Denel says it expects govt recapitalisation in Q3 to mitigate liquidity challenges
JOHANNESBURG - State-owned arms maker Denel said on Friday it was expecting recapitalisation during the third quarter of the year following ongoing discussions with the Department of Public Enterprises and the National Treasury.
During the 2019 Appropriations Bill debate last week, finance minister Tito Mboweni announced the commitment to recapitalise Denel as it tries to mitigate its liquidity challenges.
The cash-strapped entity applied for recapitalisation which was provided for in the contingency reserve in the February 2019 budget vote.
Denel has been struggling to pay a certain portion of its employees' salaries for June and July as maladministration and corruption left its balance sheet in the red.
The company has since initiated several forensic investigations into alleged fraud and misappropriation of funds conducted by its previous management, and this will soon result in legal action to recover losses.
Denel said the recapitalisation will result in returns on investments and grow its cash generation potential.
The company maintained that its liquidity issues were short-term and it was expected to generate positive cash flows within the next 12 months. In the interim, Denel is being supported with liquidity by a group of lenders.
Meanwhile, Denel said the implementation of its turnaround plan was in full steam and was achieving positive milestones, which include the concurrent efforts to restructure the business, restore corporate governance and reduce operating costs.
It said that its restructuring has already led to a reduction of R500 million in operating costs and savings of more than R15 million at Denel’s corporate office.
The company said there was a strong potential to reduce an additional R500 million in costs from other business activities such as the supply chain processes.
"Denel is aligned with shareholder’s expectations that it disposes of non-core assets on an urgent basis and establishes strategic equity partnerships across the various divisions of the company," it said.
"It is anticipated that cash to the value of R2 billion will be generated from strategic equity partnership activities. Denel has received about 40 expressions of interest from local and international companies to enter into partnerships and/ or acquire parts of its business."
Denel said it was continuing to receive support from local customers such as the SA National Defence Force and the SA Police Service.
African News Agency (ANA)