Arms man­u­fac­turer Denel ‘is sol­vent and not for sale’

Business Day - - FRONT PAGE - Linda En­sor Par­lia­men­tary Writer en­[email protected]­

A sale of state-owned arms man­u­fac­turer Denel to Saudi Ara­bia is no longer on and the com­pany, which recorded a loss of nearly R2bn in the past fi­nan­cial year, is strong enough to stand on its own, chair Monhla Hlahla said.

She said in an in­ter­view af­ter a brief­ing to par­lia­ment’s pub­lic en­ter­prises com­mit­tee on Wed­nes­day that the dis­cus­sions with the Saudis had taken place when the com­pany was in a fi­nan­cially pre­car­i­ous po­si­tion.

The board and man­age­ment were now firmly con­vinced that Denel was a valu­able, na­tional as­set that had to be pre­served.

In­ter­na­tional re­la­tions & co­op­er­a­tion min­is­ter Lindiwe Sisulu con­firmed re­cently that Saudi Ara­bia had ap­proached SA about tak­ing a stake in the arms man­u­fac­turer.

Saudi Ara­bian Mil­i­tary In­dus­tries CEO An­dreas Sch­wer also told Reuters that Saudi au­thor­i­ties were in talks about a pos­si­ble stake in Denel.

Talib Sadik, a board mem­ber and head of the au­dit com­mit­tee, as­sured MPs that Denel was sol­vent and liq­uid, with more than R200m in the bank.

This was a sig­nif­i­cant im­prove­ment on its pre­vi­ous po­si­tion, he told MPs, who were con­cerned about the abil­ity of Denel to pay salaries.

This has pre­vi­ously been flagged as a risk as the cash­strapped com­pany faced a liq­uid­ity crunch.

Hlahla, act­ing CEO Is­mail Dock­rat, group fi­nan­cial con­troller Than­deka Sa­bela and Sadik briefed the com­mit­tee on the cur­rent state of the com­pany, the ef­forts be­ing made to sta­bilise it and the sta­tus of in­ves­ti­ga­tions into ir­reg­u­lar trans­ac­tions.

Hlahla con­ceded that there were liq­uid­ity chal­lenges, with in­come un­der pres­sure, while costs were es­ca­lat­ing.

Sadik said there were reg­u­lar meet­ings about cash flow and how to bal­ance the de­mands of sup­pli­ers and em­ploy­ees, and the abil­ity of the com­pany to com­plete con­tracts.

Denel re­lies on gov­ern­ment guar­an­tees of about R3.4bn. It is heav­ily re­liant on debt, which neg­a­tively af­fects its abil­ity to in­vest in re­search and devel­op­ment, and cap­i­tal ex­pen­di­ture.

In the 2017-2018 fi­nan­cial year it suf­fered a net loss of R1.8bn on a 38% de­cline in rev­enue to R5bn from R8bn the pre­vi­ous year.

The new Denel board has been in­volved in an in­ten­sive clean-up cam­paign to deal with ir­reg­u­lar trans­ac­tions un­der­taken by pre­vi­ous man­age­ment, who be­came en­tan­gled with Gupta-linked busi­nesses.

Sadik said that the board was co-op­er­at­ing with the Spe­cial In­ves­ti­ga­tions Unit to fi­nalise a procla­ma­tion for it to con­duct an in-depth in­ves­ti­ga­tion into Denel.

The com­pany was tied up in a sus­pect deal with the Gup­talinked VR Laser group to set up a com­pany, Denel Asia, to ex­ploit Asian de­fence mar­kets.

The re­la­tion­ship with VR Laser has been ter­mi­nated and Denel has be­gun wind­ing down the Hong Kong-based Denel Asia. A foren­sic in­ves­ti­ga­tion has been un­der­taken of this trans­ac­tion as well as the sale of Casspir ar­moured ve­hi­cles.

Sadik told MPs that a spe­cial team had been es­tab­lished to in­ves­ti­gate all iden­ti­fied ir­reg­u­lar ex­pen­di­ture and to en­sure that dis­ci­plinary ac­tion was taken.

Civil and crim­i­nal ac­tion would also be looked at.

Ir­reg­u­lar ex­pen­di­ture in 2017 amounted to R512m, of which a con­ser­va­tively es­ti­mated R108m re­lated to Denel Asia, Sadik said.

Group CEO Zwe­lakhe Nt­shepe re­signed and other mem­bers of se­nior man­age­ment have left the com­pany.

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