Denel hunts for cash with debts falling due

South Africa’s insolvent arms manufacturer is scrambling for cash as it faces the repayment of almost R3 billion ($199 million) of debt this year.

Denel is examining ways to recover funds wasted on irregular spending, the state-owned company said in a presentation to lawmakers on Wednesday. It also renewed an appeal to the government for a bailout.

Denel products including the Rooivalk attack helicopter, an array of missiles, armored vehicles and drones would be lost to the country if the company collapses, and thousands of highly skilled workers would lose their jobs, it said. The government is still considering whether to provide more funding, Deputy Public Enterprises Minister Phumulo Masualle said at the briefing.

“We do not take lightly the concerns about the trading ability of the entity going forward and the strategic role of this company,” he said. “Given the financial position that Denel finds itself in, the necessity of some kind of financial injection is unavoidable. To that effect we are engaged with National Treasury.”

Denel has been unable to pay salaries and faced an exodus of senior staff in recent months. Its plight is mirrored in other government-owned companies ranging from power utility Eskom to the state airline that were plagued by mismanagement and corruption during former President Jacob Zuma’s nine-year rule.

While key Denel investors agreed to roll over notes worth about R290 million in December, there is a growing concern that the company will be unable to extend repayments on the notes further, which could result in the company defaulting, it said in the presentation.

Denel made a loss of R4.4 billion over the past three years, as it grappled with limited funding for projects and export-permit issues, high-cost structures, and a slow business environment due to lockdowns to curb the spread of the coronavirus.

As part of a plan to keep afloat, Denel is considering selling non-core businesses, but progress has been slow, according to the presentation. The loss-making businesses are placing even more strain on the company’s balance sheet.