MOTORWAY MAINTENANCE: Group Five does business in Eastern Europe. Picture: GROUP FIVE
MOTORWAY MAINTENANCE: Group Five does business in Eastern Europe. Picture: GROUP FIVE

Group Five, once one of SA’s iconic construction groups, now faces the prospect of selling off better performing assets in order to stay afloat.

The company said on Thursday it was considering offers for some of its assets, a move that could alleviate the loss-making company’s financial woes, especially following the latest setback with the Kpone power project in Ghana.

News of the possible sale of some of the company’s assets saw its share price double to 48c in early trade on Thursday before it retreated to the opening price of 24c.

Group Five said it received expressions of interest “from a number of parties for various parts of the group’s business”. It said its board was considering the overtures.

Ron Klipin of Cratos Wealth on Thursday said the targeted parts of the company were likely to be Group Five’s European assets and businesses, which he said were making good money.

He referred to the 2017  bid by real estate company Greenbay Properties — now known as Lighthouse Capital — to acquire the assets and businesses for R1.6bn.

The assets comprise concession stakes in central and eastern Europe, including its Bulgarian assets and Intertoll Europe operations and maintenance contracts that provide significant annuity income.

Graphic: RUBY-GAY MARTIN
Graphic: RUBY-GAY MARTIN

Group Five turned down Greenbay’s unsolicited offer, claiming that it undervalued the targeted assets.

Klipin said given its current financial position, Group Five might be more willing to listen to new offers for their jewel in the crown. “They are bleeding cash at the moment,” he said.

Group Five is on the back foot after Ghanaian firm Cenpower launched a $60.5m claim against the construction group in relation to the Kpone gas and oil-fired combined cycle power contract. That was in addition to the $62.7m that Group Five has already paid to Cenpower for project delays.

Last week Group Five said its bank guarantee providers had paid $43.8m of the $60.5m that Cenpower has claimed for the completion of the project. The company, however, emphasised that it made the payment on the basis of the legal requirements of on-demand bonds “and not on the merits of the contractual claims presented by [Cenpower]”.

It said the amounts it was entitled to or liable for had to be agreed to between itself and Cenpower or determined through the dispute resolution mechanism provided for in the contract.

The Kpone project — which dragged down the performance of Group Five’s construction cluster — has worsened the company’s precarious financial position. In the company’s annual report for the year ended June 30, its auditors PwC raised concerns about the company’s going concern status.

The auditors pointed out the company’s R1.3bn net loss and that its current liabilities exceeded  its assets by R1.1bn. PwC, which has audited Group Five for 48 years, said, as a result, there was “material uncertainty” about the group’s ability to continue as a going concern.

Group Five said the R1.1bn gap between current liabilities and current assets was an indication that the company might need further funding to settle current liabilities and continue as a going concern.

In order to improve liquidity, the company’s board earlier in 2018  approved the partial disposal of Group Five’s investment in service concessions assets in eastern Europe.

Lighthouse Capital is unlikely to be among the parties interested in the Group Five assets after its CEO Stephen Delport this week said the company would shift its focus to directly held property and away from mainly investing in infrastructure funds and concessions. This is part of the company’s restructuring.

njobenis@businesslive.co.za