The shares of construction and engineering group Murray & Roberts (M&R) plunged to their lowest level in more than two years after the planned sale of its stake in Australian subsidiary Clough collapsed, resulting in the company entering business rescue.
The share price fell 21.05% to R3.75 on Monday, the second-biggest loss on record, according to Infront data. The last time the share fell below R5 was in September 2020.
In November, Italian industrial group Webuild agreed to buy M&R’s stake in Clough for R4bn, which would have seen M&R benefit to the value of A$350m through the cancellation of its outstanding intercompany loan account between Murray & Roberts Pty Ltd (MRPL), its Australian holding company, and Clough, and a cash payment of A$500,000 from Webuild.
The intercompany loan between M&R and Clough comes from M&R’s buyout of minority shareholders in Clough in 2013.
However, a mutual agreement had not been reached so there is “no reasonable prospect of the interim loan being put in place and therefore the proposed transaction cannot proceed through to successful completion”, M&R said on Monday.
“Accordingly, the parties have mutually and unconditionally agreed to terminate the sale and purchase agreement with immediate effect,” the company, valued at R1.67bn on the JSE, said.
The deal was seen as the best way to address Clough’s urgent working capital needs, but the subsidiary has now been left with “no choice” but to place itself and its subsidiaries under voluntary administration. This has also resulted in MRPL, an indirect wholly-owned subsidiary of M&R and its holding company in Australia, being placed in business rescue.
A corporate rescue team from Deloitte Australia has been appointed to try to save both subsidiaries.
Chronux research analyst Rowan Goeller said while M&R SA was still ring-fenced from what has happened in Australia, management would have to go back to the drawing board to restructure the business.
“M&R SA is able to draw a line between itself and Australia, which is probably the most important thing,” said Goeller.
But he cautioned that the company, which is much smaller than it used to be, would have to revitalise and re-imagine itself. “They have to refocus and construct a story that makes sense to shareholders,” he said.
Clough falls under M&R’s energy, resources and infrastructure segment and in June boasted a more than A$3bn-strong order book up to June, which was said to have the potential to exceed $4bn this financial year.
However, M&R warned that its working capital requirements were under pressure, affected by Covid-19-related disruption.
Webuild, a Milan-based construction and civil engineering company, agreed to buy its Australian rival Clough to strengthen its presence in that market and diversify its portfolio.
It has worked alongside Clough in the past, including on a hydropower project in Eastern Australia.
Operating in the mining, energy, infrastructure, industrial and water sectors in Africa, the Middle East, Southeast Asia, Australasia and North America, M&R generates the bulk of its revenue from its operations in the Indo-Asia-Pacific region, which includes Australia.
The 120-year-old M&R last week announced it has sold its entire investment in the Gautrain in a R1.3bn deal that aims to reduce debt and help ease a cash crunch.
M&R, which counts the Public Investment Corporation among its largest shareholders, has also been reviewing its strategic options to tackle the energy, resources and infrastructure business division’s near-term working capital needs, which it says are compounding.
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