Bond with Options

A Veritable Source of Finance for African Companies

The Bond with Option/Warrant is a product of strategic partnership between Goldbanc Management Associates Limited (GMA) and a Euro-based International Fund Manager whose market capitalisation is in excess of $5.5 billion.

The agreement provides for GMA to recommend to the fund manager on a continuing basis well-run companies with sound corporate governance ethics for direct involvement both in Nigeria and other African countries.

Qualifying Criteria

• Sound management with good corporate governance structure.
• Quotation on any stock exchange in Africa; or
• Arrangements must be in place for quotation on a stock exchange in Africa within the next 12 months.

The Structure

Bond with Options/Warrants contains two financial instruments structured on a principle of "discount on interest rate for discount on market price per share."

First Financial Instrument: "The Bond"

• Denominated in Japanese Yen. To be issued in Japanese Yen, but can be received by the issuer in any preferable international currency — mainly US Dollars, British Pounds, Euros or Japanese Yen.
• The Bond can be either secured or unsecured depending on financial due diligence report on the issuer.
• The bond is issued at a significant discount to local lending rate (usually at a single digit interest).
• The Bond is redeemable either fully at an agreed redemption date or piecemeal, at agreed time intervals of 18, 24, 36 and up to 60 months.
• The bond is not convertible to shares.

Second Financial Instrument: "The Option" or "Warrant"

• This is a financial instrument attached to the bond that gives the bondholder the right to subscribe to the shares of the bond issuer at an exercise price (strike price) agreed in advance, within the exercise period also agreed in advance.
• Whenever the option is exercised, the bond issuer is required to issue new shares from its company's existing authorised share capital, duly registered with the appropriate regulatory authorities, to be taken up by the bond (option) holders of a determinable pre-agreed strike price.

Benefits

• The bond is issued at a single digit interest rate (less than 10%).
• The bond is for short to medium term (up to 5 years) allowing for ample time and flexibility to turn the fund around many times.
• There is opportunity for additional funding in the future when the option is exercised to acquire the shares of the bond issuer.
• The acquisition and subsequent disposal of option shares may have little or no dilution on the existing shareholdings as the bond issuer will be given the right of first refusal after the option has been exercised by the bond holder.
• The attraction for the foreign investor is the opportunity for growth inherent in the issuer's company, thus the issuer can leverage on the strength of the foreign investor in order to maximise growth.

Parties to the Bond with Option/Warrant

The following will be parties to the issue:

• The Issuer: a company listed on a stock exchange in Africa or under agreement to be so listed within 12 months.
• Lead Manager/Underwriter: the Euro-based Fund Manager.
• Financial Adviser and Issuing House: Goldbanc Management Associates Limited.
• Solicitor to the Issuer: The issuing company's lawyers, for the purpose of reviewing the mandate form and subscription agreement.
• Solicitor to the Lead Manager/Underwriter: usually local lawyers appointed by the lead manager.
• Receiving Bank: appointed by the issuer.
• Regulatory Authorities: Central Bank and the regulators of the capital market in the country of the Bond Issuer, to ensure compliance with local regulations.