Struggling Clough up for sale as problems mount, energy projects face disruption
Clough has put itself up for sale amid deepening financial problems that could disrupt major energy projects, including the federal government’s giant Snowy 2.0 hydro scheme.
Clough has put itself up for sale amid deepening financial problems that could disrupt major energy projects, including the federal government’s giant Snowy 2.0 hydro scheme.
The embattled contractor has opened a dataroom that has attracted a suite of major rivals as it looks for a corporate white knight ahead of a rumoured crunch point in its finances.
Italy’s Webuild – Clough’s joint venture partner on Snowy 2.0 – is the only company remaining in the early negotiations to buy the West Australian contractor, sources told The Australian.
Webuild has been given an October 21 deadline to submit a letter of intent, should it choose to explore a buyout of its partner.
A second Italian engineering firm, Saipem, has also held talks over the Clough sale, while the Perth-based NRW Holdings considered a potential buyout.
Clough chief executive Peter Bennett had discussed the sale internally and held initial discussions with all three companies, the sources said.
The decision by Clough and its parent company, South Africa’s Murray & Roberts, to pursue a deal may have been forced partly by mounting financial difficulties, with a string of problems at big projects piling pressure on its balance sheet. Clough has endured widespread problems in paying subcontractors and suppliers this year, sparking speculation the company would soon be tipped into voluntary administration unless its parent company was able to inject more funds.
An extra $50m from its owner was due to be sunk into Clough by the end of 2022, helping ease a cash crunch, Mr Bennett told The Australian in early September.
Clough declined to comment. Webuild, formerly known as Salini Impregilo, did not respond to a request for comment.
Clough’s decision to put itself on the market underscores the growing pressure on contractors in Australia amid soaring material prices and low-ball bidding, exacerbated by disastrous pre-pandemic decisions to strike fixed-price deals on major projects such as Snowy 2.0.
The acquisition of Clough would hand Webuild a multibillion-dollar order book in addition to its own list of high profile projects, including the North East Link in Melbourne, the Perth rail link and the Inland Rail.
It would also give Webuild an entry to Transgrid’s east coast transmission line build-out, with Clough also a joint-venture partner in the $2.4bn EnergyConnect project, as well as WA gas projects and chemicals projects through Beach Energy’s Waitsia project and Perdaman’s Pilbara urea plant.
Clough also has a North American gas and chemical business.
But the move would also significantly raise the stakes for Webuild to deliver on several critical energy projects, amid fears delays in executing the Snowy 2.0 expansion may derail an already shaky power grid.
The highest-profile development, Snowy 2.0, has seen Clough and Webuild’s Future Generation joint venture saddled with an extra $2.2bn in cost overruns, as The Australian revealed in August, due to Covid-19 and supply chain problems, threatening the profitability of the scheme and causing an 18-month delay.
Mr Bennett defended the cost overruns and disagreed with the government’s forecast of a 18-month delay, saying it was working to fast-track elements of the giant hydro development. But progress was again disrupted in late September when one of the joint venture’s giant tunnel boring machines became stuck.
A wave of executive departures and complaints from subcontractors about unpaid bills have increased pressure on Clough, one of Australia’s oldest civil construction companies.
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.
In addition to Snowy 2.0, Clough is a partner with Elecnor in a $1.5bn contract to build Transgrid’s EnergyConnect project, designed to provide a link between the South Australian and NSW energy grids and open the National Electricity Market to new sources of renewable power.
EnergyConnect is already delayed by up to a year. Combined with the Snowy 2.0 delay, this has led to warnings that Australia faces a rising risk of blackouts over the next few years.
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.
Mr Bennett told staff in July the company remained debt-free and was expected to book earnings of about $35m for the 2022 financial year.
Clough does not have any existing working capital facilities in place and is negotiating with two banks to finalise term sheets given looming requirements for several of its projects, Murray & Roberts disclosed in September.
Murray & Roberts said while there were no loss-making projects in the Clough portfolio, the impact from supply chain disruption and escalating inflation was evident.
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 the Perdaman urea plant in the Pilbara. Industry sources say Clough was counting on up to $250m in revenue from the project this year.
Meanwhile, Transgrid has announced plans to bundle together its work on three major transmission projects – EnergyConnect, the VNI West interconnector between Victoria and NSW, and the Humelink in NSW – in an effort to accelerate their delivery and cut construction costs.
