ZXTWI – Gain on bargain purchase, financing agreements entered and intended capital raise

Name of Issuer TWK Investments Limited
Country of Incorporation ZA
Registration Number 1997/012251/06
ISIN Number ZAEZ00000034
Share Code ZXTWI

TWK Investments Limited – Gain on bargain purchase, financing agreements entered and intended capital raise

Gain on bargain purchase:

Shareholders are hereby advised of the gain on bargain purchase relating to the acquisition of the Peak Timbers assets by Shiselweni Forestry Company Limited, the wholly-owned Eswatini subsidiary of TWK Investments Ltd.

Shiselweni Forestry Company Limited, acquired forestry assets in the Piggs Peak area of Eswatini as a going concern from Peak Timbers Ltd and Peak Forest Products (Pty) Ltd (The Peak Business) with the effective date being 11 March 2021.

The Peak Business includes the following:

  • Total land of 26 752 hectares,
  • Plantations on 17 338 hectares of Land bought,
  • Standing timber on 3 013 hectares lease land
  • All buildings and improvements on the land,
  • A sawmill operation,
  • All movable assets utilised in the forestry operation, and
  • Inventory.

The collection of the above assets constitutes a business, as defined in IFRS 3 Business Combinations .

The fair value of assets acquired and liabilities assumed is as follows:
Preliminary fair value of Biological assets (Plantations): R573m
Fair value of Land and Buildings: R148m
Fair value of Movable assets: R33m
Total assets R754m
Total liabilities and provisions R10m
Net identifiable assets R744m
Consideration paid R572m
Bargain purchase gain R172m

The gain on bargain purchase that will be recognized in the Statement of Profit or Loss represents the excess of the net asset at fair value over the consideration paid on the effective date.

The fair value of plantations at matured date, being the age at which it becomes marketable, is based on the market price of the estimated recoverable timber volumes, net of harvesting and transportation costs. The fair value of younger plantations is based on the present value of the net cash flows expected to be generated by the plantations at maturity, in its most relevant market, and includes the potential biological transformation and related risks associated with the asset. The Faustmann method is used to incorporate the cost of establishment, maintenance and management into the value of the plantation. These input costs have been used to establish and maintain the plantation until the present date and therefore represent the replacement value of a plantation until such time as the volume of timber in the stand can be realised. The net selling price is based on third-party transactions and is influenced by the species, relevant market, maturity profile and location of timber. The Standing Timber Valuation Tables of Forestry Economics services were used to determine fair values.

The net assets recognized on 11 March 2021 are based on preliminary assessment of fair value, while management finalize the fair value of assets acquired.

Financing agreements entered:

Shareholders are hereby advised that the subsidiaries TWK Agri (Pty) Ltd and Shiselweni Forestry Company Limited have entered into financing agreements with The Standard Bank of South Africa and First National Bank for a total amount of R470 500 000 to finance the acquisition of the Peak Timbers assets.

Intended capital raise:

Shareholders are hereby advised that TWK Investments Ltd intends to raise additional capital via the issue of new ordinary shares for a total amount of approximately R100 000 000 (One Hundred Million Rand).

The details of the intended capital raise will be communicated to shareholders and prospective investors via prospectus in due course.

The cash raised through the issue of new shares will be utilised to finance the unfunded portion of the acquisition.

By order of the Board of Directors.

MJ Potgieter

Piet Retief
06 April 2021