Cape Town - The South African economy has suffered a massive body blow with the announcement that the country’s biggest specialist investor in fixed interest, Futuregrowth Asset Management, is set to halt three major loans to state-run firms.
The move comes amidst political in-fighting, threats to the independence of the National Treasury and uncertainty about state company governance.
The rand tumbled to its weakest in three weeks yesterday, after reports that the asset manager, which has investments of about R150 billion, was not going ahead with syndicated loans worth hundreds of millions which had been under consideration for weeks. The asset manager has cited concerns about “a power struggle going on between factions in government” as a reason for the decision. Futuregrowth is concerned about at least six entities, including Eskom, the Land Bank and Transnet.
A narrower trade surplus in July did not help matters, further piling pressure on local markets that have been on the ropes over the possibility that police could charge Finance Minister Pravin Gordhan for his role in an alleged spy unit in the revenue service.
Futuregrowth chief investment officer Andrew Canter said the decision to suspend loans to state-owned firms was driven by concerns about the governance and decision structures of the State Owned Entities (SOEs).
“Futuregrowth has suspended negotiations on over R1.8 billion debt finance to three different SOEs,” he said.
“We have very long-term relationships with these very same SOEs and for decades we have considered ourselves to be their partners in South Africa. It is certainly not our desire nor intent to undermine their developmental missions, nor disrupt their ability to deliver on-the-ground impact for the country. But in the current environment, our message is clear.
“We cannot provide finance without having clearer sight of, and comfort around, the governance and decision-making of the SOEs.”
On Thursday morning Ian Cruickshanks, chief economist at the South African Institute of Race Relations, said Futuregrowth’s decision could have a significant negative impact on the market and could just be just the first such move by the asset management firm. “It has the potential to be disastrous.”
Afrifocus securities portfolio manager Ferdi Heyneke said: “It just seems that sentiment at the moment is turning a bit negative in markets.
“The situation with Treasury and the uncertainty is creating (doubt) in foreign investors’ minds, there is no real clarity about what is going to happen.”
Meanwhile, Parliament wants to hold a meeting with the National Treasury, the Department of Public Enterprises and Eskom so it can get to the bottom of a public war of words that has erupted over an investigation into coal contracts awarded to a mining company owned by the Guptas.
This comes after an extraordinary exchange between Eskom and the Treasury through media statements over the past few days, following an article in the Sunday Times claiming coal supplied by the Gupta-owned Tegeta had been found to be substandard, that the company received an advance payment of R134 million, and that the contract was negotiated while Tegeta had yet to receive a water-use licence for the mine.
There have been escalating attacks on Gordhan from within the ANC over his refusal to present himself for questioning by the Hawks.
While the ANC itself has officially backed the minister, tensions between the Treasury and state-owned enterprises have been ratcheted following the Sunday Times article and a statement from arms maker Denel accusing the Treasury of “opportunism and grandstanding” over its threat to challenge a joint venture between Denel and a Gupta-linked firm in court.
Eskom chief executive Brian Molefe denied Eskom had been trying to block the Treasury investigation, while at the same time expressing his respect for Gordhan, whom he described as a man of “immense integrity”, and the belief he is the right person for the job.
“That is why we take very seriously requests from the Treasury for information,” Molefe told members of the National Assembly committee on public enterprises.
He said Eskom’s response to a 172-page report from the Treasury, which it received in April, had been ready for some time, but it was the Treasury which had insisted the responses be considered by the board before being submitted.
The board will meet later this month and it was Eskom’s desire to comply with the Treasury’s request, by submitting its responses to the board first, that had caused the delay in getting back to the Treasury, Molefe said.
He confirmed the documents had now been sent to the Treasury, after Minister of Public Enterprises Lynne Brown said on Tuesday she had asked Eskom not to wait for the board meeting and submit its response immediately.
The committee is to hold a similar meeting with Denel and the Treasury next week.
CAPE ARGUS