Are we closer to a step forward in the SAA rescue?

When South African Airways was placed into business rescue, the South African business rescue profession entered unchartered territory.

Not only was this the first business rescue of this scale, but it was also the first business rescue where the business rescue practitioners needed to manage to adhere to the Companies Act alongside the Public Finance Management Act. It was also the first time South Africans learned about Government’s unique views on privatisation. We certainly learned plenty of lessons.

What are the latest developments in this landmark case?

Expressed interest

The article points out that Government has expressed interest in buying minority shareholders’ stake in the Takatso Consortium – South African Airways’ (SAA) chosen strategic equity partner – saying it could be a way to “claw back” to a larger shareholding in the embattled airline.

This was indicated by Deputy Public Enterprises Minister Obed Bapela to Parliament’s Portfolio Committee on Public Enterprises during a briefing last week. Bapela acknowledged that this could be a way for Government to return to a larger shareholding than 49%.

But according to the minority shareholders, they currently have no plans to sell, despite a recommendation by the Competition Commission calling for their exit from Takatso.

The article adds that, in terms of the Takatso deal, the consortium would obtain 51% of SAA’s shares and provide the airline with a capital injection of R3 billion over two years. The Department of Public Enterprises (DPE), as Government’s shareholder representative, would keep 49%.

But earlier this month, the Competition Commission recommended the Competition Tribunal approve a 51% disposal of SAA shares to Takatso – provided certain conditions are met. One of these conditions is that the minority partners in the consortium, Global Aviation and Syranix – which co-owns LIFT airline – exit, to avoid decreasing competition in the domestic passenger market.

‘Is this how we will see SAA privatised?’

The article points out that, during the briefing on 17 May, some committee members voiced concern over Takatso getting a majority stake in SAA, suggesting instead that the DPE consider buying the minority shareholders’ shares if they are forced to exit.

Committee member Carol Mokgadi Phiri (ANC) described the Takatso deal as “a thorny issue for South Africans”.

“Why must Takatso have 51%?” she asked.

The article added that Committee member Rosina Ntshetsana Komane (EFF) also expressed concern about Takatso having a majority stake in SAA.

“Is this indirectly how we will see SAA privatised?” she asked.

Bapela told the committee that originally the DPE had wanted to keep a 60% stake in SAA, in line with an earlier resolution by Cabinet, and that buying out the minority shareholders in Takatso could be a way to “claw back” a bigger shareholding.

The article points out that, according to Bapela, neither of the other two bidders to become SAA’s strategic equity partners could show they were financially strong enough. Takatso’s majority partner, Harith, on the other hand, was described by Bapela as “very liquid”.

When Takatso realised the other bidders were not financially strong enough, it “bargained hard”, with the result that the DPE ended up with a 49% stake, Bapela said.

“The state wanted a good deal and someone with money to save SAA. When SAA went into business rescue in December 2019, none of the big four local banks wanted to help out anymore as they saw it as too risky,” said Bapela.

The article points out that he added:

We could look at buying the minority stake in Takatso if the minority stakeholders walk out due to the conditions set by the Competition Commission. The majority and minority shareholders in Takatso are now fighting with each other. Let us first wait for the matter to be finalised by the Competition Tribunal.

Gidon Novick, who represents the minority shareholders in Takatso, told News24 they have no plans to sell their shares at this stage. In November last year, Novick resigned as director representing the minority shareholders on the Takatso board, citing concerns about a lack of communication and the consortium’s ability to raise enough money.

“It’s difficult to understand how minority shareholders in a company without any board representation or access to information would present a problem,” he told News24 on Thursday.

Takatso responded to News24 that it could not comment on a scenario where government buys the stake of the minority shareholders “because it is not the transaction we are party to”.

The News24 article adds that, at the end of the briefing, the committee decided to send a list of further questions for the DPE and SAA to respond to in writing. These questions include why SAA is not the majority stakeholder in the Takatso deal, whether it means that SAA is being privatised, and how much Takatso will pay for SAA.

SAA’s acting CEO Professor John Lamola told the committee that he and his interim management team are giving all the support they can to the DPE and Takatso.

“We welcome the Competition Commission’s approval and look forward to a final decision by the Competition Tribunal. SAA is doing well in terms of surviving. To thrive and regain market share, it needs a serious capital injection. That is the reason for the private equity deal with Takatso,” he said.

A good departure point

We are possibly presented with two perfect cases that highlight the challenges associated with the business rescue process.

The SAA rescue should never still be ongoing. This continued purgatory is damaging the brand and is detracting from value that shareholders could capitalise on. On the other hand, at least the airline is in operation and the shareholders are receiving some value. As long as the rescue is ongoing, industry experts will use it as a case study for one of the biggest challenges associated with business rescue.

Either way, we have learned a lot of lessons through the rescue and will continue to do so for the foreseeable future.