MGX to restructure and delist

MGX, which has admitted it almost collapsed in the year to June, is to restructure, change its name, and terminate its JSE listing.

The group, which this morning released its overdue year-end results, says its high debt burden, deteriorating trading performance and legal disputes nearly caused it to collapse.

"This was avoided through the support of a consortium of the group`s bankers who provided additional working capital facilities and, together with Eurevest and Drive Control, have now agreed to a restructure of the group`s debt," says financial director Roy Midlane.

In addition to the debt refinancing agreement, MGX is to restructure its operations, delist from the JSE and change its name to Metrofile Group, since Metrofile will be its sole material trading operation.

The banking consortium will make additional working capital facilities available to MGX, the businesses of Metrofile will be transferred, as a going concern, to a new company wholly owned by MGX, and general banking facilities totalling R116 million will bear interest and be serviced in the ordinary course of business.

The remaining group debt will be structured as convertible debt instruments in the new Metrofile and in MGX. "These will be serviced from free cash flow or may ultimately be converted into equity," Midlane says. "Accordingly, the group will no longer have high cash demands for debt service that are not covered by its normal free cash flows."

Up to R142 million of debt in MGX and the new Metrofile may be subordinated to other creditors to the extent that liabilities exceed the book value of assets.

The group has disposed of several subsidiaries as part of a recovery programme and is in the process of disposing of Graphic Data, EC-Hold and its Midrand property.

Eurevest Leasing has perfected its pledges on 48.9 million shares held by MGX in EC-Hold and is negotiating to acquire MGX`s remaining EC-Hold shares and claims for a nominal amount.

Midlane says although the dispute with the Securities Regulation Panel (SRP) over MGX`s acquisition of EC-Hold has not yet been resolved, the extent of the group`s liability in terms of the SRP`s ruling will be materially reduced by a previously announced settlement with Cycad Financial Holdings.

"In the opinion of MGX, very few current shareholders of EC-Hold would qualify for an offer in terms of the ruling made by the SRP if MGX elected to accept and abide by the ruling." The current shareholders of EC-Hold will be made an offer of 240c per share, to be settled with MGX subordinated loan notes.

"The restructuring of the substantial debt obligations of MGX as a result of the determination of the banking consortium and the current board of directors has saved thousands of jobs, preserved good businesses, allowed for orderly disposals and optimised the outcome of a very bad situation to the benefit of most stakeholders.

"We hope that one of the consequences of the resolution of the MGX saga will be new legislation and revised JSE regulations to facilitate American-style Chapter 11 work-outs of this nature."

Midlane says the group recorded substantial losses for the year as the uncertainty at MGX took its toll on the trading operations and substantial impairments of assets became necessary.

"On the completion of the restructuring, the group expects to generate improved EBITDA [earnings before interest, tax, depreciation and amortisation] and free cash flow. Although some of the cash flow has been earmarked for servicing a portion of the debt obligations, sufficient will be retained to invest in Metrofile and ensure the continued growth and development of its business."

The group says the ultimate creation of value for the existing MGX shareholders will rest on the growth and future value of Metrofile, a successful black economic empowerment deal and the continued support of management.