Builders should not be going broke
We got news this week that construction company Liviero had gone into business rescue in a difficult and untenable trading environment. The company calls itself “South Africa’s largest privately blackowned multi-disciplinary construction group” following its majority acquisition by Mike Teke’s Masimong less than three years ago.
At the time of the transaction, the chairman of Masimong was quoted as saying its “acquisition of a controlling share in Liviero gives [it] direct exposure to a wellestablished business that has the size and scale to play a key role in critical growth sectors of the South African economy”.
Just 32 months later, the group’s business units have individually filed for voluntary business rescue in order to be “afforded the time to reorganise their financial affairs” — code for “we have run out of money”.
This follows hot on the heels of 66-yearold Basil Read filing for business rescue last month, also due to liquidity issues. In March, its auditors, PwC, took no chance and qualified its audit opinion citing doubts about the going concern assumption.
Following its cat fight with Allan Gray last year, Group Five management eventually kept its crown jewel, the investment and concessions business, and fended off the R1.6-billion offer from Greenbay. Just as well, because, a few months later, management announced it would severely cut construction activity — code for “cutting jobs” — and eventually sell a majority stake in the construction business.
Then there was Aveng, which lost R6.7billion last year. Just think how much money that is to lose in a single financial year. Add to that the spate of directors who have resigned, including its chairman and, eventually, its CEO too.
Aveng also tried to pull a Liviero and sell 51% of Grinaker-LTA to a black buyer, Singabakhi, formerly Kutana Construction, but that didn’t work out too well. Aveng claimed it was because Singabakhi couldn’t raise the initial R20million required for the deal, but the black construction group argued that “the difficulties encountered in closing the deal related to the unexpected underperformance by Grinaker-LTA rather than our ability to fund the transaction”.
It was probably a bit of both, as the ability of the acquirer to raise the funding would have been inextricably linked to the performance of the target. Just as well for Singabakhi, otherwise it would have been stuck with a dog asset and tons of debt.
Despite the reality that business is very hard by nature and that tough times befall us all, I find the reasons put forward by these companies for their agony quite fascinating.
Liviero says it’s going to business rescue because its government client has failed to pay R81-million. Basil Read has also previously cited “liquidity pressures in the industry due to delayed or nonpayment by government departments”.
Given the high labour absorption rate the construction sector has, one would think it’s the last place where the government would want to hold back payments. Perhaps the state hasn’t quite gotten over the 2010 stadia collusion saga and has little sympathy for the sector. Whatever the real issues are, it is clear the sector will continue to struggle, especially with such low economic growth, and this has only one outcome: a loss of jobs. Surely it’s in our collective interest to pay these guys on time?
The other issue that Liviero cites quite repeatedly in its business rescue announcement as another major cause for its woes is labour unrest. The company claims that “unrealistic demands” from unions have caused “constant work stoppages, unless their demands are met” and management believes it is “being held to ransom”.
I think management may have reached a bit too far on this one. Unions have been a part of our lives for as long as we can all remember — unless you ran a business during apartheid, of course.
Trade unions almost always start their negotiations at the top end of their target, all the while dangling the strike-action card as their leverage. Managements know this. So to say that unions being unions is the reason you are going to business rescue essentially means admitting your failure to negotiate the right outcome for the business to continue trading. The other issue is perhaps a more philosophical one. Maybe if employers shared the upside with their employees when times are good, the same employees would be more understanding when times are bad.
Unfortunately, business doesn’t get this.
Surely it’s in our collective interest to pay these guys on time