Umgeni bonds continue to trade
The JSE is taking no steps to suspend trade in listed bonds issued by Umgeni Water, despite concern about governance expressed by Futuregrowth.
The JSE is taking no steps to suspend trade in two listed bonds issued by Umgeni Water, despite serious concern about corporate governance expressed by Old Mutual asset manager Futuregrowth, the state-owned water utility’s single biggest bond holder.
Umgeni’s two bonds in issue are UG21, which matures in 2021, and UG26, maturing in 2026. UG21 trades at a yield of 10.7% and UG26 at 11.31%.
Together, the issues are worth R1.535bn. It also has a long-term loan from the European Investment Bank of R385m. The comparable R207 government bond was bid at 7.355% late on Thursday.
Andre Visser, GM of issuer regulation at the JSE, said only that it was in talks with Umgeni “regarding their current governance arrangements to ensure compliance with the listing requirements”.
The JSE requires listed entities to have a chairman and a CEO, and that they may not be the same person, to provide a balance of power and authority. Under the Public Finance Management Act, Umgeni must have an accounting authority, that, in Umgeni’s case, is a board.
Acting CEO Thami Hlongwa said that there was no reason for concern about Umgeni’s finances and that its debt would be met from cash flow.
He said the outcome of the talks with the JSE were positive and that the JSE was “happy”, as were Umgeni’s lenders including Futuregrowth, and ratings agencies S&P Global and Fitch.
But Andrew Canter, Futuregrowth’s chief investment officer, disagreed: “To say we are happy is premature.”
The issue was that Umgeni’s board was dismissed and the utility’s insistence that its accounting vested in Hlongwa, he said.
“Our understanding of the Public Finance Management Act is that the board is the accounting authority at the utility,” said Canter.
“And Umgeni has no board. Further, our legal opinion is that the Water Services Act requires that Umgeni must have a properly constituted board and that such a board is the accounting authority. Our interpretation is, therefore, that Umgeni Water does not have an accounting authority and this, plus the complete absence of a board and its sub-committees, has raised serious doubt about corporate governance at Umgeni.”
Hlongwa was appointed as acting CEO by the board before the expiry of its term at the end of June 2017, said Umgeni spokesman Sputnik Ratau. Water and Sanitation Minister Nomvula Mokonyane subsequently appointed Hlongwa as the accounting authority.
Mokonyane said on Wednesday she would appoint an interim board, pending the appointment of a permanent board.
“The interim board will be expected to meet as a matter of urgency to ... attend to the corporate governance and financial management matters at the utility including the composition of an independent audit committee to oversee the finances at Umgeni Water,” she said.