Greenko Group plc Proposed sale of Greenko Mauritius (7010C)

TIDMGKO

RNS Number : 7010C

Greenko Group plc

19 October 2015

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

FOR IMMEDIATE RELEASE

19 October 2015

Greenko Group plc

("Greenko" or the "Company")

Proposed Sale of Greenko Mauritius

and

Notice of Extraordinary General Meeting

On 14 August 2015, the Board of Greenko announced that it had signed non-binding heads of terms with GIC for the sale of all of the Company's shares in Greenko Mauritius. The Company is pleased to confirm that it has today entered into a sale and purchase agreement with Greenko Energy Holdings ("GEH", a newly formed subsidiary of Cambourne (an affiliate of GIC)) for the disposal of all of the Company's shares in Greenko Mauritius and all other assets held by the Company at Completion.

The Sale and Purchase Agreement provides that GEH will acquire the Company's interest in Greenko Mauritius and all other assets held by the Company at Completion, subject to certain conditions, for an aggregate cash consideration of approximately GBP162.8 million, payable at Completion. Following Completion and based on certain assumptions, the Company is expected to have cash resources to make capital returns to Shareholders of up to approximately 100 pence per Ordinary Share in aggregate, with a planned initial capital return of 98 pence per Ordinary Share.

Completion of the Disposal will require, inter alia, the approval of Shareholders in accordance with the requirements of the AIM Rules. The level of Shareholder approval required is more than 50 per cent. of Shareholders voting in respect of the Disposal.

In addition, set out below is the investing policy in accordance with Rule 15 of the AIM Rules that will be adopted by the Company upon completion of the Disposal in respect of which the Company will also need to seek Shareholder approval. The level of Shareholder approval required is more than 50 per cent. of Shareholders voting in respect of the Investing Policy.

Anil Kumar Chalamalasetty, the Chief Executive Officer & Managing Director of the Company, and Mahesh Kolli, the President & Joint Managing Director of the Company, have agreed to enter into new service agreements with the newly formed GEH Group pursuant to which they will continue to participate in the management of the GEH Group in accordance with the terms of the new service agreements and under the guidance and supervision of the GEH and Greenko Energies Private Limited ("GEPL") boards. Greenko Ventures Limited ("GVL"), which is associated with ACMK (which is a current shareholder of the Company and in which Anil Kumar Chalamalasetty and Mahesh Kolli have a controlling interest), will also invest in GEH and execute a shareholders' agreement on Completion. Accordingly, Anil Kumar Chalamalasetty and Mahesh Kolli have not participated in any Board vote regarding the Disposal due to the potential for a conflict of interest.

Terms used and not defined in this announcement bear the meaning given to them in the Circular to be published today, which will contain a Notice of Extraordinary General Meeting to be convened for 12.00 noon on 9 November 2015 at Merchants House, 24 North Quay, Douglas, Isle of Man IM1 4LE, at which the Resolutions will be put to Shareholders for approval. If the Resolutions, as set out in the Notice of Extraordinary General Meeting, are passed the completion of the Disposal will be subject to the satisfaction of certain other conditions which will be described in the Circular. Whilst the timeframe for the satisfaction of the conditions is difficult to estimate, it is currently expected that Completion will occur in November 2015.

Keith Henry, Chairman of Greenko, commented:

"I am pleased to be able to present the proposed Disposal to Shareholders for their approval. The Independent Directors believe that the Disposal is in the best interests of Shareholders and through the realisation of certain cash proceeds will facilitate a return of capital."

Enquiries:

 
 Greenko Group plc                               [phone] 
 Keith Henry/Mahesh Kolli/Anil Chalamalasetty 
 
 Arden Partners plc                              [phone] 
 Jonathan Keeling/Steve Douglas/James 
  Felix 
 
 Investec Bank plc                               [phone] 
 Jeremy Ellis/Nigel Robinson 
 
 Tavistock                                       [phone] 
 Matt Ridsdale/Mike Bartlett/Niall Walsh 
 

Description of Greenko Mauritius

Greenko Mauritius is a Mauritius incorporated subsidiary of the Company and serves as the holding company for the Company's trading activities, which comprise the development, ownership and operation of clean energy projects in India. Cambourne and GEEMF hold the remaining issued shares in Greenko Mauritius and, with effect from 1 July 2015, such shares are capable of being exchanged for shares in the Company. As at 1 July 2015, Cambourne and GEEMF were entitled to exchange investments in Greenko Mauritius valued in accordance with the contractual arrangements between the Company and each of Cambourne and GEEMF at GBP143,015,562 and $106,024,000 respectively, for shares in the Company at the prevailing share price.

As at 30 June 2015, the estimated unaudited consolidated gross assets of Greenko Mauritius and its subsidiaries amounted to approximately $1,518,552,181, and its estimated unaudited consolidated loss for the six months ended 30 June 2015 was $107,669,897 (including exceptional item).

Background to and reasons for the Disposal

Greenko is a mainstream participant in the growing Indian renewable energy industry and a market leading owner and operator of clean energy projects in India, operating a portfolio of wind, run-of-river hydropower, natural gas and biomass assets. The Group is focused on building new utility scale wind farms and hydropower projects across India. The Group's goal is to reach 1,000 MW of operational capacity by the end of 2015. Further growth is subject to the continued availability of development funding.

Greenko was admitted to trading on the AIM market of the London Stock Exchange in November 2007 and was successful in raising equity capital on AIM until 2012, since which its focus has been to raise growth capital at a subsidiary level. Whilst the Group has broadly met its operational targets, the Directors believe that this performance has not been reflected in the Company's share price, which has been particularly weak since October 2014. Investor sentiment towards the strength of the Indian economy, including its currency, and its energy industry has been mixed in recent years. More specifically, the Company's shares have been largely illiquid and susceptible to sales by Shareholders, some of which have been forced by Shareholders' individual circumstances. The Company has previously raised development funding required to continue its growth from Cambourne and GEEMF via investments in Greenko Mauritius, which are currently exchangeable into shares in the Company at the prevailing share price. These funding arrangements provide certain minimum guaranteed protective returns to the funders, which have not been met and have had the effect of increasing significantly the number of shares in the Company to which Cambourne and GEEMF would be entitled upon exchange. Accordingly, at the current share price the exchange would be substantially more dilutive to value for existing Shareholders than was envisaged when these investments were originally made, and may lead to further share price weakness and liabilities.

It is for these reasons that the Board entered into discussions with GIC to find a solution at a subsidiary level which supports all stakeholders and the business, which ultimately led to GIC making a non-binding offer to purchase the Company's entire shareholding in Greenko Mauritius. The Board has, therefore, agreed terms with GEH to sell the Company's entire shareholding in Greenko Mauritius and all the other assets held by the Company at Completion to GEH, subject to certain conditions and for an aggregate cash consideration of approximately GBP162.8 million. The Independent Directors have concluded that the Disposal is in the best interests of Shareholders as a whole. Following Completion, on the basis of certain assumptions, the Company is expected to have the cash resources to make capital returns to Shareholders of up to approximately 100 pence per Ordinary Share in aggregate, with a planned initial capital return of 98 pence per Ordinary Share.

The Independent Directors consider that the Disposal has the following principal benefits:

-- the expected cash resources of the Company, following Completion and on the basis of certain assumptions, of up to approximately GBP159 million, equates to an approximate value per Ordinary Share of 100 pence. This represents a 123.5 per cent. premium to the Company's closing share price of 44.75 pence per Ordinary Share as at 22 June 2015 (being the day before the Company announced it was in discussions to find a solution at a subsidiary level which supports all stakeholders and the business) and a 21.2 per cent. premium to the Company's closing share price of 82.5 pence per ordinary share as at 13 August 2015 (being the day before the announcement of the non-binding heads of terms with GIC);

-- the price of the Ordinary Shares reduced substantially in the nine months leading up to the 23 June 2015 announcement referred to above as concerns over Shareholder dilution arising from the Group's funding arrangements with Cambourne and GEEMF grew. There is a risk that, in the event that the Disposal is not effected, the share price will continue to be depressed and Shareholders will be unable to sell their Ordinary Shares at a price equivalent to the proposed capital returns resulting from the Disposal;

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-- the Disposal provides the opportunity for Shareholders to realise a near-term cash consideration, reducing the timeframe and overall risk of receiving cash returns from the Company's asset portfolio;

-- should the Disposal not proceed the Company would continue to operate its existing portfolio of clean energy assets and complete the construction and commissioning of its projects currently under development for which it has already secured development funding; however, in light of its current capital structure and low share price, the Independent Directors consider that it would have limited access to further equity capital for development funding and that its potential for further growth would therefore be constrained; and

-- in addition, were Cambourne and/or GEEMF to elect to exchange their shares in Greenko Mauritius for shares in the Company at the current prevailing share price, which they have been contractually entitled to do since 1 July 2015, this would be highly dilutive for existing Shareholders.

The Independent Directors are mindful that the Disposal would not allow Shareholders to participate in Greenko's potential future growth beyond 1,000 MW of operational capacity for which funding is not currently available. Taking into account the above considerations, they believe that on balance the Disposal is in the best interests of Shareholders and through the realisation of certain cash proceeds will facilitate a return of capital that is attractive in the context of the recent depressed share price and the potential dilutive effect of a share exchange by Cambourne and/or GEEMF.

Current Trading

On 30 September 2015, the Company announced its interim results for the six months ended 30 June 2015, which contained an update on current trading. A copy of the announcement is available on the Company's website at www.greenkogroup.com.

Proposals for the future of the Company and return of capital

The Company is seeking advice on the most appropriate method to return the net cash resources of the Company resulting from the Disposal to Shareholders in a tax efficient manner. It is currently expected that the planned initial capital return to Shareholders of 98 pence per Ordinary Share will be within a period of three months from Completion. Further details will be provided to Shareholders in due course.

On the basis of certain assumptions which will be described in the Circular, the Company is expected to have sufficient cash resources to make a distribution to Shareholders of up to approximately GBP159 million in aggregate, equivalent to up to approximately 100 pence per Ordinary Share on a Fully Diluted Basis, with a planned initial capital return of 98 pence per Ordinary Share.

The ability of the Company to make the estimated aggregate level of distribution and the timing of such return is not currently known with certainty.

Investing policy following the Disposal

If the Disposal is approved by Shareholders and the Company completes the disposal of Greenko Mauritius, the Company's only asset will be the cash resources resulting from the Disposal and the Company will be treated for the purposes of the AIM Rules as an investing company (as defined by the AIM Rules) and will be required on Completion to adopt an investing policy. Accordingly, a Resolution will be proposed at the Extraordinary General Meeting seeking Shareholder approval for the adoption of the following Investing Policy:

Investing Policy

"The Company's Investing Policy is to return capital to Shareholders following completion of the sale of Greenko Mauritius. The initial capital return, amounting to almost all of the expected net proceeds from the sale of Greenko Mauritius, is expected to be effected by way of a Shareholder distribution which will be subject to the formal approval by Shareholders of the Company at a future extraordinary general meeting. The notice for the future extraordinary general meeting will be sent to Shareholders as soon as practically possible following Completion. Thereafter, the Company will conduct its affairs to comply with post Completion obligations relating to the Disposal and at the end of such period any residual funds will be returned to Shareholders by way of a members' voluntary winding up or other restructuring, subject to approval by Shareholders."

In accordance with paragraph 5.6 of the AIM Note for Investing Companies, which forms part of the AIM Rules, where a company quoted on AIM disposes of all, or substantially all, of its assets, it has a period of 12 months from the date of the disposal to implement its investing policy. If this is not fulfilled, the company's shares will be suspended from trading on AIM. Accordingly, if Greenko has not implemented the Investing Policy within 12 months of Completion, the Ordinary Shares will be suspended from trading on AIM.

Related party transactions

Cambourne currently holds approximately 17.38 per cent. of the voting rights of Greenko Mauritius and is therefore a substantial shareholder of the Company as defined in the AIM Rules, and as GEH is an associate of Cambourne, the Disposal is classified as a related party transaction pursuant to AIM Rule 13. In addition, on completion of the Disposal, among other things, the shareholders' agreement and other contractual arrangements between the Company and/or Greenko Mauritius and Cambourne relating to its investment in Greenko Mauritius and for the exchange of its shareholding in Greenko Mauritius for shares in the Company are to be terminated. These arrangements are related party transactions pursuant to AIM Rule 13. Accordingly, the Independent Directors confirm, having consulted with Arden, the Company's Nominated Adviser, that the proposed terms of the Disposal, and the proposed terms of the termination arrangements with Cambourne, are fair and reasonable insofar as Shareholders are concerned.

Anil Kumar Chalamalasetty, the Chief Executive Officer & Managing Director of the Company, and Mahesh Kolli, the President & Joint Managing Director of the Company, have agreed to enter into new service agreements with the newly formed GEH Group pursuant to which they will continue to participate in the management of the GEH Group in accordance with the terms of their new service agreements respectively, and under the guidance and supervision of the GEH and GEPL boards. GVL, which is associated with ACMK (a current shareholder of the Company in which Anil Kumar Chalamalasetty and Mahesh Kolli have a controlling interest), will also invest in GEH and execute a shareholders' agreement on Completion. Accordingly, Anil Kumar Chalamalasetty and Mahesh Kolli have not participated in any Board vote regarding the Disposal due to the potential for a conflict of interest.

GVL is expected to invest a sum equal to the proceeds received by ACMK on completion of the Disposal in subscribing for new shares in GEH and on Completion, GVL's holding in GEH shall be approximately 12 per cent. plus approximately an additional 4 per cent. in the form of non-voting performance shares. In addition, GVL has an option which GVL needs to exercise within a period of three months from Completion to purchase additional ordinary shares in GEH from Cambourne at a price per share to be determined, but which is not less than the price per share paid by GEH for the Greenko Mauritius shares plus associated interest and transaction costs, to take its total potential holding in GEH up to approximately 38 per cent.

Anil Kumar Chalamalasetty, Mahesh Kolli and ACMK are providing certain warranties to GEH and committing to certain undertakings in relation to the Disposal. Further details of the arrangements between GVL, Anil Kumar Chalamalasetty and Mahesh Kolli and GEH will be included in the Circular.

ACMK currently holds options to acquire 3,100,000 Ordinary Shares at an exercise price of EUR0.005 per Ordinary Share as announced in September 2014. The Remuneration Committee has resolved, conditionally on the Disposal taking effect on the terms envisaged, that all of those options shall become exerciseable.

As a consequence of these arrangements and as Anil Kumar Chalamalasetty and Mahesh Kolli are Directors of the Company, the Disposal is classified as a related party transaction pursuant to AIM Rule 13. Accordingly, the Independent Directors confirm, having consulted with Arden, the Company's Nominated Adviser, that the proposed terms of the Disposal are fair and reasonable insofar as Shareholders are concerned.

GEEMF currently holds approximately 14.09 per cent. of the voting rights of Greenko Mauritius and is therefore also a substantial shareholder (as defined in the AIM Rules); GE is also a substantial shareholder (as defined in the AIM Rules) by virtue of its current holdings of the entire issued share capital of each of Wind Power Projects (Mauritius) Limited and Wind Power Generations (Mauritius) Limited which in turn hold approximately 24.1 per cent. of the issued shares of Greenko Wind Projects Private Limited. On completion of the Disposal, among other things, the shareholders' agreement and other contractual arrangements between the Company and/or Greenko Mauritius and GEEMF relating to its investment in Greenko Mauritius and for the exchange of its shareholding in Greenko Mauritius for shares in the Company are to be terminated; the contractual arrangements between the Company and GE in respect of the sale of GE's shares in Wind Power Project (Mauritius) Limited and Wind Power Generations (Mauritius) Limited to the Company are to be novated to Greenko Mauritius. These arrangements are related party transactions pursuant to AIM Rule 13. Accordingly, the Independent Directors further confirm, having consulted with Arden, the Company's Nominated Adviser, that the proposed terms of the termination and/or novation arrangements with each of GEEMF and GE are fair and reasonable insofar as Shareholders are concerned.

Recommendation

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