Fix the nuts and bolts of SOCs

Then the money issues will follow suit, says Bakang Letshwiti from Absa Corporate and Investment Banking.
Eskom recently appointed a new CEO and has made progress on implementing the roadmap for the utility’s reform. Image: Waldo Swiegers, Bloomberg

Government has over 700 state-owned entities, and over the past 12 years, just five of them have been the beneficiaries of R162 billion in state bailouts. These financially distressed entities will increase their consumption of taxpayer money over the next three years, as they receive an additional R129.2 billion.

In his foreword to the 2020 Budget Review, National Treasury Director-General Dondo Mogajane is clear: “Without financially self-sustaining state-owned companies (SOCs), taxpayers will be paying for their losses for many years to come.” 

“Years of systematic mismanagement, corruption and inefficiency have led us here, meaning the reform project will also take years to bear fruit and government needs to lay a clear and credible foundation on which to build,” says Bakang Letshwiti, coverage sector head for state-owned companies at Absa Corporate and Investment Banking.

Letshwiti adds that the journey towards stabilising the finances of SOCs cannot be disentangled from the underlying issues that have caused the mess that the country must now confront. 

Cosatu’s debt-relief proposal

One of the most notable conversations around the balance sheets of our SOCs is trade union federation Cosatu’s proposal that a special purpose vehicle with a combination of private and public pension funds be used to unburden Eskom of R250 billion of its R450 billion debt.

The proposal that the Government Employees Pension Fund and other pension funds be used to bail out Eskom has received a mixed reaction; raising eyebrows within certain corners of organised labour and the investment community, while being endorsed by business and government. Talks between the social partners have advanced rapidly over the past two months, with President Cyril Ramaphosa recently telling journalists that pension funds should not be afraid of putting money in Eskom – especially a reformed Eskom.

Letshwiti says banks and lenders within the investment industry are in discussions with government and National Treasury, and are willing to offer their expertise and funding for each of the SOCs in line with their mandates and risk appetites.

Funders need insight 

“However,” she says “the common point that is raised by all of these institutions and parties is that we cannot fund if we do not understand the strategy [or] what we are funding and there is no governance and controls in place.” 

As announced by the Department of Public Enterprises, Eskom recently appointed a new CEO and has made progress in implementing the roadmap for the utility’s reform. South African Airways (SAA) is undergoing a voluntary business rescue process, with the business rescue practitioners expected to publish the airline’s rescue plan by the end of March. 

“As these, as well as other entities, begin the work on repositioning themselves in the energy and aviation industries, they will have to clearly articulate and explain to the investor community what their respective long-term strategies and plans are,” says Letshwiti.

“Whoever comes in as an equity partner or debt provider would need to understand the dual social and developmental mandate of many of the country’s SOCs, particularly how each mandate will be funded,” she adds.

“The accumulated losses at the SOCs [are partly] as a result of the lack of clarity on the dual mandate,” says Letshwiti.

“This cannot be separated from the state having to reckon with which SOCs they will continue to own, and to what extent,” Letshwiti continues, adding that that has not been articulated in “one voice from all spheres of government”.

Greater clarity is also required around the state’s oversight role. “The first thing that we have to correct and get right is government’s oversight role: where it starts and where it stops,” says Letshwiti. “You can have a good team of executives and board of directors in the SOCs but if you continuously have shareholder interference – it kills.” 

Over the years, executives and board members have complained about shareholder and political interference in the operations of SOCs, saying this undermines their ability to run the institutions as businesses. 

Brought to you by Absa CIB.



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