Ailing Basil Read near collapse as lenders stay away

● Construction group Basil Read, which was founded 66 years ago and has been listed on the JSE for more than three decades, is on the brink of collapse. The company on Friday said it had filed for a voluntary business rescue process as it was in a state of “financial distress” after lenders decided not to support the ailing contractor.

This resulted in Basil Read’s shares plummeting more than 90% within minutes. After opening at 18c on Friday, the stock fell to an all-time low of 1c before closing the week at 2c. The company, which was worth R2.5-billion at the end of 2007, is now valued at less than R30-million.

To mitigate its cash-flow problems, Basil Read has been trying to raise bridge funding from a group of lenders while it finalises certain contracts and sells noncore assets.

But after “protracted negotiations”, most lenders in the consortium decided they were not prepared to provide Basil Read with funding outside of a business-rescue process, the company said.

A collapse of Basil Read would be a major blow to the Industrial Development Corporation, which holds 31.4% of the contractor’s equity and a chunk of its debts.

The IDC came to Basil Read’s rescue in the second half of 2017 when it gave the contractor a R150-million bridge loan facility.

That allowed the contractor to reach a debt standstill agreement with Aluwani Capital Partners, Credit Guarantee, the IDC, Investec, Lombard Insurance and Standard Chartered Bank in December.

Then, in February, Basil Read raised R300-million worth of new equity, which it used to repay the IDC bridge loan and fund working capital.

The IDC’s corporate affairs executive, Zama Luthuli, told Business Times the state development financier had been in talks with Basil Read’s management and other funders “in an effort to assist the company through its current financial difficulties”.

“Going forward, the IDC will continue to engage with the appointed business rescue practitioner and will consider providing funding in line with new identified requirements,” Luthuli said.

Basil Read said it would appoint Siviwe Dongwana of Adamentem Chartered Accountants and John Lightfoot of Matuson and Associates as business rescue practitioners.

Eyal Shevel, head of corporate ratings for Africa at Global Credit Ratings, told Business Times that lenders were hesitant about providing funding for South Africa’s construction companies as there were no signs of major contracts being awarded in the country. The sector has been in a prolonged downturn since the 2010 Fifa World Cup.

“The bottom line is there’s just no visibility of where work is going to come from,” Shevel said.