PIC may buy into Telkom to save SAA | Fin24

PIC may buy into Telkom to save SAA

Aug 27 2017 06:00
Lesetja Malope, Andisiwe Makinana and Justin Brown

The custodian of government employee pensions, the Public Investment Corporation (PIC), could buy part or all of government’s stake in Telkom.

Finance Minister Malusi Gigaba on Friday said SAA desperately needed a R10 billion bailout, which could possibly be gathered via the sale of the state’s 39.76% stake in the semi-privatised telecommunications provider.

In 2015, government sold its 13.91% stake in Vodacom to the PIC to bail Eskom out.

PIC spokesperson Sekgoela Sekgoela on Friday said: “The PIC would prefer not to be drawn into possible considerations by government to dispose of Telkom shares.”

The PIC owns just more than 12% of Telkom.

Gigaba emphasised that government was still considering options to recapitalise SAA and said Cabinet would make a final decision by the end of next month.

The airline received a R2.2bn bailout last month so that it could repay some debt, and has R20bn of government debt guarantees.

“I want to caution against any hysteria of us considering various options,” Gigaba said.

A Cabinet memorandum that was leaked to the DA this week revealed that the sale of government’s Telkom shares had been identified as the most viable option to recapitalise SAA.

The August 22 memorandum, a copy of which City Press has seen, informs Cabinet of the need to urgently recapitalise SAA because of its dire financial position.

“Coupled with SAA’s lenders’ unwillingness to further extend funding to the airline, even with government guarantees, a situation has now arisen for the shareholder [government] to take urgent measures to resolve the airline’s funding challenges,” the memorandum says.

The document reveals that, as the airline has depleted its cash reserves, it remains “afloat” by negotiating repayment plans with some of its suppliers, which allows it to defer payments to a future date.

While SAA negotiated repayment terms with some suppliers, allowing it to defer payments of about R750m, the situation is deteriorating and is becoming untenable because it is not generating sufficient cash.

Gigaba said there were several interventions that were being considered, including the disposal of noncore assets, public private partnerships and a “full share swap” with the state’s Telkom share.

The state’s stake in Telkom was valued at R13.5bn on Friday afternoon.

Gigaba was angry that the confidential memo had been leaked, which he said was a criminal act. He added that the source of the leak was being investigated.

Two of SAA’s major lenders, Standard Chartered Bank and Citibank, declined to extend the duration of their loans.

SAA has R6.785 billion in government guaranteed debt, which has to be paid by the end of next month. This includes R1.761bn that is due to Citibank.

The memo warns of consequences should SAA fail to repay lenders whose debt falls due.

“Failing to honour these debts ... would also become payable immediately due to cross-default clauses,” reads the document.

It states that, in the event of a default, government could either “take over” an entity’s debt or “service” the debt on behalf of the entity.

The document states that, to achieve fiscal neutrality, recapitalisation of state-owned companies can occur either through the sale of noncore assets or by increasing taxes. A wide range of assets were explored, including listed shareholdings held by government; listed shareholdings held indirectly by government mainly through development finance institutions; and unlisted investments.

“Based on the analysis and criteria above, the most viable option for meeting government’s objective ... is to dispose of government’s shareholding in Telkom,” states the document.

Gigaba said he had asked the other major creditors to roll over their loans until the end of next month, and he would be negotiating with them to again roll over the loans.

He confirmed that, after eight years, during which the airline sustained billions of rands in losses, SAA chairperson Dudu Myeni was on her way out.

Gigaba said Myeni’s term would end this month and another chairperson would be appointed.

He said new SAA CEO Vuyani Jarana had been released by Vodacom, but had not yet started work because his contract was still being finalised.

Themba Godi, the chairperson of Parliament’s standing committee on public accounts, said selling the state’s Telkom shares to bail SAA out would be an unfortunate strategy because SAA still needed good leadership at board and management level.

Fitch Ratings on Friday said SAA’s woes and its need for a bailout had already been factored into its rating.

Jan Friederich, Fitch senior director in the sovereigns team, said: “The financial difficulties of SAA had long been publicised ... and the need for support for SAA had already been factored into our rating for South Africa. It is positive that the long-standing National Treasury policy of funding support for state-owned enterprises from asset disbursements rather than the regular budget still stands.”

Credit ratings agencies say SAA should be reformed and say the cost of propping it up is a threat to South Africa’s credit rating. – Additional reporting by Fin24 and Reuters

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