EOH outlines debt restructuring plan

JSE-listed IT services group EOH Holdings has outlined a plan to restructure its debt following a planned rights issue in which it is seeking to raise up to R500-million from shareholders.

Providing an update on its financial performance for the first half of the 2023 financial year, EOH said it has concluded a term sheet with Standard Bank to refinance the remaining debt following the rights issue.

In terms of the agreement, which is subject to the rights issue being successfully concluded, EOH’s remaining debt will be refinanced as follows:

• A R200-million, four-year amortising term loan;
• A R250-million, three-year bullet term loan;
• A R250-million, four-year revolving credit facility; and
• R500-million in general banking facilities, which will include a working capital facility and ancillary banking facilities.

“This will ensure that the group emerges from the capital raise with a sustainable capital structure, allowing management to focus on driving growth in the operations,” EOH said.

It said that although it reduced its debt levels disclosed at year-end from R1.3-billion to R1.2-billion, increased refinancing costs incurred under a new common terms agreement — along with higher repurchase rate levels from the South African Reserve Bank — have resulted in “only a modest reduction in the finance cost in comparison to the first half of 2022”.

“The proposed capital raise, comprising a R500-million rights offer and a R100-million specific issue of shares for cash to EOH’s black empowerment partner, Lebashe Investment Group, therefore remains a strategic imperative, allowing the group to reduce its debt levels, gain access to cheaper forms of debt and secure less onerous lending terms.”

On 13 December, EOH shareholders approved the resolutions required for the rights issue to proceed. The rights offer subscription period is expected to open on 30 January and close on 10 February, although these dates may shift.

“Significant interest has been shown in the rights offer, which we expect to be fully de-risked through a combination of irrevocable commitments to follow rights and underwriting commitments at the time of launch,” EOH said.

On its financial performance, the group said that in the first five months of trading in the 2023 financial year, continuing operations “performed in line with budgets, achieving revenue growth above inflation and the prior period”.

Gross margins in the first half to 31 January 2023 have “remained stable when compared to the continuing operations for 2022 full financial year”.

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“The group has also seen strong performance at an Ebitda and operating profit level as the business resets and embarks on its growth strategy,” it added, referring to earnings before interest, tax, depreciation and amortisation – a measure of operating profitability.  – © 2023 NewsCentral Media

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