South African Airways gets state funds to avoid default

By Mfuneko Toyana

JOHANNESBURG (Reuters) – South African Airways (SAA) has been provided with state funds to help it repay loans of about 2.3 billion rand ($176 million) to Standard Chartered, the government said on Saturday.

The airline faced around nine billion rand of debt maturing at the end of June involving six or seven lenders, according to the Treasury.

On Thursday the Treasury told lawmakers it was in discussions with lenders to roll-over the nine billion owed to them.

In a statement issued on behalf of the Treasury, the government said the funds provided to SAA had been sourced from the National Revenue Fund (NRF), which under law allows any minister to authorise the use of funds for expenditure of an exceptional nature.

“A default by the airline would have triggered a call on the guarantee, leading to an outflow from the NRF and possibly resulting in elevated perceptions of risk related to the rest of SAA’s guaranteed debt, the statement said.

SAA already relies on government guarantees of about 20 billion rand to keep it solvent.

It has been cited by all three major rating agencies repeatedly as a threat to South Africa’s economy.

Two of those agencies cut the country’s debt to sub-investment grade following President Jacob Zuma’s firing of the finance minister in March.

Finance Minister Malusi Gigaba’s office said Standard Charted had requested immediate payment of the money owed but that the remaining lenders had indicated they were open to deferring the debt.

“Drawing on the NRF was a tough decision versus the worse one of defaulting. It was taken to reassure lenders that state firms and more importantly government won’t default,” ministry spokesman Mayihlome Tshwete said.

The Treasury is under pressure to keep recent pledges to cut spending and reform governance at state firms to fend off credit downgrades deeper into “junk”. Such downgrades would trigger a spike in already soaring borrowing costs on public debt of more than 2.2 trillion rand.

On Friday Finance Minister Gigaba, speaking at the opening of ruling Africa National Congress’s policy conference, unnerved markets when he said the country may need outside financial assistance.

Asked by Reuters if he was referring to the International Monetary Fund, Gigaba smiled and said “Any”.

The official opposition party, the Democratic Alliance, said Standard Chartered’s refusal to defer the debt showed it had no faith in the management of the state carrier and that it was also a blow to the credibility of the Treasury.

($1 = 13.0476 rand)

(Editing by Jason Neely and Stephen Powell)

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