Pre-emptive interdict against bond call
(Incorporated in the Republic of South Africa)
(Registration number: 1944/018119/06)
Share code: AEG
Share ISIN: ZAE000194940
("Aveng", "the Company")
PRE-EMPTIVE INTERDICT AGAINST BOND CALL
In its 4 February 2019 SENS Announcement the Company noted that:
• the Aveng-Strabag Joint Venture ("ASJV"), which is a joint venture between Aveng and
Strabag International GmbH ("Strabag"), had terminated its contract ("Mtentu Contract") with
the South African National Roads Agency SOC Limited ("SANRAL") for the construction of
the Mtentu Bridge Project ("Project") due to Force Majeure;
• the ASJV had provided 2 bonds ("Contract Securities") to SANRAL in connection with the
Mtentu Contract being:-
o a performance guarantee ("Performance Security") in the amount of approximately
R245 million; and
o a retention money guarantee ("Retention Money Guarantee") in the amount of
approximately R82 million.
• although the Contract Securities are described by SANRAL as "on-demand" bonds,
SANRAL's rights to make a call against the Contract Securities are strictly regulated and
limited in terms of the Mtentu Contract itself; and
• the ASJV was taking steps to protect the position of Aveng and Strabag in connection with the
To this end, the ASJV launched a pre-emptive urgent application in the North Gauteng High Court for
an order preventing SANRAL from making a call on the Contract Securities until the dispute between
the ASJV and SANRAL regarding the termination of the Mtentu Contract has been finally determined.
An interim undertaking to the effect that SANRAL would not make a demand on the Contract
Securities pending judgment in respect of the application was agreed and made an order of the High
Court on 12 February 2019. SANRAL furthermore conceded that any potential call on the Retention
Money Guarantee is limited to a maximum of approximately R22.5 million (thereby protecting a
potential maximum call of approximately R82 million).
The matter was argued in the High Court on 20 February 2019 before Judge Makhubela and
judgment was reserved.
On 22 March 2019 Judge Makhubela dismissed the application with costs. No reasons were provided
by Judge Makhubela when the order was made, noting that the reasoned judgment would be made
available by the end of the day.
The ASJV has provisionally noted its intention to appeal the order which will be supplemented when
the reasoned judgement is made available.
The ASJV maintains that its right to terminate arose after being prevented from executing works on
the Project site by community unrest, protest action and threats of violence against its personnel,
related to community demands made against SANRAL and the ASJV remains confident that its
entitlement and decision to terminate will be vindicated by the facts. Today's order does not change or
affect that and we do not expect the judgment to include any finding on the ASJV's right to terminate
the Mtentu Contract or, for that matter, express any view on the substance of the dispute between
ASJV and SANRAL.
Although successful interdicts on bond calls are very rare, the ASJV nevertheless considered it
prudent to launch the pre-emptive urgent application with a view to obtaining certainty as soon as
possible regarding the protection of its rights in respect of the Contract Securities given that the ASJV
considers a call against the Contract Securities by SANRAL to be likely, albeit not inevitable.
Neither the ASJV nor the issuer, consider the Performance Security to be an "on-demand" bond but
rather of the nature of a surety or accessory obligation, and made their respective positions clear and
reserved their positions in the current application. To this end:
• if a demand is made by SANRAL, the ASJV:
o expects the issuer of the Performance Security to (i) not make payment and (ii)
defend any demand may be made by SANRAL pending the underlying liability (if any)
of the ASJV actually being established; and
o will, if required, participate or institute further proceedings to interdict payment on the
bonds by the guarantor based on the terms of the Contract Securities, and
• Aveng has engaged with and has satisfied its financiers regarding the consequences of a call
In respect of the Retention Money Guarantee:
• SANRAL's concession that any potential call is limited to a maximum of approximately R22.5
million (thereby eliminating the risk of a call to its full face of approximately R82 million)
remains valid; and
• the ASJV considers that the Retention Money Guarantee is in any event specifically linked to
work defects and not for other matters SANRAL may consider give rise to an entitlement.
In anticipation of the order being received and in order to have its dispute with SANRAL resolved as
soon as possible, the ASJV has already commenced formal dispute proceedings against SANRAL.
The Mtentu Contract requires the dispute to be referred to adjudication followed by High Court
proceedings if the matter is not finally determined at adjudication stage.
If SANRAL makes a claim under the Performance Security in the interim, the ASJV is expressly and
comprehensively indemnified for all losses resulting from any claim which SANRAL is not actually
entitled to make under the Mtentu Contract. In terms of the indemnity the ASJV is entitled to recover
not only any amount incorrectly claimed by SANRAL under the Performance Security but also all
resultant damages, losses and expenses (including legal fees and expenses) resulting therefrom. The
ASJV intends to hold SANRAL to this indemnity.
22 March 2019
UBS South Africa Proprietary Limited
Group Executive: Strategy & Investor Relations
Tel: 011 779 2979
Date: 22/03/2019 02:15:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.