Denel to seek extension of government guarantee plus extra


The recently appointed board of Denel initiated wide-ranging steps to combat corruption, strengthen governance, investigate dubious transactions and restore the organisation’s reputation and credibility.

Acting Denel Group chief executive, Mike Kgobe, told Parliament’s Portfolio Committee on Public Enterprises today (Wednesday August 29), a new governance turnaround plan was in place to rebuild stakeholder credibility, instil an ethical governance culture and restore Denel as a national asset and industry leader.

The new board was appointed in April with a mandate to root out corruption, return the business to profitability and rebuild the reputation of the defence and technology company.

A revised corporate plan was presented to the Department of Public Enterprises and the process to appoint a new, permanent chief executive officer is underway.

Kgobe told the parliamentary committee “Denel suffered serious reputational damage, lost credibility and the support of stakeholders” following reports of lapses in governance and increased irregular expenditure. Denel was implicated in the Public Protector’s “State of Capture Report” and evidence of dubious and loss-making contracts were exposed.

This contributed to a situation where the company was forced to repay loans at an accelerated rate and funding institutions were unwilling to extend credit facilities. This led to a liquidity crisis which impacted materially on operations and led to delays on key contracts.

A board priority is to normalise the company’s capital structure and inject sufficient liquidity. It has requested government to extend its current guarantee of R3.3bn when it expires at the end of September and provide an additional R1bn guarantee to pay creditors and unlock operations.

Management has identified irregular expenditure of more than R315 million for the past two financial years. Further irregularities to the value of R1,3 billion are being investigated.

A panel of forensic investigators will soon be appointed to probe procurement irregularities while a process is underway to unwind Denel Asia, the company that featured prominently in the Public Protector’s report.

Senior executives at Denel will undergo lifestyle audits and irregular appointments of employees and business partners are being investigated. Steps are being taken to strengthen processes for whistle blowing and a comprehensive campaign will be launched to make employees aware of the need to comply with policy and regulatory requirements.

Denel board chair Monhla Hlahla led the delegation at the portfolio committee presentation.