EOH loses investment round from Lebashe
Lebashe Investment Group will not go ahead with a planned investment of another R250m in troubled tech company EOH, the latter said in a Sens statement on Friday.
The move underlines market concern about EOH, its reputation muddied by allegations of corruption and underhanded dealings in the public sector.
EOH’s share price has plunged from its R178.24 high in August 2015 to a fraction of that value. It closed the week slightly higher, being R12.76 at close of trade on Friday, which was 7.23% up on the previous day.
Lebashe agreed previously to invest R1bn in the technology company. So far, Lebashe has invested R750m over two funding rounds, resulting in it owning 29% of EOH’s stock.
Peter Takaendesa, a portfolio manager at Mergence Investment Managers, said that if trading conditions remained steady and asset disposals continued as planned then EOH should not run into liquidity problems due to Lebashe’s change of plans.
In April, EOH said it would sell noncore assets, expected to bring in R1bn over the next year,
with the proceeds to be used to reduce debt.
EOH said that although Lebashe had chosen not to invest the remaining R250m, their strategic partnership was still important to them.
“Lebashe took a conscious decision to allow EOH to establish a new independent board of directors without representation from Lebashe until after the conclusion of the ENSafrica investigation and the determination of the impact thereof,” EOH said.
Growth through acquisitions is probably dead for the foreseeable future as the company is currently in the stabilisation phase, Takaendesa said.
“Given that EOH shares are now even cheaper than Lebashe’s last entry level, it is possible that they have changed their investment view on the company. However, Lebashe has recently committed to investing into a number of other unrelated assets, so it may just be that they are finding other more attractive assets.”
Lebashe declined to comment on Sunday.
EOH group CEO Stephen van Coller said: “We have enjoyed a valuable partnership with Lebashe over the years, and look forward to exploring new, meaningful ways of evolving our collaboration for the benefit of EOH and Lebashe.”
EOH also said on Friday it would report losses for the year to July, partly as a result of R1.2bn in irregular payments at one of its subsidiaries.
The company said its loss per share widened to 2,464c from a loss of 202c per share in the previous year. Headline loss per share will be 1,352c compared with the previous period’s 278c.
A forensic report by law firm ENSafrica, which was appointed by EOH before CEO Van Coller joined the company, flagged “suspicious transactions” totalling R1.2bn from 2014 to 2017.
EOH said these numbers now included the current potential effect of the findings of the ENSafrica forensic investigation related to suspicious payments. The group said that the investigation was “substantially complete”. EOH said last week that it would press criminal charges against employees implicated in corruption following the probe.
The company said the classification of certain businesses as either continuing or discontinued operations, including assets held for sale, have affected the calculations.
“As a result of assessing this impact, certain items included in the half-year [results] as continuing have been reclassified to discontinued,” EOH said.
The company has had to write down and impair certain assets as a result of the investigation.
The company said further impairments related to the overpayment of investments, specifically in Zimbabwe; the effect of the unwinding of the Grid Control Technologies transaction; overaggressive historical capitalisation of intangible assets and uneconomic contracting on complex projects resulting in over-recognition of revenue; and work in progress.
EOH said there was some disagreement between the company and its auditors as to the timing of the impairments and whether they constituted prior-year restatements.
The company is due to release its annual results on October 15.
Last week, Lebashe’s acquisition of the media assets of Tiso Blackstar was given the nod by the Competition Tribunal.
Tiso Blackstar’s media businesses include Business Day, Financial Mail, Sunday Times and Sowetan.
A FORENSIC REPORT BY LAW FIRM ENSAFRICA FLAGGED SUSPICIOUS TRANSACTIONS OF R1.2BN FROM 2014 TO 2017