EOH has announced details of its plan to go to shareholders for cash to resolve its legacy debt issues, sending its share price sliding to a multi-year low.

Though the rights issue was expected, EOH’s formal announcement about the plan sent the shares to as low as R3.51 in intraday trading on Friday. By 12.50pm, they had regained some composure and were trading 1.8% lower at R3.78 apiece.

Up to yesterday’s market close, EOH shares have lost about 44% of their value year to date, despite the progress made by CEO Stephen van Coller and his management team in turning the business around. The legacy debt issues have continued to weigh heavily on investor sentiment.

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“With the turnaround of EOH’s compliance, governance and risk management largely complete, and in the context of the significant improvement in EOH’s financial performance, the board considers it appropriate to focus on optimising EOH’s capital structure and positioning the company for future growth by proceeding with an equity capital raise of up to R600-million,” it told shareholders in a statement on Friday.

“Notwithstanding significant progress to date, EOH’s deleveraging and liquidity objectives remain incomplete, with EOH continuing to be burdened by its debt commitments and interest obligations. This necessitated the renegotiation of its debt funding package with its lender group, which was concluded on 1 April 2022. The terms of the refinancing agreements with lenders require EOH to undertake a capital raise to repay a significant portion of the bridge facility outstanding. The bridge facility is repayable by December 2023.”

The capital raising plan comprises:

A renounceable rights offer of up to R500-million, or, if the specific issue (detailed below) is not approved by EOH shareholders, up to R600-million.
A specific issue of ordinary shares at the rights offer price for cash of R100-million to black empowerment partner Lebashe Investment Group, meaning Lebashe is partially underpinning the rights offer “subject to certain terms and conditions”.

The net proceeds will be used to:

Repay R563-million of EOH’s bridge facility (of which R728-million is currently outstanding) and “right-size the capital structure”. The remaining balance of the bridge facility will be repaid from the proceeds of smaller asset disposals as well as a refinancing of the balance with one or more of the company’s lenders.
Optimise the balance sheet.
Maintain sufficient working capital in the short to medium term to allow the company to pursue its growth strategy.

“In the opinion of the management team and board, right-sizing the capital structure will allow EOH to improve earnings and ultimately create value for shareholders,” EOH said in the statement.