Aveng has completed the sale of Trident Steel in a R1.2bn deal that leaves the infrastructure and resources group completely free of historical debt, long considered an achilles heel on its balance sheet.
Its shares rose as much as 10% on the news before pulling back to trade 3.20% higher at R10.83 on the JSE by early afternoon, giving Aveng a market valuation of R1.3bn.
The sale of Trident Steel marks the end of a five-year journey during which Aveng reconfigured its portfolio by selling noncore assets to reduce its debt of up to R3.3bn in 2018.
Trident, which focuses on supplying steel products to the automotive, rail and mining industries, has been bought by a new consortium known as Trident Steel Africa, which was specifically formed for the acquisition.
The consortium comprises US-based private equity firm Ambassador Enterprises, Joseph Investments, Arbor Capital Investments and Trident Steel management.
The proceeds of the deal have been used to settle the remaining SA legacy debt of R278m and to further settle the Trident Steel short-term trade finance facility of R450m.
“The completion of the sale of Trident Steel and the settlement of all legacy SA debt marks a pivotal moment in the successful execution of Aveng’s 2018 strategy,” CEO Sean Flanagan said.
“Having achieved this milestone of derisking the balance sheet and settling legacy SA debt, management are now entirely focused on the operational performance of both Moolmans and McConnell Dowell.”
Moolmans is an SA-based opencast mining contractor with an extensive footprint across the continent and is therefore tied to the vagaries of the commodity cycle.
McConnell Dowell, meanwhile, offers Aveng a geographic diversification as its operations cut across Australia, New Zealand and Southeast Asia.
It offers engineering and infrastructure solutions in the transport, water and wastewater, ports and coastal, energy, resources and commercial building sectors.
Aveng and several other big traditional construction companies have in the past decade evolved their operations and recalibrated their growth strategies away from SA, where GDP punched below its potential.
But equally, geographic diversification has not always been smooth sailing, with Australia posing a challenge for several SA companies in particular. In 2022, WBHO exited the Aussie market after 20 years.
Business Day reported three weeks ago that Aveng is in frantic talks with its client FGEN LNG Corporation after it called in more than R500m in project guarantees following project delays in the Philippines.
The project has been plagued by significant delays and negotiations are continuing with the client to take into account the impact of disruptions caused by the pandemic, supply chain disruptions, the Russia-Ukraine war, claims for extension of time, and difficulty in mobilising people to work on the site. Subsequently, FGEN LNG Corporation elected to call on the project guarantees, without notification, in the amount of R528.9m.
The move by FGEN LNG Corporation to pull the guarantees for the Batangas liquefied natural gas (LNG) project prompted Aveng to warn shareholders it will incur losses in the year to end-June as a result of numerous delays in completing the gas project.
The guarantees, according to the contracting group, have been settled by Aveng’s bankers in Australia.
In turn, McConnell Dowell settled an amount of R123m to the group’s Australian bankers, with a further R123m expected to be settled by June 30.
With Michelle Gumede
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