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SOEs must reduce their reliance on government guarantees - Treasury

May 08 2018 21:56
Lameez Omarjee

Cape Town – Treasury is working to reduce the reliance of state-owned enterprises (SOEs) on government guarantees, Parliament has heard.

National Treasury on Tuesday briefed Parliament’s standing committee on finance on its strategic plan, and the status of SOEs was a topic of discussion.

It is important that SOEs reduce their reliance on government guarantees, said Treasury deputy director general for assets and liabilities Anthony Julies.

He explained that when there is a large amount of guarantees (for SOEs) that expose the fiscus, the deterioration of the fiscal position impacts credit ratings.

“We need to monitor the exposure and explicitly work on reducing the levels of guarantees we have on our books as National Treasury,” said Julies.

Investor appetite makes a comeback

The risk is essentially linked to investor appetite to lend to SOEs, he explained. “What we have seen is this appetite that has not been there before, is coming back,” he said.

Eskom in particular has seen a return of investor appetite. During the 2017/18 financial year the power utility was able to raise R57bn. “So that is quite significant, given the environment has not been ideal for investor appetite.”

Eskom has an approved borrowing plan for 2018/19 to the value of R72bn. By March, Eskom had raised R11.3bn.

“SOEs have challenges in refinancing their own debt,” he said. Measures are in place to ensure SOEs can pay off their debt and provide comfort to lenders.

This includes credible turnaround strategies, appointing the right people to the right places and an appropriate capital structure.

“We are looking towards reducing our levels of guarantees as opposed to adding to it,” he said.

Still no plans to sell SAA

Director general Dondo Mogajane told the committee that government is not prepared to sell South African Airways or see it go into business rescue. Treasury is exploring other options first and has a deadline from Cabinet until March 2019 to do so, he explained.

Government has committed R5bn to recapitalise the airline this year, he confirmed.

Julies explained that R10bn granted to SAA last year was required to settle its R8bn debt. The remaining R2bn went towards the airline’s operating expenditure.

Eskom and Gupta fallout

Mogajane explained that Eskom had trouble attracting investments from markets last year, as investors were concerned with issues of governance, the board, “Gupta issues and Tegeta” and the like. 

“They were saying it looked like Eskom was not ready to sort itself out, from a governance point of view and a management point of view,” said Mogajane.

“The actions taken in the last few months have seen the appetite of lenders come back.”

Mogajane said that if Eskom were unable to pay off its debt, government would have had to provide guarantees - a minimum of R350bn. He explained that it "almost got us into trouble”.

Said Mogajane: “Eskom is an important element for us. Any mistake happens there, then we are in it.”

He said that if the roadshow had been conducted in December, no one would have provided the necessary funds for the power utility.

Government is working to guard the ability of SOEs to pay their debt obligations, as the responsibility would have to fall on government if they were unable to do so.

SOC Council

Mogajane stressed the importance of the State-Owned Companies Coordinating Council announced by President Cyril Ramaphosa at the State of the Nation Address. Finance Minister Nhlanhla Nene attended a meeting with the council earlier on Tuesday.

Mogajane explained it is necessary for the council to “comb through” SOEs to make sure there is a future for them.

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