Denel faces funding gap for restructuring

Denel will need around R3 billion to cover a funding gap for a restructuring plan it is aiming to execute over the next 12 to 18 months, company executives told Reuters on Thursday.

Once a cornerstone of South Africa’s defence industry, Denel, which manufactures weapons and military equipment for South Africa’s armed forces and export, has faced liquidity problems in recent years.

It struggled to pay salaries during the pandemic and saw its bonds suspended by the Johannesburg Stock Exchange earlier this year after it failed to submit financial results within the required timeframe.

“Activities literally halted. We couldn’t get cash into the business. We just haemorrhaged,” new interim CEO Michael Kgobe said on the sidelines of the Africa Aerospace and Defence expo in Pretoria. “Right now it’s about unlocking cash.”

While Denel has previously failed to fully execute a turnaround strategy, Kgobe said a new restructuring plan was on track and benefitted from support from the board of directors.

Access to around R1 billion from a surplus fund held by the company’s medical benefits trust allowed it to pay salaries, and it is planning sales of non-core assets.

Denel expects to raise about R2 billion internally to fund the turnaround plan, which is projected to cost around R5 billion in total.

“We need to make sure we get government support, both from the fiscus and from the (Department of Defence) in terms of more contracting,” said Riaz Saloojee, a former Denel CEO who has returned to head the restructuring effort. “We need just over R3 billion.”

Denel has been technically insolvent since 2019.

Unlocking working capital should allow it to begin delivering on a confirmed order book worth around R12 billion and eventually access a potential pipeline of R30 to R35 billion over the next three to five years, Saloojee said.

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