Murray & Roberts of South Africa Mulls U.S. Oil & Gas Deal

Johannesburg, Capital Markets in Africa: Murray & Roberts Holdings Ltd., the South African engineering and construction-projects company in talks to sell its building and infrastructure units, said it’s evaluating a U.S. oil and gas acquisition and will probably seek a larger international deal in years to come.

Murray & Roberts, which built landmarks such as Johannesburg’s Carlton Centre, Africa’s tallest building, is working to transform itself into an international operator specializing in underground mining, oil and gas, and power and water projects. The mining-industry division has units operating in Australia, South Africa, Canada and the U.S., and the next step will be to extend the geographic reach of the oil and gas business, which operates primarily in Australasia, Chief Executive Officer Henry Laas said in an interview on Monday.

“We want to be a lot more active in Indonesia and a lot more active in the U.S. and Canada,’’ Laas, 56, said at Bloomberg’s Johannesburg office. “Those businesses need to grow.’’

The company is doing due diligence on a potential target in the U.S. that would add the ability to construct oil and gas projects in the world’s biggest economy, Laas said. While the value of that transaction won’t be “too material,’’ the company will probably be looking for a larger, international deal in a few years’ time, he said. First it needs to resolve outstanding claims related to its work on the Dubai International airport and the Gautrain rail project linking Johannesburg and Pretoria. It’s hoping to recover at least a combined 1.5 billion rand ($104 million) from the two cases, the CEO said.

The building and infrastructure businesses contribute little to earnings and will probably be sold to a South African black-owned company, Laas said. A change of ownership will increase the units’s opportunities as the government prioritizes the award of contracts to entities controlled by people discriminated against during apartheid, he said.

More than 90 percent of the company’s profit is derived from the oil and gas and underground-mining businesses, the bulk of which is generated outside ofSouth Africa, Laas said. As the company expands internationally, investors are asking whether it makes sense to add a second listing on a stock exchange alongside Johannesburg, he said.

“I think it’s something that will probably happen,’’ Laas said. “If we find a suitable acquisition target, if it is a listed entity maybe that is a catalyst’’ for achieving another listing, he said.

Murray and Roberts shares have gained 56 percent this year in Johannesburg, giving it a market value of 5.5 billion rand ($380 million). The stock declined in both of the previous two years, falling a combined 70 percent over the period. Attributable earnings decreased by 15 percent to 753 million rand in the year through June.

While oil and gas spending is constrained and miners are prioritizing investment at existing projects rather than starting new ones, Murray & Roberts is confident that both businesses will eventually pick up.

“We believe that the long-term demand for energy must increase, energy consumption must go up,’’ Laas said. “Commodities are cyclical and the market will come back.’’

Source: Bloomberg Business News