Aveng ponders a farewell to steel

Construction and engineering group Aveng has entered into discussions to sell part of or its entire steel business.

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Johannesburg - Aveng, the listed construction and engineering group, has entered into confidential discussions to sell at least part of its entire steel business.

Kobus Verster, the chief executive of Aveng, said yesterday that the group had received non-binding offers from numerous parties to acquire or partner with Aveng for both the entire operating group and/or for certain of its individual business units.

“Confidential discussions are ongoing, although there can be no certainty that these discussions will result in any transaction,” he said. The offers were from both foreign and local potential buyers.

Strategic objectives

He stressed the decision to possibly divest from the steel business was based on longer-term strategic objectives.

Verster said the outlook for steel in the near term was improving and given Aveng’s liquidity position, any transaction would therefore only occur at acceptable value.

Aveng Steel reported an increased net operating loss of R147 million in the six months to December from the R107m loss in the previous corresponding period.

But Verster said it was not a business in distress and the R147m net operating loss was “quite an achievement”. “It’s all due to price reductions and the underlying performance of the business is very strong. The market has deteriorated and you have to look at a business relative to where the market is. Other (steel) businesses are 50 percent lower,” he said.

Verster said the timeline to conclude any transaction would be determined by the offers that Aveng received.

“If we don’t see substantial movement in that process and a high probability of not realising value, then we will most likely rather pause the process,” he said.

Verster also confirmed that Aveng’s board had approved the monetisation of the existing portfolio of Aveng Capital Partners, the group’s concession business.

He said this was consistent with the strategy of recycling the capital invested within the portfolio of Aveng Capital Partners once the underlying projects had reached an appropriate level of maturity.

Verster said assets under management would be disposed of in the market or seeded into a fund.

He said Aveng Capital Partners was an almost R900m asset on Aveng’s balance sheet that was an extremely attractive and saleable asset.

Verster said the cash proceeds from any sale would be reserved for future application within the group.

He stressed Aveng’s liquidity had advanced to a stage where it was not in a liquidity squeeze and all capital it got out of disposals would be applied for future growth or whatever medium-term opportunities became available.

Revenue decline

Aveng yesterday reported a 25 percent decline in revenue to R18 billion in the six months to December from R23.9bn in the previous corresponding period.

Net operating earnings decreased by 87 percent to R52m from R413m. The headline loss a share widened to 57.8c from 34.5c.

Verster attributed the headline loss a share to the continued global economic slowdown and consequent reduced demand for infrastructure projects, a generally weak local trading environment for steel and cost pressures in the mining sector.

“While weak economic conditions globally have created challenging operating conditions for infrastructure companies generally, we are heartened by the strong progress we have made with our strategic initiatives to stabilise our operations and position them better for improved financial performance,” he said.

Shares in Aveng dropped by 1.09 percent on the JSE yesterday to close at R2.72.

BUSINESS REPORT