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Denel downgrade ‘disappointing but no surprise’

NewsLite by NewsLite
28th Aug 2020
in Economy
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Denel downgrade ‘disappointing but no surprise’
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The Uasa trade union says the international rating agency Fitch’s downgrade of Denel due to the absence of reliable government support is “disappointing, but no surprise”.

“Uasa regrets the situation that has now reached this point after we took the company to court in an attempt to force the state-owned enterprise (SBET) to pay workers’ salaries. “Failure to do so, despite a court order, makes it clear how much the company has deteriorated,” said Stanford Mazhindu, Uasa spokesperson.

“What is sad is that the situation was allowed to reach this point.”

Fitch downgraded Denel’s long-term bond rating to level CC on Tuesday, while its short-term bonds were downgraded to C. ʼn C rating is the lowest rating Fitch can give. Both were previously at level B.

“The downgrade is a reflection of Denel’s tense liquidity position and the absence of timely government support,” reads the rating agency’s report.

According to the Fitch report, the liquidity position is due to insufficient recapitalization to get operations at the arms manufacturer back on track and sustain them efficiently, while at the same time facing challenges due to the Covid-19 pandemic.

Fitch also says limited operating capacity, coupled with continued management instability, increases the possibility that Denel will not be able to implement its previously agreed restructuring and turnaround plan.

The agency says the R1.8 billion poured into the SBET last year was insufficient to improve liquidity problems, capital requirements and operating capacity. In addition, the isolation period significantly limited Denel’s operational capability and the arms manufacturer did not have enough money to sustain its operations. Fitch says this can be seen in Denel’s inability to pay salaries in full and make enough capital available.

Fitch now also rates Denel independently of the rest of the state because government support to the SBET has already been significantly reduced.

According to the report, the situation at Denel has deteriorated to such an extent that its ability to survive without continued government support is being questioned.

However, Uasa says South Africans can no longer afford lifebuoys.

“The country is at a low point after the devastation of the global Covid-19 pandemic and years of corruption.”

Referring to erratic management at the arms manufacturer, Mazhindu says the arms manufacturer is now looking at a new CEO to save the already sinking ship.

Tags: DenelDowngradeFitchsSouth Africa
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