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Bank guarantees foil Denel’s R4.5-bn Egypt contract

Broke state armaments company Denel’s failure to provide a guarantee for a R4.5-billion contract to supply the Egyptian navy with surface-to-air missiles has led to its cancellation. 

The Mail & Guardian understands the contract was cancelled by Egypt late last year after Denel failed to provide the guarantee, which ordinarily provides comfort to the client that the job can be completed.

Denel spokesperson Pam Malinda said this week: “Denel generally secures bank or insurance guarantees from financial institutions for advance receipts from its clients and performance guarantees, where contractually obliged to do so, in terms of concluded contracts,” she said.

Besides the loss of much-needed revenue for Denel, the cancellation could signal severe reputational harm as the company is eyeing R12-billion worth of work in the coming months. 

And it needs every cent it can get as the national treasury told the Business Day newspaper there were few prospects of financial assistance for Denel at least until 2021. 

This as Denel has not paid salaries since May, compelling workers to approach the courts to order the arms manufacturer to pay. 

Denel used to be a shining light and of strategic importance among the state’s public enterprises, as it brought in revenue and also gave South Africa advantage in the defence-capability stakes. 

Its value is not only in the capacity to manufacture complete armaments such as military vehicles, infantry systems and ammunition but also in its intellectual property and technology which it uses to develop complex navigation systems and integrated air defence solutions. 

Late last year the company confirmed that the Special Investigating Unit was investigating the possible theft, by Denel employees, of some of this technology to be sold to the Saudi Arabian Military Industries (SAMI), which was in talks to purchase a $1-billion stake in Denel. 

The investigations, however, found the theft allegations to be baseless. 

The probe was also reported to cover the possible acts of corruption and malfeasance under state capture that went to the very top of the company’s then leadership. The investigation was said to include the potential joint venture between Denel and the Gupta family-owned VR Laser Asia to bid for work in the Asia-Pacific markets. 

As a result of the corruption, Denel is a shell of the company it once was, even after the R1.8-billion cash bailout to pay salaries and suppliers after posting a R1.76-billion loss in 2018.

This year Finance Minister Tito Mboweni allocated R573-million to Denel but ring-fenced this to only cover government-guaranteed debt and nothing else. 

The Egypt contract would have gone a long way in alleviating Denel’s precarious financial situation, the extent of which reportedly saw labour unions apply to have its directors held in contempt of court for failing to ensure the company paid salaries in compliance with a court order.

But Malinda is upbeat saying that Denel’s prospects are favourable as they are pursuing a winnable order pipeline of more than R12-billion and are exploring strategic equity partners.

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Sabelo Skiti

Sabelo Skiti is an investigative journalist.

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