Denel not planning to seek further bailouts

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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 on Thursday.

Denels 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 R1.7 billion 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 R1.8 billion from the state in 2019 and in this year’s budget was promised another R576 million, 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 R2.6 billion 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.

Sadik, speaking to EWN, said a number of factors resulted in the destruction of Denel. “We moved away from being a producer back to being a design and development organisation, we changed the operating model back to being a centralised operating model, our programme risk management has failed, and then most importantly recently we’ve had the issue of corruption, we’ve had the formation of Denel Asia which we are in the final stages of liquidating, there were also supply chain irregularities and as a result of these things we’ve had good quality people leave the organisation.”

He said the liquidation of Denel Asia is progressing with authorities in Hong Kong and Denel has been granted provisional liquidation status for Denel Asia.

Denel has for some time struggled to pay salaries, but Sadik told EWN that the company has paid employees from May onwards, although only 25% received full pay and the rest a portion (60-70%) of their normal salaries. “During the lockdown, which has impacted us, we’ve been operating at about 30% but we’ve weakened ourselves to give salaries,” Sadik said, adding that Denel did not retrench anyone or make them work without pay. It’s not a great situation, Sadik said, as “people are our key resources.”

Looking at the future, Sadik said there is no need to look at business rescue for Denel and the board has a number of plans in place to turn the company around, including improving programme management performance, partnerships to develop international market access and engagement with the Department of Defence.



“We are confident in the future of Denel, but it’s important our stakeholders work with us. We all need to work together to make this back into a respected company.”