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Cape Town – The Industrial Development Corporation (IDC) did not lose any money when it restructured its loan with Gupta-linked Oakbay Resources, said its CEO Jeffrey Qhena.
He was part of a delegation from the state-owned entity who briefed MPs who belong to the Portfolio Committee on Economic Development on Thursday about the IDC’s annual report of 2015/16.
Earlier this year, it came to light that the IDC restructured a loan with Oakbay charging the company a reduced interest rate of prime plus 2%. The deal raised suspicions that the transaction was due to political considerations, as the Gupta family has strong connections with President Jacob Zuma. Qhena, however, vehemently denied this, insisting that the restructuring deal was done because it made commercial sense.
READ: IDC met with Atul Gupta over Oakbay loan, but never at Saxonwold
In Thursday’s parliamentary briefing, Qhena, responding to a question from an MP, maintained that the IDC did not lose any money. “Also not in impairments. If anything, it was a very lucrative deal,” Qhena said.
In its briefing to Parliament, the IDC said to date Oakbay has made capital repayments of R175m, while the remaining balance of R75m is expected in the next two years at an annual instalment of R37.5m. The remaining exposure is fully secured by the original security package.
Loss-making subsidiaries
The IDC’s profits for the 2015/16 financial year fell by 87% - from R1.65bn in the previous year to R223m.
The mammoth loss was attributed to the IDC’s significant interest in two subsidiaries – steel producer Scaw Metals in which it has a 74%-stake and Foskor, a phosphates and phosphoric acid producer, which is 59% owned.
The two companies made losses in excess of R1.6bn in the current financial year.
READ: Scaw Metals Group to shed up to 1 000 jobs - union
DA MP Michael Cardo asked the IDC if it wouldn’t make sense to “rid itself” of these two Scaw and Foskor, as they have become “albatrosses around the IDC’s neck”.
Qhena, however, said its immediate plans are to retain Foskor, as it’s the only phosphate rock company in South Africa that beneficiates right through.
“We’re getting a lot of revenue from beneficiating it into phosphoric acid, which is key to the agricultural sector.” He acknowledged, though that the current weak prices puts a strain on profitability.
As for Skaw Metals, Qhena said the IDC is in the process of getting strategic equity partners, which should be concluded by the end of the next financial year in March 2018. Meanwhile, the IDC is undertaking a number of initiatives to improve the financial situation at Skaw, including closing loss-making operations and “right-sizing” of the workforce.
Futuregrowth
The IDC was also asked to elaborate on the effect asset management company Futuregrowth’s decision to hold back on loans would have on its operations.
At the end of August, Futuregrowth, a subsidiary of Old Mutual, announced it would stop lending money to six of South Africa’s state-owned entities – the IDC, Transnet, the SA National Roads Agency (Sanral), the Development Bank of South Africa and Land Bank. Futuregrowth, has however, reversed its decision on funding for Land Bank.
IDC chief financial officer Nonkululeko Veleti said in her response Futuregrowth had paid the IDC a visit, meeting with board members to iron out concerns over governance. A report on the meeting will follow in due course.
Ratings downgrade
Veleti said although ratings agency Moody’s recently cautioned that the IDC among other state-owned entities could receive a investment grade cut, the review will only be concluded in November.
“The IDC’s rating is however dependent on the sovereign credit rating South Africa will receive.”
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