We want SOEs to be financially stable – Gigaba

Johannesburg - The financial stability of SOEs remains a top priority for government, said new Finance Minister Malusi Gigaba.

Gigaba was speaking at a press briefing following Standard & Poor’s (S&P) decision to downgrade South Africa’s sovereign rating from BBB- to BB+, or sub-investment grade. Ratings agency Moody’s subsequently issued a statement that South Africa has been placed on review for a downgrade.

Moody’s currently has South Africa at Baa2, a downgrade to Baa3 would still be one notch above junk status.

READ: Gigaba knew about S&P move to downgrade SA to junk 4 days ago

In its review, S&P pointed out that unrated SOEs such as South African Airways (SAA) and the South African National Road Agency (Sanral) pose a risk to the country’s fiscal outlook.

“We expect guarantee utilisations will reach R500bn in 2020, or 10% of 2017 GDP,” said S&P. Much of the liability is attributed to Eskom, explained S&P, which will require R350bn or 7% of GDP. “We estimate Eskom will have used up to R300bn of this framework by 2020.”

Moody’s also indicated that there were concerns about whether reforms to ensure fiscal and economic strength, some of which linked to SOEs. Moody’s plans to assess progress on these reforms to achieve “transparency, accountability and good governance” in the SOE sector, among other things.

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Gigaba assured that he would engage with various issues their departments and Treasury has, and will work together with them to “uplift the performance of SOEs financially”. He added: “We want to see SOEs be financially stable, have strong balance sheets.”

Gigaba said that current SOE reforms being undertaken will be supported. “They should be accelerated to address concerns among investors.”

He pointed out that many of the SOEs raise capital in domestic and international markets and it is important to demonstrate to these investors that funding will be paid back.

Limited guarantees

Gigaba added that government has a critical role in supporting SOEs. “Raising government guarantees raises challenge as government guarantees themselves are reaching a limit in terms of our ability to keep on issuing it,” he warned.