AECI LTD: Disposal of surplus property assets at Modderfontein

AECI LIMITED                                   

                 Incorporated in the Republic of South Africa                  
                       (Registration No. 1924/002590/06)                       
                     Share code: AFE ISIN No. ZAE000000220                     
                         ("AECI" or "the AECI Group")                          



  * The Board of AECI is pleased to announce that it has reached agreement
    regarding the disposal by the AECI Group of its surplus property assets at
    Modderfontein, in Gauteng, to Shanghai Zendai.
      * The Transaction comprises the disposal of approximately 1 600ha of land and
    buildings thereon owned by the AECI Group, as well as Heartland's property
    development business in respect of the aforementioned assets.
      * The Purchase Price amounts to R1 060 974 456 (inclusive of VAT), which will
    be payable in full by Shanghai Zendai to AECI upon fufillment of the
    Conditions Precedent, which include the transfer by the AECI Parties to the
    Zendai Parties of Acquisition Assets with an aggregate acquisition price of
    R513 000 000 (inclusive of VAT) (or such lesser amount as agreed by
    Shanghai Zendai) (the "Effective Date").
      * The Transaction is anticipated to be effective by 31 July 2014 (which date
    may be extended by a further two months thereafter to 30 September 2014).
      * It is anticipated that the remaining Acquisition Assets will be transferred
    by the AECI Parties to the Zendai Parties within a period of 24 months from
    the Effective Date ("Long Stop Date"). Under certain circumstances this
    period may be extended for a further period of up to 18 months.
      * The Transaction is line with AECI's stated policy to realise value from its
    surplus property assets.
      * Shanghai Zendai is an investment holding company listed on the Hong Kong
    Stock Exchange and is focused on developing, investing in and managing
    residential and commercial properties mainly in China.
      * Given the favourable location of the Acquisition Assets, Shanghai Zendai's
    intention is to develop the available land for mixed end-uses that include
    residential, commercial and retail developments.

*Capitalised terms used in this section have the same meaning as ascribed in
this announcement. 
Shareholders of AECI ("Shareholders") are referred to the cautionary
announcements released on the Stock Exchange News Service ("SENS") of the JSE
Limited ("JSE") on 8 July 2013, 16 August 2013 and 27 September 2013. 
AECI has entered into a transaction framework agreement (the "Framework
Agreement") with Shanghai Zendai Property Limited ("Shanghai Zendai") and
various other transaction agreements regarding the Transaction (the
"Transaction Agreements"). The Framework Agreement as well as the Transaction
Agreements set out the basis on which South African subsidiaries of Shanghai
Zendai, namely Zendai Development (South Africa) Proprietary Limited ("DevCo")
and Zendai Investment Management (South Africa) Proprietary Limited ("InvCo")
(jointly the "Zendai Parties"), will acquire, subject to the fufillment or
waiver of the conditions precedent to the Transaction: 
* approximately 1 600ha of land from AECI and two of its subsidiaries, 

    Heartland Properties Proprietary Limited ("Heartland") and AECI Real Estate
    Proprietary Limited ("ARE") (jointly the "AECI Parties");
      * certain buildings on this land owned by the AECI Parties; and
      * Heartland's property development business in respect of the aforementioned
    assets (collectively, the "Acquisition Assets").

Post the completion of the Transaction, the AECI Group will retain
approximately 1 300ha of land at Modderfontein for current and future
operational requirements, and future disposals. It will also retain the
Modderfontein Reserve, a 275ha area zoned as private open space. AECI will
continue to manage the land and buildings it owns in Somerset West, Western
Cape and Umbogintwini, KwaZulu-Natal, in the ordinary course of business. 
In terms of the Framework Agreement, AECI has agreed to provide Shanghai Zendai
with a right of first refusal to acquire certain remaining Modderfontein assets
held by AECI (the "Remaining Assets") for a period of 10 years post the Long
Stop Date, and, if applicable the extension thereof. In addition, during this
period AECI shall not directly compete with the Zendai Parties in the business
of property development in respect of the Remaining Assets. However, AECI will
not be prevented from realising value from its other assets outside the
Remaining Assets in the ordinary course of business. 
Subject to the fulfillment or waiver of the conditions precedent as set out in
paragraph 7 below ("Conditions Precedent"), including the transfer of
Acquisition Assets with an aggregate acquisition price of R513 000 000 or such
lesser amount as agreed by Shanghai Zendai (the "First Tranche") within a
maximum of 11 months from signature date of the Framework Agreement, the Zendai
Parties will pay AECI R1 060 974 456(the "Transaction Price"). 
In addition to the Transaction Price, Shanghai Zendai will be responsible for
reimbursing the AECI Group for any net improvement costs, plus VAT and interest
thereon, incurred by the AECI Parties on the Acquisition Assets from 1
September 2013 until the Effective Date, which net improvement costs and VAT 
thereon are estimated to amount to no more than R227 069 044 ("Net Improvement
* rand amounts are inclusive of VAT 
AECI is a South African-based explosives and chemicals company which is focused
mainly on providing specialty products and services to the mining and
manufacturing sectors in Africa and in certain other emerging markets. 
ARE and Heartland are subsidiaries of AECI and are incorporated as proprietary
limited entities. ARE is an investment holding company. Heartland is engaged
primarily in preparing property assets that have become surplus to AECI's
operational requirements for alternative end uses. 
The Transaction represents a unique opportunity for the AECI Group to realise
immediate value for the majority of the surplus land surrounding its operations
in Modderfontein in a single transaction at what the Board of Directors of AECI
(the "Board of AECI") considers an attractive valuation. 
The Board of AECI has not finalised how it will redeploy the proceeds realised
from the Transaction in order to enhance shareholder value. Alternatives could
include the redeployment of the proceeds into its core explosives and specialty
chemicals businesses or the return of cash to Shareholders, in the form of a
dividend or a share buy-back. 
Shanghai Zendai is a diversified property development company listed on the
Hong Kong Stock Exchange and is principally engaged in the construction,
development, investment and management of residential and commercial properties
for sale and ownership mainly in the People's Republic of China ("PRC"). It
also operates as a leasing and management agency of commercial and residential
properties and owns a hotel business. 
Shanghai Zendai currently has property projects under development in 12 cities
in the PRC which are located in northern China, Shanghai city and its
surroundings and Hainan province. Apart from focusing on the PRC market,
Shanghai Zendai has been actively exploring scalable investment opportunities
in international real estate development projects. 
In addition to Shanghai Zendai's first overseas project located in New Zealand,
the Board of Directors of Shanghai Zendai is of the view that the Acquisition
Assets provide an attractive opportunity to diversify its landbank. The
Transaction will provide Shanghai Zendai with a platform to build a growing and
geographically diversified income stream for its shareholders. 
 5.1. Properties 
In terms of the Transaction, the Zendai Parties will acquire approximately 1
600ha of land and buildings thereon located in Modderfontein, together with the
leases related to these buildings. 
AECI has entered into a lease management services agreement with Shanghai
Zendai whereby AECI will administer the leasing portfolio acquired by Shanghai
Zendai pursuant to the Transaction, on a cost plus recovery basis. 
 5.2. The Heartland business 
The Zendai Parties will acquire the Heartland business of property development
in respect of the aforementioned land and buildings thereon, as a going
concern, including the moveable and certain intangible assets used or owned by
Heartland in relation to the normal, ordinary and regular operation of its
Employees engaged in Heartland's development activities at Modderfontein will
be transferred to Shanghai Zendai on the Effective Date. 
Under the terms of the Framework Agreement, subject to the fulfillment of the
Conditions Precedent, upon the transfer by the AECI Parties of the First
Tranche to the Zendai Parties, the Zendai Parties will settle the full
Transaction Price of R1 060 974 456 and the value of the additional Net
Improvement Costs incurred by AECI up to and including the Effective Date. 
AECI will endeavour to transfer the remaining Acquisition Assets not
transferred as at the Effective Date ("Remaining Acquisition Assets") by the
Long Stop Date. Both parties have the right, provided that the Performance
Guarantee (referred to in paragraph 10 below) remains in force, to extend the
transfer period for up to a further 12 months after the Long Stop Date (the
"Grace Period") and for a further six months after the expiry of the Grace
Period ("Extended Grace Period"). Should the Parties agree to the Grace Period
and the Extended Grace Period, AECI will be liable for the Zendai Parties'
funding costs in respect of the Remaining Acquisition Assets, up to a maximum
of 10% per annum. 
In the event that the AECI Parties are unable to transfer any of the Remaining
Acquisition Assets timeously the Parties shall attempt, in good faith, to
consider alternative methods of placing Shanghai Zendai in the position it
would have been had such Remaining Acquisition Assets been transferred
timeously including, without limitation, the entering into of long-term leases.
Shanghai Zendai shall be entitled to call up the Performance Guarantee after
the Long Stop Date or, if applicable, the Grace Period or Extended Grace Period
if the parties are unable to reach agreement on the transfer of the Remaining
Acquisition Assets. 
* rand amounts are inclusive of VAT 
The Transaction is subject to inter alia the fufillment or waiver (where
appropriate), as the case may be, of the following Conditions Precedent: 

    7.1. the unconditional approval in writing of the Competition Commission in
        South Africa, in terms of the Competition Act No. 89 of 1998, as
        amended, having been obtained (or if such approval is conditional, the
        Parties having each respectively in writing approved each such
        condition and delivered such written approval to the other Party);

7.2. such shareholder resolutions of the Zendai Parties as may be necessary; 
7.3. such Directors' resolutions of the AECI Parties as may be necessary; 
7.4. Heartland Leasing Proprietary Limited, acting as an agent for AECI, and 

        ImproChem Proprietary Limited ("ImproChem") entering into a lease in
        respect of the ImproChem building in a form satisfactory to both
        Shanghai Zendai and AECI; and

7.5. provided that the Conditions Precedent listed above are met, the 

        transfer of the First Tranche to InvCo and DevCo by 31 July 2014.
        Fufillment of this Condition Precedent may be extended up to and
        including 30 September 2014 if AECI's attorneys are of the opinion that
        the required threshold will be met in the event of such an extension.
        The value of the First Tranche threshold may also be reduced by
        Shanghai Zendai, in its discretion.

AECI has received an irrevocable undertaking from Mr Dai Zhikang (the Founder
and Chairman of Shanghai Zendai) on behalf of companies he directly or
indirectly controls which have a 38,67% shareholding in Shanghai Zendai, to
vote in favour of the transactions contemplated in the Framework Agreement at
the meeting of Shanghai Zendai shareholders called to approve those
transactions in a form satisfactory to AECI. 
It is Shanghai Zendai's intention to convene a meeting of its shareholders to
consider and vote on all resolutions required to give effect to the Transaction
by no later than 28 February 2014. 
The Zendai Parties have furnished AECI with the following bank guarantees from
the Bank of China Limited, a bank registered in South Africa: 
* a payment guarantee amounting to R1 060 974 456 for the sole purpose of 

    fully satisfying the Transaction Price and VAT thereon; and
      * a net improvement cost guarantee for bulk infrastructure amounting to R227
    069 044 for the sole purpose of fully satisfying the Net Improvement Costs
    and VAT and interest thereon.

The Standard Bank of South Africa Limited has furnished on AECI's behalf a
guarantee to the Zendai Parties amounting to a maximum of R547 974 457 for the
sole purpose of fully satisfying AECI's obligations to transfer the Remaining
Acquisition Assets (the "Performance Guarantee"). 
This Performance Guarantee is for a maximum period of 42 months from the
Effective Date and will be reduced as each of the Remaining Acquisition Assets
is transferred to the Zendai Parties. 
The unaudited pro forma financial effects of the Transaction set out below have
been prepared to assist Shareholders in assessing the impact of the Transaction
on the AECI Group's earnings per share ("EPS"), headline earnings per share
("HEPS"), net asset value ("NAV") and tangible net asset value per share
The pro formafinancial effects are the responsibility of the Board of AECI and
are provided for illustrative purposes only. The pro forma financial effects
have been prepared as if the Transaction had become fully effective and fully
recognised on 1 January 2013 for purposes of the Statement of Comprehensive
Income and at 30 June 2013 for purposes of the Statement of Financial Position.
It does not purport to be indicative of what the consolidated financial results
would have been had the Transaction been implemented on a different date. The
material assumptions are set out in the notes following the table below. 
Due to their nature, the pro forma financial effects may not fairly present the
financial position, changes in equity, results of operations or cash flows of
the AECI Group after the implementation of the Transaction. 

                                 Before the         After the      Percentage
                                Transaction       Transaction      change (%)

EPS (cents)                             356               672            88,8 
HEPS (cents)                            356               508            42,7 
Weighted average number of      111 936 170       111 936 170               0
shares in issue for EPS and                                                  
NAV (cents)                           5 347             5 641             5,5 
TNAV (cents)                          4 283             4 577             6,9 
Weighted number of shares       116 291 400       116 291 400               0
in issue for NAV and TNAV                                                     
 i. The "Before the Transaction" financial information has been extracted from 

    AECI's unaudited interim financial results for the half-year ended 30 June
    2013 released on SENS on 24 July 2013.
    ii. The pro forma financial effects have been compiled using accounting
    policies that comply with International Financial Reporting Standards and
    that are consistent with those applied in the audited consolidated
    financial statements for AECI for the 12 months ended 31 December 2012.
    iii. The Transaction has been recognised in the pro forma financial information
    as a single transaction with all conditions precedent and all recognition
    criteria assumed to be completely fulfilled or met on the day of
    recognition. The actual recognition may take place over a period and the
    Group's reporting dates could occur within that period resulting in
    recognition of the Transaction in part in different reporting periods.
    iv. The AECI Parties hold surplus property in three classes, namely,
    development property which is property owned by Heartland, income
    generating leasing property and vacant land held as capital assets. The
    recognition of profits and tax effects indicated in the pro forma
    information follows the nature of the assets held with disposal of
    development property by Heartland being included in headline earnings as a
    normal operating activity and the disposal of leased and capital property
    being outside normal operating activities and excluded from headline
     v. Tax on the disposals follows the above treatment using the applicable
    normal and capital gains tax rates resulting in an effective tax rate of
    vi. VAT and interest effects have not been considered in the pro forma
    financial information.
    vii. The Statement of Comprehensive Income would include adjustments for
    leasing revenue and costs that would not have been recognised had the
    Transaction occurred on 1 January 2013. No adjustments are made in respect
    of this in the Statement of Financial Position as the Transaction is
    implemented on 30 June 2013.
    viii. The effects of future net improvement costs, or interest thereon, have
    not been considered in the pro forma financial information.
    ix. No costs or income have been estimated or included in respect of the
    service agreement in terms of which AECI will administer the leasing
     x. Estimated costs of the Transaction have been included in the pro forma
    financial information.

In terms of the Listings Requirements of the JSE, the Transaction is
categorised as a Category 2 transaction and accordingly approval by
Shareholders is not required. 
Shareholders are advised that following the release of these full details of
the Transaction, they no longer need to exercise caution when dealing in their
AECI securities in this regard. 
Woodmead, Sandton
4 November 2013 
Investment Bank, Structuring Adviser and Transaction Sponsor
The Standard Bank of South Africa Limited 
Legal Adviser
Webber Wentzel 
-0- Nov/04/2013 16:04 GMT
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