Banks throw MGX a lifeline

By Iain Scott for MGX Holdings
Johannesburg, 18 Jun 2003

Troubled MGX`s bankers have extended the group`s R100 million loan facility and have agreed to a refinancing plan.

At the same time, MGX has announced a change to its board, with Christopher Seabrooke stepping in as non-executive chairman.

"The current team of executive directors, with active assistance from the non-executive chairman, will be involved in the management of the company until a CEO has been appointed if its is deemed necessary by the board of directors," the company said.

According to an announcement on the JSE`s news service, SENS, the loan facility, which was to have been repaid yesterday, has been extended to 31 October.

The bankers and capital providers have also agreed to a five-year refinancing plan in terms of which the MGX bankers will convert about R210 million of the company`s debt into a range of redeemable convertible instruments to be issued by an MGX subsidiary.

In addition, the bankers and capital providers will convert about R118 million of debt into redeemable convertible instruments to be issued by MGX.

This will leave a debt balance of about R120 million, to be assumed by MGX`s Metrofile division.

MGX`s bankers are BoE, Citibank, Investec, Rand Merchant Bank and SCMB.

FRM Strategies, appointed last year to effect a turnaround at the struggling MGX, announced yesterday that its principals had resigned from the MGX board and FRM would not renew its appointment, which expired yesterday.

FRM principal Peter Flack had been interim CEO at MGX since November last year.

The release, originally thought to have been issued by MGX, explained that the move came after the failure to negotiate a debt restructuring with the group`s bankers.

Flack says he does not want to comment on the deal, as that is up to MGX. However, he says that his proposal was different from the current plan in that he had proposed that between R130 million and R150 million be converted into straight equity, not other instruments.

Speaking before the deal was announced, Craig Hackney, Barnard Jacobs Mellet IT analyst, said MGX was essentially Metrofile and Software Futures. The cash generation at these two divisions would not have been enough to service the group`s debt levels, so some form of debt-to-equity conversion, even if it meant preference shares, was essential if MGX were to survive.

Hackney estimated that if MGX were to be liquidated, its banks would have recovered 70c in the rand, although that would have left very little for other creditors and shareholders.

MGX directors were in a meeting this morning and had not returned calls by time of publication. Flack was also in a meeting this morning.

Meanwhile, MGX has announced that it has agreed in principle to sell the former MGX Continuity Solutions, recently renamed ContinuitySA, to certain members of management for about R85 million.

Management and staff will hold 35% of the shares in the new company, with the remaining shares split between various shareholders, the major one being Sirius Development Foundation which will hold 30%.

Sirius is an initiative originated between Sipho Shezi, the former director-general of public works, and Black & Veatch, a global engineering and construction company.