Construction company Protech Khuthele has filed for business rescue, citing cash flow problems in the wake of a defaulting debtor. Says Bloomberg, “The Johannesburg-based company, whose chief executive officer, Antony Page, resigned on May 28, has voluntarily filed for protection against its creditors, the company said in a statement today. Protech can’t meet its commitments due immediately to suppliers and a debtor failed to repay 40 million rand ($3.8 million), it said.” Things seem to have come undone quite abruptly at Protech, and as the story evolves, it seems clearer and clearer that problems have been brewing for some time. The construction business is highly cyclical, and over the last few years, even established giants like Grindrod and Group Five have found it hard to keep the cash flowing in, so its perhaps unsurprising that Protech came under pressure. However, getting to the point where it can no longer meet its outgoings is quite another thing, and with thousands of jobs under threat, all eyes are on other companies in the sector, looking out for a possible suitor. Eqstra had previously made a bid for Protech, so some have been wondering if a white knight rescue might be in the works, but the interview below makes this seem very unlikely. – FD
ALEC HOGG: A debtor, who owes the company R40m and doesn’t seem to be keen to pay it, has forced Protech Khuthele to file for Business Rescue. Walter Hill, the Chief Executive of Eqstra, joins us. Walter, of all the people in South Africa…of all the people who’ve been watching the Protech Khuthele story closely – as you clearly have, as a big shareholder – I doubt that there’s anyone who can give us a more rational insight into what’s going on here. Perhaps we can rewind a little. There was a point in time where you were keen to buy this company at 60 cents per share. The shares are freely available on the market at 15 cents, so I suppose the obvious question to someone like you is, do you feel lucky?
WALTER HILL: Alec, no. When we offered to pay 60 cents per share, we believed it was fairly valued and we believed it was a company we could do something with, which we could align with Eqstra and grow it as a bulk earthworks company, in a specific direction. The board at that stage, got an independent valuation from PwC, and they felt that 90 cents per share was a fair and reasonable offer, which they recommended to shareholders and we could never justify the 90 cents offer. We thought it was way over the ‘stated’ and the result is we never concluded the deal, because shareholders have an expectation of 90 cent. As you say, today you can pick it up at 15 cents because in essence, the value that was in that company has been destroyed, and I think they got themselves into liquidity trouble – one debtor that can’t pay them… I think the story is deeper.
As an overall cash flow management situation, I think one debtor may have been the DRC debtor that pushed them over the edge, but I do believe it’s been coming for a while.
ALEC HOGG: From your perspective as a shareholder in the company, what is Eqstra’s stake?
WALTER HILL: Our stake is just in excess of 32 percent.
ALEC HOGG: So are you considering maybe asking PwC for damages? If their advice at 90 cents at the time was incorrect, they cost you as well as other shareholders, a lot of money.
WALTER HILL: I think the board of Protech (and certainly, if refer to the board, I’m saying the new board). All the members who were on the board, without exception, had exited the board. The CEO exited out of the board, and I think the new directors will certainly have to look at the objectivity of the independent evaluation because it certainly has cost us a large sum of money as well as other investors who took their advice. We could never get a substantiation of the 90 cents per share and one of the bases was that was the NAV. Unless NAV earns you money and generates positive cash flow, NAV means nothing. Our statement all along was that if you looked at the NAV – the deferred tax assets in it, the goodwill we questioned – we could not get anywhere close to 90 cents per share. As I said, forecast can also be very deceiving.
What they wanted to do is they wanted to take the CEO… Anthony Page wanted to take the company into becoming a Construction and Civils company, and that sector in the South African market is over traded and it’s a high-risk business to try to enter while the existing players are already unable to get work to sustain themselves, to have a new entrant coming in to that game. The new board of directors will certainly have to look. Shareholders: I believe that shareholders must look at the way forward and where we stand, because it’s certainly been tremendous value destruction over the past 18 months.
ALEC HOGG: It is and it’s sad sometimes, that those who are behind it or made the decisions that destroyed value walk away from it scot-free. From your perspective Walter, would you be looking now to make another offer?
WALTER HILL: Alec, what we would certainly look at now they’ve been put into Business Rescue…the Eqstra board will take time out and reassess the company’s situation, see if there’s any value we can extract out of it, and look if it justifies making another offer. I believe that a lot of damage has been done and the reality is one can only judge that once one’s given access to the figures. The new board of directors has been very cooperative and sadly, it’s a bit too late but we will certainly look at the company and see if there’s something that we can take over. Through all this noise, there are one thousand jobs at stake, which could be lost in the process. I think that the Eqstra board will be objective in seeing if there’s anything, they could salvage out of the company.
ALEC HOGG: Let’s hope, for those thousand jobs, those thousand families, that indeed, there is some light at the end of this very dark tunnel. That was Walter Hill, the Chief Executive of Eqstra. If you haven’t been following this story, Protech Khuthele was put into Business Rescue on Friday – the next step is liquidation – this, after a new board of directors had been appointed progressively after the last little while. The previous board rejected an offer at 60 cents per share, and the share price…well; today you can pick them up in the market at 11 cents.
