The construction business of JSE-listed Basil Read has resumed submitting bids with joint venture partners for contracts despite still being in business rescue.
The group has also received favourable rulings to some of the R529 million in claims it is pursuing against clients but has been forced to initiate legal action after some clients still refused to pay these claims.
Basil Read CEO Khathutshelo ‘K2’ Mapasa expressed confidence on Thursday that the construction business will be able to start trading again this year.
Mapasa said they have formed a few joint ventures to respond to opportunities that are available with some state-owned entities (SOEs) where it has a lot of experience in terms of executing projects.
“We started submitting bids this year and are waiting for adjudication,” he said.
“I have the permission of – and the prompting from – the BRPs [business rescue practitioners] to say we need to start looking for these opportunities and see then what happens because the company is in a position where it needs to start trading as we have derisked the company enough by getting out of all those loss-making legacy contracts,” he said.
Mapasa said Basil Read has also been requested on its own to submit a budget for a small project for the commissioning of a water facility after the previous contractor absconded.
“I think we are going to start it sometime in August 2021,” he said.
Mapasa stressed it was at the discretion of the BRP practitioners if and when Basil Read came out of business rescue or the process was converted into a liquidation.
However, Mapasa said his focus now is on looking for opportunities for Basil Read because of confidence the business rescue plan will be implemented and they will be able to rehabilitate the company.
Derisking its exposure
An analyst previously told Moneyweb it will be difficult to revive Basil Read because its name and reputation has been tarnished by going into business rescue.
This will make it difficult for the company to find a bank or guarantor to back the company while clients are likely to be wary of contractors who were in business rescue and did not have a strong balance sheet, he said.
However, Mapasa said without minimising the “cloud” around Basil Read and the fact that the guarantee provided considered the company a higher risk, some of the guarantee providers have been working with them in de-risking their exposure in loss-making contracts.
“Some of them have actually had a very positive experience with Basil Read in that we were able to protect their guarantees,” he said.
Mapasa added that Basil Read has been able to further reduce its post business rescue commencement funding from R300 million to “comfortably below R100 million” following further payments.
A R1 billion loss
Basil Read Limited was placed under voluntary business rescue on June 15 2018 after it reported a net loss after tax of R1 billion for its 2017 financial year in March 2018.
The group’s construction subsidiary is the only business that was placed in business rescue and its mining services and development businesses have continued to operate.
The BRPs reported last week that Basil Read now only has one active construction contract, the Medupi power plant building project for Eskom, which is anticipated to be completed in May 2021.
This follows Basil Read completing the Rosetta Water Treatment Plant project for Umgeni Water at the beginning of March 2021.
At the commencement of Basil Read’s business rescue process, it had 27 active contracts.
The completion or termination of contracts has resulted in the reduction in Basil Read’s aggregate contingent liability in the form of guarantees to R119 million from R1.1 billion at the beginning of the business rescue proceedings.
Mapasa said Basil Read made a slight profit on the Umgeni Water project but anticipated making a significant loss on the Eskom contract.
The BRPs said Basil Read Limited continues to pursue contract claims because it relies heavily on the claims proceeds to meet its commitments but this process has been protracted, costly and been adversely impacted by the Covid-19 related lockdowns.
“The BRPs have been successful in obtaining favourable rulings with respect to certain of these claims, notwithstanding these challenges. Unfortunately, employers [clients] unlawfully continue withholding payments flowing from these rulings.
“Therefore additional legal action to enforce the rulings are required. Thus, the timing of receipts of funds for these claims remains uncertain,” they said.
Mapasa said at least 17 claims have been finalised and, excluding finalised claims where clients are still refusing to pay, collected more than R180 million in claims in 2020 and about R110 million in 2019.
He confirmed Basil Read obtained a favourable ruling in the Gauteng North High Court in July last year against the KwaZulu-Natal Department of Public Works for a contract for the construction of a magistrate’s court in Port Shepstone that was 95% completed it had to terminate because of non-payment of a certain amount of certified work.
However, Mapasa said the department was still refusing to pay and it is now in the process of bringing in the sheriff to force the department to pay.
Mapasa said Basil Read was also in the process of initiating legal action for another claim involving the Department of Public Works for a contract where the department’s professional agent had issued a certificate but the department was refusing to pay.
The BRPs had positive news about Basil Read’s mining business, which is not in business rescue.
They said the mining business has entered preferred bidder negotiations with clients in South Africa and Botswana, which when concluded in the coming weeks will effectively increase the order book by more than R1.5 billion and will replace the two major contracts that were terminated at the beginning of the Covid-19 pandemic lockdowns in the second quarter of 2020.
Trading in the shares of Basil Read on the JSE is suspended.