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SAA on why it went to market for R16bn

Aug 29 2016 18:03
Carin Smith

Cape Town - The aim of the South African Airways (SAA) notice regarding funding was to test the appetite of the market, spokesperson Tlali Tlali told Fin24 on Monday.

In an attempt to consolidate its debt - hopefully at a better interest rate - SAA is hoping it could raise R16bn with banking and non-banking financial institutions to meet its working and capital expenditure requirement as well as to consolidate its current debt portfolio.

The request for long term funding was placed in a newspaper notice.

READ: SAA asks lenders for R16bn

Tlali said the national carrier decided to go out in the market to test for appetite following the termination of BnP Capital's mandate to source funds and consolidate debt on SAA's behalf. He explained that there is a difference between SAA's going concern government guarantee requirements and debt consolidation.

"The two processes are distinct yet not unrelated completely," he explained.

Following pressure from, among others, civil rights body Outa, SAA in July terminated the services of little-known, "boutique financier" BnP Capital as a financial services provider to the airline.

BnP Capital was appointed to advise SAA on how to restructure its R15bn debt and would earn a fee of R256m, this without tender. Outa also revealed that the Financial Services Board had earlier this year suspended BnP Capital's licence to operate as a financial services provider.

Finance Minister Pravin Gordhan also late last month said SAA requires a whole new board and an experienced management team. He said a turnaround strategy should be implemented for the airline to be able to continue and committed himself to continue to find answers to the airline's challenges.

"SAA has applied for a R4.7bn government guarantee to enable the company to finalise its 2014/2015 annual financial statements, while the Request for Proposal (RFP) advertised for is in relation to debt consolidation," Tlali said on Monday.

According to him, the rationale behind debt consolidation is that it eliminates multiple creditors with varying interest rates on each debt and presents SAA with an opportunity to negotiate favourable interest rate on a single debt. This will reduce interests rates on loans compared to the rates SAA is currently paying to different lenders.

"The existing loans, once settled in full, will free up the guarantees received from the shareholder and will be used as guarantees for R16bn on the loans that will come from prospective funder(s). For this purpose, SAA does not need any additional guarantees from the shareholder," said Tlali.

Earlier on Monday Jimmy Conroy chair of the SAA Pilots' Association, said the latest attempt of SAA to consolidate its debt is probably "Plan B" after the BnP deal fell through.

"We are just treading water at the moment, hoping the airline will continue. I have confidence that SAA can be turned around. Once the dust settles SAA could become a stronger, more viable airline, but it will take a bit of work," Conroy told Fin24.

Gordhan has had to request extensions of the deadline for tabling SAA's annual report for 2014/2015 on 15 February, 15 March, 29 April and yet again on 7 July. The new proposed date is 15 September 2016.

SAA has received a number of government bailouts worth at least R14.4bn as part of its turnaround strategy, but Gordhan warned already in January the carrier cannot become a liability on the fiscus.

Alf Lees, the DA's shadow deputy minister of finance, told Fin24, that, because SAA has failed to publish financial statements for two years - the 2015/2016 are also due - one cannot ascertain the liquidity of the company.

Going concern

He referred to the comments of the director who headed the audit committee that there was a danger of liquidation in addition to the trading losses year-after-year. The DA estimates SAA's trading losses could have been R11bn over the past 27 months and it could be placed in a position where it cannot meet the payments that it must make in the normal course of business, let alone repayments on the huge loans taken against the existing R15bn government guarantees.

"It seems to us that in order for SAA to continue to trade and to retain its landing licences at airports it needs more cash as well as guarantees that will satisfy aviation authorities that passengers will not lose their money should the airline cease to operate having taken money for flights from passengers," said Lees.

"Given that we have not seen financial statements for two years, we are not able to assess the “going concern” status, but clearly the auditors do not believe SAA to be a going concern, consequently the need for a further State guarantee that will safeguard passengers and landing licences as well as provide additional working capital."

Lees regards the notice regarding funding proposals as a result of massive trading losses that have had to be serviced with loans and have both contributed towards the need for loans as well as prevented the repayment of the loans.

"We believe an urgent meeting is required in order to establish the factual financial status of SAA in order to make informed decisions about what is required, which we maintain is business rescue," said Lees.

Read Fin24's top stories trending on Twitter:

bnp capital  |  saa  |  tlali tlali  |  investments  |  airlines  |  aviation
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