SA Company: Denel can pay employees until March. — "But needs a long-term liquidity solution"

Denel, which faced a cash crisis in December when there were reports it would not be able to pay salaries, is engaging with the Department of Public Enterprises and Treasury to address its liquidity problems and, in the short term, is investigating the possibility of selling assets to generate some cash.

On Tuesday, Denel CEO Zwelakhe Ntshepe and chief financial officer Odwa Mhlwana replied to questions by members of Parliament’s public enterprises committee on recent developments in the company.

Mhlawana said in an interview after the engagement with MPs that, initially, Denel was hoping to get a R1bn guarantee but, with the

fiscal constraints facing the government at the moment, realised this would not be forthcoming. Consequently it has begun to look internally at the possible sale of assets, such as property, and investments, which can provide the company with the required cash.

"We are focusing on creating solutions to the inability to create sufficient cash flows to sustain the business. It is no surprise that this business finds itself in a liquidity crunch."
Denel has in excess of R19bn worth of signed orders so it is a very healthy business, Mhlwana said.

Ntshepe said Denel did not have a problem paying salaries in January and would not have a problem paying them in February and March, "but the issue of liquidity in Denel is a serious matter which has existed for a long time. Denel has never really made serious money".

Ntshepe said that Denel’s monthly expenditure was more than R600m, which covered payment of interest on loans and payment of suppliers and salaries. Payment to the banks had to be prioritised to prevent a default.

Mhlwana noted that Denel’s global competitors were heavily supported by their local defence forces with 60% to 80% of their business being derived from this source, which gave them leverage to negotiate better terms. In Denel’s case, only 20% to 25% of its business was local.

Mhlwana said that, historically, Denel has not generated cash. In the past five years the company has collected about R23bn but only made cash of R100m.

Businesslive