Review ‘led to Kutana’s cold feet’

12-12-2017
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Business Day
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Kutana Construction, now known as Singabakhi Holdings, denied on Sunday it had failed to fulfil certain conditions to buy a 51% interest in Grinaker-LTA, the African infrastructure subsidiary of JSE-listed construction and engineering group Aveng.

Aveng had said on Friday it was terminating an agreement to sell a 51% interest in its Grinaker-LTA unit to the subsidiary of the black womenowned Kutana Group, claiming it was unable to make an upfront payment of R20m. The deal was meant to create opportunities for black contractors in infrastructure development as agreed between the government and country’s major construction groups in a “settlement agreement” signed in late 2016.

Kutana said that the difficulties encountered in closing the deal related to the unexpected underperformance by GrinakerLTA rather than Kutana’s ability to fund the transaction.

“Furthermore, the ongoing strategic review announced by Aveng on September 26 2017 has raised significant concerns for Kutana … regarding Aveng’s commitment to Grinaker-LTA,” Kutana said on Sunday.

“To ensure our investment and financial contribution would yield the projected return and desired impact, we raised these crucial … concerns with Aveng and began to engage on how best to find a workable solution in the interests of both parties. Despite these discussions being ongoing, Aveng has chosen to abandon the transaction based upon a technicality,” Thoko Mokgosi-Mwantembe, CEO and founding member of the Kutana group, said.

“The upfront payment had been raised, and demonstrated as such to Aveng,” she said. “However, the unconditional release of such funds in [the] light of the material changes affecting [GrinakerLTA] and its parent could not have been undertaken without Kutana having secured greater certainty from Aveng … on the long-term sustainability of the overall transaction.

“This certainty is especially relevant to Kutana given the significant commitments made in terms of the settlement agreement reached with the South African government,” she said.

Aveng’s stock fell 11.92% on Friday to close at R1.70. It is not clear what legal actions might follow the cancellation of the Grinaker-LTA deal.

Aveng acting CEO Eric Diack said on Friday the group remained fully committed to its obligations in terms of the settlement agreement with the government. “This includes the transformation of the GrinakerLTA business. Aveng is exploring all possibilities in the best interests of the group, and its stakeholders,” he said.