It’s never a good sign when a company’s best-case scenario is “not liquidation”. After a period of significant liquidity constraints and operational setbacks, South African engineering and contracting group of companies, Murray & Roberts Holdings Ltd (M&R) has entered business rescue proceedings.
The group’s valuable mining businesses are now set to be taken over by an investor consortium led by Differential Capital.
Founded in 1902, M&R is one of the country’s oldest and most storied engineering and construction groups. It played a central role in building much of South Africa’s industrial and infrastructure backbone, from mining shafts to power stations and transport networks. Over time, the company expanded internationally across the oil and gas, infrastructure and mining sectors, with operations in Australia, the Middle East and North America.
However, the path to business rescue was paved with years of financial strain. Worries regarding the group’s ability to continue as a going concern were formally raised in September 2024, after delays in refinancing debt and uncertainties over repatriating cash from its Cementation business.
A M&R spokesperson says Covid “severely curtailed” the group’s cash-generating ability due to business disruptions and travel restrictions. The company also stopped receiving dividends from its 50% stake in Gautrain operator the Bombela Concession, which was sold in late 2022.
At the same time, M&R’s Australian business, Clough, required more working capital. Unable to support it, largely due to South African debt obligations, M&R ultimately lost Clough and its Australian mining subsidiary, RUC, to voluntary administration in December 2022. This left the group with a “highly geared balance sheet” and about R2bn in debt to its banking consortium.
While M&R had reduced this debt to R409m by the 2024 financial year through a deleveraging plan that included the disposal of its Bombela investment, the rapid debt reduction, coupled with the loss of income from Australia and Bombela dividends, led to increasing liquidity constraints in its South African operations.
These constraints, according to an industrial analyst, “increasingly impacted M&R’s operations, giving rise to substantial losses, especially in OptiPower, because of delays in equipment procurement and consequently delays in project progress”.
OptiPower, originally acquired to expand M&R’s energy infrastructure footprint, became a key liability. The division racked up heavy losses on underpriced, delayed and poorly executed fixed-price contracts.
Despite growing signs of its financial drag, M&R continued supporting the division, ultimately accelerating the group’s decline.
Another blow came in late 2024, when De Beers descoped a major contract with M&R Cementation at its Venetia mine. This contract accounted for more than 50% of M&R Cementation’s revenue in South Africa, and its termination “exacerbated the liquidity squeeze across the group’s South African operations”, M&R says.
The analyst highlights several red flags that signalled structural issues. These included an “aggressive approach to recognition of uncertified revenue, a weak balance sheet, significant past-due receivables indicating potential disputes or collection weaknesses, and substantial remuneration packages for the CEO and CFO despite the group’s poor performance”.
M&R responds: “The recognition of profits was carried out in consultation with the group’s advisory and legal teams, and was signed off by independent auditors following rigorous and independent reviews. Furthermore, neither the CEO nor the CFO received increases to their basic salaries, and the company’s underperformance is clearly reflected in the significantly reduced short- and long-term incentive payouts.”
Unable to refinance its debt or secure a working capital facility, the M&R board concluded that the company was “financially distressed” under the Companies Act. On November 22 2024, M&R, including the OptiPower division and group corporate head office, was placed into voluntary business rescue.
Enter Differential Capital, which provided the post-commencement finance (PCF) that kept the business afloat. CEO Vincent Anthonyrajah describes the rescue as both a value-preserving exercise and a viable return opportunity. The business rescue plan got the support of creditors, being approved and adopted on April 8.
Anthonyrajah explains that these pension funds and clients “decided to step in” to provide more than R130m in PCF. He says the aim was not charity but to “strike a balance between saving these funds [companies] and providing potentially very good returns for our pension funds”.
The business rescue practitioners (BRPs) originally considered a rights issue underwritten by Differential. But structural risks, particularly around parent company guarantees, made a direct sale of assets more feasible. The proposed sale included The Cementation Co (Africa) and its subsidiaries, as well as M&R UK and associated entities such as Cementation Apac, Cementation Canada and Terra Nova Technologies.
According to the analyst, the group could have been restructured earlier, but only with an entirely new management team with no stake in the various statements or commitments that had been made in the past. “If they had moved sooner on OptiPower and done an orderly sale of Cementation Americas, they could have preserved some value. Instead, they doubled down on the business model, pursuing low-margin fixed-price contracts, which carried significant risks.”
According to the interim results for the six months ended December 31 2024, the loss from continuing operations was R646m, mainly due to M&R guarantees on OptiPower projects being called. Discontinued operations reported a substantial loss before interest and tax of R960m, primarily incurred by OptiPower due to procurement delays and project setbacks.
The group’s core mining businesses, including M&R Cementation (South Africa and Americas), which were not in business rescue, continued to operate but recorded drops in revenue and operating profit.
Anthonyrajah highlights the stark alternative to the approved plan. “If there was a liquidation, secured creditors would have got a small haircut, maybe 5%. But unsecured creditors would have received nothing. Now, the price that we intend to pay of R1.3bn ensures that the secured creditors get fully repaid and the unsecured creditors get anywhere between 5c and 10c on the rand.” He acknowledges that this is not a large sum for unsecured creditors but says it is “better than a liquidation”.
These are great companies that have just been through a tough time. The two mining businesses are recognised as world leaders
— Vincent Anthonyrajah
The BRPs say the business rescue aims to preserve jobs and avoid a “more destructive outcome”. About 2,800 jobs tied to the Cementation businesses are expected to be saved.
The sale of M&R’s main assets to Differential aims to ensure the long-term sustainability of the Cementation and UK operations under new ownership. “These are great companies that have just been through a tough time. The two mining businesses are recognised as world leaders,” says Anthonyrajah. He believes that aligning management with the new shareholders and providing capital will allow these businesses to get “back on track”, viewing it as “just turning over a fresh new leaf and then removing them [from] a group which has really tainted their reputation”.
However, with the sale of core assets, the company will no longer have any operating subsidiaries and thus no prospect of generating cash through operations, or of recapitalising the group. According to its latest financial results, liabilities now exceed assets, rendering it commercially insolvent. Consequently, the M&R Holdings board recommended a creditors’ voluntary winding-up of the company.
The analyst says M&R, in its current form, will cease to exist. “Once the Differential transaction is concluded, there will be nothing of value left in the listed entity, and all that will remain is for the voluntary winding up to be concluded.”
Even so, he describes the business rescue plan as well executed, praising its dispute resolution mechanisms that give creditors 30 days to file claims, failing which their rights lapse. “I’m not sure the VAT clawback has been fully quantified; that could affect returns to concurrent creditors.”
M&R maintains that its board “consistently and comprehensively” assessed the company’s challenges and available options in the wake of the pandemic, and that it was “transparent and timeous” in communicating with stakeholders as the liquidity crisis deepened.
The group emphasises that the business rescue process demands a balanced approach, one focused on securing the best possible outcome for employees and creditors under difficult circumstances.
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