JSE-listed technology services group EOH Holdings is considering various options, including going to shareholders for new equity, to reduce the debt burden on its balance sheet.
The shares closed down almost 17% on the news at R5.27 apiece, after hitting an intraday low of R5.15. Year on year, the shares have declined by 26.6%, before Friday’s selloff.
In a pre-closing trading update to shareholders on Monday, EOH said it will also consider selling more assets to deal with its debt issues. Other options on the table include an equity raise, which could include new investors coming on board, and the introduction of mezzanine debt.
New investors might include those that can help increase the group’s black ownership as well as strategic partners.
EOH is concluding a “common terms agreement” with lenders, with the main features being a R500-million, three-year “senior bullet facility”, and a R1.5-billion bridge facility, maturing in October 2022.
“The refinancing of the existing debt package is a key milestone as the new debt package gives management the opportunity to determine the optimal capital structure for the business going forward, and as it shifts focus towards re-embarking upon its growth strategy,” the group said in the update.
EOH has appointed financial advisors, which it didn’t name, to help it evaluate its strategic options.
“As part of the strategic plan to deleverage the group, EOH has identified a number of businesses for disposal in addition to those that have already been successfully sold,” it added.
“The Sybrin sale announced in June 2021 is expected be concluded in February 2022, generating net cash proceeds of about R280-million… EOH expects total cash proceeds from the disposal of non-core assets to be about R750-million (including Sybrin) by financial year-end (31 July). These proceeds will be used to further deleverage the balance sheet.”
The group emphasised that its liquidity position has improved significantly as the result of improvement in revenue and cash generation, the closing of onerous contracts, efficiencies achieved in working capital management, and the disposal of assets.
Cash balances as of Thursday, 27 January were R722-million (excluding an undrawn R250-million overdraft facility). “This improved liquidity position, coupled with positive lender engagement, has helped stabilise the balance sheet.”
The optimisation of the balance sheet is a key priority for the EOH board and management team
The R1.5-billion bridge facility maturing in October will be partially repaid using the R750-million in money received (and to be received) from asset disposals. The remaining R750-million will be settled through the options now being considered by management, including the possible equity raise from shareholders.
“Given the current high costs of debt funding, capital scarcity and arrangements with lenders, the optimisation of the balance sheet is a key priority for the EOH board and management team,” the group said, adding that the improvement in its trading performance means “this is the appropriate time to engage with shareholders, lenders and the market more broadly to determine the optimal solution for the company”. — © 2022 NewsCentral Media