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Esor Construction, a subsidiary of Esor [JSE:ESR], has applied for business rescue.
On Monday, it said in a note to shareholders that it was in financial distress and owed creditors about R130m.
The main causes were significant losses incurred on certain construction contracts in the current and prior financial years, the challenging economic environment in the construction sector, and an inability to secure short- and medium-term funding.
Various strategies had been implemented to mitigate the company's negative position, it said.
These included expediting completion of legacy loss-making contracts to minimise further losses; disposing of idle and non-core assets; and renegotiating payment terms with suppliers and subcontractors.
Furthermore, there was the refinancing of selected vehicles and equipment through vendor financing, which had resulted in an inflow of R12.2m in May 2018.
There were negotiations to dispose of certain development land, the company said.
It had also started a process of anticipated retrenchments, in an effort to realign resources to workload.
Despite the above, Esor Construction was advised on August 7, 2018 that a consortium of financiers with whom it had been negotiating were not prepared to make any funding available outside of a formal business rescue process.
The board of Esor Construction said in a statement that it believed a reasonable prospect existed to rescue it from its current financial difficulties.
The board is hoping for a business rescue plan that will increase the likelihood of Esor Construction continuing as a going concern.
Hans Klopper and Dawie van der Merwe of BDO Business Restructuring have been nominated as business rescue practitioners, in line with the Companies Act.
By 4pm the share price of holding company Esor was down 50% at R0.04 per share.
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