Director: Corporate-911
The South African mining and construction industries are industries that have long been central to the South African economic growth narrative. However, these industries have faced tough economic times of late. Anmar Construction Africa has been a major player in the South African engineering industry for several years. After finding itself in distress, the company was placed into business rescue in 2020.
After a long road, there are finally positive signs for the company. Corporate-911 and Sturns (as the Anmar Construction Africa’s business rescue practitioners) have submitted the company’s business plan which is subject to approval. This is a major step for a company which faced major distress. It has been a long road to get to this point. However, the submission of the business rescue plan is positive news for all affected parties.
An expensive endeavour
Anmar Mechanical & Electrical Contractors (a Canadian based company) acquired a majority shareholding in Anmar Boiler Refractory Services (Anmar BRS) in 2007. This partnership brought about BRS Furnace, an alliance which created a major turn-key project contender within African markets. In 2015, BRS Furnace amalgamated with BEE Refractories (formally owned by Hendrik Jacobs and Cornelius Jacobs) to form Anmar Construction Africa.
In October 2018, Anmar Construction Africa concluded a transaction with Qaqama Industries (Qaqama) which introduced Qaqama as the new majority shareholder of Anmar Construction Africa for Broad Based Black Economic Empowerment (BBBEE) purposes.
The proposal for the transaction was based on the need to transform the the organisational structured of Anmar Construction Africa to align with BBBEE requirements. The aim of this was to secure and generate more business for the company. The transaction saw Anmar Construction Africa’s shareholders sell a 55% stake of the company to Qaqama (an allegedly Level 1 BBBEE company). The transaction would be financed through a loan from First National Bank (FNB).
Nicholson adds that the intended new business drive that the Qaqama transaction promised never materialised and the company’s sales performance continued to be focused on the platinum industry which was under severe pressure at the time of the transaction.
The road to recovery
Ethical leadership has been in the spotlight in South Africa with the management of several high-profile companies being dragged over the coals following poor ethical business decisions. Often, these decisions placed companies into distress.
In addition to the Qaqama transaction, there were several other governance issues which contributed to the Anmar Construction Africa’s distress.
Anmar Construction Africa’s business rescue practitioners had a few operational challenges that they had to deal with. The first challenge was to secure creditor support and funding for the ongoing operations. Anmar Mechanical & Electrical provided significant support to the ongoing projects and provided much needed post commencement financing in the first few months of the formulation of the business rescue plan. FNB also gave us the option to leverage their security to fund any shortfalls. Fortunately, we never had to use this.
Photo By: Canva
Appeasing the crowds
One of the biggest challenges when it comes to the drafting and acceptance of any business rescue plan is to make sure that the creditors of the distressed company received a fair return on their investment. This needs to be accepted by the company’s creditors before the business rescue plan can be implemented.
The benchmark is always established by assessing what return creditors would get on their investment if the company (in this case Anmar Construction Africa) was put into liquidation versus what creditors would receive should a business rescue plan be implemented. In our proposed plan, trade creditors will get a full recovery on their investment as the business trades out. The South African Revenue Service (a significant creditor in any business rescue) will recover most of the money owed to it. The remainder of shareholder claims will bear the brunt of the write downs.
Secondary to the recovery of creditor investment, the business rescue process aims to minimise job losses within distressed companies. Part of the root cause of Anmar Construction Africa’s distress was a loss of cost management, particularly at Head Office. Some restructuring was required to reduce governance costs which has led to the downsizing of governance posts and some attrition as we sought to address under performance. At an operational level, there have been no job losses and Anmar Construction Africa will continue to employ about 71 full time employees on the same benefits and the same commitment to excellence. BRS Furnace has an exceptional workforce of committed and talented people. Their commitment to the company has been the mainstay of the rescue process to date.
The road ahead
As pointed out earlier, Anmar Construction Africa’s business rescue plan is currently subject to legal approval. The final step in the process is presenting the business rescue plan to relevant parties for their approval.
Once approved, the implementation phase of the business rescue plan should take no longer than a few months and Anmar Construction Africa will exit business rescue. BRS Furnace, as the trading entity, will be in place by the end of June.
Robin Nicholson is a Director at Corporate-911 and is a Senior Business Rescue Practitioner
