EOH secures guarantees for R500m rights offer

EOH shares took another dip on Thursday as the technology group revealed pricing details for its upcoming R500m rights offer.

The group says its capital raise is now guaranteed after receiving backing from a number of its large shareholders, a sign of ongoing faith in a plan set out by CEO Stephen van Coller and his team.

On Thursday, the group said EOH had received irrevocable undertakings from existing shareholders representing 30% of the issued shares to follow their rights in full.

“The rights issue and the resultant refinancing of the debt package as outlined will normalise the capital structure for EOH as promised to the market,” Van Coller said.

As details of the offer emerged the stock dipped, trading almost 4% down during lunchtime, at R3.

The capital raise is the latest step by Van Coller to put EOH back on a robust growth path after revelations of underhand dealings between an employee and public sector officials that punched a R1bn hole in its balance sheet.

Van Coller, who was brought in to steady the ship, has been on a huge cleanup campaign, helping the company turn an operating profit for the first time since the scandal broke four years ago.

Still, EOH is choking under a R1.2bn debt pile, which eats up about R100m in borrowing service costs, a situation that forced it to draw up plans to tap shareholders for cash and test their faith in the growth prospects of the company.

And that faith appears to be in place as EOH has secured underwriting agreements with Aeon Investment Management Proprietary Limited, Anchor Capital and Visio Capital Management to subscribe for any shares that have not been subscribed for by existing shareholders.

The undertakings to follow rights and underwriting commitments have de-risked the process and guarantees that the intended R600m will be raised, the group said.

The fundraising plan also has the backing of one of EOH’s top shareholders, Lebashe Investments, which has also agreed to inject the additional R100m through a broad-based BEE deal.

The rights offer shares will be at a price of R1.30, representing a discount of about 30% to the theoretical ex-rights price (TERP) being used by EOH. It says this is in line with the average discount of the last ten rights offers “of similar sized offerings relative to market capitalisations.”

In essence the offer will have 384,615,384 renounceable rights to subscribe for new EOH ordinary shares. This will be in the ratio of 227 rights offer shares for every 100 EOH ordinary shares currently held.

The structure of the issue is such that all existing shareholders who follow their rights will not be diluted in their shareholding.

“We are excited to have secured the success of the capital raise through the support of our major shareholders and interested underwriters,” said Van Coller.

“In the context of the legacy issues that the existing business has had to solve, namely the significant debt burden complicated by rising and onerous interest rates, repayments to original equipment manufacturers and the Special Investigating Unit (SIU), the significant support shown by existing and new shareholders is testament to the turnaround of EOH and the quality of the underlying core remaining businesses.”

As part of the process, the group revealed it had signed a loan agreement with Standard Bank, subject to the successful conclusion of the capital raise.

The agreement will result in the group’s R1.2bn debt being refinanced. This includes new long-term facilities of R700m and general banking facilities of R500m. 

gavazam@businesslive.co.za