Delays continue to dog SAA
● The funders of South African Airways (SAA), whose debt is guaranteed by the government, have agreed to give the state until tomorrow to confirm where it will pay the money owed to them.
According to the approved business rescue plan, one of the conditions for its implementation is that money owed to the funders be paid into a legal entity called a receivership, which will in turn pay the funders. These include the major banks and the Development Bank of SA (DBSA).
The confirmation guarantee letter required by the funders, indicating into what entity money owed to them will be paid, is the only condition outstanding to implement the SAA business rescue plan, and was meant to have been confirmed on Wednesday this week.
At a meeting on Friday, 95% of creditors voted in favour of granting an extension for the fulfilment of this condition until tomorrow.
Should the government not provide the confirmation guarantee letter tomorrow, the joint business rescue practitioners, Les Matuson and Siviwe Dongwana, will be forced to convene another creditors meeting on July 30 to consider amending the business rescue plan. If that is unsuccessful, they will have to discharge SAA from business rescue, which could then open the way for creditors to apply for liquidation of the airline.
The business rescue practitioners said they were “pleased” with Friday’s “vote in favour to extend the finalisation of the outstanding condition”.
A vote against the extension would have meant they would have been unable to implement the business rescue plan.
Asked to comment on Friday about the delay in sending the guarantee letter to funders, the Treasury reiterated that it was following an “internal due diligence process”. It did not say what this meant.
The DBSA provided R3.5bn to the stricken airline at the beginning of the year while banks including Nedbank, Investec, FirstRand, Absa and Standard Bank provided R2bn after SAA entered
business rescue. The banks also lent R9.2bn to the airline last year, before the business rescue process began.
Asked to comment on the extension they had granted the Treasury to deliver the guarantee letter, Absa, Investec and Nedbank declined to comment, while Standard Bank, RMB, on behalf of FirstRand, and DBSA had not responded by the time of going to press.
The monies owed to these funders have already been budgeted for by the Treasury. But besides repaying them, the business rescue practitioners also require about R10.3bn for the initial restructure of SAA.
About R5bn of this is needed immediately for voluntary severance packages for staff, a section 189 retrenchment process for other employees, the payment of creditors who do not have government guarantees, and working capital to restart the airline.
It is still not clear where this money will come from, but a commitment in writing from the Treasury and the department of public enterprises to mobilise funding for the restructuring was one of the conditions required by the business rescue practitioners in terms of the rescue plan.
Linden Birns, MD of Plane Talking, said it appears that the funders and business rescue practitioners are “bending over backwards to give the government the space and time to come up with a funding plan”.
“It’s pretty clear from government that they want to make it happen, regardless of what anyone else is saying,” he said.
It is important to “zoom out” and consider what else was happening on Monday, Birns said, adding that the International Monetary Fund is due to make a decision on aid to SA.
“Do they [the government] rather want to wait until that funding is secure and in the pocket before they start making commitments, providing details about SAA and how they are going to pay people?”
Dawie van der Merwe, a business rescue practitioner and director at BDO Business Restructuring, said the SAA business rescue process has been “far more complicated” than any “other large business rescue because of all the added layers of complexity, such as public involvement, with government being the largest creditor but also the shareholder”.
He said the SAA case has taught the market that business rescue is not necessarily the “right regime to restructure a distressed state-owned enterprise because of these added layers of complexity”.
“It’s all those additional layers of complexity that have made this impossible. It’s difficult enough to save a business with this kind of balance sheet.”