'Stefanutti, Raubex may face claims’

A file photo of Raubex Roadworks in Benoni Ekhurhuleni .PHOTO SUPPLIED

A file photo of Raubex Roadworks in Benoni Ekhurhuleni .PHOTO SUPPLIED

Published Jun 27, 2014

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Stock brokerage Imara SP Reid has estimated that listed construction group Stefanutti Stocks could face potential civil damages claims totalling about R300 million for collusion and bid-rigging transgressions.

Civil claims against listed road construction and rehabilitation company Raubex were estimated at a total of about R38m.

Imara has not estimated potential claims against other firms but has warned investors in recent weeks about the risk of potential claims against listed construction companies that entered into settlement agreements with the Competition Commission over collusion transgressions.

Dermot Quinn, the chief financial officer at Stefanutti Stocks, said yesterday: “Their assumptions would appear to be based upon an assumed value of the benefit the company received, for example fees received/paid, proven financial benefits the companies received, and would be claimable from the company.

“This was not the case. The fines were in fact based upon the outcome of the number and matrix of contraventions applied against the turnovers in the relevant CIDB [Construction Industry Development Board] sectors.”

He said Stefanutti Stocks had to date not received any civil claims related to its collusion transgressions.

On Stefanutti Stocks, Imara said in a newsletter this month that concerns related to civil claims were “too material to ignore as clarity is sought”.

Imara admitted its estimate of financial performance and civil damages against Stefanutti Stocks was “largely conjecture” but stressed it nevertheless gave some idea of the risk involved and illustrated “there was still an investment case despite civil claims”.

Raubex declined to comment on the Imara report but confirmed it had not yet received or been given notice of any pending civil claims.

Imara analyst Steve Meintjes said the civil claims estimated for Stefanutti Stocks and Raubex were based on Imara’s conclusion that the claims must relate in some way to the size of the penalties paid and then applying an interest factor and taking into account the date of the transgressions.

Stefanutti Stocks paid a fine of R306.89m for collusion on 21 projects. Imara said 16 other cases were covered by the fast-track process but not subjected to any commission liability. Now that all the commission fines against Stefanutti Stocks had been concluded, civil claims were likely to ensue in regard to the affected turnover of R8.1bn.

“Assuming turnover was inflated due to collusion, by say 1.5 percent, this would point to further potential claims of R122m excluding legal fees. This, however, only relates to the 21 settled cases and there are bound to be claims from the clients of the remaining 16 contracts,” it said.

“This could lead to additional civil claims of R61m for a total of R183m [and] to which should be added interest and legal fees, which could bring the total claims to around R300m.”

Raubex confirmed in November last year that it was continuing to engage with the SA National Roads Agency Limited (Sanral) about its involvement in collusion on eight contracts and a road contractors meeting that resulted in it paying a R58.8m fine under the Competition Commission’s fast-track settlement process.

The commission’s industry-wide investigation and fast-track settlement process resulted in 15 of the 21 firms that responded to its settlement invitation agreeing to pay fines totalling R1.46 billion for more than 300 cases of bid-rigging.

Of the 300 projects, 160 were excluded because the three-year time frame stipulated for prosecution in the Competition Act had elapsed, resulting in the commission proceeding with the remaining 140 projects.

Sanral stated last August that it would do everything in its power to ensure it was repaid any damages it suffered because of the bid rigging and collusive tendering on its contracts.

Imara said Raubex made provisions for the commission penalties during its 2013 financial year but had not yet made any provision for or settled any civil claims. It said Raubex revenue of about R1.1bn was exposed to civil claims, which was also subject to interest and non-deductible legal fees. “Our estimate for this is around R38m based on 2 percent of revenue and interest charges of 10 percent over five years,” it said.

Meintjes admitted that the civil claims process was complex because of the difficulty in proving the quantum of the damages suffered because of collusion. “This leads the civil claims process more towards settlement as a likely outcome than litigation.”

None of the listed construction companies that reached settlement agreements with the commission publicly admitted to having received any civil damages claim and/or notice of a pending claim.

Economic Development Minister Ebrahim Patel confirmed in March that the government was formulating civil claims against the firms that engaged in collusion and bid-rigging on public sector contracts.

Stefanutti Stocks shares rose 2 percent to close at R9.69 yesterday. Raubex’s shares rose 0.58 percent to close at R22.63. - Business Report

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