Finance minister to name code red SOEs
Cash-strapped SAA likely classed red, Eskom amber Risk of debt-default taken seriously
SA’s state-owned enterprises (SOEs) have been classified “red”, “amber” or “green” in a matrix put together by the Treasury, while Finance Minister Nhlanhla Nene says he plans to go public soon on those coded “red”, with a view to turning them around.
State-owned enterprises are one of the major drainers of the fiscus. Several turnaround strategies have been mooted by their various boards and management teams, but they have all come to nought. So did most done by external consultants.
Nene revealed this on Tuesday in an interview after he announced that the South African Revenue Service (SARS) had collected a net R1.216-trillion for the 2017-18 tax year, just slightly short of February’s revised revenue target of R1.217trillion. This was more than R48bn below last February’s budget projection. Nene said he was happy with the outcome and the budget deficit would come in within 0.1 percentage point of February’s estimates.
The finance minister would not say which SOEs had been put into which categories, but he said this was one of the priority projects he was working on with Public Enterprises Minister Pravin Gordhan.
For each of the SOEs they would identify governance or financial sustainability issues so that decisions could be taken to the Cabinet.
The risk of a debt default was being taken seriously, but was not insurmountable: “We think we can deal with it within our resources and our policy trajectory,” Nene said.
It is understood that cashstrapped South African Airways (SAA), which in 2017 came close to defaulting and last week revealed a R5.6bn loss for the year to March 2017, was definitely classed as red. However, Eskom was seen as being amber, even though it was yet to
regain access to public debt markets and had recently been downgraded again by rating agencies, taking it further into junk territory.
Nene said following SAA’s long-delayed 2017 annual meeting last week that cutting debt would be a tall order that would involve tough decisions, but the new SAA board was aggressively pursuing implementation of its turnaround strategy.
The airline was forecasting further losses in 2017-18 and 2018-19 and expected a return to profitability only in 2021.
Lenders remained wary of lending to SAA despite the government guarantee facility in place for its debt.
Eskom managed earlier in 2018 to raise R20bn in shortterm funding from a syndicate of bankers, following the appointment of a new, credible board and acting CEO.
It has yet to return to raising funds on the bond market, which it has been unable to access since the middle of 2017, but was due to embark on an investor roadshow soon to gauge sentiment.
Moody’s, which last week downgraded the rating of Eskom’s bonds to B2 with a negative outlook, said that “despite a number of improvements at the company in relation to its corporate governance and liquidity, there is limited visibility at this juncture as to Eskom’s plans for placing longer-term business and financial position on a sustainable footing.”
The ratings agency also cited the lack of any tangible financial support for Eskom in February’s budget and the liquidity and funding issues the utility continued to face.
The latest revenue numbers came after a difficult year in which SARS made headlines for all the wrong reasons, amid allegations of fraud and corruption. They followed the suspension in March of SARS commissioner Tom Moyane, who had refused President Cyril Ramaphosa’s request that he resign. SARS acting commissioner Mark Kingon said on Tuesday that the agency’s focus going forward was to restore credibility and its relationship with taxpayers.
The revenue numbers reflect annual growth of 6.3% for 201718, with growth in tax revenue lagging economic growth for the second successive year.
SARS has been set a target of R1,345bn for 2018-19, representing revenue growth of 10.5%, which is expected to be helped by a hike in the VAT rate and higher economic growth.