Picture: Reuters/Siphiwe Sibeko.
Picture: Reuters/Siphiwe Sibeko.

Stefanutti succumbs to Eskom failures

By Edward West Time of article published Jul 31, 2020

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CAPE TOWN - Stefanutti Holdings, one of the last construction firms capable of mega projects, is technically insolvent after it flagged yesterday that its liabilities were bigger than its assets.

The group sunk deeper into the red after having to raise hundreds of millions of rand to finish work on soured contracts at Eskom’s Kusile power station.

Stefanutti, which plans a massive restructuring to February 2022, said its loss had widened to R1.07billion in the 12 months to February 29, compared with the R111million loss reported at the same time last year.

The group is close to joining a list of major listed construction companies, such as Group Five, Esor Construction and Basil Read, that have gone into business rescue or liquidation, mainly due to the decline in government infrastructure spending.

Stefanutti chief executive Russell Crawford said in a phone interview that while the group’s liabilities exceeded current assets, the necessary short-term funding of R1.25bn had been obtained to complete a restructuring, the plans for which had been approved by the group’s board and funders.

Industry Insight economist David Metelerkamp said the outlook for building in South Africa remained bleak, but it was possible that civil engineering activity might improve with the government’s recent plan to build infrastructure to boost the economy. However, the track record of these plans being implemented was not good, he added.

Stefanutti said in its results that Eskom’s “adverse approach” to work done by the Stefanutti Stocks Basil Read joint venture (SSBR) on the Kusile project had “increased the initial funding requirement of R400m to about R986m, excluding the impact of Covid-19. Consequently a further provision of R462m was raised to complete the project.”

In response to Eskom’s claim last month that it overpaid SSBR, Crawford said the group disputed this allegation and it was currently pursuing a number of “claims and compensation events” on the Kusile power project the processes remain ongoing.”

He said it was impossible to value the full extent of the claim against Eskom, given complexities such as management changes both at Eskom and the group, the many years that the project had been under way and a host of other factors.

During 2015 to 2018, payments made by Eskom to SSBR, “were all made consequent to certificates issued by the independent engineer. The engineer and Eskom also carried out audits of SSBR records and payment certificates were only issued after they had satisfied themselves that the costs claimed were actually and validly incurred,” the group said.

The adverse market conditions, as well as the impact of the Kusile power project, had reduced Stefanutti’s contract revenue from operations to R8.6bn in the year to February 29, from R9.9bn previously. The order book was currently at R8.5bn, of which R4.2bn was work outside South Africa.

Crawford said there was about R61bn of work that the group could potentially tender for over the next 12 months, and he hoped that this “would change the construction industry” following years of decline since 2008. The restructuring included the sale of non-core assets; the sale of under-used equipment; the sale of some divisions and subsidiaries; operational and financial performance optimisation; additional short-term funding of R430m, of which R270m related to the negative effects of the lockdown, and a favourable outcome from claims on the Kusile power project. Stefanutti shares declined 10.34percent on the JSE yesterday to close at R0.26.

BUSINESS REPORT

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