AVENG : CONCLUDES EMPOWERMENT TRANSACTION FOR AVENG GRINAKER-LTA

Tuesday 11th October, 2016

SALIENT FEATURES

• Kutana Construction, a black women-owned and led entity, to acquire a 51% beneficial interest in Aveng Grinaker-LTA.
• Advances Aveng's transformation objectives by facilitating the introduction of a black women-owned participant, eligible emerging black contractors, and black professional and management skills into the ownership structures of the business.

• Positions Aveng Grinaker-LTA for future growth and sustainability with the objective of yielding value enhancement for shareholders.
• The purchase price, to be settled in full by 2020, is capped to a maximum amount of R756 million, and with a floor-price based on the fair value of the business at that future date.
• Gives effect to the transformation obligations contained in the Settlement Agreement reached with the South African Government and announced on 11 October 2016.
• Demonstrates Aveng's continued commitment to the South African economy by aligning the strategy of Aveng Grinaker-LTA with Government's economic transformation agenda and policies, to further the development and transformation of the South African construction sector.

Johannesburg, 11 October 2016: At the company's interim results announcement in February 2016, Aveng Limited (Aveng) announced a number of strategic initiatives, including the introduction of an empowerment partner to hold a significant equity interest in the business of Aveng Grinaker-LTA.

Having completed the first phase of its strategy, namely to recover and stabilise, Aveng is presently executing the second phase, position for profitable growth. Aveng has stabilised Aveng Grinaker-LTA and is now moving to position itself in South Africa and the rest of Africa for growth by transforming itself in a meaningful and irrevocable manner. Furthermore, through the Settlement Agreement reached with the South African Government, the business is definitively building trust and confidence with the public sector, in order to collaboratively contribute to the infrastructure development needs of South Africa.

Aveng has delivered on its commitment to stakeholders by concluding a binding agreement with Kutana Construction (Pty) Ltd (Kutana Construction), a black women-owned and led entity, whereby Kutana Construction will acquire a 51% beneficial interest and an initial 45% economic interest in Aveng Grinaker-LTA, effective from around 1 February 2017.

'The turnaround of Aveng Grinaker-LTA was our first priority,' said Kobus Verster, chief executive officer of Aveng. 'We believe that, as part of the next stage of our strategy, it is important to introduce an empowerment partner into the business in order to remain relevant in a transforming construction sector, so as to position Aveng Grinaker-LTA for future growth and development and to further improve the financial performance of our construction business.'

With the assistance of independent deal advisors, and following a detailed and intensive selection process, the Kutana group of companies (Kutana) was chosen as the empowerment partner for, amongst other reasons, their track record of growing businesses in which they are involved, their access to funding and a strong alignment to the vision and values of Aveng.

Ms. Thoko Mokgosi-Mwantembe, chief executive officer of the Kutana group of companies, commented: 'Our acquisition of a substantial shareholding in Aveng Grinaker-LTA forms part of our strategy to empower and provide opportunities for emerging black contractors in the market as well as to develop and attract black professional and management skills in the construction sector.'

Having secured Kutana as a strategic partner in the deal, Kutana Construction will be used as an investment vehicle and will facilitate the introduction of Construction Industry Development Board (CIDB) certified emerging contractors into the business. These emerging contractors will acquire up to a 25% equity stake in Kutana Construction. Aveng and Kutana Construction are currently in negotiations with suitable emerging contractors.

In order to attract and retain key talent in the business, most notably black professionals and managers, a management investment vehicle will also be formed to hold a 15% shareholding in Kutana Construction. In addition, to further align the interests of employees and shareholders in the success of the business, a profit share plan will be introduced in Aveng Grinaker-LTA.

Accordingly, Kutana will hold 60% of Kutana Construction following the introduction of the emerging contractors and black management and professionals.

The transaction has been structured on commercial terms. Due to the financial performance of Aveng Grinaker-LTA over the past number of years, a transaction has been developed whereby Kutana Construction will acquire its interest at fair value, calculated on a deferred basis.

The purchase price will be determined on the financial performance of Aveng Grinaker LTA over the 2018, 2019 and 2020 financial years. The purchase price is capped to a maximum amount of R756 million, and with a floor price based on the fair value of the business at that future date, referencing, amongst other measurements, the net asset value of the business.

To ensure sustainability of the empowerment principles contained within this transaction, Kutana Construction and Aveng will be locked into the terms of the transaction for a minimum period of five years from the effective date.

'This transaction demonstrates that it is possible to align transformation imperatives with shareholders' interests in a manner that will advance the construction sector and positively contribute to the South African economy as a whole,' concluded Verster. 'Importantly, it also creates an enabling framework for compliance with the transformation-related obligations contained in the settlement agreement reached with the South African Government, announced earlier today, and is a step forward in addressing the trust deficit that has thus far existed between the Government and the construction sector.'

This transaction is subject to the normal and customary terms and conditions, including the fulfilment of certain conditions precedent. This transaction follows another agreement with a subsidiary of Kutana to acquire Aveng's steel reinforcing and mesh business (Steeledale) in terms of a phased exit strategy from that business that was announced on 10 August 2016.