SAA left in limbo as Telkom sale is canned
Company withdraws cautionary notice Airline has asked for R13bn over three years
With less than two weeks to go before Finance Minister Malusi Gigaba tables the medium-term budget policy statement in Parliament, the government has abandoned its plans to sell its shares in Telkom, leading to questions on how it will raise the funds needed for South African Airways (SAA).
The Treasury has committed to funding state-owned enterprises in a deficit-neutral way to contain their burgeoning debt, which is listed among the top risks to government finances by credit-ratings agencies.
The government had indicated that it was considering a sale of its 39% stake in Telkom, valued at about R13bn, to repay lenders and provide urgently needed working capital.
On Thursday, Telkom withdrew its cautionary notice, saying that it was “not aware of any current decision taken by the government with regard to its shareholding”.
Treasury spokesman Mayihlome Tshwete said the Telkom sale was no longer the preferred option and that others were being explored. “There is a plan and it is going to be announced fully in the medium-term budget statement. The plan is far advanced and has been discussed with the president and a presidential committee of a small group of ministers.”
The statement will be tabled on October 25 and will be scrutinised for signs of continuity or deviation from the fiscal consolidation path, outlined by former finance minister Pravin Gordhan in February.
The Treasury is already under enormous pressure to stick to February’s expenditure ceiling and budget deficit target due to an expected R40bn revenue shortfall.
Argon economist Thabi Leoka said “the reality is that the deficit could widen, given the R40bn to R50bn projected revenue shortfall. We are all waiting to see what will happen and if there will be slippage [on the deficit] over the next three years. If so, a ratings downgrade could come sooner than expected.”
SAA has asked for a R13bn recapitalisation over three years. It received R2.2bn at the end of June, when the government stepped in to repay Citibank
R2.2bn and a further R3bn at the end of September to repay other lenders and provide working capital. In the interim, the funds have been borrowed from the National Revenue Fund and it was expected that the Telkom sale would fill this gap.
Leoka said there was the additional concern now of “how to patch up the National Revenue Fund”.
It is unclear why the Treasury decided not to go ahead with the sale. Tshwete said Telkom was an asset that generated dividends for the government and it had been decided to explore other options first. However, it is also speculated that the Public Investment Corporation’s (PIC’s) reluctance to buy the full stake put paid to the transaction.
PIC CEO Dan Matjila indicated in September that while it would participate in the purchase, it was unable to buy more than 3% as its client mandates prevented it from taking more than a 15% exposure in any one stock. It already holds 11.9%.
DA MP Alf Lees said Telkom’s announcement did not come as a surprise because it appeared that the finance ministry was working on the assumption that it could compel the PIC to buy the shares. Recent events, though, showed Matjila “isn’t such a walkover and now they are in a difficult position”, he said. Matjila has been under pressure over unfounded allegations about his conduct, which he believes are intended to force him out of the PIC.
Mergence Investment Managers portfolio manager Peter Takaendesa said Telkom’s announcement did not remove the concern in the market that the government could offload its stake at any time through a discounted book build or another mechanism that could give investors the opportunity to buy the shares cheaper.