The Industrial Development Corporation (IDC) was positive that Futuregrowth Asset Management would continue funding the institution after the completion of its due diligence investigation, IDC chief financial officer Nonkuleleko Dlamini said on Thursday.
Of the IDC’s R36bn debt, R6bn is provided by asset management companies, of which Futuregrowth has a R2bn share.
The asset manager shocked markets with its recent announcement that it would withhold further funding to six state-owned entities — Eskom, Transnet, the South African National Roads Agency, Land Bank, the IDC and the Development Bank of Southern Africa — pending due diligence probes.
Futuregrowth has already completed its investigation into the Land Bank, which is required to implement Futuregrowth’s recommendations as a condition for the resumption of its lending.
Dlamini said during an engagement with Parliament’s economic development committee that Futuregowth had met with members of the IDC board and the chairpersons of its investment, audit and risk committees to understand its decision-making and governance processes.
The IDC had been informed that Futuregrowth had not picked up any fundamental issues, Dlamini said in reply to a question by DA economic development spokesman Michael Cardo.
She hoped the matter would be wrapped up by the end of the month. She also noted that other IDC bondholders were very positive about the IDC.
IDC CEO Geoffrey Qhena insisted that the IDC’s R250m loan to Oakbay Resources and Energy Ltd’s Shiva uranium mine, owned by the Guptas, had been a lucrative deal for the IDC.
The conversion of the interest due on the loan into shares at the time of the Oakbay listing had given the IDC a 3.57% stake in the company which was currently valued at about R514m.
The outstanding balance on the loan is R75m, which will be paid back over the next two years.
Qhena was confident that the corporation’s industrial development strategy, which focused on investing in the capacity of key industrial sectors, was the right one. The strategy had been implemented for the last 17 months and had shown progress despite the weak global and domestic economy.
More time was being spent in hand-holding companies whose business plans were not up to standard.
The earmarked sectors include metals, metal products, machinery and equipment, transport equipment, mining, chemical, plastics, pharmaceuticals, agro-processing and agriculture.
"Our ultimate objective is to drive a globally and domestically competitive mining, metals industry and downstream manufacturing specifically in automotive, machinery and equipment, fabricated metals and other downstream metal products," Qhena said.
Last year 45% of the total approvals of R14.5bn were for businesses involved in the manufacture of metal products and mining, with disbursements for this sector increasing 35% year on year. This important economic sector contributed 11.5% of GDP in 2014 and 9.3% of formal nonagricultural employment.
Of the approvals, 32% were for chemical and pharmaceutical businesses; 6% for agroprocessing and agriculture; and the remaining R2.4bn for industrial infrastructure projects, other manufacturing sectors and tourism.
Impairments of R3.6bn on the income statement of the IDC in 2015-16 was due to its risk appetite, its support for high-risk sectors and the counter-cyclical role it played in the economy, Dlamini said.
The impairments also reflected the IDC’s focus on funding early-stage projects and start-up operations.
The balance sheet of the institution remained strong and the impairments should not cause it to be risk-averse. The R3.6bn impairment last year was double the previous year’s figure.
Profit last year plunged to R223m from the R1.65bn of 2014-15 with loss-making subsidiaries Scaw Metals and Foskor contributing to the R494m operating loss.
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