Cape Town - State-owned arms company Denel will not be able to continue carrying out its mandate unless it gets a bailout from the Treasury, Defence Minister Nosiviwe Mapisa-Nqakula has said.
Denel, which made a loss of R1.7billion in the 2019/20 financial year, is suffering a liquidity crisis, aggravated by the Covid-19 pandemic, and has been struggling to pay salaries for months.
In reply to a question from DA defence spokesperson Kobus Marais, Mapisa-Nqakula said the lack of a significant bailout posed a risk to the company meeting its contractual obligations to Armscor, and it might collapse entirely.
Mapisa-Nqakula’s statement is in contrast to a statement by Denel interim chief executive Talib Sadik who, when asked whether Denel would approach the government for further bailouts, said: “At this stage it is not in our plan.”
However, in July, Sadik’s predecessor, Danie du Toit, who resigned suddenly last month, said in an interview: “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.”
Du Toit was referring to the R1.8bn bailout from the state in 2019 and the fact that in this year’s Budget, the firm was promised another R500million, which it is receiving in instalments. At the time, however, the Treasury said it could not amend Denel’s bailout terms before the October Budget.
Meanwhile, credit rating agency Fitch has downgraded Denel in a move it said reflected Denel’s severely strained liquidity position and the absence of timely government support.
In a statement, Fitch said: “The limited operating capacity, together with continuing management volatility raises the prospect of inability to implement the restructuring and turnaround strategy as previously agreed with the state and Denel’s line ministry, the Department of Public Enterprises.”
Spokesperson for trade union the United Association of SA (Uasa) Stanford Mazhindu said while the downgrade was disappointing, it did not come as a surprise.
“Uasa regrets that the situation at Denel has reached this point after we took the company to court in a bid to get the company to pay its employees’ salaries.
"Their failure to do so in spite of a court order made clear how much the company has deteriorated,” said Mazhindu.
“The sad part is that it’s been allowed to get to this point.
"Sadly, South Africans cannot afford any more bailouts. The country is at a low point after the devastation of the Covid-19 global pandemic and years of corruption.”
Parliament’s standing committee on appropriations said this week it would engage with several state-owned companies on the challenges that continued to impede their viability, and their continuous requests for bailouts.
Committee chairperson Sfiso Buthelezi, said: “There is nothing more depressing than being told that the undertakings made by state-owned companies are not being followed through. This is a gross dereliction of duty.”
Cape Argus