| Tue 30 Apr 2002, 0:00 | | Disposal By Relyant Loans, A Division Of Relyant P |
|
(Proprietary) Limited ("Relyant Personal Finance"), Of Its Microloan
Business
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")
DISPOSAL BY RELYANT LOANS, A DIVISION OF RELYANT PERSONAL FINANCE
(PROPRIETARY) LIMITED ("RELYANT PERSONAL FINANCE"), OF ITS MICROLOAN
BUSINESS
1. Introduction
Relyant shareholders are referred to the annual report of Relyant for the
year ended 30 June 2001, in which it was stated that agreement in principle
had been reached with a major financial institution for the sale of 70% of
the microloan business of Relyant, which business is carried out in Relyant
Loans, a division of Relyant's wholly owned subsidiary, Relyant Personal
Finance. It was later announced in the interim report for the six months
ended 31 December 2001 that the implementation of the microlending
partnership had been delayed primarily due to the requirement to obtain
regulatory and other approvals. In addition, it was announced that approval
for the transaction had been received from the Competition Commission.
Investec Bank Limited is authorised to announce that subsequently an
agreement has been signed between Relyant and FirstRand Bank Limited
("FirstRand"), one of Relyant's major providers of finance, whereby Relyant,
subject to the fulfilment of the conditions precedent set out in paragraph
2.4 ("conditions precedent"), will cede loans advanced by Relyant Personal
Finance which are:
- personal loans up to a maximum value of R5 000 for purposes unrelated to
the furniture business of Relyant; and
- reflected in the records of Relyant Personal Finance as being debtors less
than 5 instalments in arrear
("defined loan book"), to Business Venture Investments No 607 (Pty) Limited
("Newco"), a company established for the purpose of acquiring the microloan
business of Relyant ("the transaction").
2. The transaction
2.1 Nature of microloan business
In line with Relyant's strategy to grow financial services in the Group,
Relyant decided during December 1999 to enter the microloan market. The
microloan business is seen as a natural extension of Relyant's existing
business. Loans are on offer at 139 kiosks throughout South Africa. These
kiosks are located in the Group's furniture retail outlets of Furniture
City, Geen & Richards, Beares, Savells/Fairdeal and Lubners.
Relyant Loans is positioned in the term market, offering general purpose
loans, at competitive interest rates to customers and staff. Loans are
offered up to a maximum value of R5 000 and a maximum term of 24 months.
Relyant Loans is an accredited lender with the Micro Finance Regulatory
Council ("MFRC").
2.2 Rationale for the transaction
The microlending business is a fast growing business and Relyant does not
wish to divert its scarce resources from its core retail business.
Accordingly, it would not be able to expand its presence in the growing
microlending industry whilst FirstRand has the capacity to fund future
expansion. Both FirstRand and Relyant are keen to build a long-term
relationship in the microlending business with one another. Whilst in the
short term the transaction will negatively impact the earnings of Relyant,
the ability to grow the microloan business will improve the profitability of
Relyant in the longer term. The new business will create additional
synergies as FirstRand has sophisticated systems and credit scoring
abilities suitable to the high risk microlending business and Relyant would
provide the physical infrastructure and delivery channel.
2.3 Terms of the transaction
2.3.1 Shareholders' agreement
FirstRand and Relyant will acquire Newco, the total share capital of which
will be owned 70% by FirstRand and 30% by Relyant in terms of a shareholders
agreement ("shareholders agreement"). Newco will be established for the
purpose of acquiring the defined loan book of Relyant and of carrying out
the business of advancing to qualifying members of the public, personal
loans, and providing financial services to them ("the agreed business").
2.3.2 Agreement of sale
The net proceeds attributable to Relyant arising from the transaction is R46
million ("the consideration").
The proceeds received by Relyant from the transaction will be utilised to
reduce the interest bearing bank borrowings of Relyant.
Relyant will cede the defined loan book, to Newco within 7 days of
fulfilment of the conditions precedent, and against payment of the
consideration.
Furthermore, FirstRand will acquire, as a going concern, the microloan
business of Relyant, which includes systems, processes and debt collection
infrastructure for a consideration of R8,0 million. Relyant Loans shall
cease all trading similar to the agreed business of Newco and unrelated to
the furniture business of Relyant.
2.3.3 Shareholders' loans
FirstRand will advance R46 million to Newco as a shareholders' loan.
Similarly, Relyant will advance funds totalling R39,2 million to Newco. The
funds will be utilised by Newco to acquire the defined loan book, fixtures
and equipment of Relyant Loans.
A portion of the R39,2 million shareholders' loan advanced by Relyant to
Newco, amounting to R19,4 million ("the subordinated loan") will be
subordinated in favour of both the FirstRand and the balance of the Relyant
shareholder loan. If the collections on the defined loan book are better
than anticipated, excess collections will be payable to Relyant. Relyant
will provide a guarantee amounting to R3,2 million (which will increase to
R5,5 million in 3 years compounded at a rate of 20% per annum) to Newco
should irrecoverable debts exceed R19,4 million.
Relyant and FirstRand shall, in order for Newco to be able to conduct the
agreed business, advance further loan funds to Newco, in proportion to their
shareholding.
2.3.4 Independent agreements
Relyant and FirstRand shall enter into independent agreements with Newco for
the provision of:
- in the case of Relyant, physical infrastructure, certain accounting,
operational and processing services and credit life policies in respect of
the agreed business; and
- in the case of FirstRand, operational, technology, credit scoring and
processing services, certain accounting services and other financial
products.
The agreements shall not be dependent in any way upon either Relyant or
FirstRand being or remaining shareholders of Newco.
2.3.5 Warranties
Warranties as are normal in respect of transactions of this nature have been
provided for in the shareholders' agreement.
2.4 Conditions precedent
The transaction is subject to the fulfilment of the following conditions
precedent:
- approval by Relyant ordinary shareholders in general meeting of the
resolutions to approve and implement the transaction;
- approval by the South African Reserve Bank and the Financial Services
authorities of South Africa to the extent required;
- registration of Newco with the MFRC and to any such further approval by
the MFRC as may be required; and
- fulfilment of the above conditions precedent by no later than 31 May 2002.
2.5 Financial effects
The table below sets out the pro forma financial effect of the transaction
on a Relyant ordinary shareholder, based on the assumptions set out below:
6 months ended 31 December 2001
Actual Proforma Percentage
"Before" "After" decrease
Per share (cents) (cents) (%)
Gearing (excluding 120,1 115,4 3,9
intangibles) (%)
Gearing (including 105,0 100,8 4,0
intangibles) (%)
Earnings - basic (cents) 44 41 6,8
Fully diluted earnings 40 37 7,5
Fully diluted headline 44 42 4,5
earnings
Net asset value 1127 1125 0,2
(including intangibles)
Net asset value 985 983 0,2
(excluding intangibles)
1. The earnings, fully diluted earnings and fully diluted headline
earnings per Relyant ordinary share in the "Before" column are based on the
published unaudited interim results of Relyant for the 6 months ended 31
December 2001.
2. The earnings, fully diluted earnings and fully diluted headline
earnings per Relyant ordinary share in the "After" column have been adjusted
for the following:
- excludes earnings of the microloan business for the corresponding six
month period arising from the defined loan book;
includes the earnings attributable to Relyant as a result of its 30%
shareholding;
- excludes the impact of the potential income or losses arising from the
repayment terms of the subordinated subordinated loan and guarantees
provided by Relyant referred to in paragraph 2.3.5;
- excludes income arising from the portion of the book retained by Relyant
Loans for collection; and
- savings arising from utilising the net consideration to reduce the
interest bearing bank borrowings of Relyant. The after tax interest rate
used was 8.75%.
The weighted average number of ordinary shares in issue and weighted average
number of fully diluted ordinary shares in issue used in the calculation is
68 076 000 and 95 970 000 respectively.
3. The net asset value including intangibles and the tangible net asset
value per Relyant ordinary share in the "Before" column are based on the
published unaudited results of Relyant at 31 December 2001.
4. The net asset value including intangibles and the tangible net asset
value per Relyant ordinary share in the "After" column are based on the
assumption that the disposal of the microloan business had been implemented
at 30 June 2001. The number of ordinary shares in issue at 31 December 2001
is 95 970 000 on a fully diluted basis.
2.6 Voting restrictions
FirstRand and its associates are members of a consortium of various banks
who collectively hold 17 733 682 ordinary shares in a special purpose
vehicle called Seawind Investments 13 (Proprietary) Limited ("Seawind").
FirstRand and its associates, in their capacity as members of Seawind,
control approximately 56,8% of the Relyant issued share capital held by
Seawind. In view of their interest in the transaction, FirstRand and its
associates will abstain from voting (or from being included in the
calculation of the quorum) in respect of their effective holding of the 10
067 766 Relyant ordinary shares (included in the 17 733 682 ordinary shares
held by Seawind) on the resolution to approve the transaction, to be
proposed at the general meeting. Seawind will vote the remaining 7 665 916
Relyant ordinary shares held by it, in respect of the resolution to approve
the transaction, to be proposed at the general meeting.
3. Documentation required for the transaction
The relevant documentation setting out the full details of the transaction
and a notice convening a general meeting of ordinary shareholders will be
posted to ordinary shareholders in due course.
Johannesburg
30 April 2002
Merchant bank Sponsor to Relyant Reporting accountants
and auditors to Relyant
Investec Bank Limited Investec Bank Limited Deloitte & Touche
Legal adviser to
Relyant
Peter Dawe and
Associates
