Denel risks being placed in ‘business rescue’ or ‘liquidation’, warns Treasury – Opportunities for youth
  • Covid-19 has worsened the financial position of Denel, says Treasury.
  • The state arms manufacturer risks being placed in business rescue, or even liquidation.
  • The departure of CEO Danie Du Toit has also risked the turnaround plan’s effective implementation.

The worsening financial position of state arms manufacturer Denel could see it being placed in business rescue, or even liquidation, according to National Treasury.

Treasury on Tuesday briefed the standing committee on appropriations on the first quarter expenditure report as well as steps to mitigate fraud and corruption in relation to Covid-19 funds.

Speaking specifically on state-owned enterprises (SOEs), Treasury’s chief director of sector oversight, Ravesh Rajlal, noted that the Covid-19 pandemic had exacerbated the financial position of Denel.

Ratings agency Fitch recently downgraded the entity further into junk status due to its strained liquidity position and the lack of timely government support, potentially delaying its turnaround plan further.R

The SOE last year received recapitalisation of R1.8 billion, and further funding of R576 million was allocated to 2020/21 to reduce guaranteed debt. While Denel has not requested additional financial support due to Covid-19, it has asked to relax conditions of R504 million to be used for working capital instead of repaying guaranteed debt, according to Treasury.

“Denel still faces risk of being placed under business rescue or even liquidation,” the presentation read. With operations coming to a standstill, Denel has been unable to fulfill financial obligations such as payment of salaries and creditors as well as debt payments.

According to Treasury, Denel’s forecasted loss at year ended, March 2020 is R1.8 billion, with a forecasted negative equity position of R3.3 billion. 

Denel has, however, requested R3.8 billion for the next two years, as part of the medium-term expenditure framework, to assist it with settling guaranteed debt, according to Rajlal.

Rajlal said the departure of CEO Danie du Toit is perceived to exacerbate the risks to implementing the turnaround plan effectively. The delay in the turnaround plan has also slowed down other initiatives such as the sale of non-core assets, property and the establishment of strategic equity partnerships.

It has also stalled the finalisation of the future state of Denel – linked to its role in the defence ministry, which is also of importance in terms of finding an appropriate funding model for the entity, according to Treasury.

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