| Mon 8 Apr 2002, 0:00 | | Restructuring Of Relyant |
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RELYANT RETAIL LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1937/010108/06)
Share code: RLY ISIN number: ZAE 000016457
("Relyant" or "the Group")
With reference to the announcement released earlier on SENS today kindly
note that the whole announcement did not publish, this announcement replaces
the previous one
RESTRUCTURING OF RELYANT
1. Introduction
Further to the cautionary announcement issued on 20 March 2002, the Relyant
Board of Directors ("the Board") is pleased to announce a significant
capital restructuring plan which is subject to the conditions precedent set
out in paragraph 8 below, and which upon implementation, will introduce a
new strategic shareholder to Relyant namely, POCO Holding GmbH and/or its
nominee/s ("POCO" or "the investor"), and place the Group in a strong
financial and competitive position for the future.
The capital restructuring plan will entail, inter alia, the following:
- the early conversion of the 22 727 272 6,5% compulsorily convertible
preference shares issued by the Group ("the Relyant preference shares"),
into 17 482 516 ordinary shares in Relyant after the declaration at 30 June
2002 of all preference share dividends due until the original date of
conversion, being 30 June 2003;
- a specific issue of 51 676 000 Relyant ordinary shares for cash at 100
cents per share to POCO to ensure that POCO's holding in Relyant prior to
the rights issue amounts to at least 35% ("issue of shares for cash");
- a rights issue of Relyant ordinary shares at 90 cents per share to
raise R739 839 000 ("the rights issue") underwritten firstly by POCO to the
extent of R306 324 000 and by the current debt funders of Relyant ("the debt
funders") to the extent of R433 515 000;
- new syndicated 5 year loan facilities;
- redemption of the debentures and subsequent cancellation of the
existing Relyant Executive Share Purchase Scheme;
- restructuring of the Board; and
- certain restructure provisions and asset write downs amounting to R510
million after tax.
(collectively "the capital restructuring").
The capital restructuring is one indivisible transaction, the components of
which are discussed more fully below together with the financial effects
thereof.
2. Rationale
At the time Relyant was created three and a half years ago, the Group was
structured with high gearing. Major restructuring and rationalisation
initiatives have been implemented since formation, resulting in exceptional
cash outflows of approximately R386 million over this period. In addition,
the Group embarked on growing the business through two principal
investments. Firstly, the start-up of a complementary microloans business
(in a deliberate strategy to offset expected lower growth of the retail
credit businesses), to operate from kiosks within the mass-market retail
stores, in which a total of R93 million has been invested to the end of
December 2001. Secondly, the acquisition of the South African furniture and
bedding businesses of Renaissance Retail Group Limited for a total of R150
million, of which R114 million was paid in cash. The resulting gearing as a
percentage of tangible shareholders' funds has subsequently increased to
120% at 31 December 2001.
The Board believes that the high gearing level needs to be addressed
immediately to reduce the serious financial risk of the business, the high
interest costs and to provide the trading flexibility necessary for Relyant
to be a successful retailer into the future.
In light of the above and the need to secure ongoing funding, the Board
decided to pursue a major capital restructuring of Relyant. At that time,
FirstRand Bank Limited acting through FNB Corporate, which had been involved
in the planning to date, introduced POCO to the Group as a strategic retail
investor. This resulted in the development of the capital restructuring plan
in consultation with POCO and the debt funders.
The capital restructuring, once implemented, will strengthen the Group's
balance sheet, enable Relyant to trade competitively within the retail
sector, continue with its rationalisation program and place it in a strong
financial position to participate in any industry consolidation that might
occur. Relyant will remain listed on the JSE Securities Exchange South
Africa ("JSE"). In the Board's view, the capital restructuring is in the
best interests of all of Relyant's key stakeholders, including customers,
suppliers, staff, debt funders and shareholders.
3. Background to POCO
After a successful career in home furnishings, Peter Pohlmann founded POCO
as a private company in 1989. POCO has grown organically to become one of
Germany's most well-established and best respected furniture and household
goods retailing groups. Retailing through 14 superstores, supported by a
network of warehouses and located in the West Phalia region of Germany, POCO
is focussed on the lower middle mass market. Sales are predominantly for
cash, although a certain percentage of sales are through bank finance
credit. The cornerstone of POCO's success has been financial prudence, a
finely developed skill in knowing its customers intimately, outstanding
retailing efficiency all coupled with an ability to source and develop
products internationally.
From its own financial resources in less than 14 years, under the
Chairmanship of Peter Pohlmann, POCO has grown turnover to approximately R2
billion, is very profitable, generates sales revenue per employee of over
R2.4 million per annum and turnover per square metre exceeds R30,000 per
annum. POCO continues to achieve significant market share growth in the
difficult German retail market and plans to continue expanding its
superstore base in Germany.
POCO believes that the fundamentals of the South African furniture retail
market are similar to its market sector when it first started its German
operations and views the opportunity to make a strategic investment in
Relyant as an excellent opportunity to apply its core retail skills.
4. The capital restructuring
4.1 Conversion of preference shares
Seawind Investments 13 (Proprietary) Limited ("Seawind") holds 17 733 682
Relyant ordinary shares and the Relyant preference shares. The Relyant
preference shares of R500 million are convertible into ordinary shares on 1
July 2003, in the ratio of 1 ordinary share for every 1,3 preference shares
held. The Board is of the opinion that it would be in the best interests of
the Group to simplify the capital structure of Relyant, and has accordingly
decided to convert all Relyant preference shares to 17 482 516 ordinary
shares in Relyant after the declaration at 30 June 2002 of all preference
share dividends due until the original date of conversion, being 30 June
2003. The remaining dividend payments attributable to the preference shares,
amounting to R48,75 million in total, will be paid semi-annually to
preference shareholders on 30 June 2002, 31 December 2002 and 30 June 2003
in amounts of R16,25 million plus interest respectively.
4.2 Issue of shares for cash
In order to ensure that POCO's holding in Relyant prior to the rights issue
amounts to at least 35% of the issued capital of Relyant, the Group has
undertaken to proceed with a specific issue of 51 676 000 ordinary Relyant
shares for cash to POCO at 100 cents per share.
4.3 Rights issue
The Board has determined that an amount of R791 515 000 of additional
capital ("additional capital") will be required to place Relyant in a strong
financial position with the ability to trade competitively.
The additional capital will be raised by way of the issue of shares for cash
and a R739 839 000 rights issue of 822 043 333 ordinary Relyant shares at a
price of 90 cents per ordinary share. The first R306 324 000 of the rights
issue will be underwritten by POCO with the balance of R433 515 000
underwritten by the debt funders.
The debt funders shall individually hold the ordinary Relyant shares issued
to them in terms of the rights issue and not as a consortium.
The rights issue when implemented will be offered to all ordinary
shareholders pro rata to their shareholding relative to the fully diluted
share capital of Relyant.
4.4 Borrowing facilities
The debt funders have committed to provide a syndicated secured 5-year loan
facility together with ongoing peak season facilities at competitive rates.
4.5 Executive share scheme
Relyant currently has an Executive Share Purchase Scheme in the form of a
Compulsorily Convertible Debenture Scheme comprising 11 439 588 14,74%
compulsorily convertible debentures of 25 cents each ("convertible
debentures"). The Relyant Share Purchase Trust ("the Trust") sold the
conversion rights to new Relyant ordinary shares (which are convertible on 1
March 2004, in a ratio of 1 debenture to 1 ordinary share) to management at
a subscription price of R4,28 per share.
In a capital restructuring of this nature, POCO and the Board recognises the
importance of promoting the loyalty and effectiveness of key management. To
this end, the Board will resolve to redeem the debentures by way of a
payment by Relyant to the debenture holders in the amount of R43,6 million
plus all accrued interest to date of payment amounting to approximately R3,5
million, which redemption and payment shall be financed by means of an
increase in the facilities granted by such debenture holders to Relyant. The
existing Compulsory Convertible Debenture Scheme will be cancelled after an
appropriate replacement share scheme is approved by the restructured Board
of Relyant. In addition, the staff incentive share option scheme will
continue on terms to be agreed.
4.6 Restructure of the Board
It is a specific requirement of the investor that the Board be reconstituted
after implementation of the capital restructuring to allow for
representation on the Board that is commensurate with shareholdings and to
ensure that the chairman of the Board is nominated by POCO.
4.7 Restructure provisions and asset write downs
The capital restructuring is subject to the approval of shareholders in
general meeting. On the basis that the capital restructuring is approved,
certain of the current bases of accounting for asset valuations will be
changed in order to align the accounting policies of Relyant with those of
the investor. In addition, certain non-performing stores, particularly those
serving the lower end of the market, may be closed. The effect of
implementing the abovementioned changes in accounting policies if approved,
will result in a charge of approximately R510 million after tax. Included
in the proposed additional provisions are:
- a change in the policy for providing for doubtful debt. The existing
policy provides an amount against net arrears which is the best estimate of
expected net write offs on the existing book. The new policy provides for
the full amount of the gross arrears and is designed to give assurance to
all stakeholders that the doubtful debts provision is very conservative;
- a provision for expected store closures and restructure costs.
Consequently, it is anticipated that there will be a materially adverse
impact on the earnings of Relyant for the year ending 30 June 2002.
5. Mandatory offer to shareholders
Subsequent to the issue of shares for cash and the rights issue, POCO will
hold at least 35% in the enlarged share capital of Relyant and the debt
funders may hold a percentage of up to 49,9% of the issued share capital of
Relyant. The debt funders shall individually hold the ordinary Relyant
shares issued to them in terms of the rights issue and not as a consortium.
The capital restructuring is therefore deemed to be an affected transaction
as defined by the Securities Regulation Panel ("SRP"). This requires POCO to
extend a mandatory offer ("the offer") to shareholders in Relyant in
existence prior to the capital restructuring. Relyant will request that, in
terms of Rule 8.7 of the SRP Code, POCO be released from the obligation to
make a mandatory offer to the other shareholders in Relyant. The
dispensation in terms of Rule 8.7 of the SRP Code is subject to the majority
of independent votes at a Relyant shareholder's meeting to be held prior to
the issue of shares for cash, having agreed to a waiver of any rights they
may have to an offer by POCO.
In addition, depending on the holding of the debt funders, Relyant will
request dispensation from the SRP in terms of Rule 34 of the SRP Code as to
the obligation of the debt funders to make a mandatory offer.
6. Financial Effects
6.1. Shareholders
Set out below is the pro forma financial effects of the capital
restructuring on a Relyant shareholder, based on the assumptions set out
below.
6 months ended 31 December 2001
Pro forma
Per share Actual Pro forma decrease "After
"Before" "After Percentage restructure
recapita (%) provisions"
lisation"
Tangible gearing (%) 120,1 25,6 78,7 36,1
Fully diluted
earnings/(loss)
(cents) 39,8 7,3 81,6 (38,1)
Fully diluted headline
earnings/(loss)
(cents) 44,3 7,8 82,4 (23,4)
Net asset value
(including intangibles)
(cents) 1127,2 193,3 82,8 142,2
Net asset value
(excluding intangibles)
(cents) 985,0 179,1 81,8 142,2
1. The fully diluted earnings and fully diluted headline earnings per
Relyant share in the "Before" column are based on the published unaudited
results of Relyant for the six months ended 31 December 2001.
2. The fully diluted earnings and fully diluted headline earnings per
Relyant share in the "After recapitalisation" column are based on the
published unaudited results, for the six months ended 31 December 2001,
adjusted to include the impact of the cash received in terms of the
additional capital raised after costs and the redemption of the debentures,
assuming the cash was received with effect from 1 July 2001. The weighted
average number of shares in issue and used in the calculation is 959,277
million and the after tax interest rate saving used was 8.75%.
3. The net asset value per Relyant share in the "Before" column is based
on the published unaudited position of Relyant at 31 December 2001.
4. The net asset value per Relyant share in the "After recapitalisation"
column is based on the assumption that the issue of shares for cash and the
rights issue had been implemented at 1 July 2001 and include the effect of
the convertible debentures redemption and the subsequent cash out flow of
R47 million. The number of shares used in the calculation is 959,277 million
on a fully diluted basis.
5. The financial effects in the "After restructure provisions" column is
based on the assumption that the restructure provisions and asset write
downs referred to in paragraphs 4.1 and 4.7 above had been implemented at 1
July 2001.
6.2 Gearing and interest cover
The financial effect of the capital restructuring on the tangible debt to
equity ratio of the Group is reflected in the financial effects where
gearing is reduced from 120% to 36%.
7. Special arrangements
Seawind, Investec and other shareholders holding 56% of the 92 647 000 fully
diluted shares of Relyant have irrevocably undertaken to vote in favour of
the capital restructuring to the extent allowed.
8. Conditions Precedent
The capital restructuring is subject to, inter alia, the following
conditions precedent:
- the approval of the JSE, the South African Reserve Bank and any other
regulatory authorities, to the extent required;
- approval by the Competition Authorities to the extent required;
- the ordinary shareholders of Relyant agreeing to all special and
ordinary resolutions necessary to implement the capital restructuring;
- the preference shareholders agreeing to the early conversion of the
preference shares and, to the extent required, agreeing to all special and
ordinary resolutions necessary to implement the capital restructuring;
- obtaining a ruling from the SRP that neither POCO nor the debt funders
will be required to extend an offer to the shareholders as described in
paragraph 5 above;
- the conclusion of satisfactory irrevocable agreements between Relyant
and a major financial institution for the sale of the Relyant Micro Loan
Book;
- the conclusion of syndicated loan agreements between Relyant and the
debt funders; and
- the conclusion of comprehensive agreements between Relyant, POCO and
the debt funders, incorporating the terms and conditions of the capital
restructuring as set out above.
9. Documentation required for the capital restructuring
The relevant documentation setting out the full details of the capital
restructuring and notices convening general meetings of ordinary and
preference shareholders will be posted to ordinary and preference
shareholders in due course.
Johannesburg
8 April 2002
Merchant bank Sponsor to Relyant Reporting accountants and
auditors to Relyant
Investec Bank Limited Investec Bank Limited Deloitte & Touche
Legal adviser to POCO
Feinsteins Attorneys Corporate adviser to POCO
Gensec Bank Limited Adviser to the debt
funders
Rand Merchant Bank
Legal adviser to the debt
funders
Jowell Glyn & Marais Legal adviser to Relyant
Peter Dawe and Associates
