TIDMPAL
RNS Number : 7128X
Equatorial Palm Oil plc
09 December 2010
Equatorial Palm Oil
("EPO" or "Company")
Legally Binding Joint-Venture signed with BioPalm Energy
and
Notice of General Meeting
The board of EPO (the "Board") announces that it has today posted a circular to
shareholders (the "Circular") together with a notice convening a general meeting
of the Company to approve the Joint Venture Agreement with BioPalm Energy Ltd.
("BioPalm Energy"). The Joint Venture Agreement is conditional on the approval
of the Resolution by Independent Shareholders at the General Meeting, notice of
which is set out in Part II the Circular.
Joint Venture Agreement
The Joint Venture Agreement provides for equity investment in the Joint Venture
Company ("Palm Developments") of US$30.0 million (US$7.5 million from Equatorial
Bio-Fuel (Guernsey) Ltd., a subsidiary of EPO, on behalf of the Company and
US$22.5 million from BioPalm Energy). Furthermore, BioPalm Energy will arrange
and guarantee an additional US$30.0 million loan facility to the joint venture
company.
As the operator of Palm Developments, EPO will use the resulting US$60 million
to accelerate its strategic development plan in respect of its c.169,000 hectare
land position at Palm Bay, Butaw and River Cess.
The Company's intention is to use the capital to aim to nearly double its
previous planting targets each year from 2011 to 2014. The accelerated planting
schedule will have the resultant impact downstream on harvesting rates,
requiring faster investment in the associated infrastructure and palm mills to
process palm fruit into CPO, palm kernel oil and palm kernel cake. The
accelerated planting rates should also bring forward revenues generated from
expected sales of CPO and other palm products. EPO believes this will have an
overall positive impact on shareholder value.
Related Party Transaction
BioPalm Energy currently holds 33,333,333 Ordinary Shares in EPO representing
approximately 28.5 per cent of the issued share capital of the Company.
Accordingly, BioPalm Energy is a related party for the purposes of Rule 13 of
the AIM Rules and as a consequence is precluded from voting on the Resolution.
The Independent Directors, having consulted with Shore Capital, the Company's
nominated adviser, consider the terms of the Restructuring and Financing to be
fair and reasonable insofar as the Company's Shareholders are concerned.
General Meeting
The shareholders meeting to approve this joint venture has been set for at 11.00
a.m. at 200 Strand, London WC2R 1DJ on 29 December 2010 .
Unless otherwise defined, terms used in this announcement have the defined
meaning given to them in the Circular.
Michael Frayne, Chairman of Equatorial Palm Oil, commented:
"We are pleased to have BioPalm Energy as part of the Siva Group on board as a
joint venture partner. In addition to helping EPO accelerate towards its
development goals, the Siva Group offers, among other benefits, access to
additional financing in the future, expertise in palm oil plantation development
across the globe, and synergies with other projects they are developing in West
Africa.
We look forward to continuing to build EPO into a major West African focused
palm oil company."
Enquiries:
+--------------------------+------------------------------------------+
| Equatorial Palm Oil plc | |
| Company | |
| Michael Frayne, Chairman | +44 (0) 20 7766 7555 |
+--------------------------+------------------------------------------+
| Shore Capital & | |
| Corporate Ltd. | |
| NOMAD and Joint Broker | +44 (0) 20 7408 4090 |
| Pascal Keane | |
| Edward Mansfield | |
+--------------------------+------------------------------------------+
| Mirabaud Securities LLP | |
| Broker | |
| Peter Krens | +44 (0) 20 7484 3510 |
+--------------------------+------------------------------------------+
| Pelham Bell Pottinger | |
| Financial / Corporate | |
| PR | +44 (0) 20 7861 3883 |
| Klara Kaczmarek | +44 (0) 20 7861 3126 |
| Charles Vivian | |
+--------------------------+------------------------------------------+
Proposed Restructuring and Financing of the Company's Liberian Palm Oil Projects
and
Notice of General Meeting
1. Introduction
On 6 September 2010 the Company announced that it had signed a memorandum of
understanding ("MOU") with BioPalm Energy to establish a US$60 million joint
venture company ("Palm Developments") to hold, operate and develop the Liberian
Palm Oil Projects (the "Joint Venture") . The Joint Venture Agreement is between
Equatorial Bio-Fuels (Guernsey) Limited ("EBGL"), the Company's wholly owned
Guernsey subsidiary, and BioPalm Energy.
The Joint Venture Agreement provides for an equity investment in Palm
Developments of US$30.0 million (US$7.5 million from the Company through EBGL
and the transfer of all of the issued shares of EBFM, LADC, EPOI and EPOM into
Palm Developments and US$22.5 million from BioPalm Energy) with BioPalm Energy
arranging and guaranteeing an additional US$30 million debt facility (together
the "Restructuring and Financing").
The Joint Venture Agreement, and thus the Restructuring and Financing, is
conditional upon the passing of the Resolution.
Completion of the Restructuring and Financing is conditional on the approval of
the Independent Shareholders at the General Meeting, notice of which is set out
at Part II of the Circular. Following Completion EPO will hold a 50 per cent.
interest in EBFM and EPOM through EBGL.
BioPalm Energy currently holds 33,333,333 Ordinary Shares representing
approximately 28.5 per cent of the issued share capital of the Company.
Accordingly, BioPalm Energy is considered a related party and the Joint Venture
is considered a related party transaction for the purposes of Rule 13 of the AIM
Rules. The Independent Directors, having consulted with Shore Capital, the
Company's nominated adviser, consider the terms of the Restructuring and
Financing to be fair and reasonable insofar as the Company's Shareholders are
concerned.
2. Background information on the Company and the Liberian Palm Oil Projects
The Group's activities and operations are carried on by or are proposed to be
carried on by LFPI, LIBINCO, EBFI and LADC. The Company acts as a holding
company and is the central administrative company and employer in the Group.
Corporate strategy
The objective of the Company is to become a global producer of sustainable,
low-cost crude palm oil ("CPO") through three core business activities: the
rehabilitation of existing palm oil plantations, the establishment of new
plantations and out-grower plantation development.
The Liberian Palm Oil Projects
Prior to Admission, the Group had secured the Butaw Investment Agreement and the
Palm Bay Investment Agreement for the investment, rehabilitation and
participation by the Company of 88,947 hectares acreage of palm oil plantations.
In addition, the Company had entered into, on 11 March 2007 and 10 July 2010,
Memorandums of Intent to establish a joint venture to develop plantations on at
least a further 80,000 hectares in the River Cess Area. The memorandum of
understanding dated 10 July 2010 will be assigned to Palm Developments on
Completion.
Since Admission, work has been commenced at the Butaw Plantation and the Palm
Bay Plantation, however, no profits or turnover of the Company are currently
attributable to the Liberian Palm Oil Projects.
3. Terms of the Proposed Restructuring and Financing
Under the terms of the Proposed Restructuring and Financing, subject to the
Disposal Approval being received:
(a) the Company's wholly-owned Guernsey subsidiary EBGL shall establish Palm
Developments which shall be a private company limited by shares incorporated in
Mauritius;
(b) all of the issued shares in EBFM and EPOM (whose wholly-owned Liberian
subsidiaries own the assets making up the Liberian Palm Oil Projects), which are
currently wholly owned subsidiaries of the Company, shall be transferred to Palm
Developments;
(c) EBGL shall, in addition to its founder share in the JVC, subscribe for
additional shares in Palm Developments to the value of US$7.5 million (net of
any money advanced or expenses incurred by the Company on or after 31 July 2010
in relation to EBFM or EPOM (or their respective Liberian subsidiaries);
(d) BioPalm Energy shall subscribe for a 50 per cent. shareholding in Palm
Developments for US$22.5 million; and
(e) BioPalm Energy shall arrange and guarantee an additional US$30.0 million
loan facility for Palm Developments.
4. Reasons for the Restructuring and Financing
The Independent Directors believe that the reasons for, and benefits of, the
proposed Restructuring and Financing are as set out below:
Acceleration of the development of Liberian Palm Oil Projects
The Joint Venture Agreement provides for an equity investment in Palm
Developments of US$30.0 million (US$7.5 million from EBGL on behalf of the
Company and US$22.5 million from BioPalm Energy). Furthermore BioPalm Energy
will arrange and guarantee an additional US$30.0 million loan facility to Palm
Developments.
The resulting US$60 million investment in the 50:50 Joint Venture will enable
the Company to accelerate its strategic development plan in respect of its
c.169,000 hectare land position at the three plantation areas of Palm Bay, Butaw
and River Cess Area. In particular, it is envisaged that the additional finance
will enable the Company to:
· embark on a more aggressive planting schedule - targeting 20,000
hectares by 2014 (compared to 11,700 hectares before the Joint Venture);
· accelerate development of associated infrastructure to process improved
harvesting rates;
· accelerate development of outgrower programme; and
· encourage earlier and higher realisation of cash flows resulting from
sales of CPO and derivative palm products.
Mitigation of risk in respect of Liberian Palm Oil Projects
The Joint Venture allows EPO and BioPalm Energy to share the risks and rewards
of developing the Liberian Palm Projects. The Directors believe that one of the
most significant risks for EPO as perceived by investors has related to the long
term funding and development of the Liberian Palm Projects particularly given
the long lead times for palms to bear harvestable fruit and thus generate income
for EPO. The Directors believed that they would be able to obtain some form of
debt financing, however, in the absence of clarity on the timing, terms and
quantum of the financing, the Joint Venture Agreement effectively assures
financing and at a level which, the Directors believe, could otherwise be
difficult to obtain should EPO attempt to access bank funding without a
strategic partner. The Directors believe the benefits to the Company are
significant as the Joint Venture Agreement reduces project execution risk.
Acceleration of the planting programme
The additional funding should allow EPO to achieve planting targets sooner than
previously expected by management. The new schedule of expected planting rates
is as follows:
+---------------+--------+--------+--------+--------+--------+
| Planting | | | | | |
| Schedule | | | | | |
| - | | | | | |
| comparison | | | | | |
+---------------+--------+--------+--------+--------+--------+
| | | | | | |
+---------------+--------+--------+--------+--------+--------+
| hectares/year | 2011 | 2012 | 2013 | 2014 | 2015 |
+---------------+--------+--------+--------+--------+--------+
| Previous | 1,200 | 1,200 | 1,800 | 3,000 | 4,500 |
| planting | | | | | |
| rate | | | | | |
+---------------+--------+--------+--------+--------+--------+
| Cumulative | 1200 | 2,400 | 4,200 | 7,200 | 11,700 |
| planting | | | | | |
| rate | | | | | |
+---------------+--------+--------+--------+--------+--------+
| | | | | | |
+---------------+--------+--------+--------+--------+--------+
| Accelerated | 1,200 | 4,000 | 4,000 | 4,500 | 6,300 |
| planting | | | | | |
| rate | | | | | |
+---------------+--------+--------+--------+--------+--------+
| Cumulative | 1,200 | 5,200 | 9,200 | 13,700 | 20,000 |
| planting | | | | | |
| rate | | | | | |
+---------------+--------+--------+--------+--------+--------+
The accelerated planting schedule will have the resultant impact downstream on
harvesting rates, requiring faster investment in the associated infrastructure
and palm mills to process palm fruit into CPO, palm kernel oil and palm kernel
cake. The accelerated planting rates should also bring forward revenues
generated from expected sales of CPO and other palm products. The Board believes
this should have a positive impact on the project's valuation, despite the
dilution of the Company's shareholding in the Liberian Palm Oil Projects.
Supportive long-term partner provides strategic benefits
In addition to the Siva Group providing the Joint Venture with the financing to
scale up the new development schedule, the Directors believe the Siva Group can
provide other key benefits:
· potential access to additional future finance;
· experience in palm oil plantation development in Asia, South American and
Africa;
· the Siva Group are currently active in other palm oil development in
other countries in West Africa allowing for potential cost synergies for
suppliers of equipment, vehicles and other goods; and
· access to long-established banking relationships.
As a result, the Independent Directors unanimously believe that the proposed
Restructuring and Financing is in the best interests of the Company and its
Shareholders as a whole and unanimously recommend all Independent Shareholders
vote in favour of the Resolution as they intend to do in respect of their own
beneficial holdings of Ordinary Shares in aggregate representing 12.11 per cent.
of the current issued share capital.
5. Information on the Siva Group and BioPalm Energy Limited
The Siva Group
The Siva Group was founded in 1986 by Mr. Chinnakannan Sivasankaran, and is a
Chennai, India-based conglomerate valued at in excess of US$3 billion, with over
3,000 employees and operations in Property, Telecoms, Project Engineering,
Shipping, Renewable Energy, Agriculture and e-education/software.
BioPalm Energy
BioPalm Energy is a Singapore incorporated company which is seeking to invest in
oil palm projects and developments around the world. BioPalm Energy is a wholly
owned subsidiary of Siva Ventures.
On 27 May 2010 the Company announced that it had issued 33,333,333 new Ordinary
Shares to BioPalm Energy, currently representing approximately 28.5 per cent. of
the Company's issued shares post-Subscription, at a price of 15p (the
"Subscription Price") raising GBP5 million. At the time of the Subscription the
Subscription Price represented a 42.9 per cent. premium over the closing price
of 10.59 per Ordinary Share on 26 May 2010, being the last available business
day prior to the Subscription.
Pursuant to the terms of the Subscription, BioPalm Energy was granted the right
to appoint a Non-Executive Director to the board of the Company. On 27 September
2010 BioPalm Energy exercised this right, appointing Shankar Varadharajan as a
non-executive director to the Board.
6. Advisory fees relating to the Joint Venture
The professional fees associated with the Restructuring and Financing have
amounted to approximately GBP75,000.
Ragnar Capital, a firm with a connection to two former employees of EPO and St
Brides Media & Finance, who were the Company's PR advisors until October,
consider they are entitled to fees of approximately US$ 1.1 million in relation
to this transaction. The Company does not believe that these sums are payable
and the matter is being discussed between the parties.
7. The Joint Venture Agreement
Subject to receiving the Disposal Approval, following Completion, Palm
Developments, in which the Company (through EBGL) will have a 50 per cent.
interest, shall be responsible for the operations and development of the
Liberian Palm Oil Projects. The terms of the Joint Venture Agreement and how
Palm Developments shall be operated are set out in Part II of the Circular.
8. The Takeover Code requirements
Rule 9 of the Takeover Code stipulates, inter alia, that if (a) any person
acquires, whether by a series of transactions over a period of time or not, an
interest (as defined in the Takeover Code) in shares which (taken together with
shares in which persons acting in concert with him are interested) carry 30 per
cent. or more of the voting rights of a company; or (b) any person, together
with persons acting in concert with him, is interested in shares which in the
aggregate carry not less than 30 per cent. of the voting rights of a company but
does not hold shares carrying more than 50 per cent. of such voting rights and
such person, or any person acting in concert with him, acquires an interest in
any other shares which increases the percentage of shares carrying voting rights
in which he is interested; such person or persons acting in concert with him
will normally be required to make a general offer to shareholders of that
company to acquire the balance of the equity share capital of that company not
held by such person or persons acting in concert with him.
An offer under Rule 9 must be made in cash (or be accompanied by a full cash
alternative) and be at not less than the highest price paid by the person
required to make the offer, or any person acting in concert with him, for any
interest in shares of the company during the 12 months prior to the announcement
of the offer.
Following Completion, BioPalm Energy will hold approximately 28.5 per cent of
EPO and 50 per cent. of Palm Developments which would hold and operate the
Liberian Palm Oil Projects, which are currently the Company's sole assets. The
Company has consulted with the Panel and the Panel has advised that there are no
Takeover Code implications resulting from the proposed Restructuring and
Financing.
9 The Company's operations following the Disposal
On Completion, the Company's Ordinary Shares will continue to be traded on AIM
and the Company will continue with its stated objective to become a global
producer of sustainable, low-cost CPO through its interest in the Liberian Palm
Oil Projects.
Following the Restructuring and Financing the Company shall continue to operate
the Liberian Palm Oil Projects as "manager" under the terms of the Joint Venture
Agreement a summary of which is set out in Part II of the Circular.
10 Related Party
BioPalm Energy currently holds 33,333,333 Ordinary Shares in EPO representing
approximately 28.5 per cent of the issued share capital of the Company.
Accordingly, BioPalm Energy is a related party for the purposes of Rule 13 of
the AIM Rules and as a consequence is precluded from voting on the Resolution.
The Independent Directors, having consulted with Shore Capital, the Company's
nominated adviser, consider the terms of the Restructuring and Financing to be
fair and reasonable insofar as the Company's Shareholders are concerned.
10. General Meeting
The General Meeting is being convened for the purpose of approving the
Restructuring and Financing. A notice convening the General Meeting to be held
at 10.00 a.m. on [?] 2010 at which the Resolution set out below will be put to
Shareholders is set out in Part III of the Circular.
11. Document availability
An electronic copy of the shareholder circular can be accessed at the Company's
website: http://www.epoil.co.uk/
This information is provided by RNS
The company news service from the London Stock Exchange
END
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