by Jennifer Kann

Raising the score

Bravura restructures agri-business for enhanced BEE participation

TWK Agriculture Ltd is soon to be BBBEE-accredited

In a transaction that will create enhanced black participation in the agriculture sector, Bravura has advised TWK Agriculture Limited (TWK) in preparation for a broad-based black economic empowerment (B-BBEE) transaction it intends to complete soon.

Originally an agri-co-op, TWK has evolved over the past 70 years into an agri-support business, providing members and their communities with products and services ranging from finance, insurance, plantation management, retail, timber marketing and grain silo storage- and handling services.

“The challenge faced by shareholders in co-operative type businesses is the ability to unlock value for shareholders by creating share liquidity. One must, at the same time, be very sensitive to farmers’ fears of losing control of their shareholding in the co-op – which is often their only supplier and off-taker – to unfriendly shareholders,” says Stephan le Roux, senior dealmaker in the corporate finance division at Bravura.

Shares in these businesses are generally closely held to protect the farmers’ interest in the agri-co-op. But, the importance of not giving control away to share-price driven outsiders has resulted in the farmer-owned shares often not reflecting the underlying value inherent in the business. This has resulted in shares trading at significant discounts to their net asset value.

“TWK recognised the need for change, and Bravura assisted in the development of a restructuring solution that would increase outside participation in the business as well as address B-BBEE, but without losing the co-operative aspects of the business,” says Le Roux.

The solution proposed by Bravura’s corporate finance team, which is recognised as a market leader in the design and implementation of integrated solutions, will facilitate an increase in future liquidity of share trading as well as creating a B-BBEE solution for the TWK group – all while maintaining control for existing TWK shareholders.

Le Roux says this arrangement is in line with the shifting trend in BEE transactions away from single private equity type ownership and more toward empowering broader groupings with an emphasis on stakeholders and communities in and around the business.

The agri-sector is affected by uncontrollable weather and fluctuating commodity prices. These factors, together with the inability of most broad-based groups to raise capital, make it difficult to create an off-the-shelf BEE solution that relies on third-party funding.

In addition, debt-funded equity transactions tend not to score net equity value points because any acquisition debt will have to be deducted against the equity value in the hands of the B-BBEE partners on an annual basis; this further complicates the ability to create empowerment in the agri-sector.

Bravura’s BEE solution for TWK requires no external funding, facilitates the introduction of broad-based groupings, and ensures net equity value points can be scored on a sustainable basis.

“We are thrilled to have been able to create a structure that is a win-win for all parties,” says Le Roux who feels this must be the ultimate long-term BEE solution for an agri-business because it empowers the right stakeholders.

TWK’s shareholders have approved the proposed restructure and B-BBEE transaction, and implementation is expected by end-August 2013.

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Issue 46


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