GENESIS RESOURCES LIMITED — Capital/Financing Update 2016

Aug 11, 2016

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GENESIS RESOURCES LIMITED (ASX : GES )

12 August 2016

To: Australian Securities Exchange Limited Filed by: Genesis Resources Limited

Pro-Rata Non-Renounceable Rights Issue Notice under section 708AA(2)(f) of the Corporations Act 2001 (Cth)

Genesis Resources Limited ( Genesis or the Company ) has announced a pro-rata non-renounceable rights issue on a 1-for-3 basis at an issue price of $0.03 per share ( Rights Issue or Offer ). The Offer is made to holders of ordinary shares in the Company who will have a registered address in Australia or New Zealand as at 7:00pm (Melbourne time) on Wednesday 17 August 2016 ( Record Date ) ( Eligible Shareholders ).

The Rights Issue offers Eligible Shareholders the right to take up one (1) new share for every three (3) Genesis shares held as at the Record Date ( Entitlement ). Pursuant to the Offer, the Company will issue up to 128,295,129 fully paid ordinary shares in the capital of the Company ( New Shares ) to raise up to $3,848,853.86 (before costs). The entitlement to subscribe for New Shares under the Offer will be non-renounceable.

The Offer will be partially underwritten by S Active Holding Sdn Bhd ( Underwriter ) up to an amount of $2,000,000.00 ( Underwritten Amount ). There will also be a shortfall facility which will enable Eligible Shareholders to subscribe for shares in addition to their Entitlement ( Shortfall Facility ). In the event that following the close of the Offer a shortfall remains after additional shares are issued under the Shortfall Facility and underwritten shares are issued to the Underwriter (and any sub-underwriters), the Directors reserve the right to place such shortfall shares at their discretion with persons interested in subscribing for shares in the Company within 3 months of the close of the Offer ( Shortfall Placement ).

The Underwriter is an entity controlled by Mr Kim Heng Lim, a Non-Executive Director of the Company.

The Company gives notice under section 708AA(2)(f) of the Corporations Act 2001 (Cth) (the Act ) as follows:

• (a) the new shares will be offered for issue without disclosure to investors under Part 6D.2 of the Act;

• (b) this notice is being given under section 708AA(2)(f) of the Act;

• (c) as at the date of this notice, Genesis has complied with:

• (i) the provisions of Chapter 2M of the Act as they apply to Genesis; and

• (ii) section 674 of the Act; and

• (d) as at the date of this notice, there is no excluded information of the type referred to in sections 708AA(8) and 708AA(9) of the Act.

Effect of Rights Issue on shareholder dilution and the control of Genesis

The effect of the Rights Issue on the control of Genesis will depend on a number of factors, including:

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• the level of Eligible Shareholder participation in the Entitlement component of the Offer and the identity of Eligible Shareholders who do participate in the Entitlement component of the Offer;

• if applicable, the level of Eligible Shareholder participation in the Shortfall Facility and the identity of Eligible Shareholders who do participate in the Shortfall Facility;

• the extent to which the underwriting is called upon; and

• the level of dispersion of shortfall shares (if any) to the Underwriter and any sub-underwriters of the Offer.

• the identity of investors who participate in any Shortfall Placement following the close of the Offer; and the level of such investor participation;

The potential effect of the Offer on the control of the Company is as follows:

• If all Eligible Shareholders take up their full Entitlements, there would be no significant effect on the control of Genesis, as the Offer is made pro-rata and in that case there would not be any scope for any shareholder to apply for additional New Shares under the Shortfall Facility, and there would be no shortfall for the Underwriter or sub-underwriters to take up.

• If Eligible Shareholders do not take up their full Entitlements under the Offer, then the interests of those Eligible Shareholders will be diluted.

• The proportional interests of ineligible Shareholders will be diluted because those ineligible Shareholders are not entitled to participate in the Offer.

It is not presently possible for the Directors to predict the final level of underwriting, subscription by Eligible Shareholders under the Rights Issue, or the identity of Eligible Shareholders who will subscribe for their Entitlements or additional Shares under the Shortfall Facility. Further, the Directors are not presently able to state with certainty the identity of prospective subscribers under any Shortfall Placement, or the total number of Shortfall Shares which will or can be placed. Notwithstanding these limitations, upon the assumption that none of the subscribers of Shortfall Shares are existing shareholders, the maximum dilutionary effect the Rights Issue and Shortfall Placement will have on existing shareholders will be in accordance with the tables set out below (and subject to the assumptions stated below).

• (a) Assuming that the Underwriter subscribes for the Underwritten and the Directors are able to place 75% of the Shortfall Shares remaining following the close of the Offer:

Event	Number of Entitlement and Additional Shares issued	Number of Shares subscribed for by Underwriter	Number of Shares issued under Shortfall Placement	Total no. of Shares issued under Rights Issue	Total no. of Shares on issue post- Rights Issue	Maximum % dilution to existing Shareholders
Offer fully subscribed	128,295,129	0	0	128,295,129	513,180,515	0%
Offer 75% subscribed	96,221,347	32,073,782	0	128,295,129	513,180,515	25.00%
Offer 50% subscribed	64,147,564	64,147,564	0	128,295,129	513,180,515	25.00%
Offer 25% subscribed	32,073,782	66,666,667	22,166,010	120,906,459	505,791,845	23.90%
Nil subscriptions	0	66,666,667	46,221,347	112,888,013	497,773,399	22.68%

• (b) Assuming that the Underwriter subscribes for the Underwritten Amount and the Directors are able to place 50% of the Shortfall Shares remaining following the close of the Offer:

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Event	Number of Entitlement and Additional Shares issued	Number of Shares subscribed for by Underwriter	Number of Shares issued under Shortfall Placement	Total no. of Shares issued under Rights Issue	Total no. of Shares on issue post- Rights Issue	Maximum % dilution to existing Shareholders
Offer fully subscribed	120,922,485	0	0	128,295,129	513,180,515	0%
Offer 75% subscribed	96,221,347	32,073,782	0	128,295,129	513,180,515	25.00%
Offer 50% subscribed	64,147,564	64,147,564	0	128,295,129	513,180,515	25.00%
Offer 25% subscribed	32,073,782	66,666,667	14,777,340	113,517,789	498,403,175	22.78%
Nil subscriptions	0	66,666,667	30,814,231	97,480,898	482,366,284	20.21%

• (c) Assuming that the Underwriter subscribes for the Underwritten Amount and the Directors are able to place 25% of the Shortfall Shares remaining following the close of the Offer:

Event	Number of Entitlement and Additional Shares issued	Number of Shares subscribed for by Underwriter	Number of Shares issued under Shortfall Placement	Total no. of Shares issued under Rights Issue	Total no. of Shares on issue post- Rights Issue	Maximum % dilution to existing Shareholders
Offer fully subscribed	128,295,129	0	0	128,295,129	513,180,515	0%
Offer 75% subscribed	96,221,347	32,073,782	0	128,295,129	513,180,515	25.00%
Offer 50% subscribed	64,147,564	64,147,564	0	128,295,129	513,180,515	25.00%
Offer 25% subscribed	32,073,782	66,666,667	7,388,670	106,129,119	491,014,505	21.61%
Nil subscriptions	0	66,666,667	15,407,116	82,073,782	466,959,168	17.58%

• (d) Assuming that the Underwriter subscribes for the Underwritten Amount and the Directors not able to place any of the Shortfall Shares remaining following the close of the Offer:

Event	Number of Entitlement and Additional Shares issued	Number of Shares subscribed for by Underwriter	Number of Shares issued under Shortfall Placement	Total no. of Shares issued under Rights Issue	Total no. of Shares on issue post- Rights Issue	Maximum % dilution to existing Shareholders
Offer fully subscribed	128,295,129	0	0	128,295,129	513,180,515	0%
Offer 75% subscribed	96,221,347	32,073,782	0	128,295,129	513,180,515	25.00%
Offer 50% subscribed	64,147,564	64,147,564	0	128,295,129	513,180,515	25.00%
Offer 25% subscribed	32,073,782	66,666,667	0	98,740,449	483,625,835	20.42%
Nil subscriptions	0	66,666,667	0	66,666,667	451,552,053	14.76%

The Underwriter, which currently holds 22,117,930 Shares in the Company, has indicated to the Company that it will not subscribe for its Entitlement under the Offer.

If no Shareholder was to take up any of their Entitlement ( Lack of Shareholder Subscription ), the Underwriter would therefore be bound to subscribe for 66,666,667 Shares to cover the Underwritten Amount of $2,000,000.00. The final shareholding interests of the Underwriter (in the event that the Underwriter elects to directly subscribe for these shares instead of allocating Shares to subunderwriters) upon completion of the Offer in the event of Lack of Shareholder Subscription will be as follows (on the basis that the Underwriter does not subscribe for its Entitlement under the Offer):

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Number of Shares currently held by Underwriter in Genesis	22,117,930
Currentpercentage of Genesis’ issued capital(%)	5.75%
Entitlement Shares expected to be taken up by the **Underwriter **	Nil
Maximum underwritten Shares	66,666,667
Maximum number of Shares acquired under the Offer	66,666,667
Total maximum holding	88,784,597 (being the total of current holding and maximum shares acquired under Offer)
Maximum percentage of Genesis’ issued capital (%)	19.66%

*Note: the table above has been prepared on the basis that the Underwriter will not subscribe for its Entitlement under the Offer.

The following can be said about the effect of the Offer on the control of Genesis:

• currently, the Underwriter does not control Genesis;

• as noted above, if every shareholder was to take up their full Entitlement, there would be no significant effect on the control of Genesis following the Offer;

• the Offer, as a result of Lack of Shareholder Participation could result in the Underwriter increasing its holding in Genesis from 5.75% to 19.66%, giving it significantly increased voting power (in the event that the Underwriter elects to directly subscribe for these shares instead of allocating shares to sub-underwriters);

• The Underwriter has advised Genesis that it does not currently intend to change its existing relationship with Genesis (other than the number of shares it holds directly); and

• in addition to the shares that may be issued to the Underwriter as a result of the underwriting, the Underwriter will also receive the underwriting fee as set out in section 8.4 of the Offer Document which was lodged with ASX on Friday 12 August 2016.

As the Company does not propose to apply to ASIC for approval of the appointment of a nominee for the purposes of section 615 of the Corporations Act, no person will be permitted to acquire New Shares under the Rights Issue to the extent that such acquisition results in that person holding a relevant interest exceeding 20% of the issued share capital of the Company on a post Rights Issue basis.

The Rights Issue may result in one or more substantial shareholders increasing their voting power in Genesis (but subject to the 20% threshold). The current substantial shareholders of Genesis as at the date of this notice, according to substantial holding notices lodged with the Company, are as follows:

Substantial Shareholder	No. of shares	% of current issued capital
CiticorpNominees PtyLimited	74,424,161	19.34%
Kin Po Yu and Huahui GroupHoldings PtyLtd	36,000,000	9.35%
Blumont GroupLtd	33,002,561	8.57%
Chun Men Leo Yu	27,139,541	7.05%
Spektra Jeotek Sanayi ve Ticaret A.S.	25,630,833	6.66%
Kar Ghee Ong	24,864,384	6.46%
S Active HoldingSdn Bhd	22,117,930	5.75%
MingTeck Yau	20,002,640	5.20%

The Board is cognisant that where the Rights Issue is significantly undersubscribed (and in the event he Underwriter or any sub-underwriters do not take up the whole of the remaining shortfall), a potential effect of any Shortfall Placement may be that a subscriber under any Shortfall Placement could potentially acquire control of the Company. To this end, the Directors intend to allocate remaining shortfall Shares (if any) in accordance with the allocation policy described below, which is designed to mitigate potential control effects of any Shortfall Placement.

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In the event that there are shortfall shares remaining after the close of the Offer and the issue of the Entitlement Shares, additional Shares under the Shortfall Facility and underwritten Shares, the Board may issue and allot such shortfall Shares to sophisticated investors and professional investors introduced to the Company by the Company’s advisors and/or invited by the Company to participate in the Shortfall Placement. In the event of a significant shortfall, the Board reserves the right to engage a lead manager to the placement of shortfall shares. To the extent that is commercially practicable and taking into account Genesis’ requirement for funds, the Directors (working in conjunction with the lead manager if applicable) will endeavour to allot the shortfall shares to a spread of investors, in order to mitigate any control effects which may arise from issuing the shortfall shares to a single or small number of investors. In any event, no subscriber will be permitted to acquire shares under the Shortfall Placement to the extent that such acquisition would result in that subscriber having a voting power in Genesis in excess of 20% (on a post Rights Issue and Shortfall Placement basis). In determining the allottees under any Shortfall Placement, the Company (and lead manager if applicable) will ensure that no shortfall shares are allotted to related parties of the Company.

Signed for Genesis Resources Limited

Sophie Karzis Company Secretary

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