Armscor did not supply any rescue funding to Denel other than what is allowed within its normal business practices.
Armscor allowed its normal contracting process whereby contracts are placed on Denel for delivery of specific products or services. To this extent Denel, similar to any other contractor, requested advance payments on some of the contracts placed for paying long lead items, etc. This awarding of such an advance payment is in the sole discretion of Armscor and is subject to an associated benefit which may include reduction in the price offered as well a guarantee equal to the amount of the advance payment that is acceptable to Armscor. An acceptable benefit is measured against the norm of Bank Acceptance (BA) rate plus 1%.
In terms of Armscor’s current financial policy, Armscor only accepts corporate guarantees (with certain parameters) of advance payments from State Owned Entities (SEOs) as it also reduces the cost for the State. Any advance payment exceeding the set corporate limit is then covered through an acceptable bank or insurance guarantee. Advance payments are then recovered pro-rata from future milestone payments.
During this period, Armscor reviewed Denel’s corporate limit based on Denel’s financial position. The corporate guarantee limit was increased during the period; this assisted Denel to reduce bank or other guarantees to enable them to use their facilities for other business purposes.