DETAILED TERMS OF PPC S TOP-UP BLACK ECONOMIC EMPOWERMENT TRANSACTION AND WITHDRAWAL OF CAUTIONARY

Transcription

1 PPC Ltd (Incorporated in the Republic of South Africa) (Company registration number: 1892/000667/06) JSE and ZSE Code: PPC ISIN: ZAE ("PPC" or the "Company") DETAILED TERMS OF PPC S TOP-UP BLACK ECONOMIC EMPOWERMENT TRANSACTION AND WITHDRAWAL OF CAUTIONARY 1. Background PPC shareholders are referred to the detailed cautionary SENS announcement dated 14 December 2017, and its renewal on 29 January 2018, wherein shareholders were advised of the proposed top-up black economic empowerment ( BEE ) transaction ( PPC Phakama Transaction ). As outlined in the aforementioned announcements, PPC is implementing the PPC Phakama Transaction in compliance with the Mineral and Petroleum Resources Development Act, 28 of 2002 and the Broad-Based Socio-Economic Empowerment Charter for the South African Mining and Minerals Industry, published under Government Notice 838 in the Government Gazette 33573, as amended, and its prospective amendment and commitments ( Mining Charter ). This transaction is also aligned to PPC s long term sustainable value creation strategy. PPC previously implemented two BEE transactions ( BEE 1 Transaction and BEE 2 Transaction ) which resulted in a BEE shareholding of 20.8% at a listed company level, and deemed to be equivalent to 26% in respect of PPC s South African operations. As a consequence of the rights offer process concluded in September 2016 and the maturity of the BEE 1 Transaction on 15 December 2016, PPC s BEE shareholding fell below the required 26%. As such, the PPC Phakama Transaction is critical in addressing the current non-compliance with the Mining Charter and enables PPC to compete on an equivalent BEE equity level with its industry peers. 2. Purpose of Announcement PPC shareholders are hereby advised that the Company has finalised the terms which will give effect to the PPC Phakama Transaction. The purpose of this announcement is to provide PPC shareholders with an overview of the terms of the PPC Phakama Transaction. 3. The PPC Phakama Transaction Structure As previously stated in the aforementioned announcements, the PPC Phakama Transaction will be implemented as a top-up transaction at the level of

2 PPC s wholly-owned South African subsidiary, PPC South Africa Holdings Proprietary Limited ( PPC SA ), and will result in PPC achieving an effective 30.0% BEE equity shareholding in respect of its South African operations. PPC s effective 30% BEE equity shareholding will comprise the following elements: (i) the existing residual parts of the BEE 1 Transaction, which was implemented by PPC in December 2008; (ii) the BEE equity shareholding as a result of the existing residual BEE 2 Transaction, which was implemented by PPC in The BEE 1 Transaction and the BEE 2 Transaction will jointly continue to indirectly contribute an effective 4.6% BEE equity shareholding in PPC SA; and (iii) the PPC Phakama Transaction. In the announcement released by PPC on 14 December 2017, it was stated that the PPC Phakama Transaction will result in an equity shareholding of 24.6% directly into PPC SA. The PPC Board of Directors (the Board ) has subsequently resolved that PPC will no longer take into account a portion of the BEE 1 Transaction s residual shareholding, as it has vested. Therefore, the top-up BEE shareholding which is required for PPC to achieve an effective 30% BEE equity shareholding has been increased from 24.6% to 25.4%. The PPC Phakama Transaction will result in PPC s equity shareholding in PPC SA being reduced from 100% to 74.6%. As with the BEE 1 Transaction and the BEE 2 Transaction, the PPC Phakama Transaction will be broad-based in nature from inception, comprising eligible employees, communities and black entrepreneurs. 4. Components of the PPC Phakama Transaction The PPC Phakama Transaction caters for three categories of shareholders (collectively, the PPC SA BEE Shareholders ), namely: 4.1 PPC SA Employee Trust All eligible employees of PPC s South African operations and subsidiaries will participate in the transaction through a trust ( PPC SA Employee Trust ), which will endure for a ten year period. The PPC SA Employee Trust will hold a 9.8% equity shareholding directly in PPC SA. The PPC SA Employee Trust will be a fully vesting trust and all initial participants will participate equally. Mr Johan Claassen, PPC s Chief Executive Officer, Ms Tryphosa Ramano, PPC s Chief Financial Officer and Mr Jaco Snyman, PPC s Company Secretary will also participate in the aforementioned allocation. 30% of the PPC SA BEE Shares (as defined below) held in the PPC SA Employee Trust will be reserved for allocation on a diminishing proportional basis to future qualifying employees of PPC SA s operations and subsidiaries, who

3 become employees during the initial 36 month period of the PPC Phakama Transaction. 4.2 PPC SA Community Development Trust Participants in the community trust ( PPC SA Community Development Trust ), which will be perpetual in nature, will consist of communities residing adjacent to and/or impacted by the existing and any future operations of PPC SA. The identified communities will have an indirect 8.0% equity shareholding in PPC SA, housed in the PPC SA Community Development Trust. The PPC SA Community Development Trust will not be a vesting trust and the communities will derive benefits from the PPC SA Community Development Trust through dividends paid to it by PPC SA. 4.3 The BEE Special Purpose Vehicle A special purpose vehicle ( BEE SPV ) has been incorporated for purposes of holding a 7.6% equity shareholding directly in PPC SA for a period of ten years on behalf of eligible black entrepreneurs identified through a private selection process ( Black Entrepreneurs ). The selection of participants falling within the category of Black Entrepreneurs ( Black Entrepreneur Participants ) is still being finalised and the Company will issue a further announcement once the Black Entrepreneur Participants have been finalised. 5. Related Party Transaction and Fairness Opinion The aggregate participation by PPC directors may be in excess of 0.25% (but not equal to or greater than 5%) of the total 25.4% transaction size and may therefore be classified as a small related party transaction in terms of the Listings Requirements of the JSE Limited ( Listings Requirements ). As a small related party transaction, the PPC Phakama Transaction does not require PPC shareholder approval but does require the Board to obtain a fairness opinion on its terms ( Fairness Opinion ). In light of the above, KPMG was appointed by the Board as the independent expert to provide the Fairness Opinion ( Independent Expert ). The Independent Expert is of the opinion that the terms and conditions of the PPC Phakama Transaction are fair as far as PPC shareholders are concerned. The Board has been advised accordingly, and the Fairness Opinion is available for inspection at the Company s Registered Office (PPC Building, 148 Katherine Street, Sandton, Johannesburg) for a period of 28 days following the publication of this announcement. The Fairness Opinion will also be available on the Company s website: 6. Directors Opinion The Board has considered the Fairness Opinion of the Independent Expert as outlined above, and the Board is therefore of the opinion that the PPC Phakama Transaction is fair and is in the best interests of all PPC shareholders.

4 7. General Terms and Conditions of the PPC Phakama Transaction 7.1. Specific Issue of PPC SA Shares The PPC SA Employee Trust, the PPC SA Community Development Trust and the BEE SPV have been established for the purpose of, inter alia, subscribing for, holding and administering new PPC SA shares ( PPC SA BEE Shares ) on behalf of the PPC BEE Shareholders, subject to the rights, restrictions and suspensions stipulated in the relevant subscription agreements. The PPC Phakama Transaction will be implemented through the specific issue of PPC SA BEE Shares and facilitated through a notional vendor funding mechanism ( NVF Mechanism ). The PPC SA BEE Shares to be issued to the PPC SA BEE Shareholders will rank pari passu with other PPC SA ordinary shares, save that they will be subject to the rights, restrictions and suspensions contained in the various subscription agreement. For the avoidance of doubt, the suspensions and restrictions under the subscription agreements are contractual in terms of the issue of the PPC SA BEE Shares and do not affect the ranking of the PPC SA BEE Shares in relation to other PPC SA ordinary shares PPC SA will make a cash contribution to the PPC SA BEE Shareholders in an amount equal to the subscription amount in order to enable the PPC SA BEE Shareholders to subscribe for the PPC SA BEE Shares. The PPC SA BEE Shares will be issued at a nominal value of 0.1 cents per PPC SA BEE Share ( Subscription Price ). 7.2 Implementation Mechanism The PPC Phakama Transaction will be facilitated by PPC SA through the NVF Mechanism over a ten year period ( NVF Period ). In terms of the NVF Mechanism, PPC SA will issue the PPC SA BEE Shares to the PPC SA BEE Shareholders at the Subscription Price and will be entitled, at the end of the NVF Period, to repurchase a certain number of PPC SA BEE Shares in accordance with the relevant repurchase formula ( Repurchase Formula ) as outlined in the subscription agreements. The contribution by PPC SA to enable the PPC SA BEE Shareholders to subscribe for the PPC SA BEE Shares constitutes the provision of financial assistance by PPC SA in terms of section 44 of the Companies Act, 71 of In addition the facilitation through the NVF mechanism to the BEE vehicle may constitute the provision of financial assistance by PPC SA. The Board may not authorise the provision of financial assistance unless amongst other things the particular provision of financial assistance is pursuant to a special resolution. PPC SA s shareholder, being PPC will pass the special resolution in terms of the condition precedent of the transaction as outlined in paragraph 10.

5 7.3 Vesting and Lock-In Period The PPC SA BEE Shareholders may not dispose of or encumber their PPC SA BEE Shares during the NVF Period, and in the case of the PPC SA Community Development Trust, it may not dispose of or encumber its PPC SA BEE Shares indefinitely as it is perpetual. 7.4 Dividends and Distribution Period During the NVF Period; an amount equal to 20% of any cash dividends will flow to the PPC SA BEE Shareholders ( Trickle Dividend ), and in turn be distributed to the PPC SA BEE Shareholders net of any taxes and any other related costs; the Trickle Dividend relating to the PPC SA Employee Trust and the BEE SPV will be used to purchase unencumbered PPC ordinary shares at prevailing market prices; and the balance of 80% of any cash dividend or 100% of any other distribution which would have accrued to the PPC SA BEE Shareholders had the suspensions not been imposed on the PPC SA BEE Shares, will be suspended and taken into account in determining the number of PPC SA BEE Shares to be repurchased by PPC SA in terms of the Repurchase Formula at the end of the NVF Period From the end of the NVF Period, the PPC SA BEE Shareholders will be entitled to 100% of the cash dividends and any other distributions attributable to the remaining PPC SA BEE Shares. 7.5 Voting The PPC SA BEE Shareholders will be entitled to exercise all voting rights attached to the PPC SA BEE Shares. 7.6 Corporate Actions In the event of any corporate action at PPC SA, PPC and PPC SA will be entitled, at their discretion, to give notice to the PPC SA BEE Shareholders to accelerate the NVF Period. Any such acceleration of the NVF Period will be factored into the Repurchase Formula as provided for in the subscription agreements. 8. Transaction Structure Rationale The reasons for structuring the PPC Phakama Transaction as set out in paragraphs 3, 4 and 7 are as follows: 8.1 The PPC Phakama Transaction is based on an intrinsic value, rather than a market price of listed shares which are susceptible to normal market volatility. The BEE 1 Transaction and the BEE 2 Transaction were negatively impacted by the market price of the shares held in PPC, resulting in the

6 transactions being underwater and transferring negligible value to the BEE beneficiaries. 8.2 As the PPC Phakama Transaction will be implemented at a subsidiary level, there will be no restriction on PPC s ability to raise equity from its shareholders with no resultant impact on its BEE shareholding, as was the case with the BEE 1 Transaction and the BEE 2 Transaction that were implemented at PPC level and when the Company implemented its rights issue in September The NVF Mechanism does not create any liability, contingent or otherwise, on the balance sheets of either PPC, PPC SA or the PPC SA BEE Shareholders. 8.4 The PPC Phakama Transaction creates a sustainable structure that will provide PPC with guaranteed BEE credentials for its South African operations for at least ten years. 8.5 The PPC Phakama Transaction will not directly dilute the shareholding of PPC shareholders in PPC. However, PPC shareholders will receive lower earnings from PPC SA as a result of PPC s reduced shareholding in PPC SA. 9. Economic Transaction Value, Costs and Listings Requirements Categorisation The economic value of the PPC SA BEE Shares was determined by PPC management, and approved by the Board, with reference to a discounted cash flow valuation of PPC SA based on forecast cash flows of all operating entities under PPC SA. The intrinsic equity value of PPC SA is equal to R10.17 billion. The value of the PPC Phakama Transaction is determined as R2.148 billion ( Transaction Value ), after taking into account adjustments made to the intrinsic equity value for an unlisted minority shareholding. The Transaction Value is equivalent to 16.91% of PPC s market capitalisation as at 13 March In terms of the Listings Requirements, an issue of shares for cash by a subsidiary of a listed company requires such issue to be categorised in accordance with Section 9 of the Listings Requirements as if it were a transaction concluded by the listed company. As such, the PPC Phakama Transaction is a Category 2 transaction for PPC in terms of the Listings Requirements, which does not require PPC shareholder approval. The estimated accounting charge of the PPC Phakama Transaction, determined in accordance with International Financial Reporting Standards ( IFRS ) 2: Share Based Payments ( IFRS 2 Charge ), is approximately R484 million as at the announcement date. The IFRS 2 Charge will be allocated to the PPC SA BEE shareholders as follows: R272 million to the PPC SA Employee Trust and is to amortised over the NVF Period; and

7 R212 million relating to the BEE SPV is to be expense in full on the effective date. This represents approximately 3.8% of the market capitalisation of PPC on the announcement date (approximately R12.7 billion). The IFRS 2 Charge is in line with market precedents for similar transactions of this nature and size. 10. Conditions Precedent The PPC Phakama Transaction will become effective upon: 10.1 the completion of all administrative matters common for transactions of this nature, including the execution of all the transaction agreements giving effect to the PPC Phakama Transaction ( Transaction Agreements )and the Transaction Agreements becoming unconditional in accordance with their terms and conditions; and 10.2 approval of the PPC Phakama Transaction by regulatory authorities, as may be required. 11. Warranties and Indemnities PPC confirms the warranties and indemnities applicable to the PPC Phakama Transaction are normal for transactions of this nature and size. 12. Withdrawal of Cautionary Announcement As the detailed terms of the PPC Phakama Transaction have been finalised and published, PPC shareholders are advised that they no longer need to exercise caution when dealing in securities of PPC. Sandton 15 March 2018 Financial Advisor and Transaction Sponsor to PPC Nedbank Limited, acting through its Corporate and Investment Banking Division Legal Advisor to PPC Tshisevhe Gwina Ratshimbilani Inc. Tax Advisor to PPC Cliffe Dekker Hofmeyr Inc. Independent Expert KPMG

8 Sponsor to PPC Merrill Lynch South Africa (Pty) Ltd Investor contacts: PPC: Anashrin Pillay Group Manager Investor Relations Tel: +27 (0) Siobhan McCarthy Group Manager Corporate Affairs Tel: +27 (0) Financial Communications Advisor: Instinctif Partners Gift Dlamini Mobile: +27 (0)