Hurdles cleared for sale of SAA - now for Takatso to show the money

The last hurdles are being cleared for the sale of 51% of South African Airways (SAA) to Takatso - if it can come up with the money. 

A major blockage to the sale, brokered way back in June 2021, that the government covers all historic liabilities has been overcome, SAA interim chair Derek Hanekom told MPs on Tuesday. 

The Treasury provided SAA with R1-billion in this year's budget. Hanekom said that the remaining request to the Treasury – R1.5-billion to refund unflown tickets – had been covered by SAA itself through a combination of earnings and negotiations with creditors.

"It would have been nice to receive the money from the Treasury, but we did not and now assume that we will not get anything from Treasury. We will still end this year cash-positive. We have covered the Receivership, and this a sign of a turnaround," Hanekom said.

The SAA board, its executive management, government officials, and the Auditor-General's office were part of Tuesday's briefing of the Standing Committee on Public Accounts (Scopa).

Asked by MPs whether the transaction would now finally happen and if Takatso had secured the funding, Hanekom replied: "I'm not in a position to answer that. The board did not have anything to do with the decision for a strategic equity partner."

Since the deal was brokered nearly two and a half years ago, there has been speculation that Takatso – a consortium of Harith General Partners (HGP) and Global Aviation – would find it difficult to raise the funding, given its small balance sheet. While Harith administers two large Pan-African infrastructure funds in which institutional investors participate, it does not have significant assets. 

Global Aviation has since been told by the Competition Tribunal that it is barred from being part of the consortium for competition reasons.  

Acting director-general of the Department of Public Enterprises, Jacky Molisane, said Takatso remained extremely keen to get on with the deal, and it was not envisaged that it would have funding difficulties, according to a recent due diligence done by the department. 

The Treasury has also asked Takatso to show proof of funds for the deal to go ahead.

Deputy Minister of Public Enterprises Obed Bapela said that the latest delays to finalising the transaction were not funding-related and had arisen due to the exit of Global from the Takatso consortium.

But he assured the committee, "If no money comes from Takataso, then there will be no deal. Should anything like that happen, we will look at other possibilities."

SAA CEO John Lamola said that although SAA was now profitable it would still need external capital to expand and be sustainable. 

"SAA needs external funding and it can only come from capital markets or a strategic equity partner – whether that is Takatso or Takatso Plus or something else," he said.

The AG, which presented a summarised version of the last five years' annual financial statements of SAA, which have only now been finalised, said that the uncertainty over the equity injection created a "material concern" over SAA's going concern status.

"The fact that the Takatso consortium has not indicated the timing of when the transaction will be concluded and the funding aspect of the transaction; to that extent, there is a material concern over the going concern status," said Madidimalo Singo.

The Takatso transaction has been controversial since it was announced by Minister of Public Enterprises Pravin Gordhan in June 2021. Regarding the agreement, Takatso will acquire 51% of SAA for R51. However, it undertook to make an equity injection of R3-billion over three years in the form of a repayable shareholder loan.

While Gordhan employed transaction advisors to evaluate the bids, the Department and Gordhan structured the transaction. They also selected Takatso as the winning consortium because they had found that none of the other bidders were prepared to put in significant equity.

The AG's report was implicitly critical of how the transaction was done and made several recommendations for future transactions. These included the following: 

• That a regulatory framework be developed;
• A valuation that is independent of the potential strategic equity partner be done;
• The due diligence of potential partners be enhanced; and
• That the search for potential partners should be done in line with Section 217 of the Constitution, which requires that the process be "transparent, fair and most advantageous to the state".

Due to the long lapse in time since the original valuation of the business was done, Molisane said that a new valuation was in process. This would impact on the price that Takatso would pay.

"We are renegotiating, and Strategic Equity Partner is engaging in good faith given the lapse of time," she said. 

The Special Investigating Unit (SIU), which was also part of the Scopa briefing, said that it was investigating "new allegations" related to the probity of the SAA-Takatso transaction. These were being investigated to establish if it warranted requesting a proclamation from the president to investigate.