M&R’s Australian subsidiary Clough and holding company placed into voluntary administration

Murray & Roberts (M&R) has terminated the proposed disposal of its Australian subsidiary Clough and placed both Clough and Murray & Roberts Pty Ltd (MRPL), an indirect wholly owned subsidiary of the group and the group’s holding company in Australia, into voluntary administration.

The announcement on Monday saw shares in M&R plunge over 15% to around R4.02 per share in early trade.

The proposed disposal of Clough to multinational Italian industrial group Webuild also envisaged a proposed interim loan facility of A$30 million being injected into Clough by Webuild to avoid placing the company under voluntary administration in Australia.

Read: M&R plans to dispose of Australian subsidiary Clough in R4bn deal

However, M&R advised shareholders on Monday that the prescribed date in the sale and purchase agreement (SPA) for implementing the interim loan has passed.

“The parties have mutually agreed that there is no reasonable prospect of the interim loan being put in place and therefore the proposed transaction cannot proceed through to successful completion,” it said.

“Accordingly, the parties have mutually and unconditionally agreed to terminate the SPA with immediate effect,” it added.

M&R said that as previously communicated, the boards of directors of M&R and Clough had concluded that the proposed transaction was the preferred course of action to address Clough’s increasingly urgent working capital needs.

No choice

However, M&R said that in the absence of the interim loan, the board of directors of Clough “have been left with no choice but to place Clough and its subsidiaries under voluntary administration in Australia with immediate effect”.

M&R pointed out that for an Australian company, voluntary administration is a flexible, short-term process which has the primary objectives of maximising the chances of the company, or so much of its business as possible, continuing in existence, and otherwise optimising the return for the company’s creditors and members.

It said this process has since its introduction in 1993 resulted in the preservation of many great Australian businesses, which might otherwise have simply been liquidated.

M&R added that due to Clough being placed into voluntary administration, the board of directors of MRPL decided to place the indirect wholly owned group subsidiary into voluntary administration because of an intercompany loan account for the benefit of Clough.

The intercompany loan from MRPL in favour of Clough arose through the buy-out of the minority shareholders of Clough by M&R in 2013.

The proposed Clough transaction with Webuild, if it was successfully concluded, would have resulted in a financial benefit to M&R of about R4 billion.

However, M&R group investor and media executive Ed Jardim confirmed to Moneyweb last week that M&R will not receive R4 billion in cash from the proposed Clough transaction but a financial benefit in the form of the forgiveness and writing off of this outstanding intercompany loan between MRPL and Clough.

M&R said on Monday that MRPL’s other creditors are Murray & Roberts International Ltd and the beneficiaries of guarantees that MRPL has provided in respect of Clough liabilities to third parties.

It said the only other asset of MRPL is its investment in RUC Cementation Pty Ltd (RUC), which is part of the group’s mining business platform.

But M&R stressed that RUC, which has a net asset value of A$85 million (about R1 billion), has not been placed into voluntary administration.

“Other than the group’s interest in RUC, as well as a guarantee provided to Clough USA in the amount of A$3 million (equivalent to approximately R35 million), the group has no residual exposure in Australia or to Clough and will not be affected by MRPL being placed into voluntary administration,” it said.

If the disposal of Clough was finalised, M&R would for operational purposes have been structured into two business platforms: the multinational mining platform and the sub Saharan Africa-focused Power, Industrial & Water platform.

M&R’s interests in Australia would have continued through RUC Cementation Mining, one of the three operating companies in the group’s multinational mining platform.

Clough is the driver of M&R’s energy, resources and infrastructure (ERI) platform and most significant group business, with an order book of R37.2 billion at end-August while near orders increased significantly to R43.6 billion from R1.1 billion.

M&R’s announcement of the proposed disposal of Clough followed the group’s cautionary announcement and trading statement on 17 October 2022, which outlined the company’s working capital requirements, which are particularly acute in the ERI platform.

The group said project cash flows have been dislodged by Covid-related disruption while there was a need for additional working capital arising from the margin deterioration on its Traveler project in the US and Waitsia project in Australia.

M&R last week announced it had entered into an agreement to sell its 50% shareholding in the Bombela Concession Company (BCC), the operator of the Gautrain, for R1.386 billion Netherlands-based Intertoll.

Read: M&R agrees to sell its stake in Gautrain’s operating company, for R1.4bn

It said the proceeds from the proposed BCC transaction will be used to reduce debt in South Africa and will assist the group in addressing its working capital needs.

The group had total net debt of R1.1 billion at its year end on 30 June 2022 but on 16 November 2022 it announced the conclusion of the group’s debt restructuring in South Africa, which resulted in a new term debt facility of R1.35 billion and an overnight facility of R650 million.

Rowan Goeller, an analyst at Chronux Research, said last week that “M&R dodged a bullet from Australia through the linkages of the loan from Clough to M&R, and with the Australian business linked to the Australian mining business”.

M&R had been trading under a cautionary since 17 October 2022, which was renewed on 8 November 2022 and was linked to issues around the disruption to its ERI platform – principally the group’s interest in Clough.

Shareholders were advised to continue to exercise caution when dealing in the company’s securities until a further announcement is made.