Treasury takes hard look at SA Express, Denel, SABC

By Dineo Faku Time of article published Feb 27, 2020

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South African Express

THE NATIONAL Treasury said the government needed to assess its appetite for continuing ownership of South African Express as the airline was illiquid and insolvent, unable to settle either short- or long-term obligations as they become due. The Treasury said cumulative losses for the airline amounted to R1.2 billion over the past decade. It said the government planned to appeal the recent placing of the airline under involuntary business rescue. “The government will need to assess its appetite for continued ownership of the carrier, given that it has a limited role in the local aviation market,” it said.

Denel

The Treasury also said there was a need for the government to define the role of Denel, in the modern defence industry. The state-owned military and aerospace equipment manufacturer is facing serious liquidity problems. It said the government provided Denel with a R1.8bn injection to address its liquidity crunch and state guarantees amounting to R6.9bn.

The Treasury said it would allocate R576 million to Denel for 2020/21, with conditions that emphasise the need for it to speedily implement its turnaround plan. It said that the plan included exploring private-sector participation, optimising its property and plant, and developing an appropriate funding model.  Under Denel’s turnaround strategy the company is exiting non-core areas of activity, divesting from non-viable core business areas and focusing on viable core business activities to return to profitability.

Denel made a R1.7 billion loss in the 2017/18 financial year. Last year, Denel faced a liquidity crisis which saw it battle to pay its 3 500 employees.
Fitch this month affirmed the state-owned industrial group’s long-term and short-term ratings and said it expected the group to return to profitability from the 2023 financial year. Fitch said the rating actions reflected the support provided to the group by the South African government, in particular a R1.8bn equity injection to recapitalise the business.
“The group has finalised appointments to the board and its key executives, who have been instrumental in introducing a restructuring plan and agreeing a strategic corporate plan with the state and Denel’s line ministry, the Department of Public Enterprises,” Fitch said.

Fitch also noted that the operating structure remained underutilised and would take time to resume normal levels of operations. “This is in part due to continuing liquidity constraints, which although improved will require resumption of normalised operating levels in the absence of major disposals or additional contributions to recover,” it said.

SABC

The Treasury said the government also allocated the troubled state broadcaster, the SABC, R3.2bn for 2019/20, of which R2.1bn had been transferred to enable it to pay its bills.
But it said it would impose conditions, including the reviewing of policies, the developmental mandate and evaluating opportunities for private-sector participation.

The SABC’s annual report last year showed that the broadcaster incurred irregular expenditure of R5.2bn, up from R4.9bn the previous year.

BUSINESS REPORT

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