Baran Group (TASE: BRAN; Nasdaq: BRANF) has unexpectedly announced the cancelation of a NIS 780 million project in Russia that was expected to generate a NIS 78 million profit for the company. The Baran share price plunged 18% on the news. The Baran share has lost 40% of its value over the past three years, following the company's heavy losses, mainly in Israel (on discontinued or canceled projects), South America, and Germany.
In its first quarter financial reports, Baran stated that it had discontinued its business in several South American countries, and was likely to discontinue its activity in an additional country during the year. This has now occurred.
In February, Baran announced that it had signed an agreement to set up an industrial plant in central Russia through its ICM subsidiary. The project, in which ICM would have been the chief contractors, was the subsidiary's largest since it was founded. The plant, designed for producing cardboard, is located 1,200 kilometers east of Moscow.
Baran was to have been paid according to milestones at a price set in Russian rubles. Investment in the project was estimated at NIS 1.6 billion (more than 25 billion Russian rubles). Work on the project was scheduled to begin immediately, and was planned to continue until the end of July 2019. Baran stated at the time that payments to the company while the projected was under construction would amount to over 90% of the proceeds, while the remaining 7.5% was to have been paid when the project was completed.
The agreement between the parties stated, "Customary mechanisms have been set for agreed compensation in the event of delays in carrying out the project, with liability for direct damage being limited to up to 12% of the proceeds from the project." The part ordering the project had the option to discontinue Baran's work at any time, "subject to payment in respect of the work performed." The company said that the announcement that the project had been discontinued came to it as a complete surprise.
Published by Globes [online], Israel Business News - www.globes-online.com - on June 11, 2017
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