Aeci 5 1/2% Prf Regulatory News (87FZ)

AECI LIMITED Incorporated in the Republic of South Africa (Registration No. 1924/002590/06) Share code: AFE ISIN No. ZAE000000220 ("AECI" or "the AECI Group") ANNOUNCEMENT RELATING TO THE DISPOSAL BY AECI OF ITS SURPLUS PROPERTY ASSETS ATMODDERFONTEIN TO SHANGHAI ZENDAI PROPERTY LIMITED (THE "TRANSACTION") ANDWITHDRAWAL OF CAUTIONARY ANNOUNCEMENT TRANSACTION SUMMARY* * The Board of AECI is pleased to announce that it has reached agreement regarding the disposal by the AECI Group of its surplus property assets at Modderfontein, in Gauteng, to Shanghai Zendai. * The Transaction comprises the disposal of approximately 1 600ha of land and buildings thereon owned by the AECI Group, as well as Heartland's property development business in respect of the aforementioned assets. * The Purchase Price amounts to R1 060 974 456 (inclusive of VAT), which will be payable in full by Shanghai Zendai to AECI upon fufillment of the Conditions Precedent, which include the transfer by the AECI Parties to the Zendai Parties of Acquisition Assets with an aggregate acquisition price of R513 000 000 (inclusive of VAT) (or such lesser amount as agreed by Shanghai Zendai) (the "Effective Date"). * The Transaction is anticipated to be effective by 31 July 2014 (which date may be extended by a further two months thereafter to 30 September 2014). * It is anticipated that the remaining Acquisition Assets will be transferred by the AECI Parties to the Zendai Parties within a period of 24 months from the Effective Date ("Long Stop Date"). Under certain circumstances this period may be extended for a further period of up to 18 months. * The Transaction is line with AECI's stated policy to realise value from its surplus property assets. * Shanghai Zendai is an investment holding company listed on the Hong Kong Stock Exchange and is focused on developing, investing in and managing residential and commercial properties mainly in China. * Given the favourable location of the Acquisition Assets, Shanghai Zendai's intention is to develop the available land for mixed end-uses that include residential, commercial and retail developments. *Capitalised terms used in this section have the same meaning as ascribed inthis announcement. 1. INTRODUCTION Shareholders of AECI ("Shareholders") are referred to the cautionaryannouncements released on the Stock Exchange News Service ("SENS") of the JSELimited ("JSE") on 8 July 2013, 16 August 2013 and 27 September 2013. AECI has entered into a transaction framework agreement (the "FrameworkAgreement") with Shanghai Zendai Property Limited ("Shanghai Zendai") andvarious other transaction agreements regarding the Transaction (the"Transaction Agreements"). The Framework Agreement as well as the TransactionAgreements set out the basis on which South African subsidiaries of ShanghaiZendai, namely Zendai Development (South Africa) Proprietary Limited ("DevCo")and Zendai Investment Management (South Africa) Proprietary Limited ("InvCo")(jointly the "Zendai Parties"), will acquire, subject to the fufillment orwaiver of the conditions precedent to the Transaction: * approximately 1 600ha of land from AECI and two of its subsidiaries, Heartland Properties Proprietary Limited ("Heartland") and AECI Real Estate Proprietary Limited ("ARE") (jointly the "AECI Parties"); * certain buildings on this land owned by the AECI Parties; and * Heartland's property development business in respect of the aforementioned assets (collectively, the "Acquisition Assets"). Post the completion of the Transaction, the AECI Group will retainapproximately 1 300ha of land at Modderfontein for current and futureoperational requirements, and future disposals. It will also retain theModderfontein Reserve, a 275ha area zoned as private open space. AECI willcontinue to manage the land and buildings it owns in Somerset West, WesternCape and Umbogintwini, KwaZulu-Natal, in the ordinary course of business. In terms of the Framework Agreement, AECI has agreed to provide Shanghai Zendaiwith a right of first refusal to acquire certain remaining Modderfontein assetsheld by AECI (the "Remaining Assets") for a period of 10 years post the LongStop Date, and, if applicable the extension thereof. In addition, during thisperiod AECI shall not directly compete with the Zendai Parties in the businessof property development in respect of the Remaining Assets. However, AECI willnot be prevented from realising value from its other assets outside theRemaining Assets in the ordinary course of business. 2. TRANSACTION PRICE* Subject to the fulfillment or waiver of the conditions precedent as set out inparagraph 7 below ("Conditions Precedent"), including the transfer ofAcquisition Assets with an aggregate acquisition price of R513 000 000 or suchlesser amount as agreed by Shanghai Zendai (the "First Tranche") within amaximum of 11 months from signature date of the Framework Agreement, the ZendaiParties will pay AECI R1 060 974 456(the "Transaction Price"). In addition to the Transaction Price, Shanghai Zendai will be responsible forreimbursing the AECI Group for any net improvement costs, plus VAT and interestthereon, incurred by the AECI Parties on the Acquisition Assets from 1September 2013 until the Effective Date, which net improvement costs and VATthereon are estimated to amount to no more than R227 069 044 ("Net ImprovementCosts"). * rand amounts are inclusive of VAT 3. RATIONALE FOR THE TRANSACTION AECI is a South African-based explosives and chemicals company which is focusedmainly on providing specialty products and services to the mining andmanufacturing sectors in Africa and in certain other emerging markets. ARE and Heartland are subsidiaries of AECI and are incorporated as proprietarylimited entities. ARE is an investment holding company. Heartland is engagedprimarily in preparing property assets that have become surplus to AECI'soperational requirements for alternative end uses. The Transaction represents a unique opportunity for the AECI Group to realiseimmediate value for the majority of the surplus land surrounding its operationsin Modderfontein in a single transaction at what the Board of Directors of AECI(the "Board of AECI") considers an attractive valuation. The Board of AECI has not finalised how it will redeploy the proceeds realisedfrom the Transaction in order to enhance shareholder value. Alternatives couldinclude the redeployment of the proceeds into its core explosives and specialtychemicals businesses or the return of cash to Shareholders, in the form of adividend or a share buy-back. 4. BACKGROUND INFORMATION ON SHANGHAI ZENDAI Shanghai Zendai is a diversified property development company listed on theHong Kong Stock Exchange and is principally engaged in the construction,development, investment and management of residential and commercial propertiesfor sale and ownership mainly in the People's Republic of China ("PRC"). Italso operates as a leasing and management agency of commercial and residentialproperties and owns a hotel business. Shanghai Zendai currently has property projects under development in 12 citiesin the PRC which are located in northern China, Shanghai city and itssurroundings and Hainan province. Apart from focusing on the PRC market,Shanghai Zendai has been actively exploring scalable investment opportunitiesin international real estate development projects. In addition to Shanghai Zendai's first overseas project located in New Zealand,the Board of Directors of Shanghai Zendai is of the view that the AcquisitionAssets provide an attractive opportunity to diversify its landbank. TheTransaction will provide Shanghai Zendai with a platform to build a growing andgeographically diversified income stream for its shareholders. 5. THE TRANSACTION ASSETS 5.1. Properties In terms of the Transaction, the Zendai Parties will acquire approximately 1600ha of land and buildings thereon located in Modderfontein, together with theleases related to these buildings. AECI has entered into a lease management services agreement with ShanghaiZendai whereby AECI will administer the leasing portfolio acquired by ShanghaiZendai pursuant to the Transaction, on a cost plus recovery basis. 5.2. The Heartland business The Zendai Parties will acquire the Heartland business of property developmentin respect of the aforementioned land and buildings thereon, as a goingconcern, including the moveable and certain intangible assets used or owned byHeartland in relation to the normal, ordinary and regular operation of itsbusiness. Employees engaged in Heartland's development activities at Modderfontein willbe transferred to Shanghai Zendai on the Effective Date. 6. PAYMENT STRUCTURE* Under the terms of the Framework Agreement, subject to the fulfillment of theConditions Precedent, upon the transfer by the AECI Parties of the FirstTranche to the Zendai Parties, the Zendai Parties will settle the fullTransaction Price of R1 060 974 456 and the value of the additional NetImprovement Costs incurred by AECI up to and including the Effective Date. AECI will endeavour to transfer the remaining Acquisition Assets nottransferred as at the Effective Date ("Remaining Acquisition Assets") by theLong Stop Date. Both parties have the right, provided that the PerformanceGuarantee (referred to in paragraph 10 below) remains in force, to extend thetransfer period for up to a further 12 months after the Long Stop Date (the"Grace Period") and for a further six months after the expiry of the GracePeriod ("Extended Grace Period"). Should the Parties agree to the Grace Periodand the Extended Grace Period, AECI will be liable for the Zendai Parties'funding costs in respect of the Remaining Acquisition Assets, up to a maximumof 10% per annum. In the event that the AECI Parties are unable to transfer any of the RemainingAcquisition Assets timeously the Parties shall attempt, in good faith, toconsider alternative methods of placing Shanghai Zendai in the position itwould have been had such Remaining Acquisition Assets been transferredtimeously including, without limitation, the entering into of long-term leases.Shanghai Zendai shall be entitled to call up the Performance Guarantee afterthe Long Stop Date or, if applicable, the Grace Period or Extended Grace Periodif the parties are unable to reach agreement on the transfer of the RemainingAcquisition Assets. * rand amounts are inclusive of VAT 7. CONDITIONS PRECEDENT The Transaction is subject to inter alia the fufillment or waiver (whereappropriate), as the case may be, of the following Conditions Precedent: 7.1. the unconditional approval in writing of the Competition Commission in South Africa, in terms of the Competition Act No. 89 of 1998, as amended, having been obtained (or if such approval is conditional, the Parties having each respectively in writing approved each such condition and delivered such written approval to the other Party); 7.2. such shareholder resolutions of the Zendai Parties as may be necessary; 7.3. such Directors' resolutions of the AECI Parties as may be necessary; 7.4. Heartland Leasing Proprietary Limited, acting as an agent for AECI, and ImproChem Proprietary Limited ("ImproChem") entering into a lease in respect of the ImproChem building in a form satisfactory to both Shanghai Zendai and AECI; and 7.5. provided that the Conditions Precedent listed above are met, the transfer of the First Tranche to InvCo and DevCo by 31 July 2014. Fufillment of this Condition Precedent may be extended up to and including 30 September 2014 if AECI's attorneys are of the opinion that the required threshold will be met in the event of such an extension. The value of the First Tranche threshold may also be reduced by Shanghai Zendai, in its discretion. 8. IRREVOCABLE UNDERTAKINGS FROM SHANGHAI ZENDAI SHAREHOLDERS AECI has received an irrevocable undertaking from Mr Dai Zhikang (the Founderand Chairman of Shanghai Zendai) on behalf of companies he directly orindirectly controls which have a 38,67% shareholding in Shanghai Zendai, tovote in favour of the transactions contemplated in the Framework Agreement atthe meeting of Shanghai Zendai shareholders called to approve thosetransactions in a form satisfactory to AECI. It is Shanghai Zendai's intention to convene a meeting of its shareholders toconsider and vote on all resolutions required to give effect to the Transactionby no later than 28 February 2014. 9. SHANGHAI ZENDAI FUNDING The Zendai Parties have furnished AECI with the following bank guarantees fromthe Bank of China Limited, a bank registered in South Africa: * a payment guarantee amounting to R1 060 974 456 for the sole purpose of fully satisfying the Transaction Price and VAT thereon; and * a net improvement cost guarantee for bulk infrastructure amounting to R227 069 044 for the sole purpose of fully satisfying the Net Improvement Costs and VAT and interest thereon. 10. AECI PERFORMANCE GUARANTEE The Standard Bank of South Africa Limited has furnished on AECI's behalf aguarantee to the Zendai Parties amounting to a maximum of R547 974 457 for thesole purpose of fully satisfying AECI's obligations to transfer the RemainingAcquisition Assets (the "Performance Guarantee"). This Performance Guarantee is for a maximum period of 42 months from theEffective Date and will be reduced as each of the Remaining Acquisition Assetsis transferred to the Zendai Parties. 11. UNAUDITED PRO FORMA FINANCIAL EFFECTS OF THE TRANSACTION The unaudited pro forma financial effects of the Transaction set out below havebeen prepared to assist Shareholders in assessing the impact of the Transactionon the AECI Group's earnings per share ("EPS"), headline earnings per share("HEPS"), net asset value ("NAV") and tangible net asset value per share("TNAV"). The pro formafinancial effects are the responsibility of the Board of AECI andare provided for illustrative purposes only. The pro forma financial effectshave been prepared as if the Transaction had become fully effective and fullyrecognised on 1 January 2013 for purposes of the Statement of ComprehensiveIncome and at 30 June 2013 for purposes of the Statement of Financial Position.It does not purport to be indicative of what the consolidated financial resultswould have been had the Transaction been implemented on a different date. Thematerial assumptions are set out in the notes following the table below. Due to their nature, the pro forma financial effects may not fairly present thefinancial position, changes in equity, results of operations or cash flows ofthe AECI Group after the implementation of the Transaction. Before the After the Percentage Transaction Transaction change (%) EPS (cents) 356 672 88,8 HEPS (cents) 356 508 42,7 Weighted average number of 111 936 170 111 936 170 0shares in issue for EPS andHEPS NAV (cents) 5 347 5 641 5,5 TNAV (cents) 4 283 4 577 6,9 Weighted number of shares 116 291 400 116 291 400 0in issue for NAV and TNAV Notes: i. The "Before the Transaction" financial information has been extracted from AECI's unaudited interim financial results for the half-year ended 30 June 2013 released on SENS on 24 July 2013. ii. The pro forma financial effects have been compiled using accounting policies that comply with International Financial Reporting Standards and that are consistent with those applied in the audited consolidated financial statements for AECI for the 12 months ended 31 December 2012. iii. The Transaction has been recognised in the pro forma financial information as a single transaction with all conditions precedent and all recognition criteria assumed to be completely fulfilled or met on the day of recognition. The actual recognition may take place over a period and the Group's reporting dates could occur within that period resulting in recognition of the Transaction in part in different reporting periods. iv. The AECI Parties hold surplus property in three classes, namely, development property which is property owned by Heartland, income generating leasing property and vacant land held as capital assets. The recognition of profits and tax effects indicated in the pro forma information follows the nature of the assets held with disposal of development property by Heartland being included in headline earnings as a normal operating activity and the disposal of leased and capital property being outside normal operating activities and excluded from headline earnings. v. Tax on the disposals follows the above treatment using the applicable normal and capital gains tax rates resulting in an effective tax rate of 23%. vi. VAT and interest effects have not been considered in the pro forma financial information. vii. The Statement of Comprehensive Income would include adjustments for leasing revenue and costs that would not have been recognised had the Transaction occurred on 1 January 2013. No adjustments are made in respect of this in the Statement of Financial Position as the Transaction is implemented on 30 June 2013. viii. The effects of future net improvement costs, or interest thereon, have not been considered in the pro forma financial information. ix. No costs or income have been estimated or included in respect of the service agreement in terms of which AECI will administer the leasing portfolio. x. Estimated costs of the Transaction have been included in the pro forma financial information. 12. CATEGORISATION OF THE TRANSACTION In terms of the Listings Requirements of the JSE, the Transaction iscategorised as a Category 2 transaction and accordingly approval byShareholders is not required. 13. WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT Shareholders are advised that following the release of these full details ofthe Transaction, they no longer need to exercise caution when dealing in theirAECI securities in this regard. Woodmead, Sandton4 November 2013 Investment Bank, Structuring Adviser and Transaction SponsorThe Standard Bank of South Africa Limited Legal AdviserWebber Wentzel