Dave Lake and Peter van den Steen, the business rescue practitioners (BRPs) for Group Five on Thursday informed shareholders that it was “very unlikely” that they would receive any value back on their investments in the construction group.
Shares “are not worth very much at all”, Lake told shareholders at a meeting to provide an update on the business rescue process.
This, the BRPs explained, was owing to the complexity of the business rescue proceedings, through which the BRPs were seeking the consent of creditors to extend the publication date of a business rescue plan to August 30.
The BRPs further said they expected the process to be “mostly wrapped up” by early 2020.
Van den Steen and Lake estimate that the process and value realisation will be about 80% complete within one year since the start of the business rescue proceedings in March this year.
They have, however, warned that the balance of residual matters – such as litigation, guarantees, retentions and international claims – are likely to take longer to fully resolve.
The BRPs also confirmed that following losses made of about R800-million in the year to June 2017, and losses of about R1.3-billion in the year to June 2018, management accounts for the eight-month period to February 28 indicate that a further R1.8-billion of losses were incurred. In addition, major losses and negative cash flows were forecast for the balance of the 2019 calendar year.
In touching on their approach to the business rescue process, the BRPs said that, in accordance with the Companies Act, one of two approaches was usually followed in business rescue proceedings.
The first would focus on rescuing the company by restructuring its debt and equity in a manner that maximises the likelihood of the company continuing its existence on a solvent basis.
Should this approach not be possible, the second would see BRPs working on a better return for the company’s creditors or shareholders than would have resulted from the immediate liquidation of the company.
In this respect, Lake told shareholders that the BRPs’ approach to Group Five’s business rescue was a combination of these two objectives – securing the solvency and continued existence of material parts of the Group Five suite of businesses through sale and restructuring processes, while at the same time managing down those parts of the business not amenable to solvency or sale, to deliver a better return to creditors than would have been the case under immediate liquidation.
Lake said both BRPs were “quite comfortable” with their approach to the business rescue process at the moment, but he opened the floor to shareholders to share other possible options that they think might work.
The BRPs have, in the meantime, secured further commencement finance funding from the lender consortium and the business rescue process remains on track.
In addition to the disposals announced in May, further binding agreements have been entered into or are in the process of being drafted for the disposal of the African SMEIP business and shares in subsidiary companies, as well as the Northpoint property development and various properties which are not currently being used in the ordinary course of business.
Plant and assets that are not being used in the ordinary course of business will also be sold.
However, the BRPs warned that some of these disposals were subject to concluding final binding agreements and some to fulfilling conditions precedent in final binding agreements to be concluded.
If all planned disposals were completed, as planned, proceeds of about R1-billion on a cumulative basis would be raised. The proceeds would be used to reduce the relevant secured debt.
Once the process has been completed, only between 2 500 and 3 000 Group Five employees would still be employed by the company.