Energy group enX nabs Eqstra
JSE-listed industrial energy group enX is taking over capital equipment, fleet management and contract mining group Eqstra in a R7.8bn Davidswallows-Goliath deal.
JSE-listed industrial energy group enX is taking over capital equipment, fleet management, and contract mining group Eqstra in a R7.8bn David-swallows-Goliath deal.
Formerly listed as industrial supplies group Austro, enX turned over R883m in financial 2015, while Eqstra turned over R9.5bn in that year. But at the close of the JSE on Thursday, enX had a market capitalisation of R1.2bn and Eqstra a little more than R1bn.
The transaction will see the spinning off of Eqstra’s contract mining business, which will remain listed.
The parties say it comes as the global mining sector “seems to be at or close to the bottom of the cycle, and there are new opportunities to expand geographically and into new commodities and service offerings”.
“The contract mining business will be well positioned to take advantage of these opportunities and be a potential consolidator of the industry,” Paul Mansour, CEO of enX, said on Thursday. He would now assume the role of executive deputy chairman of enX.
He said that the plan was to build SA’s next “industrial giant”.
“We’ve been trying to find ways to turn enX into a substantial industrial company — and do this in a sensible manner,” Mansour said.
“We are buying the industrial businesses out of Eqstra, and what you are left with is a standalone mining business,” he said. The enX brand would remain as it is, but Eqstra was now looking for a new name, he added.
Eqstra shareholders will receive a ratio of 0.13:1 enX shares for every Eqstra share, and a retained share in the contract mining business. enX will issue 52.7-million shares at R21 a share to Eqstra to buy its industrial equipment and fleet management divisions, and raise R1.5bn. Of this, R1.4bn will be used to recapitalise the contract mining business, and to repay current bank debt.
The current R7.5bn Eqstra debt structure faces liquidity pressures over the next 24 months. This will be addressed through a new debt facility that has been negotiated with banks, and through the extension of certain noteholder maturities.
enX said it would facilitate a more sustainable balance between capital investment, debt repayment, and potential returns to shareholders.
“It’s a good enough deal for Eqstra in the circumstances, dealing with its material financial risk, and still allowing some further upside potential,” Avior Capital Markets analyst Mark Hodgson, said on Thursday. “It finally separates out the better-quality and low-quality loss-making contract mining businesses of Eqstra from each other,” he said.
Eqstra CEO Jannie Serfontein said on Thursday the banks had given the company a capital holiday. This meant there would be no repayment of capital for the first two years of a six-year debt term. Meanwhile, Serfontein would assume the role of enX CEO in terms of the deal.
“It’s a deal that I believe is taking care of all stakeholders,” Serfontein said.
Mansour said that Eqstra was trad- ing well below its net asset value, and that the deal was based on a reference value of R1.80 an Eqstra share. It would almost double the value of Eqstra, he said. On completion of the transaction, which should be concluded by the end of 2016, both groups would remain separately listed, with Eqstra now being a dedicated contract mining play.
Eqstra, which was listed in 2008 at about R18 a share after being unbundled from Imperial Holdings, has underperformed since the global financial crash that year. Since the more recent repeat collapse of minerals commodities markets, the stock has gone from about R9 a share to about R2.50 now, having fallen as low as about R1.55 recently.
On completion of the transaction, the enX businesses will be arranged and managed in three clusters: industrial equipment, which will comprise Eqstra assets and enX’s existing power and wood businesses; fleet management, which will comprise Eqstra’s fleet management division; and fuel and chemicals, which will comprise enX’s oil lubricants business and the chemicals distribution business of the soon-to-be acquired West African International.
Durban-based West African International is a reseller and distributor of polymer, rubber, fillers, and specialised chemicals. enX has bought the business for R250m. West African International also distributes oil lubricants produced by ExxonMobil to Caterpillar dealerships in Southern Africa and Indian Ocean islands.
FOR quite a while industrial services specialist enX –— built on the remnants of the old Austro Group — was idling away in the shadow of acquisitive market darling Torre Industrial.
enX’s focus on the energy sector (fuels and power generation) hardly sparked enthusiasm among smallcap investors, even though the prime movers in the business included investment banker Paul Mansour and gaming sector executive Steven Joffe (formerly CEO of Gold Reef Casinos and Resorts).
But Thursday’s transaction involving an investment from debtlumbered industrial conglomerate Eqstra is a game changer and will surely push enX into the spotlight.
There may even be thoughts around whether an enlarged enX takes a tilt at Torre, which has seen its share price fizzling in recent months. There are clearly big plans in the offing, with enX emblazoning its presentation document (detailing the proposed deal) with the ambitious declaration: “Building the JSE’s next industrial Titan.”
While the scope of the deal, including a R1.5bn capital raising, is eye-catching in a moribund industrial landscape, the really impressive numbers are contained in the profit forecasts. The enlarged enX has pencilled in revenue of R6.1bn for the year to end-August 2017 and R7.8bn for 2018, with earnings before interest and tax of R700m and R1.1bn, respectively.
Those are big-league numbers.
FIXED-line operator Neotel could make a strong comeback following years of poor performance. On Tuesday, Liquid Telecom, in partnership with investment group Royal Bafokeng Holdings, announced the acquisition of the company for R6.5bn.
They plan to invest significantly in the business, which has battled to compete. Neotel has been unable to draw customers, particularly residential clients, away from Telkom.
Unlike its rivals, who market their products strongly, Neotel has remained in the background over the past few years.
It experienced a dramatic management shake-up last year when former CEO Sunil Joshi and chief financial officer Steven Whiley were suspended following reports of alleged financial irregularities. The pair have since left the company.
The first thing the new owners should do is to strengthen the management team and restore employee and customer confidence.
The involvement of the experienced team at Liquid will go some way to revitalising the company. Neotel should invest substantially in a marketing campaign to get its name out in the market place.
The combined business will have a massive fibre network infrastructure across 12 countries on the continent. One positive is that the deal is unlikely to encounter any major regulatory hurdles.