Seelan Gobalsamy is unfazed by the pressure to save Omnia from collapse
As a newcomer to the chemicals, explosives, and fertilisers industry, Seelan is up for the challenge of reviving Omnia's fortunes.
Omnia, a once-popular South Africa-based specialist in chemicals, explosives, and fertilisers, has caused a stir among shareholders in recent months. Omnia’s crippling debt load of more than R4-billion has created shareholder jitters, with the company’s share price on the Johannesburg Stock Exchange tumbling from R147 in January 2018 to its present level of about R27. To compound matters, shareholders were asked to bail out Omnia in September 2019 through a R2-billion rights offer, months after the company reassured investors that there was no need to worry about a recapitalisation exercise.
This is happening at a time when shareholders are still worried about the accounting fraud at global retailer Steinhoff that is still unravelling.
Omnia was further beset by management changes, with the sudden resignation of sudden resignation of long-serving executives Adriaan de Lange (who joined the company in 2003) and Rod Humphris (joined in 1982) since June 2019.
But Omnia has appointed a Mr-fix-it in form of Seelan Gobalsamy (pictured) as CEO from August 2019 – a year after joining the company as a non-executive director.
Seelan is a highly experienced executive, with nearly 20 years of experience in the financial services industry – previously holding senior executive roles at Liberty Holdings, Stanlib, and Old Mutual. He’s a new comer to the chemicals, explosives, and fertilisers industry. We asked Seelan how he plans to fix Omnia, win the confidence and trust of shareholders back.
M&A Africa: Why did you take up the role of leading Omnia, which is financially distressed?
Seelan: In September 2018, I joined the board of Omnia as a non-executive director and member of the board’s audit committee. Omnia is over 65 years old and generally the CEO or chairman come from very long tenures within the company. I sat on the board until February 2019. And in March 2019, the current CEO and the board asked me whether I would come to help Omnia and I was a non-exec director. Coming in I saw that there was a lot of worrying signs in the company.
I saw Omnia as a great South African company at risk of disappearing. I thought; how could I stand on the sidelines and not try to help the company. Omnia is in over 40 countries and employs 4, 500 people, who probably feed ten times this amount of people in our country. I wanted to turnaround this South African company and get it going for the next 50 years.
M&A Africa: You didn’t come within the ranks of Omnia to be appointed as CEO. The company has an established tradition of appointing internal executives to the CEO role. Does being an outsider help?
Seelan: Yes. Luckily, I had been involved in situations of buying and selling businesses during my financial services career. I believe that I have brought in a stable pair of hands.
I am not intimidated by the strong Omnia heritage. Being in business for 60 plus years, doesn’t give you the right to be in business for the next 100 years. You have to be relevant; customers will have to buy from you, you have to adapt and innovate. Few companies that have been around for 50 or 100 years are generally around for the next 100 years. They disappear.
M&A Africa: At what point did Omnia’s woes with shareholders exacerbate?
Seelan: In April, we announced that we are in a collaborative engagement with all of our banks. The company had a lot of debt and the rainy season didn’t happen as planned last year because there was a drought. The farmers didn’t plant as planned and Omnia’s earnings [from the sale of its agricultural products to farmers] didn’t come through. We had a highly stressed balance sheet, which upset banks and shareholders. The share price has come down and the company under stress.
M&A Africa: What is your diagnosis of what went wrong at Omnia and what was the tipping point for the company?
Seelan: Historically, Omnia had no debt, but we introduced more debt to acquire two businesses. We bought a 90 percent stake in Durban-based petroleum business Umongo for R780-million in 2017 and 100 percent of Oro Agri, a developer of ecologically safe crop protection products and liquid fertilisers, for $100-million in 2017.
With these transactions, we added more than R3 billion of debt to the balance sheet. On top of this, we continued to expand. We expanded our businesses in Australia, the US, Brazil, Zambia and DRC. There was a lot of inorganic expansion, then there was the drought and the late rainy season. The combination of all of these things resulted in Omnia’s debt position being too high. Putting on some debt is fine but the probability of the rains being late and all the cash needing to be paid out in one year, then a perfect storm arrived.
M&A Africa: Do you think Omnia has stabilised? And what efforts have you made to stabilise the business?
Seelan: The first thing I wanted to do was make sure that the banks were supportive of the company and didn’t call on their facilities.
Omnia needed someone who will look at the return on capital for each of its businesses. We had to review if our businesses made sense and whether they are getting the return on capital. In the past, Omnia has generated cash and never had debt. The company didn’t have a culture to think deeply about cash and debt.
M&A Africa: After the R2 billion rights offer, which was fully underwritten by Omnia’s investors including Allan Gray, Coronation Asset Management, Foord Asset Management, Kagiso Asset Management and Old Mutual Investment Group. What is Omnia’s debt profile?
Seelan: We took a 12-month bridge loan of R6.8 billion from four banks – RMB, Standard Bank, Investec and Absa. The R2 billion rights issue will take the debt (R6.8 billion) to R4.8 billion. The remaining debt will be refinanced into a structured-term and working-capital debt package. We want to bring down debt to R3 billion, which will be manageable.
M&A Africa: What is Omnia’s turnaround strategy premised on?
Seelan: With debt stabilising, Omnia can now take advantage of drought conditions that have eased and an improved planting season by farmers, which might result in the company’s profitability. As the operating environment improves and money is recouped from its global operations, Gobalsamy expects Omnia to record annual earnings before interest, taxes, depreciation, and amortisation (Ebitda) of R1.5-billion.
M&A Africa: What do you say to shareholders that have given up on Omnia?
Seelan: As a shareholder, I would be disappointed in Omnia. We have a great company that has eroded the market capitalisation. I am realist and I am disappointed. Shareholders invest in business for reasons, including that the company has value. But when trust is broken, shareholders sell your shares and I guess that is what happened to us. We broke the trust and surprised the market with the fall in share price and rights offers. But as shareholders see the quarter-on-quarter performance of Omnia, shareholders will start to come back to us. Shareholders want us to deliver and take deep management action.