| Thu 12 Aug 2010, 17:42 | | BFS - Blue/ Mayibuye - Trading update and announcement to shareholders of Blue |
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BFS
BFS
BFS - Blue/ Mayibuye - Trading update and announcement to shareholders of Blue
on progress regarding the proposed recapitalisation of the Company
Blue Financial Services Limited
(Incorporated in the Republic of South Africa)
(Registration Number: 1996/006595/06)
JSE Share code: BFS
ISIN: ZAE000083655
("Blue" or the "Company")
Mayibuye Group (Proprietary) Limited
(Incorporated in the Republic of South Africa)
(Registration Number: 1998/022424/07)
("Mayibuye")
Trading update and announcement to shareholders of Blue on progress regarding
the proposed recapitalisation of the Company
1. Trading update
Shareholders are referred to the announcement released on the Securities
Exchange News Service ("SENS") of the JSE Limited ("JSE"), of the
Company`s reviewed provisional results for the year ended 28 February
2010, wherein it was reported that the Company had incurred a loss of
R1.030bn ("2010 results announcement"). In the 2010 results announcement
it was stated that the Company`s ability to continue as a going concern
is dependent on the successful implementation of the "Recapitalisation"
(as detailed in paragraph 2 below) of Blue, the ongoing support of
existing key funders and the implementation of an effective turnaround
plan, which includes further cost reductions, improvements in operational
efficiencies and business sophistication, along with the ability to
obtain future funding.
To date the Company has not completed the Recapitalisation and as a
result, Blue continues to trade unprofitably. Accordingly, shareholders
are advised that the Company expects to incur a loss for the six months
ending 31 August 2010. The board is unable at this stage to determine
with a reasonable degree of certainty whether it will be more than 20%
when compared to the immediately corresponding period for the six months
ended 31 August 2009. Once the board has obtained a reasonable degree of
certainty, a further trading update will be issued advising shareholders
as to the quantum of the loss expected for the six months ending 31
August 2010.
This trading update has not been reviewed or reported on by the Company`s
external auditors.
2. Background to the Recapitalisation
Shareholders are referred to the announcement of the terms of the
Recapitalisation released on SENS on Monday, 21 June 2010 ("Terms
Announcement").
Shareholders were advised that Mayibuye will subscribe, subject to
certain conditions, for ordinary shares in Blue by way of a specific
issue of 1 253 846 154 ordinary shares for cash (the "Specific Issue") at
an issue price of 13 cents per Blue ordinary share, for an aggregate
subscription consideration of R163 million ("Aggregate Subscription
Consideration"). . Shareholders were also advised that in order to
implement the Recapitalisation, Blue may be required to issue ordinary
shares in the future in respect of the following:
* the potential specific issue of ordinary shares in Blue to Mayibuye
to settle any claim resulting from the breach of any warranty
contained in the subscription agreement entered into between Blue
and Mayibuye ("Subscription Agreement");
* the potential specific issue of ordinary shares in Blue to specific
existing funders of Blue, in terms of a debt restructuring agreement
("Debt Rescheduling Agreement") to be entered into between, amongst
others, Blue and certain of its existing funders ("Dilution Shares")
to convert such debt that may be outstanding at any time during but
not later than at the end of the period provided for in the Debt
Rescheduling Agreement into ordinary shares in Blue; and
* the potential specific issue of ordinary shares in Blue to Mayibuye
to ensure that the shareholding of Mayibuye in Blue does not reduce
to below 51% as a result of the issue of any Dilution Shares.
With regard to the Specific Issue, and in terms of the Subscription
Agreement, Mayibuye will settle the Aggregate Subscription Consideration
as follows:
* R150 million thereof by way of a cash payment to Blue; and
* R13 million thereof by way of setting off Mayibuye`s obligation to
pay the balance of the Aggregate Subscription Consideration (being
R13 million) to Blue, against Blue`s obligations to Mayibuye in
terms of the rights and claims acquired by Mayibuye from Pinebridge
Global Emerging Markets Partners II, L.P. and Pinebridge Capital
Partners LLC ("Pinebridge") (previously AIG Global Emerging Markets
Partners II, L.P. and AIG Capital Partners LLC, respectively), a
material shareholder in Blue, in terms of an agreement concluded
between Mayibuye and Pinebridge ("Pinebridge Agreement").
In terms of the Subscription Agreement, Mayibuye (or its nominee) has
agreed to inject R300 million of capital into the Company to develop a
new loan book, by implementing the Claims Purchase Agreement.
In terms of the claims purchase agreement which is in the process of
being negotiated between, amongst others, Leonox Investments
(Proprietary) Limited ("Leonox"), Creditedge (Proprietary) Limited, Blue
and Old Mutual Life Assurance Company (South Africa) Limited ("Claims
Purchase Agreement"), it is intended that Blue and certain of its
subsidiaries will be able to offer for sale to Leonox, from time to time,
certain claims which such selling companies have against debtors (arising
from the microlending businesses of such selling companies). The total
amount available to Leonox to be spent by Leonox in making such purchases
will not exceed R300 million in the aggregate. It is contemplated that
the Claims Purchase Agreement will provide for a portion of the profit
margin on claims purchased to be passed onto Blue. Mayibuye holds an
interest through a preference share in Leonox.
3. Fulfilment of key conditions precedent
As set out in the Terms Announcement, the Recapitalisation is dependent
on the fulfillment and/or waiver of a number of conditions precedent.
Since the release of the Terms Announcement, the following key conditions
precedent have been fulfilled:
* Conclusion of the Pinebridge Agreement between Mayibuye and
Pinebridge; and
* Receipt by Blue of unconditional approval of the Recapitalisation by
the South African Competition Authorities. Discussions with
regulators in jurisdictions outside of South Africa are ongoing.
Considerable progress has been made on other conditions precedent, viz
the Debt Rescheduling Agreement with Funders and the Claim Purchase
Agreement (R300m debt financing) and a further update will be issued to
shareholders as these are completed.
4. Turnaround
As Blue has now received unconditional approval from the South African
Competition Authorities, the board is permitted to authorise Mayibuye to
commence pre-implementation measures within the South African operations
of Blue in connection with the proposed turnaround plan required to
return Blue to profitability in the medium term. Accordingly, the board
has authorised Johan Meiring from Mayibuye to commence with the
implementation of the turn-around strategy of Blue with immediate effect.
5. Board and management changes
As set out in the Terms Announcement, following the implementation of the
Recapitalisation, it is Mayibuye`s intention to make changes to both the
board and management of Blue.
A condition of the Subscription Agreement is that all current members of
the board will resign, and a new board will be established with effect
from the first business day following the date on which the last of the
conditions precedent to the Subscription Agreement is fulfilled or
waived, as the case may be. To assist the Company with the appointment
of a new board, a nominations committee, comprising representatives from
Blue and Maybiuye as well an independent party ("Nominations Committee"),
has been established. The current members of the Blue board have been
requested to indicate to the Nominations Committee who amongst them
wishes to reapply for a position on the board post the implementation of
the Recapitalisation. Mayibuye has also submitted its nominations to the
Nominations Committee, which is in the process of considering all
available options.
Other than two key positions, the Nominations Committee is close to
finalising the composition of the proposed new board. A further
announcement will be made in this regard shortly.
It is proposed that the existing board of the Company will be
reconstituted such that it will consist of two executive directors and
eight non-executive directors of whom at least five will be independent
non executive directors (including an independent non-executive
chairman). A further non-executive directorship has been offered to the
existing lenders of the Company whilst their loans are outstanding. In
compliance with King III, the Audit Committee will consist of three
independent non-executive directors, of whom the independent non-
executive chairman of the board will not be a member. In addition to the
Audit Committee, the Company expects to continue operating a Risk
Committee, Credit Committee, Remuneration Committee and Executive
Committee to assist the new board in discharging its responsibilities.
Shareholders are also referred to the announcement released on SENS on
Monday, 2 August 2010, wherein shareholders were advised that the then
incumbent Chief Executive Officer ("CEO") of the Company, Dave van
Niekerk, had resigned as CEO and as a Executive Director of Blue with
immediate effect, and that the current independent non-executive chairman
Sipho Twala, had assumed the role of interim-CEO.
Mayibue will only consider any changes to senior management once it has
undertaken a detailed and extensive evaluation of the total management
structure of the group post the implementation of the Recapitalisation
6. Further announcement and circular to shareholders
As advised previously in the Terms Announcement, a further announcement
disclosing the unaudited pro forma financial effects of the
Recapitalisation will be made shortly. A circular containing the details
of the Recapitalisation, the ancillary corporate actions and
incorporating a notice of general meeting will be posted to shareholders
in due course.
7. Cautionary announcement
Shareholders are referred to the renewal of cautionary announcement
released on SENS on Monday 2 August 2010, and are hereby advised to
continue exercising caution when dealing in their Blue securities until a
further announcement disclosing the unaudited pro forma financial effects
of the Recapitalisation is made.
Pretoria
12 August 2010
Financial adviser to Blue
NM Rothschild & Sons (South Africa) (Proprietary) Limited
Designated adviser to Blue
Grindrod Bank Limited
Legal adviser to Blue
Garlicke & Bousfield Inc
Financial adviser to Mayibuye
PricewaterhouseCoopers Corporate Finance (Proprietary) Limited
Legal adviser to Mayibuye
Cliffe Dekker Hofmeyr Inc
Date: 12/08/2010 17:42:01 Produced by the JSE SENS Department.
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implicitly, represent, warrant or in any way guarantee the truth, accuracy or
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indirect, incidental or consequential loss or damage of any kind or nature,
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