VSquXred Business Rescue presentation

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Opportunities

> Different types of distressed assets

> Pre-business rescue, during business rescue and after business rescue – focus today is on during business rescue

> Many successful business rescues have resulted from some form of investment

> Business rescue is a creditor driven process

> Distressed investment environment in South Africa is young and undeveloped

> Business rescue legal framework offers protection and “space to put together a deal”

> Practitioner (neutral and independent) takes the deal to stakeholders – avoids, or at least mitigates, the dangers of the over or under selling to stakeholders by management or board.

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Challenges

> Its not ordinary M&A - very technical from a legal perspective

> Can be litigious - militant creditors

> Regulatory environment in South Africa is a deterrent

> Within business rescue it is emphasised --> clock speed (the potential discount for an 'intact asset' makes up for the pain)

> All stakeholders’ interests need to be balanced to avoid failure due to litigation and/or unnecessary delays and/or 'no' votes

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Southgold Exploration Pty Ltd

> PCF providers - > Standard Chartered

> Credit Suisse

> Combined Exposure R2.6b - secured

> Why business rescue?

> Care and Maintenance costs - approximately R200m for South Africa only

> Other creditors – > Noteholders - R1.0 billion

> Trade creditors - R0.3 billion

> Inter-company / shareholders loans - R7.0 billion

> Total - R11b

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> Business rescue practitioner appointed –

> BRP legal team – business rescue legal, M&A legal

> JP Morgan - Transaction advisory

> KPMG - financial modelling, creditor verification, advisory

> Terra consulting - valuations

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> Regulators and government –

> DMR (6 to 7 months)

> Competition com (2 weeks for the Witsgold deal, 3.5 weeks for Sibanye/Witsgold deal)

> DWAF

> NNR

> SARS (more than a year to settle)

> SARB

> Local municipal and community structures

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> Witsgold offer –

> R75m on deal closure

> Fixed repayment schedule to lenders for R600m over current LOM

> R1.2b flex payment schedule to lenders based on FCF

> Further R680m to lenders based on 10% FCF participation over any additional LOM (if any)

> Option to settle without penalty

> 36 month interest moratorium

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> Witsgold bought an asset which swallowed an initial investment of R11 billion before it went into rescue for approx R1.9 billion (PV)

> Discount - 83%

> Duration - 21 months

> Level of complexity - extremely complex

> Various jurisdictions - Switzerland, English, Canada, United States of America

> Canadian CCMA and Receivership

> USA Chapter 11 proceedings

> Time zones - conference calls with callers on various time zones - (worst was Vancouver, NYC, Toronto, London, JHB, Zurich, Singapore, Beijing) - it’s a killer

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On Digital Media t/a Top Tv

> PCF providers –

> shareholders stopped funding - had nothing

> approached creditors

> secured creditor - DBSA consent (DBSA R200mil exposure)

> monthly subscription fees

> business 'as usual' - trading entity

> Other creditors –

> IDC -approx R900 million total exposure

> NEF - R100 million

> trade creditors - R400 million

> Total - approx R1.4 billion

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> Business rescue practitioner appointed advisors –

> business rescue legal team – business rescue legal, M&A legal

> KPMG – valuation

> ODM CEO - domain expertise

> ODM CFO – finance and modelling

> Regulators and government –

> ICASA

> DOC

> Competition commission (deal did not require approval, investigations into anti-comp behaviour by Multichoice)

> SARB (claims bought by ST)

> Electronic Communications Act (ECA) - limitation on foreign ownership of a broadcast license

> New BEE consortium (still confidential)

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> StarTimes offer –

> R45 million to trade creditors (15c/R)

> R30 million to DBSA

> existing shareholders kept in but severely diluted

> new BEE

> split into 2 companies - broadcast company, services company

> further investment of R1 billion in business plan

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> StarTimes have invested in an asset which swallowed an initial investment of R1.4bil before it went into rescue for approx R106 million

> Discount - 92%

> Duration - 20 months and counting

> Level of complexity – extremely complex (but for other reasons)

> politics and agendas

> rogue offer (MSG Africa backed by Multichoice)

> litigation

> regulatory - DOC, ICASA, SARB

> cross-border and cross-cultural issues

> virtually every major supply contract has been re-negotiated

> almost all technical platforms have been migrated (uplink stations, fibre links, play-out facilities, redundancy systems)

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Summary

> Business rescue can keep an asset whole as opposed to non-business rescue solutions

> Big becomes, complex and becomes expensive - underlying value is essential

> Time consuming and resource hungry

> Deep discounts are made possible

> Ultimately builds goodwill with stakeholders

> Young law - experienced advisors and business rescue practitioners are essential and also scarce

> Every business rescue presents its idiosyncrasies - there is no 'cookie cutter' approach

> Regulatory environment and other laws do not speak to BR need to know how to navigate the 'waters‘

> PCF remains a challenge and will do so until distressed investment (debt and equity) market develops

THE ROLE OF WERKSMANS AS LEGAL ADVISOR

Eric Levenstein, Director