Aveng: State’s approach to construction mafia is ‘contradictory’

Government moots using Prevention of Organised Crime Act; listed group claims Sanral wants to pass all the risk onto contractors.
‘Crimes of economic disruption’ is how President Cyril Ramaphosa describes the activities of the so-called business forums that disrupt construction sites. Image: Moneyweb

JSE-listed global infrastructure and resources group Aveng believes there is a contradiction between government plans to address the risk posed by the so-called ‘construction mafia’, also known as business forums, and the SA National Road Agency (Sanral) wanting to pass these risks onto contractors.

Aveng group CEO Sean Flanagan said on Tuesday the “noises” being made by the government to deal with this issue are “the right noises but there is a need to see the implementation of law and order”.

“We have got a long way to go to see policy and words turn into real actions.

“The worrying thing is that we have SOEs [state-owned enterprises] now believing the way to manage these risks is simply to pass it all to the contractor.

“Contractors are not the police force,” said Flanagan.

He added that Sanral could face difficulty finding contractors for projects because it is trying to force all the risk onto them.

Organised crime

Moneyweb reported last month that moves are afoot to rein in the disruption of construction sites by the ‘construction mafia’ or business forums, through the use of the Prevention of Organised Crime Act (Poca).

President Cyril Ramaphosa stressed in his State of the Nation Address on February 13 that investment and growth require a safe, stable and crime-free environment, adding that he has prioritised government’s response to the growing problem of criminal groups that extort money from construction and other businesses.

“Specialised units – bringing together [the] Saps [South African Police Service] and the National Prosecuting Authority – are mandated to combat these crimes of economic disruption,” he said.

Construction and technology law specialist MDA Attorneys warned last month that amendments to Sanral’s standard contract will make it much more difficult for contractors to deal with disruptions related to the construction mafia.

Read: Construction industry in survival mode

Sanral engineering executive Louw Kannemeyer said on Tuesday there is no contradiction between Sanral contracts and government’s plans to deal with the disruptions at construction sites and business forums.

Aim is for clarity and consistency, says Sanral

“The purpose of the changes to Sanral contracts was to provide contractors with clear guidance on the contractual processes that need to be followed to obtain relief, for delays resulting from work stoppages as a force majeure event under the Fidic [International Federation of Consulting Engineers] conditions of contract.

“This also ensures consistency on how these events are mitigated from one contract to the next,” he said.

Force majeure

A joint venture (JV) between Aveng Grinaker-LTA and European-based Strabag won a R1.6 billion tender in August 2017 to build the Mtentu Bridge as part of the N2 Wild Coast Road project.

Aveng said in February last year the JV had lawfully terminated the contract following a force majeure event after civil unrest, commotion, protests and threats of harm resulted in the JV being denied access to the site and the ability to safely continue the execution of the project.

However, Sanral CEO Skhumbuzo Macozoma claimed the JV abandoned the contract, with the North Gauteng High Court in March last year ruling that Sanral could claim damages for the contract.

Aveng is appealing this court ruling, with Flanagan confirming on Tuesday that it is still waiting for a court date for the appeal to be heard.

“The major issue is the bond [performance guarantee] and that is going to the Supreme Court of Appeal in Bloemfontein,” he said.

Aveng last month received a notice from Seventy Five on Maude, part of Bart Dorrestein’s Legacy Group, terminating its construction contract for the R3 billion Sandton mixed-use development, The Leonardo.

The Legacy Group also made a call on the R87.4 million construction guarantee procured by Aveng as part of this contract.

Aveng Executive Chair Eric Diack confirmed on Tuesday that the Leonardo bond had been paid out but the bond for the Mtemtu contract had not.

Flanagan said they had a number of disputes related to the Leonardo contract that will have to go to adjudication, adding that Aveng has already won one of the matters referred to adjudication.

He said the adjudication is binding but not final and if any of the parties are aggrieved with the decision, they could refer it to arbitration.

Aveng on Monday reported an operating profit of R14 million for the six months to December from the R484 million loss in the previous corresponding period.

Both core businesses McConnell Dowell and Moolmans delivered improved performances.

Group revenue decreased to R11.2 billion from R13.4 billion as the group continued with planned non-core asset disposals in line with its strategic action plan.

To date Aveng has announced disposals valued at more than R1 billion, with cash of R750 million received.

The group reported a headline loss per share of 1.1 cents compared with 5.5 cents loss per share restated in the prior period.

Aveng had a total order book of R17.9 billion at the end of the reporting period, with 28% of the work in South Africa and the balance international.

Flanagan said there is still much work to do but they are encouraged by the significant progress in the implementation of the strategic plan and are now able to look forward to improving value for stakeholders.

Shares in Aveng remained unchanged at R0.02 on Tuesday.

Aveng share price

Get access to Moneyweb's financial intelligence and support quality journalism for only
R63/month or R630/year.
Sign up here, cancel at any time.

AUTHOR PROFILE

COMMENTS   15

You must be signed in to comment.

SIGN IN SIGN UP

The “state” has to be complicite? They do nothing about it and Sanral makes it the contractors problem.

Mafia state.

That’s what the current government does…pass the risk to the contractors like they pass the costs of keeping this country afloat to the weary honest taxpayer. There WILL be a revolt. It’s happened in the Construction Industry already – higher unemployment, less infrastructure investment, higher emigration of skilled workers. A downward spiral…..

Again talk but not action from cANCer. The construction “mafia” have been active for more than 5 years!

Obtaining any government related contracts is where the game starts. Participation in the related and blatant corruption occurs. It has to or no contract at all. The competition could stand together as a cartel to demand clean practices. Instead they collude for mutual profit.
Clean industry is essential to any hope of clean government. It takes two to tango.

I have one question for four players in the financial standing of this company and hope someone can help with the answers if so desired… 1). The company CFO 2). The auditors 3). The JSE and lastly 4). The Market makers in share trading space.

How can a company with Cash and bank balances of over R1.39 billion and total assets of over R11.4 billion have a market capitalization of only R388 million?

Bit more complicated then that.

If using a Balance Measure of value one should look at Net assets (Assets less Liabilities) which is around R2.4billion and hence with marketcap of R400m odd you are getting this share at a 85% odd discount to NAV.

This is extreme – but the share-owners have been hurt and are selling irrespective – so will need to churn most of the shareholder base and clear the seller book before its starts moving closer to fair value – probably closer to 5c or so at a 50% discount to NAV where other holding company discount plays trade at.

Ideally the company should do a share consolidation (gets more price exploration rather than 50% up one day and 33% down the next) and list the 2 companies separately

Great turnaround happening at Aveng. Management executing plans well. Both core businesses profitable and awaiting sale of Aveng Steel – this too generating a healthy profit in the period.Trading at a deep discount to NAV due to share overhang from Aton sales at any price as they exit their position. Almost certain share buy backs on the horizon.Unfortunately tainted with construction sentiment in this country despite over 70% of orders and profits from offshore.

@Scalpelman1… Thanks for the response and hope the other Players mentioned above can respond too… they should not hide behind your comment as they have an obligation to the shareholders and the investors because pensions of people are tied to these JSE listed companies… we want to see valuations that reflect the true value of our bourse.

Just for anyone looking at construction companies; their currently active project’s security backed bonds are off book liabilities. Aveng only making a few (14) million profit after disposals does not really make sense as you can not accurately judge how much the core businesses are making and how much total liabilities there are. The Shares are also depressed as many bond holders of Aveng debt were converted 2 years ago as they had no means to honor their debt.

The ANC Government (aka Constitutional Mafioso) are very good at making “noises” and …. nothing else, literally

Unfortunately I have to disagree. They are very good, in fact tops, at looting and avoiding responsibility for the resultant economic destruction of the country. But I agree that they are useless at doing anything constructive for the country as a whole.

I note also that big municipalities have sneaked a clause in making the contractor responsible for site disruptions. So much for Ramaphosa’s “action”. Usual rubbish.

The political mafia (ANC) supporting the construction mafia. Makes sense to me.

And after five construction summits, three conferences, four lekgotlas, nine talk shops and a “war room” set up in a five star hotel, ABSOLUTELY NOTHING HAPPENED.
Shortly thereafter, the construction mafia stated that profits were so good, they did not want to list on the JSE and share dividends.

End of comments.

LATEST CURRENCIES  

USD / ZAR
GBP / ZAR
EUR / ZAR

Podcasts

NEWSLETTERS WEB APP SHOP PORTFOLIO TOOL TRENDING CPD HUB

Follow us:

Search Articles:Advanced Search
Click a Company: