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[OPINION] Selling Telkom to bailout SAA is wrong

south african airways bailout, SAA, SAA financial troubles

By Unathi Sonwabile Henama

The news that the state was planning to sell its stake in Telkom to bail out South African Airways came as a shock to me. Telkom has been a stellar performer and is one of the most exemplary State Owned Enterprises, an oasis in the tragedy of mismanagement and poor governance that characterise the majority of SOEs. The Ministry of Finance says the plan to sell off government’s stake in Telkom to raise the R10 billion needed to bailout ailing national airline South African Airways (SAA) is just one option being considered. The media was awash with information that the secret Cabinet memo indicated that Cabinet is due to approve a request from Finance Minister Malusi Gigaba to introduce in Parliament a special appropriation bill proposing the appropriation of R10-billion to SAA in the current 2017-2018 financial year.

The government holds a 39,7% stake in Telkom, whilst the Public Investment Corporation, which administers state pensions, holds 11,4% in Telkom. The PIC is a possible buyer for the 39,7% stake in Telkom, and the sale of the government’s shares in Telkom is valued at R14-billion. This would free up the required R10 billion for SAA. SAA is not in a financial position to repay Citibank, or any of the loans which is due on September 30. If SAA fails to honour these debt obligations an additional R7.8bn in guaranteed debt – which is due between 2019 and 2022 – will need to be paid immediately due to the so-called cross-default clauses, which means a borrower is automatically in default if it defaults on another loan obligation.

The Finance Minister pointed out that SAA doesn’t have enough cash reserves to pay its suppliers, although it managed to defer payments of close to R750m. The airline is however not generating sufficient cash to pay suppliers timeously. This, coupled with the unwillingness of lenders to extend the loan agreements – even with government guarantees – requires urgent intervention from government. Gigaba is concerned that SAA’s large amounts of maturing debt could pose a risk to the fiscus in that failure to honour its obligations could trigger a call on all SAA’s debt and possibly that of other state-owned companies, such as Eskom. This will require the sale of an easily disposable asset such as the government’s stake in Telkom. It is not the first time that the state has sold the family silver to fund an emergency. In 2015, the government sold its 13,9% stake in Vodacom to the Public Investment Corporation to fund Eskom. Eskom is facing governance challenges, which has led to the Minister of Public Enterprises to launch probes into the conduct of Eskom when allocating contracts. Selling the state’s stake in Telkom sends out the wrong message to other SOEs that they will always be bailed out. The Telkom board appointed Sipho Maseko as the CEO in 2013, and the share price of Telkom on the Johannesburg Stock Exchange was R14, 55. The Telkom success story is associated with having a strong board that acts beyond reproach, which has 100% shareholder support.

For the bailout to be a possibility it will require the sale of an easily disposable asset such as the government’s stake in Telkom. It is not the first time that the state has sold the family silver to fund an emergency. In 2015, the government sold its 13,9% stake in Vodacom to the Public Investment Corporation to fund Eskom. Eskom is still facing governance challenges, which has led to the Minister of Public Enterprises to launch probes into the conduct of Eskom when allocating contracts. Selling the state’s stake in Telkom to save SAA sends out the wrong message to other SOEs that they will always be bailed out. The Telkom board appointed Sipho Maseko as the CEO in 2013, and the share price of Telkom on the Johannesburg Stock Exchange was R14, 55. The Telkom success story is associated with having a strong board that acts beyond reproach, which has 100% shareholder support.

Selling the state’s stake in Telkom to save SAA sends out the wrong message to other SOEs that they will always be bailed out. The Telkom board appointed Sipho Maseko as the CEO in 2013, and the share price of Telkom on the Johannesburg Stock Exchange was R14, 55. The Telkom success story is associated with having a strong board that acts beyond reproach, which has 100% shareholder support.

 

The Telkom board chaired by Jabu Mabuza, did not interfere in the running of Telkom because it supported the competent management team, which ensured that Telkom’s turnaround bears fruit. Telkom has diversified from the fixed line operation, to include Telkom Mobile and the acquisition of the Business Connexion (BCX) group which contributed 3,7% to the group’s bottom line in 2016. Telkom is much leaner and agile, by offering voluntary retrenchment packages to reduce the staff compliment. Telkom’s turnaround has been so successful that it now pays a dividend to its shareholders. In the June 2017 results, Telkom increased the dividend by 56% from R2,91 to R4,22. Within the first year of Sipho Maseko’s

In the June 2017 results, Telkom increased the dividend by 56% from R2,91 to R4,22. Within the first year of Sipho Maseko’s tenure, the Telkom share price increased more than 500%. The share price has increased from R 14,55 in 2013, to R69 today. SAA has become a thorn to the South African citizens and the public purse, and urgent steps must be undertaken to return SAA to profitability, even if it means partial privatisation of SAA. I have full confidence in the newly appointed board of SAA, and newly appointed CEO. SAA is losing market share against other airlines and is increasingly being challenged by Ethiopian Airlines on the African continent, which has created several hubs competing with Johannesburg. Selling 40% of SAA to a strategic aviation partner can ensure that skills and expertise are brought to SAA that will ensure that it operates on business principles. There is also a need to investigate the widespread allegations of mismanagement at SAA.

Unathi Sonwabile Henama teaches tourism at the Tshwane University of Technology and writes in her personal capacity.

Kaya Voices pieces reflect the thoughts and opinions of their respective writers

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