National Treasury has allocated Denel R2.9 billion in order for it to pay its government guaranteed debt, and this will save Denel R250 million a year in interest payments.
This is according to Minister of Public Enterprises Pravin Gordhan, who was answering a parliamentary question in November that was posed by the Economic Freedom Fighters’ Omphile Mankoba Confidence Maotwe.
“The National Treasury has agreed to settle Denel’s government guaranteed debt, which will save the entity approximately R250 million in interest payment annually,” Gordhan stated.
He added that the Department of Public Enterprises is supporting Denel’s new operating model which is aimed at stabilising operations and cost structure.
In response to Maotwe’s question of what measures will be taken to remedy the situation at Denel where employees have been either paid a fraction of their salaries or nothing at all since May 2020, Gordhan stated that “plans are under considerations to raise the required funding to address both operational requirements and legacy obligations, which includes salaries.”
Amongst others, Denel has identified assets and other investment assets for disposal to raise funding to raise part of the obligations and to increase operational activities, which is key to the SOC generating the minimum required cash flows, Gordhan responded. “However, this process will take some time, none the less, we remain committed to do the best for all employees as soon as possible.”
Finance Minister Enoch Godongwana announced that Denel would be getting an extra R2.9 billion in the 2021 Medium Term Budget, to cover debt, during his medium-term budget policy statement (MTBPS) on 11 November.
He pledged ‘tough love’ for state-owned entities (SOEs) including Denel. In the policy statement, Godongwana noted that “Denel is experiencing difficulties in meeting its obligations and is negotiating with stakeholders on a way forward. Government provided recapitalisations of R1.8 billion in 2019/20 and R576 million in 2020/21, and extended a R5.9 billion guaranteed debt facility to Denel. Several repayment obligations have fallen due this year. Government has allocated R2.9 billion in 2021/22 to settle these repayments.”
It is not clear how the bailout will affect Denel’s outstanding debts to suppliers and staff, who are respectively owed R900 million and R650 million. Many staff have not been paid since May last year, while operational activities are significantly below capacity at 20-30% in most divisions. Revenue is 60% behind the year-to-date budget, the Department of Public Enterprises (DPE) revealed last month.
The DPE said that although Denel has an order book of around R11 billion, liquidity constraints are hampering the translation of these opportunities into cash flows. It added that significant numbers of critical and experienced staff have left the company, but “there is still international interest to collaborate with Denel.”
On 14 November, the North Gauteng High Court ordered Denel to pay staff their unpaid salaries, which amounts to more than half a billion rand, including provident funds and medical aids, within ten days.
The National Metalworkers’ Union (Numsa), which represents staff at Denel Dynamics, Denel Land Systems, Denel Pretoria Metal Pressing, Denel Aeronautics and Denel Vehicle Systems, took Denel to court in June over more than a year of unpaid salaries.
Late last month Denel revealed it would be offering voluntary severance packages to qualifying staff in an order to cut employee numbers and reduce costs.