Treasury aware Citigroup cancelled SAA's credit facility | Fin24
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Treasury aware Citigroup cancelled SAA's credit facility

Jan 11 2016 09:30
Rene Vollgraaff

Johannesburg - South Africa’s National Treasury is aware that Citigroup cancelled a credit facility for the country’s national airline and is working with South African Airways (SAA) to ensure the company has enough liquidity to continue operating, Treasury spokesperson Phumza Macanda said by phone on Monday.

Citigroup on December 24 cancelled a R250m short-term banking facility for SAA, leaving the airline without cash, Johannesburg-based Moneyweb reported, citing an internal document of the national carrier.

The lender won’t reinstate the facility without a government guarantee, the website said.

Tlali Tlali, a spokesperson for the Johannesburg-based airline, couldn’t immediately comment when called by phone and Macanda wasn’t able to provide more detail.

In a memorandum that SAA tried to avoid being published in December 2015, SAA was said to be trading under insolvent circumstances.

"Based on a reliance on a going concern and the inability of the auditors to sign off on the annual financial statements, SAA has been and remains technically insolvent. Accordingly, SAA is financially distressed and trading under insolvent circumstances,” the memorandum, which Fin24 was eventually allowed to publish, revealed on December 17.

READ: SAA memo: What they didn't want you to know

SAA had obtained an urgent interdict to prevent Fin24 and other media houses from publishing the memo, but this was overturned by the South Gauteng High Court on December 17.

SAA boss Dudu Myeni didn’t want the South African public to know that SAA was "insolvent" and that they are described as "reckless" in the memorandum.

The main aspect addressed in the memorandum is the deal SAA made with Airbus with regards to new aircraft, which SAA was not able to pay for, as agreed in the Purchase Agreement.

SAA and Airbus concluded a Purchase Agreement in 2002, where they initially wanted to buy 15 A320-200 aircraft. During 2007-2008, the Purchase Agreement was amended to include an extra five A320-200 aircraft, thus bringing the total to 20, and to add the leasing of other aircraft types.

Myeni and the SAA board wanted to amend the transaction to allow SAA to purchase the A330-300 aircraft and enter into a sale and lease back deal with a local lessor/s. The memorandum stated that Myeni’s decision to continue with her alternative Airbus transaction worsened SAA’s already weak financial position.

According to the Companies Act, the board "is required to file for business rescue and liquidations". Alternatively, creditors or employees may apply to court to place SAA under business rescue.

Had Myeni and the council not complied with the Companies Act, according to the memo, it could have resulted in "statutory sanctions and a possible fine or imprisonment against a person found guilty of an offence to defraud a creditor, employee or shareholder".

After Nhlanhla Nene, who ordered SAA to stick to the original Airbus deal, was fired as Finance minister in December, his eventual successor (and predecessor) Pravin Gordhan ensured SAA signed the original deal, saving the airline from paying R603m.

READ: SAA Airbus swap deal goes Nene's way

This process was finalised on December 21, three days before Citigroup pulled the plug on the airline's credit facility.

- Additional reporting from Fin24.

saa  |  treasury  |  credit


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