TIDMDUPD
RNS Number : 0622M
Dragon-Ukrainian Prop. & Dev. PLC
25 July 2017
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN
PART, DIRECTLY OR INDIRECTLY, IN, INTO OR FROM ANY JURISDICTION
WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR
REGULATIONS OF SUCH JURISDICTION
25 July 2017
Dragon-Ukrainian Properties & Development plc
("DUPD" or the "Company" and together with its subsidiaries, the
"Group")
Update on Board Recommendation
On 11 July 2017, the independent directors of DUPD (being Mark
Iwashko and Aloysius Wilhelmus Johannes van der Heijden) (the
"Independent Directors") published its circular to DUPD
Shareholders (the "Circular") explaining why they did not believe
that DUPD Shareholders should accept the Offer from Dragon Capital
Investments Limited ("DCI") at 15 pence per share (the
"Offer").
In the Circular the Independent Directors advised that they
would consider the best options for DUPD Shareholders dependent on
the level of valid acceptances received by DCI. Following the
announcement made by DCI on 18 July 2017 that, as a result of the
acceptances of the Offer received to date, DCI now holds DUPD
Shares representing approximately 59.31 per cent. of the issued
share capital of DUPD and that the Offer has been declared wholly
unconditional, the Independent Directors want to make those DUPD
Shareholders who have not yet accepted the Offer aware of the
following factors, which should be considered when deciding whether
or not to now accept the Offer.
Price
The Independent Directors, having been so advised by the
Company's financial adviser, Panmure Gordon, continue to believe
that the financial terms of the Offer significantly undervalue the
Company and its prospects for the reasons stated in the
Circular.
Controlling stake
DCI holds at least 59.31 per cent. of the issued share capital
of DUPD and without recourse to other DUPD Shareholders, DCI will
be in a position to propose and pass any ordinary resolution at a
general meeting of the Company, allowing it to determine the
membership of the board of directors and, through board
appointments (subject to DCI's intentions as stated in the Offer
Document), potentially the strategy and operation of the Company,
as well as the Company's policy on future dividend payments
(subject always to the directors' obligations to act in accordance
with the Isle of Man Companies Act and the Company's Investing
Policy). It is possible that DCI's view on DUPD's strategy and
investment policies may differ from the Board's and DCI's
priorities in relation to DUPD may be at variance with other DUPD
Shareholders who, even acting collectively, will have limited scope
for influencing the affairs of the Company by the exercise of their
voting rights.
DCI made the following statement in the Offer Document regarding
the intentions of DCI:
"DCI is not proposing, following any increase in its
shareholding as a result of the Offer, to seek any change in the
general nature of the DUPD's business, and does not currently
intend to take any action to alter the management of DUPD, the
continued appointment of its directors, the role of DCM Limited
pursuant to the Fourth Revised Management Agreement as amended, the
location of the Company's places of business, or the deployment of
the Company's assets".
Whilst DCI's statement is with respect to its current intentions
at this time, there is nothing to prohibit DCI from changing its
intentions in the future and, being a controlling shareholder, DCI
will be in a position to enact far-reaching changes to the
Company's activities and/or priorities without recourse to other
DUPD shareholders.
Investing Policy
Whilst DCI has stated that it is not proposing to seek any
change in the general nature of DUPD's business, DCI has not made
any statement of intent with regard to continued adherence to
DUPD's investing policy of an orderly realisation of DUPD's assets.
As an AIM listed company, a change of investing policy requires
approval of DUPD Shareholders by way of an ordinary resolution, so
there is a risk that DCI could effect a change of investing policy
which may not suit DUPD Shareholders other than DCI. Accordingly
there remains a risk that, were a change of investing policy to be
effected, DUPD slows down or ceases the development of its real
estate development assets, and/or that there will no longer be an
orderly realisation of DUPD's other real estate and other assets.
In that regard, future returns of capital to DUPD Shareholders and
the frequency thereof, could reduce.
Board Composition
DCI has stated that it does not currently intend to take any
action to alter the management of DUPD or the continued appointment
of its directors. There remains the risk that DCI, may in the
future, effect changes to the board of directors of DUPD which may
reduce the absolute number and/or majority of independent
directors, and also enable DCI to appoint further of its own
representatives to the DUPD Board.
Possible de-listing and associated risks
Under the AIM Rules, a special resolution is required to cancel
the admission to trading of shares on AIM. DCI stated in its
announcement on 20 July 2017 (the "Clarifying Announcement"), that
in the event that DCI acquires or agrees to acquire, by virtue of
its shareholding and acceptances of the Offer, issued share capital
carrying 75 per cent. or more of the voting rights of DUPD Shares,
DCI will procure that DUPD applies for the cancellation of trading
in DUPD Shares on AIM.
Consequently, there is no guarantee that DUPD's listing on AIM
will be maintained and there is therefore a risk that DUPD
Shareholders who do not accept the Offer could find themselves in
the position of owning a minority interest in an unlisted company
controlled by DCI, and no longer being afforded the protections
available to them whilst the Company remains an AIM listed
company.
In addition, with DCI securing a shareholding in DUPD carrying
more than 50 per cent. of the voting rights of DUPD Shares, even if
it does not gain control over 75 per cent. of the voting rights of
DUPD under the Offer, DCI may pass this threshold at some point in
the future as a result of further DUPD Share acquisitions. As DCI
has already secured a majority position, any further purchases will
not trigger an obligation to make a general offer for the Company
under the Takeover Code. Furthermore if DCI acquires further DUPD
shares outside the Offer process then under the Takeover Code it is
required to acquire those shares at a price which is equal to or
below the Offer price, for a period of 6 months following the
closing of the Offer. After this time DCI will be free to purchase
DUPD Shares at any price.
Related Party Transactions
Companies admitted to trading on AIM need to comply with AIM
Rule 13 in relation to any related party transactions. AIM Rule 13
would apply in relation to any proposed changes to the Fourth
Management Agreement, as DCM Limited is deemed to be a related
party of DUPD. If DUPD were to be de-listed from AIM, the DUPD
Board would be able to make changes to the Fourth Management
Agreement which may not suit DUPD Shareholders other than DCI, free
of the provisions of the AIM Rules. The provisions of the Isle of
Man Companies Act would continue to apply.
Liquidity
In the Circular, the Independent Directors highlighted that
DUPD's Shares, as currently traded on AIM, are relatively illiquid.
In view of the acceptances of the Offer received to date and
possibly with other large DUPD Shareholders who may not accept the
Offer the Independent Directors believe that in the event of the
Company continuing to be admitted to trading on AIM, the
marketability and liquidity of DUPD Shares will be further
adversely impacted, and there is no guarantee that DUPD
Shareholders who do not accept the Offer will have another
opportunity to sell at or above the current Offer Price in the near
future, or at all. The large concentration of DUPD Shares among a
small number of shareholders will also make DUPD Shares less
attractive to new potential investors.
The Offer provides DUPD Shareholders with the certainty of a
cash exit and an opportunity for DUPD Shareholders to realise their
investment in the Company notwithstanding the current low liquidity
on AIM, the challenging economic and real estate market in the
Ukraine and the uncertainty with respect to the timing of any
realisation of potential upside to the last reported net asset
value as at 31 December 2016.
Furthermore, the Independent Directors do not believe that there
is likely to be any alternative competing offer for the Company
within a reasonable period of time. Since the announcement on 30
May 2017 of DCI's mandatory offer for the Company, neither the
Independent Directors, nor Panmure Gordon have been approached by
any person on behalf of any other bona fide potential offeror
wishing to instigate discussions with a view to making a competing
offer for DUPD.
Recommendation
The Independent Directors believe that DUPD Shareholders should
consider carefully all of the factors outlined above and have
regard to their personal circumstances and the matters set out in
this announcement when considering whether or not to accept the
Offer.
The Independent Directors, having been advised by the Company's
financial adviser, Panmure Gordon, remain of the view that the
financial terms of the Offer significantly undervalue the Company
and its prospects, however, they recognise that DCI is now a
controlling shareholder and will have significant power and
influence over the Company. Additionally, there is a risk that even
if DCI does not gain control over 75 per cent. of the voting rights
of DUPD under the Offer, DCI may pass this threshold at some point
in the future and procure that DUPD applies for the cancellation of
trading in DUPD Shares leaving shareholders owning a minority
interest in an unlisted company.
Under these circumstances, the Independent Directors, having
been so advised by Panmure Gordon, who in providing its advice has
taken into account the Independent Directors' commercial assessment
believe that DUPD Shareholders should now accept the Offer.
Extended Closing Date
The Independent Directors note from the Clarifying Announcement
that a further announcement will be made on 1 August 2017 to update
DUPD Shareholders on the level of acceptances ("Closing Date
Announcement") and will keep the Offer open for a further seven
days until 1.00 p.m. on 8 August 2017.
Capitalised terms used in the Circular have the same meanings in
this announcement, save where the context provides otherwise.
Rule 29 Update
CBRE Ukraine (Expandia LLC) ("CBRE Ukraine") has been engaged by
DUPD to provide the following opinion, which is set out below.
"We can confirm that we have sufficient current local and
national knowledge of the particular market and the skills and
understanding necessary to undertake the valuation competently.
Today we have finalized the process of valuation as independent
"external valuers" as defined in the RICS Valuation - Professional
Standards, January 2014 (revised April 2015), and are qualified for
the purposes of the valuation. The valuation accords with the RICS
Valuation - Professional Standards, January 2014 (revised April
2015) and the International Valuation Standards. CBRE Ukraine has
no connection with Dragon Capital Investments Limited.
This opinion is provided to the Company and to whom else it may
concern in accordance with Rule 29 of the City Code on Takeovers
and Mergers.
CBRE Ukraine would note that we have not been engaged to perform
a valuation on the land known as "Avenue Shopping Centre" which
DUPD owns an 18.77% interest.
CBRE Ukraine undertook a valuation of the 7 (seven) real estate
properties owned by Company and/or its subsidiary undertakings (the
"Real Estate Portfolio"). Excluding residential sales during H1,
2017 (ca. USD 4 mln), it is our opinion that the valuation of the
Real Estate Portfolio as at 30 June 2017 in comparison to the
result of the valuation undertaken by DTZ Kiev B.V. as at 31
December 2016, is not materially different."
The Independent Directors note that CBRE Ukraine has not been
engaged to perform a valuation on the land known as "Avenue
Shopping Centre" in which DUPD owns an 18.77% interest. This land
was valued by DTZ Kiev B.V. as at 31 December 2016 at USD 1.24
million, and DUPD's fair value interest in Avenue Shopping Centre
project was disclosed in the financial statements at 31 December
2016 at USD 172k. As there is a high risk that the land lease will
not be renewed, the Independent Directors have decided to carry the
property at a valuation of nil.
Contacts:
Dragon - Ukrainian Properties & Development plc
(www.dragon-upd.com)
Mark Iwashko (Chairman) +380 (50) 381-8811
Panmure Gordon (UK) Limited
Richard Gray / Andrew Potts (Nomad
& Broker)
Karri Vuori / James Greenwood (Financial +44 (0)20 7886
Adviser) 2500
Panmure Gordon (UK) Limited, which is authorised and regulated
in the United Kingdom by the Financial Conduct Authority, is acting
exclusively for DUPD and the Independent Directors and no one else
in connection with the Possible Offer and will not be responsible
to anyone other than DUPD and the Independent Directors for
providing the protections afforded to its clients or for providing
advice in relation to the Offer or any other matters referred to
herein.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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