The business rescue process of construction and engineering company Group Five, which will result in its JSE listing being terminated and the company being wound up, is being disrupted by the Covid-19 pandemic.
The planned payment of the first distribution to concurrent creditors in terms of the business rescue plan for Group Five Construction, the listed group’s main operating subsidiary, has been delayed.
In addition, the sale process of Everite, the fibre cement products manufacturing business owned by Group Five Limited, has been temporarily suspended.
Group Five’s business rescue process is unrelated to the impact of Covid-19 and the national lockdown. The group was placed in business rescue and its shares suspended on the JSE in March 2019.
Although Group Five will be wound up, the business rescue plan envisaged that between 3 000 and 3 500 jobs would be saved through the restructuring and sale of businesses and contracts to new owners.
The company, like several other major listed and unlisted construction companies, was experiencing cash flow difficulties prior to being placed in business rescue.
This was exacerbated by the group’s bank performance bond guarantee providers paying $106.5 million to the Cenpower Generation Company related to the $410 million Kpone power plant in Ghana in 2018.
Other listed construction companies that have experienced serious financial difficulties – because of issues such as a lack of work including major government infrastructure projects, late and non-payments by government entities, the disruption caused to projects by the so-called ‘construction mafia’ and problematic and loss-making contracts – are Basil Read and Esor, which both are in business rescue, and Aveng and Stefanutti Stocks.
Group Five creditors voted overwhelmingly in favour of the business rescue plans for the listed entity and the construction company in September 2019.
Group Five’s business rescue practitioners (BRPs) Peter van den Steen and Dave Lake of Metis Strategic Advisors said on Thursday that due to the economic and social consequences directly associated with the Covid-19 pandemic and the lockdown in South Africa, they anticipate delays in the completion and realisation of multiple processes and objectives in the business rescue proceedings of both entities.
They indicated in their 10th business rescue status update report for Group Five Construction, issued in March, that they were ready and planning for the proposed first distribution to concurrent creditors at the end of the first quarter of 2020, as forecast in the plan.
However, they said the Covid-19 crisis has changed the economic environment materially and they have determined that the responsible and appropriate course of action at this time is to preserve cash resources wherever possible.
“The Covid-19 crisis is impacting on many aspects of the company’s businesses, as well as on the management and implementation of the business rescue process.
“While the BRPs are confident that they are well positioned to manage any threats to the implementation of the plan at this time, other than likely delays in respect of asset realisations, a prudent approach is being adopted in the interests of all stakeholders,” they said.
Payment ‘after lockdown’
Van den Steen and Lake advised creditors they now anticipate that the completion of implementation of phase one of the business rescue plan, and the payment of the first distribution to concurrent creditors, will happen after the Covid-19 national lockdown period, subject to the evaluation of the company’s cash position.
They said this is envisaged to take place during the second quarter of 2020, but warned that the date on which the implementation of phase one is to be completed remains at the discretion of the BRPs.
In regard to Group Five Construction asset and business sales, Van den Steen and Lake said this process remains ongoing and broadly in accordance with the adopted business rescue plan.
However, they admitted they are experiencing a number of delays in the disposal implementation processes, and thus cash realisation.
“Our disposal counterparties are in many instances unable or unwilling to complete transactions during this time of local and global uncertainty.
“A significant majority of the assets and businesses available for sale have, however, either been realised or are the subject matter of binding sale agreements,” they said.
But due to the impact of the Covid-19 pandemic, they expect “inevitable delays in closing some of the transactions and correspondingly in the release of value to creditors by way of distributions”.
Van den Steen and Lake added that Group Five Construction continues to actively pursue the resolution of numerous disputes by means of negotiation or, where applicable, by litigation, arbitration and adjudication matters.
David Fraser, executive chair of Peregrine Capital, said last month that state-owned enterprises (SOEs) such as the South African National Roads Agency (Sanral) have to take some responsibility for what has happened in the construction sector, although the construction companies are certainly not blameless.
Fraser said SOEs had been a consistent and reliable provider of work over an extended period of time and withdrew this work for several years. This forced construction companies to look elsewhere and perhaps take business risks they otherwise would not have. The construction mafia has also negatively impacted the industry, he said.
David Metelerkamp, senior economist at Industry Insight, said last week the impact of Covid-19 on the construction sector will be catastrophic, unlike any economic shock the sector has previously had to endure, and result in it shedding an estimated 120 000 to 140 000 formal jobs.