Asset manager Futuregrowth, which drew heavy fire from the government in 2016 after shutting its bond desk to various state-owned enterprises, will reopen trade in the South African National Roads Agency’s (Sanral’s) debt instruments.
But while Sanral says Futuregrowth’s decision "confirms" the enterprise’s "high standards of governance", a statement issued by the asset manager is more circumspect.
It described Sanral’s governance practices as "adequate" and said "there are areas where [it] does not believe they meet the standards required by responsible investors in public capital markets".
"We are concerned that the Sanral Act and the existing governance framework have few controls to prevent a speedy degradation of governance or practices," said Futuregrowth analyst Tarryn Sankar. "Notably that the Sanral Act gives wide powers to any minister of transport to unilaterally and materially alter the board of directors."
Sanral’s total debt stands at R48.8bn and its last public debt auction was in July 2016. Of the R4.5bn it raised from funders in the financial year to March, about R2bn was from private placements. The public backlash against e-tolls has been its biggest headache but Futuregrowth’s decision did not help.
Futuregrowth chief financial officer Inge Mulder said on Wednesday that Futuregrowth’s decision "should contribute to a wider sense of confidence in Sanral’s corporate governance … and thereby ensure that the bond market remains a viable funding instrument for national road infrastructure".
Mulder said the short-term debt market (three to five years) was still brisk.
"If you look at the current debt curve the short term is actually cheaper, but what’s not attractive is the refinancing risk that you have…. That’s why we always prefer to go for longer-term liabilities."
Futuregrowth has indicated it would take a longer term of Sanral debt if protections against adverse board changes were in place, as well as "better reporting" to the capital market.
"Failing those changes, future debt advances may be limited to short-or medium-term debt," said Sankar.
Recommendations
The asset manager’s recommendations include an increase in the number of board members, improving the board’s skills mix and introducing more staggered terms for directors.
Sanral has agreed to be more upfront in its reporting, including using the JSE’s news service, and has agreed to a PEP (politically exposed person) policy.
Futuregrowth wants its recommendations to go to the transport minister, including changing the act to improve its board appointment process.
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