Denel gets state bailout

State arms firm Denel said on Friday it had received a R1.8 billion cash injection from the government after a liquidity crunch left it struggling to pay salaries and suppliers in recent months.

The government will also consider a request for a further R1 billion recapitalisation in its budget for the 2020/21 fiscal year, the company said.

Read: Denel struggling to pay wages

Denel, a pillar of the country’s once-mighty defence industry, had asked the finance ministry for a R2.8 billion bailout to bolster a turnaround plan based on selling non-core assets and agreeing strategic equity partnerships, its chief executive Danie du Toit told Reuters in July. But funds weren’t initially forthcoming.

South Africa’s public finances are stretched by the need to rescue other ailing state firms such as loss-making power company Eskom and airline South African Airways, which have both already received cash injections.

“There is strong agreement that Denel is a strategic national asset that adds great value to the defence and security sectors,” the company said in a statement. It cited CEO du Toit as saying the National Treasury had imposed conditions for the bailout that Denel would follow.

Denel, whose finances were hit by mismanagement under previous management, produces military equipment from ammunition and armoured vehicles to missiles and attack helicopters. While it is a supplier to the South African armed forces, the bulk of its business comes from exports.

Saudi Arabia’s state defence firm SAMI made a $1 billion bid last year for a broad partnership with Denel, but the approach was rebuffed.