Denel gets reprieve with loan to pay salaries

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.

Read: Denel struggling to pay wages

“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 June 28, although Denel will make the interest payments, chief executive officer Danie du Toit said in response to Bloomberg’s emailed 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.

‘State capture’

The company has been a victim of “of the damaging effects of state capture,” Gordhan said, using a local term for the looting of state entities during the presidency of Jacob Zuma. His successor, 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, the electricity utility, are also in need of bailouts. South Africa’s potential liability for government-guaranteed debt of state-owned companies was R879.6 billion in March, according to the National Treasury.

© 2019 Bloomberg L.P.

Source: moneyweb.co.za