THE enX Group plans to sell its subsidiary, Eqstra Investment Holdings Proprietary, holding company of enX's fleet management business, to Nedbank for at least R379 million.
The industrial group said yesterday that it and Nedbank had reached an agreement on the divestment of enX's entire shareholding in Eqstra. enX blends and distributes lubricants, distributes chemicals and provides diesel and renewable power solutions.
The deal would be implemented by way of a subscription for shares by Nedbank in Eqstra, which would result in Nedbank holding 50.2% of Eqstra. Eqstra would then repurchase all its shares held by enX for a price equal to the subscription price, so enX would cease to be an Eqstra shareholder, and Nedbank would hold 100% of Eqstra’s share capital.
After the transaction, Nedbank would advance funds to Eqstra to repay amounts due by Eqstra on its loan account to enX and its subsidiaries, and to refinance Eqstra's interest-bearing debt.
enX undertook not to compete with the business carried on by Eqstra for five years in the agreement.
The subscription price would be based on Eqstra’s net asset value, plus R16m, less certain transaction costs, and would be at a minimum of R379m.
If the minimum subscription price of R379m applied, then the gross proceeds would be about R890m.
If the transaction had closed on August 31, 2023, the gross proceeds received by enX before taxes and transaction costs would have been R1.05 billion, comprising the subscription price of R534m and the loans repaid to enX of R511m.
On the closing date of the transaction, enX’s board expected this amount to change by about the net profit after tax of Eqstra between September 1, 2023 and the closing date.
As at August 31, the interest-bearing debt that Nedbank would have refinanced was R1.47bn, resulting in an enterprise value of the transaction, determined as at August 31, of R2.52bn.
Eqstra provides commercial and passenger vehicle leasing services including fleet management, outsourcing solutions, maintenance, warranty management, remarketing and vehicle tracking solutions.
enX’s board said the continued ownership of Eqstra by enX may limit Eqstra's growth prospects and restrict the returns that could be delivered to enX shareholders.
This was based on a view that enX may face challenges in securing the necessary capital at a scale that Eqstra required for aggressive market growth, diversification of its asset base, and an increase in its credit risk appetite.
“As a non-banking entity, enX is at a disadvantage in raising funds at competitive rates, which is crucial for Eqstra to maintain sustainable competitiveness, particularly against South African banks,” enX directors said yesterday in a statement.
Eqstra was currently having to maintain equity buffers in excess of what would be ideal, impacting its ability to yield returns above its equity cost of capital, they said.
The board believed that Nedbank was well positioned to facilitate value-enhancing opportunities through access to significant capital resources at lower costs and enabling a reduction in equity buffers.
The deal would significantly decrease enX's debt profile, as Nedbank would assume all of Eqstra’s financial obligations, which was where the majority of enX's interest-bearing debt resided.
The deal was also a good opportunity for enX to monetise its investment in Eqstra at a valuation that, in the view of the board, fairly reflected the future prospects and cash flows of Eqstra, they said.