Clough in talks with Snowy Hydro and two banks to maintain liquidity
West Australia’s Clough, the building giant behind projects such as the Snowy 2.0 expansion, has no working capital, says its South African parent.
The West Australian contractor building Snowy 2.0 and the EnergyConnect transmission line has revealed it is in the “ludicrous” position of holding no working capital – and is locked in talks with Snowy Hydro over delays and cost blowouts on the project.
Clough does not have any existing working capital facilities in place and is negotiating with two banks to finalise term sheets given looming cost requirements for several of its large projects, its South African owner, Murray & Roberts, disclosed.
“Clough as an entity, with that enormous order book, can you believe it have got zero working capital facilities,” Murray & Roberts financial director Daniel Grobler said on a call with analysts. “It’s ludicrous for Clough to not have anything in place.”
Clough’s financial health has come under the spotlight after reports in The Australian revealed its joint venture had filed $2.2bn of additional payment claims against Snowy Hydro for work on Snowy 2.0, blaming the cost hike on the pandemic and a surge in material prices.
A wave of executive departures and complaints from subcontractors about unpaid bills had added pressure on one of Australia’s oldest civil construction companies.
Clough chief executive Peter Bennett denied the company was in any dispute over the hydro expansion project but said it was talking to Snowy about working through a series of cost and deadline pressures.
Snowy’s chief executive, Paul Broad, quit a week ago, adding to tensions.
“Despite what you might read in the press, we‘re not in dispute,” Mr Bennett said.
“We have a pretty collaborative approach to talk about how do we mitigate the impacts both in terms of time and cost as we look to the next few years of project execution. So we’re working very collaboratively with that client. The project is really starting to perform quite well now.”
Clough’s parent pointed to a string of commercial issues with clients that require resolution which had led to a more than doubling of its so-called uncertified revenue to 2.9bn rand ($247m). The increase was attributed to the energy, resources and infrastructure unit which Murray & Roberts said would be certified and paid once “attendant commercial matters have been resolved”.
Murray & Roberts said its group gearing was acceptable but that its growth trajectory would bring about increased levels of working capital and potential liquidity pressure.
Clough’s contract with Snowy Hydro was signed on a fixed-cost basis, known as lump-sum turnkey, and the company’s chief said it would be working to lower its risk with a greater degree of cost-reimbursable deals in the future.
“The growth of the businesses does have a challenge that comes with it and that is with capital requirements and indeed the bonding capacity,” Mr Bennett said.
“Both of those things really make us focus very clearly on the business. We’ve got a lot of lump-sum work in the portfolio and we’re looking to add more reimbursable unit rate-type work with lower bonding and working capital requirements. So that’s really helping us focus in terms of how we balance our risk in the portfolio,” Mr Bennett said.
Murray & Roberts said while there were no loss-making projects in the Clough portfolio, the impact from supply chain disruption and escalating inflation was most evident in the division.
“The unprecedented challenges apparent in today’s commercial environment has placed increasing pressure on the Group’s working capital requirements, however, project plans and cashflows are regularly reviewed and updated to ensure potential risks are identified early,” Murray & Roberts said.
Clough is locked in a $106m legal dispute with Rio Tinto after another joint venture, with Acciona, was terminated from a rail construction job in the Pilbara region of Western Australia. Clough also faces the prospect of significant delays to a $US2.7bn ($3.9bn) contract held in a joint venture with Saipem, to design and build a Perdaman Chemicals urea plant in the Pilbara.
Industry sources say Clough was counting on up to $250m in revenue from the project flowing into its books in the current year.
Mr Bennett said progress on Snowy 2.0 had picked up after a tough period with bushfires and the Covid-19 pandemic.
“The project has endured everything from bushfires through to the pandemic to get where we are today. The project has all three of its tunnel boring machines in operation, precast segment factories is operating at full capacity and building all the elements to line the tunnels. And also we‘re about to start work on the excavation of the main underground powerhouse,” he said.
Clough’s operating profit rose to 406m rand while its order book was steady at 37.2bn rand.
The contractor’s situation is understood to be the subject of close monitoring within the energy industry, given Clough’s role in not only the Snowy Hydro project but other politically sensitive energy projects.
Clough is also a joint venture partner with Elecnor in a $1.5bn contract for the engineering, procurement and construction of Transgrid’s EnergyConnect project, designed to provide a link between the South Australian and NSW energy grids and open up the National Energy Market to new sources of renewable power.
Clough’s 2021 financial accounts, filed with the corporate regulator last year, show the company made a $20.8m net profit and held cash of $246.3m.
