In both 2008 and 2009, the construction group Basil Read occupied the top position in the Business Times Top 100 Companies Survey, following a phenomenal share price performance during the previous few years.
Benefiting from the boom in the lead-up to the 2010 FIFA Wold Cup, the group’s turnover reached R5 billion in 2008.
On Friday, Basil Read announced that it had to file for business rescue after its attempts to raise bridge funding from a consortium of lenders failed.
It’s ironic that this news came just as the Soccer World Cup kicks off in Russia, said Jan van Niekerk, CEO of the investment group RECM.
In the run-up to the 2010 event, the company – along with its peers – invested heavily in anticipation of a wave of government infrastructure spending. But, due in part to the global financial crisis, this never happened.
The only large government entity that kept on spending was the South African National Roads Agency (Sanral), but with all the construction groups competing for the same contracts, prices and profitability took a hit. A R95 million fine for collusion with other construction groups for World Cup tenders added to the pressure on Basil Read.
The company took on more debt to survive, hoping that better times were ahead, says Van Niekerk.
But by last year, Basil Read’s share price was down 97% from its peak in 2008, and it was struggling with massive debt. Its current liabilities of R2.1 billion exceeded its current assets of R1.4 billion by the end of 2017.
It reported a net loss after tax of R1 billion for the 2017 financial year and announced a rights offer with the aim of raising R300 million in capital, dwarfing its market capitalisation of R46.6 million.
Van Niekerk does not expect another construction group to come to Basil Read’s rescue. Murray & Roberts is currently the unwilling target of a hostile takeover, while it is also trying to buy Aveng – once SA’s largest construction firm, but which has also fallen on hard times and lost 99.5% of its value in a decade.
Basil Read’s disappearance may benefit the rest of the sector, by removing capacity, Van Niekerk believes.
“This is a normal part of the economic cycle.”
Still, Basil Read’s demise will take a large chunk of South Africa construction history with it.
The company was founded by the engineer Basil Read in 1952, and its first contract was to build runways at Bloemfontein Airport. Listed on the JSE in 1987, the company was involved in a number of key projects, including the Kyalami racing track, the Nedbank building in Sandton, large housing projects at Cosmo City, the container terminal at Durban Harbour, the Gauteng Freeway Improvement Project, the N17 in Mpumalanga, the R59 in Sasolburg and the Medupi power station.
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