Finance Minister Tito Mboweni has announced that Denel, and other state owned entities, will be recapitalised, with billions in extra funding, but this will come with conditions.
During a Special Appropriations Bill debate in Parliament on Tuesday, Mboweni said once the bill had been passed, the contingency reserve account would be used to provide support to the SABC, Denel, Eskom and South African Airways (SAA).
“We would not just make that available tomorrow, it would be a mistake but we will release in chunks as certain conditions precedent are met, to make sure there’s progress in improving the organisation,” Mboweni said, adding that chief restructuring officers for each entity would be announced to work with the management of the SABC, SAA and Denel to get them back on track.
The contingency reserve was increased by R6 billion to R13 billion in the February budget so government could respond to requests for fiscal support from state owned entities.
Denel has asked the government for a R2.8 billion cash injection to help it emerge from a financial crisis and secure lucrative export deals, its chief executive Danie du Toit said earlier this month. The bailout would help Denel win billions of Rands worth of contracts over the next two years. The company has an order pipeline of R30 billion.
Du Toit said he hoped the cash injection would be announced this month with the first funds arriving in September or October.
Denel said it welcomed Mboweni’s announcements on restructuring and was confident that long-term solutions for its financial predicament will be found.
“We welcome Minister Mboweni’s commitment to the recapitalisation of Denel and the imminent appointment of a chief restructuring officer,” du Toit said on Wednesday.
“These steps will contribute greatly to the financial turnaround of the company and the restructuring of our business which has been initiated by our new Board.”
Du Toit also confirmed that Denel has successfully secured July salary payments for employees following earlier concerns that salaries might not be paid out in full at the end of this month.
“The continued commitment of employees to Denel is highly appreciated and supports the wider efforts to turn the company around,” he said.
“Denel is working hard to achieve the conditions that will accompany recapitalisation. It remains aligned with the 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,” Denel said in a statement.
“While we apologise to Denel employees and their families for the stress caused by the current uncertainties, we are also strengthened by the commitment to support each other and defend the best interests of Denel,” said Du Toit.
Denel, which made a loss of R1.7 billion in the previous financial year, struggled to pay its staff their full June salaries and pension contributions, with a commercial bank coming to the rescue.