Group Five considers rights issue to bolster finances

By Nqobile Dludla

JOHANNESBURG (Reuters) - South African engineering company Group Five is looking at raising money via a rights issue to repay debt and bolster its finances after reporting a bigger than expected first-half loss following problems with a Ghana power project.

Group Five, with operations in Africa and Europe, is going through a restructuring in which it has sold off some businesses, exited loss-making contracts and cut 420 permanent staff.

The cost of the restructuring and the impact of a weak construction market in South Africa means the company needs to bolster its short-term financing.

Group Five has signed an agreement with a funding consortium that is willing to provide up to 650 million rand ($54.21 million) of short-term bridge funding which the company hopes to access by the end of April 2018 once all conditions have been met, it said in a statement on Thursday.

"The group believes it is not prudent to rely solely on debt and would therefore prefer to approach shareholders to discuss recapitalisation options and replacement of this debt as soon as possible," group Chief Financial Officer Cristina Teixeira said during the company's half-year result presentation.

She said options for shareholder funding would include "a potential rights offer or a loan", which would prevent the group from having to sell assets it wants to keep and provide enough time to stabilise and de-risk the construction businesses.

Group Five intends to obtain any necessary approval from shareholders in the second half of 2018, it said.

Shares in the company were up 8.62 percent to 4.41 rand at 1246 GMT.

The company said its half-year loss widened more than it expected, following continued difficulties at its Kpone power project in Ghana as well as retrenchment costs and contract loss costs.

The headline loss per share for the six-months ended Dec.31, widened to 781 cents per share from 310 cents a year earlier.

"We expected this period to remain very difficult. Unfortunately, even against this expectation, our results for the six months to December were significantly below our objectives and very disappointing," Chief Executive Themba Mosai said in a statement.

The company was ensuring "continued senior team focus to drive this contract to completion."

The group said in December that, although the Kpone contract was 97 percent complete with only commissioning remaining, further delays were being experienced, which resulted in a loss on the contract of 649 million rand ($54 million).

($1 = 11.9915 rand)

(Editing by John Stonestreet and Jane Merriman)

First Published: 2018-04-12 09:21:27
Updated 2018-04-12 14:58:53

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