Futuregrowth pulls plug on parastatals

LENDING FREEZE: MONEY MANAGER SAYS GORDHANGATE, DODGY CORPORATE GOVERNANCE RAISE TOO MANY RISKS

Africa’s biggest private fixedincome money manager raises concerns about how they are run and threats to the independence of the finance ministry.

Funder will only resume lending to big state entities once it has received proper reassurances of competent oversight.

Africa’s biggest private fixed-income money manager will stop lending money to six of South Africa’s largest state-owned entities (SOEs) because it’s concerned about how they are run, government infighting and threats to the independence of the finance ministry.

Futuregrowth Asset Management, with about R170 billion in assets, shelved plans to lend more than R1.8 billion to three SOEs on Tuesday, chief investment officer Andrew Canter said yesterday.

Proper oversight

The fund manager will only resume offering loans and rolling over existing debt once it has determined that what it sees as proper oversight and governance at the companies have been restored.

The companies are Eskom, Transnet, Sanral, the Land Bank, the Industrial Development Corporation and the Development Bank of Southern Africa. But the decision won’t immediately affect lending to government.

“We’ve observed recent reports that strongly hint of conflict between branches of South Africa’s government, the possible machinations of patronage networks and a seeming challenge to the National Treasury’s independence,” Canter said.

“Any material risk to the SOEs’ governance, budgeting and approval processes for spending or lending must impact on our forward-looking credit assessments.

“It is difficult to make reasoned and defensible decisions to continue providing SOEs with additional funding using clients’ money.”

The rand fell 1.4% to R14.71 per dollar yesterday, headed for the weakest closing level since July 7, while yields on government bonds reversed an earlier drop to rise two basis points to 9.01%. The yield on Eskom’s $1.25 billion of Eurobonds due February 2025 rose 28 basis points to 7.15%.

The move comes as Finance Minister Pravin Gordhan battles President Jacob Zuma and SOEs over board appointments and spending plans. Government announced last week that Zuma would lead a new panel to oversee all SOEs – a role previously delegated to Gordhan and other ministers. That decision lacks clarity, context and creates uncertainty about who the companies will answer to, Canter says.

The SOEs have said their dealings were above board and criticised Treasury’s conduct. The Guptas, who have denied any wrongdoing and say they are the victims of a media witch-hunt, last week announced plans to sell their businesses in South Africa.

Lending conditions

To start lending again, Futuregrowth will ask the SOEs to provide information about the independence of their boards, investment and credit committees and procurement processes, and to demonstrate greater transparency on material spending or asset sales, he said.

“It is not our desire nor intent to undermine their developmental mission, nor disrupt their ability to deliver,” Canter said. “But we want to send a message that we can’t provide finance unless the governance and decision-making of the SOEs improves.”