August 20, 2017

enX and Eqstra in R7.8bn deal to build SA’s next industrial giant

Spin-off of contract mining will drive consolidation in the sector

enX Group Limited (enX) and Eqstra Holdings Limited (EQS) today announced that they have concluded an agreement whereby enX will acquire Eqstra’s Industrial Equipment and Fleet Management divisions and recapitalise Eqstra’s Contract Mining division for approximately R7.8-billion.

The transaction will see enX issue 52.7-million enX shares at R21-00 a share (post consolidation) to Eqstra to acquire the Industrial Equipment and Fleet Management divisions and raise R1,5 billion of which R1,4 billion will be used to recapitalise the Contract Mining business.

On completion of the transaction the enX businesses will be arranged and managed in three clusters:

  • Industrial Equipment, which will comprise Eqstra’s Industrial Equipment division 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 to-be acquired West Africa International Proprietary Limited.

The contract mining division currently known as MCC will have a new capital structure and remain a standalone public company. The R1.4-billion capital injection will be used to repay current bank debt.

The contract mining business presents Eqstra shareholders with a levered opportunity to unlock value through a focused entry point into a well-capitalised mining services business. The 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.

The current 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 the banks and the extension of certain noteholder maturities. This will result in a much less lumpy post-transaction maturity profile. In addition, enX will have sufficient immediate liquidity to address the first 2 years of the largest noteholder maturities. This will facilitate a more sustainable balance between capital investment, debt repayment and potential returns to shareholders. This sustainable capital structure will unlock cash flow for investment in growth.

Paul Mansour, the current CEO of enX, will, with effect from the completion of the Eqstra transaction, assume the role of Executive Deputy Chairman of enX and Jannie Serfontein, Eqstra’s current CEO, will assume the role of enX’s Chief Executive Officer. The key executives of each of the underlying business will continue in their current roles.

The Board of Eqstra will be reconstituted and the Board of enX will be bolstered by the addition of certain existing Eqstra board members. Details of the proposed candidates will be included in the circulars to shareholders giving notice of a meeting to consider the resolutions necessary to give effect to the Eqstra transaction.

Transaction summary:

  • Issue of 52.7m enX shares to Eqstra at R21 per shares in exchange for Industrial Equipment and Fleet Management businesses;
  • R1.5 billion equity capital raised in enX of which R1,4bn will be used to recapitalise the Contract Mining business, which will become a standalone listed entity;
  • R5.2 billion of re-profiled bank and note holder debt will be assumed by enX; and
  • 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.

Paul Mansour said: “Our vision is to build the next industrial powerhouse. This transaction with Eqstra represents an opportunity to take a significant step towards achieving this goal. We also have the prospect of building a dedicated and focused mining services business.”

“This transaction has been supported by constructive and supportive responses and input from banks and note holders who are pivotal to establishing a more sustainable capital structure. This capital structure will enable business units within the reorganised group to benefit more fully from the strong positions they hold in their respective markets.

“We are also confident that this transaction addresses the interests of shareholders and provides a well-grounded opportunity to participate in a new-look company whose prospects are strengthened.”

Jannie Serfontein added: “Management of Eqstra has been engaged for some time in a strategy to adapt the company to changed business conditions. A key element of this strategy has been to address the cash flow pressure of the current debt structure.

“The Eqstra board is supportive of this transaction and is of the view that it will address the challenges in the most constructive way possible. It provides a material uplift for Eqstra shareholders, allows them to retain exposure to the industrial equipment and fleet management businesses, creates a sustainable capital structure and retain a share in the contract mining division.”

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