CitiBank cancels R250m SAA facility

Moneyweb has learnt that on December 24 CitiBank cancelled SAA’s R250 million short-term banking facility, leaving the airline without cash and desperately trying to find local bridging finance.

It may also derail the already difficult process of refinancing SAA to re-establish its going concern status.

SAA failed to respond to Moneyweb’s questions in this regard, but National Treasury spokesperson Phumza Macanda said in an SMS response: “We are aware of the withdrawal of the Citibank facility and are working with SAA to ensure that they have sufficient liquidity.”

According to an internal SAA document that Moneyweb has seen, SAA will, as a result of the CitiBank decision, “have no free cash available on January 15”.

Apparently CitiBank is not prepared to re-instate the facility without a government guarantee.

In a legal opinion prepared for the board in November 2015, SAA head of Legal, Risk and Compliance Ursula Fikelepi said SAA had R14 billion in government guarantees, with R3 billion of it not being utilised.

From Fikelepi’s legal opinion, that Moneyweb was initially interdicted against publishing, it was however clear that SAA needs much more than R3 billion. Judge Roland Sutherland lifted the interim order in the South Gauteng High Court on December 17, ruling that it is in the public interest to have it published.

Fikelepi pointed out that the external auditors have not signed off SAA’s financial statements for the year ended March 31 2015, as SAA was not a going concern. According to Fikelepi, SAA was trying to raise R15 billion long-term debt in an effort to restructure its debt; a R3 billion term loan and R1 billion bridge finance to re-establish itself as a going concern.

She said the funding drive was due to be completed by January and until then the airline would not have enough cash to pay its debts.

The position was clearly very precarious even before the cancellation of the CitiBank facility.

The fundraising was not going well. Fikelepi said there were “challenges” to raise the R15 billion, as lenders were “increasingly wary of assuming SAA risk”.

This would have been further complicated by the departure of SAA’s CFO Wolf Meyer around December 17 2015.

SAA earlier told the Parliamentary Portfolio Committee on Finance that it needed a further government guarantee of R5 billion.

The CitiBank cancellation came even after National Treasury announced on December 22 that the SAA board would revert to the Treasury-approved aircraft leasing deal with Airbus that would save the airline huge amounts and was part of its long-term turnaround strategy.

That put an end to efforts by the board to depart from the approved transaction to accommodate a local third party intermediary. This departure was expected to send SAA over the financial cliff and was averted only after finance minister Pravin Gordhan’s intervention.

Gordhan was re-appointed to his former job as finance minister after the sudden removal of Nhlanhla Nene from the position sent markets into a tailspin. Nene’s rejection of the SAA board’s proposed deal with Airbus was widely seen as one of the possible reasons for his removal.

In an effort to mitigate the impact of the CitiBank cancellation, SAA is seemingly juggling its obligations. “The Finance team are managing non-critical creditor payments in order to ensure liquidity for the next two weeks,” the internal document stated.

Charl Kocks, principal of Ratings Afrika, said if at any stage SAA gives written notice to any of its creditors that it cannot pay its debts, that would be an act of insolvency in terms of the Insolvency Act. The board would in such circumstances be obliged to file for business rescue and/or inform all its creditors of the situation.

Failing to do so constitutes non-compliance with the Insolvency Act and may see directors being held personally liable for damages suffered by any third party as a result of their failure.

Fikelepi already told the board in her legal opinion early in November that it should file for business rescue or insolvency in terms of the Companies Act, but the board has to date failed to take such action.

The SAA board has been widely criticised for the way it leads the organisation, often ignoring Treasury instructions. It has been in conflict with SAA management and this has resulted in the departure of many experienced executives. Board chairperson Dudu Myeni is the chairperson of the Jacob Zuma Foundation and has been seen as enjoying protection as a result of her relationship with the president.

Deputy President Cyril Ramaphosa, who has been tasked with overseeing the turnaround of SAA, said in a statement on November 26: “Currently, government is in a process of finalising the appointment of a new board of directors as part of efforts to ensure good corporate governance. The task of the new board will be to stabilise executive management by recruiting skilled professionals to implement the turnaround strategy as approved by the board and endorsed by Cabinet.”

Economist Mike Schüssler said CitiBank’s decision would raise huge concern among SAA’s other funders and creditors. The bank would typically have more insight into SAA’s finances than other creditors and other banks would be very wary of extending further credit to the airline.

Schüssler said the only options are for government to give SAA further assistance, or to close the airline down. He said taxpayers cannot afford SAA anymore and if government nevertheless decides to assist the airline further, things will have to change, starting with an investigation into reckless management of the airline and the appointment of a new board.

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