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In the next week, the government will determine where to find the more than R10 billion needed for the restructuring of South African Airways (SAA) and the start of the “new” SAA, according to Public Enterprise Minister Pravin Gordhan.
Gordhan told Bloomberg that the government’s commitment is clear and that next week’s meetings will solve “the money problem.”
This comes after his department said in a statement on Friday that money will be reprioritized in Finance Minister Tito Mboweni’s tightening budget next month and that, in the meantime, the hole will be plugged with loans.
However, it is not clear whether Mboweni has accepted any provision in the adjustment budget.
Hacienda remains silent
The National Treasury did not answer questions in this regard and several commentators are convinced that the public commitment was made without the approval of the Treasury.
Mboweni has expressed his opinion in the past that SAA should be closed.
Mboweni’s lack of support could result in a repeat of the events in February, when SAA’s business rescue practitioners (BRP) had to return to the drawing board after Mboweni failed to allocate the expected funds in its main budget.
As a result, they were considering the dissolution of SAA, but Gordhan started a parallel process with the unions that later joined the business rescue plan and envisages generous downsizing packages and the retention of just 1,000 of the current 4,600 staff members. .
Salvage plan adopted in July
The plan was adopted by creditors in July and required more than R10 billion in funds for, among other things, severance packages, payment from creditors and seed capital for the “new” SAA.
Read: SAA’s rescue plan goes into operation
The government promised to “mobilize” the financing, but this has yet to materialize, despite the best efforts of the BRPs.
At a meeting of creditors on Friday, BRP Siviwe Dongwana and Les Matuson said the airline has no money left and they are considering liquidating it or requesting liquidation.
Dongwana told the creditors that they had received a letter from the Department of Public Enterprises just before the meeting repeating their commitment to provide the necessary funds. He said that the BRPs, in the next week, will engage with the government on the timing of the promised funds.
The BRPs refused to release the letter.
However, Moneyweb learned that Gordhan and Mboweni jointly signed it, but does not go so far as to make commitments regarding the Medium Term Budget Policy Statement (MTBPS) at the end of October.
Creditors will be notified ‘this week’
According to BRP spokesperson Louise Brugman, SAA now needs money in the bank, and Dongwana and Matuson are considering the pros and cons of a reduction or liquidation, so they will be in a position to advise creditors this week in case of that the funds do not materialize.
However, the department in its statement on Friday emphatically stated that SAA will not be liquidated.
According to Bloomberg, he is trying to obtain short-term loans from the Southern African Development Bank (DBSA) and the Public Investment Corporation (PIC), which manages the investments of the Government Employees Pension Fund (GEPF).
The PIC has come under considerable scrutiny in the recent past for making dubious investment decisions and already has significant exposure to distressed state-owned companies, additional investments in which could result in a serious backlash.
Read:
So far, the department has been unable to obtain more loans for SAA’s rescue plan, and any bridge financing it manages to obtain now could be extremely expensive.
Intellidex head of capital market research Peter Attard Montalto says the situation undermines investor confidence in the government.
“The games continue, but are likely to have the ever-increasing consequences of damaging sovereign credibility in the minds of investors, with a minister sending out highly tactical press releases making commitments that the National Treasury has not accepted on the one hand and the National Treasury is silent for the other.
“Unfortunately, this [could] continue until the end of October, as the BRPs will not announce this type of game, ”he adds.
“Ultimately, however, the MTBPS process is difficult enough as it is without trying to fit SAA as well, adding to the R250 billion of cuts that must be found elsewhere.”
Stakeholders and policy
Gordhan appears to be pinning his additional hopes that the money will flow to SAA on the 20 parties that have allegedly submitted unsolicited offers to participate in SAA. According to his department, these include “private sector funders, private equity investors and partners for a future restructured SAA,” but no further details have been provided.
Bloomberg reported earlier this month that Ethiopian airlines are in talks with the government about supporting SAA, including the possibility of taking a stake in the restructured airline.
Read:
Meanwhile, the National Union of Metalworkers (Numsa) and the South African Cabin Crew Association (Sacca) threaten to oppose efforts to liquidate SAA in court.
Political commentator Theo Venter says Gordhan’s apparent obsession with saving SAA stems from his communist belief in central control of the state. Mboweni, on the other hand, is more free-market oriented.
Venter says Ramaphosa came to power in the ANC with the support of the Communist Party and needs him again in the upcoming municipal elections and for his own campaign for a second term at the head of the ANC.
He believes Mboweni will eventually have to give in, but it won’t be without Gordhan’s commitment.
