Banks throw Group Five a bridging credit loan lifeline
Relief obtained to tackle short-term funding needs and complete power project in Ghana
Group Five, which has experienced an exodus of executives amid awful results, has secured R650m in bridging loans and secured a creditors standstill agreement to give it a breather.
This enables the JSE-listed infrastructure company to keep its head above water after reporting severe losses from the $420m gas-and oil-fired Kpone power project in Ghana. Headline earnings per share plummeted 151% in the six months to December 2017 in dismal construction markets. The company remained ungeared in this time.
"The R650m secured bridge funding is for a 12-month period and was obtained from a consortium of local banks," Group Five said on Wednesday. The agreement pledges cession of its manufacturing assets and its European service concessions investments and operations and maintenance businesses, by way of security.
It said the funding was to rectify the mismatch between the short-term funding needs of the group, mainly due to a declining South African construction order book, as well as cash funding required to complete the Kpone contract. It would also fund the rate at which claims, debtors and non-current assets could be realised.
Group Five had been further rationalising its corporate office. To this end, the R650m "would be sufficient to satisfy group cash requirements on a sustainable basis and allow it to honour short-term outflows and realise its assets identified for disposal".
Analysts were not available to comment. Years of dismal results in the local construction industry have diminished market interest in the sector.
Group Five said in its interim results in April that it was "not prudent" for the company to rely solely on debt and it would prefer to approach shareholders to discuss recapitalisation options and replacement of this debt as soon as possible.
Group Five said that the agreement contained financial covenants and clauses relating to default, typical for such transactions. "The bridge-funding terms include a structuring fee and time-variable interest rates at market-related pricing as is customary for financing transactions of this nature," it said.
The company may also voluntarily prepay the loan without penalty. Therefore, the agreement was not a "restrictive funding arrangement", as defined by JSE requirements.
The group’s core operating loss of R727.3m in the latest half-year period was affected by losses of R649m realised on the Kpone contract, which the company signed up for in late 2014.
Group Five CEO Themba Mosai, who is battling to resolve years of leadership and board ructions at the group, had earlier told Business Day the losses were higher than expected, owing to Kpone.
Design delays and the late arrival of procured items on the Kpone site after a change in Ghanaian law during the contract period were two main factors affecting the original completion date of September 2017.