List viable SOEs on JSE to facilitate economic growth – Giyose

But government will have to correct the wrongs that face each company first.
First Avenue Investment Management CIO Hlelo Giyose. Image: Supplied

It is time to consider listing market competitive state-owned entities (SOEs) on the Johannesburg Stock Exchange (JSE) so these too can start making more meaningful contributions to economic growth in South Africa.

This is the view of First Avenue Investment Management chief investment officer Hlelo Giyose, who was speaking at Moneyweb’s Better Investor Conference on Thursday.

Read: SA equities do not represent ‘great, long-term value for investors’ – Wierzycka

According to Giyose, part of the reason why South Africa remains an unattractive long-term investment destination relates to government’s inability to address the main pain-points that restrict growth in the country – one of which is the poor running of critical SOEs.

“South Africa has an existential problem that it has to figure out, and the way I look at it is that the government isn’t interested in looking at this [SOE] problem,” he said.

“The problem is we have about 980 state-owned enterprises and we have about [300] listed companies. The [300] listed companies drive more value in GDP than the 980 SOEs,” added Giyose.

“We have a whole bunch of tax money that’s being shovelled at a vicious rate towards the 980 [SOEs]. While we have companies that are on the stock market that don’t benefit a penny from the taxpayer.

“If you could take over half of those SOEs – for example Transnet and SAA – and put them on the stock market and get better capital allocation, those companies would be contributing towards job creation for example, like Telkom did,” he said.

Depoliticise SOEs

Despite how attractive a solution this may seem for some of the state’s battered entities, one of the most emphasised conditions of this working is the separation of political influence from the day-to-day functions of these companies.

“It will work, and it can work but it’s very important that the politicians are not in control,” economist Dawie Roodt tells Moneyweb.

“We believe there must be private sector participation in appropriate SOEs, in some form or other,” says Business Unity South African CEO Cas Coovadia. “Listings is one good way, and it also brings discipline into the management and operation of the SOEs.”

Roodt and Coovadia both believe government will have to correct and resolve the operational and financial wrongs that trouble each SOE before even considering listing these.

“Any potential SOE listings must be after the identified SOEs sort out governance issues and ensure sound management and appropriate boards,” stresses Coovadia.

Read:
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“People will not invest in a SOE that [has] been run into the ground operationally, so you have to fix that before you can list the company. Secondly you can only list a company if it is not burdened by a horrible balance sheet,” adds Coovadia.

Eskom, Denel, South African Airways, Transnet and the SA Post Office are some of the SOEs that have been flagged for possible future JSE listings.

These very same entities were named at the Zondo Commission of Inquiry into Allegations of State Capture, where evidence of political interference, operational and financial mismanagement and corruption was exposed, much to the shock of many South Africans.

Read:
Zuma-era state capture probe ends but SA remains ‘broken’
Ramaphosa talks tough on corruption after rebuke from Judge
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It will be too little, too late to try to improve SOEs.
Most SOEs should be closed down, privatised or liquidated.
The electricity sector can be for a very large part be fully privatised, especially generation.
Denel, SAA simply be closed or sold. Telkom is still for about 55% state-owned, but competing with private companies. It should be fully private.
We need another, new regime in 2024 to drive these changes.

“Eskom, Denel, South African Airways, Transnet and the SA Post Office are some of the SOEs that have been flagged for possible future JSE listings.”

all five of those are complete disasters, no investor will touch them without state backed warranties that by quick math would amount to at least a trillion rand. Their equity valuation is definitely negative.

As a country we don’t need Denel or SAA, just shut them or sell them. The Post Office is dead, it cannot fulfil its mandate of postal service and make money. There are parts of Transnet that could be packaged and privately operated. The only part of Eskom that could be interesting is the new National Transmission entity, depending on what it is allowed to do.

The whole idea sounds like a dream project for investment banks and advisors – billions and billions in fees.

Listing these SOE’s shouldn’t be the sole business strategy. Before the listing, all those SOE’s should submit viable turnaround strategic plans entailing details to grow market share, increase profits, reduce operational costs, retain customers or streamline processes. Strategies are long term, hence before these SOE’s embark on listing, it is important to understand what the strategic approach will mean for them in the long run.

Great idea….but are their any viable SOE’s to list? Or would this just be a further step in RET by the politically connected? I fear the latter would be the correct answer here.

End of comments.

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