Did the banks implode Murray & Roberts?

Did the four largest South African banks sink Murray & Roberts (M&R), condemning the 123-year-old construction icon to business rescue, and possible collapse?

This appears to be the view of its CEO, Henry Laas, who tells Currency that, had its four bankers – Absa, Standard Bank, Nedbank and FirstRand – supported the company at a precarious time, it would not have ended up on the skids.

“For me personally, this situation is very difficult to get my head around,” he says. “We had agreed on a debt reduction plan with the banks, and we met all our milestone and deadlines, so I didn’t foresee us getting here.”

This is far from an uncontested view. 

To critics, the plight of M&R – which built many South African landmarks, including the Carlton Centre and the Cape Town World Cup stadium – is due to poor decisions made over a decade, including selling its construction business, and diverting the proceeds into its Australian oil and gas arm, Clough.

Laas’s predecessor, Brian Bruce, who had worked at the company for 43 years until his retirement in 2011, told Currency last week that “poor strategic risk management”, at both board and executive level, killed the business.

Yet the role of South Africa’s largest banks in tipping a teetering M&R over the edge raises sharp questions about their appetite for necessary risk in a country with GDP growth of barely 1%, where so many businesses are struggling.

The consequence of this collapse not only torpedoes a hole in South Africa’s engineering landscape, but it is a blow to a staff contingent of more than 5,000 people, as well as the hundreds of businesses still owed R3.8bn by M&R.

Ironically, the banks are owed the most: Absa is owed R207m, Standard Bank is owed R130m and FirstRand is owed R54.2m according to court documents – but they are secured creditors who will be paid out first, and probably won’t lose much.

In contrast, Nedbank is owed R80.9m but this is not secured debt, and neither is the R138.8m owed to Old Mutual Alternative Risk Transfer Insure. These institutions could lose millions, as the business rescue plan says unsecured creditors may only get back between 5c and 10c for every rand they are owed.

It’s a desperate scenario, which many believe could have been avoided. 

Opting for business rescue was a big surprise, says Rowan Goeller, an independent analyst who has covered the company for years. 

“At the time, Murray & Roberts looked to be on the recovery path,” he tells Currency. “Their debt had reduced from R2bn to just R409m, so it wasn’t eyewatering by any means. They were clearly struggling for working capital, but business rescue seemed a hasty decision.”

It was also a shock given that weeks before, M&R said it was “pleased to announce it has reached an agreement with the banking consortium” on a debt reduction plan. It said a “credit-approved term sheet has been signed”, which meant the final R409m would only have to be repaid by January 2026.

Then it all fell apart. In court documents in November, the company said it was “factually solvent” but facing “significant cash flow constraints”.

Laas says M&R had made commendable progress in reducing its debt by more than 75%, so it was “very confident” of its turnaround prospects. The last hurdle was to refinance the final R409m in debt which was only due to be repaid by January 2026 – and then, in a final twist, the banks drew a line in the sand and said, “no further”.

In a bind, M&R asked other lenders if they’d step up, but they were sceptical of the lack of support from its existing consortium.

“They said to us: ‘If your own bankers aren’t supporting you, how can we?’ They were all deeply suspicious of why these other banks had pulled the plug. Especially as they had been our bankers for many years,” he says.

Laas says financing this last R409m shouldn’t have been an insurmountable obstacle. “But we couldn’t refinance this with other institutions, and it came as a surprise to us when the consortium of our lenders told us they weren’t prepared to help any further, notwithstanding the fact we’d never defaulted or missed a target.”

A deeper hole

There is nuance to this narrative, however. While it is true that M&R’s debt had fallen to R409m, this wasn’t the sole hole in its bank account. In particular, it needed additional working capital of about R350m to finance its work on several projects for which it would only be paid at the end.

Daniël Grobler, M&R’s finance director, said in an affidavit in November that the company’s cash flow forecasts were grim: the “liquidity gap” was expected to rise to R600m by June this year. This would render it “financially distressed”, he said.

In other words, the problem was deeper than just the debt: not only were the banks unwilling to refinance the R409m, they also gave a “hard no” to the R350m required to keep the company ticking over. 

Laas concedes as much. “When we couldn’t get this working capital, things began to unravel on some of the projects we were doing. That was the last straw.”

It hadn’t helped that the banks had burnt their fingers badly with other construction companies that hit the wall, notably Group Five and Basil Read.

This contributed to what Laas describes as a “negative perception” of the construction sector. “I had the sense that when Murray & Roberts came along, the banks had lost their appetite for the sector, and took a decision not to support it any longer,” he says.

This accords with the views of other industry executives. “It’s simple,” says one executive, who spoke to Currency on condition of anonymity this week. “The banks lost confidence in Murray & Roberts’s management. It was clear they had no faith in its future.”

While the company is now in business rescue, the silver lining is that many of its subsidiaries will continue under a different banner. The construction arm is now owned by Concor, while Differential Capital, a Joburg-based investment company, has bought the mining business out of business rescue. 

Vincent Anthonyrajah, MD of Differential Capital, says it’s unfair to blame the banks for what happened. “Look, banks today have very different risk requirements, and my impression is they took on a substantial amount of risk with Murray & Roberts, and hung on as long as they could,” he says.

Ultimately, he says, had the business been managed better over the previous decade, the refinancing of its final R409m would not have been the final straw.

Industry experts say that whichever way you look at it, the banks alone did not torpedo the business. Other events – like the decision by diamond miner De Beers to halt work on its Venetia Mine, which provided more than half the revenue for M&R’s mining business – contributed. 

‘Not our fault’

The banks are adamant they did not tip the company over the edge, however.

“The sad demise of M&R is not the result of non-supportive lenders but rather can be tracked over the last 10 years with material negative events,” said Standard Bank, when contacted this week.

Standard Bank cited the failed acquisition by the German company Aton – M&R’s board had rejected a takeover offer of R15 a share from Aton in 2018 – as well as the collapse of Clough in Australia as two such examples. “These events left the business without a supportive shareholder base and a growing negative liquidity position that in our opinion could not be traded out of.”

The bank isn’t wrong about Aton. When the German company ditched the offer in 2019, it cited the “continued stance of the independent board of M&R to not co-operate with, or provide its recommendation for the offer” as one of its reasons for withdrawing.

This hostility meant Aton would not support a rights issue, which was one option M&R could have used to raise more funding.

Standard Bank added that M&R had failed to find alternative financing “over an extended period of time”, which meant its decision to put the company into business rescue was “correct”.

Absa, in a terse response to Currency, said it had supported M&R “over an extended period to allow management and the board to find alternative funding solutions”. It said that it has since worked with the business rescue practitioners “to achieve a favourable outcome” for everyone. 

Nedbank, despite not being a secured creditor and standing to lose more than its peers, refused to say anything. It said it was “unable to comment on the basis of client confidentiality”. FirstRand referred the question elsewhere, saying it was “not the lead the bank” so did not lead the discussions. 

Either way, neither FirstRand, Standard Bank nor Absa are set to lose much. “As secured creditors, they would not have lost anything if they’d decided to provide enough working capital to keep the company alive – but they chose not to,” says one insider.

It’s a different story for its staff and M&R’s small creditors like Konig Coffee (owed R12,984), Planet KB Photography (owed R92,820), or Studio Five Graphic Design (owed R652,990). For them, it may be a whole lot more existential.