On the brink: Esor up for business rescue
KwaZulu-Natal’s eThekwini municipality blamed for holding R36m as another construction firm goes to the wall
Another decades-old construction firm has been pushed to the brink of collapse: this time, engineering and building group Esor, which on Monday applied for business rescue of its largest subsidiary, Esor Construction.
It appears KwaZulu-Natal municipality eThekwini, hoarding R36m of Esor’s cash under a retention clause signed for the Northern and Western Aqueduct project, is largely to blame.
Esor CEO Wessel van Zyl said had eThekwini released the funds 12 months ago when it approached them, "we wouldn’t be in this position today".
Construction companies usually put down 10% of the value of a project with clients as a form of security but, said Van Zyl, it means they are invariably cash negative given a relentless squeeze on margins.
"It’s my cash, but it’s lying in the client’s bank account. I think cash retention is one of the main items impacting on contractors today," he said.
Esor is also owed R22m by fellow construction outfit Basil Read, but is unlikely to get that money back after Basil Read itself applied for business rescue — a legal avenue to rehabilitate a company under financial distress that can stave off liquidation — two months ago
One of the biggest groups, Aveng, is teetering after would-be white knight Murray & Roberts walked away from a bid to buy the company.
eThekwini senior manager of water design, Simon Scruton, did not comment.
Esor’s shares listed on the JSE during the construction boom in 2006 and briefly peaked at 925c in 2007 giving it a market cap of more than R2bn. But it plunged 50% on Monday to close at 4c, slashing its market cap to R19.4m.
The company owes about R130m to creditors and has been unable to obtain either short-or medium-term funding to help it ride out its liquidity crunch.
Esor has also incurred "significant losses" on construction contracts in this and previous financial years and said that the consortium of financiers it had been negotiating with "were not prepared to make any funding available outside of a formal business rescue process".
Still, Esor believes it has a "reasonable" prospect of rescue.
Former CEO and current nonexecutive chairman Bernie Krone said "at our peak we employed close to 5,000 people. We’re down to 1,400 people and they’re probably going to lose their jobs — that’s what is really sad about it."
As it is, the company has been trying to salvage what it could and has begun retrenchments to cut costs by about R4m a month.
Other efforts included negotiations to sell land held on its books, renegotiating payment terms with suppliers and subcontractors, the refinancing of vehicles and equipment, earning it more than R12m, and the sale of noncore assets.