Construction and engineering group Aveng will seek shareholder approval before the end of March for the sale of a 51% beneficial interest in Aveng Grinaker-LTA to Kutana Construction, a black economic empowerment company.
Aveng has also decided to include Aveng Water in the transaction, along with its South African and African civil engineering, buildings and mechanical and electrical units. Prior to the inclusion of Aveng Water, the deal was valued at a maximum of R756-million, with the purchase to be settled in full by 2020.
Besides Kutana, the empowerment transaction, which is aligned with the so-called Voluntary Rebuilding Programme (VRP) agreed to between government and seven large construction companies, will also include a range of other emerging contractors.
Under the VRP, the large contractors have committed to accelerating transformation by either selling equity stakes of more than 40%, or facilitating workflow to emerging contractors equivalent to 25% of their turnover. In addition, the seven firms will inject R1.5-billion into a trust that will support developmental and educational programmes, with Aveng’s contribution set at R255-million.
CEO Kobus Verster tells Engineering News Online that the proposed deal will involve creating a new company into which Grinaker-LTA’s assets and order book will be transferred. “We will go to shareholders next month and the deal will then be subjected to the Competition Commission approval process.”
Apart from its retained stake in Grinaker-LTA, Aveng will also continue to comprise McConnell Dowell, which is based in Australia, but has operations in South East Asia, Aveng Mining, which is expected to expand materially, and the group’s five manufacturing businesses.
The JSE-listed group steel businesses have been declared noncore, with Steeldale having already been sold to a consortium led by Kutana. However, Verster warns that securing “acceptable value” for Aveng Trident in the current market will prove challenging and that any disinvestment may, therefore, take longer to conclude than first envisaged.
The VRP, he argues, will not only change the face of Grinaker-LTA, but also the sector as a whole. “We are at the point where we have basically turned around Grinaker-LTA and we are much better placed to do a transaction where there is likelihood of future success.”
The new-look construction business, which could retain the Grinaker-LTA name, will have an immediate order book of around R6-billion and is expected to be well placed for public sector orders, once the civil engineering market improves.
However, Aveng admits that the immediate outlook for construction in South Africa is “subdued”, with the main positive market signals emerging from the mining sector, where Aveng reports a “sharp improvement” on the back of firmer commodity prices.
In Australasia, where the market is described as “buoyant”, the ongoing underperformance of McConnell Dowell is constraining the ability of the company to take full advantage.
Verster reports that the turnaround of McConnell Dowell is about six to eight months behind initial expectations. However, he is optimistic that the impending commercial settlement relating to the Queensland Curtis liquefied natural gas project could improve the unit’s cash flow position in the second half.
However, the prospect of “reasonable profitability” at McConnell Dowell has been postponed to the 2018 financial year.
Aveng reported a headline loss of R76-million in the six months to December 31, with McConnell Dowell weighing on the performance.
The group’s two-year order book stood at R27.7-billion at the end of 2016, representing a 1% fall from the R28.1-billion reported six months earlier. However, Aveng Mining’s order book increased by R1.1-billion over the period.