M&R at risk of losing its Australian mining business

JSE-listed multinational engineering and contracting company Murray & Roberts (M&R) is at risk of losing its Australian mining business.

This follows M&R last week announcing the termination of the proposed disposal of its Australian subsidiary Clough to multinational Italian industrial group Webuild.

Following this announcement, M&R’s share price plunged over 21% on 5 December and ended the week on a 52-week low – closing at R3.20 a share on Friday (9 December).

Read:
M&R plunges 21% as Australian subsidiary Clough is placed into voluntary administration
Italy’s Webuild drops acquisition of Australia’s Clough

The collapse of the planned deal led to M&R placing both Clough, the driver of its most significant energy, resources and infrastructure (ERI) platform, and Murray & Roberts Pty Ltd (MRPL), an indirect wholly owned subsidiary of M&R and the group’s holding company in Australia, into voluntary administration.

M&R group investor and media executive Ed Jardim confirmed to Moneyweb last week that Clough is now in the hands of the administrator.

“We hope they are able to settle the creditors, recapitalise the business and keep it in business as a going concern.

“The worst-case [scenario] for Murray & Roberts right now is that we lose RUC in the process,” said Jardim. RUC Cementation Pty Ltd (RUC) in Australia is its Australian mining business that is held within MRPL.

Jardim said RUC in Australia produced a profit before interest and tax of about R200 million in the year to end-June 2022, which is approximately a third of the profit before interest and tax of M&R’s mining platform.

The proposed disposal of Clough to Webuild, if successfully concluded, would have resulted in a financial benefit to M&R of about R4 billion.

This benefit would have been in the form of the forgiveness and writing off of an outstanding intercompany loan from MRPL in favour of Clough.

Read: M&R plans to dispose of Australian subsidiary Clough in R4bn deal

The intercompany loan dates back to the buyout of the minority shareholders of Clough by M&R in 2013.

Jardim said the value of this intercompany loan is now approximately A$350 million (more than R4.1 billion).

Moneyweb asked M&R how it anticipates repaying this intercompany loan now that Clough and MRPL are both in voluntary administration.

Jardim stressed that there is no recourse back to M&R in South Africa because the intercompany loan is ringfenced to MRPL.

“RUC, however, is at risk as part of the MRPL structure,” he said.

Responding to a further Moneyweb query on whether M&R is still involved in negotiations to sell Clough or still hopes to find a buyer for Clough, Jardim said: “Clough is now under the control of the appointed administrators, who will determine the way forward for the business.”

The proposed disposal of Clough also envisaged a proposed interim loan facility of A$30 million being injected into Clough by Webuild to avoid placing the company under voluntary administration.

However, M&R advised shareholders last week that the prescribed date in the sale and purchase agreement (SPA) for implementing the interim loan has passed.

“The parties have mutually agreed that there is no reasonable prospect of the interim loan being put in place and therefore the proposed transaction cannot proceed through to successful completion.

“Accordingly, the parties have mutually and unconditionally agreed to terminate the SPA with immediate effect,” it said.

M&R said the only other asset of MRPL is its investment in RUC but stressed that RUC, which has a net asset value of A$85 million (about R1 billion), has not been placed into voluntary administration.

“Other than the group’s interest in RUC, as well as a guarantee provided to Clough USA in the amount of A$3 million [equivalent to approximately R35 million], the group has no residual exposure in Australia or to Clough and will not be affected by MRPL being placed into voluntary administration,” it said.

M&R previously disclosed that project cash flows at Clough had been dislodged by Covid-related disruptions and there was a need for additional working capital arising from the margin deterioration on its Traveler project in the US and Waitsia project in Australia.

Still under cautionary

M&R published a cautionary on 17 October 2022 about the financial impact from the Traveler and Waitsia projects.

“We have not yet issued an updated trading statement regarding the potential impact of these two projects on the six months results to 31 December 2022, thus we are still trading under cautionary,” said Jardim.

What analysts say …

Rowan Goeller, an analyst at Chronux Research, said it is not positive for M&R that the sale of Clough to Webuild has fallen through.

He added that it seems M&R South Africa is however still insulated from what happens in Australia in that it is M&R Australia that will be going into business rescue.

Goeller said the downside now is that part of the mining business sits within MRPL and “is now part of the administration proceedings and they might have to make good for something”.

“That part of the business, which is roughly a third of the earnings of the mining business, is potentially under threat. So that is the consequence [of the termination of the disposal],” he said.

Peregrine Capital executive chair David Fraser said the termination of the proposed sale of Clough “is obviously very negative”.

“At the end of the day they [M&R] are not going to get out of this scott-free,” said Fraser.

Fraser said MRPL has to be collapsed and the group will probably lose Clough and also the Australian mining business.

“It’s pretty negative. At least they have sold what they can and sold Gautrain and have some liquidity in the centre but this is not a great story,” he said.

Read: M&R agrees to sell its stake in Gautrain’s operating company, for R1.4bn
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This is a reference to M&R announcing last month it had entered into an agreement to sell its 50% shareholding in the Bombela Concession Company (BCC), operator of the Gautrain, for R1.386 billion to Netherlands-based Intertoll.

The proceeds from the proposed BCC transaction will be used to reduce debt in South Africa and assist the group in addressing its working capital needs.

Debt

The group had total net debt of R1.1 billion at its year-end on 30 June 2022 but on 16 November 2022 announced the conclusion of the group’s debt restructuring in South Africa, which resulted in a new term debt facility of R1.35 billion and an overnight facility of R650 million.

Fraser does not believe M&R will be able to find another buyer for Clough, adding the only reason Webuild was prepared to do a deal was to mitigate the disruptions to the joint ventures it had with Clough.

“So they had a vested interest to do the deal,” he said.

M&R’s share price closing at R3.20 per share on Friday means the stock has plummeted by 30.43% in the past seven days and by 77.16% in the past year, including 58.66% in the past 90 days.