One of SA’s iconic construction companies, Group Five, has filed for business rescue, becoming the latest contractor to stumble as the local construction industry chokes amid a lack of infrastructure spending and the poor execution of projects.
Group Five’s fall from grace has been spectacular.
Boosted by work ahead of the 2010 Fifa World Cup, the company’s market capitalisation peaked at R8.2bn in 2007.
On Tuesday, this had shrunk to R99.9m.
In a move that one analyst said had not come as a surprise, the troubled construction group, which has also suspended its shares on the JSE, where it has been listed for 45 years, said it had appointed David Lake and Peter van den Steen of Metis Corporate Advisory as business rescue practitioners.
Business rescue proceedings are aimed at rehabilitating financially distressed companies.
Group Five’s misfortunes mirror the poor state of the SA construction sector, which in the fourth quarter of 2018 was the country’s fifth largest employer, accounting for 9% of the workforce.
In the last 10 years, the JSE construction and materials index has come down 58.38%, while the all-share index has risen 175.01%.
Basil Read, another contractor with a proud history, went into business rescue in June 2018. Esor Construction followed suit in August.
Group Five has been involved in some of the country’s flagship projects such as Cape Town’s Green Point Stadium and Durban’s International Convention Centre.
It is among a handful of companies that have seen their order books wiped out due to lack of large-scale infrastructure spending.
The sector has consistently bemoaned the lack of major infrastructure investments in SA.
In a recent note, Industry Insight, which provides market intelligence on the construction industry, said that finance minister Tito Mboweni’s budget allocation to infrastructure investment was not enough to lift the sector.
“Overall allocations for infrastructure spending increased from R834.1bn to R864.9bn, which is an increase of just 3.7% in nominal terms,” Industry Insight said.
Group Five’s decision to enter business rescue followed the company’s failure to secure additional funding for subsidiary G5 Construction’s cashflow problems.
Tuesday’s announcement comes against the backdrop of the company’s financial constraints – Group Five said it had been experiencing cash-flow difficulties for some time.
The company’s other recent financial setbacks include the $106.5m (R1.53bn) it paid to former client Cenpower in claims for the $410m (R5.88bn) Kpone power project in Ghana.
Cenpower terminated the contract in November 2018.
Group Five, which operates in SA, the rest of Africa and Europe, has taken its dispute with Cenpower to the International Chamber of Commerce in Paris, France.
On Tuesday, it said the business rescue would not affect the counterclaim against Cenpower, and it planned to sell some of its businesses.
Tinashe Kambadza, an analyst at Afrifocus Securities, said Group Five’s decision did not come as a surprise, given the company’s experience with the Ghana contract and the poor state of the SA construction sector.