18 February 2019: EnvironmentalClean Technologies (ECT or Company) (ASX:ECT) is pleased to provide the followinginformation regarding an Equity Lending Facility loan repayment incentiveprogram.
Key points:
·Equity Lending Facility (ELF) loanrepayment incentive program initiated
·Non-dilutive and open to all ELFloan holders
·Funds to support ECT CY2019 budgetkey initiatives and projects
Consistent with the ASX announcementon 13 February 2019, the Company is pleased to announce the initiation of acampaign to incentivise loan repayments of the July 2017 ELF loans, to meet theCompany’s working capital requirements, in line with its budgeted keyinitiatives and projects.
ECT Capital Management Program –CY2019
As part of its first half (calendaryear) 2019 capital management program, ECT has implemented two key initiativesin support of its ongoing finance program for the year.
Firstly, the Company recentlyannounced the structure of the ECT project bond strategy (13 February 2019),which delivers a flexible solution to ECT’s financial bond obligations for itsIndia project whilst mitigating the impact of equity dilution.
In addition, ECT and its subsidiary ECT Finance (ECTF) have now put in place an ELF loan repayment incentive program to assist the Company to deliver on its key initiatives and projects.
The proceeds of the ELF incentiveprogram will be utilised as follows:
·Latrobe Valley project – projectfeasibility and engineering design program On the 28 November 2018 ECTannounced commencement of the feasibility study for the design and constructionof a Coldry commercial demonstration plant in Latrobe Valley. Over the past 12weeks, the ECT engineering team has completed a review of the basis of design(originated with engineering firm Arup in 2015) and commenced preparations forthe detailed second stage site assessment and detailed engineering design program.
·Bacchus Marsh – High Volume TestFacility – stage 3 upgradesECT has committed to a series of capital upgrades atBacchus Marsh over the past two years and currently proposes a 3rd phase upgrade program toprogressively meet the targeted 15,000 tonnes per annum (TPA) and 30,000 TPAcapacity objectives. These targets will be met with the additional support ofcoal terminal upgrades at Yallourn (in partnership with Energy Australia) andonce achieved will deliver increased capacity to the development of Coldrydomestic solid fuel markets.
·Coldry – domestic solid fuels marketdevelopment program As a central part of the commercialisation of the Coldrytechnology, and in parallel to the Latrobe Valley and India projects, ECT hasbeen developing and implementing its domestic solid fuel market developmentprogram over the past 18 months. With the completion of an extensive commercialtrial program and delivery of its first ‘steam package’ client in Victoria,this program will now expand to target additional projects in both Victoria andTasmania.
·Yallourn coal supply upgradesCommensurate with the planned increased capacity at its Bacchus Marsh highvolume test facility, and in support of the domestic market program above, ECT,together with its strategic partner Energy Australia, has identified theopportunity for increased efficiency at the Yallourn site coal terminal, fromwhich ECT currently receives it raw coal supply. Upgrades at the site wouldinclude conveyor infrastructure, bunkering upgrades, and improved handling andlogistics management. These are necessary to facilitate increased output fromthe existing terminal.
·Working capital requirements anddebt repaymentAs ECT moves into the implementation phase of its India and LatrobeValley projects, and in parallel with additional capital upgrade andcommercialisation activities outlined above, the resource base for coreoperations will inherently need to expand. Additional working capitalprovisions have been budgeted for the 2019 calendar year, which supportsignificant expansion in scope and scale of the Company’s activities.Commensurate with this are our current debt obligations including the Brevetloan facility (secured against the R&D tax incentive rebate accrual) and repaymentof the ELF securitisation loan (outlined in the Company’s announcement on 7December 2018).
The projects outlined above will bethe subject of detailed ASX releases over the coming weeks.
The Company announced the structureof its bond strategy on 13 February, which delivers a flexible solution for theIndian project bond that manages the impact of equity dilution. Similarly, theCompany has sought to minimise the impact of equity dilution with regard toraising working capital.
ELF loan repayment incentive program
What is the ELF?
In July 2017, ECT established an ELFvia its wholly-owned subsidiary, ECT Finance Limited (ECTF), to support theexercise of expiring options, creating a loan book with a present value of~$16.0 million.
The incentive offer
To meet ECT’s funding requirementsin support of the expanded project and commercialisation activities (outlinedabove) the Company has authorised ECTF to implement an ELF incentive campaignoffering the following to loan holders, on a pro-rata basis:
·Incentive offer:
·The aim: The incentive offer seeksto incentivise up to $3.5M in total loan repayments;
·The ‘incentive’: A 30% discount onup to one-third of ELF loan balances (as at 31 January 2019), available to allELF borrowers and applied to each separate ELF loan. The initial 30% discountopens 18 February 2018 and closes 5 pm (AEST) on 1 March 2019. From 2 March2019 the discount reduces to 17% and closes at 5 pm (AEST) 15 March 2019;
·ELF borrowers may elect to apply forless than their full allocation and there is no minimum repayment requirement;
·ECTF reserves the right to close theoffer early and will provide notification via email to all ELF borrowersaccordingly.
3·Oversubscriptions:
·ELF borrowers may apply for more thantheir pro-rata allocation via an oversubscription application on the same termsas the incentive offer; ·Oversubscriptionswill be allocated on a ‘first in’ basis. That is, allocations will be fulfilledin the order in which applications are received by ECT.
·Any ELF Borrowers that have electedto take up the oversubscription will be required to remit payment for theoversubscription within the same timeframes as the payment for their incentiveoffer (i.e. to receive the 30% discount on any oversubscription application,payment is to be remitted by 5pm AEST on 1 March 2019. Payments received on anyoversubscription application from 2 March to 5pm AEST on 15 March 2019 willreceive the 17% discount);
·Any oversubscription amountsremitted to ECT Finance, and subsequently not allocated in full (e.g. due tohigh demand), will be refunded within 3 business days after the close of theincentive offer period;
·Any ELF borrowers that have elected to take up theoversubscription will only be contacted with the final amount available foroversubscription if their application is not accepted in full;
·Oversubscription applications willbe confirmed no later than 20 March 2019.
ELF borrowers should expect toreceive email correspondence on 18 February 2019.
All standard features of the ELFcontinue to apply, including:
·Stock as security to the ELF willonly be released from trading block upon full repayment of the loan (i.e. ifthe 33% standard offer is taken up and a loan balance remains unpaid, then allthe stock remains locked);
·The standard interest rate discountsapply to loans repaid under the ELF incentive program.
Why an incentive program?
The ELF loan book is a non-dilutivesource of capital, making it preferable to traditional dilutive capitalraising; however, the repayment of ELF loans is highly dependent on theprevailing share price, which in turn is influenced by the progress of theCompany’s major projects and commercialisation activities.
ECT Chairman, Glenn Fozardcommented, “We don’t expect loan repayments to occur organically before theeffect of entering the project execution phase in India has been reflected inthe share price. “As such, the incentive is intended to encourage repayments asthe Company expects to transition from project preparation, through financialclose, to project execution.”
Offer example Borrower has an ELF loan balance of $10,000 as at 31 January 2019, including accrued interest and fees.
·Eligible loan amount: the amounteligible for the discount would be ~$3,333 ($10,000 x 1/3)
·Discount: the discount would be~$3,333 x 30% = ~$1,000
·Payment: the borrower would be required to pay ~$2,333
·New loan balance: the new loanbalance would be ~$6,667.
Depending on the terms of the loan,the borrower may also benefit by having reduced their loan-to-security ratio(LSR), which in turn reduces their ongoing interest rate. Reducing the LSR mayalso eliminate management fees.
4Theborrower’s ELF loan balance would be reduced but none of the borrower’s shares,secured under the ELF facility, would be released to the borrower.
A list of ‘Frequently AskedQuestions’ and example scenarios will be posted on the ECT Finance website (www.ectfinance.com.au).
Compliance requirements for ECT andECTF directors, officers and staff: ·Prohibition on ECT directors and officers participating inthe ELF incentive programThis position is formed on the basis that it is notcurrently possible to avoid or mitigate the direct conflict between directorsand officers who currently have a position within the ELF program and thedevelopment, analysis and decision making involved in implementation of theprogram itself. Under the continuous disclosure requirements, ECT has madematerial information in regard to its major activities available to the publicvia ASX announcement. However, as and when new price sensitive informationbecomes known, it may be that ECT directors and officers are exposed to thisinformation (more consistently and readily than others) which may influencetheir decisions to participate (or not) in the ELF incentive program.
·Allowance for ECTF directors andofficers to participate in the programThis position is formed on the basis thattwo of the three directors (each holding ELFs) abstained from the resolution tomake a recommendation to ECT board to approve the program. Furthermore, intheir roles as directors of ECTF, these individuals are not likely to currentlybe exposed to price sensitive information which may influence their decisionsto participate (or not) in the ELF incentive program. Furthermore, ECTFdirectors who do participate in the program, and through over subscriptionsfully repay their loans (and therefore take possession of the stock) would thenbe subject to normal staff trading policy requirements on transacting on thatstock. The Company is aware that one ECTF director intends to participate inthe incentive program.
·Allowance for ECT staff toparticipate in the programThis position is formed on the basis that staff didnot participate in the decision to implement the incentive (either at ECT orECTF level). Further, they are not likely to currently be exposed to pricesensitive information which may influence their decisions to participate in theELF incentive program. Furthermore, staff who do participate in the program,and through over subscriptions fully repay their loans (and therefore takepossession of the stock), would then be subject to normal staff trading policyrequirements on transacting on that stock. The Company has been advised that somestaff intend to participate in the incentive program and that all necessarycompliance checks will be completed prior to the staff member applying for theoffer.
The following table outlines the ELFloans attributable to staff:
Staff/director* Original options Total ELF loan balance Participation Glenn Fozard0.9c$428,703Prohibited
Ashley Moore0.9cand1.5c$339,249Permitted
Adam Giles0.9cand1.5c$676,111Permitted
*Balances include related entitiesof the staff member or director
For further information, contact:ECTFinance at [email protected].
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