Garuda Capital is pleased to introduce and offer our BEE Liquidity Facility: a specialized financing product designed to release cash from JSE Listed shares, which are bound by a “lock in period”. We are not credit providers, but act as arrangers of structured financing facilities from certain banking institutions. This facility is designed to assist BEE groups or individuals to raise capital and release liquidity or cash from their listed shareholdings, which may be subject to a “lock in period” or other restrictive covenants.
Our consortium of local and international banks provide liquidity facilities to BEE parties who have realized value in their investments, but are still bound by the lock in clauses of their BEE agreements. Often there are BEE owners of large parcels of shares, whose shares have a few years to go before maturity, yet they require liquidity now, i.e., their personal requirements may have changed, or they may wish to finance other business ventures, or wish to take care of personal commitments now. There are a number of BEE investments that have restrictions out to 2015 and beyond, in addition the BEE parties typically do not have access to the underlying shares, as they are held as collateral by the banks that provided the original funding for the deals.
Requirements to qualify for this facility:
- the BEE owners / SPV must have a large parcel of shares (a minimum of R20m and more);
- the underlying interest must be JSE Listed Shares (or tradable shares or shares which are convertible into listed shares at a future date); and
- these shares must be mature investments and must mature or become cashable in the next 5 years, i.e., medium term to release or redemption.
Typical Terms of Facilities:
- If approved, the banks advance the BEE group cash, against those shares in terms of a facility. Shareholders do not have to exit their investment. The shares remain in their names, holders continue to retain their voting rights, and the funding is confidential.
- The facility is priced at usual commercial rates, plus some margin. All facilities are assessed on a Case by Case basis.
- The funders may share in the upside with the owners. And of course interest is payable on the funding to maturity or this may be rolled up.
Process:
- The Client is required to provide Garuda Capital with full details of their holdings (number of shares, name of issuer / company, class of shares, current market value or valuation, termination or release date of agreement, copy of BEE subscription agreement, current cost of funding, amount of cash required to be released).
- Based on the above, we obtain an in principle acceptance from the bankers consortium to fund your transaction. This will be in the form of a Draft Term Sheet, which will specify the approximate terms of the facility (subject to formal credit committee approval).
- Should such a draft offer be attractive to you (or your BEE Group) and you wish to proceed, you are required to sign a Mandate with Garuda Capital to prepare and progress a formal application.
- Our mandate will stipulate our fees, which shall comprise: a Commitment Fee + a Success Fee. The Success Fee is typically about 4% of the capital raised; this is deducted from the proceeds of the loan at source. Our pricing is dependent on a number of factors (may be discussed).
- Once mandated, Garuda Capital shall conduct a full commercial and legal Due diligence of the assets to be financed, and prepare a Funding Proposal. After client approval and consent thereof, the funding proposal is presented to the banks, for formal credit approval.
- Banks then provide the client with loan documentation for Board approval by the BEE Group or individual. On signature, funds are released to client.
- Process should be complete within 3-4 weeks.
Examples of large deals coming up to maturity include: Exxaro, MTN, Tongaat Group, Sasol, Mediclinic & Spar. Further, there are shares that do not have expiry dates but have secondary or OTC markets that BEE shareholders can trade in (e.g. Multichoice). All of the funding deals we execute relate to companies that offer a direct or indirect method of valuation of the underlying. Our banks will not fund an unlisted entity that has no secondary market, or is not convertible. Our particular preference is listed, liquid companies on the JSE All-Share, usually in the top 50-60 by market capitalization.
We are happy to discuss individual requirements on a case by case basis. Please Note: all discussions are on a “no names basis” at all times, and completely confidential.
Other Funding Arrangements.
Where the BEE group owns shares in large, well established and profitable businesses which are UNLISTED, GF may be able to arrange general commercial financing facilities, to release cash. In addition, we are able to arrange Replacement Financing, for certain shares at interest rates which may be substantially lower than the original BEE funding (up to 10% saving in interest per annum). These savings may be huge, and very worthwhile.