CIP.L Regulatory News (CIP)

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN OR INTO, THE UNITED STATES OF AMERICA, AUTRALIA, CANADA, JAPAN, NEW ZEALAND OR SOUTH AFRICA OR ANY OTHER JURISDICTION WHERE IT IS UNLAWFUL TO DISTRIBUTE THIS ANNOUNCEMENT.

22 January 2018

CIP MERCHANT CAPITAL LIMITED

("CIP Merchant Capital" or the "Company")

First Investment

CIP Merchant Capital, the AIM quoted closed-ended investment company, is pleased to announce its first investment in line with its investing policy following its admission to trading on AIM in December 2017.

The Company has agreed to subscribe for, in aggregate, £6.0 million worth of shares in Saffron Energy Plc ("Saffron"), the AIM quoted European gas company with interests in Northern Italy pursuant to a £14.0 million equity placing with institutional and other investors by Saffron (the "Saffron Placing"). Saffron has today also announced that it has agreed to acquire the Italian oil and gas assets of both Sound Energy Plc ("Sound Energy") and Po Valley Energy Limited ("Po Valley") together with a strategy of seeking to acquire other assets to enhance its portfolio.

Information on Saffron

Saffron is currently interested in three gas fields in Northern Italy, being the Sillaro and Bezzaco gas fields, which are both currently producing, and the Sant'Alberto gas field which is currently being developed.

Following discussions with both Sound Energy and Po Valley, Saffron announced on 5 October 2017 that it had entered into non-binding conditional heads of terms with both parties, to acquire their respective Italian oil and gas interests and permits, with the aim of significantly increasing Saffron's portfolio of Italian assets and positioning itself as a mid-cap regional gas producer and explorer.

Further to Saffron's announcement of 5 October 2017, Saffron announced earlier today that it had entered into binding conditional sale and purchase agreements with each of Sound Energy and Po Valley under which it is proposed that Saffron acquires both Sound Energy's and Po Valley Energy's portfolio of Italian interests and permits. These acquisitions will be structured by way of an acquisition of Sound Energy Holdings Italy Limited ("SEHIL") (the "Proposed SEHIL Transaction") and Po Valley Operations Pty Ltd ("PVO") (the "Proposed PVO Transaction"), for both of which the principal business is the exploration for and production of liquid and gaseous hydrocarbons across Italy.

Under the Proposed SEHIL Transaction, Saffron will acquire SEHIL in consideration for the issue to Sound Energy of 185,907,500 new ordinary shares of £0.001 each in the capital of Saffron ("Saffron Shares") (the "SEHIL Consideration Shares"), subject to, inter alia, the shareholders of Saffron approving the issue of the new Saffron Shares. The SEHIL Consideration Shares are intended to be issued by Saffron directly to Sound Energy's shareholders.

Pursuant to the terms of the Proposed PVO Transaction, Saffron will acquire PVO in consideration for the issue to Po Valley of 200,000,000 Saffron Shares, subject to, inter alia, the shareholders of Saffron approving the issue of the new Saffron Shares. On completion of the proposed acquisitions of SEHIL and PVO and the Saffron Placing, Po Valley will be interested in approximately 32.75% of Saffron's then enlarged share capital.

The proposed acquisition by Saffron of SEHIL's and PVO's natural gas and oil assets contemplated in the transactions adds significant larger assets to the Saffron portfolio, including the Selva onshore gas field, which recently reported strong gas flows resulting from successful flow testing of the Podere Maiar 1dir exploration well which confirmed a net pay of 41 metres from two identified gas reservoirs and a peak flow rate of over 148,000 scm/day, the Teodorico offshore Adriatic gas field (47 bcf) development and the large Torre del Moro and Santa Maria Gorretti and Dalla gas exploration licences, plus two smaller gas production fields.

On completion of the proposed acquisitions of SEHIL and PVO, Saffron will continue to develop its Italian assets. In addition, the Company will look to acquire assets which enhance its portfolio and where there are operating and other synergies. Saffron believes that these assets will be located both in Europe and elsewhere, and that in particular there will be opportunities to acquire exploration licenses in South East Asia.

Saffron therefore intends to pursue a combined European and South East Asian regional exploration strategy focused on multi Tcf (trillion cubic feet), low cost, onshore gas piped to high value, growing markets.

By virtue of their size, each of the Proposed SEHIL Transaction and Proposed PVO Transaction constitutes a reverse takeover under Rule 14 of the AIM Rules for Companies, and will require Saffron shareholder approval. Documents (including an AIM admission document) to convene a general meeting of Saffron shareholders at which resolutions will be tabled, inter alia, to grant its directors the authorities to issue the relevant consideration and placing shares, are currently under preparation, and it is expected that such general meeting will be held in March 2018. The Saffron Shares will remain suspended from trading on AIM, pending publication of an AIM admission document. Subject to shareholder approval, Saffron will also be re-named Coro Energy Plc.

In the six months ended 30 June 2017, Saffron reported revenues of €0.56 million and a loss of €0.92 million and as at 30 June 2017 had total assets of €12.5 million and net assets of €5.2 million.

Information of the Saffron Placing

Saffron has raised, in aggregate, gross proceeds of £14.0 million, with £561,138 to be subscribed for immediately by CIP (the "Initial Subscription") and with £13,438,862 to be subscribed for subject to, inter alia, Saffron shareholder approval of the proposals, which is expected to be received in March 2018 and the completion of the proposed acquisitions of SEHIL and PVO (the "Second Subscription"), through the issue of, in aggregate, 319,634,703 new Saffron Shares at a price of 4.38 pence (the "Placing Price"). The aggregate proceeds of the Saffron Placing will be deployed primarily to evaluate, drill and develop any acquired assets.

Pursuant to the terms of the Saffron Placing, the Company has agreed to subscribe for, in aggregate, £6.0 million, with £561,138 million to be subscribed for under the Initial Subscription and £5,438,862 under the Second Subscription.

In addition, each investor in the Saffron Placing will be granted warrants for one year to subscribe for additional Saffron Shares at a price for 6.57 pence, being 150% of the Placing Price, on the basis of one warrant for every two Saffron Shares subscribed. Pursuant to the terms of the Saffron Placing and in return for acting as a cornerstone investor to the placing, the Company will also receive, in aggregate, a further 13,698,629 new Saffron Shares in satisfaction of commissions due to it.

On admission of the new Saffron Shares to be issued to the Company pursuant to the Initial Subscription and the associated commissions, the Company will be interested in approximately 7.05% of Saffron's then enlarged share capital.

On completion of the Second Subscription, the Proposed SEHIL Transaction and the Proposed PVO Transaction, the Company will be interested in approximately 16.45% of Saffron's then enlarged share capital and will be interested in 68,493,150 warrants.

Saffron also intends, following its re-admission to AIM, to offer its existing shareholders the opportunity to participate in the funding via an open offer to raise approximately £2.0 million at the Placing Price.

Disclosure re certain Directors' interests in Saffron and Sound Energy

Marco Fumagalli and Carlo Sgarbi are both directors of the Company and Merchant Capital Manager Limited, the Company's investment manager. In addition, Mr Fumagalli and Mr Sgarbi, are both beneficiaries of Continental Investment Partners SA ("CIP"), an affiliate of the Company's investment manager. CIP, through certain associates is interested in, in aggregate, approximately 6.6% of Sound Energy.

Mr Fumagalli is also a non-executive director of Sound Energy and Saffron and it is proposed that Mr Fumagalli will, along with the other directors of Saffron, be issued options over 10 million Saffron Shares at the Placing Price.

For further information, please contact:

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014.