Another lender publicly follows Futuregrowth lead; many more do so secretly

Capital is cowardly. It is easily spooked and for the most part, slides away silently. Last week Futuregrowth’s maverick Chief Investment Officer Andrew Canter rattled the cage by publicly announcing his team had cancelled a R1.8bn proposed loan and would be suspending lending to six South African state owned enterprises. He recanted a day later, citing unintended consequences and his delight that the SOEs were anxious to engage on issues he was concerned about. But the reality remains: until Canter and his team are shown the evidence that changes their collective minds, Futuregrowth will no longer lend to these organisations. And Futuregrowth is not alone. Until the company expresses it’s satisfied that issues raised have been properly addressed, those six SOEs are sure to find funding harder to secure. Other potential lenders have been true to the cowardly capital tradition, keeping their heads down. But that doesn’t mean they are ignorant of the concerns Canter expressed. They will simply seek alternative, safer, more appreciative homes for their clients’ money. For SOE boards scurrying to rebuild credibility, there is a big message in this. Their work has only just begun. – Alec Hogg

By Colin McClelland

(Bloomberg) — Abax Investments (Pty) Ltd., a Cape Town-based investor, said it “significantly reduced” the level of bond purchases in state-owned South African companies over the past three years because of concerns over credit worthiness.“

As investors and South Africans we have been disappointed by the deterioration in state-owned enterprises’ fundamentals,” Rashaad Tayob, head of Abax’s fixed-interest investments, said in a reply to e-mailed questions on Thursday. “We have been very cautious in allocating our clients’ capital” to government-run entities, he said.

The interior of Eskom Holdings SOC Ltd. headquarters, South Africa’s state-owned electricity utility, are seen at Megawatt Park in Sandton, near Johannesburg, South Africa. Photographer: Waldo Swiegers/Bloomberg
The interior of Eskom Holdings SOC Ltd. headquarters, South Africa’s state-owned electricity utility, are seen at Megawatt Park in Sandton, near Johannesburg, South Africa. Photographer: Waldo Swiegers/Bloomberg

Futuregrowth Asset Management, Africa’s biggest specialist fixed-income money manager, said Aug. 31 it stopped lending money to six of South Africa’s largest state companies because of governance concerns. Silkeborg, Denmark-based Jyske Bank A/S said it ceased lending to utility Eskom Holdings SOC Ltd. On Thursday, the Financial Mail, a Johannesburg-based weekly magazine, cited executives from Aluwani Capital Partners and Abax as saying they were buying fewer state company bonds because of political and economic risks.

The funding halt came as Finance Minister Pravin Gordhan battled with President Jacob Zuma and the management of state companies over board appointments and spending plans. The government had also announced 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.

Futuregrowth, which oversees about 170 billion rand ($12.2 billion) and is owned by Insurer Old Mutual Plc, also suspended funding to rail and ports operator Transnet SOC Ltd., South African National Roads Agency SOC Ltd., the Land and Agricultural Development Bank of SA, the Industrial Development Corp. of South Africa and the Development Bank of Southern Africa.

Abax, which has about 80 billion rand under management, analyzed pricing of the debt relative to risk and didn’t put all state companies “in the same bucket” because some are performing better than others, Tayob said.

“Like Futuregrowth, we were also very alarmed by the announcement on Aug. 22 that President Zuma would head up a committee overseeing state-owned enterprises,” Tayob said. “This has the potential to cause further credit deterioration and stall the reforms that are needed in the sector.”

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