The South African government has confirmed it will dispose of a part of its 39% stake in national telecommunications giant Telkom in a bid to raise ZAR3.9 billion rand (USD274 million) for ailing South African Airways (SA, Johannesburg O.R. Tambo).

Presenting his 2017 Medium Term Budget Policy Statement (MTBPS) in parliament earlier this week, Finance Minister Malusi Gigaba said government has issued a ZAR19.1 billion (USD1.34 billion) guarantee facility to SAA to ensure it continues to operate as a going concern.

"To ensure the expenditure ceiling is not breached, we have decided to dispose of a portion of government’s Telkom shares," Gigaba said. "We do not take this decision lightly, but we have had to in order to maintain the credibility of the expenditure ceiling."

Of the total recapitalisation of ZAR10 billion (USD702 million) to be provided in 2017/18, ZAR5.2 billion (USD365 million) has already been provided for the period ending September 31. Of this, ZAR2.2 billion (USD154 million) was used to settle a maturing loan with Standard Chartered in July 2017 while another ZAR700 million (USD49 million) was paid to Citibank in September this year as part of the agreed payment plan. ZAR1.2 billion (USD84 million) was put towards working capital requirements. The funds remaining out of the ZAR5.2 billion disbursement have been ring-fenced to enable SAA to meet its payment plan with Citibank and to cover working capital requirement and/or partially settle debts with domestic lenders. Out of the remaining ZAR4.8 billion (USD34 million) to be transferred by March 31, 2018, 60% will be used to partially pay off local lenders with the remainder of the funds to be used as working capital.

"There is risk that if SAA’s financial fortunes do not improve, there will be further calls on the remaining guarantee," the minister added. "A new, full-strength board has been tasked with returning the airline to financial sustainability. The appointment of a permanent chief executive officer [Vuyani Jarana], who will start on November 1, 2017, is a critical step in ensuring that the airline's turnaround strategy is aggressively implemented. If SAA executes a successful turnaround in line with its projections by 2019/20, its reliance on guarantees will subside, as will government’s risk exposure."

Gigaba said that a decision on the proposed grouping of SAA, South African Express (EXY, Johannesburg O.R. Tambo), and Mango Airlines (MNO, Johannesburg O.R. Tambo) under a singular holding company, as well as the bringing in of a strategic equity partner, would be taken following a metting with SAA's new board.

"We believe a strategic equity partner can play an important role in SAA’s turnaround, as well as unlocking value for the fiscus which has invested significantly in the airline over the years," he said. "Despite its current challenges, government remains convinced that retaining a national carrier, is in the public interest. It is in our national interest, to have influence over our connectivity to all parts of the world, and not have to rely exclusively on the profit and scheduling considerations of global airlines."