JSE-listed Consolidated Infrastructure Group (CIG) has secured funding to turn around its power infrastructure services provider subsidiary Conco, which fell into financial dire straits in November.
CIG, at the time, said the financial difficulty was the result of meagre growth in its international business, political and civil unrest on existing projects, delays in the awarding of new projects and fewer opportunities in South Africa’s power sector.
Subsequently, CIG reviewed and evaluated its funding requirements and optimal long-term capital structure.
CIG has now concluded this process, which included the assessment of various strategic alternatives, such as selling assets.
CIG has determined that it requires a capital injection to protect the sustainability of its operations, enable the optimum turnaround and optimisation of Conco, as well as to maximise value for all CIG shareholders over the medium to long term.
To facilitate the capital injection, CIG entered into a suite of agreements with investment holding company Fairfax Africa Investments (FSA) – a subsidiary of Fairfax Africa Holdings.
These agreements include a R300-million loan to be advanced by FSA to CIG; an R800-million nonrenounceable rights offer to CIG shareholders, fully underwritten by FSA at a fixed price of R4 a share; and conversion rights under which FSA has an option to convert the upfront loan into CIG shares and CIG has an option to convert the upfront loan into CIG shares – under certain circumstances.
The Conco turnaround will include rightsizing, optimising the business model, providing peace of mind in terms of solvency and liquidity, and retaining the right senior personnel.
“Looking ahead, a re-energised, sustainable Conco will be well positioned to take advantage of the improved outlook in South Africa, as well as selected opportunities across Africa, particularly in areas of clean energy,” CIG stated.
The group’s share price on the JSE was trading up nearly 11% on Friday morning.
TRADING UPDATE
CIG’s management expected the six months to February 28 to remain challenging for the company and it previously cautioned that the restructuring of Conco would have a short-term negative impact on profitability.
In line with those expectations, CIG on Friday reported that its earnings a share for the six months are likely to be 650% to 660% lower than the 111c a share reported for the six months ended February 2017.
Headline earnings a share are expected to be 470% to 480% lower than the 111.1c reported for the prior comparable period.
During the six months under review, the adverse effects of the restructuring process resulted in low levels of execution and a disruption of operations.
In addition, turnover continued to be severely impacted on by poor trading conditions. Conco recorded a loss of R852-million.
CIG’s interim results are due to be published later this month.