Stefanutti Stocks makes slow progress with Eskom claims and disputes

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26-11-2021
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Moneyweb
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JSE-listed construction group Stefanutti Stocks is making some progress with its disputes with Eskom following allegations by the power utility it had overpaid almost R4 billion to various contractors at the Kusile Power Station, including an estimated R1 billion to two Stefanutti Stocks joint ventures (JVs).

Stefanutti Stocks on Thursday also provided an update on progress with the implementation of its restructuring plan, which aims to optimise the group’s capital structure and provide it with access to liquidity to position the group for long term growth.

The group’s lenders provided it with total funding of R1.205 billion, the majority of which was anticipated to be repaid by the end of February 2022.

Delays

However, Stefanutti Stocks CEO Russell Crawford said on Thursday the capital portion of the loan repayments, which were envisaged to commence in July 2021, have not materialised because of the slower than anticipated sale of certain operations, a delay in the regulatory processes relating to the disposal of Al Tayer Stocks, and the non-implementation of a materials handling and tailings management sub-division transaction.

“The group is currently in negotiations with the lenders to extend the capital repayments and the duration of the loan to February 28 2023,” he said.

In an update on the Kusile Building Project SSBR JV (Stefanutti Stocks Basil Read joint venture) Package 16, Crawford said all construction work is complete, inclusive of snagging, but a small maintenance team will remain on site until December 2021 dealing with any defects.

He said commissioning remains on track to be completed by December 2021 for all areas where access and services are available.

Crawford added that the final measurement process remains ongoing and good progress has been made, resulting in positive certification and payment.

“Eskom continues with their adverse process to certification but SSBR has been able to motivate certification in an amount of R47.3 million for this period [six months to end-August 2021], with R21.2 million received and the balance due on or before December 16 2021,” he said.

Crawford said other issues the parties are unable to resolve will be referred to the Dispute Adjudication Board (DAB) for a decision.

He said the independent quantum experts are in the process of completing their exercise of interrogating the total cost that has been incurred on the project.

“The interrogation was conducted on a sampling basis and to date no anomalies have been found.

“The parties are still on track to substantially resolve the disputes by February 2022,” he said.

Covid-19 claim

Crawford said the joint venture was successful with its Covid-19 claim, with the final award on the quantum expected this month but that a further 77 site claims were submitted to the engineer after December 2019, of which 30 included additional cost claims.

He said the engineer has to date only responded to 14 of the 77 site claims, but following the successful dispute of the Covid-19 claim award “the engineer has acknowledged that his interpretation of the contract may be incorrect and therefore needs to reassess all submitted site claims”.

Crawford said all disputed claims will be referred to the DAB.

Turning to the Kusile Power Station SS-Izazi JV Package 28, Crawford said the joint venture commenced adjudication proceedings during June 2018 in relation to many compensation events that had not been assessed, but this contract was terminated during February 2019 due to Eskom’s inability to provide access to the JV to complete the works.

Crawford said the engineer issued two negative final payment certificates in August 2019 and April 2020, alleging that overpayments had been made to the joint venture.

He said this prompted the notification of many new disputes, which were then included in the adjudication process, with adjudication hearings conducted during November 2020 and February 2021.

“As several disputes relate to measurement of the works, the JV and Eskom have embarked on an independent expert process to resolve these disputes.

“To accommodate this independent expert process, the adjudicator has been requested not to publish his decision.

“The independent experts are still on track to substantially complete the measurement of the bill of quantities by February 2022.

“Given the magnitude of the amounts in disputes, it is highly probable the disputes will be referred to arbitration,” he said.

Restructuring plan

In an update on the restructuring plan, Crawford said a number of properties had been sold by end-October 2021, including:

The group’s formwork yards in Midrand for R28 million;
A residential property in Sasolburg for R500 000;
The remaining units of the Northern Views residential development Pretoria, with net proceeds of R24.4 million;
Vacant industrial land in George for R1.4 million; and
An industrial property in Kempton Park for R1.9 million.

The group has also:

Received the initial purchase consideration of R92 million for its 49% of Al Tayer Stocks in the United Arab Emirates;
Received R58 million from the sale of underutilised plant and equipment; and
Collected R18 million in outstanding amounts due by the Zambian government since the beginning of its financial year, and anticipates collecting a further R48 million.

Interim results

Stefanutti Stocks on Thursday reported a 23% increase in contract revenue from continuing operations to R3.2 billion in the six months to August from the restated R2.6 billion in the prior period.

Operating profit improved to R5 million from the restated R161 million operating loss.

It reported a headline earnings per share loss of 67.12 cents from total operations for the period.

The group’s order book for continuing operations is currently at R4.6 billion, of which R1.6 billion relates to work beyond South Africa’s borders.

‘Messy’ legacy

An analyst who did not want to be named said Stefanutti Stocks is still facing the legacy of many claims and issues, including claims and disputes with Eskom, which “is messy”.

“The whole presentation was backward looking. On continuing operations, they still made a loss and the order book does not look spectacular,” he said.

The analyst said the problem facing Stefanutti Stocks is that what they are paying lawyers is quite often more than they will ever recover from the contractual claims and disputes.

Stefanutti Stocks disclosed that R141 million in cash was consumed by total operations in the reporting period due to the impact of Covid-19 and current dispute resolution processes.

Shares in Stefanutti Stocks closed unchanged on Thursday at R0.50.