State-owned arms manufacturer Denel has received a loan to pay its staff their full salaries this month, according to public enterprises minister Pravin Gordhan, giving the company a short-term reprieve from a cash crisis.
“A lender has come to the assistance of Denel and full salaries will now be paid,” Gordhan told lawmakers in Cape Town on Tuesday, without naming the benefactor. To ensure greater financial stability, the company is working to improve its profit margins and accounting practices and has R30-billion of potential contracts in the pipeline, he said.
The minister made his comments just hours after Denel said employees will only receive 85% of their June salaries due to a “liquidity crisis”. The squeeze comes as R30-million of coupon payments become due by 28 June, although Denel will make the interest payments, CEO Danie du Toit said in response to an e-mailed request for comment.
Denel is one of several South African state companies struggling to stay afloat after years of financial mismanagement. The weapons maker said last month it would have to restate accounts for the 2018 fiscal year after they weren’t reported correctly first time out, while a review of asset values found that some are worth nothing.
The company has been a victim of “of the damaging effects of state capture”, Gordhan said. President Cyril Ramaphosa, has pledged to fight corruption and Du Toit was appointed earlier this year to lead a turnaround.
Should Denel be unable to roll over or service its debt, which is guaranteed by the government, that would put further strain on state coffers at a time when public companies including Eskom are also in need of bailouts. South Africa’s potential liability for government-guaranteed debt of state-owned companies was R879.6-billion rand in March, according to national treasury. — Reported by Renee Bonorchis and Colleen Goko, (c) 2019 Bloomberg LP
