TIDMRUR
RNS Number : 4911Z
Rurelec PLC
16 May 2023
16 May 2023
This announcement contains inside information for the purposes
of Article 7 of the UK version of Regulation (EU) No 596/2014 which
is part of UK law by virtue of the European Union (Withdrawal) Act
2018, as amended ("MAR"). Upon the publication of this announcement
via a Regulatory Information Service, this inside information is
now considered to be in the public domain.
Rurelec PLC
("Rurelec" or the "Company")
Proposed Disposal of Argentinian Interests resulting in
Fundamental Change of Business
Notice of General Meeting
Rurelec entered into a conditional agreement dated 15 May 2023
to sell its Argentinian Interests (as defined below) to Verafont
S.A., Basic Energy Limited and Mr. Esteban Reynal (the
"Purchasers") for a consideration of up to USD 5m (cGBP4m). The
sale is a fundamental disposal pursuant to Rule 15 of the AIM Rules
and accordingly is conditional on Shareholders' approval. Subject
to the receipt of this approval the Disposal is expected to
complete during June 2023. Sterling Trust Limited (in
administration) which holds 53.99% of the issued share capital of
the Company has irrevocably committed to support the sale, and vote
in favour of the Disposal at the General Meeting.
Following Completion the Company intends to pay a special
dividend of 0.20p per share to shareholders on the register on a
record date after Completion which will be announced in due course,
in accordance with the Company's strategy to return capital to
Shareholders. The balance of the consideration (approximately
US$1.44m (cGBP1.14m) will be retained to be used as working capital
for the business for the next phase of the Group's development.
A general meeting (the " General Meeting ") of the Company is
expected to be held at 5 St. John's Lane, London, England, EC1M 4BH
at 10.00 am on 1 June 2023. The formal Notice of General Meeting
will be included in a circular to shareholders which will be posted
today, and this will also be available from the Company's website
www.rurelec.com .
All capitalised terms used in this announcement are defined
terms, and a list of definitions is included at the end of this
announcement.
Background to and reasons for the Resolutions
Rurelec's main assets are the 701 Turbines and the Argentinian
Interests. The latter comprises (amongst others) Rurelec's interest
in EdS, in Argentina, held through Patagonia Energy Ltd. which is
50% owned by the Company in a joint venture with Basic Energy
Limited and Esteban Reynal. EdS owns a 138MW combined cycle
powerplant known as Central Termica Patagonia, located in the
coastal city of Comodoro Rivadavia. Over recent years cash
generated by the powerplant and paid to Rurelec has been the
Company's main source of income. While the plant is well
maintained, in recent years it has been unable to produce
significant Argentine Peso surplus cash owing to an unfavourable
electricity market following payment delays and fixed tariffs which
have fallen behind inflation. The Company received income through
Patagonia Energy Ltd. in the year to 31 December 2022 of USD 0.76m.
As a result, the Company's working capital has deteriorated, and
the Directors have been seeking to dispose of assets. On 25 January
2023 the Company announced that it was in discussions to sell its
Argentinian Interests.
Rationale for the Disposal
Over recent years the Board explored a number of opportunities
to dispose of the Argentinian Interests and have concluded that
there is a limited market for these assets. The Disposal gives the
Company necessary liquidity and, subject to approval, will lead to
Shareholders crystallising value through a dividend. While the
plant is well maintained, the Directors believe EdS will face
headwinds in the future which are likely to result in it having to
preserve its own liquidity at the expense of any distribution for
the benefit of Rurelec. In particular:
-- There is a need for major maintenance programs from 2023 and beyond which will need funding.
-- Loans from CAMMESA which funded previous maintenance due for
repayments were requested to be extended for the year 2023 in
September 2022. This extension cannot be guaranteed.
-- Payments for electricity generated due from CAMMESA are
likely to continue to be delayed, in light of the difficult
macro-economic situation in Argentina.
-- Renewable sources of electricity, hydro, wind and solar, are
being continuously improved in the Patagonia area. These sources
will have a priority dispatch over EdS which may reduce annual
generation by EdS.
In addition, the persistent macro-economic and political
situation in Argentina makes it particularly difficult for EdS to
remit dividends to Rurelec; these factors include:
-- There is a significant gap between the central bank exchange rate and CCL exchange rate.
-- A reduction in industrial activity, due to the macro-economic
situation may lead to reduced demand for power.
-- Political uncertainty makes predicting a future government's
approach to tariff increases difficult or impossible.
Credit is likely to become more expensive due to high interest
rates or not available at all. Accordingly, the Directors have
concluded that the Argentinian Interests are unlikely to contribute
to Rurelec shareholder value in the short or medium term and are
therefore best owned by an entity resident, or with other
interests, in Argentina.
The Disposal will not be subject to withholding tax in
Argentina.
At the Company level, cash generation from Argentina is
significantly below historic levels, and insufficient to sustain
the Company in the absence of other funding which cannot be
guaranteed to be available. The Disposal therefore ensures that the
liquidity of the business is sustained.
The Argentinian Interests have a book value of USD 4.76m in the
accounts as at 30 June 2022, being the latest published balance
sheet. In the year to 31 December 2021 PEL made an operating profit
of USD 0.90m.
Disposal Agreement
Rurelec intends to sell the Argentinian Interests to the
Purchasers for up to USD 5m (cGBP4m) payable in cash, subject to
Shareholders' approval. The Purchasers include Basic Energy Limited
and Esteban Reynal who together currently own the shares in PEL not
held by Rurelec.
The Purchasers will pay Rurelec USD 3m (cGBP2.4m) upon
Completion, which is expected to occur shortly after the General
Meeting if approval of shareholders is given. Of this USD 3m, USD
600,000 (cGBP475,000) has been paid by the Purchasers into an
escrow account as a deposit, which is expected to be released to
Rurelec at Completion. In the event that the Resolution regarding
the Disposal is not passed, or Completion does not occur due to
reasons other than a material default of the Purchasers, the
deposit will be returned to the Purchasers.
In addition, further contingent payments of, in aggregate, up to
USD 2m (cGBP1.6m) may be made as follows:
-- USD 1m will be paid: if within 12 months following
Completion, an increase of the Remuneration payable by CAMMESA to
EdS is both (i) approved by the Secretary of Energy of Argentina;
and (ii) received by EdS in cash or by EdS receiving a set-off
against a current liability of EdS (including by way of
cancellation of debts and/or interest payable by EdS to CAMMESA).
For the purposes of this clause "current" liability means an amount
that became or would become due and payable by EdS during said 12
month period provided that the rate of such increase is 50% (or
more), more than the inflation rate in respect of the 12-month
period immediately preceding the month in which such increase is
approved. If these conditions are satisfied, then a further USD 1m
will be payable to Rurelec on the date falling 12 calendar months
following the date of payment to EdS of such increase of
Remuneration. However, this payment will be reduced to USD 500,000
if the rate of the Remuneration increase is less than 50% but
greater than 25% of the inflation rate in respect of the 12-month
period immediately preceding the month in which such increase is
approved.
-- USD 1m will be paid: if within 36 months following
Completion, CAMMESA reimburses in cash to EdS all major and minor
maintenance costs for EdS's turbines estimated for the period 2023
to 2025., If this condition is satisfied, then the Purchasers will
pay a further USD 1m to Rurelec on the date falling 36 calendar
months following Completion. This will be reduced to USD 500,000 if
75% or more of such costs (but less than 100%) are reimbursed in
the same timeframe.
The sale and purchase agreement contains warranties which are
typical for a transaction of this nature. The Company's liability
for warranty claims are subject to customary limitations including
an overall cap of USD 300,000 (save for claims under certain
fundamental warranties or in the case of fraud, wilful negligence
or intentional misrepresentation where the Company's aggregate
liability will not exceed the consideration actually received).
The Purchasers' obligations and liabilities under the
conditional share purchase agreement are several only.
The Company has received irrevocable undertakings to vote in
favour of the Resolution to approve the Disposal from Sterling
Trust which holds 53.99% of the Company's issued share capital.
AIM Rule 15: Fundamental Disposal
The Disposal is a fundamental disposal pursuant to Rule 15 of
the AIM Rules, and accordingly it is conditional on the consent of
its shareholders in a general meeting.
It should be noted that, if approved, the Disposal will be
deemed to be a disposal that divests Rurelec of all, or
substantially all of its trading businesses, activities or assets
(pursuant to Rule 15 of the AIM Rules). Accordingly, on Completion
Rurelec would be regarded as an AIM Rule 15 cash shell. Within six
months of becoming an AIM Rule 15 cash shell, Rurelec must make an
acquisition or acquisitions which constitutes a reverse takeover
under Rule 14 of the AIM Rules ("Relevant Acquisition") or the
Exchange will suspend trading in the Company's Ordinary Shares
pursuant to AIM Rule 40; and if such a Relevant Acquisition is not
completed within a further six months, the admission of the
Company's ordinary shares to trading on AIM will likely be
cancelled.
Use of funds
Upon Completion the Company expects that the initial net
proceeds will amount to approximately USD 2.85m (cGBP2.3m) net of
fees, expenses and commissions in relation to the Disposal. The
Directors consider that it is prudent to retain a proportion of
these funds for working capital for the Company while they seek to
maximise the value of the Company's other investments, in
particular the Turbines. In line with the Directors' corporate
strategy to return capital to shareholders having realised an
asset, the Company will, subject to Completion, pay a special
dividend of 0.20p per share to shareholders (a total sum of
approximately GBP1.12m) as soon as practicable after completion of
the Disposal. Details of the timing of the special dividend,
including the record and payment dates, will be announced after
Completion.
Ongoing Business
Following Completion, it will be the strategy of the Company to
maximise the value of the Company's other investments, whilst
exploring potential investment opportunities, with a view to
enhancing shareholder value.
Recommendation
Rurelec's liquidity position is now acute. The Company does not
have shareholder authority to issue any new shares. Accordingly,
Shareholders should be aware that Rurelec does not have the
flexibility to access the equity capital markets for funding.
In the event that the Disposal, which is subject to
Shareholders' approval, does not complete, the Company is unlikely
to be able to raise working capital on reasonable terms, or at all.
In such circumstances it is likely to lead to a significant and
permanent impairment of shareholder value.
The Directors consider that the Disposal is in the best
interests of the Company and its Shareholders as a whole.
Accordingly, the Directors will unanimously recommend that
shareholders vote in favour of the Resolution to be proposed at the
General Meeting.
For further information please contact:
Rurelec PLC W H Ireland (Nomad & Broker)
Andy Coveney, Director Katy Mitchell
Tel: 020 7549 2839/40 Tel: 020 7220 1666
DEFINITIONS
The following definitions apply throughout this announcement
unless the context otherwise requires:
"AIM" the AIM market operated by the
London Stock Exchange;
"AIM Rules" the AIM Rules for Companies
published by the London Stock
Exchange from time to time;
"Argentinian Interests" (i) 2,789,297 ordinary shares
of US$1.00 par value each in
PEL, comprising 50% of all of
the issued shares of PEL;
(ii) 600 A Class shares of ARG$
1.00 (Peso Argentino) each in
Electrica, comprising 0.1% of
the entire issued share capital
of Electrica; and
(iii) The Shareholder Debt;
"Basic Energy Limited" or "Basic" Basic Energy Limited, a company
incorporated in the Bahamas
with company number 14026 whose
principal office of business
is at Interenergy, 1 East Putnam
Avenue, Greenwich, CT 06830
USA;
"CAMMESA" Argentine Wholesale Electricity
Market Clearing
Company (Spanish: Compañía
Administradora del Mercado Eléctrico
Mayorista S.A.);
"CCL" (Spanish: Contado con Liquidación)
is a financial transaction that
consists of buying negotiable
securities in Argentina quoted
in Argentine currency, transferring
it abroad and then selling the
same negotiable securities in
the US with a dollar quote.
Through this transaction, domestic
currency is converted into US
dollars in a foreign account;
"Company" or "Rurelec" Rurelec PLC, a company incorporated
under the laws of England and
Wales with company number 04812855;
"Completion" completion of the Disposal;
"Disposal" the proposed sale of the Argentinian
Interests to the Purchasers
in accordance with the conditional
share purchase agreement dated
15 May 2023;
"Directors" or "Board" the directors of the Company
"EdS" Energia Del Sur S.A., a company
incorporated in Argentina with
company number 7527, Book 115
Vol. A, IGJ Registration No.
1.593.639 and CUIT No. 30-67732078-4
whose registered office is at
Arroyo 880, Piso 2, Office 3,
Ciudad Autonoma de Buenos Aires,
C1007AAB, Argentina;
"Electrica" Electrica del Sur S.A., a company
incorporated in Argentina with
company number 9106, Book 119
Vol. A, IGJ Registration No.
1.624.187 and CUIT No. 30-68898894-6
whose registered office is at
Arroyo 880, Piso 2, Office 3,
Ciudad Autonoma de Buenos Aires,
C1007AAB, Argentina;
"FCA" the UK Financial Conduct Authority;
"FSMA" the Financial Services and Markets
Act 2000 (as amended);
"Group" the Company, its subsidiaries
and its subsidiary undertakings;
"London Stock Exchange" London Stock Exchange Group
plc;
"Ordinary Shares" ordinary shares of GBP0.01 each
in the capital of the Company;
"Patagonia Energy Ltd." or Patagonia Energy Ltd., a company
"PEL" incorporated under the laws
of the British Virgin Islands
with company number 620522 whose
registered office is at Kingston
Chambers, PO Box 173, Road Town,
Tortola, British Virgin Islands.
Rurelec owns 50% of PEL;
"Purchasers" Verafont, Basic and Mr. Esteban
Reynal;
"Regulatory Information Service" a service approved by the FCA
for the distribution to the
public of regulatory announcements
and included within the list
maintained on the FCA's website;
"Remuneration" the unit values of the remuneration
concepts (prices and costs)
related to the availability
and energy applicable to "Central
Patagonia" and received by EdS,
which are proposed to be effective
after the date of Completion
and as approved by the Secretary
of Energy of Argentina, except
for any payments made to EdS
for maintenance purposes.
"Resolution" the resolution to be proposed
at the General Meeting as set
out in the notice of General
Meeting;
"Shareholders" holders of Ordinary Shares;
"Shareholder Debt" US$ 25,278,637, being the sum
of all amounts owed by PEL to
the Company at Completion under
(i) a fourth amended and restated
promissory note between PEL
and the Company dated 19 November
2019 (under which US$13,355,181
is owed), and (ii) an umbrella
agreement between (among others)
the Company, Basic, PEL, Electrica
and EdS dated 19 November 2019,
as amended on 20 May 2020 (under
which US$11,923,456 is owed);
"Turbines" two Siemens Westinghouse TG50D5/W701DS
127.8 MW gas turbine generator
packages, including ancillary
equipment;
"UK" the United Kingdom of Great
Britain and Northern Ireland;
"US dollar", "US$"or "USD" references to the lawful currency
of the United States of America;
"Verafont " Verafont S.A., incorporated
under to law 16,060, domiciled
in the Republic of Uruguay,
constituted according to the
statute dated 21 October 2015,
approved by the Internal Audit
of the Nation on 18 November
2015, registered in in the Registry
of Legal Entities with No. 115066
on 4 December 2015 and registered
in the Tax Authority under No.
21770541001;
"GBP", "pounds sterling", "pence" references to the lawful currency
or "p" of the United Kingdom.
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