A Denel G-6 howitzer tank. Picture: BUSINESS DAY
A Denel G-6 howitzer tank. Picture: BUSINESS DAY

A sale of state-owned arms manufacturer Denel to Saudi Arabia is no longer on and the company, which recorded a loss of nearly R2bn in the past financial year, is strong enough to stand on its own, chair Monhla Hlahla said.

She said in an interview after a briefing to parliament’s public enterprises committee on Wednesday that the discussions with the Saudis had taken place when the company was in a financially precarious position.

The board and management were now firmly convinced that Denel was a valuable, national asset that had to be preserved.

International relations & co-operation minister Lindiwe Sisulu confirmed recently that Saudi Arabia had approached SA about taking a stake in the arms manufacturer.

Saudi Arabian Military Industries CEO Andreas Schwer also told Reuters that Saudi authorities were in talks about a possible stake in Denel.

Talib Sadik, a board member and head of the audit committee, assured MPs that Denel was solvent and liquid, with more than R200m in the bank.

This was a significant improvement on its previous position, he told MPs, who were concerned about the ability of Denel to pay salaries.

This has previously been flagged as a risk as the cash-strapped company faced a liquidity crunch.

Hlahla, acting CEO Ismail Dockrat, group financial controller Thandeka Sabela and Sadik briefed the committee on the current state of the company, the efforts being made to stabilise it and the status of investigations into irregular transactions.

Hlahla conceded that there were liquidity challenges, with income under pressure, while costs were escalating.

Sadik said there were regular meetings about cash flow and how to balance the demands of suppliers and employees, and the ability of the company to complete contracts.

Denel relies on government guarantees of about R3.4bn. It is heavily reliant on debt, which negatively affects its ability to invest in research and development, and capital expenditure.

In the 2017-2018 financial year it suffered a net loss of R1.8bn on a 38% decline in revenue to R5bn from R8bn the previous year.

The new Denel board has been involved in an intensive clean-up campaign to deal with irregular transactions undertaken by previous management, who became entangled with Gupta-linked businesses.

Sadik said that the board was co-operating with the Special Investigations Unit to finalise a proclamation for it to conduct an in-depth investigation into Denel.

The company was tied up in a suspect deal with the Gupta-linked VR Laser group to set up a company, Denel Asia, to exploit Asian defence markets.

The relationship with VR Laser has been terminated and Denel has begun winding down the Hong Kong-based Denel Asia. A forensic investigation has been undertaken of this transaction as well as the sale of Casspir armoured vehicles.

Sadik told MPs that a special team had been established to investigate all identified irregular expenditure and to ensure that disciplinary action was taken. Civil and criminal action would also be looked at.

Irregular expenditure in 2017 amounted to R512m, of which a conservatively estimated R108m related to Denel Asia, Sadik said.

Group CEO Zwelakhe Ntshepe resigned and other members of senior management have left the company.