Development Bank says R3.5bn SAA loan may have saved airline from liquidation

The Developmental Bank of Southern Africa says it’s R3.5bn loan to South African Airways was necessary to ensure that the business rescue of the national carrier continues and to avoid the airline's liquidation.

The bank's leadership is briefing Parliament's oversight committee on finance.

On January 28, SAA's joint business rescue practitioners confirmed that the DBSA had approved funding of R3.5bn for the cash-strapped carrier. At the time, the bank said the loan facility was secured by government guarantee. 

The business rescue practitioners, Les Matuson and Siviwe Dongwana, said in late January that because of the loan "passengers and travel agencies and airline partners may continue to book air travel on SAA with confidence".

DBSA Chief Investment Officer, Paul Currie, told MPs on Tuesday that the loan was bridging finance to assist government in its commitment to assist the flag carrier, and was necessary for the business rescue process to continue.

"Failure to do that would have resulted in a collapse of the business rescue process and possibly liquidation," he said. 

Currie said the bridging finance was provided on commercial terms.

He said while the DBSA did not usually provide funding to entities in SAA's circumstances, the transaction fell within the scope of the bank's investment targets, which include energy, water, ITC, education, transport and health.

He added there were currently no loans on the cards for debt-ridden power utility Eskom.

"We worked with a group of commercial banks when Eskom had a liquidity crisis (in 2010). It is something we do occasionally, but [only] in exceptional circumstances, and it has to be within our core funding targets. In SAA's context that would be transport," Currie said.

* The hearing continues 

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