South African Airways terminates services of BnP Capital as its Financial Service Provider

South African Airways

South African Airways has taken a decision to terminate the services of BnP Capital as a financial services provider to the airline. The effect of this decision means that SAA has terminated both its appointment of BnP Capital as Transaction Advisor and the appointment to source funds on behalf of the airline. The decision was communicated to BnP Capital yesterday.

It is important to contextualise SAA’s decision and reflect on some key milestones in order to provide clarity on issues which had, intentionally or not, been conflated.

  1. SAA took a decision to arrange debt consolidation as part of management decisions taken to introduce interventions aimed at managing the airline’s revenue and/or financial resources more efficiently. This process entailed debt review and restructuring of the balance sheet as well as sourcing funds in the markets. SAA currently pays multi-million Rand interest on its debt and there is a room to reduce interest rates. Successfully implemented, debt consolidation will enable SAA to eliminate multiple and varied interest rates on its loans from a number of lenders, making it possible to have one consolidated debt at a negotiated favourable rate and with one lender.
  1. In or about January 2016 SAA issued a Request for Information (RFI) in the market, inviting interested parties to submit their bids. Fourteen (14) companies responded when the process closed in February 2016. Subsequently, a Request for Proposal (RFP) was issued to the same 14 companies. Only 7 companies responded to the RFP and 2 companies were subsequently disqualified as they failed to meet the critical criteria, being the existence of a valid and current Financial Services Board (FSB) issued licence to the service provider. The 5 companies that remained met all the requirements. SAA decided to award the tender to BnP Capital for scoring highest on both the Pricing and BEE requirements of the criteria. The appointment of BnP Capital as Transactional Advisor was ostensibly in accordance with prescribed procurement processes and the award was made on 20 March 2016.
  1. In addition to procuring the services of a Transaction Advisor, SAA went out to the market to source funds. Funds could be sourced from the traditional lending institutions such as banks and investment houses. In recognition of the fact that SAA had loans in the amount of R7.2 billion maturing at the end of June from different lenders, management went out to look for a lender in order to avoid defaulting on our obligations when the loans became due and payable. After following a procurement process, a potential lender was identified but for reasons beyond SAA’s influence and/or control, the lender withdrew even before the agreement was entered into between the parties. Due to the confidential nature of the transactions and conditions attendant to those matters, SAA may not disclose the identity of the lender. The withdrawal was communicated by the potential lender to SAA in April 2016.
  1. In light of the sudden withdrawal by the potential lender, SAA was faced with a predicament and had to consider on an urgent basis other alternatives to mitigate its risks associated with loans that were maturing within a month. In May 2016, SAA management followed a process provided for in the Supply Chain Management (SCM) Policy, to deviate from open tender and go on a confinement process. The process, which is also recognised by National Treasury as one of the justified methods under specified circumstances, was duly approved.
  1. On 25 May 2016, SAA issued a letter of award to BnP Capital to source funds on behalf of SAA. The outcome was based on the confinement process which was occasioned by urgency or exigency which the SCM policy provides for.
  1. In the intervening period, before SAA and BNP Capital could enter into a contract, and whilst SAA was still to conduct a due diligence, SAA received correspondence on 7 July 2016 from Webber Wentzel, legal representatives appointed by OUTA, stating concerns on a range of issues. The concerns were individually considered fully, including whether or not BnP Capital was in possession of a valid FSB licence as a financial service provider.
  1. On 08 July 2016 (the very next day) SAA contacted BnP Capital to enquire specifically about claims that had been made involving the latter’s FSB licence.  BnP Capital duly responded to SAA enquiries.
  1. On 20 July 2016, after considering all relevant information received from BnP Capital, SAA management took a decision to terminate all BnP services to the airline as a prospective financial service provider in relation to SAA’s initiative on debt consolidation. No payments had been made to BNP Capital.  The decision to terminate the service was arrived at after a review of the award to BnP Capital.
  1. On 05 July 2016 SAA Treasurer, Ms Cynthia Stimpel was placed on suspension by SAA management. She has been suspended for misconduct as she had acted in contravention of SAA’s code of conduct. The decision to suspend her had nothing to do with media reports suggesting that she had allegedly objected to SAA’s decision to award a tender to BnP Capital. Her suspension remains in place pending the finalization of an investigation and a possible institution of a disciplinary hearing. Mr Michael Kleyn has been appointed as acting Group Treasurer.

SAA remains committed to ensuring that the financial management of the entire group improves and the airline’s finances are turned around.   In doing so, SAA also welcomes within the confines of the law (including its internal procedures) any report of a whistle-blower.

Employees are reminded that disclosures in terms of the prevailing law are protected if they pertain to information about impropriety and have been made to the right person, according to the scheme established by the Protected Disclosures Act 26 of 2000 (PDA). Leaks of information by employees to entities which do not qualify in terms of the provisions of the PDA do not constitute protected disclosures under the PDA.

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