Builders should not be go­ing broke

Sunday Times - - Business Opinion - Andile Khu­malo Khu­malo is an en­tre­pre­neur

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

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