SAA left in limbo as Telkom sale is canned

Com­pany with­draws cau­tion­ary no­tice Air­line has asked for R13bn over three years

Business Day - - FRONT PAGE - Carol Pa­ton and Thabiso Mochiko

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.

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