Qannas Investments Limited Reverse Takeover and Suspension of Trading on AIM (9677K)

TIDMQIL

RNS Number : 9677K

Qannas Investments Limited

03 September 2019

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT SECURITIES LAWS OF SUCH JURISDICTION

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION

Qannas Investments Limited

("Qannas" or the "Company")

Statement re reverse takeover and suspension of share trading on AIM

Qannas is pleased to announce that it has entered into conditional agreements to acquire a substantial portfolio of attractive investment assets (the "Portfolio") from a consortium of third party vendors (the "Transaction"). The independent directors of Qannas (being Chris Ward and Richard Prosser (the "Independent Directors")) believe that the Transaction represents a compelling opportunity to significantly enhance and broaden the existing investment portfolio of Qannas with the aim of achieving greater scale and enhanced diversification, which is intended in turn to boost liquidity and the investor appeal of Qannas.

The Portfolio includes shareholdings in a number of publicly traded GCC-focussed companies, in sectors such as real estate, maritime shipping services and insurance. Further Portfolio assets include two plots of land that have been zoned for commercial or residential development and units of an open ended fund that Qannas is currently invested in.

The Transaction attributes a value to the Portfolio of approximately AED 1.5bn(1) (approximately $417m(2) ), representing a compelling discount to the market value of the Portfolio as at 31 July 2019 of approximately AED 2.2bn (approximately $600m(2) ). Qannas will also assume accompanying liabilities of approximately AED 1.1bn(1) (approximately $298m(2) ). Qannas estimates that it will issue approximately 196 million(1) new ordinary shares of no par value ("New Qannas Shares") in consideration for the Portfolio, dependent inter alia on Qannas' net asset value as of 31 July 2019.

The Transaction, therefore, presents Qannas with the opportunity to acquire a Portfolio with an estimated net asset value implied by the Transaction of approximately AED 440 million (approximately $120m) on highly attractive terms. The Transaction and subsequent balance of assets across the Company is consistent with the Company's investment strategy and policy.

The Transaction is to be implemented by way of a transfer of the legal and/or beneficial interests in the Portfolio and the accompanying liabilities to one or more special purpose vehicles ("HoldCos") to be established in the UAE by or on behalf of the consortium of third party vendors. The consortium of third party vendors will thereafter procure the transfer of the HoldCos to Qannas and/or a nominee appointed by Qannas, and Qannas will issue the New Qannas Shares to the consortium of third party vendors pro rata to their respective beneficial interest in and to the Portfolio. Details of the Implementation Agreements with regard to the Transaction and certain associated related party transactions are set out below.

Qannas will in due course propose certain resolutions to be approved by shareholders with regard to the Transaction.

Further announcements will be made in due course.

Reverse takeover and suspension of trading

The Transaction would, if it were to complete, comprise a reverse takeover pursuant to Rule 14 of the AIM Rules for Companies (the "AIM Rules") due to the size of the Transaction relative to the Company. Accordingly, the Company's ordinary shares have been suspended from trading on AIM this morning, 3 September 2019, with effect from 7.30 a.m.

The Company's shares will remain suspended pending publication of an AIM admission document. In the event that the Company is unable to complete the Transaction on or before 3 March 2020, admission of the Company's shares will be cancelled in accordance with Rule 41 of the AIM Rules. The AIM admission document will set out further details of the Portfolio and the Transaction.

Whilst the binding Implementation Agreements have been executed in relation to the Transaction, there is further documentation to be agreed. Due diligence with regard to the Transaction is ongoing. Accordingly, there can be no certainty that the Transaction will be concluded successfully. If the Transaction does not proceed for any reason or the Implementation Agreements are terminated, the Company will make an announcement through a regulatory information service and trading in the Company's ordinary shares will cease to be suspended.

Summary of the implementation agreements

On 3 September 2019, two conditional implementation agreements (the "Implementation Agreements") were entered into between Qannas and, amongst others, the representatives of the consortium of third party vendors (the "Representatives") in order to set out each party's respective rights and obligations in respect of, and the process for, the implementation of the Transaction. Under the terms of the Implementation Agreements, the Transaction is conditional on: (1) the passing at a general meeting of the shareholders of Qannas of a resolution approving the Transaction and of resolutions to increase the authorised share capital of Qannas, allot and issue the New Qannas Shares and amend the articles of association of Qannas; (2) the transfer of the Portfolio and the accompanying liabilities to the HoldCos; (3) the amendment of the existing investment management agreement between Qannas and its investment manager (details of the key changes are described below); and (4) the satisfaction of certain other conditions.

On and subject to the terms of the Implementation Agreements:

-- The parties to each Implementation Agreement have agreed to perform certain obligations in connection with completion of the Transaction and if any party fails to comply with a material obligation then the non-defaulting party(ies) shall have a right to terminate the relevant Implementation Agreement, fix a new date for completion or proceed to completion as far as is practicable.

   --     Following completion of the Transaction: 

o the consortium of third party vendors will (unless Qannas expressly consents otherwise and except for the New Qannas Shares issued in connection with the Eagle Fee (as defined below)) be subject to a lock-up, such that they will continue to be the registered and beneficial owners of: (1) 100% of the New Qannas Shares at all times from and including the closing date to and excluding the second anniversary of the closing date; (2) 58.4% of the New Qannas Shares at all times from and including the second anniversary of the closing date to and excluding the third anniversary of the closing date; and (3) 48.4% of the New Qannas Shares all times from and including the third anniversary of the closing date to and excluding the fourth anniversary of the closing date; and

o save for a transfer of shares to any associated company (such as a holding company of a member of the consortium of third party vendors, subsidiary or any other subsidiaries of any such holding company) and unless the consortium of third party vendors expressly consents otherwise, Abu Dhabi Financial Group LLC ("ADFG"), as the current holder of approximately 45 million shares in the capital of the Company and as owner of the Company's investment manager, shall remain as the registered and beneficial owner of any shares in the capital of the Company held by it on the date of the Implementation Agreements.

-- Notwithstanding the lock-up, the consortium of third party vendors shall pledge 80 million of the New Qannas Shares as security for certain post-completion obligations of the consortium of third party vendors under the Implementation Agreements.

-- Qannas shall, subject to the passing of appropriate resolutions and other regulatory obligations, change its name by no later than 31 January 2020.

Escrow arrangement

Qannas has agreed to take on certain obligations to service the debt to be acquired which accrue from the date of the Implementation Agreements until completion of the Transaction. In relation to these liabilities, on 3 September 2019, Qannas and Eagle T2 Limited ("Eagle") entered into an escrow agreement (the "Escrow Agreement") with the Representatives and, in its capacity as escrow agent, Shuaa Capital PJSC ("Shuaa") (a company related to ADFG), pursuant to which Eagle has agreed that the Vendors will deposit with Shuaa AED 20 million (approximately $5.5m(2) ) (the "Escrow Amount") which would otherwise be payable to it by the Representatives as part of the Eagle Fee (see below) and may be used to service the debt on behalf of Qannas in this period. In exchange for Qannas agreeing to service the debt, the Vendors have agreed that the number of New Qannas Shares to be issued will be reduced by any amounts drawn from the Escrow Amount.

Upon completion of the Transaction, the amount of the Escrow Amount remaining in the escrow bank will be released to Eagle. Any amount drawn from the Escrow Amount shall be left outstanding as a loan repayable by Qannas to Eagle. Qannas is required to repay such loan within five days of completion of the Transaction, failing which, Qannas will be required to pay interest on such amount at a rate of 7% per annum which shall accrue from the due date until the date of actual payment. This loan, should it arise, is unsecured and has no fixed repayment date if it is not paid within five days of completion of the Transaction.

Qannas notes that, other than any associated interest costs that might accrue to Eagle should the loan not be repaid within 5 days of completion of the Transaction, the Escrow Agreement will not have an impact on the net asset value of Qannas following completion of the Transaction. This is because the number of New Qannas Shares to be issued pursuant to the Transaction will be reduced to reflect the value of amounts drawn from the Escrow Amount. This same amount will instead become payable by Qannas to Eagle in cash.

If the Transaction does not complete, any amount remaining undrawn from the Escrow Amount will be released to the Representatives and Qannas will not have incurred any liability to the Representatives or Eagle under the Escrow Agreement. The entry into of the Escrow Agreement by Qannas is a related party transaction pursuant to the AIM Rules as Eagle and Qannas' investment manager, ADCM Ltd. ("ADCM"), are wholly owned subsidiaries of ADFG. ADFG is also a substantial shareholder (as defined in the AIM Rules) of Qannas. The Independent Directors, having consulted with Qannas' nominated adviser, finnCap, consider the terms of the Escrow Agreement to be fair and reasonable insofar as the independent shareholders of Qannas are concerned.

Refinancing of commodity murabaha facilities

The Portfolio includes certain assets that are secured in favour of Al Hilal Bank in connection with certain commodity murabaha facilities available from Al Hilal Bank with an aggregate value of AED 104 million (approximately $28m(2) ). These facilities will also be acquired pursuant to the Transaction. In order to facilitate the transfer of these assets and facilities, at the request of the Representatives, ADFG has agreed to arrange the refinancing of these facilities.

As a condition to ADFG agreeing to arrange such refinancing, Qannas has agreed to provide security to ADFG or other relevant lender under the refinanced facilities, including those assets that are currently secured under the commodity murabaha facilities following release, if reasonably required by ADFG, the form of which is to be agreed with ADFG or the relevant lender. This is set out in a deed of undertaking (the "Deed of Undertaking") between Qannas and ADFG, amongst others, with an aggregate value of AED 104 million (approximately $28m(2) ), dated 3 September 2019. It is the intention of the parties that such refinancing will be at no worse than prevailing market rates.

The obligations under the Deed of Undertaking only become effective on completion of the Transaction. If the Transaction does not complete, Qannas will not have incurred any liability under the Deed of Undertaking.

The refinancing of the commodity murabaha facilities and potential provision of security by Qannas pursuant to the Deed of Undertaking is a related party transaction pursuant to the AIM Rules as ADFG is a related party of Qannas for the reasons set out above. The Independent Directors, having consulted with Qannas' nominated adviser, finnCap, consider the terms of the deed of undertaking to be fair and reasonable insofar as the independent shareholders of Qannas are concerned.

Transaction fees

Eagle has advised the consortium of third party vendors in relation to the Transaction and provided advisory and financial support to facilitate the agreement and execution of the Transaction. Eagle is entitled to a fee payable by the Representatives on behalf of the consortium of third party vendors (the "Eagle Fee"). As noted above, Eagle and ADCM are both wholly-owned subsidiaries of ADFG. Qannas is not a party to the agreement between Eagle and the Representatives with regard to the Eagle Fee.

The Eagle Fee is comprised of:

-- AED 20 million in cash to be paid on signing of the transaction documents (this is the amount being deposited pursuant to the Escrow Agreement);

-- the transfer to Eagle of 35 million New Qannas Shares on completion which would otherwise be issued to the third party vendors and therefore has no incrementally dilutive impact on Qannas shareholders; and

-- further cash or in kind payments to a total of AED 31 million in instalments over the period to June 2022.

ADCM has made the Independent Directors aware that Eagle is advising the consortium of third party vendors and the Independent Directors have provided their consent to any perceived conflict of interest (as required pursuant to the existing investment management agreement between Qannas and ADCM).

In light of the Eagle Fee, ADFG has undertaken that it and ADCM will not participate in the shareholder vote with regard to the Transaction. ADFG and ADCM are currently the holders of approximately 45 million ordinary shares in the capital of the Company representing approximately 76 per cent of its issued share capital. Mustafa Kheriba, a director of Qannas, has not participated in the Independent Directors' discussions with regard to the Transaction.

Amendment of the investment management agreement between Qannas and its investment manager

Prior to completion of the Transaction, Qannas and ADCM are required, pursuant to the principal Implementation Agreement, to enter into an amended and restated investment management agreement (the "Amended and Restated IMA") pursuant to which the existing investment management agreement between Qannas and ADCM will be amended. The key changes to the existing investment management agreement include provisions to the effect that:

-- the agreement will be generally updated to (i) remove provisions that were no longer applicable and (ii) reflect the continuation of the investment management services from ADCM to Qannas;

   --     the scope of the liability of ADCM to Qannas in certain circumstances will be widened; 

-- the threshold required for termination of the agreement without cause by the Qannas shareholders will be increased from the approval of a majority of the shareholders to 75% of the shareholders;

-- the notice period required to terminate the agreement will be reduced from six months to 90 days; and

-- ADCM will no longer be entitled to a performance fee where the agreement has been terminated by ADCM.

The entering into of the Amended and Restated IMA by Qannas and ADCM will constitute a related party transaction pursuant to the AIM Rules as ADCM is Qannas' investment manager and ADCM is also a wholly owned subsidiary of ADFG, and ADFG is a substantial shareholder (as defined in the AIM Rules) of Qannas. For these reasons, an opinion is to be provided by the Independent Directors pursuant to AIM Rule 13 before it is duly executed.

(1) remains subject to change, due diligence, and adjustments due to market movements

(2) assumes AED:USD exchange rate of AED 3.675: USD 1

The person responsible for making this announcement on behalf of the Company is Christopher Ward, Non-Executive Chairman.

For further information please contact:

Qannas Investments Limited Tel: [phone]

Nadia Trehiou

ADCM Ltd. (Investment Manager) Tel: [phone]

Mustafa Kheriba

finnCap Ltd Tel: [phone]

Henrik Persson / William Marle / James Thompson

Important notice

This announcement is for information purposes only and is not intended to and does not constitute, or form part of, any offer or invitation to purchase, subscribe for or otherwise acquire or dispose of, or any solicitation to purchase or subscribe for or otherwise acquire or dispose of, any securities in any jurisdiction. The information in this announcement does not purport to be full or complete and is subject to change without notice.

This announcement is not for release, publication or distribution, in whole or in part, directly or indirectly, in, into or from any jurisdiction where to do so would constitute a violation of the relevant securities laws of such jurisdiction. The securities referred to in this announcement have not and will not be registered under the US Securities Act of 1933, as amended, or under the securities laws of any state or other jurisdiction in the United States. No action has been taken that would permit an offering of securities or possession or distribution of this announcement or any offering or publicity material relating to securities referred to in this announcement in any jurisdiction where action for that purpose is required.

This announcements contains "forward-looking statements", which are statements that include words such as "targets", "plans", "believes", "expects", "aims", "intends", "anticipates", "estimates", "will", "may", "would", "could" or "should", or words or terms of similar effect. Forward-looking statements involve risks and uncertainties because they relate to future events and circumstances which are or may be beyond the control of the Company, and actual results or outcomes could differ materially from those expected. Any forward-looking statements in this announcement speak only as of the date of this announcement and, except as required by law or regulation, the Company expressly disclaims any obligation or undertaking to update any forward-looking statements. Any indication in this announcement of the price at which ordinary shares of the Company have been bought or sold in the past cannot be relied upon as a guide to future performance.

finnCap Ltd ("finnCap"), which is authorised and regulated in the United Kingdom by the FCA, is acting as nominated adviser and broker to the Company and no one else in connection with the Transaction, and will not regard any other person as its client or be responsible to anyone other than the Company for providing the protections afforded to its clients or for providing advice in relation to the Transaction or in relation to the contents of this announcements or any transaction, arrangement or matter referred to herein.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [e-mail] or visit www.rns.com.

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September 03, 2019 02:00 ET (06:00 GMT)