JOHANNESBURG - Esor Construction, a major subsidiary of listed engineering and construction group Esor, has become the latest prominent construction-related company to file for business rescue.
Esor yesterday admitted that it was financially distressed and listed a number of reasons for Esor Construction to be put under business rescue, including significant losses incurred on certain contracts in current and prior financial years and an estimated about R30 million currently owed to creditors.
It also blamed the challenging economic environment being experienced in the construction sector and the inability of Esor Construction to obtain short- and medium-term funding as reasons for the distress.
Esor Construction was one of a number of major construction companies that entered into debt-freezing arrangements, including Basil Read, Group Five and the Liviero Group.
The financial difficulties have largely been attributed to a dearth of construction work, particularly large government contracts, and underspending by government entities.
The Construction Industry Development Board last November revealed that the industry had shed 140 000 jobs between the first and second quarters, and said total job losses for the calendar year could amount to 240 000.
Esor confirmed last month that it had commenced a process to retrench about 33 percent of its employees after its losses widened almost 120 percent to R306.9m in the year to February, from R139.75m last year.
Chief executive Wessel van Zyl said at the time the group had made provision in its cash-flow forecast for retrenchment costs of about R10m, with the reduced headcount cutting costs by about R4m a month, and R13.6m in retrenchment costs incurred in the year.
Esor retrenched 439 employees in the six months to August last year. It employed an average of 2533 people in its 2017 financial year.
Esor said yesterday that its total retrenchment costs for the five-month period from March to July this year amounted to R12.2m.
It said various strategies were implemented to mitigate the effect of factors negatively impacting on its construction business, including expediting the completion of the legacy loss-making contracts to minimise further losses and the consequential cash outflows and the disposal of idle and non-core assets following the strategic positioning of the company to focus on water, sanitation and developments.
The company said it had also refinanced selected vehicles and equipment through vendor financing, which had resulted in an inflow of R12.2m in May this year, while the financing terms over an 18-month period resulted in a reduction in its overdraft facility of R5m.
In addition, it had renegotiated payment terms with major suppliers and subcontractors.
Esor declined by 50percent on the JSE yesterday to close at 4c.