| Wed 23 Jul 2003, 15:05 | | Paraprop - Announcement |
|
PARAMOUNT PROPERTY FUND LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1945/019928/06)
Share code: PRA
ISIN: ZAE000028577
("Paraprop" or "the company")
1. ISSUE OF LINKED UNITS TO A NEW STRATEGIC SHAREHOLDER
Issue of linked units
Linked unit holders are advised that Paraprop has entered into an agreement with
ABSA Bank Limited ("ABSA") whereby ABSA has agreed to subscribe for 17 537 000
new Paraprop linked units (comprising ordinary shares linked to variable rate
debentures) with effect from 1 September 2003 in exchange for a combination of
cash and linked units in Growthpoint Properties Limited ("Growthpoint") ("the
transaction").
2. Rationale for the transaction and expected benefits
The transaction has been concluded to significantly improve Paraprop"s capital
structure, and to facilitate the introduction of a strategic shareholder.
The benefits to Paraprop can be summarised as follows:-
* Increase in market capitalisation: the issue of an additional 17 537 000
Paraprop linked units will increase Paraprop"s market capitalisation. A larger
capitalisation is preferred by analysts and investors and has benefits in terms
of appeal to a broader investor base and improved liquidity.
* Reduction in B debenture ratio: in line with Paraprop"s strategy of reducing
the ratio of B debentures to total capital (the B debentures are unlisted, have
a zero coupon rate, are subordinated and compulsorily convertible into linked
units), the issue of an additional 17 537 000 linked units reduces the ratio of
B debentures to linked units significantly from the current 45% to 35%. This
will reduce any possible negative dilutory impact on earnings from the future
conversion of B debentures. The ratio will be further reduced in future through
the acquisition of new properties for cash and linked units.
* Improvement in debt ratio: the immediate benefit will be to reduce Paraprop"s
gearing ratio to under 60% from the current 64%. It is Paraprop"s intention to
use the cash proceeds of the transaction to purchase further properties, however
even after such utilisation of the cash, the gearing ratio will be maintained at
below 60%. This improvement in the debt ratio is in line with the company"s
stated strategy, and should be favourably received by investors who prefer to
see lower gearing ratios. Going forward, Paraprop will seek to reduce the
gearing further, to closer to 50%.
* Acquisition of a strategic shareholder: the transaction will result in ABSA
acquiring a 34% shareholding in Paraprop. The listed property market has become
highly competitive recently, with many institutional players having entered or
about to enter the market, and Paraprop has been actively looking for a
strategic partner. The partnership with ABSA will benefit Paraprop through the
association with the brand and resources of one of South Africa"s major
financial institutions, as well as providing easier access to capital. ABSA has
been invited to nominate two directors to the Paraprop Board.
* Establishment of a new asset management company: the transaction will see the
establishment of a new asset management company, which will be a joint venture
between the existing asset managers, Spire Property Services (Proprietary)
Limited ("Spire"), and ABSA Corporate Property Finance ("ABSA CPF"), a division
of ABSA. This arrangement will bring additional skills to bear to the asset
management function.
3. Terms of the transaction
The new Paraprop linked units will be issued at the 90 calendar day weighted
average trading price of Paraprop linked units on the JSE Securities Exchange
South Africa ("the JSE") preceding the effective date of 1 September 2003,
subject to an issue price not greater than R3.55 per new Paraprop linked unit.
At R3.55 per new Paraprop linked unit, the maximum total consideration amount
would be R62 256 350.
ABSA will settle the amount due by transferring 4 850 000 linked units in
Growthpoint ("the Growthpoint exchange") to Paraprop and by settling the
remaining amount in cash ("the cash exchange"). The value of the Growthpoint
exchange will be determined by the 90 calendar day weighted average trading
price of Growthpoint linked units on the JSE preceding 1 September 2003.
Growthpoint is a property investment holding company whose linked units
(comprising ordinary shares linked to variable rate debentures) are listed on
the Financial - "Real Estate" sector of the JSE.
For illustrative purposes, based on:
- the 90 calendar day weighted average trading price of Paraprop of 334.6 cents
to 15 July 2003, being the last practicable date prior to this announcement
("the last practicable date"); and
- a Growthpoint price of 568 cents, being the 90 calendar day weighted average
trading price of Growthpoint to the last practicable date,
4 850 000 Growthpoint linked units would be transferred in exchange for the
issue of 8 233 114 Paraprop linked units and a further 9 303 886 Paraprop linked
units would be issued for a cash amount of R31 130 802.
The transaction is subject to the approval of Paraprop linked unit holders and
the JSE. In terms of the JSE Listings Requirements, the cash exchange is subject
to the approval of a 75% majority of the votes of all Paraprop linked unit
holders, present or represented by proxy, at a general meeting of Paraprop.
4. Financial effects of the transaction
Based on the unaudited results of Paraprop for the 6 months ended 30 April 2003,
the pro forma financial effects of the transaction on Paraprop"s earnings per
linked unit, headline earnings per linked unit, distribution per linked unit,
net asset value per linked unit and borrowings ratio are set out below. This pro
forma financial information has been prepared for illustrative purposes only and
because of its nature may not give a true picture of Paraprop"s financial
position and results of operations, nor the effect and impact of the transaction
on Paraprop going forward.
Before the After the % Change
issue of issue of
Paraprop Paraprop
linked linked
units(1) units(2)
Earnings per linked 24.1 23.5(3) (2.5)
unit (cents)
Headline earnings 24.1 23.5(3) (2.5)
per linked unit
(cents)
Distribution per 24.0 23.5(4) (2.1)
linked unit holder
(cents)
Net asset value per 480.8 430.4(5) (10.5)
linked unit (cents)
Borrowings:total 64% 58%
fixed assets
Linked units in 34 047 502 51 584 502
issue
Weighted average 34 047 502 51 584 502
linked units in
issue
Notes
1) Based on the published consolidated unaudited results of Paraprop for the 6
months ended 30 April 2003;
2) Based on the assumption that the company has issued 17 537 000 new linked
units in exchange for 4 850 000 Growthpoint linked units with a value of R27.5
million and R31 130 802 in cash. These amounts have been based on the 90
calendar day weighted average trading prices of Growthpoint and Paraprop as at
the last practicable date;
3) Based on the assumption that the linked units were issued on 1 November
2002.
Earnings and headline earnings have been adjusted to include the distribution
that would have been received, relating to the 4 850 000 Growthpoint linked
units acquired for the 6 month period to 30 April 2003. Earnings and headline
earnings per linked unit have also been adjusted for the interest saving on debt
funding following the reduction in borrowings by the cash of R31 130 802
received for the 6 month period to 30 April 2003 (calculated at the relevant
interest rates applicable to the period under review);
4) Based on the assumption that all net income after financing expenses be
distributed to linked unit holders. The adjustments to earnings and headline
earnings per linked unit as noted in 3) above, were also made in arriving at
this amount;
5) Based on the assumption that the 17 537 000 new Paraprop linked units were
issued and the consideration for the linked units, being the Growthpoint linked
units to the value of R27.5 million and cash of R31 130 802, was received on 30
April 2003; and
6) No financial effects on net tangible asset value have been calculated as no
intangible assets were recorded on Paraprop"s balance sheet at 30 April 2003.
5. Assignment of the asset management contract
Spire currently undertakes the asset management function for Paraprop. As a
condition to the transaction, a new asset management company will be formed that
will be owned 50% by Spire and 50% by ABSA. Spire will assign the asset
management function of Paraprop to this new asset management company. Linked
unit holders will be requested to ratify the assignment by ordinary resolution
at the general meeting of Paraprop.
6. Circular to linked unit holders and withdrawal of cautionary announcement
A circular to Paraprop linked unit holders, containing full details of the
transaction and the assignment of the asset management contract, and
incorporating the notice of general meeting, will be distributed to linked unit
holders in due course.
Further to the above, linked unit holders are referred to Paraprop"s cautionary
announcement dated 4 July 2003, and are advised that they no longer need to
exercise caution.
Cape Town
23 July 2003
Investment Bank and Sponsor
Nedbank Corporate
