SOE crisis: ‘We almost lost SA’

There are few organisations that know as much about state-owned enterprises (SOEs) as Futuregrowth Asset Management. It is one of the biggest local lenders and over the last two years has been involved in ongoing, indepth engagements with these organisations.

This followed the announcement by chief investment officer Andrew Canter in 2016 that Futuregrowth would not lend more money to six major SOEs until it had done governance reviews.

“They each have unique founding legislation, different policies, guidelines and principles,” Canter explains. “The standardisation of governance across the SOEs is remarkably little.”

Within a few months, Futuregrowth decided it could lend to the Land Bank, the Industrial Development Corporation (IDC) and the Development Bank of South Africa (DBSA). The national roads agency (Sanral), Transnet and Eskom are still off the list.

“The Land Bank, IDC and DBSA had very good governance structures,” says Canter. “Their boards were well composed, with enough independence and people to bring a balance of the skills needed to run those businesses. But each had its own problems.”

These ranged from how much money committees could lend out without higher approval, to introducing new policies for dealing with “politically exposed persons”, and staggering directors’ terms for continuity. “Fixing these was not a fight,” he says. “They were also all very willing to be more open around disclosure of governance policies.

“Sanral was trickier ... because the board is by statute only allowed to be eight people. Our view is that you cannot run a business of that complexity with only eight members on the board.”

To do the job of analysis and oversight, investors must also get more information. “How was it possible,” he asks, “that there was no awareness Eskom’s internal audit department was reporting to the chief financial officer and not the board audit committee, for instance? That’s a clear demonstration of appalling governance.”

Hopefully, progress will continue to be made.

“I would like to hear acknowledgement that we almost lost the country, and that we must buttress the pillars of democracy so it doesn’t happen again. I haven’t heard that sentiment from anyone in government yet, but they are starting to ask some of the right questions.”

Moneyweb

Court papers filed in the High Court in Johannesburg by two of the major mortgage banks, Standard and Absa, provide a fascinating insight into the health of SA’s property sector.

There are about eight million properties in SA, of which 82% are residential. This amounts to 6.5 million residential properties, of which 33.5% are bonded.

The bonded properties were worth R2.6 trillion in 2017, amounting to 52.4% of the total value of all residential properties in SA, and 56.5% of GDP.

Citing data from property analytics company, Lightstone Property, Absa court papers put the value of SA’s property market at R5.014 trillion at the end of 2017. By contrast, the market capitalisation of the JSE was R15.46 trillion (the current value of the property market is R5.3 trillion, according to Lightstone Property).

Figures from the Banking Association of SA from November 2016 show 1.74 million mortgage