AG-LTA and Settlement Agreement
announcement
Tuesday 11th October, 2016
Having completed the first phase of its strategy, namely recover and stabilise, Aveng is presently
executing the second phase, position for profitable growth. Aveng has stabilised Aveng GrinakerLTA and is now moving boldly to position itself in South Africa and the rest of Africa for growth by
transforming itself in a meaningful and irrevocable manner.
Shareholders were advised on 23 February 2016, that Aveng Ltd. has prioritised the
transformation of the construction business conducted by Aveng Grinaker-LTA. The negotiations
relating to such a transaction have now been concluded. In keeping with Aveng Ltd.'s
transformation objectives, Aveng Africa (Pty) Ltd. (Aveng Africa), a wholly-owned subsidiary of
Aveng Ltd., has entered into binding agreements with Kutana Construction (Pty) Ltd. (Kutana
Construction) (a black women-owned entity) whereby Kutana Construction will acquire a 51%
Beneficial Interest (as defined below) in the Business (as defined below). As a result of the
subscription by Aveng Africa for a non-voting equity instrument (NVE Instrument, as defined
below) in Kutana Construction, the net economic interest which Kutana Construction will acquire
equates to an initial 45% Economic Interest (as defined below) (the Proposed Transaction) in the
Business with effect from on or about 1 February 2017 (the Effective Date). The Proposed
Transaction is structured in a manner which realises real value relating to the Business for Aveng
Ltd. and its shareholders, albeit on a deferred value and payment basis.
Moreover, through the implementation of the Proposed Transaction, Aveng Ltd. will (i) achieve its
transformation objectives, including (a) introducing a black women-owned participant and
emerging black contractors into the market, and (b) developing and attracting black professional
and management skills in the construction sector; (ii) creating a platform for growth and
sustainability for the Business within the South African construction industry; and (iii) aligning the
strategy of the Business with the Government's economic transformation agenda and policies.
This will further the development and transformation of the South African construction industry as
a whole.
Due to the financial performance of the Business over the past number of years, a transaction
has been developed whereby the purchase price will be determined on the financial performance
of Aveng Grinaker LTA over the 2018, 2019 and 2020 financial years, being a six (6) times
multiple of average annual earnings before interest, taxes, depreciation and amortisation
(“EBITDA”, as defined below) for those years. The purchase price for the 45% Economic Interest
is capped to a maximum amount of R756 million and with a floor price based on the fair value of
the Business at that future date, referencing, amongst other measurements, the net asset value
of the Business. The net asset value attributable to the 45% Economic Interest being disposed of
amounted to R203 million at 30 June 2016.
Furthermore, shareholders are advised that Aveng Africa entered into a settlement agreement
(the Settlement Agreement) with the Government of the Republic of South Africa (the
Government). The Settlement Agreement, inter alia, contains certain transformation obligations.
Kutana Construction has committed to assisting Aveng Africa to fulfil its transformation
obligations in terms of the Settlement Agreement, by means of the Proposed Transaction.
Proposed introduction of an economic empowerment parnter
Aveng Africa owns and operates the Aveng Grinaker-LTA business, a leading engineering and
construction business. This transaction comprises the disposal of an interest in its operating
divisions, other than that of the water division (hereinafter collectively referred to as "the
Business").
Aveng Africa has entered into binding agreements with Kutana Construction whereby Kutana
Construction will acquire a 51% Beneficial Interest (which as a result of a NVE Instrument
structure converts to a 45% Economic Interest), in the Business on the Effective Date (the
Proposed Transaction), with the intention of substantially transforming the Business. At 30 June
2016, the net assets attributable to the Business were R450 million, equating to R230 million
attributable to the 51% Beneficial Interest and R203 million attributable to the 45% Economic
Interest disposed of in favour of Kutana Construction.
Further cautionary
With the rationalisation and closure of its facilities in Vanderbijlpark, the remaining operations of
Aveng Steel Fabrication have been incorporated into the operations of Aveng Trident Steel.
Aveng Africa is still in negotiations in relation to the sale of Aveng Trident Steel and shareholders
will receive a further update in this regard in due course. Considering the aforegoing,
shareholders are advised to continue exercising caution when dealing in Aveng Ltd. securities
until a further announcement is published. Further information, including the pro forma financial
effects of the Proposed Transaction, together with a detailed timetable pertaining to the
Proposed Transaction, will be published in due course.
URL
http://www.profile.co.za/sens.asp?id=278689