Denel says it urgently requires funding

Denel, the state-owned arms manufacturer that is on the brink of collapse, says its survival will depend on the timeous release of state funding that was allocated in the medium-term budget policy statement.

In his budget policy statement tabled in parliament last month, finance minister Enoch Godongwana announced that Denel would be allocated R204.7m to reduce contingent liabilities arising from its weak financial position and a further R3.4bn, if set conditions are met, to complete its turnaround plan.

It is not clear what the conditions are and when the funding will be released.

The loss-making company, one of many parastatals struggling to recover from state capture, remains in financial distress and is struggling to meet its obligations as they fall due, including paying salaries and suppliers. The former led to a mass exodus of skilled personnel, which further weakened its ability to deliver on key revenue-generating projects.

“Denel requests support for timeous release of funding allocated to [it] in the medium-term budget policy statement. The success of the turnaround plan is premised on the timeous cash inflow of working capital to execute operations and the restructuring costs,” Denel’s chief restructuring officer, Riaz Saloojee, told MPs on Wednesday.

He was part of a delegation that was briefing parliament’s public enterprises committee on Denel’s turnaround strategy.

“Suppliers will not start a new relationship with us until we have committed to paying off debt, and we can only do that if the money from the recapitalisation flows timeously. Hopefully we will not be going back to the shareholder to say you have to bail out Denel,” Saloojee said.

He said the recapitalisation by the government will go a long way to ensuring the organisation is viable.

“But we do understand we need to use our own creativity and interventions to be able to fund the process and not just rely on the recapitalisation that has come,” Saloojee said.

Denel has been heavily reliant on the government to remain in business in recent years. The government provided recapitalisations of R1.8bn in 2019/2020 and R576m in 2020/2021, and extended a R5.9bn guaranteed debt facility. In 2021, the government gave Denel R2.9bn to cover its debt.

Saloojee said Denel is aware that the most recent funding is probably the last.

“The recapitalisation is laying some basis upon which we can start the rejuvenation of the organisation ... we have said [we are unlikely to] get any more funding from the National Treasury, so this is the last shot, the last attempt [to turn around the company] ... we have to ensure we create a viable organisation going forward. Government and our people do not have the money to bail out Denel again,” Saloojee said.

He said that while the company is focusing on restructuring and cutting costs by about R50m a month, including the sale of noncore assets, the priority should be to retain skills.

“We have got to stop the brain drain. We have lost a huge amount of critical skills because of nonpayment of salaries, demoralisation of the organisation ... we have to seek to regain those skills and human capital back into the organisation,” Saloojee said. He added that retaining skills would be crucial for the company to meet its mandate and retain clients.

“The strategic intent is to reduce dependence on the fiscus for the maintenance of critical strategic and sovereign capabilities,” he said.