Jens Montanana. Picture: MARTIN RHODES
Jens Montanana. Picture: MARTIN RHODES

Datatec has increased its share holding in subsidiary Westcon International (WI) in a move aimed at reducing the company's debt.

The subsidiary is a value-added distributor of security, networking and data centre solutions.

In the year ended February, WI owed a number of Datatec's other businesses about $160m (R2.7bn) in intercompany loans. With the loans being classified as debt in the company's balance sheet, its net asset value was $21.9m at the end of the period.

Datatec, which owned 90% of WI before the transaction, said it had agreed to convert $80m of loans to equity to improve its balance sheet.

“A stronger stand-alone balance sheet will place WI in a better position to raise bank funding with improved commercial terms from its financiers. It will also improve WI’s credit insurance rating,” said the company.

The deal resulted in Datatec increasing its shareholding in WI to 92.1% through UK-listed Datatec Plc.

Minority shareholder Synnex did not participate in the recapitalisation programme. Its shareholding in WI has reduced from 10% to 7.9%, Datatec said.

The previously loss-making technology distributor  WI has undergone a shake-up in recent years, terminating its business process outsourcing in Europe, the Middle East and Africa, and Asia-Pacific, for example. Datatec has said the outsourcing is costly and negatively affected customer service and financial performance.

In May, Datatec said its group revenue for the year ended February 2020 was down 0.7% to $4.30bn, compared to $4.33bn in 2019. Earnings before interest, tax, depreciation and amortisation (ebitda) grew for the period to $158.7m from $86.8m previously.

The company said WI returned to profitability in the period, supported by “excellent costs containment” with cost-reduction targets being met.

With about $850m in total net assets on hand, Datatec says it has the liquidity and capital to keep its business afloat for the next 12 months but warned of weaker revenues for its 2021 financial year, given the negative effects of Covid-19.

“This recapitalisation of Westcon International will strengthen its stand-alone balance sheet, enabling it to obtain a better credit rating and improved commercial terms,” Datatec CEO Jens Montanana said in a statement.

gavazam@businesslive.co.za