Wrap Text
Kpone Gas- and Oil-fired combined cycle EPC power plant update and continuation of cautionary announcement
Group Five Limited
(Incorporated in the Republic of South Africa)
(Registration number: 1969/000032/06)
Share code: GRF ISIN: ZAE000027405
(‘Group Five’ or ‘the Company’ or ‘the Group’)
KPONE GAS- AND OIL-FIRED COMBINED CYCLE EPC POWER PLANT UPDATE AND
CONTINUATION OF CAUTIONARY ANNOUNCEMENT
Following Group Five’s client, Cenpower’s, purported notice of termination of the Kpone
contract on 30 November 2018, the Group wishes to inform the market of two new
developments.
1. Group Five was informed by Cenpower of a new claim of US$60,5 million. This
represents the client’s evaluation of the costs to be incurred to complete the works on
the contract, as well as amounts relating to the recoupment of estimated losses and
damages the client believes it incurred.
2. This was followed by a written demand to the Group’s bank guarantee providers
requesting that an amount of US$43,8 million of the US$60,5 million claim be paid to
the client.
The Group is in discussions with its legal advisors and Senior Counsel, as well as its bank
guarantee providers with regards to the claim / demand and is considering the available legal
action.
In terms of the contract, any amount the Group will be held liable for (and/or entitled to) needs
to either be agreed between the parties or determined through the dispute resolution
mechanism in the contract prior to payment thereof. This demand has not been independently
determined and does not reflect the counter claims the Group is legally entitled to and is
pursuing.
The Group strongly disputes the amount claimed and the demand for its payment, as the client
themselves confirmed that the construction on the plant was complete, with only testing and
commissioning to be performed. As communicated, the provision of the fuel was the client’s
responsibility and the Group was unable to complete the testing and commissioning of the
plant as the fuel provided by the client was contaminated and unfit for its purpose. Three
independent parties and laboratories have tested the fuel on the Group’s behalf and confirmed
that the fuel was contaminated and that it was their view that the contamination took place at
the client’s source of supply. The contamination of the fuel remained unresolved at the date
of termination.
As outlined, the Group also denies the client’s entitlement to terminate the contract and
believes that the purported notice of termination was wrongful and constituted a repudiation
of the contract. The Group therefore in turn notified the client that it accepted the client’s
repudiation of the contract and accordingly issued a notice of termination to the client, thereby
effectively terminating the contract with effect from 30 November 2018.
The purported termination of the contract enables the Group to proceed to dispute resolution,
in accordance with the contract, for payment of all amounts due and owing to the Group under
the contract. The Group’s Legal Counsel and Senior Legal Counsel, with experience in local
and international dispute resolution, remains of the considered view that the claims have merit
and that the Group has a reasonable prospect of recovering payment from the client.
As outlined before, the Group had a performance bond of US$62,3 million, a retention bond
of US$41,5 million and an advance payment bond of US$2,6 million in place on Kpone. The
current remaining value of on-demand bonds in issue, from financial institution to the client,
amounts to US$43,8 million and for which the client has demanded payment earlier today.
The Group’s financial partners and lenders have confirmed their support in managing any
potential liquidity event. This includes lenders agreeing to abide by the creditors’ standstill
agreement, established when the Group entered into its Senior Bridging Facilities Agreement.
The standstill agreement imposes limitations on the standstill creditors to take enforcement
action against the Group. Further terms and conditions of this support, including the terms of
repayment of any debt, are being finalised with the lenders thus supporting the Group’s
liquidity and therefore its going concern status.
In terms of the contractual process, the Group will continue to progress its contractual rights
and entitlements for payment of all amounts due and owing under the contract, including the
recovery of delay damages (paid in terms of the guarantees) and claims against the client.
This includes a submission to the International Chamber of Commerce (ICC) in Paris for the
resolution of a dispute through expert proceedings, which is a considerably quicker process
for resolution of disputes than arbitration. Good progress has been made in this regard, with
the first disputes expected to be completed in early 2019.
Cautionary announcement
The cautionary announcement released on 30 November 2018 remains in place as the above
may have a material impact on the price of Group Five’s securities. Shareholders are advised
to continue to exercise caution when trading in the Company’s securities until a further
announcement is made.
6 December 2018
Sponsor
Nedbank Corporate and Investment Banking
Date: 06/12/2018 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
Sharenet Sites 
