Six key SOEs (and many others) have missed a key deadline for publishing annual reports … and their financial results

South Africa’s state-owned industry has descended further into chaos just a few days into 2022, with executive resignations, governance problems, and delays in the completion and publication of financial statements besetting companies that are owned by the government and funded by long-suffering taxpayers.   

In recent days, Eskom resumed load-shedding for the first time in 2022, with the power utility blaming further breakdowns in electricity generating units of its old power stations — more of the same reasons given for throwing the country into darkness. 

The financial and operational crisis at state-owned arms company, Denel, became so daunting that its bonds/debt were suspended from trading on the JSE because the company failed to release an annual report that is three months overdue. The suspension means that Denel cannot invite would-be investors to purchase its debt, which is listed on the JSE, to raise money to fund its operations. 

On Monday 7 February, the high executive turnover at a state-owned agricultural lender, the Land Bank, continued as its CEO of nearly two years resigned while the company is currently in crucial but stalled talks with lenders to restructure its crippling debt load of more than R40-billion.

Ayanda Kanana has become the latest Land Bank CEO to resign, and joining him in the departure lounge is Dr. Litha Magingxa, the company’s executive manager for agricultural economics. No reasons were provided by the Land Bank for the pair’s resignations. 

The Land Bank had a sizable number of interim CEOs and CFOs over the three years or so, weakening its governance and leadership structures and negatively impacting its ability to provide new funding to emerging and established farmers.

Further staining state-owned enterprises (SOEs) are the two reports of the Zondo Commission, which found that entities such as SAA, Denel, and Transnet were the sites of State Capture. Members of the Gupta family and their business associates influenced board appointments at SOEs by placing pliable individuals and enriched themselves by capturing their lucrative procurement budgets. 

Read more here: State Capture Central: How Transnet became the hub of the Gupta looting frenzy  and State Capture report puts Malusi Gigaba and Lynne Brown at the centre of capturing and weakening Denel

Chilling effects of State Capture

Although the capture of SOEs gained momentum after Jacob Zuma was first elected as the president in 2009, the effects of this are still being felt today. 

SOEs cannot stand on their own as they require taxpayer-funded bailouts for survival (they received bailouts worth about R92.-billion during Zuma’s nine-year presidency) and they have been hollowed out from a skills perspective. The dearth of skills at SOEs has manifested itself through their inability to finalise and publish financial statements on time — a basic requirement for most companies. 

The publication of financial statements (in a timeous manner) is important because they give insights about a company’s financial health and help investors make investment decisions. But SOEs cannot even fulfill this function and now find themselves at odds with Parliament.  

Because they are state-owned and funded by the public, SOEs are required to present their annual reports (and accompanying financial statements) to Parliament, which plays an oversight role in the affairs of SOEs. 

But many SOEs have not yet presented their 2020/21 annual reports in Parliament. They had a deadline of 20 September 2021 to do so. The offending SOEs include the South African Post Office, Land Bank, Denel, state-owned airlines SAA and SA Express, and Armscor (the procurement agency for the department of defence).

The Post Office told Business Maverick that the audit of its financial statements is still ongoing, which made it impossible to meet Parliament’s deadline of tabling its 2020/21 annual report. The SOE says the auditing process was extended at the behest of communications and digital technologies minister Khumbudzo Ntshavheni. The Post Office says its deadline for the tabling of its annual report for 2020/21 in Parliament has been extended to the end of March 2022.

The Land Bank, a defaulter on debt payments, is currently in talks with lenders on how to restructure its debt load of more than R40-billion. Until these talks are concluded and a solution is found on restructuring the debt, the Land Bank’s 2020/21 annual report cannot be presented in Parliament. 

Business Maverick understands that Land Bank lenders were locked in meetings from Monday 7 February after the resignation of Kanana and Magingxa. Lenders want to understand how the departure of the duo will impact the Land Bank’s operational affairs and they want to conclude debt restructuring talks, which have been ongoing for more than two years. 

Meanwhile, don’t hold your breath for SAA or SA Express tabling their annual reports anytime soon. SAA hasn’t presented its financial books in Parliament for many years and recently emerged out of business rescue, paving the way for its flight operations to resume. SA Express has been grounded for more than two years under a provisional liquidation process, and there is no finance team at the domestic airline to compile financial statements. Armscor’s operations are opaque and Business Maverick couldn't get comments about its financial affairs at the time of publishing this article. DM/BM