Aveng issue of shares, circular & GM notice

Monday 18th August, 2014
Aveng shareholders are referred to the announcement on SENS, dated 16 July 2014, in which Aveng announced the successful placement of ZAR2 billion senior unsecured convertible bonds with a coupon of 7.25% (the \"Convertible Bonds\"). Aveng intends to use the net proceeds from the Convertible Bonds to repay certain existing debt facilities, extend its debt maturity profile and for general corporate expenditure. The offering forms part of Aveng\"s strategy to manage its liquidity needs, diversify its funding sources and reduce its reliance on bank debt, and to position itself to take advantage of growth opportunities.

Rationale for the specific issue of shares upon conversion of the convertible bonds The Convertible Bonds are currently cash-settled instruments, capable of being equity-settled provided qualifying Aveng shareholders grant approval for a specific issue of Aveng ordinary shares for cash (\"Aveng Shares\") for settlement purposes. Cash settlement of the Convertible Bonds will require significant cash reserves, which could constrain the Group\"s ability to invest in existing and new projects, fund ongoing business activities, retire or service outstanding debt and pay dividends, all of which could adversely affect its results of operations and financial condition.

Furthermore, while the Convertible Bonds remain cash settled, they must be accounted for under IAS 39 and will be fully recorded as a liability. Any movements in the value of the equity option must be accounted for on a mark-to-market basis through the statement of comprehensive income for each reporting period. An increase in the value of the equity option would negatively impact on earnings per share, while a decrease in the value of the equity option would positively impact on earnings per share. This accounting treatment introduces volatility in earnings which does not represent the underlying operational performance of Aveng.

Subject to the approval of ordinary resolution 1 as set out in the notice of general meeting contained in the circular posted to shareholders on 18 August 2014 (\"Specific Authority\"), the Convertible Bonds will be convertible into Aveng Shares and must be accounted for as a compound financial instrument under IAS 32 on an amortised cost basis with no requirement to account for the equity option on a mark-to-market basis. Accordingly, there will be no volatility in earnings relating to the Convertible Bonds once the Specific Authority has been obtained. Subject to obtaining Specific Authority, the Convertible Bonds will be convertible into Aveng Shares at an initial conversion price of R28.76 (\"Initial Conversion Price\"), representing a 30% premium to the reference share price of R22.12. The period during which conversion rights may be exercised by a Convertible Bondholder is from 2 September 2014 until 14 July 2019 (\"Conversion Period\"). At the Initial Conversion Price, the number of Aveng Shares to be issued upon the conversion of R2 billion in nominal amount of Convertible Bonds will be 69,541,029 Aveng Shares, representing 16.69% of the number of existing Aveng Shares in issue. The Issuer may redeem the Convertible Bonds in whole but not in part at their principal amount together with accrued interest (i) on or at any time after 7 August 2017, subject to the volume weighted average price of Aveng Shares exceeding 130% of the conversion price on no less than 20 out of the 30 consecutive dealing days prior to redemption; or (ii) at any time if less than 15% of the Convertible Bonds originally issued remain outstanding (\"Early Redemption Option\"). Once the early redemption option has been elected by Aveng, Convertible Bond Holders retain the right to convert into Aveng Shares at the Conversion price subject to any adjustments.

The terms and conditions of the Convertible Bonds (\"Terms and Conditions\") provide that the conversion price will be adjusted on the occurrence of certain events which include dividend payments, payments to shareholders and where buybacks are done at more than a 5% premium to the closing prices of the 5 trading days prior to the buyback. If such adjustments result in the reduction of the conversion price, the number of Aveng Shares to be issued in the event of a conversion of the Convertible Bonds will be increased. Shareholders are accordingly requested to approve the Specific Authority for the board of directors of the Aveng (the \"Board\") to allot and issue a maximum of 83 500 000 Aveng Shares, issuable upon conversion of the Convertible Bonds either at any time pursuant to the Early Redemption Option exercised by Aveng or during the Conversion Period (the \"Specific Issue\").

Related party
As per the JSE Ltd. Listings Requirements (\"Listings Requirements\") Allan Gray is regarded as a related party, as it held, directly or indirectly, more than a 10% beneficial interest in Aveng Shares at the commencement of the bookbuild process for the Convertible Bonds, being 16 July 2014. Allan Gray participated in the Convertible Bond offering, on the same terms as all other participants, and was allocated Convertible Bonds with nominal amount of R300 million through the bookbuilding process. In terms of the Listings Requirements, an independent fairness opinion is required due to the potential issue of Aveng Shares to a related party as a result of the conversion of the Convertible Bonds. Furthermore Allan Gray is excluded from voting on the ordinary resolution to be proposed at the general meeting.

Independent expert\"s report
PricewaterhouseCoopers Corporate Finance (Pty) Ltd. (the \"Independent Expert\") has been appointed by the Board to determine whether the terms and conditions of the issue of the Convertible Bonds and any issue of Aveng Shares upon conversion, are fair to Aveng Shareholders. The Independent Expert has considered the Terms and Conditions and the allocation of the Convertible Bonds to Allan Gray, and is of the opinion that the issue of Aveng Shares on conversion of the Convertible Bonds is fair insofar as Aveng Shareholders are concerned.

The Board has considered the Terms and Conditions, including the participation of Allan Gray, together with the opinion of the Independent Expert and is of the opinion that the issue of Aveng Shares is fair insofar as Aveng Shareholders are concerned. The Board therefore recommends that qualifying Aveng Shareholders vote in favour of the Specific Authority to issue Aveng Shares upon conversion of the Convertible Bonds.

Posting of circular and notice of general meeting
A circular to Aveng Shareholders setting out full details of the proposed resolution and the Specific Issue, incorporating a notice convening a general meeting of Aveng Shareholders to consider and approve the proposed resolution has been posted to shareholders on 18 August 2014. Salient dates and times for the General Meeting:
* Last day to trade in Aveng Shares in order to be recorded in the register of shareholders to vote at the general meeting: Friday, 5 September 2014
* General meeting record date: Friday, 12 September 2014
* Form of proxy for the general meeting to be received by 10:00: Wednesday, 17 September 2014
* General meeting to be held at 10:00 at Aveng\"s registered office, 204 Rivonia Road, Morningside, Sandton, Gauteng, South Africa: Friday, 19 September 2014
* Results of general meeting released on SENS: Friday, 19 September 2014.