SAA after Business rescue

[dollar]

https://ewn.co.za/2022/05/13/no-need-fo ... consortium

Was wondering if they were still around?
Appear to be

[Volo]

So Takatso is happy to buy in to a company that has not produced a set of accounts for the last 4 years and so they really have no idea what they would be in for. It may turn out that it has debts of 20 billion rand or some such number and they can only believe that they are in no way liable for them in this company that has not been liquidated- company law does not work that way .

The reason they are so relaxed by all this is the R3 billion Rand they are going to use to rehabilitate SAA is not theirs in the first place . It belongs to the Governments pension funds that they still have to get approval from parliament to spend .

In spite of all the reasons put forward by the DPE as to why a regurgitated SAA is such a good idea , there is one other reason why they are doing this and the simple reason is the Government might not have to make good on the R16 billion of loans from banks if they can keep SAA going .

If SAA is allowed to be liquidated then they are going to have to cough up .

Government are really taking us all for a ride .

p.s. - Can you believe they are talking of a Pan African Airline to be forged with Kenya Airways - another loss making airline . This is not very confident speak from the DPE who are in fact talking for themselves and not for SAA as they have already stated that there will be a new board appointed so the idea is not SAAs but the DPEs (Government already making decisions for SAA as a minority shareholder ) .

[evanb]

So Takatso is happy to buy in to a company that has not produced a set of accounts for the last 4 years and so they really have no idea what they would be in for. It may turn out that it has debts of 20 billion rand or some such number and they can only believe that they are in no way liable for them in this company that has not been liquidated- company law does not work that way .

Takatso have certainly seen the accounts and a lot more. They have had a full view of the company during due diligence proceedings.

In spite of all the reasons put forward by the DPE as to why a regurgitated SAA is such a good idea , there is one other reason why they are doing this and the simple reason is the Government might not have to make good on the R16 billion of loans from banks if they can keep SAA going .

If SAA is allowed to be liquidated then they are going to have to cough up.

Great point that many people fail to consider. Whenever SAA or any SOE has required a bailout, the short term fiscal incentive for government has always been to make a smaller bailout rather than face the bigger fiscal cost of a liquidation. They'd rather have the debt off their books and on the SOE's. Partially a function of how governments reports using cash accounting rather than financial accounting that all businesses (whether public or private) do.

p.s. - Can you believe they are talking of a Pan African Airline to be forged with Kenya Airways - another loss making airline . This is not very confident speak from the DPE who are in fact talking for themselves and not for SAA as they have already stated that there will be a new board appointed so the idea is not SAAs but the DPEs (Government already making decisions for SAA as a minority shareholder ) .

Honestly, I think this is just a media ride. Nobody at SAA or DPE is spending any time on this. Kenya is for some reason. It came up during the bilateral negotiations from Kenya. South Africa said something vague and it was included in the communique, but honestly, there is nothing to it. KQ signed alounge agreement, but not sure that actually had anything to do with it. SA have been aggressively pursuing lounge business from other airlines since their international operation is now so small and they could actually turn that into a decent business. They have a particularly large lounge space in the international departure terminal and that lease is actually a pretty good asset. Rumor has it that there has been some talk of doing a JV with a major airline on it (names I heard mentioned included BA, EK and QR).

[mikeas]

So Takatso is happy to buy in to a company that has not produced a set of accounts for the last 4 years and so they really have no idea what they would be in for. It may turn out that it has debts of 20 billion rand or some such number and they can only believe that they are in no way liable for them in this company that has not been liquidated- company law does not work that way .

Volo your definition of due diligence requiring autited statements and an army of lawyers and accountants is outdated and colonial.

At the due diligence meeting, only two questions had to be answered:

We know that SAA will never be a going concern:
1. So how many years can we operate it unti the creditors (same ones who just took a haircut) eventually liquidate us?
2. What inflated salaries and bonuses can we pay ourselves during this time?

Meeting adjourned!

[crash]

p.s. - Can you believe they are talking of a Pan African Airline.............

The quote actually is :

Moving a step closer to the vision of a pan African airline


Is it perhaps a preamble to the effect of funds being invested by Harith (PIC pension funds) under the PAIDF umbrella ?
Pan African Infrastructure development fund ??

That is what this change to the pension act (amendment to Reg 28 when approved by parliament) will enable.

.

[Volo]

It seems some missed Pravin Ghordans pronouncement on THE 10 th April 22 on a Pan African Airline :-
SAA - KENYA AIRWAYS Collaboration :
Ghordan says there's scope for a new
PAN AFRICAN AIRLINE Group ?

[GL]

It seems some missed Pravin Ghordans pronouncement on THE 10 th April 22 on a Pan African Airline :-
SAA - KENYA AIRWAYS Collaboration :
Ghordan says there's scope for a new
PAN AFRICAN AIRLINE Group ?

Ja - but Pravin Gordhan is now perceived to be a sell-out bull shyte artist, implementing absurd government policy and spinning the indefensible. So he is increasingly ignored, which is a great pity given his legacy at SARS

[Jfairwell]

Guy, you are far too kind to Gordhan. There is no difference between Gordhan and Zuma, the former is just slightly more sophisticated.

The Takatso transaction in its current form is a financial coup for Harith and partners. Remember the business rescue process absolved SAA from R32 billion in unsecured obligations, the banks’ secured debt is guaranteed by Treasury and all contingent historic liabilities are guaranteed by government as explained in Parliament last week. The slate is therefore cleared and SAA literally has no debt. But no-one talks about SAA’s assets.

SAA owns –

- the hangar precinct to the East of OR Tambo International Airport, measuring (according to their website) –

o 65 hectares of aviation property;
o Hangarage of 84,450 sqm;
o Workshops of 7,105 sqm;
o Offices of 23,876 sqm;
o Stores of 21,960 sqm; and
o Hard standing areas

Who knows what it’s worth, but the last set of SAA AFS for 2017 lists its land and buildings at a book value R2.1 billion.

The AFS also lists total property plant and equipment, including land and buildings, at R4.6 billion and inventory at R879 million.

It is also not clear how much of the post commencement funding for working capital and unflown ticket liabilities remains unspent.

I understand that the AFS are dated, but it does provide useful guidance. The single biggest asset however, which is not disclosed in its AFS, is SAA network of regional and international route rights. This has significant value in the hands of a competent operator.

I believe the R3 billion mentioned is a material understatement of the market value of SAA's assets, but lets assume that it is correct. On day one of the transaction Takatso will pay R51 for 51% of R3 billion. If they do nothing else and mark their investment to value, it will translate into a R1.5 billion gain on day one.

They will however use 100% of the claimed R3 billion in assets to raise secured working capital funding and introduce that as debt into SAA, which can be liquidated in the event of a future default, which feels like an inevitability. It is basically a grand corporate raid using SAA's own asset base, enabled by Gordhan and company.

It is quite interesting that the merger application has not been filed with the competition commission. It will be classified as a large merger and one can only speculate that they must be scheming to avoid a filing, especially so given their attempts to get Mango out of the way for Lift.

[Volo]

An extract from the previous post reads as follows :-

The Takatso transaction in its current form is a financial coup for Harith and partners. Remember the business rescue process absolved SAA from R32 billion in unsecured obligations, the banks’ secured debt is guaranteed by Treasury and all contingent historic liabilities are guaranteed by government as explained in Parliament last week. The slate is therefore cleared and SAA literally has no debt. But no-one talks about SAA’s assets.
.....................................................................................
I am battling to understand the above . If the BRP absolved SAA from answering for the R32 billion in unsecured obligations and all other contingent liabilities, is there still debt and to what amount and if it is only guaranteed by government who is servicing that debt ? If that debt is still there and unless it remains there to address SAAs needs then it must be called up as due and payable by the lending institutions or is it now simply converted to a loan to government .??
So SAAs debt will continue to cost the Tax payer R3 billion a year in interest apart from any operational losses they will probably incur .

[Jfairwell]

An extract from the previous post reads as follows :-

The Takatso transaction in its current form is a financial coup for Harith and partners. Remember the business rescue process absolved SAA from R32 billion in unsecured obligations, the banks’ secured debt is guaranteed by Treasury and all contingent historic liabilities are guaranteed by government as explained in Parliament last week. The slate is therefore cleared and SAA literally has no debt. But no-one talks about SAA’s assets.
.....................................................................................
I am battling to understand the above . If the BRP absolved SAA from answering for the R32 billion in unsecured obligations and all other contingent liabilities, is there still debt and to what amount and if it is only guaranteed by government who is servicing that debt ? If that debt is still there and unless it remains there to address SAAs needs then it must be called up as due and payable by the lending institutions or is it now simply converted to a loan to government .??
So SAAs debt will continue to cost the Tax payer R3 billion a year in interest apart from any operational losses they will probably incur .

Not sure how you get to R3 billion in interest per annum, but the business rescue plan has compromised R32 billion in unsecured pre-commencement debt and the secured lenders (banks) will be paid as follows - 2021 R5,800,000,000; 2022 R3,800,000,000 and 2023 R1,623,916,000 in capital repayments. Paragraph 30 of the BR plan notes that government will pay a total of R12,709,903,000 to the lenders, inclusive of interest.

All of the debt in SAA has been compromised and government as undertaken to repay the secured lenders. Trading losses incurred after the conclusion of the business rescue was and continues to be funded by the post-commencement working capital funding and besides the point for purposes of the asset raid.

[GL]

Great insights as always Jfairwell
Can anybody confirm
The R16bn debt SAA still has (according to evanb) and
The SCOPA conclusion that SAA is currently running R700 m per month cash negative.

[southside]

https://www.citizen.co.za/news/south-af ... -may-2022/

[evanb]

Great insights as always Jfairwell
Can anybody confirm
The R16bn debt SAA still has (according to evanb) and
The SCOPA conclusion that SAA is currently running R700 m per month cash negative.

Slight clarification: there was R16.4 billion in debt (including future interest) that was to be settled by SAA over a number of years after exiting business rescue. However, this debt is handled by a receivership that ring fences it. This was to ensure that the debt would remain in place in the case of SAA being liquidated. I'm not sure if it'll be taken off SAA's balance sheet, but I presume so. This was the debt that was guaranteed by the state and the state negotiated this plan with the creditors to ensure that the guarantee wasn't enforced, particularly in the event of liquidation, since it could potentially trigger the covenants on other debt instruments elsewhere.

One presumes SAA Pty Ltd no longer carries this liability on their balance sheet.

[GL]

Thanks Evan
So if it's not on the balance sheet it would further support the view that Takatso bought SAA for R51without any significant debt.

[Jfairwell]

Great insights as always Jfairwell
Can anybody confirm
The R16bn debt SAA still has (according to evanb) and
The SCOPA conclusion that SAA is currently running R700 m per month cash negative.

Slight clarification: there was R16.4 billion in debt (including future interest) that was to be settled by SAA over a number of years after exiting business rescue. However, this debt is handled by a receivership that ring fences it. This was to ensure that the debt would remain in place in the case of SAA being liquidated. I'm not sure if it'll be taken off SAA's balance sheet, but I presume so. This was the debt that was guaranteed by the state and the state negotiated this plan with the creditors to ensure that the guarantee wasn't enforced, particularly in the event of liquidation, since it could potentially trigger the covenants on other debt instruments elsewhere.

One presumes SAA Pty Ltd no longer carries this liability on their balance sheet.

The R16.4 billion included -

- the R12.7 billion payable to secured lenders referenced higher in the thread;
- the R3.68 billion payable to the Development Bank of South Africa (inclusive of interest)

SAA has been has been absolved off all of its pre-commencement debt - secured, unsecured and contingent. If exited business rescue with assets only - working capital, property plant and equipment and intangible assets (route rights).