SAA is ‘an asset that has to literally be resurrected from the dead’

The 51% stake in embattled national carrier South African Airways (SAA), which is in the process of being bought by the Takatso consortium, is valued at -R895-million, a final valuation report seen by Sunday World shows.

The final valuation report dated October 20 2021 was prepared by professional services firm Letsema, which was appointed as an independent party to value the business.

Public Enterprises Minister Pravin Gordhan last year announced that the  government had found a “strategic equity partnership” for SAA.

The deal, he said at the time, would see Takatso take 51% ownership of SAA, with the government retaining  a 49% stake. Gordhan said Takatso would inject R3-billion into a new SAA.

Takatso consists of Global Airways, which owns low-cost airline LIFT, as technical partner, and infrastructure investment firm Harith.

The deal drew a lot of public scorn this week after Gordhan revealed that Takatso will pay a “symbolic sum of R51” for the 51% stake in SAA. However, the valuation report has shed more light into how the mooted deal is unfolding.  The report found that as of August 2021, SAA had an equity value of -R1.6-billion.

“Based on the above calculations and the forecast provided in the corporate plan, an indicative fair value of 51% of SAA as at 31 August is RNIL (negative R859-million),” the report reads.

Equity value is the value of a company’s shares and loans that shareholders have made available to the business. The calculation for equity value adds enterprise value to non-operating assets and then subtracts the debt net of cash available.

Some of the sources of information the Letsema valuation report relied on were the corporate plan for SAA for the period 2021/22 to 2025/2026, discussions with the airline’s management in September and October last year and group results for the year ended March 2021, where SAA posted losses of R9.3-billion.

A source with intimate knowledge of the deal confirmed that Letsema was commissioned to furnish an “independent valuation of the business”.

“The noise around SAA is understandable in the context of state capture and public mistrust of government, however, a closer look at the  numbers tell a story of an asset that is literally being resurrected from the dead,” the source said.

Public Enterprises spokesperson Richard Mantu referred us to a statement issued by the department on Thursday.  In the statement, the department alludes to an “independent valuation expert”.

“The assets that the “New SAA” will retain is calculated at approximately R3-billion. This was done through an independent valuation expert. The total consideration due to the government is R3,000,000,051. Takatso Consortium has confirmed that they are able to fund the transaction,” reads the statement.

Numerous stakeholders, including the EFF, have questioned the deal. EFF spokesperson Sinawo Thambo said the party will table a private member’s bill that will see a more “comprehensive public consultation process before disposal of any of SAA shares”.

“Only mafias will buy a transaction without due diligence if the intention is not to operate a functional business. It is now clear that what Coleman Andrews did to SAA is nothing compared to what Gordhan is doing, selling off the entire state asset for a penny,” Thambo said.

Takatso declined to comment and referred us to Friday’s statement. “The intent is for the consortium to acquire a 51% controlling stake in the SAA group and the consortium will provide R3-billion over the next two years. Structures of this nature are usually characterized by a low purchase price and significant future funding commitments and are typically used for distressed assets such as SAA, which require extensive restructuring and recapitalization to ensure a sustainable business model,” it reads.

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