Bailouts for SAA, Sanral’s e-tolls and more

‘Debt is increasingly used to repay debt.’

Government has allocated R5 billion in the medium-term budget policy statement (MTBPS) to help the struggling South African Airways (SAA) face a looming debt crisis in March next year.

The airline currently has R19.1 billion-worth of government guarantees, of which R14.5 billion has been used and in March next year one billion of this will be maturing.

Government says the new allocation is to help SAA repay this debt. “In general, SAA is not generating sufficient cash to repay its total debt and will have to negotiate with lenders to refinance or extend maturity dates.”

Other state-owned companies (SOCs) that have been given a lifeline in the MTBPS are SA Express, which received R1.2 billion, the South Africa Post Office has been allocated R2.9 billion to reduce debt and the South African National Roads Agency (Sanral) R3 billion. The Sanral allocation was taken from the Passenger Rail Agency of SA’s capital budget.

According to the MTBPS, Sanral currently has government guarantees of R38.9 billion. It states there is a risk that this guarantee might be called, because the agency is not generating enough cash from e-tolls to pay its debt as it falls due over the next three years.

Government has therefore agreed to allow Sanral to transfer R1.75 billion from its non-toll portfolio to its toll portfolio and allocated it an additional R3 billion to make up the shortfall.

Government says that while the pressure on Eskom’s liquidity has eased somewhat due to easier access to capital markets, the utility’s “weak financial position remains a risk that could lead to a call on guarantees”.

There is no provision for additional funds for Eskom.

Denel has used R2.8 billion of a five-year R3.4 billion guarantee and “will struggle to settle maturing debt on its own because its financial position remains weak”, government says. No extra funds are however allocated to assist Denel. Government says Denel will consider selling non-core assets to improve liquidity while is implements a turnaround plan.

The Road Accident Fund’s (RAF) liability is expected to grow from the current R206 billion to R393 billion by 2021/22 despite a 30c/l increase in the fuel levy for its benefit. Government states that the RAF “will require further large increases to the fuel levy in each of the next three years to manage the short-term liability”.

Total guarantees issued by government amounts to R670 billion, with Eskom having the largest facility of R350 billion. At the end of June total guarantees utilised by state-owned companies was R334.1 billion. Over the next three financial years, guaranteed debt redemptions are expected to average R26 billion.

According to the MTBPS, SOCs increasingly struggle to get funding, “mostly as a result of their weak balance sheets, poor corporate governance and liquidity challenges”.

These entities will find it difficult to refinance maturing debt as investors increasingly require guarantees before they will provide financing. As a result, government’s contingent liability exposure is likely to remain high, government states.

Over the previous seven years, interest-bearing debt of the 10 SOCs that borrow most has grown by 163% from R266.7 billion to R702.7 billion.

“This debt is expected to increase to more than R1 trillion over the medium term. Although the increase in debt has largely financed capital expenditure, a growing proportion of debt is now financing operations and interest payments.”

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