Denel expecting government assistance later this year

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Denel expects to receive government support in the third quarter of this year as ministers are satisfied with progress in its turnaround plan, the state-owned group said on Friday, adding it saw potential to cut more costs.

Denel last month asked for a R2.8 billion cash injection to help it emerge from a financial crisis.

Denel said it was talking to the Department of Public Enterprises (DPE) and the National Treasury (NT) about the turnaround process and was in discussions about details of the state support and its conditions.

“The DPE and the NT have indicated that they are satisfied with the progress Denel has made on the recapitalisation conditions and the recapitalisation is expected during the third quarter of the year,” Denel said in a statement.

The statement contained no details on the size of any cash injection.

“The Ministry of Public Enterprises has full confidence in the ability of the Denel board, its CEO and its management team to return the company to operational and financial sustainability and ultimately, profitability,” Adrian Lackay, spokesman for the department, said.

“Continued fiscal support for state-owned entities like Denel will depend on their ability to show how this will be effected.”

Under its turnaround plan, Denel will exit some loss-making businesses and forge partnerships to bolster others.

It has rebuffed an approach by Saudi Arabia’s SAMI to take a stake in the firm, but has said it could work with SAMI on other partnerships without giving up equity or intellectual property rights.

Denel said it could generate R2 billion from joint venture partnerships, and said it had received about 40 expressions of interest to enter into partnerships or acquire parts of its business.

It added it saw potential to cut costs by a further R500 million.

“Denel’s liquidity issues are short-term and the company is expected to generate positive cash flows within the next 12 months,” the company said.

Denel’s liquidity problems have included struggling to pay full salaries and staff benefits, including pension contributions. Trade union solidarity has expressed concern that Denel deducted taxes, retirement fund contributions, unemployment insurance and skills levies from its employees but failed to pay the funds over to relevant bodies.

As part of its turnaround, Denel is targeting former employees and officials who contributed to damaging the loss-making company. Board member Talib Sadik said Denel is targeting Gupta associate Salim Essa and other individuals. Essa was the sole shareholder of VR Laser Asia, which Denel attempted to use to establish Denel Asia without proper processes being followed.



Among those who allegedly benefited from the misuse of funds is the son of former North West Premier, Supra Mahumapelo, who received a bursary for pilot training from Denel. Sadik said Denel was looking at recovering R2.6 million from the bursary programme.