South African Builders Agree to $87 Million Development Fund

  • Deal includes commitment on black ownership, mentoring
  • Aveng, Group Five among signatories; M&R needs more time

Six South African construction companies including Group Five Ltd. and Aveng Ltd. agreed to to pay a combined 1.25 billion rand ($87 million) over 12 years into a development fund to help address legal claims against them and smooth relations with the government.

The building firms also agreed to choose between mentoring black-owned contractors to develop their businesses or selling at least 40 percent of their South African civil engineering and construction units to black-controlled enterprises, they said in separate statements to the stock exchange on Tuesday. The condition is part of a government initiative to help compensate those discriminated against during apartheid.

The aim is a “model that’s not about politically connected individuals, it’s about taking black South Africans who have experience in the construction sector and mentoring them, supporting them,’’ Economic Development Minister Ebrahim Patel told reporters in Johannesburg. The development fund will be used for initiatives including the training of young workers from disadvantaged backgrounds and to support teaching of math and science at public schools, he said.

The deal comes three years after South Africa’s Competition Commission fined 15 builders including Aveng a combined 1.5 billion rand for allegedly colluding on bids for infrastructure projects in the run up to the 2010 Soccer World Cup. Government entities including the South African National Roads Agency SOC Limited have said they planned to seek civil damages from the contractors in connection with those claims. As part of Tuesday’s deal, the CEOs of the six companies have made an “integrity commitment,” Patel said, helping to ensure good faith regarding future contracts.

“The question of integrity in both the private sector and in the public sector is critical for the country,” Patel said. “Corruption and collusion are not acceptable.”

Financial Penalties

The other four companies to agree to the deal are Basil Read Holdings Ltd., Wilson Bayly Holmes-Ovcon Ltd., Raubex Group Ltd. and Stefanutti Stocks Holdings Ltd. A seventh builder, Murray & Roberts Holdings Ltd., is still in consultation with government about potential participation in the voluntary agreement, the company said in an e-mailed statement. The company plans to exit the general building and civil engineering sector.

The agreement is a framework for the settlement of claims against the companies by the industry regulator, the Construction Industry Development Board, and civil claims by public entities arising from investigations by the Competition Commission for a period up to 2010.

If the builders choose the mentoring option of up to three black-owned companies, the selected businesses must sustain a cumulative combined annual revenue equal to at least 25 percent of the mentoring company’s sales from South African civil and building works by 2023. The agreement also provides for financial penalties if commitments aren’t met, Patel said.

Aveng shares pared earlier gains and traded 1.9 percent higher at 7.13 rand at the close in Johannesburg. Group Five rose 5 percent, Raubex advanced 0.1 percent, WBHO fell 1.8 percent, Basil Read dropped 1.9 percent and Stefanutti was little changed. Murray & Roberts declined 4.1 percent to 10.50 rand, the lowest close since March.

Aveng, the largest South African construction company by sales, has agreed to sell 45 percent of its Grinaker-LTA unit to Kutana Construction (Pty) Ltd., which is owned by black women, the company said in a separate statement on Tuesday.

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