TIDMARO
RNS Number : 1013Q
Arricano Real Estate PLC
24 November 2016
24 November 2016
Arricano Real Estate plc
("Arricano" or the "Company")
Acquisition and Notice of General Meeting
Arricano (AIM: ARO) announces that it has conditionally agreed
to acquire Filgate Credit Enterprises Limited ("Filgate") from
Weather Empire, a company, which is beneficially owned by Hillar
Teder, the Company's founder who controls 55.45% of the Company's
Ordinary Shares.
The Acquisition is conditional, inter alia, on the passing of
the Resolution at the General Meeting. Whilst the Company is not
required to obtain shareholder approval under the AIM Rules or
company law for the Acquisition, as a matter of best practice, the
Board has undertaken to obtain Independent Shareholder (i.e. the
Company's Shareholders excluding Hillar Teder and entities he
controls) approval.
The Resolution for approval by Independent Shareholders of the
Acquisition is set out in the circular to Shareholders containing
full details of the Acquisition and the Notice of General Meeting
(the "Circular"). The Circular and an accompanying Form of Proxy
and Form of Instruction (for holders of Depositary Interests) will
be posted to Shareholders shortly. The General Meeting will be held
at the Company's registered office, Office 1002, 10th floor,
Nicolaou Pentadromos Centre, Thessalonikis Street, 3025 Limassol,
Cyprus at 10.00a.m. (GMT) on 14 December 2016.
A copy of the Circular will be made available today on the
Company's website at www.arricano.com.
Capitalised terms used but not otherwise defined in this
announcement bear the meanings ascribed to them in the
Circular.
Background to and reasons for the Acquisition
Weather Empire owes Arricano US$39.8m (being a loan principal of
US$30.0m plus accrued interest of US$9.8m) in respect of a loan
which was originally made in 2011 (the "Weather Empire Loan").
Weather Empire is 100% owned by Hillar Teder.
The final results of Arricano for the year ended 31 December
2014, announced on 26 June 2015, stated that management had fully
impaired the Weather Empire Loan and considered it to be
irrecoverable; accordingly the book value of the Weather Empire
Loan in Arricano's report and accounts for the years ended 31
December 2014 and 2015 is nil. In addition, the Company stated that
it was in discussions with Weather Empire regarding the settlement
of the Weather Empire Loan, which may take the form of a transfer
of assets to the Company.
As an alternative to pursuit of repayment of the Weather Empire
Loan by Arricano, Weather Empire and Arricano have agreed that 49%
of Weather Empire's shareholding in Filgate be transferred to
Arricano in settlement of the Weather Empire Loan. Assuming the
return of the Sky Mall asset, a property complex located in Kyiv,
Ukraine ("Sky Mall") to the legal control of Arricano, Weather
Empire and Arricano have also entered into the Call Option
Agreement detailed below, exercisable at Arricano's sole discretion
to acquire the remaining 51% of Filgate for US$1.
Weather Empire's only asset is its 100% holding of Filgate and
its only liability is the loan from Arricano.
Filgate
Filgate is an investment vehicle of Hillar Teder; its balance
sheet comprises a series of inter-company loan balances with other
Hillar Teder owned companies. As at 31 October 2016, it had total
assets of US$130.2m, total liabilities of US$261.7m and negative
equity of US$(131.5)m. Filgate has no employees or material
commercial agreements.
As at 31 October 2016, the accounts of Filgate showed a loss of
approximately $24.6m largely due to interest expenses on short and
long term loans which will not be acquired under the Acquisition
due to the Assignment Agreement detailed below.
On completion of the Acquisition, US$216.0m of the liabilities
in Filgate (the "Filgate Liabilities") comprising loan principal
amounts of approximately $134.0m, and accrued interest of
approximately US$82.0m, will be transferred under the Assignment
Agreement detailed below for the benefit of Arricano leaving
liabilities of US$45.7m which will remain in Filgate (comprising
loans owed to Arricano and Assofit, of approximately US$10.2 m and
US$35.5m respectively). The total assets of approximately US$130.2m
will remain in Filgate; on this basis, Filgate's net assets at 31
October 2016, adjusted on a pro forma basis to reflect the
Assignment Agreement, are estimated to be approximately
US$84.5m.
Of Filgate's total assets of approximately US$130.2m, the most
significant single asset is an amount of approximately US$119m due
from Prizma Beta (the "Filgate Loan"). Filgate believes that the
Filgate Loan has been illegally assigned to a third party and the
assignment is being challenged by Filgate. Filgate believes that it
has lawful grounds to reverse the assignment of the Filgate
Loan.
Assofit and Prizma Beta
Assofit was a joint venture company registered in Cyprus owned
49.97% by the Company and 50.03% by Stockman Interhold S.A.
("Stockman"). Initially Assofit owned 100% of Prizma Beta, which
was owner of 100% of Sky Mall. The primary purpose of the joint
venture is to develop and promote Sky Mall.
Arricano and Stockman entered into a call option agreement and a
shareholders' agreement in relation to Assofit. As described in the
Company's Admission Document, in 2011 the Company effectively lost
control over Assofit and since then there has been a series of
legal and arbitral proceedings brought by both parties to the joint
venture.
In September 2014, Assofit transferred the shares of Prizma Beta
to Financial and Investment Solutions BV, a company registered in
the Netherlands, despite the fact that an interim receiver was
appointed to Assofit at that time with the responsibility of
collecting and safeguarding Assofit's assets.
Further in September 2014, Joint-Stock Bank Pivdennyi PJSC,
Ukraine, which had an outstanding mortgage loan due from Prizma
Beta of maximum amount up to US$32m, exercised its right to recover
the loan granted by means of repossession of ownership rights to
Sky Mall which were pledged to secure this loan in September 2014.
Management of the Group believes that these transfers are
illegal.
Recent Litigation
The Board believes that the transactions detailed above in
relation to Assofit and Prizma Beta are illegal and is currently
pursuing litigation in respect of these transactions. As at the
date of this circular, the shares of Prizma Beta and ownership
rights for Sky Mall have not been recovered by Arricano.
On 11 May 2016, the Company announced that the LCIA issued a
further award in the arbitration between Arricano and Stockman
concerning the ownership of Assofit. Among other things, the
tribunal made the following findings: that Stockman is in breach of
the call option agreement and has taken steps deliberately to
dissipate and misappropriate Assofit's assets, including the shares
of Prizma Beta, Sky Mall and the right to repayment of the Filgate
Loan. As a result, the tribunal has ordered Stockman to transfer,
or procure the transfer of, the Option Shares to Arricano within 30
days of the award. Upon registration of the transfer, Arricano
shall pay to Stockman the Option Price minus damages, which when
netted out brings the balance to nil. In the event that Stockman
does not transfer, or procure the transfer of the Option Shares,
Arricano may elect instead to claim damages in lieu of the share
transfer.
Currently, Filgate, acting as claimant, and Arricano, acting as
a third party, are challenging, inter alia, the transfer of the
Filgate Loan before the Kyiv Economic Court of Appeal in
Ukraine.
Current Outlook
The Independent Directors believe that there is very limited
likelihood in the near term of receiving a repayment of US$39.8m in
cash for the Weather Empire Loan from Weather Empire. The
Independent Directors also believe that there is a higher chance of
Arricano regaining control of Sky Mall and, in conjunction with
this, of Filgate being repaid its loan of US$119m to Prizma
Beta.
Supporting this belief, the tribunal ordered Stockman to
transfer, or procure the transfer of, the option shares to Arricano
within 30 days of the award (the "Seventh Award"). On 7 July 2016,
Arricano announced that Stockman had not transferred or procured
the transfer of the option shares and Arricano was further
considering its options in relation to this matter with its legal
advisers. As previously announced, in the event that Stockman did
not transfer, or procure the transfer of the Option Shares,
Arricano may elect to claim damages in lieu of the share
transfer.
On 2 June 2016, Stockman brought a challenge to the Seventh
Award in the High Court of England and Wales.
On 30 August 2016, Arricano announced that in its latest award
(the "Eighth Award"), the tribunal awarded costs of approximately
US$0.9m to be paid by Stockman to Arricano.
For the reasons set out above, the commercial assessment of the
Independent Directors is that the current value of the potential
upside from owning 49 per cent or more of the Filgate Shares is
greater than the current value of the Weather Empire Loan.
In addition, the Independent Directors believe that the
Transaction will significantly enhance and improve Arricano's
involvement in and chances of success in respect of litigation in
relation to the legality of the transfer of Sky Mall, Prizma Beta
and the Filgate Loan to entities outside of Arricano's control. The
most recent progress of Arricano's legal team in reinstatement of
its rights to the shares of Assofit has proven the reliability of
Arricano's legal strategy. Currently, Arricano's legal team is not
able to fully participate in Filgate's court proceedings relating
to the challenges of the unlawful assignment of the Filgate Loan.
Immediately following the Acquisition, the Directors believe that
Arricano will have lawful grounds to join the legal proceedings as
a joint claimant.
Details of the Acquisition
Arricano has entered into the following agreements in relation
to the Acquisition:
(i) a sale and purchase agreement with Weather Empire to
initially acquire 49% of the equity of Filgate for consideration of
approximately US$40m (the "Sale & Purchase Agreement");
(ii) a set-off agreement with Weather Empire where both parties
agree that the parties intend to settle the existing Weather Empire
Loan of approximately US$40m owed to Arricano by means of applying
the consideration, which Arricano owes to Weather Empire for the
Filgate shares under the Sale & Purchase Agreement ("Set-Off
Agreement");
(iii) an assignment agreement under which the rights to the
Filgate Liabilities owed to Ekspert Kapital OÜ ("Ekspert Kapital")
(a company controlled by Hillar Teder) are assigned from Ekspert
Kapital for nominal consideration to Lacecap Limited (a wholly
owned subsidiary of Arricano) for the ultimate benefit of Arricano
(the "Assignment Agreement"); and
(iv) a five year call option with Weather Empire to acquire the
remaining 51% of Filgate for nominal consideration, which is
exercisable at Arricano's sole discretion, upon the return of Sky
Mall to the legal control of Arricano (the "Call Option
Agreement").
The Sale & Purchase Agreement contains certain warranties
given by Weather Empire and Filgate to the Company, including in
relation to Weather Empire having good title to the Filgate Shares,
the accuracy of Filgate's financial statements, Filgate having good
title to the properties and assets which are the subject of the
agreement and that the business of Filgate has been conducted in
the ordinary course from the period from the last unaudited
financial statements.
Weather Empire has also indemnified the Company against all
losses arising out of any breach of the agreement (including any
warranty) by Weather Empire and/or Filgate. The Company also has
the right to require Weather Empire to re-purchase all the Filgate
Shares (or any part of the Filgate Shares as may be requested by
the Company), if there is a breach of the representations and
warranties in the Sale & Purchase Agreement in certain limited
circumstances.
Accordingly the financial effect of the Acquisition on Arricano
would be as follows:
(i) If the Call Option is not exercised (i.e. if Arricano does
not regain its interest in Sky Mall) then Arricano would have
agreed to set off its right to a receivable with a book value of
nil in exchange for a 49% interest in Filgate with a value of nil
(without the return of Sky Mall to Prizma Beta, Filgate's equity
would have no value and would be fully provided against in
Arricano's accounts).
(ii) If the Call Option is exercised (i.e. if Arricano regains
its interest in Sky Mall), then Arricano would have agreed to set
off its right to a receivable with a book value of nil in exchange
for a 100% interest in Filgate with a pro forma book value of up to
US$84.5m (this value will depend on Prizma Beta's ability to repay
the loan amount due to Filgate).
Following and subject to the passing of the Resolution, each of
the Sale & Purchase Agreement, Set-Off Agreement, Assignment
Agreement and Call Option Agreement shall become unconditional in
all respects, with the effect that Arricano will then own 49% of
the Filgate Shares.
The Call Option Agreement to take Arricano's holding in Filgate
to 100% is only exercisable assuming the return of Sky Mall to the
legal control of Arricano and at Arricano's sole discretion.
Related Party Transaction and Substantial Transaction
Weather Empire and Ekspert Kapital are controlled by Hillar
Teder who holds 55.45% of the issued ordinary share capital of the
Company and, therefore, is a "related party" of the Company under
the AIM Rules. Consequently, the Acquisition is considered to be a
"related party transaction" under AIM Rule 13 as well as a
"substantial transaction" under AIM Rule 12.
The Independent Directors of the Company (Rupert Cottrell,
Philip Scales and Michael Zampelas) who are not related parties
under the AIM Rules for the purposes of the Acquisition, having
consulted with the Company's nominated adviser, consider that the
terms of the Acquisition are fair and reasonable insofar as the
Company's Shareholders are concerned.
Recommendation
The Independent Directors believe that the proposed Acquisition
is in the best interests of the Company and its Shareholders.
Accordingly, the Independent Directors recommend that Independent
Shareholders vote in favour of the Resolution.
EXPECTED TIMETABLE OF PRINCIPAL EVENTS
Posting of circular 23 November 2016
Latest time and date for receipt 10.00 a.m. on
of Forms of Instruction 9 December 2016
Latest time and date for receipt 10.00 a.m. on
of Forms of Proxy 12 December 2016
General Meeting 10.00 a.m. on
14 December 2016
For further information, please contact:
Arricano Real Estate plc Tel: +380 44 569
Mykhailo Merkulov 6708
Nominated Adviser and Joint Tel: +44 (0)20
Broker 7131 4000
Smith & Williamson Corporate
Finance Limited
Azhic Basirov
Joint Broker Tel: +44 (0)20
Whitman Howard Limited 7659 1234
Ranald McGregor-Smith
Financial PR Tel: +44 (0)20
Novella 3151 7008
Tim Robertson/Toby Andrews
Certain information contained in this announcement would have
been deemed inside information for the purposes of Article 7 of
Regulation (EU) No 596/2014 until the release of this
announcement.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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