IDC and Land Bank talking to Futuregrowth
THE Industrial Development Corporation (IDC) is scheduled to meet with Futuregrowth next week as part of ongoing engagements, while the state-owned development finance institution and the Land Bank have said they were prepared to talk to Moody’s Investors Service after its decision to place them on review for downgrade.
The ratings agency said on Wednesday it had put the foreigncurrency, long-term debt of the Development Bank of Southern Africa (DBSA), the IDC and Land Bank on review for downgrade, which followed third parties’ increased “risk aversion” to the companies owing to governance concerns. Moody’s is also looking at the Land Bank’s local currency debt because of the increased risk of funding and liquidity challenges.
The IDC’s Mandla Mpangase said on Thursday that its governance processes were sound.
“In relation to the funding and liquidity, we believe we have enough processes to address their [Moody’s] discomfort,” he said.
“We will engage with them to address any other concerns.”
The IDC was confident that its lenders and funders would continue to support its “funding relations”, he said.
The IDC has been corresponding with Futuregrowth, and has scheduled a meeting for early next week to iron out issues.
Futuregrowth Asset Management sent shock waves through the market when the fixed-income manager announced it would suspend R1.8bn in funding to the three development finance institutions — as well as Eskom, Transnet and the South African National Roads Agency — unless they improved governance.
“The IDC will continue to engage with Futuregrowth … to ensure we are continuously aligned on any concerns that could arise in the future,” said Mpangase.
The Land Bank, which confirmed to Business Day this week it was engaging Futuregrowth, said Moody’s had advised the bank of its plans on Tuesday and a final decision would be made in 90 days.
CEO TP Nchocho said: “We will continue to engage with Moody’s to resolve the concerns that gave rise to this ratings action.
“The bank has engaged proactively and constructively with a large group of current and potential funders during the last two weeks, where … concerns relating to governance and independence were discussed in detail.
“We have not been advised of any … deficiency in any of the governance and decision-making processes of the bank by funders, and have not experienced a reduction in appetite for Land Bank debt or any increase in our funding cost.”
Half the Land Bank’s R33.1bn in funding — 47.4% of which is provided by institutional investors such as Futuregrowth — is due to mature in less than a year.
The DBSA confirmed it was in contact with Futuregrowth, but did not provide details. It also declined to comment on Moody’s announcement ahead of the release of its financial results next week.
The DBSA had R33.3bn in debt on its balance sheet at the end of its last financial year.
It did not disclose the profile of its debt-holders.
Moody’s will assess each institution’s situation and characteristics to gauge capacity to withstand the pressure imposed by investors’ aversion to funding them.
“Moody’s will review DBSA’s, the IDC’s and the Land Bank’s liquidity buffers, funding contingency plans and ability to raise new funding, considering also that South African asset managers have relatively limited investment choices given capital restrictions in place,” the agency said.