As Private Lenders Stop Financing South African State-Owned Entities, BRICS May Fill Void

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Written by Dana Sanchez

At least two privately-owned financial institutions said last week that they have stopped lending to South African state owned enterprises due to governance concerns, but the BRICS New Development Bank says it’s open to funding them, Business Tech reported.

The BRICS Bank was set up to help member states, including their public enterprises, and South Africa’s state owned enterprises are free to ask for help, said BRICS Bank Vice President Lesley Maasdorp in an SABC interview on the sidelines of the G20 Summit in China.

Futuregrowth Asset Management – South Africa’s largest private fixed-income money manager – said on Wednesday it would stop making new loans to six South African state companies including Eskom because of governance and transparency concerns.

“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,” the group told Bloomberg.

On Thursday, Denmark’s Jyske Bank told Bloomberg that it had also pulled the plug on Eskom, citing concerns over governance. “(We) could easily see more lenders follow suit. We see issues on lending going forward and more governance issues,” Jyske said.

BRICS Bank already has “bankable projects in all five member-state countries,” Times Live.

The member countries include Brazil, Russia, India, China and South Africa. The bank has headquarters in Shanghai, China, with a regional office in Johannesburg.

Eskom’s pension fund is withholding further investment from Futuregrowth’s development equity fund. Eskom said it is concerned that no black Africans are in upper-level management positions at the asset management company.

Eskom’s pension and provident fund manages more than 130-billion rand ($9 billion US) for Eskom staff and pensioners.

Eskom has about 300 billion rand ($20.85 billion US) of debt with Futuregrowth holding only 4 billion rand ($278 million) of Eskom bonds, Eskom executive Matshela Koko told Business Report. “The execution of our funding plan of 327 billion rand ($22.7 billion) going forward does not rely on Futuregrowth’s participation,” Koko said.

The ANC said it’s an “erroneous and unfortunate” generalization that South Africa’s state-owned enterprises have corporate governance challenges. They are models of good corporate governance, independence and sound technical capacity, he said.

“The ANC is concerned by the posture adopted by Futuregrowth,” Kodwa said. “It is our hope that Futuregrowth will engage the relevant ministries and parastatals to discuss the concerns they have and together find a solution in the interest of the economy and country.”

Futuregrowth is concerned about the South African cabinet’s plans to form a new committee overseeing state-owned enterprises with President Jacob Zuma supervising it, said the firm’s chief investment officer, Andrew Canter.

Futuregrowth is stopping talks with three state-owned enterprises seeking more than 1.8-billion rand ($125 million) in loans.

The BRICS New Development Bank is interested in funding larger infrastructure projects, Maasdorp said in an interview with Russia Direct.

Because it’s a new bank, it’s unshackled by cumbersome procedures or governance arrangements that may delay the approval processes, Maasdorp said.

“The smallest loan in practice that we would do would probably be around $50 million,” he said. “So far the smallest one was $80 million and the biggest one was $300 million. That is likely to be the range of our loans.”

The bank hopes to differentiate itself in speed of execution. “The length of time for approval of large infrastructure loans can take up to two years or even longer,” he said. “We believe that scope must exist to fast-track the approval processes. It was largely this factor that contributed to our ability to conclude our first five projects within six months.”

For now, the bank is mostly making loans, but it has the flexibility to expand and work with equity as well.