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.
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.
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.”
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