The share price of struggling construction company Group Five dropped by almost 30% to 75c on Friday after an announcement that CEO Themba Mosai had resigned with effect from the previous day.
Mosai had been with Group Five for 15 years, initially as managing director of subsidiary Intertoll Africa. He was appointed group CEO in May 2017, a few months after the sudden resignation of his predecessor Eric Vemer.
Mosai’s resignation follows the departure of CFO Cristina Teixeira in December after 16 years with the group. Her resignation was first announced in October last year.
The Group Five board announced early in December that chartered accountant Anthony Clacher would take over from Teixeira and on Friday announced that non-executive director Dr Thabo C Kgogo would be the interim CEO. The search is on for a permanent successor to Mosai.
In the announcement of Mosai’s resignation, the board reminded investors that “Group Five is currently undergoing significant restructuring and resizing, with its future focus on developments, investments and concessions”.
The CEO’s resignation is the latest event in a continuing nightmare for Group Five.
This included a boardroom battle in 2017 that seemingly resulted in Vemer’s resignation with the board on one side and 25% shareholder Allan Gray on the other.
Even before that was resolved the danger lights started flickering with news about delays on the group’s multibillion rand Kpone power project in Ghana.
Group Five was contracted to do the design, engineering, procurement, construction, commissioning and testing of the 350 megawatt facility in the municipality of Kpone in Ghana.
Construction was due to be completed by the end of 2017, but when it was still not done in December last year, Group Five’s Kpone client Cenpower terminated the contract and called on the guarantees.
The construction group disputes Cenpower’s right to terminate and said last week that it hopes to finalise counter claims against Cenpower in the next three to four months.
“After this, these claims will be submitted to the International Chamber of Commerce (ICC) in Paris for the resolution of the disputes through expert proceedings,” Group Five stated in an announcement to shareholders. “This is a much faster process for resolution of disputes than arbitration. The group expects a ruling to be made by the end of 2019.”
As the extent of the Kpone problem became clear, Group Five’s share price moved lower and lower from above R25 in January 2017 to the dismal 75c on Friday.
In May last year Group Five announced that it has negotiated bridging finance and a debt standstill with some creditors in its fight for survival.
This comprised an agreement with a consortium of local bankers for R650 million of short-term bridging finance and some breathing space for the next 12 months.
As security Group Five pledged its manufacturing assets, European service concessions and European operations and maintenance business.
In January Group Five announced the sale of most of its manufacturing assets, which were considered non-core, for R480 million. Several conditions for the sale still have to be met.
The proceeds would, it said, assist in reducing the group’s indebtedness.
However, time seems to be running out for Group Five with regard to the debt standstill. Unless it repays the R650 million bridging finance earlier, the debt standstill expires in May.
In the meantime, the sharks are circling the wounded construction group.
In December last year, the group advised shareholders that it “has received expressions of interest (EOI) from a number of parties for various parts of the group’s business.
“Group Five’s board of directors is currently considering these EOIs, supported by its appointed corporate advisors,” it said at the time.
Its investment and concession businesses, the very same ones given as security to its current lenders, have been the envy of many of its peers for its bigger margins and regular income. These characteristics are ideal to mitigate the volatility of the traditional construction and infrastructure business.
Whether Group Five will be able to pull through and stage a recovery while holding on to its crown jewels remains to be seen.
The next few months will be crucial.