SAA to meet banks on Tuesday to negotiate refinancing
The banks have, in principle, agreed to extend loan terms, South African Airways CEO Vuyani Jarana says
South African Airways (SAA) will meet a group of domestic lenders on Tuesday to negotiate the refinancing of about R6bn in outstanding loans, according to its new CEO.
The banks have, in principle, agreed to extend the loan terms, Vuyani Jarana, who took the helm at the loss-making airline on November 1, said during an interview on Monday. The group is led by Nedbank and includes FirstRand, Standard Bank, Barclays Africa and Investec.
"We are meeting the banks to discuss the roll-over of the loans that have expired and to extend the expiry dates," Jarana said. "That will give us the going-concern status that will enable us to renegotiate longer-term contracts." The government has transferred more than R5bn rand to the airline in 2017 to avoid it defaulting on debt owed to Citigroup and Standard Chartered after the lenders refused to extend the terms of the loans.
Given the current outlook of SA, it’s probably going to be harder for any state-owned enterprise to be able to successfully issue bonds and raise capital.Vuyani Jarana, SAA CEO
SAA is one of several cash-strapped state-owned companies that the government has extended bailouts to, and it has a R19.1bn state-guarantee facility, a safety net that is effectively keeping it solvent after six consecutive unprofitable years.
"The meeting is critical," Jarana said. "We are hoping for an extension of about 12 months or so, that’s the minimum." The rise in government guarantees to state-owned companies is a risk to state finances, Moody’s Investors Service said on October 30.
S&P Global Ratings and Fitch Ratings cut their assessments of the nation’s foreign-currency debt to junk in April, citing political uncertainty and concerns about economic growth, after President Jacob Zuma removed Pravin Gordhan as finance minister.
SAA, which doesn’t have any bonds, has no plans to enter the debt market, Jarana said.
"Given the current outlook of SA, it’s probably going to be harder for any state-owned enterprise to be able to successfully issue bonds and raise capital," Jarana said. "I think its probably going to be on the backburner. If you are in a weak position like we are in, very vulnerable, very few people will trust you in that fashion. So what is important is to execute on the turnaround plan, bring SAA back to a position of strength." Jarana, a former executive at Vodacom, is SAA’s first permanent head since 2015. The airline has hired a restructuring expert in Peter Davies and the government, its sole shareholder, has overhauled the board, appointing JB Magwaza as chairperson in the place of Dudu Myeni, who is friends with Zuma and leads his charitable foundation.
Lenders had demanded the removal of Myeni, Business Day newspaper reported in October.