Construction company plans to return R3,5bn in cash through a share buyback facilitated by Rand Merchant Bank

Wednesday, 16 May 2007 02:00

Reluctant Aveng to offload Holcim stake

Aveng to return R3,2bn to shareholders from the company's sale of its cement producer Holcim SA

Thursday, 26 April 2007 02:00

Holed like a Swiss cheese

We may never know why Aveng decided to abandon its 46% stake in Holcim SA. After seven months of "constructive engagement" with Swiss partner Holcim Switzerland, Aveng has decided to take R6,8bn in cash and walk away. The trigger is the contentious black economic empowerment (BEE) deal that was sprung on Aveng by the Swiss in August last year. Holcim Switzerland holds the balance of Holcim SA shares.

Construction IndustryWas there political pressure for the deal after SA's president displayed interest in the transaction? There were also mutterings that Aveng's largest shareholder, the Public Investment Corp, was "supportive". In a JSE statement, Aveng said its strategy was "to achieve operational control over or have a controlling interest in all of its major investments... the disposal at an implied enterprise value of R16,4bn represents an attractive exit opportunity."

But to wait more than 60 years (the length of Aveng's association with Holcim) to decide you would like control is a somewhat delayed reaction. In any event, the Aveng/Holcim empowerment saga brings an expected bonus for Aveng shareholders (R3bn will be returned).

Empowerment partner Afrisam will no longer be paying R6,8bn for 85% of 54%, as in the original deal. Rather, Afrisam will now have to find R13,94bn (85% of R16,4bn). And the Swiss will have to buy Aveng's shares in order to put Aveng's stake, along with its own, into a vehicle (Altur) that can be presented to debt funders for appraisal.

This would be ironic because the Swiss made it clear they were not interested in providing finance for the transaction.

With this level of debt encumbering the balance sheet and sucking up every cent to service loans, will Holcim SA be able to make the investments it needs to avoid losing market share and margin? Mark Ingham, an independent analyst, says the economics of the deal has more holes in it than a Swiss cheese.

Putting a brave face on it, Afrisam says: "Though the headline funding requirement to provide for both the Aveng buy-back and Holcim's BEE transaction has now increased, the funding structure has been simplified with Aveng's exit." A degree of vendor financing now looks like a possibility. Ingham says the deal in effect offers Aveng a 19 price:earnings ratio. He says Holcim's listed rival PPC must have been used in deriving a value - and to the benefit of Aveng, since PPC as a business is far superior to Holcim.

Aveng should return all of the R6,8bn in cash to shareholders. Ingham says it would prejudice shareholders to have more money pumped into Aveng businesses such as Grinaker-LTA and McConnell Dowell, which have delivered "underwhelming performances".

Ingham says an unintended consequence of the deal will be to expose other weaknesses in Aveng. The margins that Holcim provided were cover for mediocre performances in other divisions.

There is no obvious acquisition opportunity for Aveng. Besides which, Ingham says, it needs to sort out difficulties in businesses it already owns. "They need to convince us they know what they're doing with the money," he says.

Other analysts have praised the deal because of the price Aveng has secured and because of the empowerment credits gained for enterprise development.

But this outcome is surely second prize for Aveng. Holcim is a cash-generative business, and demand for cement will grow strongly for years. Asked why Aveng walked away, Ingham says: "It makes no sense; they were the kingmakers. They held all the cards. Maybe they didn't play hard ball enough."

Aveng CEO Carl Grim has refused to talk until the shareholder circular is finalised, which should be early next month.

 

Construction firm Grinaker LTA was excluded from the bidding process to build the King Shaka airport in Durban because it could not commit to the black-economic empowerment procurement required by Airports Company of South Africa (Acsa)

Boom times for construction and engineering companies are just beginning, says Carl Grim, CEO of industry giant Aveng.

Tuesday, 12 September 2006 02:00

'Holcim's BEE must be sustainable'

Aveng says that it is committed to sustainable black economic empowerment for Holcim SA, in which it holds a 46% stake

Tuesday, 13 September 2005 02:00

Aveng rebounds after its most difficult period

Listed construction, steel and cement group is on a path to recovery from the disappointing performance last year of its key construction businesses

AVENG, SA's largest construction group, warned yesterday that if government failed to award the construction contract for the Gautrain high-speed rail link by next month, it would be "very difficult" to meet the 2010 deadline it has set.

One of the biggest problems facing the South African construction industry is a 'massive' shortage of labour skills

Aveng CEO Carl Grim says he expects an upswing in government capital expenditure before the end of this year as SA gears up for the 2010 Soccer World Cup

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