EOH’s BEE partner shelves R250m investment

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Black-owned investment holding company Lebashe Investment Group has decided against a third round of investment in troubled IT services firm EOH.

In total, EOH’s black economic empowerment (BEE) partner Labashe had earmarked a R1 billion investment in the IT services company.

In the first round of investment, the BEE firm pumped R500 million in EOH in October last year. It went on to invest another R250 million into the debt-saddled EOH in December last year.

The two transactions resulted in Lebashe owning a 29% shareholding in EOH, which is set to announce its much-anticipated year-end results tomorrow.

However, in a statement issued last week, EOH says: “Shareholders are advised that Lebashe has formally notified EOH of its intention not to subscribe for the R250 million third tranche of the subscription undertaking.

“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.”

Last week, EOH said it has concluded the ENSafrica forensic investigation that unearthed suspicious transactions worth R1.2 billion.

The investigation found evidence of a number of governance failings and wrongdoing at EOH, including unsubstantiated payments, tender irregularities and other unethical business practices which are primarily limited to the public sector business centralised in EOH Mthombo and to a limited number of EOH employees, the company said.

The firm says it will lay criminal charges against employees implicated in corruption.

Notwithstanding the decision taken by Lebashe not to subscribe for the third tranche in accordance with the transaction terms, EOH says the investment and strategic relationship with EOH remains important to Lebashe and the BEE partner has committed to still providing the last tranche of funding originally committed to as part of the transaction subject to agreeing mutually acceptable terms and EOH shareholder approval, if required.

EOH Group CEO Stephen van Coller says: “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.”

Meanwhile, in a separate statement last week, EOH said earnings per share (EPS) and headline earnings per share (HEPS) for the group for the year ended 31 July 2019 will decrease meaningfully from the audited EPS and HEPS as previously reported for the year ended 31 July 2018.

It notes the EPS loss was anticipated to be at least 2 700c per share and HEPS loss was anticipated to be at least 1 800c per share.

EOH’s problems surfaced after software giant Microsoft in February terminated its contract with the IT services company after an anonymous whistle-blower filed a complaint with the United States Securities and Exchange Commission about alleged malfeasance to do with a R120 million contract with the SA Department of Defence.

It then appointed ENSafrica which conducted a forensic investigation that discovered the R1.2 billion shady deals at the company.

Van Coller has been trying to clean up the mess at the company since his appointment. In July, he indicated the company will “ring-fence” problematic contracts into a single entity.

The company also faced contract challenges with US-based software provider Qlik until they entered a marriage of convenience last month.

To add to the woes, earlier this month ITWeb reported EOH was embroiled in a dispute with service desk agents who lamented they had not been paid their salaries since May.

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