Bid to breathe new life into struggling SOEs

IN A sign that state-owned enterprises (SOEs) are still in dire straits after a decade of mismanagement and corruption during the Jacob Zuma era, Public Enterprises Minister Pravin Gordhan and the Treasury have appealed for heads of major banks and asset managers to help bring them back to health.

A delegation including Gordhan and Deputy Finance Minister Mondli Gungubele met with financial sector chief executives last week to appeal both for funding and solutions on restructuring state-owned companies.

The meeting is an indication that banks have not yet restored lending, as concerns remain over their exposure to the sector and to Eskom in particular. All the SOEs are in severe financial difficulties and government guarantees are no longer considered adequate insurance against the risk of default.

The Banking Association SA, the Association for Savings and Investment SA, the Treasury and the Department of Public Enterprises were due to issue a joint statement on the initiative yesterday.

None would comment on Sunday.

Several people with knowledge of the meeting said it was agreed that a small team would assist the government in two areas: tackling the immediate liquidity issues faced by Denel, SAA and SA Express, which are struggling to pay suppliers and salaries; and exploring business models that would address the longer-term solvency of Eskom and SAA.

The predominant view among the CEOs was that “the solution is not to lend more to these companies but to fix them” and that they must be “dramatically downsized”, said a person with knowledge of the meeting.

It is difficult to know the extent to which local banks are exposed to SOEs as loan arrangements are confidential.

RMB credit analyst Elena Ilkova estimates that “each individual major bank has exposure and Eskom is probably at the top of that list”.

At the end of February, the companies had R304-billion in state-guaranteed debt.

However, this is not the sum total of the debt of public entities as Eskom and Transnet have significant debt in the bond and capital markets that is not guaranteed by the government. Eskom alone has debts of more than R350-billion.