Denel board exits linked to lack of budget funds, official says

State-owned Denel board members have jumped ship due to cashflow problems.
State-owned Denel board members have jumped ship due to cashflow problems.
Image: REUTERS/Siphiwe Sibeko

 A series of resignations from the board of directors of South Africa's state-owned defence company Denel is linked to funding not being made available in the government's 2021 budget, a senior official told Reuters on Wednesday.

"There were expectations from the board that there will be funding made available in the budget speech," said Kgathatso Tlhakudi, director-general of the Department of Public Enterprises (DPE). "When that was not forthcoming, they felt that they could not stay on."

Denel, which makes military equipment for South Africa's armed forces and for export, has faced a liquidity crunch aggravated by the COVID-19 pandemic. In the 2021 budget presented in parliament last week, the National Treasury did not allocate it new bailout funds.

Tlhakudi added in an interview that the DPE, the main ministry responsible for Denel, believed the company had peripheral assets that could be sold off before agreeing strategic equity partnerships (SEP).

"Let's aim for the low-hanging fruit before we aim for that SEP process. There are peripheral assets that can be disposed of, dispose of those, we can't want to go to the core of the business when there are non-core assets that can be gotten rid of," he said.

Denel was "nowhere near" entering a form of local bankruptcy protection called business rescue despite its liquidity problems, Tlhakudi said, citing the experience of another state company, South African Airways (SAA).

"Our experience with SAA shows we need to tread carefully in that direction," he said. 

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