AEG 201610110025A
BEE into Aveng Grinaker-LTA, Settlement Agreement with SA Government, transaction update and further cautionary
AVENG LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1944/018119/06)
ISIN: ZAE000111829
SHARE CODE: AEG
(Aveng Limited)
ANNOUNCEMENT REGARDING THE: (I) PROPOSED INTRODUCTION OF A BLACK
EMPOWERMENT PARTNER INTO THE BUSINESS CONDUCTED BY AVENG
GRINAKER-LTA; (II) SETTLEMENT AGREEMENT CONCLUDED WITH THE SOUTH
AFRICAN GOVERNMENT; AND (III) TRANSACTION UPDATE AND FURTHER
CAUTIONARY
EXECUTIVE SUMMARY
1. 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 Grinaker-LTA 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.
2. Shareholders were advised on 23 February 2016, that Aveng Limited 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
Limited's transformation objectives, Aveng Africa (Pty) Ltd (Aveng Africa), a wholly-owned
subsidiary of Aveng Limited, 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 Limited and its shareholders,
albeit on a deferred value and payment basis.
3. Moreover, through the implementation of the Proposed Transaction, Aveng Limited 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.
4. 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
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amortisation (“EBITDA”, as defined below) for those years.
5. 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.
6. 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 PARTNER INTO
THE BUSINESS CONDUCTED BY AVENG GRINAKER-LTA
1. Introduction
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").
1.1 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.
1.2 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.
2. Rationale for the Proposed Transaction
2.1 The Aveng group of companies (Aveng Group) is strongly committed to meeting both its
transformation and growth objectives in a sustainable manner. As such, the Proposed
Transaction forms part of the Aveng Group's efforts to achieve the aforegoing. Aveng Limited
remains of the belief that the Business forms a core part of the Aveng Group's business
undertaking, and this is, therefore, a strong commitment to the South African economy.
Accordingly, as opposed to a wholesale disposal of the Business, the Proposed Transaction
has been concluded to:
(a) create a platform for growth and sustainability for the Business within the
construction industry. Having completed the first phase of its strategy, namely to
recover and stabilise, Aveng is presently executing the second phase, position for
profitable growth. Aveng has stabilised Aveng Grinaker-LTA 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
(b) achieve Aveng Group's transformation objectives, including introducing a black
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women-owned participant and emerging black contractors into the market, and
developing black professional and management skills in the construction sector
(c) align the strategy of the Business with the Government's economic transformation
agenda and policies, to further the development and transformation of the South
African construction industry as a whole, in a manner which would ultimately result
in value enhancement for shareholders. Through the Settlement Agreement reached
with the South African Government, the Business is building trust and confidence
with the public sector, in order to collaboratively contribute to the infrastructure
development needs of South Africa and the region as a whole. Furthermore, in this
regard, it is noted that the Proposed Transaction has been structured in such a manner
so as to assist the Business with compliance with the revised Codes of Good Practice
on BEE (as contemplated in section 9 of the Broad-Based Black Economic
Empowerment Act, 53 of 2003)
(d) create:
(i) an improved and sustainable black women-owned new entrant in the
construction industry
(ii) opportunities for the development of Emerging Contractor(s) (as defined
below)
(iii) an opportunity to attract, develop and retain black professional and
management talent in the construction industry
(iv) a sustainable commercial value proposition pertaining to the Business for the
benefit of shareholders and other stakeholders
(v) an organisational framework best suited to align the Business with the
Government's transformation agenda, including through the improvement
achieved in the Broad-Based Black Economic Empowerment Scorecard
(vi) an enabling framework for compliance with both the spirit and the
transformation-related obligations contained in the Settlement Agreement.
3. The Proposed Transaction
3.1 Existing Structure
Prior to implementation of the Proposed Transaction:
(a) The Business is trading as a division of Aveng Africa.
(b) E PC Engineering and Projects Company (Pty) Ltd (OpCo) is an existing operating
company that is wholly-owned by Aveng Africa.
(c) Aveng Grinaker-LTA Holdings (Pty) Ltd (Grinaker HoldCo) is a new wholly-
owned subsidiary of Aveng Africa that was incorporated for purposes of the Proposed
Transaction.
(d) Grinaker-LTA Intellectual Property Company (Pty) Ltd (Grinaker IP) is a wholly-
owned subsidiary of Aveng Limited.
(e) Kutana Construction is a wholly-subsidiary of Kutana Capital (Pty) Ltd (Kutana
Capital).
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3.2 Internal Restructuring
Prior to implementation of the Proposed Transaction, an internal restructuring will be
implemented on the Effective Date (Internal Restructuring), involving the following steps:
(a) Step 1: Aveng Africa will sell the Business to OpCo, in exchange for shares (Aveng
OpCo Shares). As part of the sale of the Business, Grinaker IP will sell all
trademarks used by Aveng Africa in conducting the Business to OpCo, in exchange
for shares in OpCo (Grinaker IP OpCo Shares). Collectively Aveng Grinaker-
LTA’s experience expands over 125 years. Over the years it has built brand and
technical equity which will benefit the Business going forward and this value is
acknowledged by Kutana Capital.
(b) Step 2: Grinaker IP will sell the Grinaker IP OpCo Shares to Aveng Africa, in
exchange for shares in Aveng Africa, which will be distributed to Aveng Limited.
Following this step, Aveng Africa will hold 100% of the shares in OpCo.
(c) Step 3: Aveng Africa will subscribe for shares in Grinaker HoldCo in exchange for
the (i) Aveng OpCo Shares; and (ii) Grinaker IP OpCo Shares. Following this step,
Aveng Africa will hold 100% of the shares in Grinaker HoldCo, and Grinaker
HoldCo will hold 100% of the shares in OpCo.
3.3 Proposed Transaction
Following the Internal Restructuring, the Proposed Transaction will be implemented on the
Effective Date, involving the following steps:
(a) Step 4(a): Aveng Africa will sell 51% of the shares in Grinaker HoldCo to Kutana
Construction (defined as the 51% Beneficial Interest) in exchange for the:
(i) Upfront Payment; plus
(ii) Deferred Payment,
as detailed below.
(b) Step 4(b): Aveng Africa, Kutana Construction and Grinaker HoldCo will enter into a
shareholders' agreement to govern the relationship between them as co-shareholders
in Grinaker HoldCo (the Shareholders' Agreement), which Shareholders'
Agreement contains a mechanism for the incorporation of Construction Industry
Development Board (CIDB) certified Emerging Contractor(s) into the Business
housed within OpCo (Emerging Contractors).
(c) Step 5: Aveng Africa will be entitled to a further 6% of the economic benefit in
Grinaker HoldCo via the subscription of an ordinarily non-voting equity instrument
(NVE Instrument) in Kutana Construction. This results in a net 45% economic
interest (defined as the 45% Economic Interest) in Grinaker HoldCo being
attributable to the ordinary shareholders of Kutana Construction.
3.4 Post Internal Restructuring and Proposed Transaction
Following implementation of the Internal Restructuring and the Proposed Transaction:
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(a) The Business will be owned by OpCo.
(b) OpCo will be held 100% by Grinaker HoldCo.
(c) Kutana Construction will beneficially hold 51% of the issued ordinary shares in
Grinaker HoldCo.
(d) Aveng Africa's (i) 49% shareholding in Grinaker HoldCo; and (ii) ownership of the
NVE Instrument will entitle it to participate in 55% of the economic benefits of
Grinaker HoldCo.
(e) OpCo will implement the employee incentive schemes listed in 9.4 below.
(f) The process relating to the incorporation of CIDB certified Emerging Contractor(s)
into the Business, as detailed in 6 below, shall be finalised. As at the date hereof,
discussions with potential CIDB certified Emerging Contractor(s), have commenced
and it is expected that the necessary arrangements with them will be finalised in due
course.
A schematic illustration of the above described transaction structure is available on the Aveng
Limited website at www.aveng.co.za.
4. Overview of the Kutana group of companies
4.1 The Kutana group of companies (Kutana Group):
(a) is a black women-owned investment group
(b) has successfully structured and raised funding through its strong banking/funding
experience and relationships, and concluded numerous mergers and acquisitions since
incorporation.
4.2 Thoko Mokgosi-Mwantembe is (i) the CEO of the Kutana Group; and (ii) a non-executive
director of Aveng Limited and other major South African listed companies.
4.3 As announced on 10 August 2016, the Kutana Group has recently acquired a 70% interest in
Aveng Africa's steel mesh and rebar business - which is primarily used in construction -
thereby underlining the Kutana Group's ambitions in both the steel and construction industries.
This makes the Kutana Group the ideal strategic partner for Aveng Africa given the synergies
between the aforementioned businesses.
5. Kutana Construction's commitment to assist Aveng Africa with its obligations under the
Settlement Agreement
In addition to committing to assist Aveng Africa in achieving its black economic
empowerment objectives, Kutana Construction has also agreed in favour of Aveng Africa to
fulfil its relevant transformation related obligations in terms of the Settlement Agreement
through, inter alia, the (i) acquisition of a 51% beneficial interest and an initial 45% economic
interest in the Business; and (ii) the facilitation of the introduction of the CIDB certified
Emerging Contractor(s) within Kutana Construction.
6. Composition of Kutana Construction
6.1 Following implementation of the Proposed Transaction, Kutana Construction will be utilised
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as a strategic investment vehicle. The Emerging Contractor(s) will be incorporated into the
Business through (i) a possible sale of the Emerging Contractor(s) business(es) into OpCo;
and (ii) acquiring up to a 25% equity stake in Kutana Construction. Aveng Africa and Kutana
Construction are currently in negotiations with (a) suitable Emerging Contractor(s).
6.2 Kutana Construction will assist with attracting and retaining black professional and
management talent in OpCo through the forfeitable share plan housed in an appropriate
investment vehicle, outlined in 9.4 below, which is intended to be operational by the Effective
Date.
7. Related Party Transaction
The Proposed Transaction (i) constitutes a related party transaction in terms of the JSE
Listings Requirements (the JSE LR); and (ii) is subject to the approval of the shareholders of
Aveng Limited. A circular will be dispatched to the shareholders within 60 days of the date of
this announcement.
8. Independent Professional Expert’s Report
Deloitte & Touche has been appointed to express an opinion on the fairness of the terms and
conditions of the Proposed Transaction. The report will additionally opine on the Deferred
Payment Price Cap and Floor, providing assurance that the mechanism does not prejudice
value realised by shareholders. The report will be included as part of the circular to
shareholders referred to in 7 above.
9. Salient Terms of the Proposed Transaction
9.1 Purchase Price
(a) Aveng Africa will sell a 51% Beneficial Interest in the ordinary shares (Sale Shares)
of Grinaker HoldCo to Kutana Construction. Due to the financial performance of
Aveng Grinaker-LTA over the past number of years, a transaction has been developed
whereby the purchase price will be determined on the financial performance of the
Business (as housed in OpCo) over the 2018, 2019 and 2020 financial years based on
a six (6) times multiple of the average annual earnings before interest, taxes,
depreciation and amortisation (EBITDA) for those years. The purchase price
(Purchase Price) for the Sale Shares will consist of the Upfront Payment plus the
Deferred Payment, to be calculated as follows:
(i) Upfront Payment:
R22.7 million (representing the Upfront Payment for the 51% Beneficial
Interest) will be paid to Aveng Africa on the Effective Date. R20.0 million
thereof shall constitute a non-refundable, upfront cash payment, the remaining
R2.7 million payable by Aveng Africa to Kutana Construction for the NVE
Instrument will be set off against the R22.7 million (resulting in a net R20.0
million net Upfront Payment to Aveng Africa for the 45% Economic Interest).
(ii) Deferred Payment:
(A) On the conclusion of the independent external audit for the financial
year ended 30 June 2020, an amount shall be paid by Kutana
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Construction to Aveng Africa for the Deferred Payment in respect
of the 51% Beneficial Interest, calculated as follows:
Deferred Payment amount = a x 6 x 51% - R22.7 million
where:
a = the average of the adjusted EBITDA of OpCo for the
three financial years ended 30 June 2020 (Measurement
Period).
(B) The adjusted EBITDA for each financial year shall be the audited
actual EBITDA, adjusted for certain identified and/or non-recurring
profits and losses as defined in the binding agreements.
(C) The Deferred Payment in respect of the 51% Beneficial Interest will
not:
(1) be less than 51% of the fair value of the Business at the end
of the Measurement Period if the Deferred Payment Floor is
triggered. The Deferred Payment Floor is triggered when the
Deferred Payment is less than 95% of the net asset value of
the Business less the Upfront Payment (Deferred Payment
Floor)
(2) be more than R834.1 million (Deferred Payment Cap).
(iii) As a result of the NVE Instrument held by Aveng Africa, Aveng Africa will
be liable for a portion of the Deferred Payment equating to its 6% economic
interest in Grinaker HoldCo, which will be set off against the Deferred
Payment in respect of the 51% Beneficial Interest. Consequently, Kutana
Construction will ultimately only pay for its 45% Economic Interest in
Grinaker HoldCo.
(iv) Accordingly, the Deferred Payment in respect of the 45% Economic Interest
will not:
(1) be less than 45% of the fair value of the Business at the end
of the Measurement Period if the Deferred Payment Floor is
triggered
(2) be more than R736.0 million.
(v) The net Upfront Payment of R20.0 million will be paid to Aveng Africa by
Kutana Construction on the Effective Date. The net Deferred Payment will be
paid 20 business days following its determination in the year 2020.
(b) After the payment of dividends in respect of the NVE Instrument, 80% of the ordinary
dividends declared by Grinaker HoldCo to Kutana Construction will be retained in
trust, along with the interest earned thereon, as security in favour of Aveng Africa for
payment of the Deferred Payment.
9.2 Purchase price explained in terms of the 51% Beneficial Interest and 45% Economic
Interest
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(Million (m)) 51% Economic Less NVE 45% Beneficial
Interest Instrument Interest
Upfront Payment R22.7m (R2.7m) R20.0m
Deferred Payment (Adjusted (Adjusted (Adjusted EBITDA
EBITDA x 6 x EBITDA x 6 x x 6 x 45%) less
51%) less R22.7m 6%) less R2.7m R20.0m
Purchase price cap R856.8m (R100.8m) R756.0m
Deferred Payment R856.8m less (R100.8m) less R756.0m less
Cap R22.7m = (R2.7m) = R20.0m =
R834.1m (R98.1m) R736.0m
Purchase price Deferred Payment < 51% (or 45%, as applicable) of 95% of
floor trigger the net asset value of the Business less the Upfront Payment
Deferred Payment 51% of fair value 6% of fair value 45% of fair value
Floor, if triggered of the Business of the Business of the Business
Attributable net R230.0m (R27.0m) R203.0m
asset value at 30
June 2016
9.3 Suspensive Conditions
The Proposed Transaction will be subject to customary terms and conditions, and the
fulfilment of certain conditions precedent, which will include:
(a) the Proposed Transaction having been unconditionally approved by the relevant
competition authorities
(b) the necessary shareholder approval by Aveng Limited's shareholders in terms of the
JSE LR.
9.4 Terms of the Shareholders' Agreement to be highlighted
(a) Employee Incentive Schemes:
(i) So as to attract and retain key talent, particularly black professional and
management talent, OpCo will implement employee incentive schemes,
including, inter alia:
(A) a forfeitable share plan to incentivise senior management in OpCo,
in terms of which 15% of the shares in Kutana Construction will be
contributed by Kutana Capital to the scheme housed in an
appropriate investment vehicle
(B) a profit share scheme for the benefit of OpCo employees, based on a
percentage of EBITDA.
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(ii) The employee incentive schemes will be implemented in place of the current
incentive schemes in operation within/relating to the Business.
(b) Lock in: Kutana Construction and Aveng Africa will be locked-in to the Proposed
Transaction for a period of five (5) years from the Effective Date.
(c) Casting vote: The Shareholders' Agreement provides that Aveng Africa has a casting
vote in relation to (i) strategic decisions; (ii) business plans; (iii) budgets; (iv)
dividend distributions; and (v) approval of the delegation authority frameworks
relating to OpCo and Grinaker HoldCo.
10. Use of proceeds
The proceeds from the Proposed Transaction will be used primarily to strengthen the balance
sheet of Aveng Limited as it moves to the next phase of its strategy, namely, positioning for
growth.
11. Financial implications
11.1 Although Aveng Africa, from a legal perspective, sold a 51% Beneficial Interest to the
ordinary shareholders of Kutana Construction on the Effective Date, from an accounting
perspective, the transaction is regarded as a sale of a 45% Economic Interest. The sale of the
45% Economic Interest will be deferred until significant risks are considered to be
substantially transferred to Kutana Construction, and the Deferred Payment can therefore be
recognised. Consequently, the recognition of a non-controlling interest amounting to 45% of
the Business housed in OpCo will be deferred until this future date. In addition, any volatility
resulting from changes in the Deferred Payment formula will not affect Aveng Africa’s
financial performance. Aveng Africa will continue to consolidate OpCo until Aveng Africa
relinquishes the above noted casting vote (9.4(c)).
11.2 On the Effective Date, the arrangement will be recognised as the issue of a synthetic
instrument with a right in favour of Kutana Construction’s ordinary shareholders to acquire a
45% Economic Interest in the Business housed in OpCo, once the Deferred Payment is settled.
This represents a right to receive full and unencumbered economic benefits by 2020. The net
Upfront Payment of R20.0 million will be recognised in equity, and only to the extent that the
fair value of this equity instrument exceeds the Upfront Payment, will an equity-settled
share-based payment expense be recognised. There is no subsequent re-measurement of this
equity-settled share-based payment. However, the headline earnings of Aveng Limited would
be adjusted with the equity-settled share-based payment expense (if applicable) along with
Kutana Construction's right to the 45% Economic Interest in OpCo from the Effective Date.
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SETTLEMENT AGREEMENT WITH THE SOUTH AFRICAN GOVERNMENT
12. Introduction
Following an extensive period of negotiation, the Government and the participating
Construction Companies have concluded the Settlement Agreement which addresses
outstanding legacy issues and commits to a plan which will ensure the repositioning of the
South African construction sector. All parties to the Settlement Agreement acknowledge the
need to foster a better relationship between the Government and the construction industry
going forward.
Aveng anticipates that having concluded the Settlement Agreement, it will precipitate the
unlocking of significant public sector funded, major infrastructure project opportunities as
part of the process of rebuilding trust and confidence, thereby enabling Aveng Grinaker-LTA,
with its new shareholders, Kutana Construction, to collaboratively contribute to the
infrastructure development needs of South Africa and the region as a whole.
13. The Settlement Agreement
13.1 In summary, the Settlement Agreement stipulates that:
(a) Payments:
Over the next twelve (12) years, the participating Construction Companies will be
required to make a collective, annual payment into a fund (Fund). The Fund will be
constituted as a trust (Trust). Aveng Africa’s contribution to the Fund will be R21.25
million per annum. The first of such payments will be structured such that 25%
(R5.3 million) is payable within five (5) business days following the date on which
the condition precedent in terms of the Settlement Agreement has been met (Effective
Date) and the remainder shall be paid no later than 90 days following the Effective
Date. Each subsequent instalment will be payable annually on 1 July.
(b) Use of payments to Fund:
The Trust will apply the payments made to the Fund to (i) implement initiatives that
will develop and enhance the construction industry, in conformity with the
Government's transformation objectives; and (ii) promote social infrastructure for all
South Africans. The Trust shall be constituted with trustees appointed by the
Government, the participating Construction Companies and the South African Forum
of Civil Engineering Contractors (SAFCEC).
(c) Settlement of Claims:
Any Claims or potential claims for damages that certain identified public entities have
made, or may be entitled to make, against Aveng Africa and the participating
Construction Companies, in relation to projects arising from the Fast Track
Settlement Process, will be fully and finally settled.
(d) Development initiatives or disposal of the construction business to an emerging
contractor:
The participating Construction Companies have also undertaken to either:
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(i) launch development initiatives with the aim of identifying, developing and
mentoring emerging contractors (Emerging Contractors), to ensure that the
Emerging Contractors will have the necessary skills and quantity of work
required to generate a cumulative combined annual turnover equal to at least
25% of the annual construction works turnover of the relevant participating
Construction Company within seven (7) years. Aligned to this obligation, are
fixed interim period transformation targets on each participating Construction
Company as well as penalties calculated in accordance with a formula, for a
failure to meet such targets; or
(ii) to dispose of not less than a 40% economic interest in its South African civil
engineering and general building construction business, to an enterprise that is
more than 51% black-owned, managed and controlled. Aveng Africa has
elected this option, as manifested in the Proposed Transaction.
(e) Limitation of liability:
(i) The aggregate liability of a participating Construction Company arising from
(i) its annual contribution payments in 13.1(a) above; and (ii) from any
potential penalties in 13.1(d)(i) above, shall not exceed and shall be limited to
the lower of: (i) 29% of the participating Construction Company’s market
capitalisation determined as at market close on the business day prior to the
signature date of the Settlement Agreement; or (ii) R1.2 billion. Aveng’s
market capitalisation for the purpose of determining the limit of liability is
R2.9 billion. The limitation of liability is therefore R846 million. However,
Aveng does not envisage its financial exposure in terms of the Settlement
Agreement exceeding its aggregate contribution payment of R255 million
over twelve (12) years (refer to 13.6 below).
(ii) Aveng Africa's liability in terms of the Settlement Agreement is as set out in
the financial effects below.
(f) All participating Construction Companies commit to an integrity undertaking, in
terms of which sound ethical and legal principles are adopted.
13.2 Benefits of concluding the Settlement Agreement
(a) Importantly, by committing to the critical transformation initiatives, which Aveng
Africa had already prioritised and embarked upon (as outlined above) prior to this
Settlement Agreement, the construction sector in South Africa will be a more
sustainable and competitive industry, ready to partner with the Government for the
advancement of infrastructure development in South Africa and for all South Africans
(b) Enhancing certainty in relation to the operational environment pertaining to the
Business going forward
(c) Allowing management to focus on the Business as opposed to engaging in lengthy,
costly and protracted litigation
(d) Providing closure for Aveng Africa on the legacy matters dealt with by the
competition authorities, and giving certainty to stakeholders that any existing or
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potential Claims from identified public entities, as well as the associated litigation
costs and disruptions to operations are avoided. Any successful Claims (or settlement
thereof) brought against Aveng Africa following signature date, in relation to those
public entities specifically identified in the Settlement Agreement will be deducted
from the aforementioned annual payments made by Aveng Africa to the Fund
13.3 Consequences of not concluding the Settlement Agreement
In addition to not extracting any of the benefits set out above, should Aveng Africa have
elected not to enter into the Settlement Agreement with the Government, Aveng Africa will
incur the following negative consequences:
(a) a possible black-listing of Aveng Africa by the CIDB, resulting in a suspension from
public sector work
(b) exposure to Claims from state-owned enterprises and public departments resulting in
lengthy, costly and protracted litigation
(c) an uncertain future relationship with the Government and state-owned enterprises, the
negative impact of which would be severe across all Aveng Limited's South African
operations
13.4 Outstanding civil claims
The Settlement Agreement settles all Claims and pending Claims by identified public entities.
Details pertaining to the Claims are set out on Aveng Limited's website at www.aveng.co.za.
Aveng Africa will still be exposed to any claims brought by state-owned enterprises and
public departments that are not listed in the Settlement Agreement.
13.5 Assignment of Settlement Agreement
Aveng Africa and Kutana Construction have agreed that Aveng Africa may elect to transfer
all of Aveng Africa's rights and obligations under the Settlement Agreement to OpCo. OpCo
shall make payment on behalf of Aveng Africa to the Fund in respect of Aveng Africa's
annual contribution. Aveng Africa shall appropriately compensate OpCo for any payments
made to the Fund, and such compensation shall be excluded for purposes of calculating the
EBITDA pertaining to the Deferred Payment relating to the Proposed Transaction.
13.6 Financial implications
The financial impact of the Settlement Agreement for Aveng Africa is a charge of R255.0
million over 12 years of which the discounted value of approximately R170.0 million will be
accounted for in the current financial year.
FURTHER CAUTIONARY
1. 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.
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2. Considering the aforegoing, shareholders are advised to continue exercising caution when
dealing in Aveng Limited securities until a further announcement is published.
3. 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.
UPDATE: AVENG CAPITAL PARTNERS AND AVENG STEELEDALE
1. On 10 August 2016, Aveng Limited announced that it had entered into transactions involving the
disposal of (i) Aveng Africa's interests in the Aveng Capital Partners investment portfolio to
Royal Bafokeng Holdings; and (ii) a 70% interest in Aveng Steeledale to the Kutana Group.
Shareholders are advised that certain of the conditions precedent published in the announcement
have now been fulfilled. The relevant circulars shall be distributed to Aveng Limited's
shareholders in due course.
11 October 2016
Jet Park
Sponsor
J.P. Morgan Equities South Africa (Pty) Ltd
Advisors to Aveng Limited:
Legal Advisors
Baker & McKenzie
Financial Advisors
Nedbank Limited
Due Diligence Advisors & Transaction Sponsors
KPMG
Independent Professional Expert
Deloitte & Touche
Michael Canterbury
Aveng Strategic and Investor Relations Executive
Tel: 011 779 2800
Mobile: +27 82 460 1062
Email: Michael.canterbury@avenggroup.com
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Date: 11/10/2016 12:47:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
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indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
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