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International Cement fails to get SGX nod to buy African cement producer Schwenk Namibia
THE Singapore Exchange (SGX) has rejected International Cement Group's (ICG) proposed US$104.4 million purchase of Schwenk Namibia for failing to meet certain thresholds relating to a very substantial acquisition (VSA), said the watch-listed cement producer on Monday.
ICG's acquisition of the cement and energy group in Namibia in south-west Africa did not meet the requirements of a VSA under Rule 1015(2) of SGX's rulebook because the target company is not profitable, and ICG also does not have sufficient cash to pay for the acquisition, SGX said. As a result, the bourse operator was unable to approve the deal.
In March, ICG announced its plans to buy Schwenk Namibia and relevant shareholders' loans for US$104.4 million in cash, comprising US$19.3 million for all the shares and another US$85.1 million for the loans.
SGX noted that the foreign exchange losses arising from the Schwenk loan claim will remain in the pro forma financial statements after the proposed acquisition and will continue to affect the enlarged group's accounts. Schwenk Namibia thus does not satisfy the Rule 1015(2) requirement for it to be profitable, SGX said.
To fund the purchase, ICG had intended to obtain significant external loans from financial institutions and a shareholders' loan. SGX noted that such loans, when considered with the potential losses of Schwenk Namibia, will result in a material adverse financial impact on the enlarged group. There is also no certainty that Schwenk Namibia can generate sufficient profits to service these loans.
Thus, the proposed acquisition will remove ICG from a healthy financial position, SGX said.
For any future acquisition, SGX will require ICG to implement the following four safeguards:
- ICG must commission its external auditors to carry out pre-deal anti-money laundering due diligence on the source of funds for any major transactions as classified under Rule 1014 and any VSAs or reverse takeovers under Rule 1015;
- As long as ICG operates in Kazakhstan, Tajikistan, Namibia and/or any other developing jurisdictions, the company is to put in place adequate and effective systems of internal controls (including financial, operational, compliance, information technology and anti-money laundering controls) and risk management systems. ICG holds a 65 per cent stake in a cement plant in the Khation Region in Tajikistan. It is also building a new cement plant in Almaty, Kazakhstan, due to start commercial operations by the end of 2019;
- For its annual audits, the external auditors must review ICG's cash management procedures, including for anti-money laundering controls relating to sources of financing for acquisitions, its customers and its suppliers;
- ICG's audit committee is to ensure that its terms of reference include the monitoring and reviewing of the implementation of external and internal auditors' recommendations on internal controls including anti-money laundering.
BDO Advisory was the appointed independent valuer for the proposed acquisition while Stirling Coleman Capital was the financial adviser.
In its filing on Monday, ICG said that the draft of the shareholders' circular - meant to be despatched for an extraordinary general meeting to obtain shareholders' approval for the acquisition - will not be approved by SGX, as a result of SGX's rejection of the deal.
Schwenk Namibia owns a 69.83 per cent stake in Ohorongo Cement, which owns and operates a cement plant at North Otavi in Namibia with an annual production capacity of about one million tonnes. Schwenk Namibia also wholly owns Energy For Future, a private Namibian alternative energy sourcing firm.
ICG had earlier entered into a conditional sale and purchase agreement with vendor Schwenk Zement International Gmbh & Co Kg for the proposed acquisition of 100 per cent of Schwenk Namibia.
Shares of ICG were untraded on Monday. They last changed hands at 3.2 Singapore cents.