Diversified arms maker: A mechanic works on an Oryx helicopter engine in a workshop hangar on the Denel Aviation site in Boksburg. Closing Denel would be catastrophic, the writer says. Picture: KEVIN SUTHERLAND
Diversified arms maker: A mechanic works on an Oryx helicopter engine in a workshop hangar on the Denel Aviation site in Boksburg. Closing Denel would be catastrophic, the writer says. Picture: KEVIN SUTHERLAND

Cash-strapped arms manufacturer Denel has not received the additional R1bn guarantee it has requested from the government, a move that could have serious implications for its cash flow.

Denel, which has government-guaranteed debt of R2.7bn, had asked for a further guarantee and a cash injection to recapitalise the business.

It did not disclose the size of the requested cash assistance.

The state-owned arms manufacturer, which along with other state-owned enterprises has been weighed down by allegations of mismanagement and corruption, slipped into such a severe financial crisis that in December it needed a government guarantee to be able to pay its workers and suppliers.

Public enterprises minister Pravin Gordhan overhauled the entire Denel board in April 2018, saying the change was the first step the government was taking to restore good corporate governance at the entity.

The company on Tuesday confirmed that it had not, at the moment, received a further guarantee from the government and said the recapitalisation was still under consideration and that Denel would know during the medium-term budget policy statement to be tabled in parliament on October 24 whether it would receive this.

Denel said it was faced with a number of challenges, which included a weak balance sheet, an unaffordable cost structure and an unsustainable creditors backlog, which had affected the operations negatively.

All of these combined had curtailed its ability to generate revenue, it said.

"What is clear is that the business cannot continue with these challenges without a significant intervention to keep the business afloat. We have discussed these matters with both members of our board, who have been very supportive in resolving the said challenges, as well as the shareholder."

Rapport newspaper at the weekend reported that Denel’s expected loss for the 2017/2018 year was R1.8bn.

During his announcement on the stimulus package last week, President Cyril Ramaphosa said the government had limited fiscal space to increase spending or borrowing. He said it was imperative that the government make sure that the resources that it did have were used to the greatest effect.

Denel is one of the state-owned entities, including SAA and SA Express, which are yet to finalise their annual reports five months after the end of the financial year.

Finance minister Nhlanhla Nene is expected to provide details of a funding package for state companies in his mid-term budget speech.

quintalg@businesslive.co.za