Home South African CEO says Denel is insolvent and running on R360m budget deficit

CEO says Denel is insolvent and running on R360m budget deficit

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A Stryker fitted with a Denel 105mm gun-howitzer turret during testing in the United States. File picture: Denel/Sapa

“We are technically insolvent. Our available cash is insufficient to meet operational requirements to run the business.”

STATE-owned enterprise Denel is technically insolvent and is running on a R360 million budget deficit, acting group CEO William Hlakoane said on Tuesday.

Briefing the standing committee on public accounts, Hlakoane said Denel had been unable to trade efficiently since Covid-19 started.

“We have been battling to come out of the situation we are in and the trend is still continuing,” he said.

Hlakoane said its revenue budget was at risk, at R3.7bn, due to liquidity.

“We are technically insolvent. Our available cash is insufficient to meet operational requirements to run the business,” he said.

He said Denel owed R636m to its employees in salaries, pension funds and medical aid schemes, and R900m to suppliers.

Hlakoane said it was facing issues with tax clearance due to non-payment of taxes.

“As of yesterday, we received a letter from Sars indicating that they will waive or give tax clearance on condition we pay PAYE and VAT at the end of August.”

He also said the entity’s ratings were not a good picture.

“We are impacted negatively. Customers, local and international, are concerned about our liquidity situation.”

Hlakoane also Denel’s performance bonds were at risk to the tune of R 1.4bn.

Denel was defending two legal matters in courts, with one being the liquidation application by SAAB Grintek Defence, and the other was non-payment of employee salaries by the unions.

His report tabled before the committee showed that the SAAB matter was in court while parties continued to try to find a solution.

The non-payment of salaries was postponed to December 2021, to allow Denel time to comply with the August 2021 court order.

Hlakoane said some employees, in their individual capacity, had submitted court applications for the amounts owed to them.

“This poses a threat to Denel’s assets as execution orders to attach assets have been granted by the courts.

“The threat of other suppliers making a similar application persists as increased letters of demand are delivered to Denel.”

He said some of the suppliers that have not taken action might take the legal route should they not stabilise Denel.

Hlakoane said its workforce was standing at 2,429 in June, down from 2,662 in April.

Employees, mostly from the technical wing, were resigning.

“Seventy one people have left in the technical wing since April to date. It is really a precarious position we find ourselves in.

“The sooner we stabilise the better it is going to be for business to trade.”

He, however, said there were opportunities to reverse the situation.

“We need to restructure and right size the business in order to be able to meet our obligations.”

Hlakoane took the committee through the turnaround and briefed it on the investigations by the SIU, including the stolen intellectual property rights.

He said the suspensions of some employees, disciplinary proceedings and criminal cases being opened.

The committee expressed its disquiet about the insolvency of Denel, the slow pace to hold the employees fingered in the investigations accountable and the failure to name the implicate officials in the report tabled.

Board chairperson Gloria Serobe said they were anxious to conclude the matters and noted that they were stuck with criminal processes in various jurisdictions.

“The nature of the business of Denel destruction has been a sophisticated systematic process. We also have to be systematic and sophisticated in how we undo it,” Serobe said.

“You will forgive us, chairman, if we look like we are not in a hurry. There is no reason on our side whether it is the board or the management to hide the names, sifting things and dragging our feet,” she said.

Political Bureau

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