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- Denel said it managed to raise funds through its medical benefits trust to cover salaries, among other things.
- Denel CEO William Hlakoane said Denel planned to raise R1.8 billion through the sale of non-core assets.
- Deputy Minister Phumulo Masualle said while progress was made in improving Denel's financial position, it would need assistance to keep going.
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Denel told Parliament that it will have to raise R800 million in the next few months - over and above the government assistance that it has already received - to return to a financially stable position.
Denel said in the long term, it planned to raise R1.8 billion through the sale of non-core assets. The utility already raised R992 million by July - which it used to pay outstanding salaries. It also accessed just under R1 billion in surplus funds from the Denel Medical Benefits Trust.
Denel still owed R640 million to the South African Revenue Service and still needs to raise R800 million more in the next three months.
The entity updated a joint meeting of Parliament’s Portfolio Committee on Public Enterprises and Parliament’s Select Committee on Public Enterprises and Communications on plans to restore its financial stability after years of consistently struggling to operate optimally or pay salaries on time.
The entity went from generating R8.2 billion in revenue in 2016 to just under R2 billion in 2022 due to liquidity constraints which led to an inability to deliver products as required by customers and on time. In August, the entity had to pay employees R318 million in back pay after years of struggles with paying salaries on time.
Some R2.9 billion from the fiscus to deal with guaranteed debt has eased the pressure. But the entity warns that if nothing changes in terms of its funding, it could run out of capital as soon as October.
READ | Denel pays employees R318m in back pay after a years-long battle
Deputy Minister of Public Enterprises Phumulo Masualle told MPs that while Denel's leadership was decisive about improving the entity’s financial position, the road to recovery remained long. He said Denel would soon need as much financial assistance as it could get.
"There is just so much that we can do, but beyond a certain point, we would really need some sort of financial injection into the entity.
"The interventions have really provided relief in that the guaranteed debt that National Treasury has come into play and has ensured that onerous interest on debt has been addressed. But that does not help the operational requirements going forward to place the entity on a path to sustainability," said Masualle.
Denel Group CEO William Hlakoane said the rebuilding of Denel will involve leveraging the South African defence sector with its 12 500 employees. He said a turnaround plan has been submitted to the Department of Public Enterprises and National Treasury.
"We still foresee a considerable order book of about R30 billion over the next five years in the pipeline. These are some of the opportunities and projects that are lying throughout the world," said Hlokoane.
Hlokoane said following the findings of the State Capture Inquiry that relate to Denel, the entity has referred former board chair Daniel Mantsha to the Law Practices Council for an investigation into his fitness to practice as an attorney.
"The board of directors is to be subjected to delinquent proceedings in terms of the Companies Act. We are also cooperating with the SIU [Special Investigating Unit] investigations in terms of Denel proclamations," Hlokoane said.
The State Capture Inquiry heard in February that Mantsha facilitated the removal of top-performing executives deemed “unfit” in 2015 and that this was in contravention of the Public Finance Management Act.
READ | Denel 'almost on its knees' over capture supported by Lynne Brown, Dan Mantsha
Denel CFO Thandeka Sabela said the entity’s customers are concerned and uncertain of Denel’s ability to continue as a going concern, which necessitated that Denel relooks at its business and restructure itself to the current circumstances.
"Denel has been in quite a negative space for the past two years. We have accumulated debt which has led to an insolvent position. We have been unable to raise facilities with our banks and obtain guarantees in order to continue with the business, and [received] a negative rating from Fitch in 2021," said Sabela.
Sabela said after reviewing funding sources Denel found funding from Denel Medical Benefits Trust to access just under a billion to deal with immediate matters including outstanding salaries and related costs to the pension funds, and litigation.
"Whilst that has really dealt with some of the immediate liquidity matters, it hasn’t resolved the sustainability of Denel moving forward. I think what also gives a sense of comfort in the articulation from our principals is that Denel remains strategic," Sabela said.
DA MP Farhat Essack said questions still remained on Denel’s ability to mitigate its cashflow problems.
DA MP Ghaleb Cachalia said the submission by Denel’s leadership was “appalling” and gave no answers for the intellectual property and skills it lost during the years of state capture.
