Denel of South Africa Seeks Equity Partners to Revive Funds

(Bloomberg) -- Denel SOC Ltd. is seeking equity partners along the lines of its relationship with Germany’s Rheinmetall Waffe Munition GmbH as the South African state arms maker seeks to recover from a liquidity crisis.

Attracting non-government entities could help reduce debt and improve the company’s relationship with suppliers, Acting Chief Executive Officer Mike Kgobe said in an interview at an air show near Pretoria on Wednesday. Other plans to repair the balance sheet include potential job cuts and boosting efficiency across the business, he said.

Kgobe was promoted to CEO in May as President Cyril Ramaphosa overhauled state-company boardrooms following a string of corruption scandals. His most pressing challenge has been a multi-billion rand debt problem, and the company has asked government for extended and additional loan guarantees. Denel is making progress with creditors with input from Finance Minister Nhlanhla Nene and Public Enterprises Minister Pravin Gordhan, the CEO said, and has earned a reprieve on some borrowings.

Denel was featured in a report by the former anti-graft ombudsmen into so-called state capture, a local term for the looting of government funds by outside interests. The company “suffered serious reputational damage, lost credibility and the support of stakeholders” as a result, Kgobe told lawmakers last month. Denel’s new management has uncovered more than 1.6 billion rand ($109 million) of irregular spending, he added.

The Rheinmetall Denel Munition (Pty) Ltd. joint venture was founded in 2008 and makes weapons such as artillery, mainly for export. Earlier this month, a blast at its plant on the outskirts of Cape Town killed eight people. Another partnership highlighted by Kgobe as a success is with Hensoldt Holding GmbH, another German firm.

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