LOAN FACILITY NEEDED
EXCLUSIVE: Pravin Gordhan in race to secure special credit facility for SOEs
Banks have not yet restored lending to several state-owned enterprises (SOEs), underlining the urgency of talks between the government and financial institutions to establish a loan facility through which credit can be channelled.
The two worst-off SOEs are Denel and SA Express, which raise money month by month to pay salaries and suppliers, public enterprises minister Pravin Gordhan said in a briefing to parliament’s public enterprises committee on Wednesday.
SAA is projected to run out of working capital by October.
"Denel has a liquidity squeeze and the board and management must scramble around for funds at the beginning of each month so that at the end of it they can pay salaries," he said.
Denel owes R1.1bn to creditors and "is caught in a vicious cycle in which it can’t pay suppliers and so can’t manufacture to get revenue".
"It received assistance from government of R580m earlier this year," Gordhan said.
SA Express, which is expected to resume two flights a week from next week, is also under extreme pressure.
"SA Express also faces liquidity challenges and despite the fact that we have a R1.74bn guarantee from government, there are challenges paying salaries and for parts," he said.
The minister did not report on the state of SAA, which was returned to the department of public enterprises only last week.
In April, SAA secured R5bn in bridging finance from the Treasury, intended to tide it over until the medium-term budget policy statement in October.
In April, CEO Vuyani Jarana said that SAA had unutilised guarantees of about R6bn, but that banks were unwilling to lend against this as the airline is unable to demonstrate future profitability.
In June, Gordhan and finance minister Nhlanhla Nene approached the Banking Association of SA (Basa) and the Association for Savings & Investment in SA to discuss the establishment of a R30bn to R40bn aggregated loan facility that could be used to fund SOEs other than Transnet and Eskom.
While the government seems optimistic that the facility can be created, the length of time it is taking to reach an agreement is an indication of the legal and regulatory difficulties involved.
The idea, which has not been publicly spelled out by either side in the talks, appears to be to set up a special purpose vehicle under the Treasury, into which lenders could deposit funds, rather than lending to specific SOEs. It has been agreed that the loans will be guaranteed by the government.
Among the difficulties that need to be overcome is the question of on whose balance sheet the SOEs’ debt would sit. Financial institutions insist that "the client" would be the Treasury, which would then manage the disbursements to the companies.
Cas Coovadia, MD of Basa, said the engagements with the government were continuing.
At Wednesday’s briefing in parliament, Gordhan reported that four SOEs — Eskom, Transnet, Denel and SA Express — had new boards.
He said changes to the boards of SA Forestry Company and diamond miner Alexkor would be made in the next four to six weeks.
The changing of the boards and executive management is the first step towards stabilising SOEs, which have been brought to the brink of collapse by corruption and mismanagement.