Murray & Roberts Holdings (M&R) yesterday sought to allay concern among stakeholders about its debt and sustainability, and the global civil engineering and contracting group and local construction industry icon said a plan to deleverage will mean that a rights issue is not necessary.
The group admitted in a trading update that its past year to June 30, 2023 had been the most challenging for it since the 2008 global financial crisis, as it struggled to recover from the after-effects of the pandemic.
The share price traded at 67 cents on the JSE yesterday, this after falling steadily from R4.25 a year before as the group’s financial difficulties became more apparent.
“The pandemic created a difficult operating environment for the group's entire multibillion-rand project portfolio, which caused a significant increase in working capital. Exacerbating this was that there were no dividends from the investment in the Bombela Concession Company (RF) or its international businesses, through the pandemic,” M&R’s directors said.
Ultimately, the balance sheet and funding facilities could not sustain the increased working capital requirements and Murray & Roberts (MRPL), the holding company in Australia, was placed under voluntary administration on December 5, 2022.
As a result, M&R’s ownership in MRPL and its two subsidiaries, Clough and RUC Cementation Mining Contractors, terminated.
“These developments, combined with the company's level of prevailing debt, let to stakeholder concern regarding the sustainability of M&R,” the directors said in the statement.
At June 30 net debt of R300 million was reported. The total debt in South Africa amounted to R1 billion, down from R2bn, following the sale of the 50% stake in Bombela in April 2023, while the group’s cash was mainly held in its international operations, where most of the cash was being generated.
“This imbalance in local debt and international cash was a source of some concern to the company’s South African lending banks, and a plan to deleverage the South African debt was embarked on,” the group said.
This included Cementation Canada and Cementation USA renegotiating facility agreements with their Canadian lender, and the revised facility provided for dividends to be paid of about R410m in January 2024 and R140m in June 2024, which would be applied to reduce debt in South Africa.
New commercial terms were reached on one of the group’s largest projects, which together with other actions within project operations would allow for R180m of debt reduction in South Africa by November 2023.
The remaining debt with the South African lending banks was expected to reduce to R300m by June 2024, from the high of R2bn in March 2023.
M&R said it had also “meaningfully” reduced corporate overhead costs, and the focus on operational efficiencies and liquidity management would continue.
Considering the deleveraging progress, a rights issue was not being considered in South Africa. The group was instead working to implement a sustainable capital structure over the next six months, which included refinancing the remaining debt.
On October 4, at the MRPL creditors’ meeting, the group was not able to regain control of the RUC subsidiary. However the intention was to maintain a presence in the Asia-Pacific (APAC) region, the region formerly serviced by RUC.
A subsidiary company in Australia, Cementation APAC had been formed to provide engineering and contracting services to mining clients in the region, a key region in the global mining sector.
The group would target project opportunities in Australia, leveraging the capabilities of existing mining businesses in North America and in sub-Saharan Africa.
“The Mining platform always was expected to continue to be the main contributor to group earnings, and it retains its position as a leading mining services provider,” the group said.
The platform has mining projects in Canada, the US, Chile, Argentina, South Africa and elsewhere in sub-Saharan Africa.
The platform was performing to expectation. As at September 30, 2023, the order book was R14bn (June 2023: R13.6bn), with near orders of R8.6bn (R9.1bn).