Not if, but when
TAKE THE PAIN and acknowledge impairments for unrealised profits. Tick. Sell off the discontinued operations. Tick. Murray & Roberts has started on its long to-do list, with a rights issue possibly the next item as it begins the long, slow clamber back on to that pedestal it toppled from earlier this year. Henry Laas – the new man tasked with restoring the group to its former glory (as was the case with Brian Bruce when he took the helm of a much shabbier looking ship 11 years ago) – says he’ll make the improvement of group liquidity his immediate priority. He’ll start with negotiating settlements for almost R1,25bn in claims for work completed on the Gautrain, Dubai airport and, most recently, Eskom’s Medupi power station.
The share is already pricing in a rights issue, according to an analyst. At 2654c it’s at a five-year low, the level reached pre-building boom excitement. Finally, analysts are eyeing it again.
Laas’s success at negotiating a happy and timely ending to the group’s claims will be the deciding factor whether a rights issue is needed. The group insists it still has R1bn in headroom for current projects in South Africa. However, over the six months to end-December 2010 M&R burned through more than R900m in cash.
Laas’s biggest headache will be to recover the R600m in claims for work done on the Gautrain. M&R owns an equity stake in the rail link and is still constructing the last few waterlogged legs of the project. So far the arduous process of arbitration would be the best outcome.
Then there’s the work being done on the Medupi project. M&R has already exhausted its budget and only half of the project has been completed. So it makes sense M&R prepares itself for the long fight ahead with some extra cash to keep operations running and new ones coming on board. Blackouts this winter will probably serve to settle some outstanding payments, however, and Laas is also familiar with the boys at Medupi through his previous post of businesses. This bodes well for the continuity of the negotiations.