May 8, 2020 / 3:57 PM / a month ago

S.African defence firm Denel fails to pay pension contribution, taxes

JOHANNESBURG, May 8 (Reuters) - South African state-owned defence firm Denel is unable to make payments to its employee pension fund or meet some of its tax obligations as it struggles with a liquidity crunch, its chief executive wrote in a letter seen by Reuters on Friday.

Denel is one of a number of loss-making state-owned enterprises the government had been keeping afloat with bailouts but which are now being battered by the coronavirus pandemic and a nationwide lockdown aimed at preventing the disease’s spread.

“We still managed to pay the base salary for the month of April, whilst highlighting that the following months may still pose some significant financial challenges,” Danie du Toit wrote in a letter to company staff dated May 6.

The company, which makes military hardware for the South African armed forces and exports to clients around the world, was technically insolvent before the government injected 1.8 billion rand ($98 million) in August.

CEO du Toit is heading an effort to return the company to profitability. But like other manufacturers, it was forced to shut down all but essential operations under South Africa’s lockdown, which was loosened slightly last week.

In a separate statement on Friday, Denel said the pandemic had brought exports to a halt and delayed revenues from sales. It was also derailing plans to sell off some operations as part of its turnaround plan, as potential investors had frozen mergers and acquisition strategies.

While Denel was able to scrape together enough to cover its employees’ medical insurance, du Toit wrote that it would have to defer payments to the pension fund and some obligations to the South African Revenue Service.

“These decisions, particularly on pension funds are likely to have an impact on some of the current covers,” the letter stated.

Denel is still awaiting a further 576 million rand in bailout money announced in the government’s budget speech in February.

The need to fight the pandemic and its economic fallout, however, have since strained South Africa’s already stretched resources, with the government pledging a 500 billion rand stimulus package equivalent to 10% of gross domestic product.

$1 = 18.3665 rand Reporting by Joe Bavier and Alexander Winning, editing by Louise Heavens

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