Futuregrowth Stands by Loan Freeze to S. Africa State Firmsby
Fund manager says it should have consulted before going public
Funding freeze was criticized by government, ruling party
Futuregrowth Asset Management, Africa’s biggest specialist fixed-income money manager, said while it stands by a decision to stop lending money to six of South Africa’s largest state companies, it should have consulted with them before going public with it.
The rand dipped and yields on state power utility Eskom Holdings SOC Ltd.’s bonds climbed after the asset manager, which oversees about 170 billion rand ($12.2 billion), announced the loan freeze on Aug. 31, citing concerns about governance. The government and the ruling party criticized the decision. Insurer Old Mutual Plc, which owns Cape Town-based Futuregrowth, said it wasn’t notified beforehand and that the move didn’t represent the position of the rest of the company.
“This story had some remarkable unintended consequences. Our goal today is to calm the waters,” Futuregrowth Chief Investment Officer Andrew Canter said by phone from Cape Town on Thursday. “I think we have achieved our goal. We have brought attention to the issue of corporate governance. This is not backtracking on our decision at all.”
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. That decision lacked clarity and context and created uncertainty about who the companies would answer to, Canter said last week.
The funding suspension applies to 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.
Futuregrowth had said it was concerned about how state companies were being run, government infighting and threats to the independence of the finance ministry, and that it couldn’t place client money at risk. It would only resume offering loans and rolling over existing debt once it had determined that what it sees as proper oversight and governance has been restored, according to Canter.
The money manager should have given the companies a chance to respond to the concerns, Canter said on Thursday.
“In light of the fallout, we must frankly concede a more measured approach of direct consultation with each state-owned enterprise, before contemplating public comment, would have been a fairer process,” he said in an e-mailed statement. “I would like to personally apologize to each of the SOEs concerned and their respective government ministers for my failure to ensure a fair, one-on-one engagement.”
The day after Futuregrowth’s announcement, Silkeborg, Denmark-based Jyske Bank AS, said it had ceased lending money to Eskom. On Thursday, the Financial Mail cited executives from Johannesburg-based Aluwani Capital Partners and Cape Town-based Abax Investments as saying they were buying fewer state company bonds.
Ralph Mupita, the chief executive officer of Old Mutual’s emerging-markets unit, told reporters in Cape Town on Tuesday that Futuregrowth takes investment decisions independently, and that while its concerns were valid, it could have communicated them differently.
“The way it was done was regrettable in terms of raising those questions in the press, rather than raising those questions with the state-owned enterprises,” Mupita said.
Canter said it was unfortunate Old Mutual had been dragged into a debate that it never knew about, endorsed or could control.
“The decisions were made by Futuregrowth alone, as an independent fiduciary asset manager,” he said in the statement. “Our intentions were sound. We remain committed to partnerships with the SOEs in funding South Africa’s development. We are pleased that most of the relevant SOEs have engaged and shown a willingness to have deeper discussions about their governance, decision-making and connectivity to spheres of government.”
Futuregrowth’s decision to halt funding doesn’t make commercial sense, Eskom CEO Brian Molefe said on Johannesburg-based Power FM radio. “I cannot fathom the commercial rationale for what Futuregrowth did,” he said.