UPDATE 4-S.Africa's Ramaphosa vows "drastic" steps to save state companies

South Africa's president said on Monday he would take "drastic" steps if needed to prevent foundering state-owned companies from failing, as the government-appointed an independent adviser to manage the country's passenger rail firm.

Cash-strapped and heavily indebted, state companies including South African Airways (SAA), power utility Eskom, defense firm Denel and Passenger Rail Agency South Africa (Prasa) have become a major headache for President Cyril Ramaphosa as he seeks to reverse years of stagnant growth. Transport Minister Fikile Mbalula said on Monday he had decided to place state-owned Passenger Rail Agency South Africa (Prasa) under administration with immediate effect, adding that he had dissolved the interim board.

The move follows a decision last week to place SAA into business rescue - South Africa's form of bankruptcy protection. In contrast to SAA, Prasa will not be sheltered from creditors while it is under administration.

The decision to place SAA into business rescue was the "only way to secure its survival", Ramaphosa said in his weekly newsletter, adding that the move demonstrated the government's resolve. "We will not allow any of these strategic entities to fail. Rather, we need to take all necessary steps – even drastic ones – to restore them to health," he said.

BUSINESS RESCUE The struggling state firms are being kept afloat with bailouts that the government is growing increasingly reluctant to grant.

South Africa has the continent's largest railway network, but it has been plagued by mismanagement and under-investment that has seen train use dwindle despite it being the cheapest form of public transport. Eskom, which produces more than 90% of the country's power, implemented rolling blackouts last week due to a shortage of capacity. In a statement on Monday it announced there was a "high probability" the measure would remain in place until the end of the week to prevent a nationwide outage.

SAA has been on the brink of collapse since a crippling strike last month left it without enough money to pay salaries on time and two major travel insurers stopped covering its tickets against the risk of insolvency. After years of government dithering, the crisis at SAA, which hasn't made a profit since 2011, became a test of Ramaphosa's pledge to carry out badly-needed economic reforms.

But Ramaphosa said the business rescue process was not how the government planned to save other state companies. "Business rescue is not the preferred option for fixing our state-owned enterprises, nor would it necessarily be advisable in other circumstances," he said, without elaborating on the other options.

Business rescue is a form of bankruptcy protection where a specialist adviser takes control of a distressed company in an attempt to save it. It creates a moratorium on obligations to creditors during a restructuring of the business, its property, debt and other liabilities. In a first step, Les Matuson, who was named SAA's business rescuer last week, must determine if the company is even salvageable and inform creditors and employees within 10 days of his appointment.

"With the support of lenders, government, management, and workers, SAA will continue to operate while the airline undergoes the restructuring needed to make it a viable company," Ramaphosa said. SAA has been granted a 4 billion rand ($272 million) lifeline from the government and banks to launch the rescue plan, but that cash could only last months, analysts say.

(Writing by Joe Bavier; Editing by Muralikumar Anantharaman and Emelia Sithole-Matarise)

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