Harland and Wolff Agreement

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 ("MAR"). With the publication of this announcement via a Regulatory Information Service, this inside information is now considered to be in the public domain.

1 October 2019

InfraStrata plc

("InfraStrata" or the "Company")

Purchase of assets of the former Harland and Wolff Heavy Industries Limited and Harland and Wolff Group Plc from administrator BDO NI

InfraStrata plc (AIM: INFA), the UK quoted company focused on strategic infrastructure projects, is pleased to announce that it has signed heads of terms to purchase the principal assets of Harland and Wolff Heavy Industries Limited and Harland and Wolff Group Plc (the "Assets") from administrator BDO NI ("Administrators") for a total consideration of £6 million (the "Acquisition"). The Assets comprise of a multi-purpose fabrication facility, quaysides and docking facilities (the "Facility") in the port of Belfast, Northern Ireland, ideally suited for the energy infrastructure industry and the Company's projects.

Highlights

·   This strategic acquisition enables InfraStrata to bring in-house a large part of the fabrication requirements for the Company's Islandmagee Gas Storage Project and proposed FSRU project (the "Projects").

·    By utilising the Assets, the Company anticipates reducing the capital cost ("Capex") of each of its Projects by 10% - 15% and the construction timelines are expected to be reduced by 3-5 months.

·    100% of the 79 employees who did not opt for voluntary redundancy earlier in the year will be retained immediately following completion of the Acquisition.

·    The InfraStrata Board plans to significantly increase the size of the workforce by several hundred over the next five years as it progresses the development of its infrastructure projects. The number of employees at the Islandmagee Gas Storage Project will also scale to 400 during construction and will employ circa 60 personnel when in operation.

·    New management team for the Facility anticipated to be employed by the end of 2019 in addition to bringing on-board the experience of those employees who were previously employed - the Assets will be run independently to InfraStrata's other projects.

·   The highly skilled workforce presents the Company with an opportunity to create secondary revenue streams through the provision of services to the energy, maritime and defence sectors should such opportunities arise in future.

·   Exclusivity over the Assets has been secured, and with a £500,000 cash deposit payment to the Administrator, BDO NI, to be made imminently from a new loan facility. The Acquisition is subject to, inter alia, final contract and funding by 31 October 2019, or 31 December 2019 if the Backstop Date (as defined below) comes into force. The £5.5 million balance of the Acquisition consideration is payable in two tranches: £3.3 million by 31 October 2019 (or the Backstop Date) and £2.2 million by 30 April 2020, which is proposed to be funded by a debt and equity mix. The Company is already in advanced discussions with asset backed lenders and financial institutions to put in place medium to long term debt structures.  

·    The Company intends to start utilising the Assets in November 2019 under a licencing arrangement with the Administrators should the Acquisition not complete by 31 October 2019 and the Backstop Date applies. The Company will use the Assets in preparation for key enabling works for the Islandmagee Gas Storage Project scheduled for proposed construction starting in Q1 2020.

John Wood, CEO of InfraStrata, said: 

"Harland and Wolff is a landmark asset and its reputation as one of the finest multi-purpose fabrication facilities in Europe is testament to its highly skilled team in Belfast. This acquisition is a function of deep operational synergies between the various business segments of the Company with Harland and Wolff underpinning the construction economics of the Islandmagee Gas Storage Project and other future projects. We are delighted to be able to retain 100% of personnel who did not opt to take voluntary redundancy earlier this year. Our Islandmagee Gas Storage Project will benefit greatly from their expertise in the energy sector, both technically and economically, and we look forward to growing the workforce significantly in the coming years. While our core priority will be to deliver our flagship project in Islandmagee, we believe there are opportunities to welcome potential new clients due to the diverse skill set at the facility. This acquisition will clearly provide substantial advantages through vertical integration in addition to demonstrating our commitment to the Northern Irish economy, particularly in the post-Brexit era."

Julian Smith, Secretary of State for Northern Ireland, said:

"I am delighted by the news that InfraStrata have purchased the Harland and Wolff shipyard and retained the skills and experience of the existing workforce. I firmly believe that the shipyard has a promising future and that InfraStrata's plans present an exciting opportunity for both Belfast and Northern Ireland's manufacturing and energy sectors."

Details of the Assets being acquired and Acquisition rationale

The Assets to be acquired by InfraStrata include all plant, machinery, equipment and industrial and intellectual property, as well as 79 personnel who are highly skilled in the business of fabricating equipment for the energy infrastructure industry, enabling InfraStrata to bring in-house a large part of the fabrication requirements for the Company's Islandmagee Gas Storage Project and proposed FSRU (floating storage and re-gasification unit) project. The Assets include:

1.    Gantry cranes

2.    Material handling equipment

3.    Plasma cutters

4.    Welding and joining equipment

5.    Forklifts

6.    Surface carriers to move large pieces of equipment

7.    Stock of materials and supplies

8.    IT equipment

9.    Modular office buildings

10.  Miscellaneous assets utilised in the fabrication of equipment

The Acquisition will have the following benefits for the Islandmagee Gas Storage Project, which when fully completed is expected to provide 25% of the UK's natural gas storage capacity:

·    InfraStrata will be the Facility's primary customer, establishing a revenue stream for the Assets;

·    The construction timeline will be reduced, bringing first revenue from offtake partners forwards;

·    The Capex is anticipated to be reduced by up to 15%. The savings it will create are higher than the Acquisition price; and

·    In-house fabrication capabilities will enhance the economics of future projects.

As previously announced, the Company is now in advanced negotiations with key equity and debt partners for investment in the Islandmagee project at the project level for its construction. The Company has also announced that it intends to take Final Investment Decision ("FID") in Q4 2019.

Terms of the Acquisition

InfraStrata has entered into heads of terms (the "Agreement") to purchase the Assets. The Agreement sets out the principal terms on which InfraStrata will acquire the Assets, subject, inter alia to due diligence, transfer of leaseholds, funding and InfraStrata entering into a final asset purchase agreement with the Administrators through a newly incorporated Special Purpose Vehicle ("SPV"), which will be 100% owned by InfraStrata plc.

Of the total consideration of £6 million (the "Consideration"), a non-refundable deposit of £500,000 in cash (the "Deposit") is due by 3 October 2019 using a new short-term bridging facility, details of which are set out below. The Company is in advanced negotiations with a number of lenders to provide a long-term debt facility to provide the balance of the £5.5 million consideration, and equity will be considered also. The payment of the balance of the Consideration will be phased and is payable as follows:

·    £3.3 million on completion which is scheduled for 31 October 2019 ("Completion"); and

·    £2.2 million will be payable by 30 April 2020 (with secondary security on the Company's assets until payment).

If the Company has not completed its detailed due diligence on or before 31 October 2019 nor the transfer of the leasehold rights executed, Completion will occur on or before 31 December 2019 (the "Backstop Date"). This Backstop Date provides sufficient time for the Company to complete its due diligence and enter into appropriate financing arrangements.

The Acquisition cost is a substantial discount on the valuation of the Assets of around £11 million.   For the year to 31 December 2018, the business carried on by the Assets reported an unaudited loss of £4.868 million. InfraStrata is not acquiring any ongoing revenue or existing contracts or work. A working capital facility will also be established at the subsidiary level, leveraging the Assets and the gas storage project and the Facility's cash flows.

Invest NI has advised the Company of numerous forms of support by way of loans and grants that are available for the Facility post Acquisition and management will look to take advantage of these in the future.

Whilst the Company has entered into an exclusive agreement regarding the Acquisition, any transaction remains subject to a number of factors, including approval of transfer of leasehold agreements to the Company and completing due diligence, funding and negotiations to the Company's satisfaction. As such, there can be no certainty that a final binding agreement will be reached to enable the Acquisition to proceed. 

Short-term bridging facility

To fund the £500,000 Deposit, InfraStrata has entered into a £2.2 million conditional loan agreement (the "Loan") with Riverfort Global Opportunities PCC and YA II PN Ltd (the "Investors"). The Loan is unsecured and interest free on the first £700,000 already received ("First Draw"). 

The £1.5 million balance of the Loan is available for drawdown by the Company at its request as to £500,000 ("Second Draw") within two months from now at a fixed interest rate of £40,000 and £1 million ("Final Draw") at the Company's discretion within the next 24 months at an interest rate to be agreed. The Company is under no obligation to utilise the entire Loan except for the First Draw of £700,000 in order to fund the Deposit.

The Company shall pay a fee of 6% that is deducted from the gross proceeds of each drawdown.

The First Draw is repayable on 30 September 2020. Where the Company is in receipt of cash in excess of £100,000 from a share issue or grant or subsidy, the Investors are entitled, in the first instance, to call upon such cash becoming available in order to clear any outstanding Loan amount.  

The First Draw and interest are convertible into new ordinary shares of 0.01p each in the Company ("Ordinary Shares") at any time by the Investors.  The conversion price will be the lower of: i) 130% of the closing price of the Company's shares on 30 September 2019 (being the date of the Loan agreement) ("Fixed Conversion Price") and; ii) 90% of the lowest daily volume weighted average price ("VWAP") in respect of Ordinary Shares during the 10 days immediately preceding the date of any conversion notice. Similar conversion terms are applicable to the Second Draw and Final Draw.

The Investors will also be entitled to warrants over new Ordinary Shares equal to 30% of each drawdown. The number of warrants will be calculated as a quotient of the drawdown divided by the closing price of Ordinary Shares on the date of drawdown. The exercise price on such warrants will be 150% of the closing price of Ordinary Shares on 30 September 2019 (being 0.69p). The warrants will be exercisable for a period of 24 months from the date of issuance or 12 months if the daily VWAP, during the first 12 months, is at or above 1 pence for 20 consecutive days at any time during that period.  Accordingly, 45,652,174 warrants over new Ordinary Shares will be issued to the Investors in respect of the First Draw at a conversion price of 0.69p per share.

**ENDS**

For further information, please visit www.infrastrataplc.com or contact:

About Harland and Wolff

Founded in 1861 and employing much of the city's skilled workforce, Harland & Wolff was the focal point of Belfast's industry.

Famed for building the Titanic and the iconic cranes, Samson and Goliath, is known around the world for its excellence in the maritime and energy sectors.

Notes to editors:

InfraStrata is a London Stock Exchange-listed group focused on global energy infrastructure projects.

The rapid development of the 100% owned Islandmagee Gas Storage Project is a core workstream for InfraStrata. It is expected to provide 25% of the UK's natural gas storage capacity and to benefit the Northern Ireland economy as a whole when complete. Given that the Committee on Climate Change has advised that the UK will still need a significant quantity of natural gas by 2050 - about 70% of today's consumption - the market opportunity for this project is compelling.  It is the only gas storage project in North West Europe to be awarded 'Project of Common Interest' status by the European Union, confirming its strategic importance to the entire continent.

Mindful of the fact that safe, secure and flexible sources of energy are needed for a sustainable future, InfraStrata is focused on providing investors with exposure to a growing portfolio of UK, European and international energy infrastructure projects. With this in mind, the Company's highly experienced team is focused on acquiring, developing and commercialising innovative infrastructure projects around the world.