REG - Obtala Limited - Acquisition, Expansion Capital and Fundraising <Origin Href="QuoteRef">OBT.L</Origin>

WoodboisAnnouncement

30/01/2018 07:05

RNS Number : 2689D
Obtala Limited
30 January 2018
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF ARTICLE 7 OF THE MARKET ABUSE REGULATION (EU) 596/2014. 
THIS ANNOUNCEMENT IS FOR INFORMATIONAL PURPOSES ONLY, AND DOES NOT CONSTITUTE OR FORM PART OF ANY OFFER OR INVITATION TO SELL OR ISSUE, OR ANY SOLICITATION OF AN OFFER TO PURCHASE OR SUBSCRIBE FOR, ANY SECURITIES OF OBTALA LIMITED. 
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN OR INTO, OR TO ANY PERSON LOCATED OR RESIDENT IN, ANY JURISDICTION WHERE IT IS UNLAWFUL TO RELEASE, PUBLISH OR DISTRIBUTE THIS ANNOUNCEMENT.
30 January 2018
Obtala Limited
("Obtala", the "Group" or the "Company")
(AIM: OBT)
 Acquisition, Expansion Capital and Fundraising of 4.5m (US$6.25m)  
Fundraising - Highlights
 Subscription to raise 4.5m (US$6.25m) (before expenses) at a price of 12.5 pence ("Subscription") per new ordinary share ("Issue Price") of 0.01 each ("Ordinary Share"); 
 Certain directors (Miles Pelham, Paul Dolan, Martin Collins) intend to subscribe for 1.1m (US$1.5m) as part of the Subscription; 
 Obtala intends that the proceeds of Subscription will be used to fund a proposed acquisition and the expansion of existing forestry business; 
 The Issue Price represents a discount of approximately 3.8 per cent. to the closing mid-market price of 13 pence per Ordinary Share;
 The new Ordinary Shares issued as part of the Subscription will represent approximately 12 per cent of the total number of Ordinary Shares in issue.
Acquisition - Highlights
 Obtala, through its forestry subsidiary Argento Limited ("Argento"), has entered into a memorandum of understanding ("MOU") with Nouvelle Scierie Moderne de Sassandra ("NSMS") and Mr Sidani Yahia Younes ("Mr Sidani") under which:
o Argento agreed to provide working capital loans to NSMS ("Loans"); and
o Mr Sidani agreed to sell 100% of NSMS's share capital if served written notice by Argento ("Proposed Acquisition") before 1 April 2018;
 The Loans total CFA450m (US$845k);
 Completion of the Proposed Acquisition ("Completion") would be subject to due diligence and agreeing the terms of the sale and purchase documentation;
 The price agreed in the MOU for the Proposed Acquisition is CFA 657m (US$1.2m) less the amount of timber purchased by Argento in the period 16 December 2017 until 31 March 2018; 
 Mr Sidani is a 45-year forestry veteran and if Completion takes place he has agreed to enter into discussions with Argento to agree terms under which he will be employed by Argento for three years following Completion.
Expansion Capital for Woodbois - Highlights
The proceeds of the Subscription will be used to fund expansion of WoodBois' businesses, including:
 $1.75m to double harvesting capacity in Gabon through investment in roads and machinery;
 $1.5m for supplier pre-payments; and 
 $0.75m for drying kilns.
Additional funds to be used for further supplier pre-payments, capital expenditure in Mozambique and general working capital purposes.
Miles Pelham, Chairman, commented: "We have spent over 6 months since the acquisition of WoodBois identifying and prioritising the investments required to scale the business. The opportunity for expansion in both timber trading and production was clear to us during the due diligence process, and we have now had the chance to validate the impact of additional funds on both divisions through the purchase of two new bulldozers that have been operational in our forest in Gabon and a 1m increase in WoodBois' overdraft facility, which was secured on completion of the acquisition in June. This has given us confidence that funds from the current equity raise, and the expected imminent arrival of additional trade finance, will have a significant impact within 2018. In NSMS we have an opportunity to grow what has been one of our most profitable areas of business and the potential to acquire a business that is already well known to our team, with the prospect of future expansion in West Africa."
Obtala Limited
Miles Pelham - Chairman
Paul Dolan - CEO
Martin Collins - Deputy Chairman
www.obtala.com
+44 (0)20 7099 1940
Northland Capital Partners Ltd (Nomad and Joint Broker)
Tom Price
David Hignell
+44 (0)20 3861 6625
Brandon Hill Capital (Joint Broker)
Jonathan Evans
Beaufort Securities Limited (Joint Broker)
Jon Belliss
+44 (0)20 3463 5000
+44 (0)20 7382 8300
Forward-looking Statements
This announcement includes "forward-looking statements" which include all statements other than statements of historical facts, including, without limitation, those regarding the Company's business strategy, plans and objectives of management for future operations, or any statements proceeded by, followed by or that include the words "targets", "believes", "expects", "aims", "intends", "will", "may", "anticipates", "would", "could" or similar expressions or negatives thereof. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors beyond the Company's control that could cause the actual results, performance or achievements of the Company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding the Company's present and future business strategies and the environment in which the Company will operate in the future. No undue reliance should be placed upon forward-looking statements. These forward-looking statements speak only as at the date of this announcement. The Company expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained herein to reflect any change in the Company's expectations with regard thereto or any change in events, conditions or circumstances on which any such statements are based, unless required to do so by applicable law or the AIM Rules for Companies. 


 Acquisition, Expansion Capital and Fundraising of  4.5m (US$6.25m)
Obtala, the African focused agricultural and forestry company, is pleased to announce that, through its forestry subsidiary Argento, it has entered into the MOU with NSMS and Mr Sidani under which:
 Argento agreed to provide the Loans to NSMS; and
 Mr Sidani agreed to sell 100% of NSMS's share capital if served with written notice by Argento before 1 April 2018.
The price agreed in the MOU for the Proposed Acquisition is CFA 657m (US$1.2m) less the amount of timber purchased by Argento in the period 16 December 2017 until 31 March 2018. 
The Loans are repayable over 9 months commencing on 31 March 2018, either directly or via equivalent discounts on future timber purchases.
Background on NSMS 
NSMS is a forestry produce company operating in the Ivory Coast since 1987. For the last 10 years, it has been a key timber supplier to the trading division of WoodBois International ApS ('WoodBois'), which was acquired by Obtala in June 2017. NSMS is owned by Mr. Sidani Yahia Younes, a citizen of the Ivory Coast, who has over 45 years of forestry experience in the region. NSMS' principal asset is a sawmill located in Oume, 300km from Abidjan. The sawmill is located in the centre of a 70,000-hectare plantation owned by the Ivory Coast's state forestry company, SODEFOR, where five hardwood species are grown (Cedrella, Frake, Framire, Teak and Samba). 
For the past 10 years WoodBois has been purchasing sawn timber from NSMS, primarily Cedrella, which it would first kiln dry then export through the port of Abidjan. A significant proportion of WoodBois' historic trading revenue has derived from NSMS timber, with the profits used to finance the construction of WoodBois' sawmill in Gabon since 2013. The use of profits to fund production assets rather than recycling into available trading capital had prevented WoodBois from increasing trading volumes through NSMS. Since the acquisition of WoodBois in June 2017, the Obtala team has conducted a review of WoodBois' key supplier relationships to understand how best to increase trading volume and profits once additional trade finance is secured. The Directors believe that the current transaction will enable NSMS to significantly expand its production, which will feed directly into WoodBois' trading business.
Subscription 
Each new Ordinary Share issued in connection with the Subscription will be issued with a warrant which is convertible into one new Ordinary Share ("Warrants"). The Warrants will be exercisable at the request of the holder at any time in the 2 years following issue with an exercise price of 20p each. 
Certain directors of the Company have agreed to subscribe for amounts as set out below:
  
Miles Pelham
Chairman
$ 1,000,000
Paul Dolan
CEO
$ 250,000
Martin Collins
Deputy Chairman
$ 250,000
 
The new Ordinary Shares to be issued pursuant to the Subscription will be issued in three tranches, with each issue conditional upon receipt of the appropriate subscription monies from the relevant subscriber. 
The dates upon which subscription monies are due for the new Ordinary Shares under the Subscription and the amounts are as follows:
Tranche
Date on which subscription monies due
Number of new Ordinary Shares
Subscription Amount
First
02/02/2018
8,317,459
 1,039,682.38
Second
28/02/2018
6,306,877
 788,359.63
Third
30/03/2018
21,026,843
 2,628,355.38
Application has been made for admission to trading on AIM of the first tranche of new Ordinary Shares to be issued pursuant to the Subscription and dealings in such Ordinary Shares are expected to start on 13 February 2018.
Application will be made for admission to trading on AIM for subsequent tranches of new Ordinary Shares (conditional upon receipt of the relevant subscription proceeds) following the date on which such shares are issued. 
Use of Proceeds
The proceeds of the Subscription will be used to fund expansion of WoodBois' trading and production assets:
 Acquisition of NSMS: The proceeds will fund the working capital loans of $845,000 and the consideration for the Proposed Acquisition of up to $1.2m.
 
 Expansion of Harvesting Capacity in Gabon: $1.75m to purchase forestry equipment required to double logging production in Gabon and supply more raw material to the sawmill and veneer factory. Having already invested in two new bulldozers and observed increased production rates in H22017 the Company has estimated that this investment will allow for an additional 4,000m3 of monthly harvesting or 1,600m3 per month of additional export grade timber if processed at the sawmill. 
 Purchase of drying kilns: $0.75m to purchase and construct drying kilns at Group's sawmill in Gabon capable of kiln drying up to 50% of our sawn timber production. Currently all timber is kiln dried at a third-party facility and construction of the Group's own kilns will allow us to dry timber at 20% of the cost of third party drying.
 Timber pre-finance fund: $1.5m for pre-payments to timber suppliers. Supplier pre-payments for timber that has not yet arrived at our warehouses is not considered eligible collateral by external trade finance providers. Typical pre-payments are 20-50% of the invoice amount, meaning a $1.5m pre-finance fund can support up to $7.5m of additional purchase volume. Such pre-payments are only made with suppliers with whom we have a long track record and where a pre-payment can provide favourable pricing and/or exclusivity. 
Additional proceeds of the Fundraising will be used for further supplier pre-payments, selective capital expenditure in Mozambique and for general working capital purposes. None of the proceeds will be used to fund the prospective joint venture with FundInvest, as announced on 9 January 2018, the funding of which will be conducted by and for a separate joint venture company. 
Trade Finance Update
Following the conclusion of due diligence, Obtala is negotiating final legal contracts to support an external trade finance facility that it expects to draw down on in February 2018. An initial $5m is expected to be available based on our current eligible collateral pool of inventory and receivables, and the Directors believe that the contract now being finalised will give the scope to increase this in $5m increments as funds are utilized. The agreed upon interest rate is USD 3M Libor plus 10.20% per annum. In preparation for this, we have engaged with collateral managers to provide security over our timber inventory and implemented new insurance policies covering our credit receivables.
1 USD = 532.701 CFA Franc as at 24/1/2018
1 USD = 0.71 GBP as at 29/01/2018

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