Johannesburg - The Industrial Development Corporation (IDC) launched a R1.5 billion public bond issue yesterday, the first of a target of R12bn in the next 18 months, to meet what its chief executive described as “growing funding commitments”.
Chief executive Geoffrey Qhena, who briefed the portfolio committee on economic development on Wednesday, said the bond issuance was in line with the development financier’s desire to increase its funding activities “continuing to play a central role in providing industrial finance”.
The state-owned entity reported that the bond was registered on the JSE. It will have maturity terms of three, five and seven years.
IDC chief financial officer Gert Gouws said the response from investors had been “overwhelming”. The issue had been 2.6 times oversubscribed. The seven-year bond had a fixed interest rate of 8.34 percent.
He said the IDC would increase its borrowings in the next three years while managing its gearing ratio, which was 19 percent at the end of March.
Engineering News reported that the IDC planned to issue up to R12bn in bonds in the next 18 months. Last month it announced that it had stepped up R2.7bn in funding to boost youth entrepreneurship.
Interviewed after meeting the portfolio committee, Qhena acknowledged there had been a rise in impairments but he attributed this to the “economic conditions” associated with the global recession. He said a greater focus on capital projects in the past financial year to March had contributed to a drop in job creation from its investments – from about 44 000 in 2012 to under 24 000 in 2013.
Qhena said the takeover of Anglo American’s Scaw Metals plant had saved 6 000 jobs, but these were not counted as new.
Scaw Metals recorded a loss of R78 million in the year after financing costs. Major IDC subsidiary Foskor recorded a loss of R165m.
The Small Enterprise Finance Agency, which the IDC took over this year, lost R64m.
The IDC, which was established in 1940, suffered the worst impairments and write-offs in its 73 years. Its impairment ratio has climbed from 15 percent of its portfolio in 2009 to 18 percent in March.
The annual report said: “The impairment and write-offs charge to the income statement of R2.26bn… was 38 percent higher compared to financial year 2012.” Nearly R800m of impairments were in the media and motion pictures categories.
Gouws acknowledged that the IDC’s level of impairments had been increasing gradually. “This reflects the corporation’s increased risk appetite towards distressed clients, as well as other ailing industries, such as the textiles industry. It also reflects the IDC’s increased focus on early stage projects and start-up companies.”
He echoed Qhena’s view that the main reasons for impairments included the deterioration in trading conditions together with low market penetration. “Depressed commodity prices and unfavourable exchange rates continued to impact on the IDC’s business partners. Business units contributing significantly towards the increase in impairments included textiles, media, ICT and mining,” he reported.
It wrote off R470m in the 2013 financial year compared with R157m for 2012, and R722m in 2011.
Gouws said the IDC wrote off investments “when the exposure is considered unrecoverable and only after all viable restructuring options have been exhausted”.
The IDC disbursed a record R16bn in 2013, but its profit fell by 40 percent to R1.9bn.
“The IDC’s performance in 2013 was mixed,” said Qhena. Revenue rose to R14.5bn compared with R10.9bn in 2012 but cost of sales increased to R6.2bn from R4.3bn in 2012. - Business Report