IDC able to access loans after review

Published Nov 8, 2016

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Johannesburg - Leading asset manager Futuregrowth made an about turn yesterday and lifted the suspension of its lending activities to the Industrial Development Corporation (IDC) with immediate effect following an extensive review.

Nonkululeko Dlamini, the chief financial officer at the IDC, said both the development institution and Futuregrowth had a constructive and robust engagement during the due diligence process.

Futuregrowth, which is owned by Old Mutual, announced at the end of August that it had taken a decision to suspend any additional loans to some of the largest state-owned enterprises (SOEs) - Eskom, Transnet, SA Roads Agency Limited (Sanral), Land Bank, IDC and the Southern African Development Bank - via direct loans, capital and money market instruments.

The asset manager said its decision initially included the suspension of new loans and roll-overs of existing debt to these entities.

“This decision is driven by growing concerns about the governance and decision structures of the SOEs and will remain in place, pending a review thereof,” Futuregrowth said. “We have now suspended negotiations over R1.8 billion of debt finance to three different SOEs.”

Futuregrowth manages funds worth R170bn.

Concerns

Such is the credibility of Futuregrowth that its decision knocked the value of the rand.

Soon after Futuregrowth’s decision, fund manager Abax Investments said it had reduced bond purchases from SOEs in the past three years, due to concerns over their weaker performance.

Rashaad Tayob said Abax, which has R80bn under management, was concerned after the cabinet said a new committee would be formed to oversee SOEs that would be headed by President Jacob Zuma, raising the national cost of borrowing.

Ratings agency Moody’s warned that it could cut the ratings of five SOEs, including Eskom, as a result of funding risks after Futuregrowth and Abax cut ties with the parastatals.

It raised concerns over the decision by some local institutional investors to stop lending to parastatals.

Dlamini said: “As part of the engagement with Futuregrowth, there were some recommendations regarding enhanced transparency and public disclosures relating to governance structures.”

She stressed the IDC’s commitment to maintaining the highest level of corporate governance, independence of decision-making and the protection of the interests of its funders.

Dlamini said Futuregrowth was one of the IDC’s key funders and that its support remained critical to achieving the development funder’s mandate and objectives of supporting growth and industrialisation of the local economy.

Michele Usher, the head of marketing at Futuregrowth, said the asset manager would resume lending to the IDC with immediate effect, subject to ongoing public reporting requirements, mutually acceptable and appropriate protections in future legal requirements, as well as Futuregrowth’s ongoing satisfaction with governance structures.

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