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Gigaba’s letter to parliament reveals the abyss SAA peers over

Failure to pay Standard Chartered would have resulted in ‘cross-defaults’.

Finance Minister Malusi Gigaba’s letter to parliament explains just what a disaster would have unfolded for SAA and the government had they not honoured the call by Standard Chartered to refund the working capital facilities they had provided to the beleaguered airline.

In his letter dated the 20th of July and addressed to Speaker of Parliament, Baleka Mbete, Gigaba explained his reasons why he invoked Section 16(1) of the Public Finance Management Act to refund the R2.207 billion in working capital facilities Standard Chartered had provided and wanted paid up by the 30th of June. In short, “SAA was unable to settle this debt.”

Read: SA considering sale of state assets to fund SAA

The existing plan put in place by Gigaba’s predecessor, Pravin Gordhan, relied on funding problems with SAA’s capital structure through the disposal of assets to that were to be identified ahead of the Adjustments Appropriation Budget that was to be introduced in October this year. “Unfortunately,” wrote Gigaba, “the downgrade in South African foreign-currency credit rating by certain ratings agencies, the downturn in the economy and the more rapid deterioration of SAA’s cash flow position necessitated more urgent action, which rendered the execution of this approach ineffective.”

An excerpt from Gigaba’s letter to parliament

But the real kicker comes in the next paragraph, where Gigaba explains that failure to settle Standard Chartered would have resulted in “cross defaults” on the airlines other guaranteed debt of R13.75 billion and general banking facilities of R830 million. Evidently, a breach in one debt renders a breach in all, and that would have meant potentially a call from all of the other creditors on their debt.

Moneyweb previously reported that the airline had to pay salaries from a VAT refund in June, and with 97% of its guarantees utilised, the airline is now scrambling for cash. It also still needs to settle the fine of over R1 billion owed to Comair, which makes you wonder whether the airline is technically insolvent.  

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COMMENTS   12

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Why are we bailing out this company? Surely tax money is better spent on infrastructure improvements, education and housing.

So the taxpayer, who is over-indebted himself, is now the “lender of last resort”? The SOE’s will be the trigger to topple this whole over-leveraged debt monster that is the ANC government. Christine Lagarde is shaking her head and rolling her eyes as she watches how the clowns in Luthuli House manage to ruin everything they touch.

In a perfect world I believe ministers and lawmakers would ponder and decide on transferring the operations of SOEs like SAA to private sector publicly traded companies. All that government would do is issue the operational charter to the companies, keep some shareholding in the companies, enforce regulation on the companies, audit it through the Auditor General along with independent auditors, and encourage citizens to invest in the companies shares if they so wish. Apart from this, government would stay away and allow citizens to serve themselves. But I dont think this provides enough room for grand looting for those with bad intentions.

Hopefully Comair will do us taxpayers a favour and liquidate SAA if they are not paid their R1bill. Unfortunately I hear that SAA are appealing the judgment.

Appealing the judgement and costing us taxpayers yet more wasted money. The poor are yet again denied and the 1% are blamed while their leaders continue with profligate expenditure. The Circus of Tragedy is what SA has turned into.

The bottom line is . .. .. .. . Its just a matter of time before there is a run on the bank.

SAA will never make a profit and hence will never be in a position to repay its debt.

Get rid of it for 10 cents (including debt).

OK Bazaar was sold to Checkers for one cent! With the current debt situation at SAA, there will be no buyers. Minium assets, dysfunctional board, inept senior managers, overpaid and excess staff. Who would want to buy into SAA???

Lol they wont be able to sell it. It will appear under give away section on olx….

SAA should have been closed long ago.

It is the South African politicians and their families and girlfriends carrier.

I have been boycotting it for years in the hope that it closes down, but instead my Taxes paid pay for this one more politician perk.

SAA has for a long time, and in all senses of the definition, been bankrupt / insolvent as per SA company law. The question is when (and if) our company law applies in full to SOE’s. If it does then there are actions or remedies that effected parties can take to request liquidation of a company so afflicted. This includes, as far as I’m aware, not only creditors, but also shareholders, employees and unions.

So – if this is correct, and if it can be argued that the SA public (the taxpayer) is an interested party then why has no-one pursued this course of action? We know that the Govt won’t do it and the creditors are probably too damn scared of fallout, but surely there must be an avenue for some other party to institute insolvency proceedings against SAA (and at the same time limit the Govt’s ability to continue, ad nauseum, give yet more bail outs)?

the best part of Gigi report – “Unfortunately,” wrote Gigaba, “the downgrade in South African foreign-currency credit rating by certain ratings agencies, the downturn in the economy and the more rapid deterioration of SAA’s cash flow position – it sound as if all this was an unexpected surprise,… and with his 14 point plan also “Unfortunately” did a downturn on the economy, with a rapid deterioration on his credibility to make any economic decisions.

End of comments.

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