Completion of Financing
17 July 2019
Anglo African Oil & Gas plc (AIM: AAOG), an independent oil and gas developer, is pleased to announce that it has completed a fundraising (the "Fundraising") for up to £8.25m. The fundraising comprises:
- a placing (the "Placing") of 49,288,347 ordinary shares of 5p each in the capital of the Company ("Ordinary Shares") to Miton Asset Management ("Miton") (the "Placing Shares") at a price of 5.2p per Ordinary Share (the "Issue Price"), a premium of 26.83 % to the prevailing share price on 16 July 2019, raising a total of £2,562,994.04 (the "Placing Proceeds"); and
- the entry into an Investor Sharing Agreement (the "ISA") between AAOG, YA II PN, Ltd ("YA II") and Riverfort Global Opportunities PCC Limited ("Riverfort" and, together with YA II, the "Investors") for a subscription of 109,331,011 Ordinary Shares (the "ISA Shares") at the Issue Price for a total commitment of £5,685,212.57 (the "ISA Proceeds").
The Company has applied for admission of the Placing Shares and the ISA Shares to trading on AIM ("Admission"). The Fundraising is conditional on Admission which is expected to become effective on 22 July 2019.
As set out below, there can be no guarantee that the Company will receive all of the ISA Proceeds and accordingly, the Company may not be able to execute all of its plans as set out in the Annual Report released on 28 June 2019.
Receipt of the monies from the Fundraising alongside continued anticipated receipts from SNPC are expected to enable the Company to re-enter the TLP-103C well at its Tilapia field in the Republic of the Congo with a view to producing oil from the Djeno horizon.
Investors should read the section of this announcement titled "Structure of the ISA" to gain an understanding of how this contract operates.
The Company has issued the Placing Shares at the Issue Price to Miton, an existing substantial shareholder in the Company, to raise in aggregate £2,562,994.04. The Placing Shares have been issued out of the authorities granted to the directors at the Company's annual general meeting on 28 June 2019.
The Fundraising Process
In order to have certainty that it could access capital to re-enter well TLP-103C before seeking straight equity investment from its existing and other shareholders, the Company entered into discussions during May and June 2019 with various potential providers of finance.
The Company was determined to avoid the issuance of convertible loan notes as part or all of the proposed funding, as certain significant shareholders had expressed their dislike of such instruments, which had the effect of creating uncertainty around the potential dilutive effects to existing shareholders.
As set out in previous announcements , the Company entered into a non-binding term sheet that envisaged the possible entry into an Investor Sharing Agreement. The terms contained in this term sheet were presented to existing shareholders and potential new investors as part of a proposed fundraising process in late June, following which Miton agreed to commit to the Placing as set out above.
Having announced those terms on 3 July 2019, the Company received competing offers for structured equity finance and accordingly entered into a competitive process overseen by the Non-Executive Directors of the Company. Following receipt of best and final offers from these potential providers, the Non-Executive Directors recommended, and the board unanimously accepted, the proposal of Riverfort and YA II. This process has resulted in the Company now completing the Fundraising and entering into the ISA with the Investors, on terms that the Non-Executive Directors consider to be the most advantageous available.
The structure of the ISA is explained further below, but the following summarises certain key elements:
- The ISA Shares are immediately issued to the Investors and these are the only Ordinary Shares that are issued pursuant to the ISA. In this way, there is certainty as to the dilutive impact of this financing structure. The ISA Shares have been issued out of the authorities granted to the directors at the Company's annual general meeting on 28 June 2019.
- The Investors receive their subscriptions monies back from the Company then repay that £5,685,212.57 to the Company in 12 monthly instalments subject to adjustments based both on the Company's share price performance and the ability of the Investors to trade in the Ordinary Shares as set out below.
- The structure itself is designed to remove any incentive on the Investors to lower the price per Ordinary Share. Essentially, the Investors are "long" of the Ordinary Shares and sell them in order to return the proceeds to the Company while making a return through the fact that the benchmark price is above the Issue Price.
The Non-Executive Directors consider that the major benefits of the ISA (as opposed to other structured finance instruments such as convertible loan notes) are twofold. Firstly, the ISA offers certainty as to the dilutive effect of the instrument since the number of Ordinary Shares to be issued to the Investors is established upon execution of the instrument. Secondly, the ISA allows the Company to benefit from any increase in the price per Ordinary Share above a set target price (see detailed explanation below). The Non-Executive Directors believe that these benefits outweigh the uncertainty over the potential monthly sums to be returned to the Company, particularly since the Non-Executive Directors believe that the current market price per Ordinary Share significantly undervalues the Company particularly in light of the successful drilling of the TLP-103C well.
Structure of the ISA
The Company has today entered into the ISA with the Investors. The undertakings set out in the ISA are subject Admission.
The Investors have agreed to subscribe for 109,331,011 Ordinary Shares (the "ISA Shares") at the Issue Price to raise in aggregate £5,685,212.57 (the "ISA Proceeds"). The Company has agreed to return the ISA Proceeds to the Investors, which are then to be distributed to the Company in accordance with the terms of the ISA as detailed below.
The ISA Proceeds are to be distributed to the Company in equal monthly instalments of £473,767.71 over a period of 12 months starting from 1 September 2019 and which shall be subject to the adjustments and the terms as set out below (the "Monthly Settlement").
Adjustments to the Monthly Settlements
Within five business days of the end of every month for which the ISA operates, the Company will notify the Investors of its calculation of the adjustments to be made to the Monthly Settlement based on the volume weighted average price ("VWAP") of the Ordinary Shares on the trading days in the preceding calendar month.
For the purpose of these adjustments, the ISA sets the benchmark price of the VWAP (the "Benchmark Price") as 5.93p per Ordinary Share, being 114% of the Issue Price.
The Monthly Settlement is then calculated as follows:
- If the One Month VWAP of the Ordinary Shares is equal to the Benchmark Price, the amount to be transferred shall be 100% of the Monthly Settlement;
- If the One Month VWAP of the Ordinary Shares is below the Benchmark Price, then the amount to be transferred shall be reduced by the percentage by which the One Month VWAP of the Ordinary Shares is below the Benchmark Price; or
- If the One Month VWAP of the Ordinary Shares is above the Benchmark Price, the amount to be transferred shall be increased by the percentage by which the One Month VWAP of the Ordinary Shares is above the Benchmark Price.
In this context, the One Month VWAP is calculated as being the arithmetic average of the VWAP on each trading day during a relevant calendar month.
One Month VWAP below the Benchmark Price
|One Month VWAP||5.2p per Ordinary Share|
|One Month VWAP as a percentage of the Benchmark Price||87.69%|
|Monthly Settlement||£415,446.90 (being 87.69% of £473,767.71)|
One Month VWAP above the Benchmark Price
|One Month VWAP||6.2p per Ordinary Share|
|One Month VWAP as a percentage of the Benchmark Price||104.55%|
|Monthly Settlement||£495,324.14 (being 104.55% of £473,767.71)|
The above is subject to the caveat that the Company will only ever receive a maximum of 100% of the value received by the Investors from the sale of any Ordinary Shares undertaken by them in the month prior to the Monthly Settlement.
As such, the Investors are required to sell Ordinary Shares in order for the Company to receive any funds. Therefore, in order for the Company to recoup the ISA Proceeds in full, the Investors would have to sell 9,110,918 Ordinary Shares (the "Assumed Monthly Traded Shares"), being 1/12th of the ISA Shares, at the Benchmark Price each month.
The Investors have covenanted with the Company to use their best endeavours to dispose of at least 4,555,459 Ordinary Shares (the "Minimum Monthly Shares"), being 50% of the Assumed Monthly Traded Shares, in each month.
Equally, the Investors have covenanted that each Monthly Settlement shall be an amount equal to at least 75% of the value received by the Investors from the sale of the Ordinary Shares it undertakes in the month prior to the Monthly Settlement.
The Investors also undertake to notify the Company of the sales undertaken by them in advance of the payment of a Monthly Settlement.
The liquidity of the trading in the Ordinary Shares in any calendar month also affects the term of the ISA. Should the liquidity restrictions set out below preclude the Investors from trading the Assumed Monthly Traded Shares in any calendar month preceding a Monthly Settlement the percentage difference between the number of Ordinary Shares hypothetically able to be traded, by reference to the daily volume restrictions applicable to the Investors (as detailed below) and extrapolated for that calendar month (the "Tradable Shares") and the Assumed Monthly Traded Shares shall be calculated (the "Balance"). The Monthly Settlement (taken following the adjustments above) will then be further adjusted by an amount equal to the Balance.
Actual Traded Shares below Monthly Traded Shares (for example, November 2019)
|Assumed Monthly Traded Shares||9,110,918 Ordinary Shares|
|Tradable Shares||8,000,000 Ordinary Shares|
|Balance (in terms of Ordinary Shares)||1,110,918 Ordinary Shares|
|Balance (as a percentage)||87.81%|
|Regular Monthly Settlement (post adjustments for VWAP set out above)||£473,676.71|
|Further Adjusted Monthly Settlement||£416,015.43 (being 87.81% of the Regular Monthly Settlement)|
The Balance rolls forward in each month and will be increased or reduced in subsequent months depending on whether the Tradable Shares is more or less than the Assumed Monthly Traded Shares. The Balance in each month is always determined by reference to the Assumed Monthly Traded Shares.
The next month (in this example, December 2019)
|Assumed Monthly Traded Shares||9,110,918 Ordinary Shares|
|Balance from preceding month (see above)||1,110,918 Ordinary Shares|
|Tradeable Shares (in this example in December 2019)||10,221,834 Ordinary Shares|
|December Balance (in terms of Ordinary Shares)||-1,110,918 Ordinary Shares|
|Balance (as a percentage) (to the Assumed Monthly Traded Shares)||112.19%|
|Regular Monthly Settlement (post adjustments for VWAP set out above)||£473,676.71|
|Adjusted Monthly Settlement||£531,519.96 (being 112.19% of £473,676.71)|
In the event that there is a Balance at the end of the period of the ISA, the ISA will be extended and the Company will continue to receive Monthly Payments until the Balance is extinguished.
With a view to limiting the impact the Investors might have on the market price of the Ordinary Shares in any given month, the ISA contains certain restrictions on the number of Ordinary Shares that the Investors can trade. In particular, the Investors have covenanted with the Company not to trade such number of Ordinary Shares as is the greater of (i) 19.99% of the daily traded volume of the Ordinary Shares; or (ii) 227,772 Ordinary Shares (being 1/20th of the Minimum Monthly Shares).
Risk and Rationale
As explained above, the Company will not receive the full value of the Returned ISA Proceeds if the One Month VWAP is below the Benchmark Price and there is therefore no guarantee to the amount, if any, that the Company will receive.
Notwithstanding the above, the Company believes that the current price of the Ordinary Shares significantly undervalues the Company and its prospects, given the discovery of oil in each target horizon of the TLP-103C well. Accordingly, the Company is hopeful that the market price of the Ordinary Shares will readjust to reflect this discovery and that the Company will be able to share in this uplift where the One Month VWAP is above the Benchmark Price (in which instance the Company will receive an increased Monthly Settlement amount).
There are no fees payable by the Company to the Investors in respect of the ISA or anything else, save that the Company has agreed to cover the Investors legal fees up to a maximum of £20,000 (excluding VAT).
The Investors have covenanted to the Company:
- That they will not dispose of any ISA Shares for a 30-day period commencing on the date of Admission;
- Not to participate in daily trading which represents more than 19.99% of the daily trading volumes of trading in the Ordinary Shares at any time during the term of the ISA;
- Not to forward or short sell any interest they have in any Ordinary Shares during the term of the ISA;
- Not to lend the legal and/or beneficial ownership of the Ordinary Shares they hold during the term of the ISA;
- Not to use the Ordinary Shares they hold as security during the term of the ISA; and
- Not to acquire more than 29.99% of the voting rights in the Company during the term of the ISA.
The Investors have undertaken to the Company that they shall:
- irrevocably appoint the Chairman of AAOG to act as the Investors' proxy at General Meetings in respect of the ISA Shares that they hold from time to time during the term of the ISA; and
- for a period of 60 days following the date of Admission, only dispose of any of the ISA Shares, by means of a trade through a recognised broker on the public markets and in particular shall not enter into any block trade arrangements of any description in respect of any of the ISA Shares.
The Company has agreed not to disclose inside information to the Investors unless consented to in advance by the Investors during the term of the ISA.
The Company has provided a standard suite of commercial Warranties to the Investors under the ISA.
As above, the Monthly Settlements shall commence on 1 September 2019 and shall end 12 months later subject to any adjustments made for the Balance as set out above.
The Investors may terminate the ISA prior to Admission if any of the warranties is not or has ceased to be true or if there has been a material adverse change in the business or financial or trading position or prospects of the Group.
Related Party Transactions
Miton Asset Management is participating in the Placing and receiving the Placing Shares. Miton is a related party of the Company by virtue of it being a substantial shareholder. Accordingly, Miton's participation in the Placing represents a related party transaction for the purpose of the AIM Rules for Companies. The directors of the Company consider, having consulted with finnCap, the Company's Nominated Adviser, that the terms of Miton's participation in the Placing are fair and reasonable insofar as the Company's shareholders are concerned.
By virtue of the issuance of the ISA Shares, the Investors will become substantial shareholders in the Company. Accordingly, the entry into the ISA represents a related party transaction for the purpose of the AIM Rules for Companies. The directors of the Company consider, having consulted with finnCap, the Company's Nominated Adviser, that the terms of the ISA are fair and reasonable insofar as the Company's shareholders are concerned.
On Admission, the Company will have 396,548,396 Ordinary Shares in issue and there are no shares held in treasury. Therefore, the Company's total number of Ordinary Shares with voting rights is 396,548,396.
The figure of 396,548,396 may be used by shareholders as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change to their interest in, the Company under the FCA's Disclosure Guidance and Transparency Rules.
For further information please visit www.aaog.com or contact:
|Anglo African Oil & Gas plc||Tel: c/o St Brides Partners
+44 20 7236 1177
|David Sefton, Executive Chairman
James Berwick, Chief Executive Officer
|finnCap Ltd (Nominated Adviser and Broker)||Tel: +44 20 7220 0500|
|Christopher Raggett, Giles Rolls, Teddy Whiley (Corporate Finance)|
|Camille Gochez (Corporate Broking)|
|St Brides Partners (Financial PR)||Tel: +44 20 7236 1177|
|Frank Buhagiar, Juliet Earl|
Notes to Editors
Anglo African Oil & Gas (AAOG) is an AIM-listed independent oil and gas company that owns a 56% stake in the producing Tilapia oil field in the Republic of the Congo. The Company boasts a low-cost production story in a prolific hydrocarbon region with significant exploration upside, differentiating it substantially from its E&P peers. Additionally, management's remuneration is tied to hitting production milestones, reflecting their strong focus on cost control.
All calculations in this announcement are taken to two decimal places.
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF ARTICLE 7 OF REGULATION 596/2014 ("MAR").