EOH plugs more debt holes
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EOH rallied over 3% yesterday as the market continued to push the price higher off the back of momentum in selling assets and reducing debt, along with improved profitability in the underlying operations. Although those who bought in the past 30 days are really smiling, most other holders are still in the red.
The last announcement from EOH clarified that the company still needs to plug a hole of around R750m for the settlement of the bridge finance facility in October 2022.
The latest news is that EOH will be selling its Network Solutions business and its stake in Hymax SA (both inside the iOCO division) to Seacom South Africa. Both operations are focused on the networking and voice segments of the telecommunications industry.
EOH doesn’t have the balance sheet to support the ongoing investment required in these businesses. Seacom is a better owner of these businesses, as the company can support growth with the stated strategic objective of strengthening the enterprise offering.
The enterprise value for the deal is R144.9 million, which is a normalised EV/EBITDA multiple of 4.8x. The deal will take between three and five calendar months to implement, so the initial proceeds should be received before the bridging facility is due.
Speaking of proceeds, the first R115.9 million (80% of the price) is payable on closing. 20% will be held in escrow as security for payment of any warranty and indemnity claims, with half of the reserve released to EOH after six months. There is still the potential for the amount to be adjusted based on net debt and working capital.
The amount in escrow will help in negotiations with funders, but the reality is that the R750 million hole seems to be down to around R634 million based on this deal. With a market cap of around R1 billion, any capital raise that may be required to settle the bridging finance would be significantly dilutive.
The clock is ticking and EOH is certainly doing its best to bring the balance sheet to a sustainable level.
