South Africa’s Denel not planning to seek further bailouts

JOHANNESBURG (Reuters) – South African state defence firm Denel is not planning to seek new government equity injections despite a liquidity crunch aggravated by the coronavirus crisis, its interim chief executive told Reuters.

Denel, which makes military equipment for South Africa’s armed forces and clients around the world, is one of several troubled state-owned companies in the country that have been kept afloat by government bailouts in recent years.

It has struggled to pay salaries this year amid export restrictions and declining revenue. Last week the government said Denel made a 1.7 billion rand ($100 million) loss in the 2019/20 financial year.

“At this stage it is not in our plan,” Talib Sadik said in an interview, when asked whether Denel would approach the government for further bailouts. “Our view is that we also need to fix our own house, because what we have is a bit of moral hazard happening.”

Sadik became interim CEO this month after his predecessor Danie du Toit resigned, without giving reasons.

Du Toit had told Reuters in a July interview that Denel’s survival could be at stake if conditions attached to an earlier bailout – which was earmarked to pay down government-guaranteed debt – were not eased.

Denel received 1.8 billion rand from the state in 2019 and in this year’s budget was promised another 576 million rand, which it is receiving in instalments.

Sadik said that although Denel was not asking for more money from taxpayers beyond what was promised in this year’s budget, it was talking to the defence ministry about a retainer to help it maintain some capabilities the government considers strategic.

Denel, which makes equipment ranging from armoured vehicles to attack helicopters and missiles, does not need to enter a local form of bankruptcy protection called “business rescue” despite speculation in local media, he said.

State-owned airline South African Airways entered business rescue last year.

Sadik said Denel had started discussions with the Public Investment Corporation and other bondholders about rolling over more than 2.6 billion rand of debt maturing next month.

“In the past we have successfully rolled over,” he said.

Executives are trying to reach a settlement with labour unions about salary payments owed to some staff and hope to conclude one or two equity partnerships by April next year as part of a turnaround strategy.

($1 = 16.9239 rand)

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