While many pundits were busy looking at the English premier league transfer window, FiZ had its eyes set on another transfer of significant importance. Through SENS announcement of 30th January 2018, news broke out regarding a firm intention to make a binding offer for all of the ordinary shares of Copperbelt Energy Corporation PLC for a cash consideration of US$0.2338 per share. How could we not see this coming? But we should have because on October 3, 2017, shareholders were informed that an approach (“The Offer” or rather the irrevocable undertaking) had been made by Zambian Transmission LLP.
According to the statement, details of the offer were as follows: The Offeror will acquire all of the issued CEC Shares for cash at 0.2338 US cents per share. The exchange rate to be used will be the mid exchange rate on 22 January 2018 which prices each share in local currency at ZMW 2.28220.
Investors will be pleased with the offer as it represents a premium of 59.59% to the closing price of the CEC Share on 22 January 2018 (K1.43). Therefore, based on the offer letter, CEC’s share capital value is approximately $380 million (or north of 3.7 billion in local currency).
But what is the identity of the Offeror? Further along in their statement, we discover that Offeror is a limited liability partnership (hence the LLP in Zambian Transmission) incorporated under the laws of England and is wholly owned by the CDC group. CDC are a UK Development Finance Institution that is wholly owned by the UK Government.
The deal however gets even more interesting. For the purposes of this deal, CDC has entered into a binding equity commitment letter with Africa Infrastructure Fund (APMC) where the latter has committed to putting up some of the equity finance for a small stake in the deal. To put things into perspective, from a capitalization point of view, as at 31 December 2016, CDC’s total assets were worth USD 6 billion while new kid on the block (fund established in August 2017 and backed by Scandinavian institutional investors) APMC’s total fund commitment stood at USD 650 million.
Macro and micro factors were the motivation for CDC and APMC investing in CEC. On the macro side, they believe that regulation around energy and legislation have matured and are ripe for investment. Of note is the cost of service study currently being conducted by the Energy Regulation Board that is poised to bring parity to tariffs in Zambia. On the micro side, CEC’s internal resources and capabilities are strong enough and only require the requisite management support in order for the firm to continue creating value. They are legacy in electricity generation and have dominated the supply of electricity to the mining sector through a long term agreement with the national power company.