Rurelec Regulatory News (RUR)

21 November 2019

Rurelec PLC

("Rurelec" or the "Company")

 Agreements with Basic Energy Limited and other parties, and note on foreign exchange controls in Argentina

New Agreements

The Directors of Rurelec PLC (AIM: RUR) announce that on 20 November they have signed (1) an Amended And Restated Shareholders Agreement ("SHA") with Basic Energy Limited ("Basic") and Patagonia Energy Limited ("PEL"), and (2) an Umbrella Agreement ("UA") with PEL, Basic, Rurelec Project Finance Limited ("RPFL"), Energia del Sur SA ("EdS"), Electrica del Sur S.A. ("Electrica"), and Rurelec PLC Sucursal Argentina.

·; The SHA amends the constitutional relationship between Rurelec and Basic, who are both 50% Joint Venture ("JV") partners in PEL.

·; The UA sets out a new schedule for the repayment of unsecured debts owed by PEL to both Rurelec and Basic by way of the Amended and Restated Loan Notes ("ARLNs"), the terms of which are set out below.

·; By joining EdS and Electrica into the agreement, the UA also regulates the cash distributions to be made by EdS and Electrica to PEL.

·; Finally, by joining RPFL into the agreement (a wholly owned subsidiary of Rurelec) the UA sets out the basis for the release of the secured Facility Agreement between EdS and RPFL. This is the same EdS Senior Debt acquired by Rurelec Project Finance Limited from Standard Bank in March 2011 and repaid in full on 30 May 2019.

The objective in signing these Agreements has been to enhance and maximise the flow of cash remittances from EdS (PEL's operating subsidiary) to Rurelec via PEL by formalising arrangements governing the flow of funds from Argentina and by more closely aligning the interests of Rurelec and Basic.

Summary of Changes

The key constitutional changes to the SHA are:

·; Permitted share transfers;

o To allow part of Basic shareholding to be transferred within Basic stakeholders without triggering the right of first refusal;

o Payment to shareholders:

§ PEL group cash position to be reviewed on a monthly basis to consider making repayments or distributions;

§ ARLNs to be repaid in accordance with their respective terms and the UA;

§ Dividends will not be paid out until the ARLNs have been repaid in accordance with their respective terms and the UA;

§ The first $5.7 million of dividend distributions by PEL will be split in the ratio 72:28 (Rurelec:Basic);

§ After that, further dividend distributions to the JV partners will be on a 50:50 basis.

 The key provisions of the UA are:

·; Formal monthly obligations on EdS to review cashflow and to remit all permissible surplus cash to PEL and in turn on PEL to remit such funds to Rurelec and Basic in accordance with a "waterfall" arrangement of the UA as follows:

o The first US $5.0 million of debt repayments by PEL will be split in the ratio 80:20 (Rurelec:Basic); and The next US $18.9 million of debt repayments by PEL will be split in the ratio 72:28 (Rurelec:Basic).

·; Customary default provisions for both Rurelec and Basic having the right to default interest.

·; Rurelec and Basic agree to waive any claim to interest on past monies loaned to PEL and for there to be a global release of past debts, obligations and liabilities. The Board of Rurelec has for many years provided in full for the uncertain interest on these monies.

·; Debt capital to be defined by the establishment of new ARLNs.

·; If EdS/Electrica/PEL is unable to pay either of the JV parties due to exchange controls in Argentina, it will set aside the funds until it is able to pay both parties.

·; The release of the secured Facility Agreement referred to the Company's announcement of 30 May 2019.

Whilst these new provisions determine how funds generated by PEL will be distributed, the timing of these payments is not certain as it is dependant inter alia on the potential future cash generation ability of EdS and the potential future existence of exchange controls that may restrict the ability of EdS to transmit funds to PEL (see below).

The key provisions of the ARLNs (in accordance with the terms of the SHA and the UA) are:

·; No interest accruing;

·; Events of Default and Default Interest of 14.32%;

·; Repayment by PEL of outstanding principal on the maturity date (31.12.2039); and

·; Prepayment of outstanding principal is permissible to both lenders (Rurelec and Basic) without premium or penalty.

Exchange controls imposed by the Argentine Central Bank

The Directors note that exchange controls have been imposed in the wake of the latest financial crisis in Argentina, where the Company operates. Due to the exchange controls imposed on US dollars by the Argentinean Central Bank ("BCRA"), any repayment of debt between a subsidiary and its parent company needs the approval of the BCRA. As a result, the local management team of EdS is looking at alternative ways to purchase US dollars to fulfil their obligations under the UA. The local management team is also receiving legal and banking advice in Argentina. EdS management expects to be able to transmit further debt repayments and dividends to PEL (which is based outside of Argentina) but Rurelec's Board notes there can be no guarantee that any route will not also be blocked by further exchange controls measures introduced by the new Argentine government. Accordingly, there can be no guarantee that any cash can be remitted to PEL in the foreseeable future, nor that any monies can, in turn, be remitted to Rurelec. Whilst this is not a problem for the Company in the short term, it could ultimately result in liquidity problems for Rurelec if it was not resolved.

The Directors will continue to keep the situation under review and further updates will be made as appropriate.

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