Carol Paton Writer at Large
SA Express. Picture: GALLO IMAGES/GETTY IMAGES/BRIAN BAHR
SA Express. Picture: GALLO IMAGES/GETTY IMAGES/BRIAN BAHR

The list of state-owned enterprises (SOEs) hoping for a bailout in October is growing, with SA Express and Denel — both already reliant on government guarantees to remain operational — appealing to MPs on Wednesday for further financial support.

Defence firm Denel, with government-guaranteed debt of R2.7bn, which has to be refinanced by the end of September, asked for a further R1bn guarantee and a cash injection to recapitalise the business, the size of which it has not disclosed.

SA Express wants its R1.74bn government-backed loans to be converted into equity.

The requests come ahead of finance minister Nhlanhla Nene’s medium-term budget statement in October, in which he will have to find ways to limit the budget shortfall despite lower than projected growth and a higher than expected state wage settlement.

Denel and SA Express, both of which have new boards and new management, are among those devastated by corruption and mismanagement during the term of office of former president Jacob Zuma. Directors and management appeared before parliament’s public enterprises committee on Wednesday.

They are not the only SOEs hoping for Nene’s assistance.

SA Airways has said that it requires R21.7bn over the next three years in a combination of debt and cash from the Treasury. In April it secured a R5bn bridging loan from the Treasury.

Acting CEO of SA Express Siza Mzimela said while some banks had indicated that they would soon resume lending in tranches against Treasury guarantees, credit was not yet restored. But, she said, guarantees "were not enough" as SA Express’s gearing – the ratio of debt to shareholder equity – was too high for the business to be sustainable.

"We really require financial assistance.… We are hoping that at the medium-term budget policy statement in October that the R1.74bn we raised from the banks will be converted by government to equity," she said.

SA Express is in slow recovery after all its aircraft were grounded by the SA Civil Aviation Authority in May.

Over the past month, it has got six aircraft off the ground again and hopes to get another six flying soon.

New Denel chairwoman Monhla Hlahla sketched a picture of a company that had been severely damaged over the past five years, suffering serious reputational damage; an increase in irregular expenditure; loss-making activities that were willfully entered into by management; and the irregular appointment of staff.

Although Denel has an order book of R19bn, relationships with key stakeholders have become strained as creditors could not be paid and orders already contracted could not be completed due to insufficient cash, says the presentation to the committee.

Both companies said they would report a substantial loss for 2017/2018, with SA Express saying that it did not expect to break even over the next 12 months either.

Denel, which has asked for an extension until the end of October to finalise its financial statements, said it expected to make "a huge loss".

patonc@businesslive.co.za

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