Conditional Placing of Equity

RNS Number : 8324Q

Rurelec PLC

20 April 2009

 

Rurelec PLC

('Rurelec' or 'the Company')

Conditional Placing of Equity, Disposal of interest in EDS, Capitalisation of IPC Loans, Director Share Purchase/PDMR, Notice of General Meeting and trading update

Rurelec plc (AIM: RUR) announces that it proposes to raise approximately £6.5 million before expenses from a conditional placing of 81,562,500 New Ordinary Shares at a price of 8 pence per Ordinary Share. The Ordinary Shares have been conditionally placed by Religare Hichens, Harrison and Daniel Stewart with institutional and other shareholders.

An increase in share capital of the Company is needed to complete the Placing and the other proposals set out in a circular to be sent to shareholders today. The Placing is subject to the satisfaction of certain conditions and to the shareholder approvals which will be sought at a General Meeting. Further details of the GM are set out below. 

Shareholders should be aware that, if the Resolution to approve the Placing is not passed at the General Meeting, the Group will have insufficient financial resources to continue to trade in its current form. Shareholders attention is also drawn to the statements on working capital set out below.

Proposed disposal of 50 per cent. interest in EDS

The Placing is, inter alia, conditional upon Rurelec selling 50 per cent. of the interest it holds in Energia del Sur to its former partner, Basic Energy, by way of extinguishing approximately £8.7 million of current liabilities in the form of deferred payments under loan notes due in 2009. The Company has entered into non-legally binding heads of terms with Basic Energy. The precise mechanism of the disposal is subject to agreement between the parties having taken appropriate tax and legal advice.

The consideration payable to Basic Energy is the cancellation of the amounts owing from Rurelec to Basic Energy under the loan note in the sum of US$13 million plus other costs, and the waiving by Basic Energy of interest due to date on the loan note. The disposal removes liabilities on the Company's balance sheet amounting in aggregate to approximately £8.7 million as at the exchange rate on 17 April 2009. The current book value of the Company's investment in Patagonia Energy Limited, currently the owner of 100 per cent. of EDS in aggregate, is approximately £16.4 million. As part of the transaction the Company will be granted an option to reacquire the interest in EDS during the three month period following completion of the disposal for US$16 million. Following completion of the disposal, the Company and Basic Energy will be joint venture partners in EDS and will have entered into a shareholder agreement on substantially the same terms as the previous shareholder agreement between the parties. A further announcement will be made when the agreement has been executed.

Related Party Transactions

Pursuant to the IPC Capitalisation and in conjunction with the Placing, IPC, a company controlled by Peter Earl (Managing Director of Rurelec), of which James West (Non-Executive Chairman of Rurelec) is chairman and Elizabeth Shaw (Finance Director of Rurelec) is also a director, has agreed to capitalise a total of £2 million of the loans made by it and by Southern Integrated Energy Limited ('SIE'), a wholly owned subsidiary of IPC, to Rurelec, currently amounting to approximately £4.4 million principal. The IPC Capitalisation will take place at the Placing Price, giving rise to an equity issue of 25,000,000 New Ordinary Shares to IPC, subject to the satisfaction of certain conditions. IPC and SIE have undertaken not to call for the repayment of the remainder of the net aggregate balance of their loans before 1 May 2010 or earlier upon the refinancing of EDS. Following, netting off of amounts due from IPC for the purchase of Rurelec's remaining unused Jenbacher gas engines, the balance due to IPC will be approximately £1.2 million. IPC has agreed that it will not dispose of its Ordinary Shares allotted pursuant to the IPC Capitalisation for a period of twelve months following issue without agreement with Rurelec's broker.

James West, Chairman, will also subscribe for 800,000 New Ordinary Shares as part of the Placing at the Placing Price. In addition, pursuant to the James West Capitalisation, Jimmy West Associates Ltd, a company owned and controlled by James West, will subscribe for 445,230 shares at the Placing Price in exchange for the cancellation of outstanding director's fees. Following Admission, James West will be interested in 2,370,230 Ordinary Shares, representing 1.15 per cent. of the Company's Enlarged Issued Share Capital.

Under the AIM Rules, the IPC Capitalisation together with the James West Capitalisation and James West's subscription in the Placing in aggregate are classified as related party transactions. The Independent Directors, being Freddie Fisher, Marcelo Blanco and Sir Robin Christopher consider and agree, having consulted with Daniel Stewart (the Company's nominated adviser), that the terms of each of the IPC Capitalisation, the James West Capitalisation and James West's subscription in the Placing are fair and reasonable insofar as Rurelec's shareholders are concerned.

Placing Statistics 

Number of Ordinary Shares in issue prior to the issue of the New Ordinary Shares	95,788,775
Number of Placing Shares	81,562,500
Number of Capitalisation Shares	28,070,230
Placing Price	8 pence
Percentage of the Enlarged Issued Share Capital represented by the Placing Shares immediately following completion of the Capitalisation and the Placing	39.70
Percentage of the Enlarged Issued Share Capital represented by the Capitalisation Shares immediately following completion of the Capitalisation and the Placing	13.66
Percentage of the Enlarged Issued Share Capital represented by the New Ordinary Shares immediately following completion of the Capitalisation and the Placing	53.37
Number of Ordinary Shares in issue immediately following the issue of the New Ordinary Shares	205,421,505

Use of Proceeds

The cash proceeds of the Placing, amounting to approximately £6 million net of expenses will be largely used for the refinancing of Patagonia Energy Limited, to provide funding to EDS for payment of principal and interest due in respect of its senior bank debt and to strengthen the balance sheets of both the Company and EDS.

Arrangements with Standard Bank

On 8 March 2007 the Company's now wholly-owned subsidiary EDS entered into a Facility Agreement with the Bank for a term loan of US$18 million to finance the construction of the EDS Combined Cycle Gas Turbine ('CCGT') system in Argentina. The repayment of principal began before the project was completed. Owing to global banking difficulties and delays in commissioning, EDS has, so far, been unable to refinance as a result of not commencing commercial operations in time. As a result, a repayment of part of the principal under the Facility Agreement was missed on 31 March 2009.

The Bank has reserved its position but has also been supportive and no action has been taken by it to accelerate repayment of the loan at the current time. The Placing is conditional upon such status quo being maintained pending satisfaction of the overdue amount from part of the proceeds of the Placing. However the Bank has agreed not to take any steps to accelerate repayment of the loan following payment of the overdue amount.

Working Capital

The net proceeds of the fundraising will not provide the Company with sufficient working capital to satisfy its total medium and long term requirements, and therefore it is necessary to arrange additional finance to become available during the course of this summer. The Directors are holding discussions with a number of other providers of debt for Latin American projects. 

Details of the Placing

The Placing is conditional, inter alia, on shareholder approval, the IPC Capitalisation, completion of the acquisition by Basic Energy of 50 per cent. of EDS on the terms referred to earlier in this letter and a resolution of the position with the Bank as referred to above.

The Placing is to be effected on behalf of the Company by the Placing Agents, Religare Hichens, Harrison and Daniel Stewart, pursuant to the Placing Agreement. The Placing Agents have agreed, subject to certain conditions, to use their reasonable endeavours to procure subscribers for the Placing Shares in aggregate. Under the Placing Agreement the conditions must be satisfied by no later than 8 June 2009.

The Placing Agreement contains warranties in favour of the Placing Agents given by the Company and the Directors with respect to its business and certain matters connected with the Placing. In addition, the Company has given customary indemnities to the Placing Agents in connection with the Placing and their performance of services in relation to the Placing. Daniel Stewart has certain rights to terminate the Placing Agreement in specified circumstances. The Placing Shares will rank pari passu with existing shares following Admission including for any future dividend, if declared.

Under the Placing Agreement and pursuant to the Religare Hichens, Harrison Capitalisation, Religare Hichens, Harrison will be allotted 2,625,000 Ordinary Shares in satisfaction of charges for previous services to the Company.

Current trading

On 1 April 2009, the Company updated shareholders regarding the status of the CCGT expansion project, advising that a high demand for power from the local grid resulted in CAMMESA, the regulator, not allowing both gas turbines at the Energia del Sur plant to be off-line simultaneously, which resulted in a short delay in the completion of the project. The gas turbine that has been connected into the CCGT system is now producing an additional output of 25 MW. The Directors now expect the second gas turbine to be connected to its Heat Recovery Steam Generator ('HRSG') in the next few days, subject to obtaining CAMMESA approval, making the new combined cycle unit capable of generating up to its full 60 MW nominal capacity. As announced on 2 March 2009, the contract with the European utility for the forward sale of Certified Emission Reductions ('CERs') generated by EDS between now and December 2012 announced on 5 November 2008 remains under review. However, since that announcement CER prices have increased from approximately €8.45 at the time of the original announcement to approximately €10.91 on 16 April 2009.

Empresa Eléctrica Guaracachi S.A. 'Guaracachi' or 'EGSA', in which the Company owns a 50.00125 per cent. interest, is expected to announce its results to the La Paz stock exchange on 23 April 2009. The preliminary accounts, which have been prepared under Bolivian GAAP, will show shareholders funds of approximately US$133 million at current exchange rates and US$10.4 million of net income for the year ended 31 December 2008. The directors of EGSA have recommended that Guaracachi declares a dividend broadly in line with last year, when a dividend of approximately US$7 million was approved and paid.

Strategy

The Directors' strategy during the current market uncertainty is of consolidation within the portfolio and judicious expansion, taking advantage of market opportunities. They do not intend to commence any new greenfield development projects until the refinancing of EDS has been fully completed and funds drawn down.

It remains the policy of the Company to return any future surplus capital to shareholders. Following refinancing of EDS, which is required during the summer of this year (and for which there is no current agreement), the Company will look to retire some of the shares now being issued if it can be shown clearly that this will improve returns to shareholders, and only if prudent to do so at the time. Any such buy-back policy would be funded by receipt of capital sums back into the Company rather than out of cash flow from dividends. The Directors intend to continue with a dividend policy of a high payout ratio, when it is prudent to do so.

General Meeting

A notice has to been sent to shareholders convening a General Meeting of the Company which is to be held at 10.00 a.m. on 13 May 2009 at 5th Floor, Prince Consort House, 27-29 Albert Embankment, London SE1 7TJ. The business of the GM will be to increase the share capital of the Company, grant the Directors authority to allot Ordinary Shares and to disapply pre-emption rights in connection with the issue of the New Ordinary Shares as well as granting the Directors the authority to implement any buy back programme as referred to above, all of which require the requisite approval of the Shareholders. The Circular is also available on the Company's website, www.rurelec.com 

Admission

Application will be made to the London Stock Exchange to admit the New Ordinary Shares to trading on AIM. It is expected that, subject to the passing of the Resolution numbered 1 at the General Meeting, admission of the New Ordinary Shares will become effective on AIM and dealings will commence on AIM at 8.00 a.m. on 19 May 2009 or such later time as the Company and Daniel Stewart may agree in accordance with the Placing Agreement being not later than 8 June 2009.

The New Ordinary Shares will, when issued and fully paid up, rank pari passu in all respects with the existing Ordinary Shares of the Company and will be issued subject to the memorandum and articles of association of the Company.

Recommendation

The Independent Directors consider the passing of Resolution numbered 1 to be in the best interests of Shareholders. The Independent Directors recommend that shareholders vote in favour of that Resolution. The Board also considers the passing of Resolution numbered 2 to be in the best interests of Shareholders and the Board recommends that shareholders vote in favour of that Resolution. Those Directors who hold shares in the Company intend to vote in favour of the Resolutions to be proposed at the General Meeting in respect of their own beneficial holdings of Ordinary Shares amounting, in aggregate, to 13,471,054 Ordinary Shares (representing approximately 15.7 per cent. of the Ordinary Shares in issue).

For further information, please contact: 

Peter Earl 

Managing Director                                  Tel. [phone] 

Paul Shackleton / Stewart Dick 

Daniel Stewart & Company                     Tel. [phone] 

Daniel Briggs

Religãre Hichens, Harrison                      Tel: [phone]

DEFINITIONS

The following definitions apply throughout this document, unless the context requires otherwise:

'2006 Act'	the Companies Act 2006 (as amended)
'1985 Act'	the Companies Act 1985 (as amended)
'Acts'	the 1985 Act and the 2006 Act
'Admission'	the admission of the New Ordinary Shares to trading on AIM becoming effective in accordance with Rule 6 of the AIM Rules
'AIM'	a market operated by the London Stock Exchange
'AIM Rules'	the AIM Rules for Companies published by the London Stock Exchange
'Bank'	Standard Bank plc
'Basic Energy'	Basic Energy Ltd, a company organised and existing under the laws of the Bahamas
'Capitalisation'	the IPC Capitalisation, the James West Capitalisation and the Religare Hichens, Harrison Capitalisation
'Capitalisation Shares'	the New Ordinary Shares to be issued to IPC, James West and Religare Hichens, Harrison  in accordance with the IPC Capitalisation, the James West Capitalisation and the Religare Hichens, Harrison Capitalisation respectively
'Circular'	the document sent to shareholders dated 20 April 2009
'Company' or 'Rurelec'	Rurelec PLC (company number 4812855) whose registered office is 5th Floor, Prince Consort House, 27-29 Albert Embankment, London SE1 7TJ
'Completion'	Completion of the Placing
'CREST'	the system for the paperless settlement of share transfers and the holding of shares in uncertified form operated by Euroclear UK Ireland Limited (formerly CRESTCo)
'Daniel Stewart'	Daniel Stewart & Co plc, the Company's Nominated Adviser and joint broker
'Directors' or 'Board'	the board of directors of the Company or a duly constituted committee thereof
'Energia del Sur' or 'EDS'	Energia del Sur S.A., a company registered in Argentina
'Enlarged Issued Share Capital'	the issued ordinary share capital of the Company as enlarged following the Placing and Capitalisation
'Euroclear'	Euroclear UK & Ireland Limited, the operator of CREST
'Existing Ordinary Shares'or 'Ordinary Shares'	the ordinary shares of 2 pence each in issue and fully paid at the date of this announcment
'Facility Agreement'	the Facility Agreement dated 8 March 2007 between, inter alia, Standard Bank, EDS and the Company
'General Meeting' or 'GM'	the general meeting of Rurelec convened for 10.00 a.m. on 13 May 2009 (or any adjournment thereof)
'Form of Proxy'	the form of proxy for use in connection with the General Meeting accompanying this document
'FSA'	the Financial Services Authority
'Group'	the Company and its subsidiary undertakings at the date of this announcement
'IPC Capitalisation'	the cancellation of certain loans totalling £2,000,000 from IPC to the Company in consideration for the issue to IPC of 25,000,000 Ordinary Shares in the Company conditional on Admission and on the terms detailed in Part 1 of the Circular
'Independent Directors'	Sir Robin Christopher, Freddie Fisher and Marcelo Blanco, being those Directors who have no interest in the IPC Capitalisation or the James West Capitalisation
'Independent Power Corporation' or 'IPC'	Independent Power Corporation, a company registered in England under registration number 3097552, whose principal office is at 5th Floor, Prince Consort House, 27-29 Albert Embankment, London SE1 7TJ
'James West Capitalisation'	the cancellation of certain director's fees totalling £35,618.40 owed to James West by the Company in consideration for the issue to Jimmy West Associates Limited, a company owned and controlled by James West, of 445,230 Ordinary Shares in the Company conditional on Admission and on the terms detailed in Part 1 of the Circular
'London Stock Exchange'	London Stock Exchange plc
'New Ordinary Shares'	109,632,730 Ordinary Shares comprised of the Placing Shares and the Capitalisation Shares
'Ordinary Shares'	ordinary shares of 2 pence each in the capital of the Company
'Patagonia Energy Limited' or 'PEL'	a company incorporated under the laws of the British Virgin Islands with its registered office at Walkers Chambers, PO Box 92, Road Town, Tortola, British Virgin Islands
'Placees'	subscribers for Placing Shares pursuant to the Placing Agreement
'Placing'	the placing of the Placing Shares pursuant to the Placing Agreement
'Placing Agents'	Religare Hichens, Harrison and Daniel Stewart
'Placing Agreement'	the conditional agreement dated 20 April 2009 and made between the Directors, Daniel Stewart, Religare Hichens, Harrison and the Company in relation to the Placing
'Placing Price'	8 pence per New Ordinary Share
'Placing Shares'	the 81,562,500 New Ordinary Shares to be issued to the Placees pursuant to the Placing Agreement
'£' and 'p'	respectively pounds and pence sterling, the lawful currency of the United Kingdom
'Religare Hichens, Harrison'	Religare Hichens, Harrison & Co. plc, the Company's joint broker
'Religare Hichens, Harrison Capitalisation'	the cancellation of certain fees totalling £210,000 owed to Religare Hichens, Harrison by the Company in consideration for the issue to Religare Hichens, Harrison of 2,625,000 Ordinary Shares in the Company conditional on Admission and on the terms detailed in Part 1 of the Circular
'Resolutions'	the resolutions set out in the notice of the General Meeting at the end of this document
'Shareholders'	holders of Ordinary Shares
'Standard Bank'	Standard Bank plc

 

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