Siltek hopes to reopen on Monday

By Iain Scott, ITWeb group consulting editor

Johannesburg, 16 Oct 2001

Siltek is hoping to reopen its doors on Monday, despite being technically insolvent and applying for provisional liquidation today.

CEO Dave Lello said at a news briefing in Midrand this afternoon that Siltek Holdings' debt load proved too much for it to sustain.

[VIDEO]The holding company is technically insolvent, and a capital restructuring plan failed to satisfy all interested parties.

Siltek's share was suspended on the JSE last week because its latest financial results are overdue for release. Lello says this is because there was no finality on the capital restructuring plan. The group was advised by its auditors that to continue trading now would be reckless.

"Siltek as a holding company has, and has had, a large amount of debts," says Lello. He adds that "the debt-to-equity ratio was fairly wrong, and purchases were made on debt".

[VIDEO]"When you are on an acquisition trail, debtors are the cheapest form of equity, but in a downturn they are very expensive."

The group is to hear this afternoon whether its application for liquidation will be heard.

Lello says all the group's operating divisions are now either profitable or running at break-even.

"I am confident that we can come to an agreement with creditors over the next few days, but in the interim the only step is provisional liquidation and to cease trading."

He says unless the debt load is reduced, the company cannot continue operating.

[VIDEO]Distribution is a cash-negative business, Lello says. This means the company has to buy products before moving them to resellers, who pay only once they are sold.

The group's debtors' book, which comprises mainly resellers, is in excess of R300 million. "If they paid us promptly we would probably be able to continue trading, but I understand they are also under pressure.

"Resellers work on a cash-neutral basis, so if the money came in they would pay us."

Beside trade creditors, the company also has creditors in the banking industry, among them the four largest banks.

Lello says the company was hit by several problems. The Solomon's accounting system at SDD was detrimental to the business as it resulted in poor stock controls. The cost of the system had to be written off.

Although the Ability package was installed in April and helped return the situation to normal, the margins were lower as a result of Solomon's. The issue cost Siltek R150 million to R200 million.

The group also lost R120 million to R160 million as a result of the closure of the Australian operations. The merger between SDD and OTG cost a further R80 million to R100 million.

Another problem resulted from the signing of a sale and lease-back agreement related to various properties. The rentals were far above market value and cost the company another R50 million to R80 million.

"A number of key decisions by some people in the past have caused us a lot of problems," Lello comments.

He confirmed that the company has been negotiating with buyers in a bid to sell Siltek Telecoms, whose MD, Michael Aitken, told ITWeb this morning that plans for a management buy-out of the division are well underway.

"We and our merchant banker will be seeking an audience with the liquidator as soon as possible to talk about a deal," Aitken said.