Johannesburg - Eskom indicated that it will seek money elsewhere elsewhere after Futuregrowth Asset Management pulled the plug on lending to key state-run firms.
Futuregrowth Asset Management chief investment officer Andrew Canter said it will stop lending money to six of South Africa’s largest state companies, .
The companies are power utility Eskom Holdings, rail and ports operator Transnet, South African National Roads Agency, the Land Bank of South Africa, the Industrial Development Corp. of South Africa and the Development Bank of Southern Africa.
Futuregrowth Asset Management, which has about R170bn ($11.7bn) in assets, shelved plans to lend more than R1.8bn to three state companies Canter told Bloomberg on Wednesday, without giving more detail.
“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 state-owned entities’ 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 state-owned companies with additional funding using clients’ money.”
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.
Should other asset managers follow Futuregrowth, it will increase the state companies’ borrowing costs and make it harder for them to finance plans to spend billions of rands on new infrastructure. The Treasury may also come under increased pressure to directly fund them and grant additional debt guarantees at a time when the economy is stagnating and it’s seeking to rein in the budget deficit to protect the country’s investment-grade credit rating.
“Futuregrowth might be the first one to publicly come out and make a statement like this, but I don’t think its going to be the last,” Wayne McCurrie, head of portfolio management at Momentum Wealth in Pretoria, said by phone. “They just don’t believe that the return justified the risk because of changing circumstances with regards to the governance of state-owned enterprises.”
S&P Global Ratings and Fitch Ratings, which place South Africa’s debt at one level above junk, have raised concerns that state-owned companies aren’t being managed optimally. Government debt guarantees to state companies totaled R467bn at the end of March, according to the Treasury.
“People who lend each other money, it’s because of a number of variables and it’s a voluntary exercise,” Eskom spokesperson Khulu Phasiwe said by phone. “If they disclose now that they’re not going to lend us money, then I suppose it’s fine, we will go elsewhere.”
Transnet spokesperson Molatwane Likhethe didn’t immediately return calls or e-mails seeking comment. The Treasury said in an e-mailed response to questions it couldn’t comment on Futuregrowth’s business decisions.
“When the country’s largest debt manager pulls the plug on lending to key state-run firms because of concerns about political meddling, it’s clear that South Africa has a serious reputational problem,” Nicholas Spiro, a partner at London-based Lauressa Advisory, which advises asset managers, said by e-mail. “This is a downgrade in itself. The fallout from the political infighting within the ANC is proving more costly by the day.”
Based in Cape Town and founded 20 years ago, Furturegrowth describes itself as “a specialist investment company that manages a full range of interest-bearing and developmental investments in an ethical and sustainable way.” Among the projects it has helped fund are renewable energy plants and toll roads.
The rand fell 1.4% to 14.7099 per dollar at 14:49 in Johannesburg and headed for the weakest closing level since July 7, while yields on the government’s benchmark bonds reversed an earlier drop to rise 2 basis points to 9.01%. The yield on Eskom’s $1.25bn of Eurobonds due February 2025 rose 28 basis points to 7.15%.
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