Trading Update & Re-Structuring

    RNS Number : 6270K
  Panceltica Holdings Limited
  23 December 2008
   

    
 Immediate Release  23 December 2008


    Panceltica Holdings Limited

    ("Panceltica" or the "Company")

    Trading update, re-structuring and related party transaction

    Financial Performance

    Panceltica announces an expected operating loss (before IPO costs) of between US$23-59m for the year ending 31 December 2008.  The range
of possible outcomes is due to uncertainty over the final position on contract variations, settlement of sub contractor agreements and
recoveries and a potential provision for liquidated damages.  The final result will be dependent on the outcome of these matters which are
currently under negotiation.

    The operating loss is largely due to delays in completing the Company's main construction project for 1,984 housing units for Barwa Real
Estate Company ("Barwa") in Qatar (the "Barwa Project").  

    The principal differences to the announced US$22m profit at half year consist of approximately US$44m of project costs on the Barwa
Project (being site overheads, effect of programme delays and construction alterations without corresponding variation orders) and provision
for liquidated damages on the Barwa Project of up to US$17.2m due to completion delays.  In addition, the Company has incurred US$20m of
corporate overhead in order to increase the business capacity and to meet the Company's medium term objectives.  Due to some large tenders
in the pipeline experiencing delays this increased capacity is to date underutilized but is deemed as an investment for the future.

    Restructuring Activity

    In order to address the liquidity needs of the business, certain shareholders, who between them control 74.23% of the issued share
capital of the Company, have stated  that they will support the Company by injecting liquidity or reducing and/or deferring current
liabilities as follows:

    It is agreed that pursuant to a Loan Agreement between Paul Fraser, Strategic Partner Limited, Qatar Building Company  and the Company
(the "Loan Agreement"): (1) Paul Fraser will provide the Company with a US$5m interest free unsecured 12 month loan.  Paul Fraser is a
director of the Company and is a substantial shareholder.  (2) Strategic Partner Limited will provide Panceltica with a US$3m interest free
unsecured 12 month loan. Strategic Partner Limited is a substantial shareholder of the Company.  Faisal Belhoul who is a director of the
Company is a founder and shareholder of Ithmar Capital which controls Ithmar General Partner II Limited which is the General Partner of
Ithmar Fund II Limited Partnership which is a shareholder of Strategic Partner Limited. (3) QBC will defer a receivable of US$6.3m interest
free for 12 months.  Hameed Mostafawi is a director of the Company and a director of QBC.  Additionally Hameed Mostafawi is a substantial
shareholder in the Company.  Under the provisions of the Loan Agreement the Company will agree that no dividend or capital distributions shall be made by the Company to any shareholder until such
time as the outstanding commitments in (1) to (3) inclusive have been repaid. 


    The Loan Agreement is considered to be a related party transaction under the AIM Rules.  The independent directors, having consulted
with the Company's nominated adviser, consider that the terms of this agreement is fair and reasonable in so far as the Company's
shareholders are concerned.  Paul Fraser, Hameed Mostafawi and Faisal Belhoul are not considered independent directors for these purposes. 


    Barwa has agreed that it will release the Company of a cash collateralized performance bond of US$16m.  This performance bond is
currently held in favour of Barwa and was put in place under the contractual terms of the Barwa Project.

    The overall financial effect on the Company of the above measures will be to increase cash by US$24m, reduce debtors by US$16m, and
increase creditors falling due within twelve months by US$8m .  
    Furthermore the board of directors has appointed a restructuring committee that is mandated to revise the business and operating plans
as well as develop a range of initiatives for cost reductions and revenue improvements to be reviewed and decided in outline by the board
before the year end. 
    The directors believe that these initiatives will ensure that the Company has adequate working capital to pursue its near term
opportunities.  Should no further contract revenues be secured by the end of the first quarter of 2009, the company will need to secure
further capital.
    Paul Fraser
    The Company also announces that Paul Fraser has been diagnosed with a serious medical condition that requires a period of intensive
hospital treatment, which it is understood will take approximately 3-4 months.  It is intended that, during his period of absence, his
duties will be undertaken by an interim consultant, Paul Manning, who will be working closely with the Executive Directors and the
restructuring committee.  Mr. Fraser remains firmly committed to the Company and he will remain on the board and will make himself available
to the Company as soon as circumstances permit.

    Shareholding Structure

    It is also proposed that prior to 31 December 2008 the founding shareholders, Paul Fraser and Hameed Mostafawi, will reduce their
shareholding from currently 62,536,000 shares each, or 26.46%  each of the issued share capital of the Company, to 32,760,000 shares each or
13.859% each, by way of a transfer of 29,776,000 shares in favour of Barwa for nil consideration and a transfer of 29,776,000 shares in
favour of Strategic Partner Limited for nil consideration (the "Share Transfer Agreement").  After the completion of these transfers Barwa
will hold 47,416,000 shares, or 20.06% of the issued share capital, and Strategic Partner Limited will hold 62,536,000 shares, or 26.456% of
the issued share capital.  Barwa and Strategic Partner Limited will then between them hold 46.516% of the Company's issued share capital.  

    The Company is not subject to the provisions of the United Kingdom Takeover Code, however there are certain provisions in the Company's
articles of association which allow the Company, acting by the independent directors nominated by the Chairman (who has nominated as
independent directors all directors other than Paul Fraser, Hameed Mustafwi and Faisal Belhoul)  to take measures (including
disenfranchisement of excess, over 30%, voting rights) to protect minority shareholders in the event that any shareholder or number of
shareholders acting in concert acquire shares of more than 30% of the issued share capital of the company.  The independent directors do not
intend to apply these sanctions, as they are not of the opinion that Barwa and Strategic Partner Limited are acting in concert to take
control of the Company through the proposed transfers.    

    Outlook

    The Directors remain positive on projects that suit the type of construction techniques practiced by the Company. The directors believe
that following the re-structuring activity covered in this announcement the Company will be in a better position to deliver upon new
contracts and diversify its project risk profile.

    Paul Fraser, chief executive officer of the Company today commented:

    "While the financial outcomes from the Barwa Project are disappointing, they are largely a factor of the single contract risk profile of
the business to date, which the re-structuring committee of the board will be urgently addressing.  The Company remains confident of the
capability of, and business opportunities for, its light steel construction techniques.  I believe that the support shown by Barwa and
Strategic Partner Limited going forward is testament that this confidence is well founded.  Furthermore we are confident that the extensive
resources committed through 2008 to winning new contracts will reap significant benefits in the future."

    For further information please contact:

    Ben Bright, Chief Financial Officer                                              Tel: [phone]
    William Fatherley, Chief Operating Officer
    Patrick Mitchell, Company Secretary

    Blomfield Corporate Finance Limited, Nominated Adviser             Tel: [phone]
    Toby Howell/ Peter Trevelyan-Clark

    Religare Hichens, Harrison & Co. plc, Broker                             Tel: [phone]
    Daniel Briggs

    Buchanan Communications                                                       Tel: [phone]
    Mark Edwards / Jeremy Garcia / Chris McMahon





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