Rights offer from BRPs still a possibility for financially distressed M&R

Company says this and other funding initiatives may be implemented as part of its business rescue plan.

Several possible funding initiatives for financially distressed Murray & Roberts (M&R), including a rights offer, may be initiated by the business rescue practitioner (BRP) of the holding company and OptiPower trading division of the JSE-listed engineering and contracting group.

This was confirmed on Sunday by M&R following its announcement on Friday that it had decided to place Murray & Roberts Limited and OptiPower into voluntary business rescue and had also successfully applied to the JSE for the voluntary suspension of trading in M&R shares with immediate effect.

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Read: Murray & Roberts Limited in business rescue, as holding company suspends JSE trading

M&R told Moneyweb on Sunday the group has been engaging with local and international funders as well as its debt and equity providers over an extended period of time on both its working capital and debt refinance requirements.

“Several possible funding arrangements were considered, including a potential rights offer.

“Although encouraging progress on some of these initiatives was made, the sudden deterioration in Murray & Roberts Limited and OptiPower’s liquidity position, as highlighted in the business update and cautionary announcement of 5 November, resulted in none concluding within the limited remaining time frame.

“Some of these initiatives may however still be implemented as part of the Business Rescue Practitioner’s strategy,” it said.

Aton approached?

M&R did not respond to specific questions about whether it had approached Aton GmbH, the German family-owned holding company, which is the group’s single largest shareholder with a 43.8% stake in the group, or other major shareholders to support a potential rights issue.

Listen/read: M&R’s going concern status in question [Aug 2023]

Aton previously launched a drawn-out hostile proposed takeover of M&R through a R17 per share cash offer but this was thwarted by a Competition Commission recommendation in 2019 that the Competition Tribunal prohibit the proposed transaction.

Read: PIC rejects Aton’s offer to buy Murray & Roberts Aton raises Murray & Roberts bid to $426m

M&R’s independent board appointed to consider the proposed transaction was also of the view that Aton’s final cash offer price remained below its fair-value price range of between R20 and R22 a share for control of the group.

Debt to banks

The group reported on 5 November 2024 that its board of directors had agreed to a deleveraging plan with the group’s consortium of South African banks, which entailed several measures to repay the debt due to the banking consortium, which peaked at about R2 billion in April 2023.

M&R said that through the implementation of the deleveraging plan, debt with the banking consortium reduced to R409 million as at 30 June 2024 and it was agreed this would be repaid by 31 January 2026.

The group said its board has further resolved to commence a process of disposing of non-core assets to meet the group’s obligations to its banking consortium and restore liquidity to the group, with shareholder approval for asset sales, if required, sought at the appropriate time.

M&R said on 2 November 2024 that considering the deleveraging progress, the board was not considering a rights issue for purposes of debt reduction in South Africa but was working towards implementing a sustainable capital structure over the next six months, which would include the refinancing of the remaining debt.

However, M&R said on Friday when explaining its decision to place its holding company and OptiPower in voluntary business rescue that it is critical for Murray & Roberts Limited to find a solution for its declining liquidity position.

It said this has arisen principally from the losses in its South African trading division, OptiPower, which has been exacerbated by the descoping of the Venetia contract as the mining contractor has been a source of cash flow to Murray & Roberts Limited in the past.

Murray & Roberts Cementation’s South African operations have for more than a decade worked on the De Beers Venetia contract, which represented more than 50% of its business in South Africa.

Risks

M&R added on Friday that following extensive modelling and testing of all viable options to address Murray & Roberts Limited’s liquidity constraints, the board believes that, based on best estimate budgets, the company’s six-month cash flow is deemed to be vulnerable to a number of risks and believes Murray & Roberts Limited meets the definition of being “financially distressed” and there appears to be a reasonable prospect of it being rescued.

The risks:

• The timeframes within which shareholder approval could reasonably be obtained for the disposal of non-core assets; and
• Final losses in OptiPower as a result of delays in procurement and project progress.

It said it was therefore of the opinion of the subsidiary’s board that the best option to ensure the sustainable restoration of Murray & Roberts Limited is to commence business rescue of that company, which incorporates OptiPower as a trading division.

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Analysts weigh in

An analyst who did not want to be named believes M&R does not still have any assets it could easily sell.

“If there was anything vaguely easily saleable they would have done it,” he said.

“OptiPower locally looks like it’s running down and it’s so constrained it has not been able to secure work or put up bonds.

“Cementation does have quite specific skills in shaft sinking et cetera, but these are not contracts that are around too often and generally they have proven to be high risk and have not been priced appropriately.”

The analyst believes M&R’s “first port of call” would have been to sound out its investor base on a confidential basis as to whether they were prepared to underwrite a rights issues or a placing of shares, and that investors declined.

Rowan Goeller, an analyst at Chronux Research, said that based on M&R’s last trading update, the group was clearly in some financial difficulty, and it sounds like it was struggling to get the required liquidity from the lenders because it had to restructure its debt but also had working capital issues.

Goeller said that seems to have been exacerbated by the descoping of the Venetia contract to the point that the two entities had to be placed in business rescue.

“Sometimes you’ve got no choice [but to go into business rescue]. But they are keeping their international mining business going,” he said.

However, another analyst who did not want to be named believes there will be consequences and “collateral damage” to Cementation because of Murray & Roberts Limited and OptiPower being placed in business rescue.

The analyst said it appears that “the writing has been on the wall” for M&R from its last two or three announcements because there does not seem to be a way for it to get rid of or service its head office debt.

He questioned why anyone would want to buy a group “in this shape” when they could start their own group and poach key people from M&R.

This analyst therefore believes placing Murray & Roberts Limited and OptiPower in business rescue will have “a terminal effect” and is the “death knell” for the group.

Multiple challenges

M&R has had a torrid and extremely difficult time in recent years.

Two problematic contracts and the hangover from the Covid-19 pandemic, which severely impacted or compromised the group’s ability to deliver on its contractual commitments, resulted in liquidity issues in 2022 for M&R in the Asia Pacific region.

This forced it to place Murray & Roberts (Pty) Ltd (MRPL), its holding company in Australia, and its major subsidiary, Clough, in voluntary administration.

Read: M&R works to regain control of its Australian mining business

It also lost control of RUC Cementation, its mining company in Australia, because it was part of that company structure.

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