JSE-listed Stefanutti Stocks, which is involved in a dispute with Eskom, has raised R1.183 billion in provisions for future costs, project losses and a tax liability in Kenya.
The provisions include a further R462 million provision for potential unrecoverable monthly measured works to complete a controversial building project at the Kusile Power Station. This is in addition to the provision of R263 million raised in February 2019 for potential unrecoverable preliminary and general costs at Kusile.
Apart from the provision for future costs at Kusile, Stefanutti Stocks has also made:
- R331 million in specific provisions for slow-paying trade receivables
- A R294 million provision for specific project losses
- A R53 million provision for impairment of goodwill, and
- A R43 million provision for a tax liability in Kenya.
These provisions contributed towards Stefanutti Stocks on Thursday reporting a loss of more than R1 billion in the year to end-February.
Shares in the group slumped by 10.34% on Thursday to close at R0.26.
Stefanutti Stocks CEO Russell Crawford said the substantial increase of internal funding for this Kusile project increased the group’s total funding requirement from R400 million to about R986 million, excluding the impact of Covid-19.
Crawford attributes this to Eskom adopting “an adverse approach to authorising certificates for work done on the Kusile building project”.
Eskom alleged in a briefing document dated June 10 that it overpaid an estimated R1 billion to a Stefanutti Stocks Basil Read (SSBR) joint venture for the Package 16 building project and the Stefanutti Stocks Izazi joint venture for Package 28.
This overpayment forms part of the almost R4 billion alleged overpayment by Eskom to various contractors at the Kusile power station.
The Eskom briefing document said investigations by the Special Investigations Unit (SIU), Bowman Gilfillan and Eskom into these overpayments to contractors at Kusile is ongoing.
Stefanutti Stocks earlier emphatically denied it had been overpaid by Eskom and claimed the SSBR joint venture is owed additional amounts for work done since December 2018 and for which payments have been withheld.
Package 16 comprised 81 buildings, including the unit auxiliary bays, at Kusile.
Crawford said on Thursday the group believes there should be a future payout from Eskom.
He said Stefanutti Stocks and Eskom are in a claims resolution process where each party is employing independent experts to evaluate the causes of delays and the quantum of claims.
Crawford said Package 16 involved “a complex claim” and it will take while for it to be finalised.
In regard to the Package 28 contract awarded to the Stefanutti Stocks Izazi joint venture, Crawford said this was a much smaller and much easier project.
“They [Eskom] terminated the project because they could not give us access. We are just finalising all the commercial issues.
“It has gone to adjudication and we should have some form of ruling by the end of this year,” he said.
Crawford declined to comment on the quantum of these claims.
Stefanutti Stocks on Thursday also updated shareholders about its funding and restructuring plan, which has now been fully developed and approved by the company’s board of directors and its lenders.
The plan involves:
- The sale of assets;
- Internal restructuring;
- Securing of R430 million in additional short term funding, R270 million of which relates to the initial impact of the Covid-19 lockdown;
- Finalisation of contractual claims; and
- The restructuring of short term funding to date from the lenders into a term loan, and the evaluation of an optimum business model and associated capital structure analysis, including the potential of raising new equity.
Crawford said funding amounting to R1.252 billion had been received from the group’s lenders, which also took into account the potential impact of Covid-19 on the group and its business.
“The purpose of the plan is to put in place an optimal capital structure and access to liquidity to position the group for long term growth in this dynamic environment.
“The restructuring plan is anticipated to be implemented over the financial years ending February 2021 and February 2022 and, to the extent required, shareholder approval will be sought for relevant aspects of the plan,” he said.
Crawford said the plan should be fully implemented and the R1.25 billion repaid by February 2022.
He added that in line with the restructuring plan, management has started reconfiguring the group’s organisational structure to improve operational performance and decrease overhead costs, including a reduction of the overall headcount.
Crawford said the group’s current total headcount, including limited duration contractors, is about 8 000 but could not comment on the number of people who will be affected by the restructuring.
Crawford also declined to identify the non-core assets that will be sold.
“It’s a confidential and staggered sales process because if we advertise what is for sale to the general public, there is a chance that we may not be awarded some contracts that we are expecting in any of those divisions,” he said.
Stefanutti Stocks on Thursday reported a 13% decline in contract revenue to R8.6 billion in the year to February from R9.9 billion in the previous year.
The operating loss before investment income skyrocketed by 554% to R1.03 billion from the prior loss of R158 million.
It reported a headline loss per share of 622.48 cents compared to the 70.12 cent loss in the prior year.
The group’s order book stands at R8.5 billion, of which R4.2 billion relates to work beyond South Africa’s borders.
The government this week unveiled 50 Strategic Infrastructure Projects (SIP) and 12 special projects involving a total investment of R360 billion as the first tranche of a massive infrastructure expenditure programme to drive the post Covid-19 economic recovery effort.
Crawford welcomed this initiative, adding that some of this work has come out to tender and the group has already priced some of it but the majority of these projects have not been awarded yet.
“We see this as a glimmer of hope because since most probably 2008 our sector has been under strain with respect to opportunities,” he said.
David Fraser, executive chair of Peregrine Capital, said the banks will extract value away from Stefanutti Stocks’ shareholders because they are charging prime plus 5.5% on the latest loan.
Fraser said Stefanutti Stocks faces a tough road to recovery, if it can manage it, and “what potentially comes out the other side [of the restructuring] is something significantly smaller and tighter”.