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Jury’s still out on saving SAA

Sep 10 2017 06:00
Justin Brown

A top official at the Government Employees’ Pension Fund (GEPF) this week kept ajar the possibility of the entity investing in bankrupt national carrier SAA, which is clamouring for a bailout.

“While people might find it very difficult to conceive of the possibility of a good, sensible case for the GEPF or any other pension fund to invest in SAA, it is possible,” said Abel Sithole, the principal executive officer of the GEPF, in an interview with City Press this week.

Before joining the state entity, Sithole worked as the pension fund CEO of Eskom and as the executive director of Metropolitan.

He categorically stated that the GEPF had received no approach regarding SAA, nor had it provided the ailing carrier with any funding.

“Remember that the Public Investment Corporation [PIC] and the GEPF, along with the banks and government, are major entities with a visible amount of money that everyone eyes for whatever it is,” he added.

“I am not saying we won’t be approached in future.”

Last month, SAA, which has amassed billions of rands in losses since 2012, indicated in its corporate plan that state-owned asset manager PIC, which manages GEPF funds, could be tapped for funding.

SAA listed the PIC as a source of funding to the tune of R6 billion for its 2018 financial year. Deputy Finance Minister Sfiso Buthelezi is chairperson of the PIC.

At the end of last month, Finance Minister Malusi Gigaba is reported to have told labour federation Cosatu that he could not guarantee that government would not try to make use of the PIC’s funds to capitalise state-owned companies and other projects.

Gigaba has recommended to Cabinet that the government sell its almost 40% stake in Telkom and use at least R10 billion of that amount to assist SAA, which, he has said, is in desperate need of a bailout.

Cabinet is set to make a decision on the recapitalising of SAA by the end of this month.

Sithole said that, if SAA approached the GEPF, the key question it would ask the carrier would be: “What are you proposing?”

Issues that are key in assessing any call by SAA for funding include discussions about the interest rate that the carrier would pay, whether the loan would be guaranteed by government, the term of the loan and a credit rating.

SAA does not have a credit rating, and having one would also be helpful, said Sithole.

“The government has made the decision to recapitalise SAA. It needs to find money from somewhere. Telkom could be one of them [sources of money] ... When you are in a corner, you make decisions that respond to cash flow and not long-term investment, because you have an immediate need.

“I do not think that the government is making a value judgement. It is dealing with a real situation. Whether that is right or not, I don’t know.”

Regarding the possible sale of government’s Telkom stake, Sithole said the GEPF would follow a process when assessing the investment potential of the stake. The PIC holds a 12% stake in Telkom.

“The question will be, is it a worthwhile investment? If it is, well, my job is to participate in worthwhile investments.”

Sithole declined to say whether the GEPF was studying Telkom in anticipation of the state’s sale of its stake in the telecommunications company.

“That is market-sensitive information,” he said.

Sithole added that Gigaba could not raid the R1.8 trillion in funds held by the GEPF on behalf of its members to bail out SAA or plug the state’s widening budget deficit.

Neither could the minister interfere with the PIC’s mandate from the GEPF – unless, in terms of GEPF regulations, the board reconsidered its investment strategy. It would then have to consult with Gigaba.

“But that is about engagement with the board, that is not the minister deciding,” he added.

“The GEPF is a juristic person ... It owns its assets. People assume that the government will walk in and just put its hand in the kitty. The governance structures and the law are there. When people talk from the outside, they can pretend these things are not there.

“We don’t pretend it is not there and the minister [Gigaba] doesn’t pretend it is not there. You are assuming that the people who are trustees do not understand their fiduciary duties as trustees, which is incorrect.

“You are assuming that the trustees can be influenced by the minister and that they will toe the line. Will labour toe the line? Will the GEPF pensioners toe the line?

“The GEPF has one of the most robust boards of trustees around. Labour deploys some of the most senior people, who are competent to serve on the GEPF. On the labour side and the employer side, there are no walkovers on the GEPF’s board.

“People assume that GEPF trustees are somehow more malleable than trustees outside the GEPF. It is not true ... People assume that the relationship between us and the PIC is different from the relationships of other pension funds with their investment managers. It isn’t.

“Although state-owned, the PIC is regulated like any other asset manager in the country. It has the same compliance regulations as those required for any asset manager.”

But Sithole partly agreed that there was a political dimension associated with the GEPF and the PIC, saying: “You are right in some ways and wrong in others.”

He went on to say that GEPF money was protected by trustees of “integrity”. Half of the trustees were appointed by the finance minister and the other half by government employees, including policemen, nurses, teachers, soldiers and civil servants.

Furthermore, he said, funds were protected by governance structures, including the GEPF board as well as policies, mandates, rules, regulations and laws that governed the fund.

Sithole said the GEPF comprised 30 staff members.

The PIC has about 500 employees and the Government Pensions Administration Agency, which provides the GEPF with administrative and benefit services, has a staff count of 450.

The GEPF is already a major funder of a number of state-owned entities [SOEs], including Eskom, roads agency Sanral, rail agency Transnet, the Development Bank of Southern Africa and the Trans-Caledon Tunnel Authority. As of March last year, the GEPF had lent those five entities R149 billion.

“You need to look at the proportion of the GEPF investment to any entity relative to its size. If you look at the amounts, we are a major funder of SOEs and government in terms of sovereign bonds.”

A key issue for the GEPF was to diversify its risk across a range of asset classes, including fixed-income investments such as bonds, Sithole said.

“As a pension fund, we should be concerned by governance, and we are. We make decisions that are informed by the engagement that takes place between the investee company and the PIC.”

Poor governance at Eskom or elsewhere made it harder for the GEPF to achieve its targeted returns, he added.

GEPF is Africa’s largest pension fund, the single largest investor on the JSE and one of the top 20 largest pension funds in the world.

As of March last year, the fund had 1.27 million active members, and 423 395 pensioners and beneficiaries.

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gepf  |  saa  |  pic  |  malusi gigaba  |  funding  |  bankruptcy

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