EOH has lowered its borrowings to less than R1.4bn after a recent sale of certain business units as the group continues its march to reduce debt. The company has hinted at new capital-raising plans in the coming weeks as part of the effort.
In a note to investors on Friday, the technology group said its deleveraging strategy progressed with the disposal of its Information Services unit in June. Net proceeds of R374m from the sale were used to pay down a loan facility that is repayable in April 2023.
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 to further cut debt. It is disposing of noncore assets and closing out unprofitable contracts.
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.
With the Information Services transaction now complete, gross debt amounts to R1.33bn, down from R1.7bn in March. This comprises a R500m bullet facility maturing in April 2025, with the rest comprising an R832m bridge facility.
The company expects to announce new capital-raising plans alongside the release of its year-end results.
Despite having successfully negotiated with lenders to restructure some of its debt, the group has fallen victim to rising interest rates, meant to curb the growing cost of living, resulting in higher financing costs.
Rising rates
“While the conclusion of the common terms agreement with the lenders has brought more stability to our capital structure, the cost of debt and refinancing costs have increased the finance cost line. When combined with the increase in the repo rate we have seen our blended cost of debt increase by 230 basis points,” said EOH.
“The final phase of resolving the capital structure remains a business imperative particularly in the context of the current rising interest-rate environment.”
Outside managing debt, the group is working to close two legacy issues: settling with the government’s Special Investigating Unit regarding a contract with the department of water & sanitation; and a PAYE tax dispute in one of its staff outsourcing businesses, dating to 2012.
“Despite the difficult operating environment EOH continues to demonstrate resilience and affirms its profitability,” said CEO Stephen van Coller. “The final step is now to optimise the capital structure and we are confident that we can deliver in this regard to pursue our growth strategy.” He said the group remains on track to deliver R60m of cost savings highlighted in its interim results presentation.
In September 2018, EOH brought in former MTN executive Van Coller to turn the group around. Since he joined the group has pursued 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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