South Africa's government will oppose a court application by a black-empowerment investment firm, which wants the controversial USD3 sale for a majority stake in South African Airways (SA, Johannesburg O.R. Tambo) stopped.

According to documents filed with the Western Cape High Court in Cape Town and shared with ch-aviation, Toto Investment Holdings Pty Ltd. wants the current transaction to be declared invalid, and a new process for a strategic investor launched. It asserts as "unlawful and constitutionally invalid" current negotiations for the 51% sale of SAA to the Takatso Consortium, comprising fellow black empowerment asset manager Harith General Partners and ACMI specialist Global Aviation Operations (GE, Johannesburg O.R. Tambo).

Takatso is to inject ZAR3 billion (USD185 million) in working capital over two years into SAA and pay ZAR51 rand (USD3) as its share of the nominal transaction fee required under South African law. Lengthy negotiations between SAA's stakeholder representative, the Department of Public Enterprises (DPE), and the Takatso consortium remain unresolved.

Asked to respond to the legal challenge, DPE spokesman Richard Mantu told ch-aviation: "The department is studying the court papers and will oppose the application".

According to a supporting affidavit, Toto Investment founder and sole shareholder Bongani Gigaba claims his firm was unfairly excluded from the deal. He alleges the current transaction is "shrouded in secrecy" and "not transparent, fair, equitable, competitive, and cost-effective," according to the filing. He claims, "Toto was a direct victim of the unlawful and secretive process that led to its exclusion".

Gigaba says Toto Investments filed an expression of interest in SAA, which was rejected within days. The company takes issue with the process adopted to reject its proposals and the appointment of the current preferred bidders. He says the legal challenge is in the "public interest". Still, Toto Investments remains interested in acquiring a stake in SAA. The government had disclosed it had received proposals from several potential investors but never named them.

Toto Investments wants the government and Public Enterprises Minister Pravin Gordhan to deliver monthly reports on the current strategic equity deal to parliament's Standing Committee on Public Accounts (SCOPA). The respondents are called upon to show cause why the existing agreement should not be reviewed and set aside.

The court case is the first legal action brought against the deal, which sparked criticism from the National Treasury and the Democratic Alliance party.

SAA has been a drain on public finances for more than a decade, with ZAR28 billion (USD1.7 billion) in accumulated losses over the past 14 years. The latest ZAR10.5 billion (USD661 million) state bailout (effectively escalating to ZAR14 billion (USD881 million) over the next three years) ended bankruptcy protection proceedings. It resulted in a substantially reduced airline, including 80% staff cuts and a fleet reduced from 47 to nine aircraft.

Gigaba, in his affidavit, alleges that SAA's business rescue plan would result in its total liabilities reducing "from ZAR21.4 billion (USD1.3 billion) to ZAR5.2 billion (USD329 million) and SAA's total assets increasing from ZAR10.8 billion (USD683 million) to ZAR11.8 billion (USD746 million)". "The result was that SAA would have ZAR11.8 billion in assets against ZAR5.2 billion in liabilities with positive equity of ZAR6.6 billion (USD417 million). This was all achieved at the government's expense, using some ZAR14 billion of public funds.

"What followed thereafter is that the Government, through the Public Enterprises Minister, took a decision to sell 51% of its shareholding in SAA, a company with positive equity of ZAR6.6 billion, to Takatso for the sum of R51. The specifics of the decision and the manner in which it was taken remain unknown. The sale process has been shrouded in secrecy. Its details have not been disclosed to National Treasury, the National Assembly and other interested parties. Members of SCOPA have criticised the sale and the process that led to it for lack of transparency and queried why SCOPA has not been furnished with even basic documentation, including a copy of the sale agreement."

Gigaba describes himself as an entrepreneur and investor with international qualifications in economics and corporate finance. Toto Investments is part of a consortium that controls a 24% stake in Richards Bay Minerals, South Africa's largest mineral sands producer, which is majority-owned by mining giant Rio Tinto Plc. Gigaba says Toto's investment is due to mature in November 2022 with a gross realisable value estimated between ZAR12 billion (USD 759 million) and ZAR15 billion (949 million).

Toto Investments' court motion filed on June 10 lists as respondents the South African government, Public Enterprises Minister Pravin Gordhan, National Assembly Speaker Nosiviwe Mapisa-Nqakula, Finance Minister Enoch Godongwana, SAA, Harith General Partners, and Global Aviation Operations.

In an unrelated matter, DPE Director-General Kgathatso Tlhakudi was precautionarily suspended from office with immediate effect on June 24, pending disciplinary proceedings. The department announced that this followed an undisclosed complaint about him filed with South Africa's Public Service Commission (PSC). The matter has been referred to the Minister of Justice and Correctional Services.