PRETORIA – Shares in Group Five took a hammering on Friday, nosediving by 30% after the dismissal in the high court in Joburg of its urgent interdict application to stop Cenpower Generation Company, its client for the Kpone power plant in Ghana, from demanding $62.7 million (R878m) in delay damages from its two bank guarantee providers on the project.
Shares in Group Five closed at 70c on Friday compared to Thursday’s closing price of 100c.
It appears the judgment places Group Five in a highly precarious liquidity position, particularly as Group Five confirmed on Friday that it allowed Cenpower to proceed with its request for payment of the group’s maximum liability in terms of delay damages of $62.7m.
The Johannesburg branch of HSBC Bank PLC, one of Group Five’s guarantee providers on the $410m Kpone contract, declined to comment on the judgment and its implications.
However, people familiar with the matter confirmed to Business Report late on Friday that HSBC had paid its share of the guarantees to Cenpower.
Geraldine Matchaba, the head of corporate affairs and brand and marketing for South Africa and Southern Africa at Standard Chartered Bank, said as a matter of policy, due to client confidentiality, the bank did not comment on client matters “and more so when it’s a legal matter”.
Group Five confirmed that in preparation for this potential judgment, it had already engaged with its financial partners and lenders who “had, and continued to, confirm their support in managing this liquidity event”.
“This includes lenders agreeing to abide by the creditors’ standstill agreement, established when the group entered into its senior bridging facilities agreement.
“The standstill agreement imposes limitations on the standstill creditors to take enforcement action against Group Five. Further terms and conditions of this support, including the terms of repayment of any debt, are being finalised with the lenders,” it said.
Group Five in May announced it had concluded a R650m bridge funding deal for 12 months from a consortium of local banks and at the time again raised the possibility of a rights offer to raise funds.
The security for the bridge funding comprised a pledge and cession in security by Group Five of its rights, title and interest in its manufacturing assets; its European investments, which are its service concessions investments; and its European operations and maintenance businesses.
Group Five stressed on Friday it maintained a rigorous liquidity model, which included cash flow forecasts covering a period of 12 months from reporting date.
It said these forecasts were reviewed by independent international advisers as part of both an independent business review and an independent contracts review, which were undertaken to review and evaluate the group’s larger and potentially riskier construction contracts.
Group Five is in dispute with Cenpower on several issues, including its entitlement to an extension of time.
Judge Willem van der Linde, in his judgment, referred to previous legal court cases and stressed the relationship between the owners and the bank’s guarantors was unrelated and unaffected by the relationship between the owner and the contractors.