The R3.5bn loan to SA Airways by the Development Bank of Southern Africa (DBSA) might not be irregular, but it is unusual.
The DBSA is an infrastructure bank with a mandate to finance social and economic infrastructure “to improve the life of people” and to “support economic growth”. It never lends short-term money and most loans are for five to 10 years. It does not have an enormous capacity to lend: disbursements for the entire 2018/2019 year were R9bn. The SAA loan will tie up a third of its disbursement capacity.
The bank has two defences for its decision. Deputy chair of the board Mark Swilling says the rationale for the loan lies in the effect the collapse of SAA would have on the aviation sector.
There are some grounds for this. The Airlines Association of Southern Africa has warned the effect could be devastating because of the high level of codependence across the sector. The Airports Company SA (Acsa), Civil Aviation Authority and Air Traffic and Navigation Services all depend on SAA for most of their revenue. All airlines that fly into SA use SAA Technical for maintenance. The company also holds a repository of valuable skills and know-how.
“The fundamental issue is that SAA provides infrastructure for the aviation industry as a whole. Those who say SAA should be left to collapse are being cavalier and haven’t integrated an analysis of the domino effect, which will be economic,” he says.
This squares with the DBSA infrastructure development and economic growth mandate, he argues.
Swilling says it can't be assumed that other providers — for example airlines — would quickly step into the gap to replace the hole left by SAA should it close.
“No-one really knows the extent of the interconnectedness and complexity of the sector. We exercised the precautionary principle that when you don’t know you proceed with caution ... It was an unusual transaction that helped create a space for something that could possibly be turned around,” he says.
The second defence is that the loan carries “zero risk” at a commercial interest rate, he says. The conditions are the same as those that commercial banks set for the R2bn they loaned SAA at the beginning of December. Those loans are bridge funding that is fully guaranteed by the Treasury and repayable by July 31. That is when the Appropriation Bill related to the 2020/2021 budget will be passed by parliament.
But even if the loan can be accommodated by the broadness of the DBSA mandate, many other questions arise.
Could the R3.5bn not be used for something else? What about the disbursements for infrastructure projects planned for the year? And what happens when the Treasury knocks on the door on July 31 to ask for an extension of the payment date or a conversion to a long-term facility? The short-term finance lent to SAA in 2019 was several months late in being repaid. In 2012 the bank lent Eskom R15bn with a 12-month repayment date. That loan has been rolled over every year since, clearly by agreement as the DBSA says that Eskom “is meeting all the terms of the loan”.
Swilling says it will not affect the bank’s other disbursements.
“There are no major programmes that needed the R3.5bn now. And while it is quite a lot for the DBSA to lend, we can ramp up disbursements in the second half of the year. That is the reason we would only provide short-term financing.”
There is nonetheless an uneasy feeling that the SAA loan is the start of a slippery slope in which the DBSA will be called on more to finance troubled and unproductive state assets.
That its chair is Enoch Godongwana, who is also a chair of the ANC’s economic transformation committee, is only a small part of this concern. The DBSA has provided assurances that Godongwana recused himself from the discussion on SAA.
The decision was processed by the bank's executive investment committee, which made a recommendation to the board credit investment committee.
But with the sole shareholder of the DBSA being the Treasury and that the appointments of its board and CEOs must be run by the ANC’s deployment committee this does not provide a lot of comfort. It won’t be much of a surprise when other state institutions — such as the Industrial Development Corporation — get tapped for the longer-term funding for SAA, which is the next demand that will come from the state-owned airline.
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