Don't Chase Bad Business

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In business you need to tread carefully as not everything is as it seems. Integrity and trust is something that is lacking and has been for some time in normal business deals. We had a client who tried to use us recently to cover their losses which we saw through their obvious deceitful plan. Others may have jumped at the business opportunity and I know many would have. We refuse to chase bad business and why we know the clients we are dealing with.

The last couple of year have been tough on most businesses big and small as only businesses with online reaches have been more immune. I was looking through the company liquidation list today and one really big company jumped out namely Group 5. They are a construction company well know throughout Africa that was formed back in 1974 comprising 5 companies.

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Group 5 has benefitted from Government contracts namely the FIFA football stadiums that were built back in 2009/9 for the 2010 World Cup. They had a really good name in the construction industry throughout Africa and the Middle East including being involved in certain projects in Europe. Group 5 was part of a team of companies that built the Dubai Airport.

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One of their biggest booms was shopping centers back in the 80's and 90's which have suddenly become white elephants so that side of the business will dry up. I was reading up how such a big company could trip up as they have been profitable for decades. Surely the last 2 years could not just be it as there had to be something else far more sinister than Covid in their books.

One has to always remember keeping in mind the projects they are involved with normally take multiple years to complete so having cash reserves is an important criteria to stay liquid. We saw what happened with the Chinese building industry with a massive melt down due to companies over leveraging and having nothing of real value reflecting a risky business practice that was doomed to failure.

The answer lies within one project the company took on in Ghana namely the Kpone Power Plant project. Every project undertaken has risks and penalties for late delivery. The Kpone Power Plant was due for delivery back in September 2017 and for multiple reasons was never on track. Things got so bad the contract was terminated back in 2018 with the project over 90% complete and one wonders if the company was set up from the start.

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The Ghanaian Company that ended Group 5.

The power plant had 3 different fuels specified to run the plant and by the end of the scheduled delivery date only 2 fuel systems were in place as the specifications had kept changing. The other disputed issue is the contract clearly stated the Ghanaian owners were to supply the fuel for testing which never materialized. Building the impossible within deadlines sounds more like a rug pull by the client and Group 5 was never meant to complete this project in time.

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What is ironic is the power plant is fully operational (2019) but the company that built it is not.
Group 5 took out massive contingency loans to cover themselves from the loss of earnings which is in some ways similar to the Chinese companies. They were leveraging against what the company had on it's books but were only digging themselves a deeper hole to climb out of.

Group 5 has been liquidated after a painful 2 years in business rescue which only resulted in the selling of various key businesses within the Group 5 umbrella. The story is vastly different to the Chinese but the outcome is going to be the same which only shows the bigger you are the harder you fall. Group 5 has been around for nearly 50 years and one client turned out to be a bad apple. Choosing who your clients are is as important if not more than the project itself as chasing bad business is not good for anyone involved.

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