Following another R3 billion bailout for SAA last week (28 September), government is still considering selling its stake in Telkom to help fund the struggling airline.
Speaking to BusinessTech, national treasury said that that the R3 billion bailout for SAA had to be paid to avoid a default on a loan repayment for Citibank, and was done in terms of section 16 of the Public Finance Management Act.
A default by the airline on the payment would have triggered a call on guarantee exposure totaling R16.4 billion, leading to an outflow from the National Revenue Fund, and possibly resulting in elevated perceptions of risk related to the rest of SAA’s guaranteed debt.
However, while the R3 billion debt payment had been met, the failing airline still has billions more outstanding.
This means that the so-called ‘Telkom deal’ – a proposal to sell government’s 39% stake in Telkom to fund R10 billion of SAA’s debt – was still one of many possible options being looked at by government, treasury said.
“(The Telkom deal) has not ‘fallen through’. It was merely, as repeatedly explained, an option among many other options that government was considering,” said treasury. “Government remains committed to financing state-owned companies in a budget deficit neutral manner – and this (SAA) transaction will certainly be done so.”
The Telkom option
In September, Treasury director-general Dondo Mogajane tried to calm concerns that government was planning on using the Public Investment Corporation (which is tied to state pensions) to help fund SOE bailouts.
Mogajane indicated that government had approached the PIC to consider buying its Telkom stake to help cover nearly R10 billion in SAA’s shortfall. However, he said that the PIC would only be able to acquire part of government’s Telkom shareholding due to several regulatory and investment parameters.
While Treasury and the finance ministry maintain that the Telkom shares were just one of a myriad of options being considered, the sale was given further credence when Telkom issued a statment cautioning shareholders, stating that government could be reducing its shareholding in the group.
In a market update to investors in September, research analyst at Nomura, Peter Attard Montalto said that the sale of government assets to finance SOE bailouts would be one of the “least-worst” option open to national treasury – but would not be without some major drawbacks.
Specifically, selling profitable assets to fill holes in loss-making SOEs basically leaves no cushion for the revenue hole and any expenditure slippage (especially on debt service costs), Attard Montalto said. They also remove net contributors to the budget.
Finance minister Malusi Gigaba said that he will disclose the full recapitalisation plan for SAA in his mid-term budget speech on 25 October.