Denel CE Zwelakhe Ntshepe is being blamed for the cash crisis at the arms manufacturer, along with chief financial officer Odwa Mhlwana. Denel CEO. Pic: Martin Rhodes.  Business Day Picture: MARTIN RHODES
Denel CE Zwelakhe Ntshepe is being blamed for the cash crisis at the arms manufacturer, along with chief financial officer Odwa Mhlwana. Denel CEO. Pic: Martin Rhodes. Business Day Picture: MARTIN RHODES

Large bonuses and raises for executives, reputational damage from an aborted partnership with the Guptas and lenders refusing to refinance debt unless a new board is chosen are being blamed for Denel running out of cash to pay staff and suppliers.

Spokeswoman Pam Malinda confirmed Denel was "experiencing severe liquidity challenges" that were affecting payments but gave no reasons.

She said Denel was locked in talks with the Treasury on Thursday and was expected to announce the outcome to staff on Friday.

Treasury officials said in October Denel risked defaulting on its entire R1.85bn government-guaranteed debt, which expires in September 2018.

Lenders had refused to refinance the debt due to concerns about corruption and corporate governance failures. They had warned the Treasury that unless Denel appointed a fit and proper board by the end of December, the arms maker’s lending facilities would be withdrawn.

The board members, in particular chairman Dan Mantsha, repeatedly tried to further business interests of the Guptas and their close associate Salim Essa.

Trade union Uasa said a ballooning salary bill at the corporate division and large bonuses paid to CE Zwelakhe Ntshepe and chief financial officer Odwa Mhlwana had contributed to the cash crunch.

Denel sources have said that Mhlwana accepted a five-year fixed-term contract in August on condition he was paid a R2.5m performance bonus.

Denel has not commented on the matter, but its financial statements for the year to March show Mhlwana was its top salary and bonus earner.

From 2016 to 2017 his annual salary package jumped from R1.9m to R3.8m, compared with an increase from R2.8m to R3m for Ntshepe. In the same year Mhlwana was also paid a "short-term incentive" of R1.7m, bringing the total to R5.5m.

Denel said in August its order book had shrunk from more than R30bn to R18bn, net profit was down from R395m to R333m and revenue down from R8.2bn to R8bn.

Denel conceded its bungled partnership with Gupta-linked VR Laser Asia, which it cancelled because it was causing "reputational damage", had cost the company dearly by delaying its critically needed re-entry into the Asia Pacific market by more than a year.

Denel had identified concrete opportunities for selling artillery, armoured vehicles, missiles and drones to India alone worth R100bn after being blacklisted for a decade following a kickbacks scandal in 2005. But the Treasury had refused to approve Denel’s plans to grant a joint venture secretly controlled by the Guptas exclusive rights to pursue these arms deal opportunities. Selling arms at preferential terms to the Gupta joint venture was "not in the best interests" of Denel or the government, the Treasury said.

stephanh@businesslive.co.za

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