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.”
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.