Treasury to assist state-owned companies turn the corner

Wednesday, February 21, 2018

National Treasury will assist state-owned companies (SOCs) develop and implement robust turnaround strategies, Finance Minister Malusi Gigaba said on Wednesday.

Tabling the 2018 national Budget in the National Assembly on Wednesday, Minister Gigaba said government recognises that the business models of some SOCs are unsustainable and that their capital structures are too reliant on debt.

“To confront these issues, we will assist them to develop and implement robust turnaround plans. This needs to be part of a holistic reform programme which considers the role we want SOCs to play in our economic development,” he said.

Some of the companies will require restructuring with equity investment.

“In the coming year, government may be required to provide financial support to several SOCs which could be done through a combination of disposing of non-core assets, strategic equity partners, or direct capital injections,” he said.

Minister Gigaba stressed that state-owned companies are expected to fund their own operations.

A property audit conducted by the Department of Public Works showed that national government owns up to 195 000 properties, with an estimated value of over R40 billion.

“We will work with them on a programme to better utilise or dispose of these properties in the short to medium term,” he said, adding that government is finalising a framework on guarantees aimed at both reducing the exposure and improving the quality of the guarantee portfolio.

“We can and will ensure that all SOCs are run sustainably and contribute to our national development.”

In his State of the Nation Address last Friday, President Cyril Ramaphosa made a commitment to intervene decisively to stabilise and revitalise state-owned enterprises.

Work done to improve the status of SOCs include the appointment of boards and the costing of developmental mandates.

Over the past months government has appointed new boards to Eskom and South African Airways (SAA).

The 2018 Budget Review document stated that state-owned companies contributed R95.2 billion of the public sector’s total R249.9 billion infrastructure spending in 2016/17.

The review noted that the combined assets of state-owned companies continue to exceed liabilities, despite a decline in combined net asset value from R361.8 billion in 2015/16 to R356.3 billion in 2016/17.

Meanwhile, profitability measured by return on equity, fell from 0.8% in 2015/16 to 0.3% in 2016/17.

In terms of infrastructure, SOCs spent R95.2 billion on infrastructure in 2016/17 while capital spending by state-owned companies is projected to total R368.2 billion over the next three years, compared with R432.8 billion over the previous MTEF period.

According to the Review, Eskom and Transnet account for R298.8 billion or 81% of this spending.

This as Eskom is making steady progress on its capital expenditure programme having commissioned two units at the Medupi power station, one at Kusile and all units at Ingula.

Most of Transnet’s capital spending involves expanding its rail and pipeline capacity by 33% and 97% respectively.

Development Finance Institutions (DFIs)

The review noted that Development Finance Institutions (DFIs) support transformation by channelling savings into productive investments in industry, infrastructure, agriculture and housing.

DFIs are generally healthy with the largest three institutions - the Development Bank of Southern Africa (DBSA), the IDC and the Land Bank – holding assets totalling R258.9 billion at the end of 2016/17. Their loan books totalled R140.5 billion.

During 2016/17, these three institutions borrowed R67.5 billion, largely in line with their planned borrowing of R65.3 billion.

The DBSA reported a net profit of R2.8 billion in 2016/17 while the Land Bank disbursed R100 million for black farmers to buy land at subsidised rates. -

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