It’s now up to government to decide on R3.8bn bailout for SA Post Office
A majority of SA Post Office creditors voted in favour of implementing a rescue plan to restructure the affairs of the beleaguered company and give it a fighting chance. The plan requires a government bailout of almost R4-billion.
A majority of businesses that are owed billions of rands by the SA Post Office have approved a plan that will drastically restructure the affairs of the state-owned enterprise (SOE), paving the way for 6,000 jobs to be cut, 600 branches across the country to be shut, and for the government to throw even more taxpayers’ money at it.
At a meeting on Thursday, 7 December, a group of SA Post Office creditors – owed more than R3-billion by the SOE – voted in favour of a business rescue plan which would be implemented over the next two to five years.
A spokesperson for the SA Post Office’s joint business rescue practitioners, Anoosh Rooplal and Juanito Damons, told Daily Maverick that the plan received support from more than 75% of independent creditors who voted at the meeting.
This was a crucial step because if the creditors had rejected the plan, the SA Post Office would have faced liquidation and the permanent closure of its doors.
However, for the plan to be implemented, the SA Post Office will need a R3.8-billion bailout from the government, which, through Cabinet, has agreed (in principle) to provide more money to the SOE.
Over the past nine years, the government has given the Post Office cash bailouts worth R10.3-billion — a futile exercise that has failed to return the SOE to operational and financial sustainability.
It will now be up to Finance Minister Enoch Godongwana to confirm additional money or the mechanism of support for the SA Post Office, a decision that might be unveiled in 2024 during February’s Budget.
How the potential bailout will be spent
The additional funding from the government is required to pay for aspects of the business rescue plan and its implementation while the SA Post Office’s operations are kept going.
The SA Post Office will have to fund retrenchment packages to the tune of R600-million as job cuts are a key aspect of the business rescue plan to reduce the SOE’s cost base.
The plan proposes retrenching 6,000 of the SA Post Office’s workforce of 11,000.
According to the business rescue practitioners, the biggest contributor to the Post Office’s financial challenges (accumulated financial losses of R19-billion since 2014) is its payroll.
The practitioners estimate that the SA Post Office’s worker cost base accounts for 150% of revenue, meaning that it pays workers R1,50 for every rand of revenue generated.
Once retrenchments are completed, it is forecasted that the worker cost base will reduce from 150% to 62% of revenue.
Another portion of the government funding would go towards paying the Post Office’s creditors. The SOE owes R4.5-billion, which excludes the R3.93-billion it owes to Postbank.
The business rescue plan would grant a dividend award of 12 cents in the rand to all pre-commencement creditors, amounting to R1-billion.
A further top-up dividend of 18 cents in the rand would be paid to statutory creditors, amounting to R125-million.
A top-up dividend of 18 cents in the rand would also be paid to payroll creditors, amounting to R367-million.
All of these payouts hinge on whether Godongwana agrees to throw yet another lifeline to the Post Office – this time for R3.8-billion.
The bailout would also go towards restructuring the SOE’s operations.
The business rescue plan sees the SA Post Office halving the number of its branches to around 600, with a dedicated sales and business development team to revitalise its mail delivery business.
This team would be tasked with “attracting new clients, increasing volumes from existing clients, and implementing strategies to enhance the overall efficiency and effectiveness of SA Post Office’s bulk mail operations”, reads the business rescue plan.
The branches would also have a renewed focus on motor vehicle licensing services, the Post Office’s logistics depot network across SA being positioned as a partner to retailers in the e-commerce space, and partnering with private sector players in the mail and parcel goods delivery industry.
“The Post Office fulfils an important social mandate intended to provide key basic communications services to all households, including the rural areas, where access to wifi, smartphones and printers are not a given,” said Rooplal in a statement after the vote by creditors.
“A restructured Post Office can do this affordably and conveniently, given certain regulatory pricing and the geographic reach of the branch network.”
The SA Post Office will also shift the function of paying social grant beneficiaries to Postbank.
Read more in Daily Maverick: SA Post Office set to relinquish social grants paymaster role
“Customer centricity and supplying the correct tools of the trade to the staff will be a key and ongoing initiative to provide excellent service, win back market share and gain traction with new products,” said Damons. DM