Struggling South African company Group Five files for business rescue

South Africa’s investments and concessions company, Group Five which sold its manufacturing assets, Everite and Sky Sands, to a consortium for R480 million ($34.74 million) to remain afloat in January 2019, has filed for business rescue — a process aimed at rehabilitating financially distressed companies — because lenders have not been willing to give it more funding.

The company, which engages in investments and concessions; manufacturing, and engineering; as well as construction businesses in South Africa and internationally, restructured and disposed of its non-core assets, including those in the better-performing manufacturing cluster. Everite and Sky Sands were sold to a consortium comprising of private equity companies, Trinitas Private Equity and Agile Capital.

At first, the company said it was looking to leave the manufacturing space after it witnessed a gloomy 2018 financial year, where only its investment and concessions generated free cash flow. However, on Tuesday, March 12,
Group Five, whose shares were at R45 about five years ago said that it had asked the Johannesburg Stock Exchange (JSE) to suspend trading in its stock, which was priced at 89c at Monday’s close.

Early last year, Group Five reported a 26.2 percent drop in revenue to R7.3 billion ($528.86 million) from R9.9 billion ($716.90) for the year to June. The operating loss drastically increased to R1.4 billion ($101.36 million) from R718 million ($51.98 million) and by the end of the 2018 financial year, the company reported a R1.3 billion ($94.23 million) annual loss.

The company’s woes began when the government decided to reduce its spending budget and outlined the infrastructure and manufacturing sector as its focus. Presently, Group Five is still struggling to complete a power-station development called Kpone in Ghana, which has already racked up losses of R1.3 billion.

For the struggling company to stay afloat, it decided to shift its focus away from building roads/infrastructure and is concluding the manufacturing assets.  In April 2018, the company was given a bridge funding worth R650 million ( $45.49 million) from a consortium of lenders. Less than one year later, Group Five has noted that its financial constraints worsened after lenders called on guarantees relating to its disastrous Kpone power plant project in Ghana. With that, the contractor and its peers, including Basil Read and Erbacon, have succumbed to a depressed construction market.

Group Five is now in “financial distress” as it is unlikely to be able to pay all of its debts when they are due within the next six months. According to the group, there is a slim chance of any realisation of value, “The board of directors of Group Five will continue to assess any expressions of interest as communicated previously to shareholders,” the company stated.

In an attempt to rescue Group Five, the company resolved to appoint David Lake and Peter van den Steen of Metis Corporate Advisory as business rescue practitioners for both Group Five and subsidiary G5 Construction.