CHARLES MOLELE|
THE controversial sale of the troubled South African Airways (SAA) has raised more questions than answers.
Four weeks ago, Minister of Public Enterprises Pravin Gordhan announced that the Takatso Consortium, comprising Harith General Partners, a leading investor in African infrastructure and airports, and airline management firm Global Airways, has been selected as the preferred Strategic Equity Partner (SEP) for SAA.
Gordhan announced that Takatso Consortium is to acquire 51% of SAA while government will retain 49%.
Thus far the Takatso Consortium has not raised any capital to invest in the airline.
A week after the announcement of the SAA sale, President Cyril Ramaphosa said the plan to sell Government’s majority stake in the airline was not a done deal.
“Only after the due diligence is completed will the rubber hit the road,” Ramaphosa.
However, the sale has drawn the ire of the trade unions and opposition parties – with the Public Servants Association and the National Union of Metal Workers of SA (Numsa) accusing Gordhan for not being transparent with the workers.
The United Democratic Movement (UDM) leader Bantu Holomisa has since instructed the party’s lawyers to write to Gordhan, Finance Minister Tito Mboweni and the Public Investment Corporation (PIC) to demand to see the proposed shareholder agreement, valuation report, partnership agreement and management agreement for the proposed deal.
“We are particularly interested in how Harith General Partners gets fingered in the Mpati Report and then resurfaces as a potential stakeholder in SAA,” said Holomisa.
“We would like to know, from minister Gordhan in particular, why government would spend millions of rands on a commission and then reward some of those implicated in the findings with running SAA.”
The Democratic Alliance (DA) and the Economic Freedom Fighters (EFF) have also raised its objections to the proposed deal while the African National Congress (ANC) said the sale of the majority stake in SAA to private hands was not out of kilter.
To date, it remains unclear how much Takatso Consortium, or any other bidder for that matter is paying for its stake and whether the R3 billion they proposed to raise is sufficient.
There are further legitimate questions around the manner and timing of the announcement of the transaction, including whether the National Treasury has approved.
At the very least, it sounds like Takatso Consortium should have been referred to as the preferred bidders, with a number of hurdles to be cleared before a deal is concluded, such as due diligence (DD), proper valuation, and how much is required to get the airline off the ground.
Answers to some of these key questions lie with the Business Rescue Practitioners (BRPs).
The BRP ran the airline between December 2019 and April this year when they handed it back to the Board.
In doing so, the BRPs declared that SAA is “both solvent and liquid” and “adequately set to continue into the future”.
At the height of the business rescue process, the BRPs announced that SAA would require R10 billion to restart – and at least R26 billion in the long term.
How then did we arrive at a figure of R3 billion to restart the operations at SAA?
The arrangements around the SAA debts are also peculiar.
The business rescue process restructured debt to around R14 billion – with government having already pledged R10 billion.
For any buyer to not assume responsibility for any portion of the debt seems generous, and almost defeats the purpose of selling, which is to relieve taxpayers of the burden.
The sale deserves to face scrutiny when one considers that the last R10 billion rescue package was raised by cutting budgets from areas such as health and schooling infrastructure, for example.
Any sale should seek to recover at least some of that.
The last time SAA was privatised in 1999, a 30% stake was sold to Swiss Air for R1.3 billion.
Following the collapse of Swiss Air in the wake of the September 11 2001 terrorist attacks, the stake was sold back to South Africa for R300 million, a reflection of Swiss Air’s collapsed value rather than SAA’s.
It is thus inconceivable that twenty years later – with all the troubles SAA has faced including the Global Financial Crisis, falling market share, declining profitability of routes, rising jet fuel costs, expensive legacy contracts for fleet leasing and pilot salaries as well COVID-19 of course — a 51% stake is worth nothing.
If government decides to waiver the purchase price to make the deal attractive it must say how much it is giving up – R500 million or R1 billion?
Of course, the law requires that if a business deemed to be worthless, it is sold for a rand, yes R 1. Is that what Takatso Consortium are paying?
Surely the public deserves to know.
Of course, the revival of Swiss Air following the 2001 collapse could bear some lessons for SAA.
In 2002 the airline was taken over by Lufthansa.
It was revived through reconfiguration of its fleet retention of some codes to retain air traffic rights and route and code sharing through the Star Alliance, of which SAA is a part, such that by 2011, Swiss Air got its original name and logo back to retain its status as Switzerland flag carrier.
So, a revival is possible if you have shareholders or Strategic Equity Partner (SEP) with deep pockets, expertise and a long-term view.
And the question is whether Takatso Consortium has all three.
The partnership with Global Airways, owners of the new airline Lift and the presence of Gidon Novick, founder of the successful Kulula and the executive and managerial talent he can assemble suggests that they have the expertise.
Harith is an investor in infrastructure projects, which tend to require a long-term view.
But the funding part still has questions.
In the early part of its existence, Harith relied on funding from the Public Investment Corporation (PIC), the custodians of Government Employees Pension Funds (GEPF) investments, which retains a 30% stake in Harith General Partners.
But the PIC has said it is not participating in the Takatso Consortium deal, presumably because questions would have been asked why it did not simply advance the funds to SAA rather than go through third parties.
Gordhan has simply said Takatso Consortium has a strong balance sheet without showing evidence.
Without the PIC to stand as guarantor beyond its shareholding, how much can Harith raise in the open market?
That is the ultimate test and remains to be seen.
So, in the end, government will have to demonstrate that this offer was the best on the table.
But without knowing what else was being offered it will be hard to tell.
Government would also have to show whether considerations such as retaining local ownership and retaining flag carrier status for example was an important consideration above foreign buyers with more attractive terms.
If the final deal fails to answer these questions then this deal will join the pantheon of other questionable deals such as Telkom’s Elephant deal —funded by the PIC —and Arcelor Mittal’s failed Ayigobi Consortium deal, which was sensibly shot down by shareholders.
- Inside Politics
