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Acquisition of Controlling Interest in Afric Oil Group, Withdrawal of Cautionary Announcement and Cancellation of Share Trading on AIM

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06 Mar 2017

SACOIL HOLDINGS LIMITED

(Incorporated in the Republic of South Africa)

(Registration number 1993/000460/06)

JSE Share Code: SCL     AIM Share Code: SAC

ISIN: ZAE000127460

(“SacOil” or “the Company”)

 

ACQUISITION OF CONTROLLING INTEREST IN AFRIC OIL GROUP

WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT

CANCELLATION OF SHARE TRADING ON AIM

 

SACOIL DIVERSIFIES ACROSS INDUSTRY VALUE CHAIN THROUGH ADDITION OF FUEL DISTRIBUTION BUSINESS IN SOUTHERN AFRICA

SacOil, the South African based independent African oil and gas company that is focussed on the full oil and gas value chain, is pleased to announce that it has signed agreements to acquire 100% of Phembani Oil Proprietary Limited (“Phembani Oil”) from Gentacure Proprietary Limited (“Gentacure”) and its holding company, Moopong Investments Holdings Proprietary Limited (“Moopong”) (“the Acquisition”).  Phembani Oil’s only asset is a 71% direct interest in Afric Oil Group (“Afric Oil”), one of the largest independent fuel distributors in South Africa, distributing over 30 million litres of fuel product (diesel, petrol and paraffin) monthly to a diversified client base that include local and national government, mining, construction, transport, manufacturing, parastatals, resellers and agricultural clients. Following completion of the Acquisition, SacOil will hold a 71% indirect interest in Afric Oil, with the remaining 29% interest held by The Compensation Fund, a fund managed by the Public Investment Corporation SOC Limited (“PIC”), the largest fund manager on the African continent. 

The purchase consideration for the Acquisition (“the Consideration”) will be up to a maximum of R200 million ($15.4m), split into an unconditional initial consideration of R147.3 million ($11.3m) (“the Initial Consideration”) and a conditional consideration of up to R52.7 million ($4.1m) (“the Contingent Consideration”), conditional upon Afric Oil attaining performance related targets for the year ending 31 December 2017 that include achieving a consolidated EBITDA of R100 million ($7.7m) and recovering certain accounts receivable existing as at 31 December 2016.  The Acquisition is subject to the fulfilment of certain conditions precedent. Details of the conditions precedent and settlement of the Consideration are set out later in this announcement.  SacOil intends to fund the cash component of the Consideration from the proceeds of a debt facility to be secured by the Company.

The Acquisition is fully in line with the Company’s stated strategy of focussing on cash generating opportunities that expand SacOil’s operations across the oil and gas value chain on the African continent.  Following completion of the Acquisition, SacOil’s portfolio will comprise of operated production activities in Egypt, exploration in Democratic Republic of Congo, alongside partner TOTAL E&P RDC, Malawi and Botswana, a crude trading allocation with Nigerian National Petroleum Company and fuel distribution operations in Southern Africa.  The Acquisition also provides SacOil with its first operational footprint in South Africa thereby enabling the Company to play a meaningful role in the socioeconomic development of the country.

BACKGROUND TO AFRIC OIL

Afric Oil was established in 1995 as South Africa’s first 100% black-owned oil company.  Since launching in 1995, Afric Oil has grown into a business distributing around 30 million litres of fuel products (diesel, petrol and paraffin) monthly with a reported audited turnover for the year ended 31 December 2015 in excess of R3 billion ($230.6m).  Afric Oil achieved these results utilising its two owned depots in Boland, Western Cape province, and Beitbridge, Zimbabwe/RSA border.  Afric Oil’s operations are predominantly in South Africa, however it also has an operating presence in the greater Southern African regions that include Zimbabwe, Zambia and Namibia. The key customers of Afric Oil include government departments, state-owned entities, blue chip mining and industrial customers and other non-refinery wholesalers of fuel products.

During February 2017, Afric Oil acquired certain operating assets of Big Red Investments Proprietary Limited, Redlex Investments Proprietary Limited, Turquoise Moon Trading 477 Proprietary Limited (collectively “Big Red”) and the fuel distribution business undertaken under the name Forever Fuels, an acquisition that will expand Afric Oil’s regional footprint and provide access to a stable higher margin business.  The Big Red acquisition will further enhance Afric Oil’s distribution capabilities with ownership of a fleet of 32 product distribution vehicles and a fuels depot facility, including the land, located in Randfontein, Gauteng. The Big Red acquisition is expected to contribute an additional 16 million litres per month of fuel products (diesel, petrol and paraffin) and approximately R1.8 billion ($138.4m) of revenue per annum to Afric Oil.  This would increase Afric Oil’s total distribution of fuel products to over 45 million litres per month.

Afric Oil benefits from an experienced, stable and highly credible executive team comprised of Tseke Nkadimeng (CEO) and Isaiah Mutandiwa (CFO), both of whom have extensive resource industry knowledge, and will continue to manage the Afric Oil business following completion of the Acquisition.

RATIONALE FOR ACQUISITION  

The Acquisition will indirectly provide SacOil with an income producing subsidiary in South Africa and is in line with SacOil’s strategy to become a fully integrated, pan-African industry player. The Acquisition will provide SacOil with:

- A material position in a well-established business that operates in a regulated, fixed margin fuel distribution sector in Southern Africa;

- Ownership and control of a respected player and brand in the Southern African wholesale fuel distribution market;

- Access to significant revenue generation and predictable, low-risk income from the regulated fuel industry;

- An experienced and stable management team, with in-depth industry knowledge;

- A good platform for organic growth and to pursue consolidation opportunities that exist in a large fragmented fuel distribution market in Southern Africa; and

- Diversification of SacOil’s upstream and midstream portfolio to include fuel wholesale distribution, crude trading, exploration and production.

Commenting on the Acquisition Dr Thabo Kgogo, CEO of SacOil, said:

“This truly transformational acquisition of the majority interest in Afric Oil is in line with our strategy of diversifying SacOil’s operations into the downstream segments of the African oil and gas value chain and underpinning our business with low volatility and predictable revenue streams.

The Acquisition will increase SacOil’s consolidated revenues significantly, complementing our existing crude trading business and providing a strategic platform for broader expansion of our downstream activities. We see great potential to scale up the Afric Oil business and we are excited by the growth opportunities provided by the Acquisition. Furthermore, as a South African based business, we are pleased to be establishing a meaningful operational footprint in our country and look forward to playing an important role in distributing fuel products that drive the key industries that are at the heart of our nation’s economy. I am confident that the addition of Afric Oil to our portfolio will provide our enlarged group with a platform to continue to drive SacOil’s future growth targets.”

PRESENTATION AND ADDITIONAL DETAILS

A presentation providing further details on the Acquisition is available on SacOil’s website: www.sacoilholdings.com 

CONDITIONS PRECEDENT TO THE ACQUISITION

The Acquisition is conditional upon, inter alia, the fulfilment of the following outstanding conditions precedent:

i. Gentacure shall have notified SacOil that it has successfully concluded the transaction to acquire 75% of the entire issued share capital of Phembani Oil from Phembani Group Proprietary Limited (“Phembani Group”) and released the security over the shares in Phembani Oil acquired from it by Gentacure;

ii. SacOil shall have signed and delivered a R27million ($2.1m) bank guarantee to Gentacure relating to the deferred portion of the Initial Consideration;

iii. SacOil shall have notified Gentacure and Moopong (the “Sellers”) that the results of the due diligence are satisfactory in its sole discretion;

iv. Gentacure shall have notified SacOil that it has procured from the minority shareholders in Afric Oil a waiver of their rights to tag along as part of the Acquisition triggered by disposal of their shares in Phembani Oil;

v. Gentacure shall have notified SacOil in writing that it has procured all necessary consents (in writing) from Afric Oil’s contractual counterparties, including funders of Afric Oil, required for the change in control of Phembani Oil;

vi. SacOil shall have notified the Sellers that there has been no Material Adverse Change in the business, operations or financial circumstances of Phembani Oil and its subsidiaries between 3 March 2017 (“Signature Date”) and the date that all the conditions precedent to the agreements have been fulfilled or waived (“Fulfilment Date”); and

vii. the Competition Authorities of South Africa and Zimbabwe shall have approved the Acquisition, as required by the respective Competition Act, unconditionally, or, if any condition is attached to the approval, the party that is affected by such condition may (acting reasonably), by notice in writing to the other party, consent to its imposition and this condition precedent shall then be deemed to have been fulfilled. 

ACQUISITION DETAILS AND SETTLEMENT OF THE CONSIDERATION

SacOil has entered into two inter-conditional agreements with the Sellers (“Transaction Agreements”), the effect of which will be that SacOil will become the owner of 100% of the issued share capital of Phembani Oil.  The Consideration will be settled in cash and SacOil shares, as set out below.

The Transaction Agreements consist of a Sale of Shares Agreement entered into between SacOil and Gentacure whereby SacOil will purchase 75% of the issued share capital of Phembani Oil from Gentacure for a consideration of R140 million ($10.8m) and a Share Subscription and Repurchase Agreement with Phembani Oil whereby SacOil will subscribe for an additional 25% in Phembani Oil for a consideration of R60 million ($4.6m), thereafter Phembani Oil will redeem the 25% of the Phembani Oil shares owned by Moopong for a similar consideration to SacOil’s subscription for Phembani Oil shares.

The Initial Consideration of R147.3 million ($11.3m) will be discharged by SacOil five days after Fulfilment Date (“Closing Date”), as follows:

  1. R81.1 million ($6.2m) shall be settled by issuing ordinary SacOil shares at a 10% discount to the 90 day VWAP calculated at the close of business on Fulfilment Date, to Gentacure;
  2. R14.2 million ($1.1m) shall be settled  by issuing ordinary SacOil shares at a 10% discount to the 90 day VWAP calculated at the close of business on Fulfilment Date, to Phembani Oil, who will use this consideration, in part, to redeem Moopong’s shareholding in Phembani Oil;
  3. R25 million ($1.9m) cash payment shall be immediately due and payable to Phembani Oil, who will use this consideration, in part, to redeem Moopong’s shareholding in Phembani Oil; and
  4. R27 million ($2.1m) in cash, secured by a bank guarantee provided to Gentacure on Fulfilment Date, plus accrue interest at the prime lending rate payable 12 months after the Closing Date.

The Contingent Consideration of up to R52.7 million ($4.1m) will be discharged by SacOil as follows:

  1. within 10 days after the audited consolidated results being issued for Afric Oil for the year ending 31 December 2017, a non-cash payment of up to R31.9 million ($2.5m) shall be payable by issuing ordinary SacOil shares at a 10% discount to the 90 day VWAP calculated at the Fulfilment Date, to Gentacure; and
  2. within 10 days after the audited consolidated results being issued for Afric Oil for the year ending 31 December 2017, a non-cash payment of up to R20.8 million ($1.6m) shall be payable by issuing ordinary SacOil shares at a 10% discount to the 90 day VWAP calculated at the Fulfilment Date, to Phembani Oil, who will use this consideration, in part, to settle its redemption obligations to Moopong.

Of the Contingent Consideration of R52.7 million ($4.1m), R40 million ($3.1m) is conditional on Afric Oil achieving a minimum consolidated EBITDA of R100 million ($7.7.m) for the year ending 31 December 2017 (“the EBITDA Contingent Consideration”).  Should Afric Oil achieve a consolidated EBITDA between R100 million ($7.7m) and R68 million ($5.2m), then EBITDA Contingent Consideration will reduce on a pro rata basis from R40 million ($3.1m) to R1 ($0.1).  The remaining R12.7m ($1.0m) of the Contingent Consideration is conditional on the achieving of accounts receivable recovery targets on a rand for rand basis.   

Additionally, should Afric Oil achieve an EBITDA in excess of R100 million ($7.7m), 17.25% of each Rand of EBITDA achieved in excess of the R100 million ($7.7 m) EBITDA shall be deemed to form part of the EBITDA Contingent Consideration.

The Initial Consideration and the Contingent Consideration shall be subject to:

(i) the Sellers shall not be entitled to dispose of any such ordinary SacOil shares within a period of 12 (twelve) months after the issue of those shares without the prior written permission of SacOil; and

(ii) the maximum number of ordinary SacOil shares issued to the Seller shall not, in any event, exceed 23,5% of the total issued shares of SacOil as at the Signature Date.

EFFECTIVE DATE

Completion of the Acquisition is subject the fulfilment of the conditions precedent disclosed above and is anticipated to occur 5 business days after the Fulfilment Date. The Longstop date for the transaction is 31 May 2017.

THE VALUE OF THE NET ASSETS BEING ACQUIRED AND ATTRIBUTABLE PROFITS

As at the Signature Date of the Transaction Agreements, for the 12 months ended 31 December 2015, Afric Oil's consolidated earnings before interest, tax, depreciation and amortisation was R35.2 million ($2.7m), profit after tax was R13.9 million ($1.1m) and its net asset value of R 231.2 million ($17.8m), of which 71% is attributable to SacOil.  This Afric Oil results exclude the impact of the Big Red acquisition that will be included from 1 March 2017.

CATEGORISATION

The Acquisition is classified as a Category 2 transaction for SacOil in terms of the Listings Requirements of the JSE Limited (“Listings Requirements”).

Following the implementation of the Acquisition, Phembani Oil and the Afric Oil Group will become subsidiaries of SacOil. SacOil confirms that these subsidiaries respective constitutional documents will enable SacOil to continue to comply with its obligations in terms of the Listings Requirements.

WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT

Following the release of this announcement, the cautionary announcement originally published by SacOil on 1 December 2016, and renewed on 17 January 2017, is hereby withdrawn and caution is no longer required to be exercised by shareholders of SacOil when dealing in SacOil shares.

CANCELLATION OF AIM ADMISSION

As disclosed in the announcement dated 1 December 2016, the Acquisition would be classified as a reverse takeover pursuant to Rule 14 of the AIM Rules for Companies.  Accordingly, the Company's shares were suspended from trading on AIM at that time. Following careful consideration, the Company has decided to seek shareholders’ approval to cancel the admission of its ordinary shares to trading on AIM (“Cancellation”).  The decision was made on the basis that the Company’s shareholder base is predominantly South African and its shares trade sporadically in London.  Accordingly, the board of directors felt it could not justify the costs of retaining two listings and the burden of complying with two regulatory regimes.

An explanatory circular will be posted to Shareholders in due course to call a general meeting to approve the Cancellation, setting out the background to and reasons for Cancellation, the reasons why the board of directors believe that this is in the best interests of the Company and its Shareholders as a whole and their recommendation to Shareholders to vote in favour of the resolution on the Cancellation.  The earliest effective date for Cancellation will be 03 April 2017.  Up to and until Cancellation, trading in the Company’s shares on AIM will remain suspended but they will continue to trade on the JSE. The Company will continue to maintain its listing on the JSE and Shareholders wishing to trade the Company’s shares after Cancellation will be able to do so on the JSE, as the Company has no intention to cancel this listing.

SACOIL'S SETTLEMENT OF THE CONSIDERATION

SacOil intends to fund the Acquisition by:

  • issuing SacOil ordinary shares to Gentacure and Phembani Oil to the value of R95.3 million ($7.3m) on the Closing Date, with the number of ordinary SacOil shares priced at a 10% discount to the 90 day VWAP calculated at the Fulfilment Date;
  • Cash payment of R25 million ($1.9m) on the Closing Date and the R27 million ($2.1m) due and payable 12 months after the Closing Date will be funded from a debt facility to be secured by SacOil, with details set out below; and
  • issuing SacOil ordinary shares to the Gentacure and Phembani Oil for the portion of the Contingent Consideration due 12 months after the Closing Date, with the number of ordinary SacOil shares priced at a 10% discount to the 90 day VWAP calculated at the Fulfilment Date, subject to a limit of the total shares issued in terms of the Acquisition not exceeding 23.5% of SacOil’s issued share capital before the Acquisition.

The Company is currently in discussion with a number of financial institutions to raise a debt facility of up to R180 ($13.8m) million to satisfy the cash component of the Consideration amounting to R52.7 million ($4.1m), plus interest where applicable, for the Acquisition, the working capital for the enlarged SacOil group and general corporate purposes.

INTEGRATION STRATEGY

After the completion of the Acquisition, Afric Oil will become a 71% indirectly held subsidiary of SacOil. SacOil will work with the existing minority shareholders and management team of Afric Oil to execute on the Afric Oil growth strategy.

The key focus area for SacOil will be on ensuring that the relevant synergies from the Big Red acquisition are achieved in terms of possible cost savings, enhanced margins and the identification of new growth opportunities that will enhance Afric Oil’s market share and position.

MARKET ABUSE REGULATION

This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014.

* Currency Exchange Assumptions: ZAR1 = US$0.077 /US$1 = ZAR13.01. Numbers shown will reflect the impact of rounding.

JSE Sponsor

PSG Capital Proprietary Limited

6 March 2017

For further information please contact:

SacOil Holdings Limited

Damain Matroos

+27 (0)10 591 2260

finnCap Limited (Nominated Adviser and broker)

Christopher Raggett and James Thompson

+44 (0) 20 7220 0500

Buchanan (Financial PR adviser)

Ben Romney / Chris Judd  

+44 (0)20 7466 5000

Corporate Advisor to Gentacure and Moopong

Gem Capital Proprietary Limited

ABOUT SACOIL

SacOil is a South African based independent African oil and gas company, dual-listed on the JSE and AIM. The Company has a diverse portfolio of assets spanning production in Egypt; exploration and appraisal in the Democratic Republic of Congo, Malawi and Botswana; and midstream projects including crude trading in Nigeria and a terminal project in Equatorial Guinea.  Our focus as a Group is on delivering energy for the African continent by using Africa’s own resources to meet the significant growth in demand expected over the next decade.  The Company continues to evaluate industry opportunities throughout Africa as it seeks to establish itself as a leading, full-cycle pan-African oil and gas company.