Gijima's shareholders impress rating agency

There is a probability of a recovery for Gijima, according to rating agency Global Credit Ratings, after Robert Gumede's embattled technology firm on Friday cleared its first hurdle to raise R100-million from shareholders.

The money will be used as working capital and to pay off debt .

CEO Eileen Wilton said a second vote on the rights issue would be held in December but the technical aspects of the issue were approved by shareholders on Friday.

The Competition Commission has granted unconditional approval for the issuing of the new shares.

Eyal Shevel, the sector head for corporate and public sector ratings at Global Credit Ratings, said Gijima had strengths that supported its recovery.

It has "proprietary technology, highly skilled staff, decent contracts and is a listed company with strong shareholders who have shown support," Shevel said.

"From a funding perspective, as long as shareholders are prepared to support the firm, that give us a lot of comfort."

Global Credit Ratings has maintained a negative outlook on Gijima since April last year, when it downgraded the long-term and short-term national scale issuer ratings for the company.

Global Credit Ratings is reviewing the rating, which is below investment grade but "it's still a decent rating", according to Shevel.

"We are really concerned that they do turn profitability around. The turnaround strategy is great but now it needs to start coming to the fore.

"On the negative side, they've made big losses, there's been an enormous erosion of value. It remains to be seen whether their turnaround strategy does pay off."

The rights issue is crucial in paying debt of R213-million, which has been rolled over to 2017. Global Credit Ratings would not be downgrading the company if the rights issue was successful.

"If it's not successful that would be more our concern," Shevel said.

Gijima upgrades software on desktops and integrates company or government systems.

Gumede, who owns the listed company, was unavailable for comment, a spokeswoman said. The company, which is trading under a cautionary, was in a closed period, she added.

Gijima's troubles began in 2010 following a fallout with the Department of Home Affairs over the provision of equipment for the biometric verification of identities. The loss of this contract had a severe financial impact, as did the loss of an Absa contract in 2012, and a decision by the police not to renew a contract.

The stock has been in decline ever since. Since 2009 it has dropped 97.84% whereas the JSE All Share index has appreciated 84.88% in that time.

"The public purse is important but the lesson to be learned from those former glory days is that you cannot rely on the government," Shevel commented.

The company's auditors, KPMG, had indicated that a "material uncertainty" existed in the books that might cast significant doubt over the ability of the group and its subsidiaries to continue as a going concern.

In September, Gijima posted a fall in revenue from continuing operations to R1.5-billion for the year to June, from R1.85-billion in the previous year.

The full-year loss narrowed to R152.4-million from a loss of R210.8-million last year.