Struggling Denel fails to secure funders’ backing

State-owned arms manufacturer Denel is finding it increasingly difficult to raise finance as its pool of funders dries up.

The bulk of its funders are saying they do not want to touch the cash-strapped group, while suppliers are beginning to demand advance payments.

Adding to Denel’s woes is the difficulty it is experiencing in taking on new business. It was not able to provide customers with the required advanced payment guarantees because it did not have the banking facilities to do so.

This was the status of the group as reported by Denel chief financial officer Odwa Mhlwana during a briefing before Parliament’s public enterprises committee on Tuesday. He said the appetite of funders to support Denel had waned to such an extent that over the past year the group had to make an unscheduled repayment of R766m to lenders who were no longer prepared to extend a long-term funding facility to the group.

“Reduced confidence by the capital markets in Denel has resulted in restricted access to facilities,” Mhlwana said.

He stressed the need for an equity injection into Denel.

He said that between 2002 and 2017, Denel had received R9.4bn in terms of state guarantees and recapitalisations but this had not helped lift it out of its liquidity crunch.

The group anticipates generating R1bn from the sale of assets and an additional R400m per year as a result of cost savings.

Committee member and former finance minister Pravin Gordhan said one of the issues to be looked at was that of corporate governance and state capture and what implications this had had for the group.