Even staff’s 15% pay cut isn’t helping Denel overcome debt mush

Once one of the world’s most successful arms manufacturers, Denel SOC Ltd, use to create and market innovative long-range weapons and missiles that were the envy (and often the end of) whichever warring side couldn’t secure them. Or, in happier consequences, Denel’s products were a major deterrent to lurking enemies. For decades, Denel generated billions in sales and enjoyed a fine reputation among arms dealers. Today it’s not helping anyone, least of all our government, from which it actually wants millions to keep operating. This story outlines just how much Denel requires and how its troubles are impacting staff who’ve taken a 15% pay cut to help their company stay afloat. Add Denel’s debt to Eskom’s gigantic millstone, SAA’s few billion and the SABC’s, and these SOEs pose a very real threat of causing economic implosion. Nobody needed to smoke in the ammo-dump: they just forgot to repair its roof. And slowly, the powder has turned into a wet mush as useless as the aftermath of any explosion. – Chris Bateman

South Africa’s Denel Runs Out of Cash as Debt Payments Loom

By Renee Bonorchis and Colleen Goko

(Bloomberg) –State-owned arms manufacturer Denel SOC Ltd. said it doesn’t have enough cash to pay its staff their full salaries this month, joining other government-owned companies clamoring for support in South Africa.

Employees will only receive 85% of their salaries due to a “liquidity crisis,” the company said in an emailed statement. The squeeze comes as 30 million rand of coupon payments become due by June 28. Denel did not immediately respond to questions on whether it would be able to pay the interest.

Should Denel be unable to service the debt, which is guaranteed by the government, that would put further strain on the fiscus at a time when state-owned companies including Eskom Holdings SOC Ltd., the electricity utility, are also in need of bailouts. South Africa’s potential liability for government-guaranteed debt of state-owned companies was 879.6 billion rand in March, according to the National Treasury.

‘Highly Leveraged’

“The shareholder, the board and management are continuously working to find sustainable solutions to the liquidity crisis facing Denel,” the Pretoria-based company said in the statement. “Government is cognizant of the fact that Denel is highly leveraged and in need of additional liquidity to rebuild the business.”

Denel has more than 3 billion rand owing in principal and interest on its debt this year, with three bonds totaling 2.7 billion rand due in September, according to data compiled by Bloomberg. All its debt is guaranteed by the government. It is among several cash-strapped South African state-owned companies linked to corruption during the presidency of Jacob Zuma, including deals involving the Gupta family, who were friends with Zuma. All deny wrongdoing.

Debt of state-owned companies is a risk to South Africa’s last remaining investment-level credit rating, Moody’s Investors Service said in April. Yields on benchmark 3030 government bonds have climbed 13 basis points in the past three trading sessions to 8.91%, the highest after Turkey and Lebanon among 26 emerging-market peers.