TIDMRC2
RNS Number : 5624Q
Reconstruction Capital II Ltd
30 November 2016
30 November 2016
Reconstruction Capital II Limited
Circular to Shareholders and Notice of Annual General
Meeting
Reconstruction Capital II Limited ("the Company") today
announces that it has posted an explanatory circular (the
"Circular") to shareholders incorporating formal notice of an
annual general meeting (the "Annual General Meeting") which sets
out the Board's proposals for, and seeks the approval of
Shareholders for, the continuation of the life of the Company for a
further two years.
The Circular includes a notice of the Company's Annual General
Meeting which is to be held at 10.00am at the offices of Sanne
Trust Company Limited at 13 Castle Street, St Helier, Jersey JE4
5UT on Thursday 22 December 2016.
The information contained below has been extracted from, and
should be read in conjunction with, the Circular. Capitalised terms
used but not defined in this announcement will have the same
meaning as set out in the Circular. The Circular will also be
posted on the Company's website:
http://www.reconstructioncapital2.com/
For further information, please contact:
Reconstruction Capital II Limited
Ion Florescu/Anca Moraru
Tel: +40 21 3167680
Grant Thornton UK LLP (Nominated Adviser)
Philip Secrett/Carolyn Sansom
Tel: +44 (0) 20 7383 5100
Panmure Gordon (UK) Limited (Broker)
Paul Fincham/Jonathan Becher
Tel: +44 (0) 20 7886 2500
Continuation of the Life of the Company
Introduction
The purpose of this Circular is to set out your Board's
proposals for the continuation of the life of the Company.
The Company was incorporated in 2005 to invest in private and
listed equity securities and fixed income securities primarily in
Romania and Bulgaria. The Articles provided that, at the 2012
annual general meeting and at a general meeting of the Company in
each second subsequent year, a resolution would be proposed for the
Company to continue as presently constituted. Should the resolution
not be passed, the Directors would be required to formulate
proposals to be put to Shareholders to reorganise, unitise or
reconstruct the Company or for the Company to be wound up. At the
annual general meetings of both 2012 and 2014 a resolution was
adopted for the Company to continue as presently constituted.
The Directors believe that the Company should continue for at
least a further two years as the Company has already begun to
realise its investments in portfolio companies, and consider that
it would be in the best interests of shareholders that this process
continues.
Accordingly, subject to Shareholder approval, it is proposed
that the life of the Company be continued for a further two years
(the "Proposal").
Background to and Reasons for the Proposal
The Company's primary strategy since inception has been to
invest in, and subsequently dispose of, significant or controlling
stakes in companies in South East Europe where the Company's
Adviser believes it can add value to companies by implementing
operational and/or financial restructuring over a three to five
year horizon prior to achieving an exit.
Whilst most of the Company's investments were made prior to
2009, the prolonged financial crisis which started that year
resulted in a strong general change of sentiment towards South East
Europe, delaying the divestment process. However, the majority of
the Company's investments are now concentrated in Romania, and
after a number of difficult years during which the Romanian
government implemented reforms to adapt to the new international
financial and economic situation, the Romanian economy has shown
signs of recovery, and is forecast to achieve GDP growth of 5.2%
this year, which represents the strongest growth in the EU.
Against this background, the sentiment of strategic investors
towards Romania has started to change, and in the first nine months
of 2016 foreign direct investment (FDI) reached EUR3.1 billion
compared to EUR2.5 billion in the same period in 2015. The Company,
with the help of its Adviser, has already taken advantage of this
improved climate, by exiting Albalact S.A., one of its main
investments, for a total consideration of EUR19.5 million in
September 2016. This represents a premium of just under 60% over
the valuation of this investment in RC2's books the month prior to
the announcement of the agreement to sell this investment, and a
premium of approximately 100% over the valuation of this investment
the month prior to the 2014 shareholder vote on the continuation of
the life of the Company.
Against this background, the Board believes that continuing
realisations of investments over the coming two years is in the
best interests of shareholders, in particular as, due to the highly
illiquid nature of the Company's investments and the possible
complexity of exits, the Board believes that the Company's
investments cannot be liquidated or disposed of quickly without
risking a significant destruction of value. The Board believes that
some exits will require a trade sale, while others may require a
reorganisation and break up and subsequent disposal of separate
divisions or assets. Also the Company's investments are at
different stages of preparedness for realisation: (i) some
investments are already in a good position to be sold by way of a
trade sale and are currently being marketed to trade buyers; and
(ii) other investments still require their operational and
financial restructuring programmes to be completed by the Adviser
before being offered for sale.
Therefore, in order for the Company to realise the best value
from the Company's investments, the Board anticipates that the
overall exit process will last at least a further two years.
Continuation of the Life of the Company
In order to allow for the orderly realisation of the Company's
investments, the Directors propose that the Company continue for at
least a further two years. If the realisation programme has not
been completed by 2018, when the next continuation vote falls due,
the Directors will review the then current position of the Company
and appropriate proposals will be put to Shareholders at that
time.
The Board aims to realise the portfolio in an efficient manner
to ensure that a balance between value and speed is achieved. Due
to the illiquid nature of private equity investments, it is very
difficult to provide any certainty on the timeframe for
realisations. However, the Board is aware that Shareholders expect
some guidance on the expected timeframe for the return of capital.
With this in mind, the Board, assisted by the Adviser, has
undertaken an exercise to estimate a realisation timetable.
Although Shareholders should place only limited reliance on this
information, it is the Board's current estimate that the overall
timeframe for realisation will be at least three years. As the
portfolio realisation will be an on-going process, the Board
intends to provide Shareholders with regular updates on the exit
process in the Company's annual reports and through the quarterly
reports prepared by the Adviser.
Return of Proceeds to Shareholders
Following the receipt of proceeds from the Company's sale of its
shareholding in Albalact S.A., the Board has been examining various
options for the return of the majority of the proceeds to
Shareholders. The Company will retain sufficient funds for working
capital purposes, and, if needed, some funds to provide limited
support to investee companies to help them grow prior to their
realization. Proposals to return proceeds to Shareholders are
expected to be made in the first quarter of 2017.
Benefits of the Proposal
The Board believes that the Proposal offers the following
significant potential benefits to Shareholders:
-- continuing the life of the Company and continuing a managed
realisation of assets, rather than winding up the Company and
seeking immediate sale of the portfolio, should enable the Company
to maximize the realization value of its remaining investments;
and
-- since the Company's Shares will remain traded on AIM
throughout the realisation process, Shareholders and prospective
investors will, subject to market conditions, continue to be able
to buy and sell the Company's Shares if they choose to do so.
Risk factors
Your attention is drawn to the information set out in Part II of
this document.
Annual General Meeting
Page 11 of the Circular contains a notice of the Annual General
Meeting of the Company to be held at 10.00am on Thursday 22
December 2016 when the following resolution will be proposed:
1 That, in accordance with Article 138.2 of the Articles, the
Company continues as presently constituted for a further two years
until the annual general meeting to be convened in 2018.
In accordance with the Articles, the vote on Resolution 1 will
be taken on a poll and will be deemed not to have been passed if
the votes against the Resolution constitute a majority against the
Resolution and represent at least 25 per cent. of the total number
of votes capable of being cast on that Resolution.
Action to be taken by Shareholders
Shareholders will find enclosed with this Circular a Form of
Proxy to enable you to vote at the Annual General Meeting. Whether
or not you intend to be present at the General Meeting, you are
requested to complete and return the Form of Proxy in accordance
with the instructions printed on it to the Company's Registrars,
Sanne Trust Company Limited, so as to arrive no later than 10.00am
on 21 December 2016. Completion and return of the form of proxy
will not affect your right to attend in person and vote at the
Annual General Meeting should you so wish.
Irrevocable Undertakings
The Company has received irrevocable undertakings from
Shareholders who hold, in aggregate, 87,390,547 Shares at the date
of this document, representing 59.20 per cent of the current issued
ordinary share capital of the Company, that they will vote in
favour of the Resolution.
Recommendation
Your Board considers that the Proposal is in the best interest
of the Company and its Shareholders as a whole and unanimously
recommends Shareholders to vote in favour of the resolution to be
proposed at the Annual General Meeting, as your Directors intend to
do in respect of their own beneficial holdings which, in aggregate,
amount to 5,886,151 Shares representing approximately 3.99 per cent
of the issued share capital of the Company.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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