Question NW3095 to the Minister of Public Enterprises
27 October 2023 - NW3095
Lees, Mr RA to ask the Minister of Public Enterprises
Whether the Rand Merchant Bank, in their role as a transaction advisor, included the Takatso Consortium on the short list of suitable purchasers of the 51% of the SA Airways (SAA) shares; if not, what are the detailed reasons of why the agreement to transfer 51% of SAA to Takatso was entered into; if so, what are the relevant details; 2. whether the Takatso Consortium provided any guarantee that will ensure that the R3 billion will be paid into SAA as and when it is required as in accordance with the agreement to transfer 51% of the SAA shares; if not, what is the position in this regard; if so, what are the relevant details; 3. what is the purpose of conducting the valuation of SAA, which he referred to during the meeting of the Portfolio Committee on Public Enterprises on 12 September 2023; 4. whether the purchase price to be paid for the 51% of SAA shares by the Takatso Consortium will be adjusted to equate it with the new valuation; if not, why not; if so, 5. whether the Takatso Consortium has agreed to the adjusted price that they must pay for the 51% of SAA share; if not, why not; if so, what are the relevant details?
Reply:
1. The Strategic Equity Partner (SEP) process started during 2020/21 financial year, the period when the impact of COVID-19 had a debilitating effect on the aviation sector. As a result, some parties that had expressed interest could not provide capital required to operate SAA as required. The Government required an SEP that could provide all the finances for SAA following the exit from Business Rescue.
The transaction advisor assessed and evaluated the EOI’s of potential SEPs. However, there were no suitable SEP that could be identified as none of the potential SEPs had an offer that could be accepted by the Department. The entities were not showing evidence of immediate funding to restart SAA’s operations. RMB and the Department in January 2021 agreed that the SEP transaction was unlikely to be successful, the mandate of RMB ended and the Shareholder Department took over the process.
A proposal by Harith General Partners, which had been engaged in the RMB process, and Global Aviation which later became the Takatso Consortium (Takatso) was made to the Department together with other proposals from other interested parties. After evaluating the proposals, Takatso was then appointed as the preferred SEP. Takatso had the requisite combination of financial and operational capabilities required for the successful relaunch of SAA. Their composition would advance the transformation agenda. The preferred SEP was thereafter approved by Cabinet. This offer satisfied the Department’s requirements including the ability to provide the funding needed to restart operations.
2. Takatso has agreed to meet SAA’s working capital requirements. An initial funding of R3 billion is projected for SAA’s growth path leading to stability. All financial obligations will be borne by Takatso, absolving the government of further funding support. The fulfillment of this financial commitment by Takatso is critical as without it, the transaction cannot be concluded.
3. The initial valuation of SAA was undertaken in 2020, a time when the company was not operational due to the business rescue process and the effects of the COVID-19 pandemic, which inevitably impacted its assessed value. A subsequent valuation was carried out in October 2021, just as SAA was resuming its operations and the overall aviation industry outlook was still uncertain.
Given that Takatso was selected as the preferred partner in June 2021 and more than two years have elapsed since, another valuation of SAA is prudent to ensure alignment with prevailing market conditions, for an updated and equitable value for the state. In light of this, the Department of Public Enterprises has initiated a new valuation to accurately ascertain the company's present status and prospective worth in the existing market environment.
4. The price that Takatso will pay for the 51% stake in SAA will be determined through negotiations, taking into account the updated valuation of the 51% share. This ensures that the settled amount accurately reflects the current worth of the stake, providing a fair transaction for both parties involved.
5. Takatso Consortium has agreed to engage in negotiations aimed at finalizing a transaction amount, contingent upon and reflective of the revised valuation. This ensures that the concluding agreement is based on the prevailing market conditions.
The public and Parliament will be informed of all details once all processes have been concluded. It is also quite evident that current dominant entities and other proxies would not like any serious competition which could cause a reduction in fares to customers.
Remarks: Reply: Approved / Not Approved
Jacky Molisane P J Gordhan, MP
Acting Director-General Minister
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