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Is SA heading toward life without a construction sector?

Esor follows Group Five in confirming its impending JSE delisting, while Basil Read’s listing future is uncertain.
The sector 'still has sufficient capacity' to deliver SA’s infrastructure build programme, but the quality 'will not be as good' as before. Image: Shutterstock

The decimation of South Africa’s listed construction sector is continuing, with construction and engineering company Esor confirming that it will be delisting from the JSE.

The announcement by Esor’s business rescue practitioners (BRPs) on Wednesday follows former construction heavyweight Group Five reporting last week that its listing on the JSE will be removed on June 15 and property and memorial park developer Calgro M3 confirming this week its decision to close its construction division, resulting in the retrenchment of about 150 employees.

Read:
Group Five – Delisting announcement
Calgro closes construction division, retrenches 150 employees

Esor’s listing on the JSE is scheduled to be removed on June 22.

Basil Read

The future of Basil Read, another former JSE construction sector heavyweight, is also uncertain. It went into business rescue in June 2018, shortly after reporting a net loss after tax of R1 billion for its 2017 financial year.

In an update to the business rescue proceedings issued in January this year, the BRPs said the effect of the implementation of the plan at group level remains uncertain until it’s completed. “Therefore, the [JSE] suspension will remain in place until the implementation is complete and the effects on the group can be determined,” they said.

However, the BRPs anticipate that more than 2 600 Basil Read employees will be retrenched but these employees will receive their full retrenchment packages.

Other players

Murray & Roberts (M&R) in March 2017 transferred its JSE listing to the general industrials sector from the construction & materials: heavy construction subsector. This followed M&R selling its southern African infrastructure and building business to the Southern Palace Group for R314 million in 2016.

Of the remaining companies listed in the construction sector, Aveng sold its Southern African construction and engineering business Grinaker-LTA to Laula Consortium late in 2019 and Stefanutti Stocks has experienced financial and other difficulties.

This has arguably left WBHO and Raubex as the only remaining companies in the heavy construction sector with the ability to undertake major infrastructure projects.

David Metelerkamp, senior economist at construction market intelligence firm Industry Insight, said on Wednesday there is not a lot left of the listed construction sector.

Listed contractors overall have lost more than 80% of their value over the past 10 to 12 years, adds Metelerkamp. Most of the remaining companies in the sector earn more than half of their earnings outside of South Africa.

‘Future problems’ have presented now

“The future of South African construction is so limited, especially because of the Covid-19 pandemic. It has sped up, to now, the problems that we were going to be facing in two to three years’ time,” he said.

President Cyril Ramaphosa, in announcing a R500 billion social relief and economic package last month, said: “Central to the economic recovery strategy will be the measures we will embark upon to stimulate demand and supply through interventions such as a substantial infrastructure build programme, the speedy implementation of economic reforms, the transformation of our economy and embarking on all other steps that will ignite inclusive economic growth.

“We will outline this in coming days,” he said at the time (April 21).

Read/watch: LIVE ARCHIVE: President on additional economic and social relief measures

However, Metelerkamp said nothing further has been heard about this package since then.

He says the trend globally is that it’s a good thing for governments to invest in infrastructure, to play a countercyclical role and limit the damage of the Covid-19 pandemic “and the economic hiatus it has closed us into”.

A different world

Metelerkamp believes there is still sufficient capacity in the construction sector to undertake and deliver the infrastructure build programme – but the quality of the infrastructure built will not be as good as in the past.

Read: Construction sector welcomes R700bn ‘project pipeline’ (Feb 2020)

He said the major companies that have expertise in building the highest quality infrastructure are much smaller than they were, and other Construction Industry Development Board Grade 9 contractors do not have the same experience and expertise in building mega projects.

Read: Sanral optimistic about its construction tenders proceeding

Explaining the rationale for Esor’s delisting from the JSE, the company said on Wednesday that steps taken by the BRP to find a possible investor into the company have to date proved to be unsuccessful and, considering the current economic environment, this is not foreseen soon.

 

Esor share price over the past five years

 

“The BRP confirmed that he has determined that, based on the present situation that prevails in South Africa, it is highly unlikely that a restructuring proposal will be tabled that will provide that value could be returned to the company’s shareholders.

“The only possible return might be on a pro rata basis to the company’s creditors and, consequently, the issued shares of the company have no value,” said the Esor BRP.

He added that Esor also no longer complies, or will no longer be able to comply, with the JSE listing requirements in various material respects as it does not:

  • Have a board of directors;
  • Have any board committees following various resignations and therefore does not comply with the King IV Code on Corporate Governance;
  • Have auditors or a company secretary; nor
  • Comply with the requirement to have subscribed capital of at least R50 million since 2018, nor with the requirement to have profit before tax of at least R15 million since 2013.

It has also been unable to release audited financial results, with the last financial results – released on July 31, 2018 – containing an operating loss, including fair value adjustment, of about R300 million.

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COMMENTS   22

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There will be a lot of things not around in South Africa’s future thanks to the commie policies of the ANC . Destroyers & crooks de luxe.

Misery loves company. SAA is in business rescue and the government wants entire sectors of the economy to join it there.

How it can claim to be running a risk adjusted strategy or a process of saving lives is simply ridiculous.

Quite the opposite actually.

China to the rescue !!!

A bag of cement is expensive

Remember RBA and Seakay. All gone due to Govt not paying.

Remind me again how BEE codes helped?
One big reminder… YOU CAN’T TRANSFORM OFF THE BACK OF FAILING ENTITIES.

It will be run in future by the political connected and the construction mafia. Keep an eye on who is buying what and where they come from.

Much better if it’s not listed. Much less scrutiny.

Cheapest form of nationalisation while nobody is watching. While Azania’s politburos are wallowing in wealth, the Chinese masters will be allowed use of “our” peoples’ labour. The new Utopia proudly brought to us by …..

an’t blame Esor’s demise on the racist policies of this gov.
esor has been a dog for the past 15 years.

Agreed and I happen to think it was a similar dog to the ANC in that IMHO, the directors made sure they were first in line to share out the loot, wasted the rest, then retired.

The sad thing is that big construction may be one of the cheapest way to provide employment around. For the cost of a few months subsidy of SAA, or a few weeks of Eskom, you could build (or reconstruct) many kilometres of road or pipeline, let alone dams and water treatment works. At least you are left with the infrastructure in place and not just a whiff of jet fuel or coal smoke pollution.

The ANC have in fact all by themselves introduced a whole new industry called the DESTRUCTION sector .
Cyrils forseen new Super City with Bullet trains is in reality a new shanty town with Bullets !
Just look at Whatever Grahamstown is called today : Ayah

Interesting how Calgro thrived in the Zuma years then fell off a cliff.

Love the comment that m&r sold their local business, as did Aveng. So therefore only WBHO and Raubex are left to do local world. Does the author always sell businesses that just disappear?

Shame my best mate bet on Stefanutti stocks hoping for slice of retirement pack and still owns over Million shares, total disaster, with interest add-on he probably kissed 13Mil down the ANC sewer.

Thank you ANC for killing South Africa…

After years of no capital spend private or public the company earnings have been decimated and the sector has very few analyst or institutional interest. Post 2010 Worldcup , its only private spend that has held up some order books, and generally many companies made errors in Australia, Middle East and Africa. This is the natural evolution of a cyclical industry – the listing, boom, bust and delisting. New entrants in the form of Chinese developers who will bring their own funding and own staff to build will happen soon, we are all just waiting for the African to recognise their new Chinese mAsters.

I am sorry. I have no sympathy for the construction sector. I myself did a home improvement/renovation project (a year ago) and was sharked out of R300K. My view might be a bit biased, but my first time exposure and first hand experience of the building industry was horrific!

The industry is filled with inefficiency, lack of innovation and very poor workmanship and no appreciation for something called a job. The apartheid mentality of the white man sitting in his bakkie, while the vast sea of cheap labour in Africa earns him money for pittance, is also part of industry and the corporate culture.

There is a road on our way to the local mall here. Local government and the contractors have been busy for 2 years now!! Every morning a huge traffic jam, with sometimes no builder in sight. Some Saturday mornings, huge pile ups or some zombie waving a flag. In Europe or China a road like this will be finished within 3 months. It is now 2 years of people standing around looking at one other person work.

In another event. A friend of mine, who has a master’s degree in engineering, was tasked to sit next to a national road in a camp stool for 6 months. All he had to do was, to checkup on builders and contractors because if he is not there then they claim they have done work. Siphon money from government for no work done!

The construction industry is one of the worst industries in South Africa!! May a new industry rise from the ashes.

Cant agree more. This construction industry in SA is an extreme inefficient industry using vast amounts of cheap and inevitable cost overruns. Too little mechanization relying on a huge endless supply of unskilled labour has meant it has not evolved to keep up with its international counterparts. In SA you see a string of 50 laborers diffing trenches, waiving flags, pushing wheelbarrows etc. Overseas, even small scale builders use mini diggers, loaders and small groups of skilled labour teams coupled with new advances in building techniques etc resulting in reducing staff costs and reducing project time.

@gwgoussard: Alas, most of the people worth their salt in the construction industry are probably retired, emigrated or dead. The practice of decent apprenticeships and the “passing on of the baton” was killed by the fabulous transformation laws. University education in the soft sciences became the new “in thing” and the value-added concept in industry and construction disappeared, replaced by greed and entitlement.

“(Ramaphosa) says the trend globally is that it’s a good thing for governments to invest in infrastructure, to play a countercyclical role and limit the damage of the Covid-19 pandemic “and the economic hiatus it has closed us into”.

The ANC said this (with enormous fanfare — remember the R4 trillion infrastructure plan) following the Soccer World Cup 2010 and nothing came of it except the decimation, as mentioned. of SA’s construction industry. Blame Davies and Patel, and the scandal-ridden Department of Minerals Affairs and Energy, in particular, as they let Zuma run riot. They all helped asphyxiate construction and the local steel industry and downstream manufacturing with politics and BEE and then Patel set upon construction with a destructive policy called the “Voluntary Settlement Agreement”. Finis.

I’m sure the ANC will bail-out the construction mafia.

End of comments.

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