End-to-end IT services provider EOH has put a proposed rights issue on hold after competition authorities approved the R144.9m sale of some of its telecom assets to Seacom, a further win for a company whose debt pile is almost twice its market value.
EOH announced the sale of Hymax and its stake in Network Solutions to Seacom in April. Both businesses provide networking and voice solutions in the telecom industry.
Seacom owns Africa’s largest network of ICT infrastructure and operates a broadband submarine cable system that links Africa to Europe and Asia. The firm is looking to leverage this network to offer more IT services to corporate customers.
After a choppy day on the JSE, shares in EOH closed flat at R5. They shares have fallen by more than a quarter so far in 2022, and almost 96% over the past five years.
Seacom said the Competition Commission’s approval gives it the green light to proceed with integration plans. The company has earmarked September 1 as the first day of operations under its banner.
EOH, valued at R883m on the JSE, had a debt pile of R1.7bn up to April, and has been battling to fix its capital structure and regain credibility after a corporate scandal stemming from dubious dealings with state clients.
The company, which generates about 90% of its revenue in SA and also has operations in North Africa, the Middle East and Europe, is 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. At the time, the company hinted at a possible rights issue, which it now said may no longer be necessary.
This is good news for the company as markets are under pressure due to high inflation globally, Russia’s invasion of Ukraine and rising interest rates. Companies have found it a difficult market in which to raise capital, leading to Coca-Cola and Telkom’s Swiftnet postponing their listings.
In March, EOH concluded the sale of software company Sybrin for R334m and announced plans to sell data analytics and risk-mitigation business Information Services for a base purchase price of R417m, before adjustments for items such as debt.
“We are extremely pleased that the Competition Commission has approved this deal with no conditions,” CEO Stephen van Coller said in a statement. “The conclusion of this deal enables the EOH Group to continue on its journey of creating a fit-for-purpose capital structure,” he said.
In September 2018, the group brought in former MTN executive Van Coller to turn the group around. It has been pursuing a strategy of selling off noncore assets, closing out loss-making legacy contracts and pushing a strategy of being more client-focused, offering more holistic services.
Soon after arriving Van Coller 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.
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