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Dorchester to Double Capital, Simplify Capital Structure

1 May 2013 COMPANY ANNOUNCEMENT

Dorchester to Double Capital and Simplify Capital Structure
Further Upgrades Profit to 31 March 2013 and Lifts Profit Forecasts
Announces Commencement of Dividend Payment

Dorchester Pacific Limited (DPC) today announced a proposed capital restructure and a share placement that, together with the cash injection expected from the exercise of options on issue, should boost shareholder funds from the current level of $29 million to approximately $61 million.

The Company advised that its profit after tax for the financial year to 31 March 2013 is now expected to be approximately $1.6million. The forecast profit after tax for the financial year to 31 March 2014 has also been lifted to $6 million increasing to $10 million over the subsequent two years.

The Company also announced commencement of a dividend payment under a dividend pay-out policy.


Capital Restructure

The Company has approximately 150 million options on issue which convert into ordinary shares on payment of 12.5 cents per share. 82.5 million of the options are currently held by the Company’s major shareholders, who have indicated that they will be exercising their options.

CEO and Executive Director Paul Byrnes said the Company will be writing to optionholders in the next week recommending they take independent advice on whether to exercise their options - but strongly urging them to either exercise or sell their options prior to 31 May 2013. The options lapse and have no value after that date.

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“Despite our utmost efforts it is likely that some optionholders will not take action and a percentage of the options will lapse." said Mr Byrnes.

“To ensure we receive the full cash injection anticipated we intend to place up to 30 million new shares in total with a mechanism that will limit the total of new shares issued through the exercise of options and the share placement to 150 million shares."

The Company is also proposing an earlier conversionto ordinary shares of the 110 million ($11 million) Optional Convertible Notes, which would otherwise be due for repayment (or conversion to ordinary shares, at the Noteholders’ option) on 31 March 2015.

“We have proposed an early July 2013 payment of interest to 31 March 2015 at a discounted rate and a conversion of the Optional Convertible Notes to ordinary shares following the payment. The Noteholders have indicated acceptance of this arrangement and we will be calling a meeting of shareholders to approve the transaction. The $11 million of debt on the balance sheet would then become equity." said Mr Byrnes.

As a result of these transactions, shareholders’ funds of approximately $29 million at 31 March 2013 would increase by $21 million to $50 million following the exercise of the options and the shareplacement, and would further increase to $61 million on conversion of the Optional Convertible Notes to ordinary shares in July 2013.

Mr Byrnes commented, “The significantly higher shareholder funds and conservative balance sheet will fund growth of the Company’s receivables book and provide headroom for potential further M&Aactivity. We also believe the introduction of new shareholders through the placement, which may include one or two institutional investors, will be positive for the Company."

Profit to 31 March 2013 and Profit Forecasts

Dorchester previously advised that it expected the group profit after tax for the year to 31 March 2013 would be in the $1.2 million to $1.3 million range.

The Company now expects the profit for that period to be around $1.6 million.

The result is still subject to audit review.

Dorchester also previously provided guidance of a group profit after tax of $5 million to $6 million for the year to 31 March 2014.

“The Company is now forecasting a profit after tax of $6 million for the current financial year to 31 March 2014 and we expect this to increase to around $10 million over the subsequent two years." said Mr Byrnes.

“The revised forecasts reflect higher trading profit from each of the three existing operating entities, Finance, Insurance andEC Credit. We expect M&A activity to add to these profit forecasts. Our objective is to achieve a 15% after tax return on shareholder funds, otherwise we should be returning funds to shareholders. Achieving our targeted after tax returns is assisted in the next few years by approximately $20 million of tax losses not on the balance sheet."

Dividend Payment and Policy

Dorchester also announced the introduction of a dividend policy to pay out around 40% of tax paid profit in dividends to shareholders. The policy would apply from 1 April 2013 with the first interim dividend to be paid in December 2013 and with a final dividend in respect of the financial year to 31 March 2014 to be paid around July 2014. The pay-out rate would be reviewed after two years with a view to increasing the pay-out percentage.

Dorchester’s Chairman Grant Baker commented: “Whilepayment of dividends under this policy will always be subject to directors’ discretion and any capital requirements at the time, it does signal our focus and confidence about future profits and cash flow. We also believe it is a positive consideration for existing and new shareholders attracted to a small cap growth stock in the financial services space."

ENDS


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