Six of South Africa’s largest state-owned enterprises (SOEs) risk having to pay more to borrow money, after the country’s largest and most influential buyer of their bonds said it would avoid investing in them.
These SOEs can only hope that Futuregrowth, a R150 billion asset manager, has few like-minded friends.
The funder announced it would no longer fund the six, citing, in particular, concern about the independence of their respective boards from a new council, to be led by President Jacob Zuma.
“If it is only Futuregrowth, we can handle it. If the entire Association for Savings and Investment SA (Asisa) follows suit, maybe not,” said Bennie van Rooy, CFO of the Land Bank.
Futuregrowth said it hoped the industry could form a united position on the SOEs through Asisa.
However, Asisa said it could not participate in, or promote, any direction taken by its members. “That would be considered collusive behaviour, which is not only undesirable, but also illegal.”
Even Old Mutual, which owns Futuregrowth, said the asset manager’s views did “not represent the broader views of Old Mutual”.
SA National Roads Agency, one of the six SOEs singled out by Futuregrowth, is having a bond auction in two weeks, which should show how widespread the aversion to SOEs is.
The six SOEs issue a huge amount of debt, although Eskom and Transnet dominate the rest by a wide margin.
Eskom bonds are found in most major asset managers’ (including Futuregrowth’s) fixed income fund offerings – the mix of investments they market to their clients.
Futuregrowth’s announcement centred on the termination of three loans it was negotiating with some of these SOEs, totalling R1.8 billion.
However, it already had significant exposure to all of them, including R4 billion in Eskom bonds.
Its exposure to Transnet amounts to about R1.5 billion and to the Industrial Development Corporation (IDC), about R2 billion.
It has a similar investment in the Land Bank’s debt, but the roads agency told City Press it could not say what proportion of its R36 billion in debt instruments Futuregrowth owns – apart from an unlisted R754 million bond, due next month.
Roads agency spokesperson Vusi Mona said it would not “underrate the signal” sent by Futuregrowth.
“We are not going to say they are just one of many. They have exposure to us and are an important stakeholder in our business.”
Only one other investor in the SOE bond market said it would pull out: Denmark’s Jyske Bank, which told Bloomberg that it also “pulled the plug” on Eskom this week.
The six SOEs voiced their dismay at Futuregrowth’s unusual decision to publicly announce its stance. “Usually, they vote with their feet,” said Van Rooy.
Geoffrey Qhena, CEO of the IDC, said that “logically, you talk to the people you are lending money to first before you tell the world. We saw it in the media on Wednesday.”
The IDC’s last bond issue was in December and Futuregrowth bought a third of the R6 billion bonds on offer.
“They are an independent company and can do what they want. I hope they will participate, but others also participate ... It is no train smash. We can still raise capital,” said Qhena.
Van Rooy said that Futuregrowth was “significant, but not material” to the company’s finances.
To be “material” would mean owning 20% or more of the state financier’s R33 billion in debt. Of that figure, asset mangers such as Futuregrowth account for about R10 billion, he said. “That is what is in jeopardy.”
Eskom spokesman Khulu Phasiwe said the company met with Futuregrowth two weeks ago and it did not raise concerns then. “But two weeks is a long time.”
Eskom was not planning on issuing any new bonds soon, added Phasiwe. “Eskom’s treasury department is waiting for the market to be right; it is not right now.”
» The original print version said Futuregrowth had R10 billion in Eskom bonds, which is what Eskom told City Press. Eskom subsequently came back to us, after going to print, to say it is actually R4 billion.