Recession takes a bite out of the IDC’s cherry

2010-01-23 13:46

THE recession has taken a heavy toll on South Africa’s premier

­industrial financer, the Industrial Development Corporation (IDC).

The state-owned lender, which last year reported a R5.6?billion

profit, is rumoured to be in the red and is planning a major restructuring,

which may result in retrenchments and the cancellation of some of its funding

commitments.

Sources inside the corporation said that dividends from IDC’s

­recession-hit investments had dwindled and some of the investments would have

to be written off.

“The IDC is projecting a loss of R3?million this year,” said an IDC

source, who declined to be named.

“A major restructuring is on the cards which may see the IDC close

its regional offices, move staff around and retrench redundant people.”

A senior IDC executive, who also wanted to remain anonymous, also

confirmed that the lender was experiencing a “tough” financial year due to the

poor state of the economy.

“The losses are bigger than what you have just told me. It is very

tough. You will see our financial ­results when we announce them,” the executive

said.

But Neo Sowazi, the IDC’s head of marketing and corporate affairs,

dismissed speculation that the ­industrial financer was on course to post a

loss.

“We envisage a significant reduction in profitability, but we do

not expect a loss in the consolidated ­results,” she said.

The corporation’s financial year ends in March and it usually

unveils its annual financial statements at the end of June.

Sowazi also rubbished rumours that the IDC was planning to

­restructure its business and cancel some of its funding promises made to

cash-strapped businesses.

Last year, the lender approved about 231 funding applications worth

an estimated R10.8?billion.

“The IDC is not planning any ­restructuring or retrenchments.

“Our funding commitments will be met, including assistance to

struggling companies and funding new applications,” she confirmed.

Last year, the lender saw the ­value of its balance sheet drop

­dramatically due to the recession and weak equity markets.

The value of its total assets dropped to R73.3?billion last year

­after reaching a high of R90.4?billion in 2008. In 2005, the IDC’s assets were

valued at R37?billion before the ­equity market boom ballooned them. Now, the

recession is deflating the value of these assets.

The IDC’s key investments in listed companies are in Sasol, Kumba

Iron Ore, BHP Billiton, Sappi and ArcelorMittal. It also invests in non-listed

companies.

Signs of the harshness of the ­recession were already evident last

year as the IDC’s impairment costs jumped 183% to R1.2?billion compared with

R420?million in 2008.

Impairment costs arise mainly when investors need to lower the

value of their assets.

IDC sources said the level of bad debts was likely to be

significantly higher because many companies closed down last year, and many of

them had to be bailed out by the ­industrial financer.

The lender had to set aside R6.1?billion to assist distressed

companies, many of them in the mining and automotive sectors.

One IDC staff member said there was fear among the financer’s

­630-strong workforce that jobs could be shed and bonus payments frozen this

year.

“Right now there is fear, panic, and uncertainty at the IDC.

“I don’t think we are going to get bonuses and salary increases

this year.

“This restructuring that people are talking about could result in

us losing our jobs,” the employee said.


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