Futuregrowth Asset Management this week took an unprecedented decision to stop negotiations on more than R1.8 billion in debt finance to several state-owned enterprises (SOEs).
(In the photo: Futuregrowth chief investment officer Andrew Canter)
Futuregrowth, which has some R170 billion in assets, is a substantial funder via direct loans and capital and money market instruments to several South Africa's SOEs, and indeed some of the largest, including Eskom, Transnet, Sanral, Landbank, IDC and DBSA. Futuregrowth's decision includes the suspension of new loans and roll-overs of existing debt to these particular entities.
In an official statement, Futuregrowth said the decision was driven by growing concerns about the "governance and decision structures of the SOEs" and will remain in place pending a review thereof. Futuregrowth further noted that while it initially identified the six large SOEs, it may expand this list as it considers appropriate, although it "presently envisions continuing to provide funding to various government-related entities and private entities that do substantial business with government", and thus sees no suspension of funding to entities such as alternative energy companies, water boards, municipalities, and so on.
An extract from Futuregrowth's statement reads:
"We have observed recent reports which strongly hint of conflict between branches of South Africa's government, the possible machinations of patronage networks, and a seeming challenge to the independence of the National Treasury Into this already unsettling environment, we note the recent and sudden announcement that the Presidency would chair a 'council' to directly oversee the SOEs. The meaning, timing, and intent of this announcement, particularly at this juncture, is entirely unclear - and, lacking clarity and context, we feel compelled to view this announcement with concern. As rational and fiduciary investors we must adapt our views and investment strategies when circumstances change As Responsible Investors - and signatories of the PRI and CRISA - we have a duty to ensure the entities in which we invest have suitable governance and decision-making structures. The asset management industry is the caretaker of, and gatekeeper to, peoples' savings and it is entirely suitable for capital to be provided, or denied, to various companies or sectors based on our considered assessments."
