The cabinet has agreed to more funding for the hopelessly insolvent SA Post Office (Sapo), which has stated in its business rescue application it needs R3.8bn in addition to the R2.4bn it received in the February budget for its turnaround.
The bailout amount for future funding has not been disclosed, but communications & digital technologies minister Mondli Gungubele says the cabinet stipulated that the R2.4bn and any additional funding would be made available only if the Post Office goes into business rescue and is not liquidated.
According to the National Treasury, the Post Office has received R10.4bn in bailouts since 2014. Total bailouts for state-owned enterprises (SOEs) over this period amounted to R331bn, with R181.5bn going to Eskom and R48bn to SAA.
Gungubele says in support of his urgent application to the high court in Pretoria for the Post Office to be placed into business rescue that the cabinet approved more funding towards the end of May. CFO Fathima Gany estimates in her supporting affidavit the Post Office will need R3.8bn from the government to pay its debts and fund its future cash-flow deficit, turnaround strategy and staff reduction plan.
The application for business rescue is set down for a hearing on July 4. The joint provisional liquidators, Anton Shaban and Hlamalane Musi, will not oppose it but according to Shaban “will propose alternative options which do not include liquidation”. Gungubele argues that there is a reasonable prospect of a turnaround in business rescue, adding it is a strategic asset that is vital for the delivery of international and local post and the distribution of social grants as well as for Postbank operations.
He argues that creditors will get an estimated 10c in the rand from a business rescue (assuming the Post Office receives the R2.4bn and R3.8bn bailouts) compared with an estimated 3.99c in the rand from a final liquidation. The business rescue process is estimated to cost R140m. In business rescue the settlement to creditors would amount to R630m, with an additional R4bn being paid to Postbank.
The state-owned company was placed under provisional liquidation in February with debts amounting to billions of rand. Business rescue allows a company to pause debt repayments while experts restructure it and negotiate with creditors to avoid going out of business.
Gungubele says business rescue “will allow Sapo the space and time it needs to restructure its affairs and implement a turnaround plan under the supervision of a business rescue practitioner”. He expresses confidence that it can be salvaged through the implementation of its “Post Office for Tomorrow” strategy.
He proposed Anooshkumar Rooplal as the interim business rescue practitioner subject to ratification by creditors.
According to unaudited management accounts filed in court, the Post Office posted a preliminary loss of R2bn for the 2022/23 year after its universal service obligation subsidy on revenue of R2.6bn and expenses of R5bn. The loss in 2021/22 was R2.18bn.
CEO Nomkhita Mona says in her affidavit that the cash-flow projection for 2023/24 reflects a deficit of R1bn.
Liabilities
Gungubele notes in his affidavit that current liabilities stood at over R4.5bn at end-March, excluding the R3.93bn owed to Postbank. According to Gany, liabilities include R1.3bn owed to the Post Office Retirement Fund, R596m to the Medipos Medical Aid, R117m to the Unemployment Insurance Fund, R150m in unpaid salary increases and R219m owed to former employees who took the voluntary severance package.
The Post Office owes trade creditors R971m and landlords R355m with accruals of R168m.
The wage bill for the 2022/23 financial year cost R3.6bn, equal to 70% of its expenditure. It plans to retrench 7,000 staff from the current 11,878 at an estimated cost of R1bn. This would reduce the salary bill by R1.5bn, the court papers say.
In a written reply to a parliamentary question by DA MP Dianne Kohler, finance minister Enoch Godongwana noted “that various options are possible [for funding the Post Office], including reprioritisation of funds, within the approved fiscal framework. However, the Appropriation Bill has not been enacted yet and any adjustments in terms of section 6 would need to be considered for the adjustments budget in October.”
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