Yikes. Things aren’t looking good for South Africa’s largest construction company.

Business Insider SA reports Aveng – the same company that built the FNB Stadium – made the announcement that it was going ahead with a rights offer to issue shares worth R1,8 billion on Tuesday.

Why? Because it’s in desperate need of hard cash to pay off debts of more than R3 billion.

The problem is that the current market values for Aveng sits at only R171 million, a mere fraction of what it was worth a decade ago. In the last 10 years, the share price of the debt-heavy company – which used to churn out annual revenues of more than R50 billion – dropped from R65 to 33c.

That’s a whopping 99,5% difference, guys.

Here’s a graph from earlier in the week, when the share price was 37 cents, that shows the sorry state of affairs:

It’s a grim situation for the folks at Aveng.

What went wrong? The report chalks it up to these factors:

The depressed South African construction market since the global financial crisis, the commodity market downturn (Aveng has a sizeable mining division), and the SA government’s cuts to infrastructure spending hurt it badly, but many of its most painful wounds were self-inflicted.

The group, which owns [construction and engineering group] Grinaker-LTA, was fined almost R307 million after colluding on prices for 17 projects.

It also racked up massive debts as it expanded across the world, buying a number of companies, including the Australian-based McConnell Dowell, along the way. Its debts started to bite when the infrastructure market cooled down.

Guess they weren’t good investments after all, Aveng.

With a R6,4 billion loss in June last year, and the resignation of CEO Kobus Venster on the same day that was announced, Aveng has been forced to find options to keep itself afloat:

The company started selling assets to help fund the business, but an agreement to sell a majority stake in Grinaker-LTA to Kutana Construction fell through after the black-owned firm failed to get the necessary funding.

The engineering and construction group Murray & Roberts (M&R) recently offered R1 billion to buy Aveng. But the odds are against the deal.

That’s because M&R itself is the unwilling target of a hostile bid by its German shareholder, Aton, which owns almost 40% of M&R. That, and Aton sure as hell doesn’t support the Aveng offer.

Sorry, Aveng, it’s more and more unlikely that you can get yourself out of this situation.

Guess that’s the way the construction cookie crumbles.

[source:businessinsider]