Struggling Omnia ‘can be salvaged’
• Gobalsamy tells how chemicals firm will use rights issue to ease bridging loan and restructure remaining debt
New Omnia CEO Seelan Gobalsamy has prioritised stabilising the troubled company’s balance sheet, reviewing its different investments and ultimately developing a new growth strategy.
New Omnia CEO Seelan Gobalsamy has prioritised stabilising the troubled company’s balance sheet, reviewing its investments and ultimately developing a new growth strategy.
The insurance and investment industry veteran has a tough task as he tries to turn the struggling chemicals and fertiliser company Omnia Holdings around.
To ease its debt burden, which stood at R4.4bn on March 31, Omnia is implementing a R2bn rights issue.
Gobalsamy, who stepped into the role in August, says the company will use the R2bn to pay down its R6.8bn bridging loan. He said the plan was to turn the remaining R4.8bn owed into a term loan of R3bn and working capital of R1.8bn.
“Then the company will have a more sustainable balance sheet,” Gobalsamy says.
“The entire plan that we have put in place entails fixing the balance sheet. Stabilise the company by dealing with the income-statement issues such as costs, revenue, working capital and capex spend. For the last six months, we have focused on the income statement.”
Gobalsamy says that in the medium term the company will “relook” at its various investments, based on a return on capital basis. “Are these investments adding value? Should we be in the territories we are in? In the longer term, that will result in a new growth strategy. There will be value that will be generated at each point in these steps.”
He says his immediate priority is to see the rights issue through. Towards the end of 2019 or early 2020, the company will begin assessing its investment portfolio.
The portfolio review will take account of macroeconomic trends and the effect these have on key sectors such as agriculture and mining. “Our job is to think from a return on investment perspective. Do the management actions that we are taking fit into the short-term and long-term macro environment?”
Gobalsamy, a former CE for emerging markets at Liberty Holdings, says the company will manage its working capital and capital expenditure tightly and reduce costs. Gobalsamy is no stranger to heading complex companies. At Liberty, he spearheaded investments into property, infrastructure, private equity and agriculture in SA and the rest of Africa. He has also held senior executive positions at Old Mutual and Stanlib.
But stepping into the top office at Omnia’s Bryanston headquarters is a totally different challenge.
Gobalsamy, who was previously Omnia’s finance director, replaced former MD Adriaan de Lange in August.
Omnia’s debt problems have been laid bare for all to see. As at March 31 2019, the company’s net interest-bearing borrowings amounted to R4.4bn. An excessive appetite for acquisitions seems to lie at the heart of Omnia’s woes.
It did not help that the company’s recent debt-financed acquisitions Umongo Petroleum and Oro Agri coincided with difficult trading conditions across the company’s agriculture, mining and chemicals segments.
For a company that historically had little debt, the overgeared balance sheet is a worry for Omnia and its shareholders. Its leaders now face the huge task of restoring trust in the company.
Gobalsamy, who has qualifications from Rhodes University, Unisa and Harvard Business School, says he is up to the task. “I want to look shareholders in the eye and say we will create the shareholder value that they want.
“I also want to be able to look the banks in the eye, and say let us build a team to take Omnia forward,” he says.
He says he understands that the shareholders and the banks are unhappy with the turn of events at the firm.
“How would I feel if I were a shareholder? I would be upset too. My role now is to stabilise and fix the company and to deliver shareholder value. We need to look back and see what mistakes did we make, if any. What risks did we not anticipate?”
Gobalsamy has begged the company’s shareholders to give management and the board a chance to turn the company around.
“We have had some corporate failures in SA. Omnia must not be one of those.
“I am a realist. It is not easy to go to shareholders and ask them for R2bn. But that is what is needed to turn the company around and generate this shareholder value that was lost,” he says.
Gobalsamy says he has not seen massive fraud or accounting irregularities at Omnia. “Our financials were issued in June (2019) and were signed off by auditors. We have a robust internal audit function.
“I want to drive a culture of doing the right thing first. My role is to restore confidence with shareholders and staff.”