AVENG will use the proceeds from the sale of Infraset to strengthen its financial position and reduce overall debt. Reuters
CAPE TOWN – Aveng had satisfied its financiers of the consequences of a call being made on two construction guarantees it had made to the South Africa National Roads Agency (Sanral), after a contract to build a bridge on the Wild Coast was terminated in January due to civil unrest on the site.

The dispute over the contract between the joint venture and Sanral has highlighted the effects of invasions at some construction sites in the country by people, often armed, who claim they want a share of the spending on the site.

The Aveng-Strabag Joint Venture (ASJV) between Aveng and Strabag International terminated its contract with Sanral on February 1 to build the Mtentu Bridge, on the Wild Coast, following civil commotion and unrest on the site from October 2018.

Also in February, according to Business Report, Sanral chief executive Skhumbuzo Macozoma claimed that the ASJV had abandoned the bridge contract, and disputed that there were force majeure conditions on the ground.

The ASJV had provided two bonds as contract securities: a performance guarantee for R245million and a retention money guarantee for about R82m.

In line with most other large construction groups, Aveng is financially troubled, and having to pay the guarantees might have a big impact on its financial position, given that in February it reported a sharply increased net operating loss for the year to end-December 2018 of R484m from R94m in 2017.

Its share price traded between 3 and 4cents on Wednesday, giving it a market capitalisation of about R388m. The share closed at R0.03 on the JSE yesterday.

The ASJV launched a pre-emptive urgent application in the North Gauteng High Court for an order to prevent Sanral from making a call on the bonds, until the dispute between the ASJV and Sanral about the termination of the contract had been finally determined.

The court last week dismissed this application with costs.

The ASJV, however, said yesterday that it considered the dismissal of the application to be wrong, and it would appeal the judgment.

The ASJV’s view was that the performance security was not to be considered an “on-demand” bond, but of the nature of a surety or accessory obligation.

Sanral’s rights to make a call against the contract securities were strictly regulated in terms of the Mtentu contract, a statement from the joint venture said.

However, if in the interim Sanral made a claim under the performance guarantee, the ASJV said it was comprehensively indemnified for all losses resulting from any claim which Sanral was not actually entitled to make under the Mtentu contract.

“The indemnity extends not only to the recovery of any amount incorrectly claimed by Sanral, but also all resultant damages, losses and expenses resulting therefrom.”

Sanral did not respond to questions yesterday.

BUSINESS REPORT