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GNDE - GRINDROD LIMITED - The Acquisition of Black Economic Empowerment (Bee) Interests in Grindrod Subsidiaries and New Bee Transaction

08/04/2014 15:04:00

GND 201404080026A
The Acquisition of Black Economic Empowerment (“Bee”) Interests in Grindrod Subsidiaries and New Bee Transaction

GRINDROD LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1966/009846/06)
Ordinary share code and ISIN: GND and ZAE000072328
Preference share code and ISIN: GNDP and ZAE000071106
(“Grindrod” or “the Company” or “the Group”)


THE ACQUISITION OF BLACK ECONOMIC EMPOWERMENT (“BEE”) INTERESTS IN
GRINDROD SUBSIDIARIES AND NEW BEE TRANSACTION


1. Introduction

Grindrod shareholders are referred to the announcement released on SENS on 28 March 2014 and to
the circular issued to Grindrod shareholders on 28 March 2014 (“Circular”), relating, inter alia, to the
proposed equity capital raising that will lead to the total issue of Grindrod shares of up to R4.0 billion,
with net cash proceeds to Grindrod of up to R3.0 billion (the “Equity Capital Raising”), the acquisition
of BEE interests in Grindrod subsidiaries and a new BEE transaction at listed Company level (“New
BEE Transaction”).

The Equity Capital Raising is intended to be implemented through a combination of an accelerated
bookbuild offering to qualifying investors (“Bookbuild Placement”) and a specific issue of shares to a
consortium of black strategic investors (“Consortium Placement”).



2. Terms of the Acquisition

Grindrod has agreed with its BEE partners, Calulo Investments Proprietary Limited (“Calulo”), and
Solethu Investments Proprietary Limited (“Solethu”), to acquire their interests in certain operating
subsidiaries of Grindrod for a total cash consideration of R560 million (“Acquisition”).

Grindrod has agreed with Calulo to acquire its direct and/or indirect interests in the following operating
subsidiaries of Grindrod for a total consideration of R360 million:

- Unicorn Calulo Bunker Services Proprietary Limited operating three high specification bunkering
barges;
- Unicorn Calulo Shipping Services Proprietary Limited providing the South African oil industry with
tanker shipping solutions;
- Sturrock Grindrod Maritime Holdings Proprietary Limited, previously known as JFM Sturrock
Holdings Proprietary Limited, providing ships agency, customs clearing, international freight
forwarding, and logistics services in South Africa and internationally; and
- Grindrod (South Africa) Proprietary Limited operating in the South African freight industry.

Grindrod has agreed with Solethu and associated parties to acquire their direct and/or indirect
interests in the following operating subsidiaries of Grindrod for a total consideration of R200 million:

- RRL Grindrod Proprietary Limited providing rail and logistics solutions;
- RRL Grindrod Locomotives Proprietary Limited specialising in the design, customising and building
of new locomotives in South Africa;
- RACEC Group Limited, in the process of being renamed to Grindrod Rail Construction Proprietary
Limited, specialising in the manufacturing and refurbishing of locomotives and wagons, locomotive
leasing and maintenance, rail operations, track maintenance and signalling contracts; and
- Grindrod Corridor Management Proprietary Limited specialising in value added interface services
for stakeholders of rail supply chains by facilitating efficiencies from pit to port.

Calulo and Solethu will reinvest a material portion of the Acquisition consideration proceeds in the
New BEE Transaction. The effective date of the Acquisition is expected to be not later than
30 June 2014.


2.1. Rationale for the Acquisition

There are attractive inherent growth prospects for the businesses and the Acquisition represents an
opportunity for Grindrod to acquire 100% of the earnings at fair value. The Acquisition will create
greater alignment between Grindrod's subsidiary companies and the larger Group, eliminate any
conflicts of interests which might exist and enable more efficient management of the businesses while
ensuring that they are appropriately capitalised through leverage of the Group's balance sheet.



2.2. Small related party transaction

In terms of the JSE Limited Listings Requirements, the Acquisition is a small related party transaction
for Grindrod. As such, BDO Corporate Finance (“BDO”) has been appointed to provide the Board of
Grindrod with written confirmation, in its capacity as independent professional expert, confirming that
the Acquisition is fair to Grindrod shareholders.

BDO's opinion, the content of which is still subject to JSE approval, will be available for inspection at
the registered office of Grindrod.



2.3. Conditions precedent to the Acquisition

The Acquisition is subject to the fulfilment of the following conditions precedent:

- signature of all share repurchase, share subscription and sale agreements by the required
parties; and
- the fairness opinion as detailed in paragraph 2.2 above confirming that the Acquisition is fair
to Grindrod shareholders.
3. New BEE Transaction

Grindrod has entered into a binding memorandum of understanding with Brimstone Investment
Corporation Limited (“Brimstone”), Calulo, Calulo Newco Proprietary Limited (“Calulo Newco”) and
Solethu, relating to the establishment of a consortium special purpose vehicle (the “Consortium SPV”)
for the purpose of concluding an aggregate R1.6 billion equity investment into Grindrod. Grindrod
shares will be issued to the Consortium SPV at the same price as the Bookbuild Placement
(“Bookbuild Price”).

The effective date of the New BEE Transaction is expected to be not later than 30 June 2014.



3.1. Shareholding in the Consortium SPV

The Consortium SPV will be established on the basis that:

- Brimstone (or such direct or indirect wholly-owned subsidiary of Brimstone as Brimstone may
nominate (“Brimstone SPV”)) will acquire a shareholding of between 59.2% and 65.1% in the
Consortium SPV at an aggregate subscription price of between R450 million and R495 million,
depending on the quantum of equity invested by Calulo Newco;
- Calulo Newco will acquire a shareholding of between 21.7% and 27.6% in the Consortium SPV at
an aggregate subscription price of between R165 million and R210 million; and
- Solethu will acquire a shareholding of 13.2% in the Consortium SPV at an aggregate subscription
price of R100 million.


3.2. Funding of the Consortium SPV

Grindrod will provide vendor funding to the Consortium SPV, by way of a preference share investment
(“Vendor Preference Shares”). The Consortium SPV will issue the Vendor Preference Shares to
Grindrod (or one of its direct or indirect subsidiaries) for an aggregate subscription price of R400
million with a term of 6 years. A portion of the proposed Consortium Placement proceeds will be used
by Grindrod to fund the Vendor Preference Shares.

The Consortium SPV will raise additional funds through the issue of senior preference shares to third
party financiers for an aggregate subscription price of up to R450 million, allowing for costs and other
disbursements.



3.3. Lock-in agreements

The shareholders of the Consortium SPV shall not be entitled to dispose of their shares in the
Consortium SPV during the period ending 60 months after the issue of the Vendor Preference
Shares, subject to certain conditions.
3.4. Rationale for the New BEE Transaction

Grindrod remains committed to driving transformation in ways that are sustainable, credible and of
benefit to all its stakeholders. The New BEE Transaction is in keeping with the spirit of transformation
and aligns the Group to the ownership elements of the recently released new BEE codes.

Calulo and Solethu remain committed to the partnership with Grindrod and will reinvest a material
portion of the Acquisition consideration proceeds into the New BEE Transaction.



3.5. Conditions precedent to the New BEE Transaction

The New BEE Transaction is subject to the fulfilment (or waiver, where applicable) of the following
conditions precedent:

- Grindrod shareholders passing all requisite resolutions proposed at the general meeting on
30 April 2014;
- the Consortium SPV being established, with all of the written agreements necessary to give
effect to the New BEE Transaction being concluded and becoming unconditional in
accordance with their respective terms;
- the Consortium SPV and Grindrod concluding a written subscription agreement, in terms of
which the Consortium SPV will subscribe for R1.6 billion worth of Grindrod shares and such
agreement becoming unconditional in accordance with its terms; and
- all necessary regulatory approvals being obtained which are required to give effect to the New
BEE Transaction.


4. Unaudited pro forma financial effects of the Acquisition and New BEE Transaction

The pro forma financial effects of the Acquisition and the New BEE Transaction will be announced
once the Bookbuild Price has been determined and the relevant agreements have been signed.



Merchant bank and transaction sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)


Sponsor
Grindrod Bank Limited


Legal adviser
Edward Nathan Sonnenbergs Inc.


8 April 2014

Date: 08/04/2014 03:04:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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