TIDMDQE
RNS Number : 2110Z
DQ Entertainment PLC
09 December 2014
9 December 2014
DQ Entertainment plc
("DQE", the "Company" or together with its subsidiaries, the
"Group")
Issue of up to US$50 million of bonds by DQE Mauritius
DQ Entertainment plc (AIM:DQE), a global entertainment
production and distribution company focused on children's and
family animation content, is pleased to announce that its wholly
owned subsidiary, DQ Entertainment (Mauritius) Limited ("DQE
Mauritius"), has issued up to US$50 million of senior secured
convertible bonds (the "Bonds") to OL Master Limited, a private
credit fund managed by OCP Asia (Hong Kong) Limited (the
"Investor").
Highlights
-- Funding for more than 20 owned-IP and co-production projects over the next two years
-- Up to US$50 million raised (minimum US$35 million) with a
coupon of 13 per cent. per annum (payable in cash and bonds)
-- 5 years maturity with early redemption option after 3 years
or, inter alia, in the absence of a liquidity event or shareholder
approval for conversion
-- Liquidity event (trade sale or IPO of DQE Mauritius) to take place within 3 years
-- DQE to be cancelled from trading on AIM and merged with DQE
Mauritius as soon as possible prior to or as part of a liquidity
event (trade sale or IPO of DQE Mauritius)
-- Convertible upon a liquidity event, 30 days before maturity or in event of default
-- The principal amount is convertible into up to 56.5 per cent. of DQE Mauritius
-- Warrants over 24 per cent. of DQE Mauritius become
exercisable in the absence of a liquidity event or shareholder
approval for conversion
The Bonds can be drawndown in two tranches, the first of which
is for US$35 million and will be drawndown on or before 8 January
2015. The second tranche of US$15 million can be drawndown at the
option of the Investor within 12 months thereof.
The net proceeds from the issue of the Bonds will be used to
fund the development of more than 20 owned-IP and co-production
projects currently in the pipeline for production over the next two
years, for the repayment of certain debts amounting to
approximately US$7.21 million (INR 445.1 million) and for general
working capital purposes.
Tapaas Chakravarti, Chairman and CEO of DQ Entertainment plc,
said: "We are delighted to partner with OCP Asia and confident that
this association will help us to realise our vision for DQE. The
validation of our business model by the high acumen OCP team
further strengthens our commitment to produce and distribute world
class content across territories and grow our audiences with high
quality IP creation."
Teall Edds, co-founding partner of OCP Asia (Hong Kong) Ltd.,
added: "We have been impressed with DQE's exciting pipeline and its
capabilities in producing world class content, its ability to work
with broadcasters from around the world in bringing ideas to the
screen, and its "360-degree" monetisation approach to generating
returns on IP. We look forward to our close partnership with
DQE."
Background to, and reasons for, the Bonds issue
As noted in the announcements of 2 June and 18 August 2014, the
board of directors of DQE (the "Board") has been exploring various
options to secure the necessary funding for the Group's pipeline of
new projects, the bulk of which are children-/family-oriented
animation series for TV and digital distribution. This has included
discussions with a number of investors and, after considerable
deliberation and effort, DQE has concluded that the issue of the
Bonds is the best option available to the Group to secure the
finance it needs and is in the best interests of shareholders as a
whole. The Board believes there is an opportunity to grow DQE's
business through the development and exploitation of its own IP and
the issue of the Bonds provides the finance to capitalise on
this.
The production and development of owned-IP into an animated TV
series is a labour, time and capital intensive process. Although
the Company typically secures pre-sale contracts before putting
owned-IP projects into production, payments due from these
contracts are typically made only once the series is delivered to
the customer. While some production costs may be defrayed by
co-production partners, a large portion of the working capital
necessary for the production of a project is usually the
responsibility of the Group, and the total production cycle can
typically span 18-24 months. Until now, the Group has been funding
its projects through bank financing against the escrow of
receivables for up to 50 per cent to 60 per cent of the total
budget. However this process is protracted and time consuming and
does not match well with the timing requirements of DQE's
productions. While this funding arrangement may be adequate on a
one-off project-by-project basis, it is an insufficient means to
fund a larger slate of productions simultaneously and has
constrained the Group. Currently, the Group has over 20 pipeline
projects, with nine ready to move into immediate production (some
of the work on these projects having already commenced). The only
solution to enable the Group to pursue its growth strategy and
exploit its current opportunities is to secure long-term funds so
it can fast track productions as soon as pre-sales are in place,
which the proceeds from the Bonds will enable. If the Group were
not able to proceed with the issuance of the Bonds, it would
continue to be constrained, may not be able to grow at an
accelerated pace, may be more subject to cyclical industry
fluctuations and would have difficulty sustaining current business
levels, and could even have to eventually scale down its
operations.
Current prospects and pipeline
DQE has a production order book worth approximately US$63
million (INR 3,820 million) in terms of revenue to the Group. Some
of the projects currently in production include Robin Hood, Peter
Pan season 2, Lassie, Miles from Tomorrow Land, Popples and Seven
Dwarfs & Me. Production of many new IPs such as 5 & IT,
Yonagunis and Leo Galilei will commence soon. DQE has recently also
signed on a co-production project called "Pio the Chick" with Rai,
Italy. The Group is engaged in discussions for more such projects,
further details of which will be announced at the appropriate
time.
DQE's distribution and licensing division has concluded 24 deals
in the current financial year totaling US$12 million (INR 720
million) in terms of revenue to the Group. In addition, a number of
broadcast deals for the Group's IP, including Jungle Book, Peter
Pan, Iron Man and Robin Hood, have been concluded with global
broadcasters such as Rai Cinema (Italy), DEA (Italy), Viacom 18
(India) and Univision (USA & Puerto Rico). DQE expects to be
able to grow its licensing and merchandising revenue through its
360-degree monetisation strategy for all its existing and new IPs
going forward.
The dispute with SMC Group International Inc. (which was
appointed as DQE's licensing agent for the Jungle Book season 1 TV
series in North America) has been settled and DQE now has a
directly executed contract with fast food giant Burger King, which
has acquired the QSR (quick service restaurant) promotional rights
for Jungle Book for its outlets across the world.
DQE has also sought a valuation of its IP and pipeline of IP it
plans to develop over the next four to five years from CONSOR
Intellectual Asset Management ("CONSOR") in the United States.
CONSOR is a global industry leader in intellectual property
valuation, expert witness services, monetisation assistance,
licensing strategies and more and has been for the last 25 years.
As per their report, dated 6 January 2014, the total valuation of
the IP of DQE was US$218 million.
Terms of the Bonds
DQE Mauritius is obliged to issue up to US$50 million of senior
secured convertible bonds to raise gross proceeds of up to US$50
million (the "Issue"). The Bonds will be issued in two tranches,
the first of which will be for US$35 million to be completed within
one month from the date of the Bonds, being 9 December 2014 (the
"Closing Date"). The second tranche of US$15 million can be
drawndown at the option of the investor within 12 months of the
Closing Date.
The Bonds carry a cash coupon rate of 6.5 per cent per annum
(the "Cash Interest") and a PIK (payment in kind) interest rate of
6.5 per cent per annum (the "PIK Interest"), payable semi-annually
from the Closing Date up to the Maturity Date. The PIK Interest
will be paid by the issue of additional bonds to the Investor on
the same terms and conditions as the Bonds (save in event of
default or redemption of the Bonds, in which case the PIK Interest
will be payable in cash). A default interest rate of an additional
2 per cent per annum will apply on any payable amounts if not paid
when due.
The Bonds will have a maturity period of five years from the
Closing Date (the "Maturity Date"). Outstanding Bonds will be
redeemed on the Maturity Date at a redemption price equivalent to
an amount which would yield the Bondholders an internal rate of
return ("IRR") equal to 15 per cent per annum (the "Redemption
Price"). In addition, the Bondholders can redeem the Bonds at the
Redemption Price:
(i) after a period of 36 months after the Closing Date;
(ii) after an event of default;
(iii) if Conversion (as defined below) is not approved by DQE shareholders;
(iv) if Conversion would trigger a mandatory offer under the
Securities Exchange Board of India (Substantial Acquisition of
Shares and Takeover) Regulations 2011; or
(v) if best endeavours are not made to effect an AIM Cancellation (as defined below).
The Bondholders can also redeem the Bonds at a price that would
yield a 25 per cent per annum IRR (the "Increased Redemption
Price") on the occurrence of a change of control event of either
DQE or DQE Mauritius or if a Qualified Liquidity Event (as defined
below) has not taken place within three years of the Closing
Date.
If DQE Mauritius fails to repay or refinance the Bonds as a
result of any redemption notice pursuant to a failure to achieve a
Qualified Liquidity Event (as defined below) or a Cancellation (as
defined below) or obtain the necessary approvals for Conversion (as
defined below), or the Group materially fails to achieve its
business plan to service the Bonds, there is a very real risk that
DQE Mauritius will find itself in Default (as defined below) and
that the Bondholders may enforce its security or exercise the
Conversion and/or take ownership and control of materially all of
the assets of the Group or may likely result in the Company being
insolvent and unable to continue to trade.
The Bonds will be issued to the Investor and are freely
transferrable, in whole or in part, to any person (with the holders
of the Bonds from time to time being collectively, the
"Bondholders").
Conversion
The Bonds can be converted into ordinary shares of DQE Mauritius
("Shares") at a price of US$0.5543 per Share ("Conversion").
Conversion of the full US$50 million of Bonds (excluding any new
bonds issued as payment for PIK Interest) would currently equate to
56.5 per cent of DQE Mauritius on a fully diluted basis.
Whilst DQE is admitted to trading on AIM, Conversion can take
place:
(i) as part of a Qualified Liquidity Event (as defined below);
(ii) within 30 days of the Maturity Date; or
(iii) after the occurrence of an event of default.
Conversion is subject to compliance with the AIM Rules for
Companies ("AIM Rules") (including DQE obtaining any necessary
approval of its shareholders) and the Securities Exchange Board of
India (Substantial Acquisition of Shares and Takeover) Regulations
2011, as amended from time to time (the "Takeover Regulations"). In
particular, Conversion will require the approval of DQE
shareholders in a general meeting where Conversion is deemed to be
a disposal resulting in a fundamental change of business by DQE
under rule 15 of the AIM Rules. If shareholder approval for
Conversion is not obtained, then the Bondholders can redeem the
Bonds at the Redemption Price ("Redemption") and exercise their
warrants over Shares ("Warrants") which will be granted to the
Investor on the Closing Date. The Warrants will represent 24 per
cent. of the fully diluted share capital of DQE Mauritius on issue,
will have a zero strike price, be immediately exercisable and will
expire at the end of five years from the date the holder of the
Warrant is entitled to exercise its Warrants. The Warrants are
freely transferrable.
Conversion is also subject to the Takeover Regulations as DQE
Mauritius owns 75 per cent of DQ Entertainment (International)
Limited ("DQE India"), the main operating company of the Group,
which is listed on the National Stock Exchange of India and the
Bombay Stock Exchange and which is subject to the Takeover
Regulations. Conversion of the Bonds might trigger the mandatory
offer provisions of the Takeover Regulations. If this occurs, the
parties will then need to discuss with the Securities Exchange
Board of India ("SEBI") as to how to proceed given the interplay
with the current Indian regulatory requirements. If SEBI determines
that a mandatory offer is required, the Bondholders may seek
Redemption and exercise their Warrants.
Qualified liquidity event
Within 36 months of the Closing Date, DQE Mauritius must use
best endeavours to undertake a liquidity event, such as a trade
sale of DQE Mauritius or the listing/IPO of DQE Mauritius on the
NASDAQ, or other similar stock exchange acceptable to the Majority
Bondholders (being those holding 66 2/3 per cent. or more of the
aggregate principal amount outstanding under the Bonds) ("Liquidity
Event"). In either case, the Liquidity Event, whether a listing/IPO
or trade sale, must yield a 25 per cent. per annum IRR should the
Bondholders convert the Bonds into Shares and sell them through the
Liquidity Event (together, a "Qualified Liquidity Event").
If a Qualified Liquidity Event does not take place within 36
months of the Closing Date and DQE Mauritius has not exercised its
best endeavours to achieve one, then the Bondholders may redeem any
or all of its Bonds at the Increased Redemption Price and exercise
the Warrants. The Board will use its best endeavours to achieve a
Qualified Liquidity Event within the timeframe required and has
already started discussions in this regard. Further announcements
on this will be made when appropriate.
AIM cancellation and Group re-organisation
In order to align the interests of shareholders in DQE with that
of the Bondholders, such that those shareholders also get the
benefit of a Qualified Liquidity Event, and notwithstanding that
DQE Mauritius must use its best endeavours to undertake a Qualified
Liquidity Event within 36 months of the Closing Date under the
terms of the Bonds, DQE Mauritius has undertaken to the Investor
that it will use its best endeavours to procure a cancellation of
trading on AIM of DQE together with a merger between DQE and DQE
Mauritius as soon as possible ("Cancellation"), before or
concurrent with a Qualified Liquidity Event. Best endeavours in
this case includes procuring the issue of a circular and convening
a meeting of shareholders, procuring a recommendation for
Cancellation from the Board (subject to their fiduciary duties and
applicable law) and taking such action necessary to enable the
merger between DQE and DQE Mauritius. Failure to use best
endeavours would amount to an event of default under the Bonds with
the result that the Bonds would be redeemable at the Redemption
Price. A Cancellation would be subject to compliance with the AIM
Rules for Companies and the UK Takeover Code. Further announcements
in this regard will be made when appropriate.
Security
DQE Mauritius owns 75 per cent. of DQ Entertainment
(International) Limited ("DQE India"), the main operating company
of the Group and which is listed on the National Stock Exchange of
India and the Bombay Stock Exchange. DQE India owns 100 per cent of
DQ Entertainment (Ireland) Limited ("DQE Ireland") which holds the
Group's IP. DQE Mauritius will subscribe to senior secured
convertible bonds issued by DQE Ireland in amounts and tranches
that mirror the Bonds.
The Bonds are secured by a share pledge over DQE Mauritius'
shareholding in DQE India (the "Pledge"), the current and future
intellectual property rights owned by DQE Ireland (the
"Debenture"), a corporate guarantee by DQE Ireland, and a charge
over the blocked account holding the Bonds proceeds (which must
also maintain a minimum account balance) (together, the
"Security").
The Pledge is over present and future shares in DQE India held
by DQE Mauritius and is given against all actual/contingent present
and future liabilities and obligations of DQE Mauritius arising in
connection to the Bonds issued by DQE Mauritius and DQE Ireland,
the Security and the Warrants. If the approvals for the Pledge
against any future shares in DQE India issued to DQE Mauritius from
the Reserve Bank of India are either not obtained or declined, DQE
Mauritius shall place an amount into an escrow account equal to the
value of such future shares.
Events of default
The Bond contains common events of defaults such as non-payment,
repayment of certain outstanding loans, cessation of business,
breach of the terms of the Bonds, Warrants or security,
misrepresentation, cross default with any financial indebtedness or
the DQE Ireland Bonds, insolvency, breach of material contracts,
material adverse litigation and use of intellectual property. While
DQE is admitted to trading on AIM, the Investor may only exercise
its rights of enforcement under the Pledge if there is an event of
default in relation to the non-payment of the Bonds, insolvency or
an insolvency type event. Otherwise, the Bondholders can exercise
their rights under the Security at any time following an event of
default if not remedied as per the terms and conditions of the
Bonds (a "Default"). The Bondholders may declare the Bonds are
repayable if an event of default occurs at the Redemption Price or,
where the event of default is a change of control, the Increased
Redemption Price.
The terms of the Bonds contain a number of covenants regarding
the operational, financial, corporate and legal status of the
Group, as well as terms relating to the payment of interest and
capital sums due under the Bonds. In the event of a Default, then
the Investor and Bondholders will have the right to exercise their
various security interests, which if exercised would likely result
in the Company becoming insolvent and unable to continue to
trade.
If DQE Mauritius fails to repay or refinance the Bonds as a
result of any redemption notice pursuant to a failure to achieve a
Qualified Liquidity Event or Cancellation or obtain the necessary
approvals for Conversion, or the Group materially fails to achieve
its business plan to service the Bonds, there is a very real risk
that DQE Mauritius will find itself in Default and that the
Bondholders may enforce its security or exercise the Conversion
and/or take ownership and control of materially all of the assets
of the Group or may likely result in the Company being insolvent
and unable to continue to trade.
Other terms
The terms and conditions of the Bonds impose certain other
customary obligations on DQE Mauritius, including that it will not,
and procure that no other company within the DQE group, disposes,
transfers or leases any IP or any other asset, save in certain
circumstances. The Bond also places restrictions on mergers,
acquisitions and joint ventures, save in certain circumstances.
DQE Mauritius cannot declare a dividend without the consent of
the Bondholders. Furthermore, the Group's IP must be of a value
which is at least three times that of the amount of Bonds
outstanding.
DQE Mauritius also intends to create a management share option
pool upon a Qualified Liquidity Event which will represent 25 per
cent. of the fully diluted share capital of DQE Mauritius.
For further information, please contact:
DQ Entertainment plc Tel: +91 40 235 53726
Tapaas Chakravarti - Chairman and CEO
Rashida Adenwala - Director Finance & Investor
Relations
Allenby Capital Limited Tel: +44 (0)20 3328 5656
Jeremy Porter / Alex Price
Buchanan Communications Tel: +44 (0)20 7466 5000
Mark Edwards/Helena Bogle
This information is provided by RNS
The company news service from the London Stock Exchange
END
IODLIFSRFSLAIIS
DQ Entertain. (LSE:DQE)
Gráfico Histórico do Ativo
De Dez 2024 até Jan 2025
DQ Entertain. (LSE:DQE)
Gráfico Histórico do Ativo
De Jan 2024 até Jan 2025
