June 25, 2019 / 7:24 AM / 23 days ago

South Africa's state defence firm struggling to pay wages

JOHANNESBURG (Reuters) - South Africa’s state-owned defence group is again struggling to pay wages because of liquidity problems, highlighting the gravity of its financial position despite government efforts to turn it around.

FILE PHOTO: A Denel company logo is seen at the entrance of their business divisions in Pretoria, South Africa, December 4, 2018. REUTERS/Siphiwe Sibeko

Denel Chief Executive Danie du Toit told staff in a memo sent on Monday and seen by Reuters that they would only receive 85% of their salaries for June, with the remainder of their wages delayed.

Public Enterprises Minister Pravin Gordhan, who oversees Denel, told parliament on Tuesday that a lender had come to the rescue of the arms firm and that full salaries would be paid.

Denel makes ammunition, missiles and armoured vehicles for the South African armed forces and customers in Africa, the Gulf and Europe.

It made a 1.7 billion rand (£93.7 million) loss for the 2017/18 financial year after being plagued by years of mismanagement.

Denel has since adopted a new strategy and says it has a healthy order book of contracts, but it has so far failed to secure the significant cash injection it wants from the state.

South Africa’s public finances are stretched by the need to rescue other ailing state firms, like loss-making power company Eskom and South African Airways (SAA).

Eskom and SAA have both received government funds since President Cyril Ramaphosa took office in February 2018, but executives at both companies have lobbied for greater support.

Denel struggled to pay salaries to some staff in September last year, but it has since resumed full payment.

It has offered severance packages to staff and is trying to renegotiate onerous contracts and exit parts of its business to cut costs and return to profitability.

Reporting by Alexander Winning; Editing by Louise Heavens and Jan Harvey

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