IDC to keep its JSE listed portfolio

The Industrial Development Corporation (IDC) and the Economic Development Ministry seem to have found one another, if the expressions made during the development finance institution’s (DFI) financial results presentation yesterday are anything to go by.

The financial results for the year ended March showed the IDC achieving a 55% growth in funding activity to R13.5 billion while profits for the year increased by about 27% to R3.4bn.

Outside praising the results, the IDC and its reporting line ministry were singing from the same hymn on a critical issue which was seen to be causing friction between the two parties. The IDC will not in the near future embark on a wholesale divestment of its JSE listed equity portfolio.

This was expressed by both the IDC executives and the minister of economic development Ebrahim Patel at the financial results presentation. The call for the IDC to divest its listed securities, as coming out of the New Growth Path (NGP) was something of a challenge.

The IDC runs with a significant portfolio of JSE listed equities which it has earned over the years of its existence. These include significant stakes in South Africa’s industrial blue chips like Sasol, ArcelorMittal SA, Kumba Iron Ore, BHP Billiton and Sappi. The value of these investments was quoted at R54.4 billion in the year ended March representing a R2.5bn decline when compared to the 2011 value due to market volatility.

IDC CEO Geoffery Qhena said the strategy around IDC’s listed equity investments was dictated by a medium term plan and mainly a needs analysis. IDC chief financial officer said the DFI was looking to raise funds from the debt markets rather than embark on a divestment of its investment.

The idea that the IDC should liquidate its listed investment and divert the money into the real economy came was motivated by a view that, these investments had trapped capital inside matured JSE listed investment which could be used elsewhere in Greenfield project that will create new jobs in the economy.

Yestreday Patel seemed to be agreeable to the view presented by Qhena who divestment as an option to raise money for development finance would be considered as and when necessary. he said this much. This can be seen as a shift away from the push that the IDC must divest its JSE listed investments as a matter of principle.

Gouws said the IDC relying on the principle of opportunity cost, which at this stage makes debt more efficient than divestment, the IDC would not sell its JSE investment in the next 12 to 18 months. He said the IDC was looking at scaling up its gearing. IDC’s gearing –debt to equity ratio was currently sitting around 11%. Gouws said the DFI had an opportunity to triple gearing in the medium term as a source of raising funds.

Alongside other state owned entities the IDC has been billed as a key player in the NGP and the attendant infrastructure development programme. In 2011 the IDC unveiled a new steep target of allocating R100bn in funding over five years. This required the IDC to stretch its capacity from an institution which disbursed around R7bn to R20bn a year. Figures released yesterday showed a 33% in funding activity from to R13.5bn but far from the target. Qhena said the DFI was working towards meeting the stretched target but stressed that the IDC has already made significant movements on this front. He intimated that the performance was impressive in taking place on the back of euro zone financial storm.

A stable euro zone is critical for our country’s economic growth and job creation targets, considering that Europe is a major destination for our exports. The difficulties facing local manufacturing reflect the challenges confronting exporters to this region, naturally impacting on the performance of our client base, the overall demand for IDC funding and by extension on our balance sheet”.

Patel said “Given that growth prospects in Europe remain fragile, and the possible impact this could have on our domestic economy, it remains critical to ensure that development finance institutions (DFIs) continue to play a counter-cyclical role in the economy”.

 

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