Government looking at capital structure for SAA

Government looking at capital structure for SAA
Government looking at capital structure for SAA

Government is exploring options of establishing a proper capital structure for South African Airways (SAA), says Finance Minister Malusi Gigaba.

“The proposals we have put forward with regards to a model have not yet been finalised. I’d like to caution against hysteria created by us considering various options,” said Gigaba on Friday.

The Minister was briefing media following his meeting with the CEO Initiative at National Treasury’s offices in Tshwane.

The Minister said Cabinet has appointed four Ministers to look at various options to capitalise SAA.

“Once we have finalised that capital structure, we will go back to Cabinet, go through the Parliamentary process and that will then become public.”

This as the national carrier currently requires R10 billion capitalisation.

“At the present moment there’s a R10 billion capitalisation that is required for SAA. The source of that recapitalisation is not finalised. What business leadership indicated to us is that we don’t have the luxury of time to resolve this issue including the issue of governance [at the airline],” said the Minister, adding that government is well aware of the challenges at SAA.

The Minister briefed business leadership led by Jabu Mabuza on steps being taken to bring SAA on the proper footing in terms of management, governance, financial position, as well as in terms of its business model.

Gigaba said it was good that a new Chief Executive Officer (CEO) – who is yet to start in his position – has been appointed. Government is also looking at strengthening the national carrier’s board.


Friday’s meeting also discussed challenges at power utility Eskom.

“I briefed the leadership of business about my concerns with regards to the governance challenges at Eskom as well as the challenges with regards to the utility’s balance sheet.

“It is important that we continue to pay attention to the governance of our state owned companies (SOCs) to improve it and ensure that we place it on a platform where these companies can become financially sustainable and can ignite confidence among investors,” he said.

Government guarantees

“If you look at the government guarantees framework at Eskom and the level of exposure in particular of government and Eskom as well, if there are any difficulties the financial risk to government would be quite enormous.”

Minister Gigaba said government must pay close attention to the ability of SOCs to comply with the guarantee conditions and ensure that they become financially viable.

To this end, government in the coming years will look at proposals around the management of government guarantees.

“I have in the past made statements with regards to my discomfort about the provision of government guarantees to support operational expenditure in SOCs and I have indicated my preference to ensure that government guarantees are there to support capital expansion,” explained Gigaba.

Government is looking at proposals that will ensure that government reduces the provision of guarantees for operational expenditure but focuses guarantees for capital expenditure.

“At the same time we need to work with various shareholder Ministers to reduce the government guarantees that these companies have at the present moment.”

This as government guarantees at the moment stand at R780 billion more or less.

“It’s important that we should reduce them because they bear heavily not only on the balance sheets of state owned companies but also the balance sheet of the state as well,” said the Minister.

Efforts to grow the economy

Mabuza said it was important to hold the meeting.

“We have been urged by all CEOS that this is our country, our economy, and we cannot boycott efforts to grow the economy,” he said.

Minister Gigaba said such meetings are crucial.

“It’s important that we should continue engaging not only for investor perception but also because business and government are critical stakeholders in driving the South African inclusive growth story.”

The meeting discussed several initiatives including the Youth Employment Scheme with the aim of taking up one million young people over the next three years in internship programs.

“There were other initiatives to reignite growth in the economy so that we ensure that we lift the economy above the 0% growth trajectory,” said Minister Gigaba of the meeting with the CEOs Initiative steering committee.

The broader meeting of the CEO’s Initiative will be convened by President Jacob Zuma in due course. It will involve a broader participation of CEOs and Ministers.

South Africa Today – South Africa News