| Thu 19 Jun 2003, 9:51 | | MGX sees light as bankers give it a breather on de |
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There is hard work ahead financial director
Information Technology Editor
DIRECTORS of faltering MGX believe they can steer the technology group to recovery, thanks to a postponement of interest payments on R600m debt and a reprieve on a R100m loan it was unable to repay this week.
The debt-laden group accepted its bankers' refinancing conditions yesterday. The conditions postpone repayment of much of its debt until it generates enough to pay. Directors had little choice but to accept the five-year refinancing plan proposed by Citibank, SCMB, Investec, Rand Merchant Bank and BoE.
Although financial director Roy Midlane was not enthusiastic about the future, he was cautiously optimistic. "This is a workable refinancing plan, but there is hard work ahead. It is a life, where it could have been a situation that there was no life. The board and managers are very committed to making it work."
The banks' proposal fell short of a solution proposed by MGX chairman Peter Flack and his colleagues from FRM Strategies, who worked for six months to save the group. Flack and his team quit on Tuesday, saying it was futile to pretend they could help MGX succeed unless some of its debt was converted into equity as crippling interest charges were too high to service from day-to-day operations.
Yesterday Philip Cullingworth of Citibank, who chairs the banking consortium, said they had rejected the debt-toequity idea for several reasons, one being that it would significantly dilute the stakes of existing shareholders.
"The banks are very optimistic that the restructuring is a positive way to steer the company out of its current difficulties," said Cullingworth. "The restructuring is hugely positive for shareholders, the company and its creditors. Creditors will be dealing with a going concern that has the support of the banks."
The banks will switch R210m of debt into convertible loan notes in an MGX subsidiary. Another R118m of debt will be turned into convertible loan notes in MGX itself. That will leave a senior debt of R120m that will be assigned to Metrofile, one of the healthier divisions.
The interest and capital repayments will be required only on the loan notes once MGX is cash-flow positive.
Cullingworth and Midlane would not speculate on when MGX may be able to begin repaying debt, but the banks said they would not apply any early pressure to do so.
Nor would they actually expect the overdue R100m loan to be repaid in October. The R100m would then simply be joined to the remaining debt to be paid when MGX had the cash.
"We need to agree on a repayment profile on the senior debt of R120m, which will suit the company's cash-flow profile. If there is growth over and above that it will be applied to some of the notes," said Cullingworth.
Another issue yet to be thrashed out is how much equity the banks would take if the loans were converted into equity after five years.
The board will now work to sell the remaining units to leave just three core divisions, Metrofile, Software Futures and its UK arm, Graphic Data. Midlane said those divisions were solid and had been given the right focus under the FRM overhaul to succeed.
MGX will be guided by Christopher Seabrooke as its new nonexecutive chairman, and a new CEO may also be sought, although Seabrooke may take on those duties. Flack was acting CEO under his mandate to salvage the group, replacing Chris Hills, who stepped down due to ill health and was not reappointed.
Although Flack quit when the banks rejected his refinancing plan, he said the turnaround strategy had left MGX with strong, focused divisions that could succeed as long as its debt burden was lifted.
Yesterday one source said he was surprised that FRM had not seen the bank's proposal as a lifting of the burden. About R340m of the overall debt would behave like equity, with no interest payments due unless MGX was profitable and cash positive, he said. "I don't think the banks could have offered more."
Jun 19 2003 06:10:46:000AM Lesley Stones Business Day 1st Edition
Thursday
19 June 2003
