The announcement by Esor’s business rescue practitioners (BRPs) recently confirming that it will be delisting from the JSE seems to spell continuous decimation of South Africa’s listed construction players.
Esor follows Group Five in confirming its impending JSE delisting, while Basil Read’s listing future is uncertain.
Erstwhile construction heavyweight Group Five reported last week that its listing on the JSE will be removed on June 15, with property and memorial park developer Calgro M3 also confirming its decision to close its construction division, resulting in the retrenchment of about 150 employees.
Esor’s listing on the JSE is scheduled to be removed on June 22.
The future of Basil Read, another former JSE construction sector heavyweight, is also uncertain. It went into business rescue in June 2018, shortly after reporting a net loss after tax of R1 billion for its 2017 financial year.
In an update to the business rescue proceedings issued in January this year, the BRPs said the effect of the implementation of the plan at group level remains uncertain until it’s completed.
“Therefore, the [JSE] suspension will remain in place until the implementation is complete and the effects on the group can be determined,” they said.
However, the BRPs anticipate that more than 2 600 Basil Read employees will be retrenched but these employees will receive their full retrenchment packages.
Murray & Roberts (M&R) in March 2017 transferred its JSE listing to the general industrials sector from the construction & materials: heavy construction subsector. This followed M&R selling its southern African infrastructure and building business to the Southern Palace Group for R314 million in 2016.
Of the remaining companies listed in the construction sector, Aveng sold its Southern African construction and engineering business Grinaker-LTA to Laula Consortium late in 2019 and Stefanutti Stocks has experienced financial and other difficulties.
This has arguably left WBHO and Raubex as the only remaining companies in the heavy construction sector with the ability to undertake major infrastructure projects.
David Metelerkamp, senior economist at construction market intelligence firm Industry Insight, said on Wednesday there is not a lot left of the listed construction sector.
Listed contractors overall have lost more than 80% of their value over the past 10 to 12 years, adds Metelerkamp. Most of the remaining companies in the sector earn more than half of their earnings outside of South Africa.
“The future of South African construction is so limited, especially because of the Covid-19 pandemic. It has sped up, to now, the problems that we were going to be facing in two to three years’ time,” he said.
President Cyril Ramaphosa, in announcing a R500 billion social relief and economic package last month, said: “Central to the economic recovery strategy will be the measures we will embark upon to stimulate demand and supply through interventions such as a substantial infrastructure build programme, the speedy implementation of economic reforms, the transformation of our economy and embarking on all other steps that will ignite inclusive economic growth.
“We will outline this in coming days,” he said at the time (April 21).
However, Metelerkamp said nothing further has been heard about this package since then.
He says the trend globally is that it’s a good thing for governments to invest in infrastructure, to play a countercyclical role and limit the damage of the Covid-19 pandemic “and the economic hiatus it has closed us into”.
Metelerkamp believes there is still sufficient capacity in the construction sector to undertake and deliver the infrastructure build programme – but the quality of the infrastructure built will not be as good as in the past.
He said the major companies that have expertise in building the highest quality infrastructure are much smaller than they were, and other Construction Industry Development Board Grade 9 contractors do not have the same experience and expertise in building megaprojects.
Explaining the rationale for Esor’s delisting from the JSE, the company said on Wednesday that steps taken by the BRP to find a possible investor into the company have to date proved to be unsuccessful and, considering the current economic environment, this is not foreseen soon.
“The BRP confirmed that he has determined that, based on the present situation that prevails in South Africa, it is highly unlikely that a restructuring proposal will be tabled that will provide that value could be returned to the company’s shareholders.
“The only possible return might be on a pro-rata basis to the company’s creditors and, consequently, the issued shares of the company have no value,” said the Esor BRP.
He added that Esor also no longer complies, or will no longer be able to comply, with the JSE listing requirements in various material respects as it does not:
- Have a board of directors;
- Have any board committees following various resignations and therefore does not comply with the King IV Code on Corporate Governance;
- Have auditors or a company secretary; nor
- Comply with the requirement to have subscribed capital of at least R50 million since 2018, nor with the requirement to have profit before tax of at least R15 million since 2013.
It has also been unable to release audited financial results, with the last financial results – released on July 31, 2018 – containing an operating loss, including fair value adjustment, of about R300 million.