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TRANSACTION CAPITAL LIMITED - Formation of joint venture to invest in European distressed debt

Release Date: 19/12/2018 12:19
Code(s): TCP     PDF:  
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Formation of joint venture to invest in European distressed debt

Transaction Capital Limited                          
(Incorporated in the Republic of South Africa)                                                                          
Registration No: 2002/031730/06                                                                                  
JSE share code: TCP                                                                                                      
ISIN: ZAE000167391
(“Transaction Capital” or “the Company”)

TransCapital Investments Limited
(Incorporated in the Republic of South Africa)
(Registration No. 2016/130129/06)
JSE debt code: TCII    

FORMATION OF JOINT VENTURE TO INVEST IN EUROPEAN DISTRESSED DEBT

1. INTRODUCTION
   Transaction Capital is pleased to advise shareholders that it has, through its wholly-owned subsidiary,
   Transaction Capital Risk Services Holdings (Pty) Ltd (TCRS), entered into a joint venture arrangement
   with Genki Group Limited (Genki), a company owned by the respective trusts of Transaction Capital
   directors, Jonathan Jawno (Jawno), Michael Mendelowitz (Mendelowitz) and Roberto Rossi (Rossi)
   (collectively referred to as the Founders), in order to invest in European non-performing loan portfolios
   and special credit situations (collectively referred to as distressed debt). Each of Transaction Capital
   and Genki have allocated €20 million to the joint venture.

2. RATIONALE
   The European distressed debt market is a multiple of times larger than the South African and Australian
   markets within which TCRS currently operates. Participants within this market are primarily credit
   management and collection platforms, asset managers or private equity funds. Over recent years, the
   Founders have established relationships with certain specialist credit managers and have identified an
   attractive segment of this market for entry by the joint venture. This segment comprises smaller, high-
   yield, off-market bespoke distressed corporate and consumer debt portfolios acquired and managed
   by these selected specialist credit managers.

   The joint venture will leverage off the existing infrastructure and network established by the Founders
   to optimize these opportunities with the intention of achieving double digit hard currency returns and
   further diversify its geographic earnings base. The investments will comprise direct co-investments,
   partnerships with specialist credit managers in selected portfolios and investments in specifically
   identified debt funds, thereby accessing the European distressed debt market without concentrated risk
   to any particular distressed debt portfolio, asset type, collection platform or geographic region.
   Leverage may be introduced as appropriate.

   An initial investment by TCRS and Genki of approximately €3 million each is expected to occur within
   Western Europe before Transaction Capital’s March 2019 half-year end. In time, TCRS intends to
   progressively participate in more sizeable prospects with the ultimate intention to build a European
   distressed debt business of scale, with the potential to leverage off TCRS’s South African low-cost
   collection infrastructure and technology. This could be achieved without creating unnecessary business
   integration costs.
                                                    
3. TRANSACTION STRUCTURE

   The following initial investment structure will be utilised:

    -   A subsidiary of TCRS, Transaction Capital Risk Services International (Pty) Ltd (TCRSI) will
        subscribe for 50% of the shares in a newly established company, Turicum Ventures Ltd (Turicum).
    -   The other 50% shareholding will be held by Genki.
    -   A shareholders’ agreement between TCRSI and Genki will be entered into to govern the joint
        venture arrangement, the terms of which will be approved by the independent non-executive
        directors of the Audit, Risk and Compliance Committee. All shares in Turicum will rank equally and
        all contributions to and returns from the joint venture will be made on an equal, pro-rata basis. No
        fees will be charged between the parties.
    -   To the extent appropriate, alternate joint venture investment structures between TCRSI and Genki
        may be considered.

4. RELATED PARTIES TRANSACTION
   Jawno and Mendelowitz are executive directors of Transaction Capital, with Rossi being a non-
   executive director. Each of Jawno, Mendelowitz and Rossi are contingent discretionary beneficiaries of
   trusts that each own directly or indirectly an effective 9.72% of Transaction Capital. In addition, Jawno,
   Mendelowitz and Rossi are also contingent discretionary beneficiaries of trusts that each own 33.3%
   of Genki.

   The transaction has been categorized as a small related party transaction in terms of section 10.7 of
   the JSE Limited Listing Requirements (JSE LR).

5. FAIRNESS OPINION
   Due to the joint venture nature of this transaction, the JSE Limited has dispensed with the requirement
   to obtain a fairness opinion in terms of section 10.7 of the JSE LR.

Dunkeld West
19 December 2018

Enquiries:
Phillipe Welthagen - Investor Relations
Telephone: +27 (0) 11 049 6700

Sponsor:
RAND MERCHANT BANK (A division of FirstRand Bank Limited)


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