AVENG : Aveng early bond redemption proposed rights offer and cautionary

AEGCB AEG 201804260080A

Aveng early bond redemption, proposed rights offer and cautionary

Aveng Limited

Incorporated in the Republic of South Africa

(Registration number 1944/018119/06)

Share code: AEG ISIN: ZAE000194940

JSE 2019 Convertible Bond Code: AEGCB

JSE 2019 Convertible Bond ISIN: ZAE000194940

('Aveng' or 'the Company')

AVENG EARLY BOND REDEMPTION, PROPOSED RIGHTS OFFER AND CAUTIONARY

Proposed Transaction Highlights

- Early redemption of the Existing Convertible Bonds, thus significantly deleveraging the Aveng

balance sheet through the removal of the Existing Convertible Bond overhang;

- R300 million of new capital to be injected into the business;

- Significant reduction in the Company's debt burden, allowing the Company the opportunity to

unlock shareholder value from core and non-core assets; and

- Proposed Transaction supports the going concern of Aveng, protecting Aveng shareholder

value and recapitalising the business to allow for future growth.

1. Introduction

Shareholders of Aveng (together with its subsidiaries, the 'Group') are referred to Aveng's reviewed

interim results for the six months ended 31 December 2017, released on 27 February 2018, in which

Aveng announced the results of its strategic review (the 'Strategic Review') as well as the

commencement of work on a potential capital market transaction in order to reduce the current debt

levels within the Group. Aveng's R2 billion, 7.25% senior unsecured convertible registered bonds

(stock code AEGCB) due 24 July 2019 (the 'Existing Convertible Bonds') are creating significant

constraints on the Group's capital structure, consequently hindering the Group's effort to unlock value

for shareholders.

With the aim of deleveraging the balance sheet to a sustainable level and derisking the business

through removal of the refinance overhang, Aveng announces its intention to early redeem the Existing

Convertible Bonds (the 'Early Bond Redemption') from existing convertible bondholders (the 'Existing

Convertible Bondholders'). In order to fund the Early Bond Redemption, Aveng intends to launch a

fully renounceable rights offer to qualifying shareholders (the 'Proposed Rights Offer'). Pursuant to

the Proposed Rights Offer, Aveng intends to retain a portion of the Proposed Rights Offer proceeds

to fund internal capital requirements ('Retained Cash'). The balance of the proceeds raised in the

Proposed Rights Offer (other than the Retained Cash) will be used to redeem a portion of the Existing

Convertible Bonds from Existing Convertible Bondholders on a pro-rata basis ('Bond Cash

Redemption'). Aveng will settle the balance of the Early Bond Redemption through the issue of new

Aveng shares ('Aveng Shares') to the Existing Convertible Bondholders ('Bond Share Redemption')

or through a combination of new Aveng Shares and a new debt instrument as described in paragraph

3.3 below.

The Early Bond Redemption and the Proposed Rights Offer are collectively referred to as the

'Proposed Transaction'.

Aveng is continuously evaluating opportunities to maximise cashflow and unlock value for all

stakeholders as highlighted in section 6.

2. Background and rationale for the Proposed Transaction

Aveng is engaged in infrastructure development operating in a diverse range of sectoral and

geographic markets. The construction industry in South Africa has experienced challenging trading

conditions resulting in deteriorating profitability, significantly reduced earnings, declining share prices

and unsustainable debt levels.

In February 2018, Aveng announced the results of the Strategic Review following a thorough and

robust interrogation of all parts of the organisation to identify businesses and assets that support its

long-term strategy of becoming an international infrastructure and resources group with a footprint in

developing and fast-growing regions and with access across the chosen markets. As part of the

Strategic Review announcement, Aveng announced its intention to dispose of its non-core assets

including Aveng Grinaker-LTA, Aveng Trident Steel, the Aveng Manufacturing businesses and

properties, allowing management to focus on the core operations of Moolmans and McConnell Dowell.

This simplification will remove the business complexity, eliminate non-core losses and allow the Aveng

head office to be restructured commensurate with the operating model. Management believes the

implementation of the Strategic Review will take up to 36 months allowing management to unlock

trapped shareholder value by:

- optimising the core operations, improving the profitability and the returns of the core assets;

- maximising value for the non-core assets, by running orderly disposal processes; and

- addressing the current debt burden in the business.

As at 31 December 2017, Aveng had gross debt of R3.25 billion including bank debt of R1.25 billion

and the Existing Convertible Bonds of R2 billion. To date Aveng has utilised a further R350 million of

bank debt and it is anticipated that Aveng will utilise a further R200 million bank debt (such funding

remains subject to bank approval), thus increasing total bank debt to an amount of up to R1.8 billion.

These current debt levels within the Group are considered to be unsustainable. As such, deleveraging

the Company to reduce the existing debt-burden will be critical to unlock shareholder value. In

particular, Aveng's Existing Convertible Bonds are creating significant constraints on Aveng's capital

structure.

Existing Convertible Bondholders are entitled to convert their Existing Convertible Bonds into fully paid

Aveng Shares pursuant to the terms and conditions of the Existing Convertible Bonds at a conversion

price of R28.76 per Aveng Share. On 25 April 2018, the closing price on the Johannesburg Stock

Exchange for one Aveng Share was R1.28. Given the prevailing Aveng Share price, it is highly unlikely

that the Aveng Share price will exceed the conversion price before the final maturity of the instrument.

As such, the Existing Convertible Bondholders will be unable to exercise their conversion rights. As it

stands, the Company will be required to redeem all of the outstanding Existing Convertible Bonds at

their nominal amount on their final maturity date, 24 July 2019.

The Aveng board (the 'Board') has considered alternatives for the potential refinancing of the Existing

Convertible Bonds prior to their maturity. In addition to the difficult trading conditions the Company has

been facing, the Board believes that uncertainty as to the Group's ability to refinance the Existing

Convertible Bonds has contributed to the decline in the Aveng Share price over the recent months.

The Proposed Transaction will remove the refinance risk related to the Existing Convertible Bonds

and assist in restructuring Aveng Group's balance sheet to a more appropriate and sustainable level.

3. Proposed Transaction mechanism

3.1. Early Bond Redemption

Aveng intends to redeem the Existing Convertible Bonds as soon as is practically possible, the terms

of which are in the process of being finalised.

To enable the Early Bond Redemption, Aveng will convene a meeting for all Existing Convertible

Bondholders (the 'Special Bondholder Meeting') to seek approval for the changes required to the

terms and conditions and to facilitate the early redemption of the Existing Convertible Bonds on the

basis proposed. At the Special Bondholder Meeting, approval of not less than 66.67% and a quorum

of 75% of Existing Convertible Bondholders are required to effect the required amendments to the

Existing Convertible Bond terms and conditions. The amendments required to the terms and

conditions to facilitate the Early Bond Redemption of the Existing Convertible Bonds will also be

subject to approval of the JSE Limited ('JSE').

Aveng will release an announcement on the Stock Exchange News Service ('SENS') of the JSE

containing full details of the Early Bond Redemption as soon as it has finalised the terms thereof. A

notice of the Special Bondholder Meeting and information relating to the amendments to the terms

and conditions of the Existing Convertible Bonds will be distributed to Existing Convertible

Bondholders in due course. The salient dates pertaining to the Special Bondholder Meeting and Early

Bond Redemption will be published on SENS and will be contained in the notice.

3.2. Proposed Rights Offer

Aveng intends to implement a fully renounceable rights offer of R1.8 billion offered to all Aveng

shareholders in order to fund the Retained Cash and the Bond Cash Redemption.

Aveng intends to utilise the proceeds from the Proposed Rights Offer for the Retained Cash and the

Bond Cash Redemption. The first R300 million of the Proposed Rights Offer will be retained by the

Company as the Retained Cash. The balance of the proceeds raised in the Proposed Rights Offer will

be used to redeem a portion of the Existing Convertible Bonds on a pro-rata basis.

Aveng will settle the balance of the Early Bond Redemption through the Bond Share Redemption or

through a combination of new Aveng Shares and a new debt instrument as described in paragraph

3.3 below.

The Proposed Rights Offer equates to approximately three times the current market capitalisation of

Aveng. Aveng understands that this is a substantial commitment required from existing Aveng

shareholders. Should Aveng shareholders decide not to follow their rights in terms of the Proposed

Rights Offer, Existing Convertible Bondholders will convert their existing convertible bondholding to

equity through the Bond Share Redemption subject to the Existing Convertible Bonds terms and

conditions being amended and such amendments being approved by the Existing Convertible

Bondholders at the Special Bondholder Meeting.

The Proposed Rights Offer will be conditional on shareholder approval to amend the Company's MOI

to inter alia increase the authorized share capital of the Company in order to facilitate the Proposed

Rights Offer. Additionally, shareholder approval will be required to grant directors authority to issue

Aveng Shares representing more than 30% of the issued share capital of Aveng.

The terms of the Proposed Rights Offer will be announced and a circular which contains details of the

Proposed Rights Offer ('Rights Offer Circular') will be distributed to Aveng shareholders as soon as

is practically possible following the approval of the required resolutions noted above. The salient dates

pertaining to the Rights Offer will be released on SENS and will be published in the Rights Offer

Circular.

3.3. Bond Settlement

The Early Bond Redemption will be settled through the Bond Cash Redemption and the Bond Share

Redemption. Aveng will use the proceeds from the Proposed Rights Offer (after the Retained Cash)

to settle a portion of the Existing Convertible Bonds. The balance of the Existing Convertible Bonds

will be settled by the Bond Share Redemption or through a combination of new Aveng Shares and the

new debt instrument referred to below. Aveng will allot and issue such Aveng Shares to the Existing

Convertible Bondholders as a specific issue of shares for cash in accordance with the applicable

requirements of the Listings Requirements ('Listings Requirements') of the JSE and the provisions of

the Companies Act 2008, as amended ('Companies Act') ('Specific Issue'). The Specific Issue will be

conditional on approval from independent shareholders for the Specific Issue.

A circular which contains details of the Specific Issue of shares for cash, incorporating a further notice

of general meeting ('Second General Meeting'), will be distributed to Aveng shareholders in due

course ('Specific Issue Circular'). The salient dates pertaining to the Specific Issue and the Second

General Meeting will be released on SENS and will be published in the Specific Issue Circular.

Bilateral engagements with a number of Existing Convertible Bondholders have indicated that certain

individual bondholders are unable to own a shareholding in Aveng in excess of 29.9% ('Maximum

Individual Shareholding'). Should the Proposed Rights Offer fail to raise sufficient proceeds, there is

a probability that the Specific Issue may result in some of the larger Existing Convertible Bondholders

exceeding the Maximum Individual Shareholding. In this event, Aveng intends to issue a new debt

instrument, the proceeds of which will be used to reduce the Existing Convertible Bonds to ensure that

no individual bondholders shareholding will result in a breach of the Maximum Individual Shareholding

and which will be underwritten by the Existing Convertible Bondholder(s) whose bondholding will be

repurchased prior to final settlement to reduce the outstanding Existing Convertible Bonds.

4. Suspensive conditions to the Proposed Transaction

The Proposed Transaction will be subject to the timeous fulfilment of the following suspensive

conditions:

4.1.1.Aveng shareholder approval of the special resolutions required in terms of the

Companies Act and the Listings Requirements to amend the MOI to increase the

authorised share capital of Aveng and to grant authority to the directors to issue Aveng

Shares representing more than 30% of the share capital of Aveng. In addition an

ordinary resolution approving the Specific Issue that will require the support of Aveng

shareholders holding at least 75% of the total number of votes exercised by Aveng

shareholders, present and eligible to vote on such a resolution at the general meeting

of Aveng shareholders;

4.1.2.The approval of the JSE of the Specific Issue;

4.1.3.The approval of Existing Convertible Bondholders to amend the terms and conditions of

the Existing Convertible Bonds in order to facilitate the Early Bond Redemption; and

4.1.4.The approval of the Group's bank funders in respect of the proposed additional R200

million bank debt and the Proposed Transaction. In accordance with the arrangements

between the Group and its bank funders, Aveng must obtain consent of these bank

funders in order to implement various aspects of the Proposed Transaction, including:

(i) the Early Bond Redemption; and (ii) the Proposed Rights Offer.

5. Notice of First General Meeting and salient dates

Notice is hereby given that a general meeting of shareholders ('First General Meeting') will be held at

the Company's registered office, Aveng Park, 1 Jurgens Street, Jet Park, Boksburg, at 09.00am on 29

May 2018 in order to pass the resolutions required to increase the authorised share capital of Aveng.

Salient dates pertaining to the First General Meeting will be published in the notice of general meeting,

which will be posted to shareholders on Monday, 30 April 2018 and are detailed below.

2018

Record date to be entitled to receive the circular incorporating the Friday, 13 April

notice convening the First General Meeting

Circular and notice of First General Meeting posted to shareholder Monday, 30 April

and announced on SENS on

Last day and time to give notice to participate in the First General Meeting Thursday, 17 May

electronically by 12:00 on

Last day and time to give notice to participate in the First General Meeting Tuesday, 15 May

Record date to participate in and vote at the First General Meeting Friday, 18 May

Last day to lodge forms of proxy with the Transfer Secretaries to vote at the Friday, 25 May

First General Meeting by 09:00 on (see note 2 below)

First General Meeting of shareholders to be held at 09:00 on Tuesday, 29 May

Results of First General Meeting announced on SENS on Tuesday, 29 May

Results of First General Meeting published in the press on Tuesday, 29 May

Notes

1. The dates and times provided for in this announcement are subject to amendment. Any material amendment will be published on

SENS.

2. Any form of proxy not returned to the Transfer Secretaries by this time may be handed to the chairperson of the First General

Meeting any time before the appointed proxy exercises any of the shareholder's rights at the First General Meeting.

6. Other value unlocking opportunities

In parallel with the Proposed Transaction, Aveng is continuously evaluating alternative opportunities

to maximise cashflows and unlock value for all Aveng stakeholders. The Company will continue to

pursue the sale of non-core assets as announced as part of the Strategic Review, and will pursue any

other viable alternatives available to the Company.

7. Cautionary

The Proposed Transaction may have a material effect on the price of the Company's securities and

bonds. Accordingly, shareholders and bondholders are advised to exercise caution when dealing in

the Company's securities until a further announcement is made.

Johannesburg

26 April 2018

Financial advisor and transaction sponsor

Rand Merchant Bank (A division of FirstRand Bank Limited)

Legal advisors

Baker McKenzie

Debt sponsor

Absa Bank Limited, acting through its corporate and investment banking division

7

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