EOH Holdings website. Picture: Karen Sandison, African News Agency (ANA).
The National Business Initiative (NBI), Corruption Watch, and independent global affairs think tank ODI released a report named Addressing Corporate Corruption in South Africa: The EOH Experience.
The launch of the report followed a webinar held on Tuesday during which its findings were discussed by a panel of leading experts.
In a session facilitated by Financial Mail editor Rob Rose, Stephen Gelb, senior research associate at ODI and lead author of the report, joined Busisiwe Mavuso, CEO of Business Leadership South Africa, and EOH CEO Stephen van Coller to unpack the details of the EOH case, and the wider problem of corporate corruption in South Africa.
State capture inflicted serious damage on growth in the wide economy, over and above the direct loss of public funds, through its corrosive effect on public institutions.
This resulted in damage to domestic and international investor confidence and to the effective delivery of key public services, particularly transport and energy.
This paper’s starting point is the idea that corporate corruption has similarly damaging effects on an economy as state capture, especially on investor confidence.
The report examined EOH as a case study of corporate corruption, with the view that South Africa is a useful arena for such studies, given its substantial corporate business class.
While the Zondo Commission’s focus was on the public sector rather than private sector entities, the report stated that it did not look deeply into the reasons for corporations like EOH becoming corrupt.
The analysis showed that while there is no doubt that the wider context of state capture in South Africa after 2009 was very important for corruption at EOH, the corporation’s problems preceded the state capture period and extended well beyond EOH’s direct engagement with the state.
Following the announcement of the company’s half-yearly results for the period to January 2023, Stephen van Coller said he now regarded EOH as a ‘normal business’.
The report further indicated that the period of addressing corruption within EOH has, in his view, ended.
Firstly, over the period since the start of 2022, the business has restructured its balance sheet to make its debt liability more manageable on an ongoing basis.
This involved the sale of certain units (including profitable ones) to pay off a substantial portion of the debt (an estimated R900 million), and renegotiation with its lenders to consolidate the remaining debt.
As part of that renegotiation, EOH carried out a rights issue in January 2023 to further lower its debt to R670 million, lowering interest payments and raising profits after tax and interest, moving the company closer to being able to invest again.
Secondly, in 2022 EOH agreed to terms with the SIU to pay off its outstanding settlement claims to the South African government, an amount of R217 million as noted above.
And thirdly, the company had experienced three successive six-month periods of small, but positive, profitability prior to financing and tax charges.
This success came at a cost, however, as the reported stated that the EOH share price on the JSE at the end of March 2023 was R1.70, down from R6.84 at the beginning of 2022, and far below the price of R19.50 at the time of the Microsoft scandal, not to mention its peak share price under Bohbot of R178.24.
Its market capitalisation today is at about R1.1 billion (about $62 million), compared with the 2015 peak of around R17bn (over $1.3bn at the time).
The 2022 decline of about 75% in the share price is partly because rights issues inevitably lead to share price declines, and the longer the lead time between the announcement of the issue and the actual issue, the greater the decline.
In this case, EOH was forced by its lenders to announce the likelihood of the rights issue in January 2022, but the issue itself only happened at the end of 2022.
BUSINESS REPORT