Are Group Five and Murray & Roberts in trouble?

Article tools

	PRINT ARTICLE
	SEND TO FRIEND

Services

	Subscribe to newsletters		Feeds
	Become a Facebook fan		Follow Moneyweb on twitter

Murray & Roberts pursues Dubai debt

Construction giant details its expo...

Moneyweb examines Group Five’s R1bn exposure and looks at M&R.

JOHANNESBURG - Government owned Dubai World looks set to default on its debt, delaying payment for an undetermined period, arguably creating the biggest sovereign default since Argentina's in 2002. What does this mean for SA's multibillion rand construction groups?

Group Five (JSE:GRF) CEO Mike Upton immediately allayed fears saying, "we have no exposure to Dubai World." Group Five (JSE:GRF) is involved in heavy infrastructure development in the region.

Dubai World has a global port management subsidiary and property investments through Nakheel, but the construction company is not exposed there.

Upton confirms that contracts cancelled in the previous financial year are in the process of being resolved in an orderly manner. The sequence of the process involves measurement, final certification and approval of final account, of which the bulk of these steps have been completed. Payment will then be able to proceed within the timeframe previously communicated to stakeholders in August 2009.

This means that both parties are honouring the contracts. He doesn't believe the default will affect the government's ability to pay.

Dubai World is a state-owned enterprise, but the debt crisis is being limited to that corporation.

Ed Jardim, spokesman for Murray & Roberts (JSE:MUR), mirrors Upton in his calm demeanour. He says "we're not owed any money [in Dubai]. The Trump Towers contract was our only exposure to [Dubai World's] Nakheel."

The Middle East was worth R1.6bn (13% of group) in turnover to Group Five (JSE:GRF) for the 2009 financial year. The annual report also indicates R939m of outstanding gross debt in the region, of which R580m relates to Dubai and the balance to contracts in Abu Dhabi and Jordan.

This gross debt is before the offset of advance payments held by the group relating to Dubai (of which the cancelled contracts only amount to R300m) and also before considering back to back arrangements with sub contractors, reflected under creditors, which would offset against the debt owed to the group.

For Murray & Roberts, the focus is more on oil-rich Abu Dhabi and Saudi Arabia. The Middle East was worth just over R5bn in revenue for financial year 2009. The following projects were cancelled in Dubai due to the financial crisis:

Trump International Hotel & Tower AED 3.3bn (R6.6bn)

Concourse 3 at Dubai International Airport AED5.7bn (R11.4bn)

The report says: "Full and final settlement has been agreed on Concourse 3 and Trump Tower and final account negotiations on other terminated projects are ongoing". This supports Jardim saying no money is owed in Dubai.

Upton says "it doesn't affect the outlook for us, the Middle East is vibrant outside of Dubai." In the 2009 annual report, Group Five (JSE:GRF) does highlight its concerns over Dubai.

The group currently expects a fall off in revenue from R1,6bn in the prior year to approximately R1bn in the current year, of which R580m was reported as secured at the last financial reporting period in June 2009.

"I think the story has been overcooked", says Upton, commenting that it is not as big as it's been made out to be.

Write to Chris Blaine: chris@moneyweb.co.za

For more on the unfolding Dubai crisis read: