South African Airways Meeting Banks to Discuss Debt Rollover

(Bloomberg) -- South African Airways will meet a group of domestic lenders on Tuesday to negotiate the refinancing of about 6 billion rand ($423 million) in outstanding loans, according to its new chief executive officer.

The banks have in principle agreed to extend the loan terms, Vuyani Jarana, who took the helm at the loss-making airline on Nov. 1, said during an interview at Bloomberg’s Johannesburg office on Monday. The group is led by Nedbank Group Ltd. and includes FirstRand Ltd., Standard Bank Group Ltd., Barclays Africa Group Ltd. and Investec Plc.

“We are meeting the banks to discuss the rollover of the loans that have expired and to extend the expiry dates,” Jarana, who is 47, said. “That will give us the going-concern status that will enable us to renegotiate longer-term contracts.”

The government has transferred more than 5 billion rand to the airline this year to avoid it defaulting on debt owed to Citigroup Inc. and Standard Chartered Plc after the lenders refused to extend the terms of the loans. SAA is one of several cash-strapped South African state-owned companies that the government has extended bailouts to and it has a 19.1 billion-rand state-guarantee facility, a safety net that is effectively keeping it solvent after six consecutive unprofitable years.

“The meeting is critical,” Jarana said. “We are hoping for an extension of about 12 months or so, that’s the minimum.”

SAA was granted a total recapitalization of 10 billion rand in the current fiscal year, according to Finance Minister Malusi Gigaba’s mid-term budget. More than half of the amount was used to repay foreign lenders and up to 3.6 billion rand will be used to partially pay local creditors, SAA spokesman Tlali Tlali said by email.

The rise in government guarantees to state-owned companies is a risk to state finances, Moody’s Investors Service said on Oct. 30. S&P Global Ratings and Fitch Ratings Ltd. cut their assessments of the nation’s foreign-currency debt to junk in April, citing political uncertainty and concerns about economic growth, after President Jacob Zuma removed Pravin Gordhan as finance minister.

SAA, which doesn’t have any bonds, has no plans to enter the debt market, Jarana said.

“Given the current outlook of South Africa, it’s probably going to be harder for any state-owned enterprise to be able to successfully issue bonds and raise capital,” Jarana said. “I think its probably going to be on the backburner. If you are in a weak position like we are in, very vulnerable, very few people will trust you in that fashion. So what is important is to execute on the turnaround plan, bring SAA back to a position of strength.”

Jarana, a former executive at mobile-network operator Vodacom Group Ltd., is SAA’s first permanent head since 2015. The airline has hired a restructuring expert in Peter Davies and the government, its sole shareholder, has overhauled the board, appointing JB Magwaza as chairman in the place of Dudu Myeni, who is friends with Zuma and leads his charitable foundation. Lenders had demanded the removal of Myeni, Business Day newspaper reported last month.

Gigaba will meet with the new SAA board on Tuesday, the Treasury said in an emailed statement.

--With assistance from Rene Vollgraaff Loni Prinsloo Gordon Bell Toni Parsons and John Bowker

To contact the reporters on this story: Amogelang Mbatha in Johannesburg at ambatha@bloomberg.net, Arabile Gumede in Johannesburg at agumede@bloomberg.net.

To contact the editors responsible for this story: Rene Vollgraaff at rvollgraaff@bloomberg.net, John Bowker

©2017 Bloomberg L.P.