Will SAA cut state’s Telkom line?

Telkom’s turnaround sets it apart from other SOEs, but the state might have to forfeit this gem to save SAA

It may be selling the family silver to bail out the family drunk … again. But parting with its stake in Telkom may be the government’s only way to recapitalise SAA relatively quickly and without affecting national budget allocations. The government’s 39% stake in the JSE-listed telecoms company, valued at roughly R14-billion, has been posited by among others the Democratic Alliance as the only likely way to meet these requirements.

The Public Investment Corporation’s (PIC) stake, at about 12% according to Telkom’s latest financial results, takes direct and indirect state ownership to about 52%.

Unlike putting SAA itself on the block, a stake in Telkom is something people might actually buy.

But a sale of Telkom assets would probably be driven by “desperation”, said Dominic Cull, of the Ellipsis Group. “You are selling your revenue-generating asset to save your revenue-depleting asset.”

It is also likely there will be pushback from other quarters of government. Siyabonga Cwele, the minister of telecommunications and postal services, the department responsible for Telkom, is on record lauding past decisions not to sell the stake in Telkom.

At Telkom’s most recent results announcement, Cwele said: “These strong results underscore the correctness of government’s decision, working with other shareholders, to invest in turning around the company instead of selling it.”

He also encouraged other stateowned companies “that are in trouble to learn from Telkom how it achieved its turnaround”.

So how desperate is the government? In July, the state gave SAA a cash injection of R2.2-billion when one of its lenders, Standard Chartered, called up its loan.

Minister of Finance Malusi Gigaba notified Parliament late last month that the treasury was identifying assets for sale to ensure the spending would be budget-neutral and the details of this would be announced in the October adjustments budget.

But SAA has a further R13.8-billion in outstanding debt with other lenders, Gigaba told Parliament.

Along with other facilities, such as R522-million in letters of credit and R830-million in general banking facilities, the airline has used up R18.6-billion of the total R19.1-billion in government guarantees, all but wiping them out.

The treasury has warned that letting SAA default on its debts poses a real threat of contagion to other state-owned entities and their government-guaranteed debt.

On Wednesday ratings agency Moody’s warned that the bailout for SAA pointed to ongoing financial distress for state-owned enterprises (SOE).

It said South Africa risked further credit downgrades if “liquidity pressures ... re-emerge at state owned enterprises” that would require government action either through the activation of guarantees or “other measures”.

The treasury will not divulge details of any asset sale before October “because government is minimising the risk of price manipulation by the markets if the noncore assets were to be disclosed before the conclusion of the transaction”.

The latest round of assistance will take the total amount of state aid to the airline to R38.5-billion since 1999, according to research by transport economist Joachim Vermooten.

But the government has already shown an appetite for the Telkom kind of deal, said Samantha Hartard, the sector head of industrials at Investec Asset Management, referring to the sale of its 13.9% stake in Vodacom in 2015 to help the power utility Eskom.

It managed to raise a significant amount, about R25-billion, so the precedent has been set, she said.

But Cull described Telkom as “a complete anomaly” among the parastatals for several reasons, including