Another lender pulls plug on Eskom

(Gianluigi Guercia, AFP)
(Gianluigi Guercia, AFP)

Cape Town - Denmark’s Jyske Bank AS became the second money manager to say it won’t lend to Eskom after SA’s biggest specialist fixed-income manager said it had stopped extending credit to state-owned enterprises amid concern about their governance.

“We pulled the plug on Eskom too yesterday,” Rune Hejrskov, senior money manager at the Silkeborg, Denmark-based company said Thursday in e-mailed comments.

“I could easily see more lenders follow suit. We see issues on lending going forward and more governance issues.”
 
Hejrskov, who helps manage about $1.3bn at Jyske Bank, said he moved to being underweight in power company Eskom’s bonds from medium-weight.

Futuregrowth Asset Management, with $11.7bn in assets, told Bloomberg Wednesday it shelved plans to lend more than R1.8bn to three state companies this week, citing concerns about how they are being run.

‘Governance issues’

Finance Minister Pravin Gordhan has been at loggerheads with President Jacob Zuma over the minister’s calling for the firing of SA’s tax chief for insubordination and the replacement of the board of the loss-making South African Airways (SAA). The Treasury has also clashed with Eskom about its efforts to review coal-supply contracts with a company linked to the Gupta family, who are friends with Zuma and in business with his son.

Questions over governance at Eskom may increase, said Hejrskov.

“I see no other way, with the discord between Zuma and Gordhan, more and more governance issues showing up and the Gupta family having a much larger influence than previously expected,” he said.

Yields on Eskom’s $1.25bn of bonds maturing in 2025 - which jumped by the most since February on Wednesday - dropped 4 basis points to 7.17% by early afternoon on Thursday.

The government said last week that Zuma will lead a new panel to oversee all state-owned companies to ensure they help develop the country, a role previously delegated to Gordhan and other ministers.

Gordhan has refused a request to report to police for questioning as part of an investigation by a special unit into alleged irregularities at the South African Revenue Service, which he ran from 1999 to 2009. While Gordhan has denied any wrongdoing, there is speculation he may be arrested and removed from his post.

Old Mututal, South Africa’s biggest private money manager and which owns Futuregrowth, said the unit’s decision did not represent the broader views of the company.

Eskom responds

Eskom said in a statement issued on Thursday that it will continue to engage with Futuregrowth and the broader investor community to understand recent concerns raised regarding current and future investments into Eskom.

"Local asset managers provide considerable support to the funding of SOEs and the general local bond market," Eskom said.

“As at the end of August 2016, Eskom has available liquidity of approximately R38bn and has secured more than 57% of its borrowing requirement of R69bn for the financial year 2016/17. Consequently, the announcement by Futuregrowth Asset Managers does not place Eskom’s funding plan at risk and I am confident that the funding for the year will be raised,” said Anoj Singh, Eskom’s chief financial officer.

‘Investment performance’

“We respect the independence that fund managers need to deliver investment performance for clients and believe that a more constructive model of engagement is needed and necessary to build and increase socio-economic development and drive financial inclusion in our country,” Ralph Mupita, the chief executive officer of Old Mutual’s Emerging Markets unit, said by e-mail.

“Old Mutual remains committed to our existing commercial relationships and public-private partnerships with state-owned enterprises.”

The ruling African National Congress said it was concerned by Futuregrowth’s actions, and that the generalisation that state-owned companies were beset by corporate governance challenges was erroneous and unfortunate.

“Where there are challenges, these have been identified and, amongst others, interventions made to strengthen these institutions,” the party said in a statement.

“We believe that Futuregrowth, or any other investor, should await the outcome of these interventions before taking any pre-emptive stance.”

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