Today EOH released the final terms of its rights offer and its specific issue of shares to its strategic investment partner Lebashe Investment Group.
Salient points
- On 13 December 2022 at the Company’s EGM, EOH shareholders voted unanimously for EOH to proceed with the rights offer.
- The combined capital raise from the rights issue and specific issue will amount to R600 million.
- EOH has received irrevocable undertakings from existing shareholders representing 30% of the issued shares to follow their rights in full.
- EOH has underwriting agreements with Aeon Investment Management Proprietary Limited, Anchor Capital Proprietary Limited and Visio Capital Management Proprietary Limited to subscribe for any shares that have not been subscribed for by existing shareholders.
- The irrevocable undertakings to follow rights and underwriting commitments have de-risked the process and guarantees that R600 million will be raised.
- The rights offer issue price of R1.30 represents a discount of approximately 30% to the theoretical ex-rights price (“TERP”) which is in line with the average discount to TERP of the last ten rights offers of similar sized offerings relative to market capitalisations.
- Given the structure of the rights issue all existing shareholders who follow their rights will experience no dilution in their shareholding.
- The proceeds of the rights offer and specific issue will be used to settle the majority of the senior bridge facility, reducing interest payments by approximately R100 million per annum. Further, Standard Bank of South Africa Limited (acting through its Corporate and Investment Banking division), has, subject to a successful conclusion of the capital raise and fulfilment of conditions precedent, approved new long-term facilities of R700 million and general banking facilities of R500 million to replace the existing debt, which significantly reduces the margin above JIBAR that EOH pays (for details click here). This brings the facilities in line with normal corporate facilities available in the market and significantly reduces the onerous administration of a four-lender syndicate.
“We are excited to have secured the success of the capital raise through the support of our major shareholders and interested underwriters. 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 OEM’s 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,” EOH Group CEO Stephen van Coller said.
“It was always a strategic imperative to fix the capital structure of the business in order to take full advantage of the opportunities EOH has through its leading technology offerings and world class skills base.
“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. Furthermore, our international certification as a TOP EMPLOYER underlines our global standard of people practices and further reinforces our ability to attract and retain great talent.”
EOH’s results for the financial year ended 31 July 2022 demonstrated a continued significant improvement in the financial performance of the business and its return to operating profitability, which has continued into the first five months of the 2023 financial year. Key highlights are: –
- An 80% increase in continuing operating profit from FY21 to FY22 to R100 million
- Continuing Revenue increase of 17% in H2 2022 compared to H2 2021
- Continuing Revenue for the five months to December 2022 is ahead of budget and grown in excess of inflation
- Continuing Gross Margins and adjusted EBITDA margins for the five months to 31 December 2022 remain in line with FY22
As a result of this financial performance the Board and management considered it appropriate at this time to complete the turnaround and solve for the inefficient capital structure through an equity capital raise, which was unanimously supported and approved by shareholders.
EOH is pleased to report that the rights issue has been de-risked through the support of major shareholders providing irrevocable undertakings to follow their rights, as well as underwriting commitments from both existing and new shareholders to subscribe for any shares not taken up by EOH shareholders.
Over and above their commitment to follow their rights, Lebashe has signed an irrevocable undertaking to subscribe for R100 million new EOH shares, being 76,923,077 shares at the rights offer issue price of R1.30. Lebashe’s shareholding in EOH after the rights issue and specific issue will be approximately 23.5%.
Megan Pydigadu, EOH CFO, added “Securing the success of the rights issue and capital raise will bring significant and immediate benefits to EOH. We will save approximately R100 million per annum in interest charges based on current interest rates, freeing up resources to invest in numerous exciting growth opportunities. It has been an arduous journey to get here, and I would like to thank all our stakeholders, in particular our customers and partners who have supported us throughout together with our 5000-plus staff members for their patience and tenacity in continuing to deliver world class technology solutions under very trying and uncertain circumstances.”
The terms of Lebashe’s A-share shareholding have been amended and extended to 30 September 2028, enabling and incentivising Lebashe to add value as a strategic partner to EOH and extending the life of the empowerment transaction, and the resultant benefits thereof to EOH, by five years. Lebashe’s voting interest including its A-shares will be approximately 30%, further securing EOH’s Level 1 BBBEE status.
“I am extremely proud of this team and thrilled by the vote of confidence in EOH demonstrated by all stakeholders, including our existing shareholders, the underwriters and our now single banker,” Andrew Mthembu, Chairman of the EOH Board, said.
“EOH has a strong investment case and I urge shareholders to consider following their rights and maintain their economic interest in EOH.
“I would particularly like to thank the Lebashe Investment Group for their continued support and belief in EOH. As a Board, we are looking forward to this next stage of our journey unhindered by the large legacy debt and interest burden and focusing on the growth of the business for the first time in many years.”
