TIDMRC2
RNS Number : 5869T
Reconstruction Capital II Ltd
06 October 2014
6 October 2014
Reconstruction Capital II Limited (the "Company")
Proposed issue of EUR8,450,000 nominal value Convertible Loan
Notes
Continuation of the life of the Company
Notice of Extraordinary General Meeting
Reconstruction Capital II Ltd ("RC2, the "Company" or the
"Group"), announces that it is today posting an explanatory
circular (the "Circular") to the shareholders of the Company
incorporating formal notice of a general meeting (the "General
Meeting") to seek the approval of Shareholders for a proposed issue
of EUR8,450,000 nominal value Convertible Loan Notes (the "Notes")
together with the continuation of the life of the Company (the
"Continuation"). The General Meeting will be held at 10.00 a.m. on
29 October 2014 at the offices of Sanne Fiduciary Services Limited
at 13 Castle Street, St Helier, Jersey JE4 5UT.
The Circular together with the Notice of General Meeting will
shortly be made available on the Company's website at
www.reconstructioncapital2.com.
Highlights
-- The Company proposes to issue a EUR8,450,000 secured
convertible bond in order to meet substantially all of the
Company's liabilities and to provide additional working capital for
the following twelve months.
-- Assuming no further issues of Ordinary Shares, if Conversion
were to occur in full, the Company would have an enlarged share
capital comprising 162,614,500 Ordinary Shares and any Shareholder
who does not subscribe for the Convertible Loan Notes would on
Conversion suffer an immediate maximum dilution of approximately
38.50 per cent. to their shareholdings in the Company.
-- The Notes attract simple interest at 10 per cent. per annum,
which will accrue from the Issue Date until the Repayment Date. The
Term of the Notes is three years.
-- The Notes will be secured by first ranking securities granted
by the Company over the shareholdings in and intercompany
indebtedness owed to the Company by its direct subsidiaries, RC2
(Cyprus) Limited and Glasro Holdings Limited (being SPVs which hold
the majority of the Company's investments).
-- The Company proposes to extend the life of the Company for a
further two years until the Annual General Meeting to be convened
in 2016.
-- As at the date of the Circular, the Company has received
applications from certain existing Shareholders to take up
EUR2,188,000 in aggregate of the Convertible Loan Notes. Ion
Florescu has undertaken to subscribe for the balance of the Issue
immediately following the EGM.
-- The Company has also received irrevocable commitments from
existing Shareholders to vote in favour of the Resolutions in
respect of 41,867,122 Ordinary Shares representing approximately
41.87 per cent. of the Ordinary Shares in issue at the date of the
Circular. Subject to the passing of the Resolutions, the Directors
expect to constitute and issue the Convertible Loan Notes on 31
October 2014 following the EGM to such of those persons who have
validly applied for them as the Directors then determine.
Extracts from certain parts of the circular are set out
below.
Event Time and/or date
Publication of this Circular and announcement 6 October 2014
of the Proposals
Latest time and date for receipt of Forms 10.00 a.m. on 27 October
of Proxy for the EGM 2014
Extraordinary General Meeting 10.00 a.m. on 29 October
2014
Results announced through a Regulatory 29 October 2014
Information Service
Despatch of definitive Convertible Loan By 7 November 2014
Note certificates
Each of the times and dates in the above timetable are London
times, unless otherwise stated and are subject to change at the
absolute discretion of the Company. Any such change will be
notified by an announcement on a Regulatory Information
Service.
KEY STATISTICS
Number of Existing Ordinary Shares as
at the date of this Circular 100,000,000
Nominal value of the Convertible Loan
Notes EUR8,450,000
Estimated net proceeds of the Proposals EUR8,233,000
Simple interest rate per annum of the 10 per cent.
Convertible Loan Notes
Maximum amount repayable on the Repayment
Date EUR10,985,000
Maximum number of New Ordinary Shares
to be issued upon conversion of all the
Convertible Loan Notes 62,614,500
Enlarged ordinary share capital assuming
conversion of all the Convertible Loan
Notes 162,614,500
Percentage of the enlarged ordinary share 38.50 per cent.
capital represented by the New Ordinary
Shares issued upon conversion of the
Convertible Loan Notes on the Repayment
Date
For further information, please contact:
Reconstruction Capital II Limited
Ion Florescu / Anca Moraru
Tel: +44 (0) 207 244 0088/ +40 21 3167680
Grant Thornton UK LLP (Nominated Adviser)
Philip Secrett / David Hignell / Edward Thomas
Tel: +44 (0) 20 7383 5100
1. INTRODUCTION
On 1 April 2014, RC2 announced that the Board had decided to
start a period of consultations with Shareholders relating to the
issuance of a secured convertible bond in order to meet
substantially all of the Company's liabilities and provide
additional working capital for the following twelve months.
Having consulted a number of the Company's major Shareholders,
the Board is now making proposals to Shareholders to issue the
Convertible Loan Notes, and to extend the life of the Company for
another two years, in order to provide more time for the asset
divestment process.
The purpose of this Circular is to give you further information
regarding the Proposals, to explain why your Board considers that
they are in the best interests of the Shareholders and to seek your
approval of certain Resolutions to be proposed at the EGM.
2. BACKGROUND TO AND REASONS FOR THE PROPOSALS
On 14 December 2012, the Company held an Annual General Meeting
at which its life was extended for two years in order to allow for
the orderly sale of investments. Subsequently, the Investment Team
initiated the sales process for certain investee companies and
their underlying assets. Unfortunately, the exit process coincided
with one of the worst periods for Foreign Direct Investment into
South East Europe, and the efforts did not result in any
substantial disposals.
Meanwhile, the Company continued to accrue liabilities as it was
unable to pay its running costs. Initially these were primarily
financed by the Investment Team agreeing to postpone the payment of
their management and advisory fees, as well as by Director loans.
However, this was not sufficient to meet all of the Company's
needs. Consequently, in April 2012 the Company arranged a EUR3
million loan from a shareholder which was due for repayment in
April 2014. The cost of this loan was high but it was expected to
be temporary, based on the expectation that at least one divestment
would occur during its term.
Whilst the Company started to receive dividends from certain of
its investee companies in 2013, and managed to refinance loans it
had made to some of its investee companies, it was not able to
effect any substantial disposals of its assets prior to the
repayment date of the shareholder loan.
On 1 April 2014, the Board announced that it had secured a
Bridge Loan from Ion Florescu, at the time a Director of the
Company. The Bridge Loan has been applied to repay the prior
shareholder loan and some other accrued liabilities, and to provide
working capital for the Company. The Bridge Loan is for a seven
month term with repayment due on 31 October 2014 and is seen by the
Board as a short term funding solution for the Company.
Although the asset divestment process is ongoing, in the absence
of any firm commitments from buyers to acquire any of the investee
companies, the Board considered that it was necessary to put the
finances of the Company on a more stable footing by the issuance of
an instrument which the Directors believe will provide sufficient
funds to meet substantially all of the Company's liabilities, and
the Company's working capital needs for the next twelve months.
The Board has considered several funding options for the Company
and believes that the issuance of the Convertible Loan Notes will
provide RC2 with financial stability over the term of the
Notes.
As at the date of this Circular, the Company has received
applications from certain existing Shareholders to take up
EUR2,188,000 in aggregate of the Convertible Loan Notes. Subject to
the Resolutions being agreed by Shareholders at the EGM Ion
Florescu has provided an undertaking that, should there be
insufficient demand for the Convertible Loan Notes, he or entities
related to him would invest up to the amount of the Bridge Loan in
Convertible Loan Notes.
3. OVERVIEW OF THE PRINCIPAL TERMS OF THE PROPOSALS
A summary of the principal terms and conditions of the
Convertible Loan Notes is contained in Part 2 of this Circular.
The Company will use all reasonable endeavours to procure that
any New Ordinary Shares issued upon conversion of the Convertible
Loan Note are admitted to trading on AIM as soon as practicable
following conversion.
4. Effect of the Proposals on the Shareholders
Assuming no further issues of Ordinary Shares, if Conversion
were to occur in full, the Company would have an enlarged share
capital comprising 162,614,500 Ordinary Shares and any Shareholder
who does not subscribe for the Convertible Loan Notes would on
Conversion suffer an immediate maximum dilution of approximately
38.5 per cent. to their shareholdings in the Company.
5. RELATED PARTY TRANSACTION
Certain Directors, namely Howard I. Golden, Dirk Van den Broeck
and Markus Winkler have subscribed for Notes to the value of
EUR151,000, EUR202,000 and EUR110,000 respectively. Ion Florescu, a
former Director has provided an undertaking that he or entities
related to him would invest up to the amount of the Bridge Loan in
Convertible Loan Notes. The Directors subscribing for Notes and Ion
Florescu are related parties of the Company (as defined under the
AIM Rules) and accordingly their participation in the Issue
constitutes a related party transaction for the purposes of Rule 13
of the AIM Rules.
Mihai Radoi, who is not subscribing for Notes and is therefore
an independent Director for these purposes, having consulted with
the Company's nominated adviser, Grant Thornton, considers the
participation by the other Directors and Ion Florescu in the Issue
to be fair and reasonable insofar as Shareholders are
concerned.
6. CURRENT TRADING
On 1 October 2014, the Company announced that the unaudited NAV
per Ordinary Share as at 31 August 2014 was EUR0.3669, which
represents an increase of 3.59 per cent. from the 30 June 2014
figure of EUR0.3542 per Ordinary Shares, which was announced as
part of the Company's Interim Results on 22 August 2014.
In May 2014, RC2 exchanged half of its shareholder loans to Klas
(the bakery division of East Point Holdings Limited) for a 40.9 per
cent. shareholding in the company, increasing its shareholding to
52 per cent.. Accordingly, the value of the shareholding in Klas as
at 30 June 2014 increased to EUR1,666,836, having previously been
valued at EUR677,100.
Policolor S.A., the largest investment of the Company, has
agreed to sell its Bucharest site for EUR18.3 million, which is to
be received over the next three years. The deal should generate net
proceeds of EUR6.6 million for Policolor over the coming three
years, after deducting the costs of building a new factory on which
to relocate Policolor's production (estimated at EUR8.0 million),
the demolition and environmental clean-up costs for the site
(estimated at EUR1.0 million), and the estimated capital gains tax
on the sale (EUR2.7 million).
Albalact SA and Top Factoring posted strong results in the first
semester of 2014, with Albalact increasing its euro-denominated
sales revenue by 10 per cent. and its recurring EBITDA following a
similar trend. Top Factoring's EBITDA improved from EUR1.4 million
to EUR2.4 million, largely due to the write-up of the valuation of
its proprietary portfolios pursuant to quarterly impairment
tests.
7. CONTINUATION OF THE COMPANY
At the Company's Annual General Meeting in December 2012,
Shareholders voted in favour of the life of the Company being
continued for a further two years, during which time there would be
an orderly realisation of the Company's current investments with no
new investments being made.
At that time, the Board stated that due to the highly illiquid
nature of the Company's private equity investments and the possible
complexity of divestments, it was difficult to provide Shareholders
with any certainty regarding the timetable for realisation, but did
estimate that it could be approximately two to four years.
The Board, assisted by the Investment Team, has undertaken an
exercise to estimate a realisation timetable. Although Shareholders
should place only limited reliance on this information it is the
Board's current estimate that the overall timetable for realisation
will be a further two to three years. The Board therefore believes
that the issuance of the Convertible Loan Notes represents an
appropriate juncture at which to seek Shareholders' approval to
continue the Company, as it is presently constituted, for a further
two years.
It is therefore proposed that Resolution 1 will be put to
Shareholders at the Extraordinary General Meeting to seek
Shareholders' approval to continue the Company, as it is presently
constituted, for a further two years until the Annual General
Meeting to be convened in 2016.
8. relationship agreement
Ion Florescu is currently the beneficial owner either directly
or indirectly of 28,297,656 Ordinary Shares, representing
approximately 28.3 per cent. of the voting rights of the Company.
Should there be insufficient demand for the Notes, Ion Florescu has
provided an undertaking that he or entities related to him would
invest up to the amount of the Bridge Loan in Convertible Loan
Notes, subject to the terms being those presented to Shareholders
at the EGM. On the basis that Ion Florescu subscribes for EUR6.26
million of the Notes, being the amount not subscribed for by other
investors, and based on the number of Ordinary Shares in issue and
Notes to be issued as detailed in this Circular, Ion Florescu would
be the beneficial owner, either directly or indirectly, of
approximately 45.94 per cent. of the voting rights of the Enlarged
Ordinary Share Capital of the Company on conversion of the Notes
into Ordinary Shares.
As a consequence Ion Florescu would be able to exercise
controlling influence on the business of the Company and may cause
or take actions that are not in, or may conflict with, the best
interests of the Company or its Shareholders as a whole.
Accordingly, the Company and Ion Florescu have entered into a
relationship agreement dated 3 October 2014 which is conditional on
Ion Florescu and his connected persons holding, at any time,
Ordinary Shares representing 30 per cent. or more of the issued
share capital and which regulates the relationship between the
Company and Ion Florescu and his connected persons. Under the terms
of the relationship agreement, Ion Florescu agrees not to carry on
any activity in conflict with those of the Company which may lead
to transactions and relationships between the Company and Ion
Florescu and his connected persons which are not at an arm's length
or on a normal commercial basis. Accordingly, Ion Florescu
undertakes that to the extent that he or his connected persons are
on the Board, he shall and shall procure that his connected persons
abstain from voting at any meeting of the Board in relation to any
matter in which he or his connected persons may be interested other
by virtue of holding Shares and not prejudice the rights of
minority Shareholders in a manner which does not affect him in the
same way.
9. EXTRAORDINARY GENERAL MEETING
A notice convening an Extraordinary General Meeting to be held
at the offices of Sanne Fiduciary Services Limited at 13 Castle
Street, St Helier, Jersey JE4 5UT at 10.00 a.m. on 29 October 2014
is set out at the back of this Circular. Set out below is a summary
of the Resolutions which are to be proposed at the Extraordinary
General Meeting. Resolution 1 will be proposed as an extraordinary
resolution and Resolution 2 will be proposed as an ordinary
resolution. The vote on Resolution 1 will be taken on a poll and
will be deemed not to have passed if the votes against the
Resolution constitute a majority against the Resolution and
represent at least 25 per cent. of the total number of votes
capable of being cast on that Resolution. Resolution 2 will be
deemed not to have passed unless a majority of the votes cast are
in favour of the Resolution.
Resolution 1 - Continuation of the Company
Resolution 1 is being proposed to continue the Company as
presently constituted for a further two years until the Annual
General Meeting to be convened in 2016.
Resolution 2 - Authority to allot securities in connection with
the Issue
Resolution 2 is being proposed to authorise the Directors to be
authorised to issue Convertible Loan Notes up to an aggregate
nominal amount of EUR8,450,000 including the right to convert the
amounts outstanding on the basis of 7.41 New Ordinary Shares for
every EUR1.00 of outstanding amount of principal of Convertible
Loan Notes (or as the conversion ratio may be adjusted under the
anti-dilution provisions of the Convertible Loan Notes).
Save in respect of the allotment of any New Ordinary Shares that
may need to be issued pursuant to the terms of the Convertible Loan
Notes, the Directors currently have no plans to issue any New
Ordinary Shares.
10. ACTION TO BE TAKEN iN RESPECT OF THE EGM
Shareholders will find enclosed with this Circular a Form of
Proxy for use at the EGM. The Form of Proxy should be completed and
returned in accordance with the instructions printed thereon so as
to arrive at the Company's Registrars, Sanne Fiduciary Services
Limited, 13 Castle Street, St Helier, Jersey JE4 5UT as soon as
possible and in any event not later than 10.00 a.m. on 27 October
2014.
If the Form of Proxy is not returned by 10.00 a.m. on 27 October
2014, your vote will not count.
11. APPLICATIONS TO SUBSCRIBE FOR CONVERTIBLE LOAN NOTES
As at the date of this Circular, the Company has received
applications from certain existing Shareholders to take up
EUR2,188,000 in aggregate of the Convertible Loan Notes. Ion
Florescu has undertaken to subscribe for the balance of the Issue
immediately following the EGM. The Company has also received
irrevocable commitments from existing Shareholders to vote in
favour of the Resolutions in respect of 41,867,122 Ordinary Shares
representing approximately 41.87 per cent. of the Ordinary Shares
in issue at the date of this Circular. Subject to the passing of
the Resolutions, the Directors expect to constitute and issue the
Convertible Loan Notes on 31 October 2014 following the EGM to such
of those persons who have validly applied for them as the Directors
then determine.
12. RECOMMENDATION
The Directors, certain of whom have subscribed for Notes as set
out in paragraph 5, believe that the Resolutions are fair and
reasonable and in the best interests of the Shareholders of the
Company as a whole. The Directors recommend that Shareholders vote
in favour of the Resolutions as they intend to do so in respect of
their aggregate holdings of 4,096,563 Ordinary Shares, equivalent
to approximately 4.10 per cent. of the Existing Ordinary
Shares.
13. GLOSSARY
Issuer: The Company.
Security Trustee: Josedo Limited, a company created
by SMP Partners.
Securities Offered: EUR8,450,000 principal amount of 10
per cent. convertible secured loan
notes due 2017 of the Company (the
"Notes").
Issue Price: At par.
Issue Date: 31 October 2014.
Coupon: Simple interest at 10 per cent. per
annum will accrue from the Issue Date
until the Repayment Date.
Security: The Notes will be secured by first
ranking securities granted by the
Company over the shareholdings in
and intercompany indebtedness owed
to the Company by its direct subsidiaries,
RC2 (Cyprus) Limited and Glasro Holdings
Limited (being SPVs which hold the
majority of the Company's investments).
The security will be granted in favour
of the Security Trustee on behalf
of the Noteholders under a security
trust deed in standard form. Instructions
will be given to the Security Trustee,
where required, by an extraordinary
resolution of the Noteholders on which
75 per cent. of the votes cast are
in favour ("Extraordinary Resolution").
Ranking: The Notes will rank in priority to
all unsecured creditors. Without prior
Noteholder consent by a resolution
on which at least two-thirds of the
votes cast are in favour, no dividends,
returns of capital or other payments
shall be made to any shareholder in
respect of its shares until the Notes
have been repaid in full.
Repayment Date: 30 October 2017.
Mandatory Repayment: Customary early repayment provisions
to apply, including on a takeover
of the Company. In addition, at least
75 per cent. of the net proceeds received
by the Company of a disposal of any
investment held by the Company from
time to time must be applied to redeem
the outstanding Convertible Loan Notes
(and any such disposal of an investment
will result in the release of the
security granted by the Company over
that asset pursuant to the security
trust deed).
Early Prepayment: At any time on not less than 45 days'
prior written notice by the Company
to the holders. No early repayment
penalties apply unless the repayment
occurs prior to the date falling 6
months after the Issue Date in which
case the repayment amount shall include
a minimum interest accrual equal to
the interest which would otherwise
have accrued between the Issue Date
and the date falling 6 months after
the Issue Date.
Prepayment to be pro rata amongst
holders by reference to principal
amount held.
Repayment Amount: At the principal plus accrued but
unpaid interest as of the date of
repayment.
Conversion: Notes will be convertible at the option
of the Noteholders at any time (including
prior to any proposed repayment of
Notes or equity issuance) on giving
15 days' prior written notice to the
Company on the basis of:
7.41 new ordinary shares of EUR0.01
each in the capital of the Company
for every EUR1.00 of principal of
Notes (equivalent to a conversion
price of EUR0.135 per new ordinary
share)
Any unpaid accrued interest on the
Notes will be disregarded for the
purposes of conversion and shall be
cancelled.
Fractional entitlements will be rounded
down to the nearest whole share.
Anti-dilution: Customary anti-dilution provisions
in respect of issues of new shares
at below the conversion price per
share, bonus issues, consolidation,
conversion, etc.
Noteholders will be given the opportunity
to convert their Notes into shares
in the event of any equity issuance
or a takeover offer being made for
the Company.
Covenants: Without prior Noteholder consent by
a resolution on which at least two-thirds
of the votes cast are in favour, no
dividends, returns of capital or other
payments shall be made to any shareholder
in respect of its shares until the
Notes have been repaid in full.
Without prior Noteholder consent by
Extraordinary Resolution:
* No further debt may be incurred ranking ahead of or
pari passu with the Notes
* No new investments (other than follow-on investments
in existing investments as permitted by the Company's
investment policy)
Provision of Information The Company will provide information
to Noteholders at the same time and
on the basis as it is provided to
shareholders (if a Noteholder is not
also a shareholder).
Events of Default:
* Failure to pay on due date (subject to grace period
of 14 days to cure)
* Insolvency
* Breach of terms of the Notes (subject to grace period
of 14 days to cure)
* Failure to have authority to issue new shares in the
Issuer on Conversion (subject to grace period of 14
days to cure)
* Change of the Company's investment policy without
prior Noteholder consent by Extraordinary Resolution
* Any resolution to continue the life of the Company
beyond the Repayment Date not being approved by
shareholders
Transferable: The Notes are transferable. The Notes
will not however be listed on any
exchange.
Conditions to Issue:
* Shareholder approval of the issue of the Notes
* Shareholder approval of the continuation of the
Company until at least the Annual General Meeting of
the Company to be held in 2016
Governing law: English law.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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