Rand Slumps as Futuregrowth Halts Loans to S. Africa State FirmsBy
Money Manager concerned about companies’ governance, oversight
Finance Minister Gordhan subject to police investigation
The rand dropped to the weakest level in more than seven weeks and South African bonds fell after the country’s biggest specialist private fixed-income money manager said it will stop lending money to six of the largest state-run companies.
The South African currency fell as much as 1.7 percent against the dollar to the lowest since July 7 on a closing basis and was the worst performer among 31 major and emerging market currencies tracked by Bloomberg in August. By 5:21 p.m., it was 1.5 percent weaker at 14.7241, declining for a ninth day, the longest losing streak since May 2013. The yield on state power producer Eskom Holdings SOC Ltd.’s $1.25 billion of bonds maturing in 2025 jumped 35 basis points to 7.2 percent, the most in more than seven months.
Futuregrowth Asset Management, with about 170 billion rand ($11.6 billion) in assets, shelved plans to lend more than 1.8 billion rand to three state companies on Tuesday, Chief Investment Officer Andrew Canter told Bloomberg. Futuregrowth will only resume loans once proper governance and oversight are restored at the companies, Canter said.
“This story just ups the ante in what is becoming a high stakes game of chance,” said Warrick Butler, head of emerging market spot trading at Standard Bank in Johannesburg. “Markets are attuned to any story that may have negative consequences for the country,” and concerned about the possible increase in cost of funding for the government. Futuregrowth’s step could “push the decision makers closer to a resolution in a quicker period,” he said.
The companies affected by the decision are Eskom, 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 won’t immediately affect lending to the government and municipalities.
The rand has lost 7.7 percent since a police special investigations unit requested Finance Minster Pravin Gordhan report to their offices over a probe into the tax authority, which he led between 1999 to 2009. Gordhan who refused, is at odds with state-owned companies from South African Airways to Eskom, amid speculation the investigation by the Hawks is evidence of a deepening rift between him and President Jacob Zuma.
Government bonds erased earlier gains, with the yield on the benchmark December 2026 yield rising eight basis points to 9.07 percent. The yield has climbed 42 basis points in August, the first monthly increase since May. Five-year credit default swaps rose for the first time in three days, climbing 6 basis point to 251 points. Johannesburg’s benchmark banking stocks index reversed its gains following news of Futuregrowth’s decision, falling 1.9 percent by the close, after rising as much as 1.4 percent.