Denel ditches Saudis in favour of government cash injection


State-owned arms manufacturer Denel expects to receive government support in the third quarter as ministers are satisfied with progress in its turnaround plan, the state-owned group said on Friday, adding it saw potential to cut more costs.

Denel, a cornerstone of the country’s once-mighty defence industry, last month asked for a R2.8 billion cash injection to help it emerge from a financial crisis.

The company, known for its missiles and howitzers, is one of several state firms whose finances were damaged by years of mismanagement during the tenure of former President Jacob Zuma.

Last week, City Press reported that Denel’s financial distress was worsening and workers’ patience was running thin as the company failed to pay annual increases.

Read: Denel woes sow increasing discontent among workers

This came against a backdrop of already unpaid pension fund deductions and in June, the company failed to pay full salaries on time to its 4 600 staff members.

Last week, Denel warned this might happen again, but salaries were paid thanks to another lifeline in the form of bridging finance from an unnamed local bank to secure the month’s paycheques.

Denel said it was talking to the public enterprises department and the National Treasury about the turnaround process and was in discussions about details of the state support and its conditions.

“The public enterprises department and the Treasury have indicated that they are satisfied with the progress Denel has made on the recapitalisation conditions and the recapitalisation is expected during the third quarter of the year,” Denel said in a statement.

The statement contained no details on the size of any cash injection.

Under current President Cyril Ramaphosa, South Africa’s public finances are being stretched by the need to rescue other ailing state firms, such as loss-making power company Eskom and South African Airways, which have both already received support.

Read: Treasury: State employees must take a 10% salary cut

“The ministry of public enterprises has full confidence in the ability of the Denel board, its CEO and its management team to return the company to operational and financial sustainability and ultimately, profitability,” Adrian Lackay, spokesperson for the department, said.

“Continued fiscal support for state-owned entities like Denel will depend on their ability to show how this will be effected.”

Under its turnaround plan, Denel will exit some loss-making businesses and forge partnerships to bolster others.

It has rebuffed an approach by Saudi Arabia’s SAMI to take a stake in the firm, but has said it could work with SAMI on other partnerships without giving up equity or intellectual property rights.

Denel said it could generate R2 billion from joint venture partnerships, and said it had received about 40 expressions of interest to enter into partnerships or acquire parts of its business.

It added it saw potential to cut costs by R500 million.

“Denel’s liquidity issues are short-term and the company is expected to generate positive cash flows within the next 12 months,” the company said. – Reuters

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