| Tue 27 Feb 2001, 0:00 | | Otk - Disposal Of Interest Bearing Debtors' Book |
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OTK Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 1995/004030/06)
("OTK" or "the company")
DISPOSAL BY OTK LIMITED, A WHOLLY OWNED SUBSIDIARY OF OTK, OF ITS INSTALMENT
SALE DEBTORS' BOOK AND OTHER INTEREST-BEARING DEBTORS' BOOKS AND THE SUBSEQUENT
REDUCTION IN OTK'S CAPITAL AND DISTRIBUTABLE RESERVES BY WAY OF A CASH
DISTRIBUTION TO SHAREHOLDERS
1 Introduction
Shareholders are advised that, further to the cautionary announcement which was
published in the press on 1 February 2001, OTK Limited has successfully
concluded negotiations to dispose of ("the disposal") its instalment sale
debtors' book and other interest-bearing debtors' books (collectively "the
debts") to Wesbank, a division of First Rand Bank Limited ("Wesbank") and to
The Land and Agricultural Bank of South Africa ("Land Bank"), respectively,
with effect from the close of business on 31 January 2001 ("the effective
date").
Once the disposal becomes unconditional, OTK will have substantial cash
resources on hand which will be in excess of its requirements. It is the
intention of the board of directors of OTK ("the directors") to make a cash
distribution of 245 cents per share to shareholders, on the terms more fully
set out in 5 below ("the cash distribution").
2 Rationale for the disposal
OTK's current capital structure is not an effective use of shareholders' funds
and the disposal will enable the company to revise its capital structure
increasing OTK's return on capital and creating value for shareholders. This
will be achieved by:
* reducing OTK's risk exposure to the debts;
* creating a large amount of surplus cash for OTK;
* allowing OTK to distribute additional funds to shareholders; and
* enabling OTK to deploy its capital in higher yielding assets.
3 Terms of the disposal
In terms of the disposal:
* the purchase price will be paid within 6 business days of the fulfilment of
the suspensive conditions set out in 9 below ("the payment date"); and *
Wesbank will acquire OTK Limited's instalment sale debtors' book as at the
effective date for a minimum of R203,3 million discounted to the present value
of future cash flows under the instalment sale agreements; and the Land Bank
will acquire OTK Limited's other interest-bearing debtors' books (excluding
debtors under its monthly accounts and instalment sale debtors)
("interest-bearing debtors") estimated to be the sum of R717,7 million as at
the effective date, the purchase price thereof being the face value reflected
in OTK Limited's records on the payment date (that is, together with interest
and less payments received between the effective date and the payment date)
("existing debts"); and
* 15% of the purchase price will serve as a guarantee for the debts; and
* in addition the Land Bank will acquire OTK Limited's future interest-bearing
debtors arising between the effective date and 30 September 2002, payable on
the last business day of the week in which the debts were incurred, at the face
value thereof in OTK Limited's records on the payment date provided that such
future debtors conform with the covenants and warranties as recorded in the
disposal agreement between the Land Bank and OTK Limited ("future debts"). The
sum of existing debts and the future debts will not exceed R950 million.
4 Management agreement
OTK Limited has entered into management and administration agreements with
Wesbank and the Land Bank and in return for these services OTK Limited will
receive management fees.
5 The cash distribution
The cash distribution will be funded from a combination of the proceeds on the
disposal and a partial repayment of a loan due from the OTK share incentive
trust and will be effected to shareholders registered as such on the record
date, in proportion to their respective shareholdings in OTK, as follows:
* a reduction in the share premium account of OTK by R666,25 million in terms
of section 90 of the Companies Act, 1973 (Act 61 of 1973), as amended ("the
Act");
* a reduction in share capital of OTK by R6,79 million in terms of section 90
of the Act by way of a reduction in the nominal value of each ordinary share in
the authorised and issued share capital of the company from 2 cents to 0,001
cents; and
* a reduction in distributable reserves of OTK by R159,21 million in terms of
section 90 of the Act.
6 Financial effects of the disposal and the cash distribution
6.1 The financial effects of the disposal on the net asset value ("NAV"),
net tangible asset value ("NTAV"), earnings per share ("EPS"), headline
earnings per share ("HEPS") and return on shareholders' equity ("ROE"), are
less than 1% and not considered to be material.
6.2 Financial effects after the disposal and after the cash distribution.
The pro forma financial effects after the disposal and the cash distribution on
OTK are set out in the table below:
Before After
Effect Notes Notes %
per share (1 and 2) (3, 4, 5, 6 and 7) change
NAV (cents) 602,7 346,4 (42,5)
NTAV (cents) 593,0 336,1 (43,3)
EPS (cents) 43,1 28,1 (34,8)
HEPS (cents) 43,1 28,1 (34,8)
ROE (%) 20,3 27,2 34,0
The above pro forma financial effects have been calculated based on the
following assumptions:
(1) for purposes of calculating the effect on NAV and NTAV, the OTK balance
sheet as contained in its interim report at 31 August 2000, was used;
(2) for purposes of calculating the effect on EPS and HEPS, the income
statement of OTK, as contained in its interim report for the 6 months ended 31
August 2000, was used;
(3) ROE is calculated by dividing the annualised profit before tax for the six
months ended 31 August 2000 per the income statement of OTK by the share
capital and reserves per the balance sheet of OTK at 31 August 2000;
(4) for the purpose of calculating the effect on EPS and HEPS in the "After"
column, it has been assumed that the cash distribution was effected on 1 March
2000 immediately after the disposal and the reduction is due to interest lost
on the debts disposed of and cash distributed;
(5) STC is payable at 12,5% on the reduction in distributable reserves;
(6) for the purpose of calculating the effect on NAV and NTAV, it has been
assumed that the cash distribution was effected on 31 August 2000, immediately
after the disposal;
(7) the increase in ROE is due to the reduction in share capital and reserves
after the cash distribution; and
(8) based on the weighted average number of shares in issue for the 6 months
to 31 August 2000 and the actual number of shares in issue at 31 August 2000,
being 324 538 897.
7 Opinions and recommendations
The directors are of the opinion that the terms and conditions of the disposal
and the cash distribution are fair and reasonable to the shareholders. The
directors intend voting in favour of the resolutions relating to the disposal
and the cash distribution to be proposed at the general meeting in respect of
all shares held by them which they are entitled to vote in their personal
capacities. Accordingly, the directors recommend that shareholders vote in
favour of the transactions. The directors are of the opinion and have
reasonable grounds to believe that, subsequent to the disposal and the cash
distribution:
* the company will be able to pay its debts as they become due in the ordinary
course of business; and
* the consolidated assets of the company, fairly valued in accordance with
Generally Accepted Accounting Practice, will exceed its consolidated
liabilities.
8 Share capital
The company's authorised and issued share capital, before and after the cash
distribution, is as follows:
Share capital before the
cash distribution R000
Authorised
400 000 000 ordinary shares of 2 cents each 8 000
Issued
339 695 567 ordinary shares of 2 cents each 6 794
Share premium 666 250
Share capital after the cash distribution
Authorised
400 000 000 ordinary shares of 0,001 cents each 40
Issued
339 695 567 ordinary shares of 0,001 cents each 3
Share premium -
9 Suspensive conditions
The disposal and the cash distribution are subject inter alia to the fulfilment
of the following suspensive conditions:
* any applicable statutory and regulatory consents and approvals are granted;
* the final board approval by Wesbank; and
* passing of the necessary resolutions by the shareholders of OTK in the
general meeting in order to give effect to the disposal and the cash
distribution.
10 Salient times and dates
2001
Last day for lodging forms of proxy for the general
meeting by 09:30 on 27 March 2001
General meeting of shareholders at 09:30 on 29 March 2001
Results of the general meeting published in the
financial press on 2 April 2001
Record date for the cash distribution at close
of business on 6 April 2001
Cheques in respect of the cash distribution
mailed to shareholders on or about 13 April 2001
Note
1 The above dates are subject to change. Any such change will be announced in
the press.
2 All transactions on the JSE from Monday, 2 April 2001 to Friday, 6 April
2001 will be for immediate settlement.
11 General meeting
Approval for the ordinary and special resolutions necessary to implement the
disposal and the cash distribution will be sought from shareholders at a
general meeting to be held at the OTK Personnel Hall, 24 Eeufees Street, Bethal
at 09:30 on Thursday, 29 March 2001.
12 Documentation
A circular, subject to the approval by the JSE, regarding the disposal and the
cash distribution will be sent to shareholders on or about Tuesday, 6 March
2001.
Bethal
27 February 2001
Corporate advisor and sponsor to OTK - Brait
Auditors and reporting accountants
PricewaterhouseCoopers Inc.
Chartered Accountants (SA)
Registered Accountants and Auditors
(Registration number 1998/012055/21)
Legal advisor to Wesbank
Roderick and Lowe
Attorneys and Conveyances
Corporate consultants to the Land Bank
Ernst & Young
Chartered Accountants (SA)
(Registered Accountants and Auditors)
Legal advisor to the Land Bank
Webber Wentzel Bowens
MEDIA RELEASE
Clients and shareholders to benefit from OTK's disposal of interest-bearing
debtors' book
Agri-business group OTK has announced the sale of its R921 million
interest-bearing debtors' book to Wesbank and the Land Bank, effective from 31
January 2001.
OTK chief executive officer, Graham Ebedes, says the disposal makes good
management's promise last year to restructure the balance sheet, thereby
improving return on shareholders' funds and reducing OTK's large risk exposure
to these debtors.
"In addition to improving return on shareholders' funds, the disposal will
create a large amount of surplus cash for OTK, allowing us to make a
substantial cash distribution to shareholders," says Ebedes. "OTK will then be
able to deploy its capital in higher yielding assets." OTK intends making a
cash distribution of 245 cents per share to shareholders registered on 6 April
2001. This will result in a R666 million reduction in the share premium
account, a R7 million reduction in share capital and a R159 million reduction
in distributable reserves. Wesbank will acquire OTK's instalment sale debtors'
book for R203 million, discounted to the present value of future cash flows.
The Land Bank will acquire OTK's other interest-bearing debtors' book of R718
million. The Land Bank will also acquire OTK's future interest-bearing debtors
arising between 31 January 2001 and 30 September 2002, provided the sum of
existing and future debts does not exceed R950 million.
It has been agreed that 15% of the purchase price will serve as a guarantee for
the debts.
OTK chairman, Pietman Erasmus, says these transactions are of major benefit to
customers: "They will enable OTK to deliver even better services at competitive
prices and rates, and will in no way disturb customer relationships."
Erasmus adds that OTK will continue to manage the total debtors' book, with
credit decisions being made by the same personnel as at present, acting in
terms of credit criteria and policies which proved successful in the past.
"Customers will not have to deal with or be subject to the decisions or
policies of the financial institutions involved. They will deal with the
personnel they are accustomed to," he stresses. The disposal will have no
material effect on net asset value (NAV), earnings per share (EPS) or headline
earnings per share (HEPS). Net tangible asset value (NTAV) and return on
shareholders' equity (ROE) are similarly unaffected. Following the cash
distribution, however, NAV will fall by 42,5% to 346,4 cents from 602,7 cents
prior to the deal, while NTAV will decline by 43,3% to 336,1 cents from 593
cents. Both EPS and HEPS will decline by 34,8% to 28,1 cents from 43,1 cents.
However, ROE will IM prove by 34% to 27,2% from 20,3%.
