Cash-strapped Group Five in business rescue – SA to help Zim get back on its feet
Trading of its shares on the JSE suspended
GROUP Five yesterday joined the growing list of casualties of the downturn in the construction industry, filing for business rescue and suspending the trading of its shares on the JSE.
The construction and engineering company cited severe cash-flow difficulties that have hit its operations for some time, resulting in major losses and financial constraints.
The stock was suspended at 89 cents – a far cry from the R43 it traded at five years ago.
Construction industry economist Roelof Botha said the writing had been on the wall for Group Five for some time, and it’s going into business rescue was “a hangover from the (former President Jacob) Zuma era”.
A number of major companies, such as Basil Read and Esor, have also folded as a result of subdued activity in the construction industry.
Most had restructured from very large construction groups to smaller, leaner companies as infrastructure spending by the government slumped in just about every municipality during the Zuma era.
Group Five said a retrenchment process was already under way.
Spokesperson Heidi Geldenhuys said the exact number of staff to be retrenched was still to be determined.
“Significant” severance pay would become payable from the retrenchments. Group Five employs more than 7 000 people.
Yesterday, the group said its directors obtained R650 million of bridge finance from a consortium of lenders last April to try and alleviate a cash flow crisis. But their financial woes worsened when a guarantee of $62.7m (R901.3m) was called in November and $43.8m in December for the Kpone Gas and Oil-Fired Combined Cycle power plant contract in Ghana, which the client terminated at the end of November 2018.
Additional bridge funding was sought from the lending consortium for short-term working capital, but on March 4 the lenders said they would not provide more finance, given the money they had already provided, the uncertainty about whether the funds would be enough to meet working capital requirements, and if the group would be able to meet its existing and new debt repayments, the group said.
“It appears to be reasonably unlikely that the company will be able to pay all its debts as they fall due and payable within the immediately ensuing six months.”
Group chief executive Solomon Mosai resigned with immediate effect in January, leading to the group appointing non-executive director Thabo Kgogo as acting chief executive.
Last month, Group Five sought additional bridge funding from the Lending Consortium for its G5 Construction Group’s subsidiary in order to cover short-term working capital requirements. However, Lending Consortium turned down the application, mainly on fears that the balance sheet was too weak to generate any income and service the debt.
Yesterday, the group said it had appointed David Lake and Peter van den Steen of Metis Corporate Advisory as business rescue practitioners.
It said there was a “slim chance” for them to realise any value, although previously disclosed expressions of interest for various part of the business would continue to be assessed.