Secret memo shows SAA to get R10bn from Telkom share sale

Deputy President Cyril Ramaphosa. (Leon Sadiki, City Press)
Deputy President Cyril Ramaphosa. (Leon Sadiki, City Press)

Cape Town – Deputy President Cyril Ramaphosa sidestepped a question in Parliament on whether South African Airways (SAA) will receive a R10bn bailout from government.

The Democratic Alliance’s Alf Lees told Ramaphosa on Wednesday he has a “secret” document in his possession stating that Finance Minister Malusi Gigaba is planning to allocate R10bn to the embattled national carrier.

“I have in my possession a document, marked secret, saying that Finance Minister Malusi Gigaba is planning to give SAA a R10bn bailout, primarily by selling Telkom shares. Do you support the sale of a good asset to save a bad asset? And has Cabinet approved this move?” Lees asked.

Ramaphosa replied that Lees could go to prison by having the document in his possession, as he is not a member of the executive. Gigaba, however, was nodding in agreement when Lees posed his question.

He subsequently did not deny or confirm whether SAA would indeed get a R10bn bailout.

“We continue to discuss which assets that are strategic and not strategic and issues like that are always discussed by Cabinet and various committees. The honourable member should wait,” Ramaphosa said.

Fin24 has seen the "secret document" and has also reliably learnt that Finance Minister Malusi Gigaba wants to introduce special legislation to allow for a R10bn recapitalisation of South African Airways by tabling a Special Appropriations Bill to appropriate additional money to SAA.

Gigaba proposed that government dispose of its 39.75% shareholding in Telkom, which is currently valued at approximately R14.4bn, saying the sale of non-core assets is the only viable option to support SAA that will not increase the budget deficit.

To this end, National Treasury intends to table a Special Appropriations Bill proposing a R10bn appropriation to SAA in the 2017/18 financial year. This amount includes the R2.2bn that SAA was granted on June 30.

Of the additional R7.793bn SAA will get, R6.785bn will be used to repay loans that are maturing on September 30, while the remaining R750m will be used for working capital.

Gigaba said SAA’s lenders initially agreed to extend the repayment of its loans to April 30 and then again to June 30 2017. SAA now has to repay an amount of R6.785bn at the end of September 2017 of which R1.761bn is owed to Citibank, which did not want to extend SAA’s loan facility beyond the end of September.

SAA is not in a financial position to repay Citibank, or any of the loans which is due on September 30. If SAA fails to honour these debt obligations an additional R7.8bn in guaranteed debt – which is due between 2019 and 2022 – will need to be paid immediately due to the so-called cross-default clauses, which means a borrower is automatically in default if it defaults on another loan obligation.

The Finance Minister pointed out that SAA doesn't have enough cash reserves to pay its suppliers, although it managed to defer payments of close to R750m. The airline is however not generating sufficient cash to pay suppliers timeously.

This, coupled with the unwillingness of lenders to extend the loan agreements – even with government guarantees – requires urgent intervention from government.

Gigaba is concerned that SAA’s large amounts of maturing debt could pose a risk to the fiscus in that failure to honour its obligations could trigger a call on all SAA’s debt and possibly that of other state-owned companies, such as Eskom.

He therefore proposes that Cabinet direct the Department of Telecommunications and Postal Services, Economic Development and National Treasury to explore options of disposing assets necessary to capitalise SAA.

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