JSE equity as a funding source for African mining companies. Presented by: Dimitri Cavvadas

Transcription

1 JSE equity as a funding source for African mining companies Presented by: Dimitri Cavvadas London, UK 30 November 2015

2 Outline The JSE in context (Africa and worldwide) The relevance of equity in the current funding environment How quickly can capital be raised on the JSE? Specific capital raising methods How does a US shareholding base/ ADR s impact on timing and implementation? Recent case studies Outlook 2

3 The JSE s relevance as a global stock exchange South Africa s World Economic Forum Ranking (144 Countries) Ø Rated first for financing through local equity markets Ø Rated first for strength of auditing and reporting standards Ø Rated second for regulation of securities exchanges Generates real equity return of approximately 7.4% per year (Credit Suisse 2015 Yearbook). Equity market cap: R12.07 trillion Value traded on JSE: Ø Equity market (trillion, 2015 ytd) ZAR3.98, ZAR4.95, ZAR3.69 Ø Debt market (trillion, 2015 ytd) ZAR20.51, ZAR18.8, ZAR listed entities: Ø Dual listed: 91 Ø Domestic: 324 Ø Foreign: 67 3

4 Equity Issuers by country of incorpora3on Guernsey 3 Jersey 3 Canada 7 US 2 Bermuda 4 Other 11 UK 17 17% of companies foreign domiciled 23% of companies dual listed Nigeria 1 Zimbabwe 2 54% of market cap SA domiciled Namibia 2 South Africa 324 Botswana 2 Mauri;us 5 Australia 8 4

5 Main Board- # of companies by industry Basic Materials Chemicals-7 Forestry & Paper-4 Industrial Metals & Mining 8 Mining- 50 Industrials Construction & Materials-19 Electronic & Electrical Equipment- 11 General Industrials- 11 Industrial Engineering- 6 Industrial Transportation- 8 Support Services -15 Industrials 70 Oil & Gas 4 Telecoms 4 Addi3onal 10 Technology 14 Basic Materials 69 Consumer Goods Automobiles & Parts- 1 Beverages 4 Food Producers 13 Household Goods & Home Construction- 1 Leisure Goods 1 Personal Goods- 2 Tobacco 1 Consumer services Food & Drug Retailers- 6 General Retailers- 19 Media-4 Travel & Leisure- 11 Additional Preference Shares- 10 Health care Health Care Equipment & Services- 4 Pharmaceuticals & Biotechnology- 3 Health Care 7 Financials 94 Consumer Goods 23 Consumer Services 40 5 Financials Banks-7 Equity Investment Instruments-10 Financial Services- 23 Life Insurance- 6 Non life insurance-4 Real Estate Investment & Services- 14 Real Estate Investment Trusts- 30 Oil & Gas-4 Technology- 12 Telecommunications-4

6 Liquidity in Africa Turnover Ra3o % for Bourse de Tunis 2.47 BRVM 0.44 Khartoum Stock Exchange 1.7 Malawi Stock Exchange 0 0 Nairobi Securi;es Exchange Namibian Stock Exchange Nigerian Stock Exchange 0.07 Seychelles Securi;es Exchange Stock Exchange of Mauri;us 1.8 Uganda Securi;es Exchange JSE 6 Source: ASEA website. Accessed 28 Oct All numbers are exactly as presented on the ASEA website.

7 The JSE within the African context Market Cap = Size 100% 80% 60% Liquidity JSE 40% EGX 20% Tunisia Nigeria BSE Uganda 0% % Ghana Kenya -40% -60% -80% -100% # of listed companies 7 WFE Data Feb 2015

8 Why mining companies might turn to the equity capital markets? Debt v Increases liability of mines already in distress v Gearing implication v Large syndicates could complicate deal structure Private Equity v Funds tend to be selective (extensive due diligence) v Control implications v Seeks short term upside & exit strategy v But extensive cash available Royalty and streaming v Loss of portion of profit/production for life of mine v Ideal for start-ups rather than entities in production Convertible bonds v Increases debt burden v Failure to convert triggers repayment obligation v Dilution on conversion OTHER OPTIONS EQUITY v No repayment obligation (including interest) v Varying transaction structures v Large pool of investors (and foreign capital) v Continuing obligations under JSE Rules v Market and reputation sensitive v Requires shareholder support v Not ideal for saving companies already in distress v Managing the discount and dilution Other? 8

9 How quickly can capital be raised on the JSE for African mining companies? Capital raising methods: Ø Private placement offerings ( Specific Issues for Cash ) Ø General issues for cash Ø Rights offers US considerations for entities with ADR s or a substantial USA shareholder base Ø Impact on timing and process Ø Disclosure requirements Implementation considerations Ø MOI restrictions? Ø Underwriting option? 9

10 Private Placement Offerings ( Specific Issues for Cash ) Offering to specified shareholders/investors. Most efficient way to undertake significant capital raise. Ø Applicable to class of securities already in issue or options convertible into class of securities already in issue Ø Requires shareholder approval Ø No cap on number and value of securities to be issued Ø No cap on discount to trading price Ø Could be underwritten Ø May include book build process (pre or post announcement) Ø US implications (avoid SEC registration if at all possible) Offering outside US: Exempt if comply with Reg S safe harbour Offering into US: Exempt if comply with Rule 144A safe harbour 10

11 Private Placement Offerings Documentation 11 Announcement containing full details of issue Circular (must be posted within 60 days of announcement) Ø Disclosure requirements not onerous Ø Financial disclosure (pro formas and historical financials) Ø Fairness opinion from independent expert (if related party participates) Shareholder authority (ordinary resolution, 75% threshold) Board Resolution JSE Listing Application A statement detailing all issues of securities in previous 3 years Exchange control approval Certified copies of experts consents appearing in circular Underwriting agreement US legal opinions (no registration, US Investment Company Act of 1940, capacity and authority)

12 Private Placement Timetable: Part A Weeks Pre-Announcement (approximately 5-6 weeks) W1 W2 W3 W4 W5 W6 Prepare initial draft of circular for JSE approval JSE approval process for the draft circular Conduct wall crossed conditional bookbuild Negotiate underwriting agreement, legal opinions Obtain fairness opinion, pro forma financials Obtain irrevocables from key institutions immediately prior to announcement 12

13 Private Placement Timetable: Part B Process Weeks W 7 W 8 W 9 W 10 W 11 W 12 Announcement to Closing (approximately 5-6 weeks) Announce intention to raise US$xm & open books for accelerated bookbuild Close books & announce amount raised & at what price (conditional on shareholder approval) Post shareholder circular explaining the proposed raise and calling an EGM (4 weeks from posting to holding of EGM) Shareholder EGM at which transaction is approved Shares settle and proceeds received T+5 following shareholder approval 13

14 General Issues For Cash Overview Offering to selected shareholders/investors based on existing authority. Effective for small capital raisings due to restrictions. Ø Applicable to class of securities already in issue or options convertible into class of securities already in issue Ø Relies on existing shareholder authority (ordinary resolution, 75% threshold) Ø Securities issuance limited to public shareholders (no related parties) Ø 15% cap on securities to be issued Ø Maximum discount of 10% on trading price 30 business days before pricing Ø No underwriting Ø No financial disclosures Ø No fairness opinion 14

15 General issues for cash Documentation Existing authority (shareholders resolution granting authority for general issue granted at an earlier AGM/EGM) Requirements on issuance Ø Board Resolution Ø JSE Listing Application Ø Exchange control approval Ø Announcement 15

16 General issues for cash Timetable Process Business Days D 1 D 2 D 3 D 4 D 5 D 6 D 7 D 8 D 9 D 10 D 11 Board approval JSE application for listing process Announcement of results of issue Shares settle and proceeds received T+5 following listing application approval 16

17 Rights Offers - Overview Offering to all shareholders to subscribe for additional securities in proportion to existing shareholding. US offering could add to complexity. Ø Applicable to class of securities already in issue or options convertible into class of securities already in issue Ø Usually, does not require shareholder approval Ø SA Companies Act procedure to exclude certain categories of shareholders Ø No cap on number and value of securities to be issued Ø No cap on discount to trading price Ø Could be underwritten Ø May include book build process (pre or post announcement) Ø US implications: Offering outside US: Exempt if Comply with Reg S safe harbour Offering into US: Exempt if comply with Rule 144A safe harbour 17

18 Rights Offers Documentation Announcement JSE approval Ø Circular (may require prospectus level disclosure) Ø Underwriting agreement, sworn declaration and statement Ø Application for listing Ø LAs Ø Exchange control approval Ø Experts consents Finalisation information announcement Results announcement US legal opinions (10b-5 disclosure letter) 18

19 19 Rights Offers Timetable: Part A

20 Rights Offers Timetable: Part B Process Weeks W 7 W 8 W 9 W 10 W 11 Announcement to Closing (approximately 5-6 weeks) Announce intention to raise US$xm Post shareholder circular explaining the proposed raise Keep offer open for at least 10 Business Days Close Rights offer Shares settle and proceeds received T+5 following closing of rights offer 20

21 Recent Case Studies Implats Ø October 2015 closing of ZAR4.0 billion private placement offer, underwritten by UBS Ø Offer price at 13% discount to trading price Ø Accelerated bookbuild process undertaken following receipt of shareholder approval (24 hours) Ø No fairness opinion or pro forma financials Ø Offer oversubscribed Lonmin Ø November 2015 announcement of proposed US$407 million underwritten rights issue Ø Offer price at 94% discount to trading price Ø Approved by shareholders on 19 November 2015 Ø Third rights offer for Lonmin since 2009 and critical for the restructuring of its debt facilities Wescoal Holdings Ø November 2015 announcement of completed general issue of shares for cash to raise ZAR13 million Ø Offer price at 5% discount to trading price Ø General issue undertaken in combination with proposed ZAR65 million equity raising by way of combined claw-back and rights offer. Ø Proceeds to be used for general working capital and to fund development of Wescoal s flagship mining project 21

22 Outlook "Recapitalising mining companies with equity when there is already a large amount of debt, especially when commodity prices are falling and are unlikely to recover, is fraught with danger as the equity pie gets smaller and smaller. Jeremy Wrathall, Head Global Natural Resources - Investec, London Unless the platinum price recovers, all this equity does is buy time Leon Esterhuizen, veteran mining analyst now at Canadian brokerage CIBC Cricket apart, South Africa has not excelled in many fields in recent years. But one perhaps unexpected exception is the relative power of its equity market. Steve Johnson, Financial Times 22

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