Proudly sponsored by

Futuregrowth investment freeze won’t affect us – Eskom

‘Funding plan remains on track’ – Eskom CFO. Updates on Transnet, Old Mutual and Jyske Bank AS.

Power utility Eskom on Thursday issued a statement saying the decision by Futuregrowth Asset Management to halt investment in six State-owned companies (SOCs), including Eskom, does not place its funding plan at risk.

This comes a day after Futuregrowth made the shock announcement that it is halting further investment in Eskom, Transnet, Sanral, the Development Bank, Land Bank and Industrial Development Corporation. Futuregrowth cited concern about how the SOCs are being run, government infighting and threats to the independence of the finance ministry as reasons for its decision.

On Thursday Denmark’s Jyske Bank AS announced that it had taken a decision to stop lending money to Eskom. Senior money manager at the bank Rune Hejrskov said: “I could easily see more lenders follow suit. We see issues on lending going forward and more governance issues.”

Eskom said in its statement it notes the decision by Futuregrowth. “Local asset managers provide considerable support to the funding of SOCs and the general local bond market,” it said.

Eskom said it just completed a domestic road show as part of its regular engagements with local asset managers. Futuregrowth was one of the asset managers it spoke to “and current concerns were not raised,” Eskom said.

It vowed to continue to engage with Futuregrowth and the broader investor community “to understand the recent concerns raised regarding current and future investments into Eskom”.

Eskom chief financial officer Anoj Singh said: “As at the end of August 2016, Eskom has available liquidity of approximately R38 billion and has secured more than 57% of its borrowing requirement of R69 billion for the financial year 2016/17”.

He said consequently, the Futuregrowth announcement does not place Eskom’s funding plan at risk. “I am confident that the funding for the year will be raised,” he said.

Old Mutual

In another development on Thursday the CEO of Old Mutual Emerging Markets, Ralph Mupita, in a statement distanced Old Mutual from the Futuregrowth decision.

Futuregrowth is one of a number of asset management boutiques owned by Old Mutual, and has a mandate to make independent investment calls on behalf of its clients, Mupita said.

He said Old Mutual “values the broad and deep relationships it has developed with SOEs over many years” and that these relationships have been key to development and social inclusion in the country.

“Old Mutual believes that public-private partnerships are critical for much-needed and shared growth in South Africa and we will continue to play our part in enabling that,” he said.

“Yesterday’s comments by Futuregrowth do not represent the broader views of Old Mutual. We respect the independence that fund managers need to deliver investment performance for clients, and believe that a more constructive model of engagement is needed and necessary to build and increase socio-economic development and drive financial inclusion in our country.”

Mupita said Old Mutual would engage the fund managers around these issues.

“Old Mutual remains committed to our existing commercial relationships and public-private partnerships with SOEs and will continue playing a constructive and value-adding role in capital markets, in both listed and unlisted investments.”

Analyst at Ratings Afrika Leon Claassen said Futuregrowth was courageous to take the stand and that it was necessary to send a message to these companies that they cannot just continue to waste money. He said investors have to take a stand to not allow their money to be used for corrupt purposes.

He said even though Eskom doesn’t see a problem in finding the necessary funding for this year, there might be a problem in future when Eskom and the other SOCs need to roll over debt.

If other investors follow Futuregrowth’s lead it might become impossible to roll over the debt, which would require the companies to repay it. If they don’t have the cash, government might have to step in in terms of an explicit or implicit guarantee, Claassen said.

It is ironic that Futuregrowth by doing this, actually might have added risk to its own current investments in the SOCs, Claassen said. He further states that the situation might impact credit ratings.

Director of the Centre for the Study of Democracy at Rhodes University and the University of Johannesburg Professor Steven Friedman questions that basis for Futuregrowth’s decision.

He says if it was made on the perception that President Jacob Zuma has taken control of SOCs because of an announcement made that he will chair a committee to look into the developmental contribution of these companies, the basis of the decision is flawed.

The establishment of the committee was announced at a post-cabinet briefing last week, with little detail given. Futuregrowth chief investment officer Andrew Canter mentioned the committee twice in an interview on Talk Radio 702 on Wednesday night.

Friedman says: “One does not create a committee to control something you already control.”

He says if one accepts that the decision was not aimed at making some kind of political statement, it could be considered a questionable investment decision. He says National Treasury is currently more aggressive than before in reigning in spending at the SOCs.

One could question whether Futuregrowth was satisfied with governance at these companies before, or whether it has only become concerned now that Treasury has stepped up its involvement, Friedman says.

Transnet’s take

In a statement released on Thursday, Transnet said it had learnt of Futuregrowth’s decision to halt loans to SOCs through the media and said: “It is regrettable that Futuregrowth, which represents about 1.25% of our total borrowings, opted to overlook the channels of communication available to them”.

It added that it continues to pursue its R340 billion to R380 billion infrastructure investment programme, “the Market Demand Strategy (MDS), aimed at strengthening the country’s railway, ports and pipelines infrastructure”.

“To support the successful execution of the MDS, Transnet raises funding through domestic and international debt capital markets, on the strength of its financial position with no government guarantees since 2005. Transnet has already funded its full borrowing requirement for the 2016/17 financial year and has a healthy liquidity position, with R22 billion available at present.”

Oops! We could not locate your form.

Please consider contributing as little as R20 in appreciation of our quality independent financial journalism.

AUTHOR PROFILE

COMMENTS   8

Sort by:
  • Oldest first
  • Newest first
  • Top voted

You must be signed in to comment.

SIGN IN SIGN UP

The arrogance of Eskom and this govt. defies logic. they are playing with the countries assets like a child with a handgrenade sans pin

Reminds me of years ago when I was a law student and Trust Bank refused me a R25 loan.
I also said – “It wont affect me”
But it did – I could not go on holiday!!!
The good thing was that I learnt to live within my small part-time earnings and I NEVER did business again with Trust and later ABSA banks.

R25 holiday? Was this at the dawn of time? R25 won’t even buy you a Steers burger today.

Indeed

Bunked with friend whose dad had house right on beach
Shared petrol
Caught fish and Crayfish and lived on the beach
Burger and Beer cost R4.50 – when tired of fresh fish

Those were the days!!

It could be done I remember 1974 R5.00 bought me 5 Rogue beers and filled my car.

In 1974 I was earning a princely salary of R 102 per month – lived like a king

Ignore this warning at your peril ! ! !

Why quote Friedman? He is an ANC political shill, of course he’s going to try and rubbish a sensible financial decision. I think Futuregrowth evaluated the performance and prospects of the SOE’s and didn’t like what they saw. Think liabilities – SANRAL (etolls and maybe the best of the bunch), Eskom (politicised “BEE” coal deals and build over runs), SAA (enough said) and Transnet (rotten procurement policies and management). Even with their monopolies and state help, would anyone buy debt or shares if these were listed companies?

End of comments.

LATEST CURRENCIES  

USD / ZAR
GBP / ZAR
EUR / ZAR
BTC / USD

Podcasts

INSIDER SUBSCRIPTIONS APP VIDEOS RADIO / LISTEN LIVE SHOP OFFERS WEBINARS NEWSLETTERS TRENDING PORTFOLIO TOOL CPD HUB

Follow us: