| Mon 19 Apr 2010, 12:43 | | EQS - Eqstra Holdings - Proposed rights offer and notice of general meeting |
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EQS
EQS
EQS - Eqstra Holdings - Proposed rights offer and notice of general meeting
Eqstra Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number: 1998/011672/06)
Share Code: EQS, ISIN: ZAE000117123
("Eqstra" or "the Company")
Proposed rights offer and notice of general meeting
1. Introduction
In its interim results presentations for the six months ended 31 December 2009,
Eqstra announced that it was considering a rights offer in order to strengthen
its balance sheet and to ensure sufficient headroom to meet future debt
covenants. The Board of directors has resolved to raise R650 million by way of a
renounceable rights offer to qualifying Eqstra shareholders (the "Rights
Offer").
2. Rationale for the Rights Offer
2.1 Adequately capitalising Eqstra through the bottom of the business cycle
Eqstra`s published results for the 6 months ended 31 December 2009 showed a
substantial improvement in profitability. Eqstra believes that it is now through
the bottom of the business cycle but certain risks, beyond the control of Eqstra
management, remain. These risks include unseasonably heavy rainfalls, the threat
of industrial action and uncertainty around construction equipment sales
following the 2010 FIFA World Cup. Eqstra believes it to be an appropriate time
to adequately capitalise the Company through the bottom of this business cycle.
2.2 Strengthening the balance sheet
Eqstra is, and will continue to be, a leveraged company. After 30 June 2010,
Eqstra`s debt covenants will increase. The minimum capital adequacy ratio will
increase from 18% to 20% and the interest cover ratio will increase from 3.25x
to 3.50x. Although Eqstra management believes that it will achieve these
covenants, the resulting consequences of breaching a debt covenant would have a
material impact on earnings and shareholder value. This is a not a risk that
management is prepared to take. Additional equity capital is required to ensure
that the capital adequacy covenant will be met and to provide sufficient
headroom to cater for unmitigated risks.
On 30 March 2010, Standard & Poor`s downgraded Eqstra`s Long Term South African
National Scale credit rating to BBB from A-. The rationale for the downgrade was
weaker than anticipated financial performance and the concentration of Eqstra`s
funding. In order to achieve a positive ratings action, it is imperative that
Eqstra accesses the debt capital markets to diversify its funding sources.
Strengthening the balance sheet with additional equity will position Eqstra more
favourably to access the debt capital markets.
2.3 Capitalising the Benga Coal Project
On 14 April 2010, Eqstra announced that the tender for the 5 year mining
contract on the Benga Coal Project in Mozambique had been awarded to MCC
Contracts (Proprietary) Limited, a wholly owned subsidiary of Eqstra. R800
million to R900 million of new equipment will be required for this project of
which 15% to 25% will be required as equity.
The Rights Offer proceeds will be used to repay short term debt, although debt
facilities will remain in place. R150 million to R200 million will be used to
capitalise the Benga Coal Project over the next 6 to 12 months.
3. Shareholder approvals
In order to implement the Rights Offer, shareholders are required to:
- authorise an increase in the Company`s authorised share capital; and
- place the Company`s authorised but unissued shares under the control of the
Board of directors for the specific purpose of implementing the Rights Offer.
Shareholders holding a majority of the shares in Eqstra have indicated their
support for the Rights Offer and their intention to vote in favour of the
proposed resolutions.
4. Notice of general meeting
Notice is hereby given that a general meeting of Eqstra shareholders will be
held in the Eqstra Meeting Room, 12 Corobrik Road Meadowdale, Gauteng, at 10:00
on Wednesday, 12 May 2010 for the purpose of considering the business as set out
in the notice of general meeting of shareholders.
A circular incorporating a notice of general meeting was posted to shareholders
on Monday, 19 April 2010.
5. Cautionary announcement
The final terms, timetable and pro forma financial effects of the Rights Offer
are yet to be finalised and will be announced in due course. Eqstra shareholders
are advised to exercise caution when dealing in the Company`s securities until a
further announcement is made.
Johannesburg
19 April 2010
Investment bank and transaction sponsor
Standard Bank
Sponsor
Merrill Lynch South Africa (Proprietary) Limited
Legal adviser
Webber Wentzel
Date: 19/04/2010 12:43:01 Produced by the JSE SENS Department.
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