South Africa’s Biggest Debt Manager Halts Loans to State Firms

South Africa’s biggest private fixed-income money manager will stop lending money to six of the country’s largest state companies because it is concerned about how they are being run, government infighting and threats to the independence of the finance ministry.

Futuregrowth Asset Management, which has about 170 billion rand ($11.7 billion) in assets, shelved plans to lend more than 1.8 billion rand to three state companies on Tuesday (August 30), Chief Investment Officer Andrew Canter said from Cape Town on Wednesday (August 31), without giving more detail.

The fund manager will only resume offering loans and rolling over existing debt once it has determined that what it sees as proper oversight and governance at the companies have been restored.

The companies are power utility Eskom Holdings SOC Ltd., rail and ports operator Transnet SOC Ltd., South African National Roads Agency SOC Ltd., the Land Bank of South Africa, the Industrial Development Corp. of South Africa and the Development Bank of Southern Africa. The decision will not immediately affect lending to the government and other state bodies such as water boards and municipalities.

‘Conflict between branches’

“We’ve observed recent reports that strongly hint of conflict between branches of South Africa’s government, the possible machinations of patronage networks and a seeming challenge to the National Treasury’s independence. Any material risk to the state-owned entities’ governance, budgeting and approval processes for spending or lending must impact on our forward-looking credit assessments. It is difficult to make reasoned and defensible decisions to continue providing state-owned companies with additional funding using clients’ money,” said Canter.

The rand fell 1.4 per cent to 14.7099 per dollar at 2:49 p.m. in Johannesburg on Wednesday, August 31 and headed for the weakest closing level since July 7, while yields on the government’s benchmark bonds reversed an earlier drop to rise 2 basis points to 9.01 per cent. The yield on Eskom’s $1.25 billion of Eurobonds due Feb. 2025 rose 28 basis points to 7.15 per cent.

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