South Africa’s decision to sell a majority stake in the country’s loss-making national airline poses an ongoing financial risk to the state as terms were severely biased towards the buyer, the National Treasury said.
The finer print of the deal that saw the Takatso Consortium acquire a 51% stake in South African Airways last year represents a “potential liability,” the Treasury said in an emailed document to the Standing Committee on Public Accounts. of Parliament which was subsequently withdrawn.
This is partly due to the fact that Takatso – comprised of a local jet leasing firm and private equity firm – has the right to assess whether any outstanding liabilities in SAA are resolved by the government, the Treasury said in the document. Bloomberg.
The emergence of concerns came when Public Enterprise Minister Pravin Gordhan was due to appear before the Public Accounts Committee. Gordhan, a former finance minister, had made the removal of SAA from the state list a key tenet of his oversight role at the Department of Public Enterprises, which also includes debt-laden utility company Eskom Holdings among his responsibilities.
The terms “may lead the state to provide funds in excess of its holding,” the Treasury said.
While the letter was withdrawn, Finance Minister Enoch Godongwana said at the hearing that the National Treasury did not participate in the sale process and the substance of the “letter banks”. The department immediately declined to comment further.
Aircraft on the ground
The sale of SAA was announced in June last year after the airline emerged from a lengthy bankruptcy procedure, during which its aircraft remained on the ground for over a year and the workforce was reduced by 80%. . The airline, which served destinations across Africa and some of the world’s major cities, hasn’t made any money since 2011 and has received state bailouts totaling billions of rand.
“We all have a responsibility in the government to reduce collateral and contingent liabilities,” Gordhan said at the hearing.
The Public Enterprise Department declined to comment further.
The National Treasury said it was not consulted on the sale of the stake, which it claims cost R51 ($ 3.16), and remains unaware of a number of other deals such as the proposed issuance of preferred stock by Takatso at the DPE. He is also concerned that government guarantees on SAA’s debt remain in place, according to the document.
Finance minister at the time of the sale, Tito Mboweni, clashed repeatedly with Gordhan over SAA, arguing that the airline could go bankrupt and airlines run by private companies. He was replaced by Godongwana in August.
“The strategic equity partner can take very little shareholder risk by acquiring a majority stake in the purchase price of R51,” the Treasury said.
Takatso is made up of Johannesburg-based Global Airways, which owns the national airline Lift, and the private equity firm Harith General Partners.