Aveng’s share price slumped 20.17% to R9.50 yesterday afternoon after it flagged additional losses and delays in a major project by its Australian construction subsidiary.
The group’s Australia-based Southeast Asia construction unit McConnell Dowell, one of two major subsidiaries in the group, said it now expected to report an operating loss in the year to June 30 due to higher provisions for the BLNG project in the Philippines.
In February 2023, Aveng said the Batangas LNG terminal project in the Southeast Asia business unit of McConnell Dowell was loss-making. The project had started during the Covid-19 pandemic, and saw delays and disruptions caused by the pandemic, including supply chain disruptions and the inability to mobilise people to work locations.
Australian border closures made travel impossible over an extended period of the project’s life, to the Batangas site in the Philippines and other locations where equipment was being manufactured. Supply chain disruptions were later exacerbated by the Russia-Ukraine war.
“It is now evident the BLNG project has suffered further delay and is expected to be completed later this calendar year. Negotiations are continuing with the client … on the resolution of certain contract claims, including claims for extension of time.”
The BLNG losses had been funded with internal resources, but the FGEN LNG Corporation had called on the project guarantees, without notification, of R528.9 million. These were settled by McConnell Dowell’s bankers, with a further R123m expected to be settled by June 30.
“These bankers are supportive and we are agreeing repayment terms for the remaining balance. After partially settling this amount, McConnell Dowell reported cash on hand of A$168m and with these extended repayment terms, the immediate impact on liquidity is minimised and our working capital requirements remain fully supported,” McConnell Dowell said in a statement.
It said the Australian and New Zealand & Pacific business units continue to perform well. McConnell Dowell had high levels of work in hand, representing 92% of planned revenue for the next financial year, which would support McConnell Dowell’s near-term recovery following “the disappointing setback”.
Aveng’s balance sheet and liquidity would be further supported by the disposal of Trident Steel in the current financial year, which would result in all South African legacy debt being extinguished while leaving surplus available cash.