In the previous release "New equity investor in Terminal No. 11 project" that
was disclosed on March 5, 2008 a new capital raising transaction was described
and the investors vote to approve the transaction was announced. After
consulting with AS Sampo Pank which is the collateral and payment agent of the
bond issue, Q Vara decided to postpone the vote because by March 5, 2008 the
company's 12 month financial report of 2007 was not yet released. Q Vara also
amended the release and vote by adding the proposal not to qualify the below
30% Equity share as the Event of Default in case Q Vara eliminates the
infringement by June 30, 2008.
The corrected version of the full release follows:
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According to the bond-issue terms' sub-clause no. 13.2.1. Q Vara must ensure
that its owners' equity is equal to at least 30% of its balance sheet volume.
In the 12 month report of 2007 Q Vara's owners' equity formed 27.5% of the
total assets. The decreased equity share is a result of Q Vara's net loss in
2007 and the decreases in retained earnings. The detailed overview of the
company's financial results can be found in Q Vara's 12 month report that was
disclosed on March 14, 2008.
In order to reach the 30% equity threshold Q Vara has put together an action
plan for three months ending on June 30, 2008. Firstly Q vara is in the
negotiations process with a financial investor to raise capital into Terminal
No. 11 project. Closing of the transaction is expected to take place by April
7, 2008. At the moment the investors have started project's due diligence.
After the final agreement is signed Q Vara will benefit from extraordinary
profit because the project's net value upon transferring it into a project
company is higher than its current balance sheet value (the value has increased
since the land plots last revaluation in 2005). The detailed capital raising
structure for Terminal No. 11 project is described in the current letter's
paragraph “Capital raising for Terminal No. 11 project”.
Raising additional capital into Terminal No. 11 project enables to release the
project's potential value quicker than it would be possible through the current
financing structure that consists of Q Vara's own financing and bank loan.
Shorter project duration improves Q Vara's financial position and through that
also benefits the investors.
In addition to Terminal No. 11 capital raising Q Vara is also negotiating a
sales transaction of one of its real estate investments that enables the group
to reduce its amount of liabilities and through that increase the equity share
of total assets. The details of the sales transaction will be disclosed after
binding commitments are signed.
To create an alternative to the previously described transactions Q Vara's
management has launched capital raising negotiations with Q Vara's shareholder
OÜ SLProductions. OÜ SLProductions' management's confirmation about its will to
invest additional funds into Q Vara in case the previous action plan does not
realize is attached to the current release.
After finalizing the described transactions Q Vara will have an equity buffer
in case the company's first half net result is negative. Based on the action
plan and paragraph 14 of the terms and conditions of the bond issue Q Vara
applies for the investors' consent to give the company time until June 30, 2008
for aligning the equity share of total assets with the bond issue term's
sub-clause 13.2.1.
In the following paragraph Q Vara has described the proposed Terminal No. 11
capital raising transaction.
Capital raising for Terminal No. 11 project
In the fourth quarter 2007 AS Q Vara (hereinafter”Q Vara”) started negotiations
with a German company HIH Global Invest GmbH (hereinafter”HIH”) for raising
additional capital to finance the development of Terminal No. 11 project
(hereinafter Q Vara and HIH together are referred to as the “Parties”). HIH
Global Invest GmbH belongs to M. M. Warburg & CO KGaA group which is the second
largest privately held bank in Germany. HIH is active in setting up closed-end
investment funds and raising capital from small investors.
As a result of the negotiations the Parties signed a letter of intent
(hereinafter “LOI”) on March 3, 2008 with an objective to regulate the Parties'
intention to cooperate on the Terminal No. 11 project and to confirm the
Parties' will to finalize the Transaction by April 7, 2008. In the following
text Terminal No. 11 project (hereinafter the “Project”) refers to Q Vara's
land plots that are listed in the following paragraph, utilities and buildings
on the land plots, loans that are backed by the land plots and buildings and
other project related liabilities.
According to the LOI the Project's land consists of 18 (eighteen) land plots in
Rae parish, Harjumaa, Estonia owned by Q Vara. The list of the land plots is
the following:
- Koplipere tee 1 (cadastre code: 65301:002:0688);
- Koplipere tee 3 (cadastre code: 65301:002:0691);
- Koplipere tee 5 (cadastre code: 65301:002:0694);
- Koplipere tee 7 (cadastre code: 65301:002:0696);
- Koplipere tee 9 (cadastre code: 65301:002:0701);
- Koplipere tee 11 (cadastre code: 65301:002:0703);
- Koplipere tee 13 (cadastre code: 65301:002:0705);
- Koplipere tee 17 (cadastre code: 65301:002:0708);
- Koplipere tee 19 (cadastre code: 65301:002:0709);
- Koplipere tee 21 (cadastre code: 65301:002:0711);
- Koplipere tee 23 (cadastre code: 65301:002:0713);
- Koplipere tee 25 (cadastre code: 65301:002:0714);
- Koplipere tee 27 (cadastre code: 65301:002:0715);
- Koplipere tee 29 (cadastre code: 65301:002:0716);
- Koplipere tee 6 (cadastre code: 65301:002:0695);
- Koplipere tee 8 (cadastre code: 65301:002:0699);
- Koplipere tee 10 (cadastre code: 65301:002:0702);
- Koplipere tee 14 (cadastre code: 65301:002:0706).
Four other land plots on Koplipere tee that are also owned by Q Vara are
already sold and handed over to clients so these properties are not part of the
Project.
The Parties intend to develop a logistics park that consists of warehouse and
office spaces on the previously listed land plots (hereinafter
the”Development”). The development volume will be between 45 000 - 50 000 sqm
of warehouse and office space and the expected project revenue will be 50 - 55
million euros. The development period will be 2008-2010 and during this period
the expected internal rate of return (“hereinafter the “IRR”) is expected to
reach 19% p.a.
For developing the Project the Parties will establish a joint venture
(hereinafter the “Company”) which will be owned by Q Vara and HIH. Each party's
share of the company depends on the investment amount. Q Vara's investment will
be the Project. In the LOI the Parties have agreed the Project's net value of 3
500 000 EUR which is higher than the project's value today on Q Vara's balance
sheet because market value of the land has increased since the land plots' last
revaluation in 2005. The final project value upon the transfer will be
determined after HIH has finalized the project's due diligence.
HIH will invest cash into the Company that amounts the own financing needed for
finishing the Development. According to the preliminary estimations the amount
will be 4 690 000 EUR and it will be paid in tranches according to the
development timetable.
According to the described investment amounts Q Vara will receive 43% of the
Company and HIH will receive 57% of the company. HIH will also receive a right
to increase its share up to 70% by purchasing additional Company's shares from
Q Vara. Together with establishing the Company the Parties will sign a
shareholders' agreement that sets out the Parties' rights and obligations and
the Development's goals.
The Company will sign a development agreement with Q Vara according to which Q
Vara is responsible for finalizing the Development. According to the agreement
the Company will pay to Q Vara monthly development fee for covering periodical
expenses and in the end a success fee. The success fee amount will be related
to the project performance: in case the project's IRR exceeds the hurdle rate
of 17% Q Vara will receive 30%; and in case the project's IRR exceeds the
hurdle rate of 20% Q Vara will receive 50% of the profit that exceeds the
profit needed for paying out the hurdle rate return.
By signing the LOI the Parties expressed their will to finalize the transaction
by April 7, 2008. By then HIH has finalized the Project's due diligence, the
Parties have signed the shareholders' agreement and have paid the equity into
the Company.
The prerequisites for finalizing the transaction are Q Vara bond investors' and
the project financier's (AS Sampo Pank) consent for transferring the Project
into the Company, the final investment decision by HIH's supervisory board and
the positive Project's due diligence result for HIH.
Based on the previous information Q Vara files two applications to the
Investors:
1) Q Vara applies for a consent of the Investors not to qualify the below 30%
Equity share as the Event of Default in case Q Vara eliminates the infringement
by June 30, 2008.
2) Q Vara applies for a consent of the Investors to raise additional capital
into a new subsidiary at least in the amount of 4 690 000 EUR for developing
the Terminal No. 11 project and to transfer the Project into the Company on the
following conditions:
2.1) The Project's minimum net value upon making the transfer is not lower than
3 000 000 EUR;
2.2) Q Vara has a right to sell additional amount of the Company's shares to
HIH so that Q Vara's minimum shareholding will be 30%.
To apply for the note holders' consent Q Vara according to the bond issue terms
sends the draft of the note holders' decision by mail to the investors listed
as Q Vara note holders in Estonian Central Registry of Securities on March 24,
2008. Based on the application the Investors have an opportunity to vote for
the described transaction. The draft of the note holders' decision is also
attached to the current release.
Meelis Šokman
Chairman of the management board
AS Q Vara
Phone: 668 1600
