Proposed Issue of New Ordinar

RNS Number : 3222E

Aurora Russia Limited

17 December 2009

 



NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, IN OR INTO THE UNITED STATES, CANADA, AUSTRALIA, JAPAN OR SOUTH AFRICA, OR ANY JURISDICTION WHERE IT IS UNLAWFUL TO DO SO

For immediate release

 17 December 2009

Aurora Russia Limited

("Aurora" or the "Company")

Proposed issue of up to 37,500,000 New Ordinary Shares at 40 pence per share

Further investment in OSG

Highlights

• The Board today announces that it has entered into the OSG Investment Agreement which provides for the acquisition of existing OSG ordinary shares from the Vendors and the issue of new OSG shares to the Company for total consideration of £12.4 million

• Of this consideration £8.0 million will be satisfied through the issue of Consideration shares to the Vendors, £1.2 million will be payable in cash to the Vendors and £3.2 million will be used by the Company to subscribe for new ordinary shares in OSG

• The Board also announces a Placing to raise £7.0 million to satisfy the cash element of the acquisition consideration, to enable the Company to subscribe for the new ordinary OSG shares and to provide working capital for the Company

• The Placing has not been underwritten

• The Board has approved the Amended Option Deed with the Manager

• The Company also announces that, following the receipt of cash from a disposal of any of its portfolio companies, it intends to return to Shareholders an amount up to the lesser of the total sale proceeds of the portfolio company and a maximum of 1.5 times the total amount invested in that portfolio company plus the pro-rata allocation of costs of the Company to date, until the Company has returned a total of £105 million to Shareholders.  Any proceeds in excess of this amount shall be retained for reinvestment purposes

• Commenting on the Placing, Dan Koch, Chairman said:

"I believe that the benefit to the Company and its Shareholders of the placing outweighs the dilutive effect the placing has on shareholders not participating. Taking control of OSG and investing in a warehouse in Moscow will no doubt improve the future stability of the business and improve operational and financial efficiencies resulting in higher growth for OSG and a more certain and attractive exit."

Enquiries

Aurora
John McRoberts	Tel: [phone]
James Cook	Tel: [phone]
Investec	Tel: [phone]
Martin Smith
Patrick Robb
Numis	Tel: [phone]
Rupert Krefting
Nathan Brown

This summary should be read in conjunction with the attached Announcement.

The Announcement is not intended to and does not constitute an offer or invitation to purchase, or the solicitation of any offer to sell, any securities.

Further details relating to the Placing are contained in the circular dated 17 December 2009. After that date, copies of the Circular, the Notice of General Meeting and the proxy form for the General Meeting will be available for inspection at the Guernsey office of the Company at Trafalgar Court, Admiral Park, St Peter Port, Guernsey, GY1 2JA and on the Company's website www.aurorarussia.com.

This summary and the Announcement have been prepared for the purposes of complying with English law and the AIM Rules and information disclosed may not be the same as that which would have been disclosed if this summary and the Announcement had been prepared in accordance with the laws of jurisdictions outside England. The Placing will be subject to the applicable rules and regulations of the Financial Services Authority and, the London Stock Exchange.

Investec Investment Banking, a division of Investec Bank plc ("Investec") which is regulated in the United Kingdom by the Financial Services Authority, is acting exclusively for the Company in connection with the proposals in this document, and will not be responsible to anyone other than the Company for providing the protections afforded to customers of Investec or for providing advice in relation to the proposals in this document or any other matter in relation to the contents herein.

Numis Securities Limited, which is regulated in the United Kingdom by the Financial Services Authority, is acting exclusively for the Company in connection with the proposals in this document, and will not be responsible to anyone other than the Company for providing the protections afforded to customers of Numis Securities Limited or for providing advice in relation to the proposals in this document or any other matter in relation to the contents herein.

Overseas Jurisdictions

The release, publication or distribution of the Announcement in jurisdictions other than the United Kingdom may be restricted by law and therefore persons into whose possession the Announcement comes should inform themselves about, and observe, any applicable restrictions. Any failure to comply with such restrictions may constitute a violation of the securities laws of any such jurisdiction. In particular, such documents should not be distributed, forwarded to or transmitted, directly or indirectly, in whole or in part, in or into the United States, Australia, Canada, Japan, and South Africa or any other jurisdiction where it would be unlawful to do so.

The Ordinary Shares have not been and will not be registered under the US Securities Act or with any securities regulatory authority of any state or other jurisdiction of the United States and, accordingly, may not be offered, sold, resold, taken up, transferred, delivered or distributed, directly or indirectly, within the United States except in reliance on an exemption from the registration requirements of the US Securities Act and in compliance with any applicable securities laws of any state or other jurisdiction of the United States. 

The Ordinary Shares have not been approved or disapproved by the US Securities and Exchange Commission, any state securities commission in the US or any other US regulatory authority, nor have any of the foregoing authorities passed upon or endorsed the merits of the offering of the Ordinary Shares or the accuracy or adequacy of the Application Form or this document. Any representation to the contrary is a criminal offence in the US.

The Ordinary Shares have not been and will not be registered under the relevant laws of any state, province or territory of any of the Restricted Territories and may not be offered, sold, resold, taken up, transferred, delivered or distributed, directly or indirectly, within any Restricted Territory except pursuant to an applicable exemption from registration requirements. There will be no public offer of Ordinary Shares in the United States, Canada, Australia, Japan or South Africa, or any jurisdiction where it is unlawful to do so.

This Announcement is for information purposes only and does not constitute or form part of any offer to issue or sell, or the solicitation of an offer to acquire, purchase or subscribe for, any securities in any jurisdiction and should not be relied upon in connection with any decision to subscribe for or acquire any Ordinary Shares.  In particular, this Announcement does not constitute or form part of any offer to issue or sell, or the solicitation of an offer to acquire, purchase or subscribe for, any securities in the United States.

Forward Looking Statements

The Announcement, including any information included or incorporated by reference in the Announcement, may contain statements which are, or maybe deemed to be, "forward-looking statements" concerning Aurora which are prospective in nature. Generally, the words "will", "may", "should", "continue", "believes", "expects", "intends", "anticipates" or similar expressions identify forward-looking statements. The forward-looking statements are based on current expectations and projections about future events and are therefore subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by the forward-looking statements. Many of these risks and uncertainties relate to factors that are beyond the companies' abilities to control or estimate precisely, such as future market conditions and the behaviours of other market participants, and therefore undue reliance should not be placed on such statements.

Aurora nor any of its associates or directors, officers or advisers, provide any representation, assurance or guarantee that the occurrence of the events expressed or implied in any forward-looking statements in the Announcement will actually occur. You are cautioned not to place undue reliance on these forward-looking statements.

Other than in accordance with its legal or regulatory obligations (including under the AIM Rules for Companies and the Disclosure and Transparency Rules), Aurora is not under any obligation and expressly disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Not a profit forecast

Nothing in the following Announcement is intended, or is to be construed, as a profit forecast or to be interpreted to mean that earnings per Ordinary Share for the current or future financial years will necessarily match or exceed the historical published earnings per Ordinary Share.

General

The Announcement has been issued by, and is the sole responsibility of, the Company. No person has been authorised to give any information or to make any representations other than those contained in this Announcement and, if given or made, such information or representations must not be relied on as having been authorised by the Company, Investec or Numis. Subject to the AIM Rules for Companies and the Disclosure and Transparency Rules, the issue of this Announcement shall not, in any circumstances, create any implication that there has been no change in the affairs of the Group since the date of this Announcement or that the information contained in it is correct at any subsequent date.

This summary and the Announcement should not be considered a recommendation by the Company, Investec, Numis or any of their respective directors, officers, employees, advisers or any of their respective affiliates, parent undertakings, subsidiary undertakings or subsidiaries of their parent undertakings in relation to any purchase of or subscription for the New Ordinary Shares. Price and volumes of, and income from, securities may go down as well as up and an investor may not get back the amount invested. It should be noted that past performance is no guide to future performance. You are advised to read this document and the circular in their entirety for a further discussion of the factors that could affect the Company's future performance and the industry in which it operates. Persons needing advice should consult an independent financial adviser

THIS SUMMARY AND THE ANNOUNCEMENT AND THE INFORMATION CONTAINED IN IT IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART IN OR INTO THE UNITED STATES, AUSTRALIA, CANADA, JAPAN AND SOUTH AFRICA AND SHOULD NOT BE DISTRIBUTED IN, FORWARDED TO OR TRANSMITTED INTO ANY OTHER JURISDICTION WHERE TO DO SO MIGHT CONSTITUTE A VIOLATION OF LOCAL APPLICABLE SECURITIES LAWS OR REGULATIONS.

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, IN OR INTO THE UNITED STATES, CANADA, AUSTRALIA, JAPAN OR SOUTH AFRICA, OR ANY JURISDICTION WHERE IT IS UNLAWFUL TO DO SO

For immediate release

17 December 2009

Aurora Russia Limited 

("Aurora" or the "Company")

Proposed issue of up to 37,500,000 New Ordinary Shares at 40 pence per share

Further investment in OSG

1.    Introduction

The Board today announces that the Company has entered into the OSG Investment Agreement which provides for the acquisition of existing OSG ordinary shares from the Vendors and the issue of new OSG ordinary shares to the Company for a total consideration of £12.4 million. Of this consideration, £8.0 million will be satisfied through the issue of the Consideration Shares to the Vendors, £1.2 million will be payable in cash to the Vendors and £3.2 million will be used by the Company to subscribe for new ordinary shares in OSG. The OSG Investment will increase the Company's interest in OSG from 50.0 per cent. to approximately 93.6 per cent. (on a fully diluted basis and assuming in both cases the conversion of all convertible loans outstanding), with the remaining 6.4 per cent of the equity owned by current and previous members of management of OSG.  The principal terms of the OSG Investment Agreement are set out below.

The Board also announces a Placing to raise £7.0 million to satisfy the cash element of the consideration, to enable the Company to subscribe for the new ordinary OSG shares and to provide working capital for the Company. The Placing has not been underwritten. The Company has today also released its unaudited interim results for the six months ended 30 September 2009. The Company's reported NAV per share at 30 September 2009 was 108.6 pence. 

The Company currently does not have existing Shareholder authority for the disapplication of pre-emption rights which would be required to permit the non pre-emptive issuance of the New Ordinary Shares pursuant to the Placing. Consequently, the issuance of the New Ordinary Shares is subject to Shareholder approval being given to permit the disapplication of pre-emption rights in relation to New Ordinary Shares at the Placing Price. In conjunction with the OSG Share Issue, the Board is requesting Shareholder approval to amend the Articles to expressly permit the Directors to accept an in specie subscription for new Ordinary Shares, as permitted by Guernsey law. 

The Board has approved the Amended Option Deed with the Manager as set out below. Also set out below are further details of the Placing and the OSG Investment.

2.    OSG Investment

The OSG Investment Agreement provides for the acquisition of existing OSG ordinary shares from the Vendors and the issue of new OSG ordinary shares to the Company for a total consideration of £12.4 million. Of this consideration, £8.0 million will be satisfied through the issue of the Consideration Shares to the Vendors, £1.2 million will be payable in cash to the Vendors and £3.2 million will be used by the Company to subscribe for new ordinary shares in OSG. 

The agreed pre-new money valuation for the OSG Investment is approximately £21.3 million, a 21.7 per cent. discount to the book value of OSG at 31 March 2009 and a 17.4 per cent. discount to the book value of OSG at 30 September 2009. 

OSG will use approximately £2.6 million of the proceeds from the issue of OSG ordinary shares as a down payment to purchase additional warehouse space and approximately £0.6 million will be used as a down payment to part fund the purchase of additional racking in the year ending 31 December 2010. 

The Directors consider that the present cash value of the OSG ordinary shares to be acquired pursuant to the OSG Investment Agreement is not less than the value of the Consideration Shares to be issued to the Vendors. 

The Vendors have agreed not to transfer or otherwise dispose of such Consideration Shares for 12 months following Admission other than with the prior consent of Investec and Numis, such permission not to be given if the proposed disposal or transfer price is less than 40 pence per share. 

The Directors believe that the OSG Investment represents a significant opportunity to increase the Company's stake in a high growth business and to obtain a control premium for any future exit. The new investment will strengthen OSG's balance sheet which, the Directors believe, should facilitate further growth.

Following the transaction the Company will own approximately 93.6 per cent. of OSG assuming conversion of all convertible loans outstanding and it will therefore be consolidated into the Company's financial statements. 

It is the intention of the Company to convert all of its convertible loans outstanding to OSG into OSG ordinary shares on completion of the Proposals. The OSG Investment is conditional upon receipt of necessary funds in the Placing to pay the consideration. The sellers have undertaken not to use the OSG name in any country where the OSG group currently conducts any part of its business.

Options in OSG and the Company's investment

OSG currently has an option pool of approximately 6.4 per cent. of OSG's diluted share capital (post conversion of the Company's convertible loans).  It is the Company's intention to increase the OSG option pool to a maximum of 10 per cent. following the Placing, including the existing options, which would reduce the Company's shareholding in OSG to 90 per cent. (on a fully diluted basis).  

Separately to the OSG Investment, of the current option pool of 6.4 per cent. of OSG's shares, approximately 2.0 per cent of the shares are held under option by previous employees of OSG who may wish to exercise their options and sell the shares to the Company following the Placing.  If such options are exercised and the option holders wish to sell such shares, the Company intends to acquire these OSG shares at the same price per OSG share as is being paid to the Vendors.

If the options held by the previous employees are exercised, the net amount payable to such option holders will be £0.18 million. This would result in the acquisition of an additional 2.0 per cent. of OSG's share capital, resulting in the Company's overall holding in OSG increasing to approximately 92 per cent.  

3.    Amended Option Deed

The Manager currently has an Option to acquire 20 per cent. of the share capital of the Company (on a fully diluted basis), such Option to be exercised at £1.00 per Option Share. The Option Deed also grants the Manager the right to purchase 20 per cent. of any further issued Ordinary Shares (on a fully diluted basis), at the relevant issue price of such further Ordinary Shares. Accordingly, this further option would include the right to subscribe for additional Ordinary Shares at the Issue Price. 

Clause 3 of the Option Deed provides that the Manager may exercise the Option at any time during the Exercise Period (as defined in the Option Deed) and in respect of all (but not part only) of the Option Shares provided that the Condition has been satisfied. The Condition requires the total shareholder return of the Company to exceed the amount calculated by the following formula: 

£1.00 x {(1 + 0.12)T x (1 + [0.12 x D/365])}

where "T" is equal to the number of whole years from the date of the Company's IPO on AIM and "D" is equal to the number of days from the latest anniversary of the Company's IPO on AIM.

The Condition was set by reference to the IPO placing price of £1.00 per share with the exercise price increasing at a compound rate of 12 per cent. per annum from the date of the IPO. Accordingly, the Company's current share price would need to be approximately £1.53 to meet the Condition and to enable the Manager to exercise the Option now for £1.00 per share over 18,750,000 newly issued Option Shares.

The Option Deed provides for further Option Shares to be issued upon the issue of new shares by the Company, with the exercise price for such further Option Shares being equal to the cash placing price of such new shares. However, as currently drafted the Option Deed does not account for certain events, such as the Company issuing new shares at a discount to the placing price at the IPO.

The Option Deed was intended to provide a carry mechanism similar to that used in a typical private equity fund structure. However, because the Option Deed did not contemplate the issuance of shares at a discount to the IPO placing price, the Condition is based on an increase in the price per share rather than an increase in the value of the fund, as would be the case in a typical private equity fund. Particularly in current market conditions, it is unlikely that the Manager will ever be in a position to exercise its Option over the initial 18,750,000 Option Shares or over the further Option Shares. 

Therefore, the Company has agreed with the Manager to amend the Option Deed, so that the formula used in the Condition allows for new Ordinary Shares to be issued at, above or below the IPO placing price, to more accurately reflect the value of the fund. The new formula would be a weighted average of the initial shares issued upon the Company's IPO and any further shares issued, as follows:

(£1.00 x {(1+12%)T x (1+[12% x D/365])}) x I

+

(£P x {(1+12%)T1 x (1+[12% x D1/365])}) x N

Where "D" and "T" have the meanings given to them in the Option Deed.

"D1" equals the number of days between the anniversary of the placement of further shares and the exercise date.

"T1" number of complete years following the placement of further shares date in which the option is exercised.

"I" equals the weighting of initial shares in the total issued capital of the company.

"N" equals the weighting of further shares in the total issued capital of the company.

"P" equals the cash price at which such further shares were issued.

This amendment will mean that the 12 per cent. hurdle will be based upon the total funds raised by the Company across all shares issued for cash. The Manager believes that it will have a realistic potential of exercising the Option, thus further incentivising its performance. It should be noted that the Amended Option Deed does not reduce the exercise price in respect of the Option Shares, merely the condition to exercising such Option. Based on the number of New Ordinary Shares to be issued at the Issue Price, the revised Condition would currently be capable of being satisfied if the Company's share price was approximately 115 pence per share. Accordingly the exercise price in respect of the Option Shares is still higher than the weighted average price at which the Condition would be capable of being satisfied. 

The Amended Option Deed is classified as a related party transaction under the AIM Rules for Companies. 

The Independent Directors, having consulted with the Company's nominated adviser, Investec, consider that the Related Party Transaction is fair and reasonable so far as the Shareholders are concerned. In providing advice to the Independent Directors, Investec has taken into account the Independent Directors' commercial assessments.

4.    Placing

Pursuant to the Placing, the Placing Shares have been conditionally placed with institutional and other investors at the Issue Price. The Placing has not been underwritten. 

The Issue Price represents a premium of approximately 7.4 per cent. to the closing mid-market price of 37.25 pence per share on 16 December 2009 (being the latest practicable date prior to the posting of this document). 

The Issue Price also represents a discount of approximately 63.2 per cent. to the latest published NAV per share of 108.6 pence as at 30 September 2009. 

Subject to the Placing becoming unconditional, the Placing will raise £7.0 million (before expenses) for the Company. The New Ordinary Shares will represent approximately 33.3 per cent. of the enlarged issued share capital of the Company. The New Ordinary Shares will be issued credited as fully paid and will, on issue, rank pari passu with the existing Ordinary Shares, including the right to receive all dividends declared, made or paid after the date of Admission.

Application will be made for the New Ordinary Shares to be admitted to trading on AIM. The New Ordinary Shares have not been marketed in whole or in part to the public in conjunction with the application for Admission. The Placing is conditional upon, inter alia, Admission taking place on 7 January 2010 (or such later time as Investec, Numis and the Company shall agree, but in any event no later than 1 February 2010). 

The Placing Agreement may be terminated in certain circumstances by Investec and Numis, including for any breach of warranty by the Company, material adverse change in the Company's business, termination of the OSG Investment Agreement or certain force majeure events.

5.    Return of Cash

Following this Placing, the Company will have raised a total of £90 million from Shareholders. It is the intention of the Board that this amount is returned over time to Shareholders from the proceeds of the sale of the Company's investments, leaving the Company with the balance to reinvest in other opportunities. However, as the Manager may be in a position to exercise its option shares prior to the Company returning £90 million to Shareholders, the Board believes that an amount greater than £90 million should be returned.

The Company therefore announces that, following the receipt of cash from a disposal of any of its portfolio companies, it intends, subject to the provisions below to return to Shareholders an amount up to the lesser of the total sale proceeds of the portfolio company and a maximum of 1.5 times the total amount invested in that portfolio company plus the pro-rata allocation of costs of the Company to date ("Allocated Costs"), until the Company has returned a total of £105 million to Shareholders. Any proceeds in excess of this amount shall be retained by the Company for reinvestment purposes.

Allocated Costs in relation to any particular investment are calculated as follows:

(Total funds raised - total funds invested) x initial investment in the company sold/total funds invested

However, if the amount received on the disposal of a portfolio company is less than 1.5 times the total amount invested in such company plus Allocated Costs, it is anticipated that the total funds received from the sale of the portfolio company (net of disposal expenses) will be returned to Shareholders. 

Furthermore in the event that the Board believes that the Company needs to retain any or all of the cash proceeds on the sale of any portfolio company to satisfy its status as a going concern, for general working capital purposes or for the purpose of future investments in new or other existing portfolio companies it will do so.

The Company cannot provide any assurance as to the level of proceeds that may be received on any realisation of a portfolio company or that the Company's investment objectives will be achieved.  

The Company refers shareholders and prospective investors to the risk factors and forward-looking statements sections in its admission document dated 20 March 2006. An investment in the Company is only suitable for investors who are capable of evaluating the merits and risks of such an investment and who have sufficient resources to be able to bear any losses (which may be equal to the whole amount invested) which may result from such an investment. The value of the Ordinary Shares and the income from them may go down as well as up and that they may not be able to realise their initial investment. In addition, it is possible that the market price of Ordinary Shares in the Company may be less than the underlying net asset value per Ordinary Share.

6.    Amendment of Articles

In conjunction with the OSG Investment Agreement, the Board is proposing to amend the Articles to expressly permit the Directors, in their absolute discretion and in accordance with Guernsey law, to allot and issue Ordinary Shares against the vesting in the Company of any property in which the Company is entitled to invest. 

The Company will announce the number of New Ordinary Shares admitted to listing and admitted to trading via a Regulatory Information Service by no later than 8.00 a.m. on the Business Day following the date of Admission.

DEFINITIONS

"Amended Option Deed"	the proposed amendments to the Option Deed to be entered into between the Company and the Manager
"Articles"	the articles of association of the Company
"Board" or "Directors"	the board of Directors of the Company from time to time
"Company"	Aurora Russia Limited
"Extraordinary General Meeting"	the extraordinary general meeting of the Company convened for 6 January 2010 at which the Resolutions will be proposed, notice of which is set out at the end of this document
"Issue Price"	40 pence per New Ordinary Share
"Manager"	Aurora Investment Advisors Limited (a company limited by shares incorporated in Guernsey with number 44387)
"New Ordinary Shares"	the Placing Shares and the Consideration Shares
"Numis"	Numis Securities Limited
"Option"	the option held by the Manager to acquire the Option Shares pursuant to the Option Deed
"Option Deed"	the option deed between the Manager and the Company dated 20 March 2006 (as amended)
"Option Shares"	the Ordinary Shares which the Manager may acquire pursuant to the Option
"Ordinary Shares"	the ordinary shares of 1 pence each in the capital of the Company
"OSG"	OSG Records Management (Europe) Limited
"OSG Investment"	the proposed acquisition of shares in OSG by the Company in accordance with the terms of the OSG Investment Agreement, with consideration to be paid in a combination of cash and £8.0 million in New Ordinary Shares to be issued at the Issue Price (the "OSG Share Issue")
"OSG Investment Agreement"	the share purchase agreement between the Vendors and the Company dated 17 December 2009
"Placing"	the proposed placing by Investec and Numis, as agents for the Company, of the Placing Shares to institutional and other professional investors in accordance with the terms of the Placing Agreement
"Placing Agreement"	the placing agreement dated 17 December 2009 between the Company, Investec and Numis
"Proposals"	the Placing and the OSG Investment (including the OSG Share Issue)
"Related Party Transaction"	the signing of the Amended Option Deed by the Manager and the Company
"Resolutions"	the resolutions to be proposed at the Extraordinary General Meeting and set out in the Notice of Extraordinary General Meeting at the end of this document
"Shareholders"	the holders of any shares issued in the share capital of the Company from time to time, and "Shareholder" means any one of them
"Vendors"	Timothy James Slesinger, Kestrel Services Ltd and the Santon Pension Fund

---

 

END

 

 

IOEILFLEFILDLIA