EOH targets rights issue, empowerment deal to further cut debt

Almost a year after proposing a rights offer to help quash debt EOH says the move — if successful — could cut its interest payments by two-thirds.

On Thursday, the group announced it would soon launch a rights offer worth up to R500m aimed at cutting its debt almost in half.

By now, the misfortunes of the former JSE darling — whose shares once fetched R180 and are now trading about 97% south of that — are well known.

But after four years of hard grind EOH is operationally back in the black in the past year.

The group said it “intends to go to market shortly to raise” up to R600m through a R500m rights issue and an additional R100m broad-based BEE (B-BBEE) deal by one of the group’s largest shareholders, Lebashe Investment Group.

“The proceeds will be used to settle the majority of the bridge facility and will leave the group with a fit for purpose capital structure and allow management and staff to focus on the group’s exciting growth potential,” EOH said.

EOH, valued at R759m on the JSE, has a debt pile of R1.2bn, and has been battling to regain credibility after a corporate scandal stemming from dubious dealings with state clients.

Group CFO Megan Pydigadu told Business Day the plan will help fix EOH’s capital structure and greatly reduce financing costs in the process.

“If you look at the financing costs for this past year, we paid R180m of interest to the banks. If we get the R600m rights issue [done], that cost of debt will be R60m. So we’re basically freeing up R120m off the income statement, and in cash.

“So we can start to look at how we reinvest and grow the business. The debt that will be left in the business will now be sustainable for EOH,” she said. 

Shares in the group headed by former banker Stephen van Coller were down 2.27% to R4.30 by the JSE’s close.

One of the biggest questions for investors is about the price at which the rights issue will be done. EOH said the decision is ultimately up to the banks. 

The group reported revenue of R6bn from continuing operations, out of a total R6.931bn for the full-year to July.

Adjusted earnings before interest, tax, depreciation and amortisation stood at R504m, compared with R667m, a 24.4% decrease. 

Operating profit from continuing operations was up 82% to R100m, while the loss per share improved by 91% to 15c from a 166c loss in the prior year.

The group generated cash from operations of R283m, closing the period with cash balances of R459m, and unused direct short-term facilities of R250m.

The company, which generates about 90% of its revenue in SA and also has operations in North Africa, the Middle East and Europe, has been restructuring in a bid to cut debt. It is disposing of noncore assets and closing out unprofitable contracts.

In January EOH appointed financial advisers to assist in the evaluation of strategic options to deal with its debt issues. The rights issue is a result of this process.

In September 2018, the group brought in former MTN executive Van Coller to turn the group around.

Soon after arriving he appointed law firm ENSafrica to investigate allegations of fraud and corruption against the group. These uncovered underhand dealings with its government client, including transactions to the value of more than R600m with no evidence of valid contracts being in place or for which any work was done.

gavazam@businesslive.co.za