Construction woes affect SA firms
2009-01-23 · Property Related Events
An unparalleled construction boom in the Middle East is stalling, dimming the outlook for local companies with exposure to the region. Two South African-based construction firms have already divulged that their projects have been cancelled or suspended in Gulf States as the global economic woes and falling oil prices force clients to reprioritise their spending plans.
Group Five (GRF), which operates in several African countries and the Middle East, is the latest to adjust its books after a R3,3bn contract, amounting to R514m to the 2009 fiscal year, was terminated.
The second contract is on suspension, pending a further review by the client. The value that remains to the executed under this contract is R654m, R309m relating to Group Five's 2009 fiscal year.
Rival Murray & Roberts (MUR) also altered its books after two contracts in as many months were canned in the Middle East, an unambiguous indication that that the region is not immune to the US-made global economic crisis.
In December, Murray & Roberts' Trump Tower joint venture in Dubai was suspended, wiping R3,2bn off its R61bn order book, and on Tuesday the company said it has lost a R4bn contract to build a resort in Bahrain.
Analysts do not expect these to be the last in project cancellations and suspensions, but also expect a much more muted contract intake in the coming months.
Last month, local state-owned power supplier Eskom terminated the procurement processes for the proposed multibillion-rand Nuclear-1 power plant project, citing the financial pressures.
Aveng and Murray & Roberts were in two separate consortiums bidding to build the power plant.
And the investment markets have started to downgrade construction stocks. In December, Aveng and Murray & Roberts were kicked out of JSE's Top 40 index of blue chip companies, reducing their visibility to investors and triggering selling by asset mangers who track the index.
The global credit crunch is believed to be diminishing project pipelines for construction companies as potential clients delay infrastructure projects due to lack of access to funding.
Adding weight to arguments that project cancellations and suspensions will far outweigh contracts wins, are mining companies' recent pronouncements on project reviews, capital expenditure deferrals and cost-cutting measures as commodity prices fall.
However, in its voluntary business update a few weeks ago, Aveng downplayed the impact of the global financial crisis, saying its project pipeline remained strong, but it is "taking longer for clients to finalise projects".
Disclosed order book intakes over the past few months include R2bn worth of public sector contracts for Group Five and a R6bn public sector contract to build a terminal in Dubai International Airport for Murray & Roberts.
For the next few years the sector is banking on South Africa's multibillion-rand infrastructure spending. South Africa is spending R600bn over the next three years to upgrade and build new roads, power generation and transmission, rail, ports, pipelines, hospitals, prisons and school.
Group Five (GRF), which operates in several African countries and the Middle East, is the latest to adjust its books after a R3,3bn contract, amounting to R514m to the 2009 fiscal year, was terminated.
The second contract is on suspension, pending a further review by the client. The value that remains to the executed under this contract is R654m, R309m relating to Group Five's 2009 fiscal year.
Rival Murray & Roberts (MUR) also altered its books after two contracts in as many months were canned in the Middle East, an unambiguous indication that that the region is not immune to the US-made global economic crisis.
In December, Murray & Roberts' Trump Tower joint venture in Dubai was suspended, wiping R3,2bn off its R61bn order book, and on Tuesday the company said it has lost a R4bn contract to build a resort in Bahrain.
Analysts do not expect these to be the last in project cancellations and suspensions, but also expect a much more muted contract intake in the coming months.
Last month, local state-owned power supplier Eskom terminated the procurement processes for the proposed multibillion-rand Nuclear-1 power plant project, citing the financial pressures.
Aveng and Murray & Roberts were in two separate consortiums bidding to build the power plant.
And the investment markets have started to downgrade construction stocks. In December, Aveng and Murray & Roberts were kicked out of JSE's Top 40 index of blue chip companies, reducing their visibility to investors and triggering selling by asset mangers who track the index.
The global credit crunch is believed to be diminishing project pipelines for construction companies as potential clients delay infrastructure projects due to lack of access to funding.
Adding weight to arguments that project cancellations and suspensions will far outweigh contracts wins, are mining companies' recent pronouncements on project reviews, capital expenditure deferrals and cost-cutting measures as commodity prices fall.
However, in its voluntary business update a few weeks ago, Aveng downplayed the impact of the global financial crisis, saying its project pipeline remained strong, but it is "taking longer for clients to finalise projects".
Disclosed order book intakes over the past few months include R2bn worth of public sector contracts for Group Five and a R6bn public sector contract to build a terminal in Dubai International Airport for Murray & Roberts.
For the next few years the sector is banking on South Africa's multibillion-rand infrastructure spending. South Africa is spending R600bn over the next three years to upgrade and build new roads, power generation and transmission, rail, ports, pipelines, hospitals, prisons and school.
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