| Thu 28 Apr 2005, 14:41 | | Abridged prospectus |
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Makalani Holdings Limited - Abridged prospectus
Makalani Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number: 2005/000726/06)
Ordinary share code: MKL
ISIN: ZAE000066700
(`Makalani` or `the company`)
Abridged prospectus
1. Introduction and purpose
Makalani was incorporated as a public company in South Africa on
12 January 2005. Makalani has been established to raise capital from
institutional and other investors for investment in and funding of Black
Economic Empowerment (`BEE`) transactions, as well as other targeted
investments. The benefits of investing in Makalani can be summarised as
follows:
- attractive returns;
- access to a diversified portfolio of assets;
- Financial Sector Charter (`FSC`)-compliance, enabling investors to earn FSC
scorecard points; and
- flexibility of exit and entry as a listed investment.
Makalani offers investors the opportunity to share in the exceptional dealmaking
abilities of the debt and equity professionals of Rand Merchant Bank, a division
of FirstRand Bank Limited (`RMB`) as well as the management team of Makalani,
whilst at the same time earning FSC scorecard points.
2. Details of the public offer, private placement and the listing
Makalani will raise R2 billion in terms of a private placement to selected
investors (`private placement`) and R500 million in terms of a public offer
(`the public offer`).
2.1 Particulars of the public offer and private placement
Number of linked units offered in 5 000 000
terms of the public offer
Number of linked units offered in 20 000 000
terms of the private placement
Subscription price per linked unit R100
Minimum subscription amount per R10 000
applicant
Anticipated market capitalisation of R2 500 000 000
Makalani on listing date
2.2 Important dates and times for the public offer
Opening date of the public offer 28 April 2005
(09:00)
Closing date of the public offer 13 May 2005
(12:00)
Listing date (09:00) 18 May 2005
2.3 Details of the listing
Makalani will be listed in the Investment Companies - `Investment Companies` sub
sector of the JSE Securities Exchange South Africa (`JSE`).
The listing is subject to the condition precedent that Makalani achieves the
spread requirements of the JSE of a minimum of 500 (five hundred) public linked
unit holders.
3. The FSC
3.1 Background
The FSC was signed during October 2003 and constitutes a transformation charter
as contemplated in the Broad-Based Black Economic Empowerment Act (Act 53 of
2003). The FSC sets out a framework and establishes principles upon which BEE
should be implemented in the financial services sector. The FSC establishes
targets and responsibilities in respect of each principle contained in the FSC.
It further outlines processes for implementing the FSC and creates mechanisms to
monitor and report on the progress of implementation.
3.2 Investment targets
By signing the FSC, financial institutions have undertaken, inter alia, to make
a total of R123.5 billion of funding available for the following purposes:
- R50 billion for BEE transactions (5 points on the FSC scorecard); and
- R73.5 billion for other targeted investments (17 points on the FSC scorecard)
as described below:
- R25 billion - transformational infrastructure;
- R42 billion - affordable housing;
- R5 billion - funding of SMMEs; and
- R1.5 billion - emerging agriculture.
Further targets are likely to be set for 2014.
Financial institutions will receive points for their BEE transaction investments
and other targeted investments as indicated above. Investments in Makalani will
count towards FSC scorecard points for investors.
4. Brief overview of Makalani
4.1 Nature of business
Non-bank financial institutions` investment mandates are highly regulated and in
many instances preclude or limit investment in unlisted securities and below-
investment grade instruments. This narrows down the list of available
instruments to utilise in making FSC-compliant investments. On the other hand
BEE consortia find it difficult to source sufficient funding for the
implementation of BEE transactions and other targeted investments.
Makalani will fill this market space by, on the one hand, providing investors
with a suitable listed instrument (linked units) earning a commercial return, as
well as qualifying as a FSC-compliant investment, earning FSC scorecard points,
while on the other hand providing sufficient funding to drive FSC-compliant
investments forward and achieving the aims of the FSC.
4.2 Structure and investment process
(See Business Day and Beeld for structure)
Makalani Management Company (Proprietary) Limited (`Makalani Manco`) has been
mandated in terms of a management agreement to manage Makalani. Makalani will
make FSC-compliant investments in accordance with its clearly defined investment
mandate.
RMB`s internal approval processes will initially be used for investment and
credit decisions. This will be the case until such time as Makalani Manco has
built up an independent track record. This period will however be at least 12
months.
4.3 Share and debenture capital of Makalani
Makalani will issue linked units which will provide an efficient capital
structure for the business which Makalani will operate. Interest earned on
investments will be distributed to linked unit holders as interest and dividends
received will be distributed as dividends to linked unit holders. A linked unit
comprises:
- 1 unsecured variable rate debenture with a nominal value of R75.00; and
- 1 ordinary share of R0.0001 issued at a premium of R24.9999.
The separate transfer of a share or debenture constituting a linked unit is not
allowed.
4.4 Nature of returns and risk
Makalani will invest a large proportion of its funds in mezzanine type assets.
These assets are typically rated below investment grade. Below investment grade
assets are assets that are not rated by a recognised rating agency or have a
rating of below BBB-/Baa3. Investors can therefore expect to be compensated for
assuming higher risk through higher expected returns. The portfolio effect
achieved by Makalani`s diversified portfolio of investments will significantly
decrease the specific risks attached to each individual investment.
Makalani will seek to generate, at least, a pre-tax weighted average return on
investments of 350 basis points above JIBAR, after taking into account
management fees paid to Makalani Manco.
4.5 Current investment portfolio
Makalani has reached agreement with RMB to acquire certain assets from RMB,
including the original swaps put in place by RMB to hedge the fixed rate
investments into floating rate instruments to lock in a yield above JIBAR, with
effect from 16 May 2005. A summary of the investments, its sector
classification, its listed or unlisted status and book value appears in the
table below:
Asset Sector Listed/ R`m
unlisted Book
value
Acquired from RMB
Metropolitan Insurance Unlisted 75.0
investment
Gold Fields Mining Unlisted 50.0
investment
Aberdare investment Engineeri Unlisted 25.0
ng
Mondi Newsprint Paper Unlisted 50.0
investment
New investment
FirstRand Banks Unlisted 150.0
investment*
Total 350.0
* committed funding, the draw down date is 13 May 2005
The weighted average pre tax yield on the above assets is in excess of 600 basis
points above JIBAR.
More details on the above assets are contained in the Prospectus.
4.6 Distribution policy
The board of directors will determine the distribution to linked unit holders on
a semi-annual basis. Subject to good corporate governance, sound business
principles and future investment requirements, Makalani`s stated distribution
policy is to distribute at least 50% of all after tax income realised in cash.
4.7 Corporate governance
Makalani is committed to the highest standards of corporate governance.
The board of directors endorses the King Code 2002. Good corporate governance
is an integral part of Makalani`s business philosophy. The values espoused in
this business philosophy will govern the way in which Makalani interacts with
all its stakeholders and stresses the importance of good corporate citizenship,
integrity, transparency, individual accountability and BEE. Accordingly
Makalani aims to comply, in all material respects, with the provisions and the
spirit of the King Code 2002.
4.8 Directors and company secretary
Name Address
Directors
VW Bartlett 155 Senior Drive
Northcliff Ext 2
Johannesburg
2195
V Mahlangu 2 Merchant Place
Corner Fredman Drive and
Rivonia Road
Sandton
2196
DN Prout-Jones 1 Merchant Place
Corner Fredman Drive and
Rivonia Road
Sandton
2196
BJ van der Ross 4 Merchant Place
Corner Fredman Drive and
Rivonia Road
Sandton
2196
D Gihwala Kismet Plaza
Lower Kupfontein road
Athlone
D Konar FHS House
15 Girton Road
Parktown
2193
S Sebotsa Unit DG001
Ground Floor
Grosvenor Gate
Hyde Park Lane
Hyde Park, 2199
MS Moloko 1st Floor
Moorgate
Dunkeld Park
Company secretary
AH Arnott 4 Merchant Place
Corner Fredman Drive and
Rivonia Road
Sandton
2196
5. The management of Makalani
5.1 Makalani Manco shareholding
Makalani will be managed by Makalani Manco. Makalani Manco is owned as follows:
Shareholding
RMB 75%
Tamela Group (Proprietary) Limited 15%
WDB Investment Holdings (Proprietary) 5%
Limited
Thesele Group (Proprietary) Limited 5%
5.2 RMB`s credentials
RMB performs the merchant banking operations of FirstRand and trades off
FirstRand Bank Limited`s R424 billion balance sheet. RMB has 28 years of
experience in the investment industry. RMB has grown its profits from debt,
equity and other related businesses in excess of 20% per annum since inception.
RMB provides specialist services and takes principal positions in the fields of
Corporate Finance, Structured Finance, Project Finance, Private Equity and
Trading Markets.
RMB has consistently been accorded the accolade of being the leading merchant
bank in its area of activities.
Some of the awards and ratings RMB have received include the following:
- voted the `Best debt house` in 2001 and 2002 by Euromoney magazine;
- winner of the `Top Commercial Financier` award in BEE by Business Map in 2004;
- ranked first in structured finance and private equity for the last three years
per the ranking from PricewaterhouseCoopers, taking the first place in corporate
finance Mergers and Acquisitions in 2001 and 2003 whilst being voted the top JSE
listings house in 2002;
- ranked first in the Ernst & Young annual review of Mergers and Acquisitions
for three years in a row in 1997, 1998, 1999 and again in 2001 and 2004. RMB has
consistently been placed in the top three; and
- ranked first in Mergers and Acquisitions by deal value in the 2004 annual
Dealmakers awards.
5.3 BEE partners
5.3.1 Tamela
Tamela Group (Proprietary) Limited (`Tamela`) is a newly incorporated black
owned company established by Vusi Mahlangu and Sydney Mhlarhi. It was
established to combine the founders` complementary skills in debt and equity
capital markets to participate in empowerment opportunities.
5.3.2 WDB Investment Holdings
The WDB Investment Holdings (Proprietary) Limited (`WDB Investment Holdings`) is
a broad-based woman focused empowerment company founded in 1997 by the WDB
Trust, its 100% shareholder. The WDB Trust was established in 1991 for the
purpose of supporting the economic upliftment of poor black women in rural South
Africa. To date, the WDB Trust has reached over 14 000 women in rural areas
with its training and not-for-profit micro-credit programmes.
WDB Investment Holdings has a number of investment partnerships including equity
interests in BP South Africa, the Bidvest Group, Paracon Holdings and Uthingo
Lottery Management Company. WDB Investment Holdings aims to add value in its
partnerships on two fronts:
- promoting business growth; and
- assisting in transformation.
Since inception, WDB Investment Holdings has disbursed over R30 million to the
WDB Trust and continues to seek ways to ensure sustainable distribution streams
for the benefit of its broad based beneficiary base.
5.3.3 Thesele Group
Thesele Group (Proprietary) Limited (`Thesele Group`) is a black owned
investment vehicle founded in December 2004 and headed by Sello Moloko, Thabo
Leeuw and Lance Katz.
Thesele Group aims to add value to its partners on several fronts:
- providing access to markets;
- broad financial services experience (especially in BEE and infrastructure -
origination and structuring); and
- business growth and transformation.
5.4 The management team
The key individuals employed by Makalani Manco are:
CEO
Vusi Mahlangu (age 34)
BSc (Honours), MBA (Harvard)
Vusi was, until January 2005, head of public sector finance at Investec Bank, a
division that he set up in 2001. The division is involved in all aspects of
providing debt products to state owned companies, municipalities, water boards
and other government owned entities.
Vusi`s investment banking experience and responsibilities at Investec over the
last six years involved funding management buyout transactions, asset finance
involving aircraft and other assets and implementing share incentive schemes for
companies listed on the JSE.
Vusi was a member of Investec`s group management forum and he was also a trustee
of Investec`s provident fund.
Before he joined Investec, Vusi worked for African Oxygen Limited (`Afrox`) for
four years, first as a process engineer designing gas separation plants and
later as a production manager for Afrox`s then biggest air separation plant.
CIO
Sydney Mhlarhi (age 32)
BCom, BAcc, CA(SA)
Sydney was, until December 2004, a director and joint head of the acquisition
finance group, a division of Standard Bank, focusing on the provision of finance
for merger and acquisition transactions and in particular BEE. Previously Sydney
was a director in Standard Bank`s corporate finance division.
His investment banking experience and responsibilities at Standard Bank over the
past six years involved restructurings, acquisitions, valuations, listings, BEE
advisory and financing, capital raisings, restructuring of state owned
enterprises and general corporate finance advisory work to large listed and
unlisted South African companies.
Sydney is a member of the Securities Regulation Panel, the Audit Committee of
the South African Police Service, the South African Institute of Chartered
Accountants, the Investment Analysts Society of Southern Africa and between 1999
and 2002 was a Convocation Executive Committee member of the University of the
Witwatersrand.
5.5 Responsibilities of Makalani Manco
In terms of the management agreement, Makalani Manco will have responsibility
to:
- manage the general administrative activities of Makalani, including such roles
as accounting functions;
- manage the broader investment functions, making recommendations on investments
and disposals of investments and co-ordination of due diligence investigations
on potential investments;
- manage the financial matters of the company, including managing and monitoring
the company`s gearing and liquidity position and making recommendations as to
the amount, price and timing of the issue of new linked units;
- perform regular valuations of Makalani and its investments for publication;
and
- manage communication to investors and other stakeholders.
5.6 Investment process
Makalani Manco will manage the investment process by identifying suitable FSC-
compliant investments consistent with its investment mandate and the company`s
objectives. The approval process for an investment will depend on the size of
the investment. A summary of the process is set out below. Where the amount
required to be committed by the company to an investment:
- is less than R30 million, Makalani Manco will consider and make such
investment on behalf of Makalani, with the support of 2 RMB investment
professionals;
- is in excess of R30 million, but less than R250 million, Makalani Manco will
consider and recommend such investment to the investment committee as a
potential investment; and
- is in excess of R250 million, Makalani Manco will consider and recommend such
investment to the investment committee and a sub-committee of the board of
directors as a potential investment.
5.7 The investment committee
The investment committee will comprise of the RMB investment committee, as
constituted from time to time, as well as the CEO or CIO of Makalani Manco.
5.8 Management fee
The management fee payable to Makalani Manco will be calculated as follows:
- a base fee of 1.0% of invested capital and 0.3% of liquid instruments; and
- a performance fee of 20% of attributable return in excess of the benchmark
return.
6. Prospects
BEE is one of the largest driving forces in asset origination in the financial
services industry. These assets are created and structured to provide investors
with a commercial return which rewards them for the risk assumed. Strong demand
for the funding of FSC-compliant investments cannot be met from within the
traditional banking sector.
Makalani is confident that it will provide an ideal vehicle which addresses this
shortfall and that it will invest in assets that provide investors with
attractive returns.
7. Other information
Subscriptions for linked units in terms of the public offer and/or the private
placement may only be made for minimum subscription amounts of R10 000.
English copies of the full version of the prospectus are available during normal
business hours from:
- Makalani, at its registered office:
Makalani Holdings Limited
(Registration number 2005/000726/06)
2 Merchant Place
Corner Fredman Drive and Rivonia Road
Sandton
- the transfer secretaries:
Ultra Registrars (Proprietary) Limited
(Registration number 2000/007239/07)
5th Floor
11 Diagonal Street
Johannesburg
- RMB:
Rand Merchant Bank, a division of FirstRand Bank Limited
(Registration number 1968/013988/06)
15th Floor
1 Merchant Place
Corner Fredman Drive and Rivonia Road
Sandton
- Makalani`s website at www.makalani.co.za.
Johannesburg
28 April 2005
Merchant Bank, lead arranger and sponsor
Rand Merchant Bank (a division of FirstRand Bank Limited)
Corporate Finance
Attorneys
Hofmeyr Herbstein & Gihwala Inc.
Lead Sponsor
PricewaterhouseCoopers Corporate Finance (Proprietary) Limited
Reporting accountants and auditors
PricewaterhouseCoopers Inc
Date: 28/04/2005 02:14:33 PM
Produced by the JSE SENS Department
