Northam acquires Zambezi preference shares
Johannesburg, 1 November 2016. Northam hereby advises shareholders of the acquisition of 4 043 018 preference shares (preference shares) in Zambezi Platinum (RF) Limited (Zambezi) from Coronation Asset Management Proprietary Limited acting as investment manager on behalf of its clients (Coronation), (acquisition).
The acquisition was effected on 31 October 2016 at R49.468 per preference share, for a total cash value of R200 million, and constitutes approximately 2.5% of the total preference shares in issue.
The preference shares were issued by Zambezi in 2015 in terms of Northam’s black economic empowerment transaction (Northam BEE transaction), which raised Northam’s empowerment equity levels to 31.4%.
Northam chief executive Paul Dunne said today:
“The preference shares offer an attractive yield whilst acting as a partial hedge against any potential financial liability which could arise in respect of the guarantee that Northam provided to the holders of preference shares in terms of the Northam BEE transaction.”
Northam considers the preference shares to be a high-yield instrument with a credit risk profile that matches that of Northam. Accordingly, an investment in the preference shares provides the following benefits:
- the preference shares generate a high return without the introduction of significant additional third party risk for Northam;
- Northam may access future liquidity through the disposal of the preference shares in the future;
- should Zambezi elect to redeem the preference shares using Northam ordinary shares, Northam will benefit from the discount that shall be applied to the Northam ordinary shares for purposes of the redemption calculations;
- the acquisition partially hedges Northam against the potential future liability which could become payable pursuant to the guarantee provided by Northam to preference shareholders in respect of the preference shares (guarantee); and
- the net finance charges and liability included in Northam’s consolidated financial statements in relation to the preference shares will be reduced when setting off these preference shares held as an asset.
The price paid of R49.468 per preference share was calculated as the redemption value of a preference share as at 31 October 2016, being an amount equal to the issue price of R41.00 plus the accrued dividends at that date. The aggregate value of the acquisition was R200 million and was funded from Northam’s cash reserves.
DETAILS OF ZAMBEZI AND THE PREFERENCE SHARES
Zambezi was incorporated as a special purpose vehicle for purposes of facilitating the Northam BEE transaction, the primary purpose of which is to (i) hold the Northam ordinary shares it acquired as part of the Northam BEE transaction (BEE shares) for the benefit of historically disadvantaged South African participants and (ii) issue the preference shares. Zambezi is a ring-fenced entity and does not conduct any operational business activities, with its only investment being the BEE shares.
The preference shares, which were issued at R41.00 per share, are cumulative, redeemable preference shares which accrue dividends daily at an effective rate equal to the prime interest rate plus 3.5% compounded annually and are redeemable on 18 May 2025. The preference shares are secured by the BEE shares held by Zambezi and payments to their holders are guaranteed by Northam.
The preference shares may be redeemed, at Zambezi’s election, in cash and / or through the distribution of the BEE shares held by Zambezi in Northam. In the event that the preference shares are redeemed through the distribution of the BEE shares, the settlement value of the BEE shares shall be calculated at the 30 day volume weighted average price of a Northam ordinary share, as at the date preceding the settlement date, less 10%.
If payment under the guarantee is required, Northam may, at its election, settle the associated liability using cash and / or new Northam ordinary shares.
SMALL RELATED PARTY TRANSACTION AND FAIRNESS OPINION
Coronation is deemed to be a material shareholder of Northam in that it is able to exercise voting control on behalf of its clients over shares constituting an approximate 29.68% interest in Northam, and is therefore considered a related party in terms of paragraph 10.1(b)(i) of the JSE Limited Listings Requirements (Listings Requirements). Accordingly, the acquisition is classified as a small related party transaction in terms of paragraph 10.7 of the Listings Requirements.
The acquisition is not subject to shareholder approval, provided an independent professional expert has confirmed that the terms of the acquisition are fair as far as Northam’s shareholders are concerned. Northam appointed KPMG Services Proprietary Limited as an independent expert to provide an opinion on the fairness of the acquisition
In accordance with paragraph 10.7(b) of the Listings Requirements, and the fairness opinion, the board hereby confirms its opinion on the fairness of the acquisition for Northam shareholders. A copy of the fairness opinion is available for inspection at Northam’s registered office, being Building 4, 1st Floor, Maxwell Office Park, Magwa Crescent West, Waterfall City, Jukskei View, for a period of 28 days from the date of this announcement.
Russell & Associates
Tel +27 (0)11 880 3924
Marion Brower +27 71 493 0387
Jan Walker +27 71 493 0429
Janet Whitaker: +27 11 880 3924