CIL – proposed transaction and trading update

CIG shareholders (“CIG Shareholders”) are referred to the announcement released by CIG on the Stock Exchange News Service (“SENS”) on Tuesday, 15 February 2018, in which it stated that it had reached agreement with its funders (the “CIG Funders”) to extend, until 28 February 2019, the waiver granted as a result of CIG being in breach of certain funding covenants (the “Debt Standstill”).

Notwithstanding the Debt Standstill, as well as certain extensive operational initiatives undertaken in order to turn around the performance of Conco, CIG commenced a process to review and evaluate its funding requirements and optimal long-term capital structure.

CIG announced that it has concluded this process, after having assessed various strategic alternatives available to the Group. To this end, CIG has determined that it requires a capital injection in order to protect the sustainability of its operations, enable the optimal turn around and optimisation of Conco and to maximise value for all CIG Shareholders over the medium to long term.

In order to facilitate this capital injection, CIG has entered into a suite of agreements (the “Definitive Agreements”) with Fairfax Africa Investments Proprietary Limited (“FSA”), a wholly owned subsidiary of Fairfax Africa Holdings Corporation (“Fairfax Africa”), to implement a transaction (the “Proposed Transaction”), consisting of the following three components:
• Component 1: A R300 million loan to be advanced by FSA to CIG (the “Upfront Loan”).
• Component 2: An R800 million non-renounceable rights offer to CIG Shareholders, fully underwritten by FSA at a fixed price of R4.00 per CIG ordinary share (“CIG Share(s)”) issued (the “Rights Offer”), representing a c.2% premium to the 30-day VWAP as at 16 May 2018 of R3.94.
• Component 3: Conversion rights under which FSA has an option to convert the Upfront Loan into CIG Shares and, under certain circumstances, CIG has an option to convert the Upfront Loan into CIG Shares (the “Conversion Rights”).

Simultaneously with the Proposed Transaction, CIG has agreed revised terms with respect to the Debt Standstill which significantly relaxes the default trigger covenants and reverts the cost of debt to what was originally agreed whilst the amended capital repayment profile, as previously agreed, remains in place.

Fairfax Africa is an investment holding company, listed on the Toronto Stock Exchange (under the symbol “FAH.U”) with a market capitalisation of c.USD660 million. Fairfax Africa’s investment objective is to achieve long-term capital appreciation, while preserving capital by investing in public and private equity securities and debt instruments in Africa and African businesses or other businesses with customers, suppliers or business primarily conducted in Africa.

The implementation of the Rights Offer and the Conversion Rights are subject to the fulfilment of various conditions precedent, including those set out in paragraph below.

The purpose of this announcement is to provide CIG Shareholders with an overview of the rationale of the Proposed Transaction as well as its key terms.

Documentation and salient dates
A circular, containing the details of the Conversion Rights and the Waiver of Mandatory Offer, incorporating a notice of the General Meeting, as well as the Independent Expert Report, expressing the opinion of an independent expert in terms of the Rights Offer Waiver Resolution and the Conversion Rights Waiver Resolution (in accordance with Regulation 86(7) of the Act), will be distributed to CIG Shareholders in due course (the “EGM Circular”). This announcement contains a summary of the Proposed Transaction and CIG Shareholders should read the EGM Circular in full for a comprehensive understanding of the Proposed Transaction.

The salient dates pertaining to the Proposed Transaction, including the Conversion Rights and the General Meeting, will be released on SENS and published in the EGM Circular.

In the event that CIG receives the necessary approvals required in order to effect the Rights Offer, the Rights Offer Circular will be posted to CIG Shareholders in due course after the General Meeting.

Trading update
In the Joint Chairman and CEO’s report contained in the 2017 Integrated Annual Report, mention was made that the 6 months to February 2018 were expected to remain challenging for the Group. Further, mention was made that the restructuring of Conco will have a short term negative impact on profitability and come at great cost. The anticipated negative impact on profitability continued in the 6 months ending 28 February 2018.

As a result of aforegoing, the Group’s earnings per share for the interim period ended 28 February 2018 are expected to be 650% – 660% lower compared to the 111.0 cents per share for the interim period ended 28 February 2017. Headline earnings per share for the interim period ended 28 February 2018 is expected to be 470% – 480% lower compared to the 111.1 cents per share for the interim period ended 28 February 2017.

The losses incurred for the interim period will result a decline of 30% to 35% of NAV and Tangible NAV per
share compared to 31 August 2017.

Six months to 28 February 2018 and Comparative period

  • Loss/earnings per share : Loss between 611c – 622c per share; Earnings of 111c per share
  • Headline loss/earnings per share : Headline loss between 411c – 422c per share; Headline earnings of 111.1c per share
  • NAV per share : 1 272c – 1 369c; 1 956c
  • Tangible NAV per share 836c – 900c; 1 286c

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