment of its senior debt facility secured on the turbines
and a partial payment of the refurbishment costs. It is intended that
the balance will be retained by the Company for working capital
purposes.
Peter Earl, chief executive of the Company, controls IPC. Elizabeth
Shaw, the Company`s chief operating officer, is also a director of IPC.
James West, a non-executive director of IPSA was formerly a director of
IPC. As a result, the conditional sale of the Turbine to IPOL and the
extinguishing of part of IPC`s loan to IPSA are both classified as
related party transactions under the AIM Rules. The Independent
Directors, being Stephen Hargrave and Neil Bryson, consider, having
consulted with Noble & Company Limited (the Company`s nominated
adviser), that the terms of the sale and purchase agreement and the
related extinguishing of part of IPC`s loan to IPSA are fair and
reasonable insofar as IPSA`s shareholders are concerned.
Commenting on the sale of the turbine, Peter Earl, chief executive of
IPSA, said: "This agreement for the sale of a turbine for a fast track
project in Bolivia confirms the belief of the Board of IPSA that the
best price will be realised for the Company`s Siemens Westinghouse
turbines by selling them into a project rather than as commodity items.
There is a world-wide shortage of large gas turbines available for
immediate delivery and we believe that the best return for IPSA
shareholders comes from selling our turbines directly into power
projects in emerging markets."
For further information contact:
Peter Earl, CEO, IPSA Group PLC: +44 (0)20 7793 5615
John Llewellyn-Lloyd, Noble & Company Ltd: +44 (0)20 7763 2200
Ana Ribeiro, Account Director, Blythe Weigh Communications: +44 (0) 20
7138 3206
23 December 2009
PSG Capital (Pty)
Date: 23/12/2009 15:00:06 Produced by the JSE SENS Department.
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