| Fri 1 Oct 2010, 14:30 | | BFS - Blue/ Mayibuye - Update announcement to shareholders of Blue and |
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BFS
BFS
BFS - Blue/ Mayibuye - Update announcement to shareholders of Blue and
withdrawal of cautionary announcement
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")
Update announcement to shareholders of Blue on progress regarding the proposed
recapitalisation of the Company (the "Recapitalisation"), issue of unaudited pro
forma financial effects and withdrawal of cautionary announcement.
1 Background to the Recapitalisation
Shareholders are referred to the announcement of the terms of the
Recapitalisation released on the Securities Exchange News Services ("SENS")
of the JSE Limited on Monday, 21 June 2010 ("Terms Announcement"), the
renewal of cautionary announcement released on SENS on 2 August 2010 and
the further update announcements released on SENS on 12 August 2010 and 1
September 2010 (collectively the "Announcements").
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 rescheduling agreement ("Debt
Rescheduling Agreement") to be entered into between, amongst others, Blue
and certain of its existing funders 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 ("Dilution Shares"); 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 ("Anti-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., a Cayman Islands exempted limited partnership, which
holds 25.25% of the ordinary shares of Blue ("Pinebridge"), 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 provide R300 million of capital to the Company to develop a new
loan book, by implementing the Claims Purchase Agreement (as defined
below).
In terms of the Claims Purchase Agreement that was concluded 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 in this
regard will not exceed R300 million in the aggregate. 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.
2 Fulfilment of key conditions precedent
As set out in the Terms Announcement, the Recapitalisation is dependent on
the fulfilment and/or waiver of a number of conditions precedent. Since the
release of the various Announcements, Blue shareholders are advised that
the following key conditions precedent have been fulfilled:
- Conclusion of the Pinebridge Agreement between Mayibuye and Pinebridge;
- Conclusion of the Debt Rescheduling Agreement;
- Conclusion of the Claims Purchase Agreement; and
- Receipt by Blue of unconditional approval of the Recapitalisation by the
South African Competition Authorities.
The Subscription Agreement is still subject to the fulfilment or waiver, as the
case may be, of the following key conditions precedent:
* The passing by Blue shareholders of all resolutions required to implement
the Recapitalisation including the resolution waiving the requirement for a
mandatory offer in terms of rule 8.7 of the Code, and, where relevant, the
registration of such resolutions with CIPRO. In this regard shareholders
are reminded that Blue has obtained irrevocable undertakings to vote in
favour of all the resolutions required to implement the Recapitalisation
from shareholders holding in aggregate 71.4% of the ordinary shares of
Blue. A circular as detailed in paragraph 5 below, will be sent to
shareholders during the course of next week; and
* Obtaining the remaining regulatory approvals to the extent required,
including the approval of the Competition Authorities (outside of South
Africa), the JSE and the SRP (as it pertains to granting of the waiver to
make a mandatory offer). Discussions with regulators in jurisdictions
outside of South Africa, namely Cameroon, Malawi, Namibia and Tanzania are
ongoing. The Competition Authorities in the following jurisdictions,
namely: Botswana, Kenya, Lesotho, Nigeria, Rwanda, Swaziland, Uganda and
Zambia, have where applicable, either been notified of, or have provided
approval for the Recapitalisation.
3 Board and management changes
As set out in the update announcement released on SENS on 12 August 2010 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 Mayibuye as
well an independent party ("Nominations Committee"), has been established.
The Nominations Committee has concluded its evaluation of the proposed new
board structure, and recommended its nominations to the current board on
Tuesday, 28 September 2010.
Shareholders are accordingly advised that all members of the current board
have tendered their resignations, which will become effective 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. It is proposed that the new board of the Company, post the
implementation of the Recapitalisation will be reconstituted as follows:
Name Designation
Sipho Twala Independent non-executive and
Chairman
Robert Emslie Independent non-executive and Deputy
Chairman
Johan Meiring Chief Executive Officer
Shaun Strydom Chief Financial Officer
Alan Ber Non-executive
Moss Mashishi Non-executive
Tony Couloubis Non-executive
Leonard Fine Independent non-executive
Timothy Till Independent non-executive
James French Independent non-executive
Mike Meehan Independent non-executive
Post the implementation of the Recapitalisation the board will comprise of
11 members of which five will have sat on the previous board of Blue and
six will be entirely new members. A short curriculum vitae of each of the
above proposed directors will be included in the circular to shareholders
as detailed in paragraph 5 below.
4 Unaudited pro forma financial effects
The table below illustrates the unaudited pro forma financial effects of
the Recapitalisation on the published audited consolidated results of the
Company for the year ended 28 February 2010.
The preparation of the unaudited pro forma financial effects is the
responsibility of the directors of Blue. The unaudited pro forma financial
effects have been prepared for illustrative purposes only to provide
information on how the Recapitalisation may have impacted on the financial
position and results of the Company and, due to the nature thereof, may not
be a fair reflection of the Company`s financial position, nor of its future
results, after implementation of the Recapitalisation.
Before After %
(cents) (cents) change
Loss per share (170.3) (56.9) 66.6%
("EPS")(1)(2)(3)(4)(6)
Headline loss per share ("HEPS") (135.0) (45.5) 66.3%
(1)(2)(3)(4)(6)
Net asset value per share ("NAVPS") (3.1) 6.6 -
(1)(2)(3)(5)(6)
Net tangible asset value per share (85.7) (20.9) 75.6%
("NTAV") (1)(2)(3)(5)(6)
Number of shares in issue (`000) 624,370 1,878,216 200.8%
Weighted average number of shares 599,038 1,852,884 209.3%
(`000)
Notes:
1 The unaudited pro forma financial effects are based on the accounting
policies adopted by the Company and are in accordance with IFRS.
2 The `before` column is based on the published audited consolidated results
for the year ended 28 February 2010.
3 The `after` column has been adjusted for the effects of the
Recapitalisation.
4 For purposes of calculating EPS and HEPS, the unaudited pro forma financial
effects are calculated on the following assumptions:
A) The Recapitalisation was implemented on 1 March 2009 and the cash portion
(R150 million) of the Aggregate Subscription Consideration was made
available to Blue on 1 March 2009;
B) Once off transaction, implementation and restructuring costs of R10 million
(pre-tax) in aggregate are assumed to be settled from the cash portion of
the Aggregate Subscription Consideration, and are assumed to be tax
deductible;
C) The non-recurring expense of R13 million relating to the settlement of the
Pinebridge Settlement Amount in terms of the Pinebridge Agreement has been
recognized in the statement of comprehensive income, but this expense is
assumed to be non tax deductible;
D) No income has been assumed to be generated from the balance of R140 million
from the Aggregate Subscription Consideration as to do so would be
inconsistent with the JSE Listing Requirements which does not permit pro
forma adjustments relating to future events or decisions. The Company,
however intends to deploy the R140m balance of the cash proceeds received
from Aggregate Subscription Consideration to generate a new book of loans
and advances to customers and therefore generate earnings for the Group
based on targeted earnings yields;
E) The Debt Rescheduling Agreement is accounted for as follows:
I Capital repayments totalling c. R72.4 million that were made from 1
March 2009 to 28 February 2010 to Existing Lenders are assumed to be
rescheduled to 28 February 2010;
II A notional interest expense of c. R6.4 million (pre-tax) has been
calculated at the interest rates charged by each Existing Lender over
the 12 month period and is assumed to be paid on a monthly basis, to
reflect the impact of the increased outstanding loan balance due to
Existing Lenders, as a result of the capital repayments having been
rescheduled; and
III No income has been assumed from the deployment of the additional net
cash (after deducting the notional interest expense), that would have
been available to the Group as a result of having rescheduled the
principal payment of R72.4 million, as to do so would be inconsistent
with the JSE Listings Requirements which do not permit adjustments
that are not factually supportable. However had this additional cash
been available to Blue, the Group would have deployed it to generate
income based on targeted earnings yields;
F) The Claims Purchase Agreement is accounted for as follows:
I A facility will be made available to Blue whereby Claims which at any
point may not exceed R300 million will be sold to Leonox. It is
assumed that R125 million of Claims were sold to Leonox during 1 March
2009 and 28 February 2010;
II An implied cost of funding of 5% above the then prevailing prime
lending rate is assumed to be incurred. This implied cost of funding
is recognised for the period from 1 March 2009 to 28 February 2010.
The total cost of funding recognised for the year is c. R13.4 million
(pre-tax);
III No income has been assumed from the deployment of the net cash made
available to Blue to generate new loan advances to customers, as to do
so would be inconsistent with the JSE Listings Requirements which do
not permit pro forma adjustments that are not factually supportable or
are based on future events or decisions. The Company however will
utilise the facility made available in terms of Claims Purchase
Agreement to generate a new book of loans and advances to customers
and therefore generate earnings for the Group based on targeted
earnings yields;
G) A full tax rate of 28% has been applied and the impact of any tax losses is
ignored. All interest expenses incurred are assumed to be tax deductible;
and
H) No value has been attributed to any cost savings or cost synergies expected
from Mayibuye`s participation in Blue`s operations.
5 For purposes of calculating NAVPS and NTAVPS, the unaudited pro forma
financial effects are calculated on the following assumptions:
A) The Recapitalisation was implemented on 28 February 2010;
B) The Aggregate Subscription Consideration of R163 million has been added to
share capital;
C) The cash portion of the Aggregate Subscription Consideration of R150
million has been added to cash and cash equivalents;
D) Once off transaction, implementation and restructuring costs of R10 million
(pre tax) or R7.2 million (post tax), all of which are assumed to be tax
deductible, are paid out of cash resources;
E) The Pinebridge Settlement Amount of R13 million will be settled out of
earnings thereby increasing the Company`s accumulated loss. This non-
recurring cost is assumed to be non tax deductible;
F) No effect of the Debt Rescheduling Agreement has been recognised as it is
assumed that this agreement was implemented on 28 February 2010, and
therefore the impact of any rescheduling of debt would not have occurred on
this date; and
G) No effect of the Claims Purchase Agreement has been recognised as it is
assumed that this agreement was implemented on 28 February 2010. The
capital facility available in terms of Claims Purchase Agreement is on a
draw down basis and subject to Blue meeting predetermined vetting criteria.
Accordingly it is assumed that as at 28 February 2010 no drawdown would
have occurred.
6 The potential issue of the Warranty Shares, Dilution Shares and Anti-
Dilution Shares have no financial impact for this period, other than the
potential dilutive impact on shareholders if required to be issued. The
potential effects are illustrated in Sections 4.1.1 and 4.1.2 below.
4.1.1 Illustrative effects of potential issue of Warranty Shares
The following table sets out the unaudited pro forma financial effects of the
potential issue of Warranty Shares under different assumed scenarios:
Pro Low Medium High
forma(1) case(4) case(5) case(6)
(cents) (cents) (cents) (cents)
Loss per share (56.9) (56.4) (52.5) (45.6)
Headline loss per share (45.5) (45.2) (42.5) (37.7)
NAV per share 6.6 6.2 3.4 (1.5)
NTAV per share (20.9) (20.9) (20.8) (20.6)
Number of shares in 1,878,216 1,903,216 2,128,216 2,693,216
issue (`000)
Weighted number of 1,852,884 1,877,884 2,102,884 2,667,884
shares (`000)
Further shares issued - 25,000 250,000 815,000
to Mayibuye (`000)
Mayibuye shareholding % 61.4% 61.9% 66.0% 73.1%
Existing Blue 38.6% 38.1% 34.0% 26.9%
shareholders %
1 The `Pro forma` column is based on the unaudited pro forma financial
effects for the year ended 28 February 2010.
2 The remaining columns are based on potential scenarios whereby a warranty
claim by Mayibuye will result in Warranty Shares being issued, which it is
assumed will be issued at a 30 day VWAP of 20 cents per Blue share.
3 The once-off net after tax expense attributable to the potential warranty
claim is adjusted against the earnings of the Company.
4 The `low case` column is based on a potential scenario where the post-tax
warranty Claim Amount is R5 million.
5 The `medium case` column is based on a potential scenario where the post-
tax warranty Claim Amount is R50 million.
6 The `high case` column is based on a potential scenario where the post-tax
warranty Claim Amount is R163 million.
4.1.2 Illustrative effects of potential issue of Dilution Shares and Anti-
Dilution Shares
The following table sets out the unaudited pro forma financial effects of the
potential issue of Dilution Shares and Anti-Dilution Shares under different
assumed scenarios:
Pro Low Medium High
forma(1) case(3) case(4) case(5)
(cents) (cents) (cents) (cents)
Loss per share (56.9) (50.5) (42.2) (18.3)
Headline loss per share (45.5) (40.5) (33.6) (14.4)
NAV per share 6.6 8.1 8.9 9.4
NTAV per share (20.9) (16.1) (11.7) 0.1
Number of shares in 1,878,216 2,128,216 2,498,714 5,559,938
issue (`000)
Weighted number of 1,852,884 2,102,884 2,473,382 5,534,607
shares (`000)
Further shares issued - 250,000 500,000 2,000,000
to Existing Lenders
(`000)
Anti-Dilution shares - - 120,498 1,681,722
issued to Mayibuye
(`000)
Mayibuye shareholding % 61.4% 54.2% 51.0% 51.0%
Existing Lenders 0.0% 11.7% 20.0% 36.0%
shareholding %
Existing blue 38.6% 34.0% 29.0% 13.0%
shareholders %
1 The `Pro forma` column is based on the unaudited pro forma financial
effects for the year ended 28 February 2010.
2 The remaining columns are based on potential scenarios whereby there
remains an outstanding debt to Existing Lenders that will result in
Dilution Shares, and if required, Anti-Dilution shares being issued
I Dilution and Anti-Dilution shares are assumed to be issued at a 30 day VWAP
of 20 cents per Blue share;
II The interest expense that is attributable to the outstanding debt to
Existing Lenders is assumed to have an average interest rate of 15% per
annum. This interest expense, after taxes, is added back to earnings for
an assumed 12 month period in order to calculate the illustrative effects
in the low, medium and high cases above. The interest expense is assumed
to be fully tax deductible;
III The Dilution and Anti-Dilution shares are assumed to be in issue for the
period from 1 March 2009 to 28 February 2010 for the purposes of
calculating the EPS and HEPS, illustrative effects;
IV The Dilution and Anti-Dilution shares are assumed to be issued on 28
February 2010 for the purposes of calculating the NAV and TNAV illustrative
effects;
3 The `low case` column is based on a potential scenario where the
outstanding debt to Existing Lenders amount is R50 million. In this
scenario no Anti-Dilution Shares are issued to Mayibuye and its resulting
shareholding remains above 51% i.e. 54.2%. The extent of Mayibuye holding
more than a 51% shareholding gives rise to a charge of R13.6 million in
terms of IAS 39. This charge is based on 68.123 million shares held in
excess of 51% at an assumed 30 day VWAP of 20c cents per Blue share. This
charge is raised against earnings and credited against other reserves and
is assumed to be non tax deductable.
4 The `medium case` column is based on a potential scenario where the
outstanding debt to Existing Lenders amount is R100 million. In this
scenario Anti-dilution shares are issued to Mayibuye and its resulting
shareholding is 51%. As a result, no charge for excess shareholding, which
applies to the `low case` scenario, is affected.
5 The `high case` column is based on a potential scenario where the
outstanding debt to Existing Lenders amount is R400 million. In this
scenario Anti-dilution shares are issued to Mayibuye and its resulting
shareholding is 51%. As a result, no charge for excess shareholding, which
applies to the `low case` scenario, is affected.
5 Circular to shareholders
A circular containing the details of the Recapitalisation, the ancillary
corporate actions and incorporating a notice of general meeting will be
posted to Blue shareholders on or about 6 October 2010.
6 Withdrawal of cautionary announcement
Shareholders are referred to the renewal of cautionary announcement
released on SENS on Monday 2 August 2010, and are hereby advised that the
unaudited pro forma financial effects of the Recapitalisation have been
disclosed and therefore Blue shareholders are no longer required to
exercise caution when dealing in their Blue securities.
Pretoria
1 October 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
Independent reporting accountants to Blue
Deloitte & Touche
Financial adviser to Mayibuye
PricewaterhouseCoopers Corporate Finance (Proprietary) Limited
Legal adviser to Mayibuye
Cliffe Dekker Hofmeyr Inc
Date: 01/10/2010 14:30:12 Produced by the JSE SENS Department.
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implicitly, represent, warrant or in any way guarantee the truth, accuracy or
completeness of the information published on SENS. The JSE, their officers,
employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature,
howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
