AUTO SUPPLIER HEADED FOR liquidation AFTER GMSA EXIT
The pullout of General Motors from South Africa has claimed its first casualty, with a supplier to the car maker being placed into provisional liquidation.
It is unlikely that the company will recover from its dire financial position, says Chris van Zyl of accounting firm Mazars, one of four provisional liquidators to oversee Coega Autospray, a manufacturer of plastic trim components for the automotive industry – mainly for General Motors SA (GMSA). It is situated in Uitenhage in the Eastern Cape.
Having met with Coega Autospray representatives this week, Van Zyl told City Press that its supply was up at the end of September, and thereafter, the company would probably be closed and its assets auctioned off – unless someone came to the provisional liquidators with an offer, which was “highly unlikely”.
Late last month, the Port Elizabeth High Court granted an application, brought by trustees of the Vumela Enterprise Development Fund Trust, for the company to be placed into provisional liquidation.
The trustees claimed that Coega Autospray owed Vumela more than R33 million in debts and interest.
Coega Autospray employs 79 people and GMSA makes up 85% of the company’s business. Vumela funds small and medium enterprises which have growth potential. It is backed by FirstRand.
Andrew Buchanan, Vumela’s head of post investment management, said: “Provisional liquidation has been granted by the judge. This is not final. What happens now is that a liquidator will be appointed to go and ascertain if the company is a going concern.
“The liquidator will also have discussions with the creditors to find out their intentions – if the company can still pay or not, or any other arrangements that the creditors can come up with. The matter will then be back in court on August 22 for the final order from the judge.”
In a court affidavit, which City Press has a copy of, Buchanan said GMSA’s move to close shop in South Africa had affected Coega Autospray’s operations, so it would be unable to pay back the loan.
Coega Autospray had not taken any active steps to cut its indebtedness, he added.
The company was in breach of both its bridge loan agreement and its convertible loan agreement extended by Vumela, Buchanan said.
According to the liquidation affidavit, “GMSA is the respondent’s main customer and provides approximately 85% of the respondent’s revenue. For the past number of years, it has been placing [a lower number of orders] than the initial targets. This is one of the major reasons for the respondent’s current financial predicament.
“For the past 12 months, the respondent has tried, and failed, to acquire a new customer who can reduce the one-customer dependency.
“The respondent is unable to survive on only the volumes it is likely to receive from Isuzu as Isuzu only produces approximately 85 vehicles per month, as opposed to the 100 vehicles that GMSA produces every day.
“The cash flow which the respondent generated from the orders it received from GMSA will reduce significantly as it will no longer receive such orders.”
It was also noted in the affidavit that these factors would have a negative effect on the cash flow position of Coega Autospray as it was unlikely to be able to generate the income that it had been generating on historical support.
According to Buchanan, Coega Autospray’s liabilities amounted to R57.5 million, which exceed its total assets – valued at almost R46 million – by nearly R11.6 million. This meant that it was technically insolvent.
Coega Autospray was unable to pay its debts and Buchanan said it was “just and equitable” for the company to be wound up.
When asked by City Press for comment, Coega AutoSpray acting chief executive Mark Gilbert declined, saying: “I want nothing to do with the press.”
The full impact of GMSA’s exit will be felt later this year and into 2018.
Mphumzi Maqungo, national treasurer of The National Union of Metalworkers of SA, said: “The effects of GMSA’s exit are beginning to be felt as some component suppliers face financial problems and even liquidation.
“The full impact will be felt next year, when the current long-term contract agreements entered into between the various suppliers and GMSA start expiring.
“We have three types of suppliers. First are those serving various car manufacturers, not just GMSA. They won’t feel the effects immediately. Then we have dealerships and workshops.
“A number of companies have already issued retrenchment notices. Once all the internal processes are completed, we will see and feel the impact on both the companies and affected employees.”
In May, GMSA announced that it would be pulling out of South Africa and stop operations by endDecember as part of a global restructuring process.
GMSA spokesperson Denise van Huyssteen said: “Consultations with unions and employee representatives, under the facilitation of the Commission for Conciliation, Mediation and Arbitration, are in process. At the point of initiation, it was estimated that 589 employees would potentially be impacted by the proposed restructuring.”
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