The National Treasury has promised to settle R2.9-billion of Denel’s debt to help save the ailing state-owned arms manufacturer.
At present, Denel owes R3.3-billion in legacy debt and about R966-million to suppliers.
Denel acting CEO William Hlakoane said the aid from Treasury is accepted, however, it will not resolve the company’s immediate liquidity requirements to restart operations and settle legacy obligations that impact viability.
According to Hlakoane, the manufacturer requires a further restructuring cost of R577-million and working capital of about R400-million to execute work on hand and return the company back to profitability.
Hlakoane and other Denel executives were briefing parliament on Wednesday on the company’s current standing and recovery plans.
The parliamentary portfolio committee on defence and military veterans heard that Denel’s investment status was downgraded by Fitch Ratings in August 2021 because of negative equity and the “absence of a plan by the stakeholder to improve the balance sheet”.
However, Hlakoane said with salary payments up to date, the company is optimistic about the future.
The executives told the committee that Denel has put in place seven immediate interventions that will help the company extricate itself from the sludge of state capture and mismanagement.
“In order to achieve sustainability and unlock the order pipeline for growth, significant changes are required to support the strategic intent to secure a new credible Denel for the future.”
These interventions include unshackling legacy debt, restructuring the conglomerate for efficiency, and reducing the cost base through overheads, footprint, and head counts.
Denel said it plans to initiate a repositioning strategy to ensure that it continues to enjoy the support of the market, implement streamlined and effective policies and develop access to new revenue streams.
It also said it would employ effective management and executive leadership capabilities to lead the restructuring interventions.
Addressing the disposal of non-core assets which were set to raise R1.8-billion for the company in July, Denel said it has made progress, adding that it believes it will succeed in its transformation as it has a R12-billion confirmed order book and about R8-billion in opportunities.
“Funds received [R992-million] from the Denel Medical Benefits Trust [DMBT] were instrumental in providing some stability and restarting operations with payment of backlogged salaries, the institution of a SARS [SA Revenue Service] payment plan, and payment of creditors threatening liquidation actions, as well as allocation to critical working capital.
“Funding for available working capital and payment plans will run out by October if interim relief is not secured. Operations will be stalled and Denel will again be severely exposed. The company will continue to raise internal funding through the sale of non-core assets,” Denel said.
On August 11, board chairperson Gloria Serobe confirmed during a media briefing that the arms manufacturer had paid out all outstanding salaries to its employees.
Serobe said Denel, which has been financially strained for over two years, managed to secure close to R1-billion for both its operational costs and the payment of salaries through its medical benefits trust.
“Through the years, the assets of DMBT always exceeded the actual valued liabilities by huge amounts. It made no sense why this company was designed as such that Denel, the sponsor company, had no access to this large surplus, which as at April 2022 was as high as R1.472-billion,” said Serobe.
“The exercise to start unlocking this surplus took as long as two years. Most importantly, it had to be a win-win for all involved, that is the pensioners, the members, and Denel. To make sure that we had a proper, fair and equitable process, each of these parties had an actuary to interpret and protect them.
“Fast forward to 28 July, R992-million became that surplus which could be transferred and attributed to Denel after this elaborate exercise.”
She warned that although the R992-million came as a boost for the ailing state company, it was not an answer for all its problems.
Also read: Denel employees finally paid outstanding salaries
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