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Force for good?

08 Nov 2016

Article

Asset manager Futuregrowth, IDC back in business after SOE ups its game

Futuregrowth Asset Management caused a stir after it announced that it was suspending lending to State-Owned Entities (SOEs) earlier this year. At the time, CEO Andrew Canter highlighted concerns about how SOEs were being run, government-infighting and threats to the independence of the finance ministry among the reasons for Futuregrowth’s decision. The move was not for political reasons, however, with Canter at the time citing fiduciary responsibility. In an article published on BizNews, Canter noted that he subsequently regretted the blanket decision and that, with hindsight, a “more measured approach of direct consultation with each SEO would have been preferable”. Following up on his comments, Futuregrowth lifted the suspension from lending to the Land and Agricultural Development Bank of South Africa in late September and, more recently, to the Industrial Development Corporation (IDC). While Canter expressed regret at Futuregrowth’s move to halt lending to SOEs, its earlier decision has evidently had the effect of at least some within state-owned entities improving processes and practices. The IDC has committed to improvements in a range of areas, including: directors’ conflicts of interest policy and reporting changes to facilitate monitoring and transparency. This just goes to show: taking principled steps in business can spark changes for the better.         – Jackie Cameron

DATE: 07/11/2016 | SOURCE: BIZNEWS | AUTHOR: MATTHEW LE CORDEUR 

Cape Town – Futuregrowth Asset Management, Africa’s largest specialist fixed-income money manager, lifted its lending suspension against the state-owned Industrial Development Corporation (IDC) on Monday.

This is the second entity to have its suspension lifted after Futuregrowth shocked government with its decision to suspend lending activities to state-owned entities (SOEs).

Futuregrowth said the lifting of the suspension is subject to ongoing public reporting requirements, mutually acceptable and appropriate protections in future legal agreements and Futuregrowth’s ongoing satisfaction with governance structures.

“This follows Futuregrowth’s review of the IDC’s governance, which sought to obtain a deeper understanding of the IDC board’s independence, autonomy, decision-making rights and commitment to fiduciary responsibility, as well as the IDC’s relationship with its shareholder,” it said in a statement on Monday.

Futuregrowth, which has about R170bn in assets, took an unprecedented decision on August 31 to halt negotiations on more than R1.8bn of debt finance to certain SOEs.

It halted loans to Eskom, Transnet, the SA National Roads Agency (Sanral), Landbank, the IDC and the Development Bank of Southern Africa (DBSA).

At the heart of the decision was the governance and decision-making of the SOEs, especially after the sudden announcement that President Jacob Zuma will lead a new panel to oversee all state-owned companies, despite a mechanism already in place giving this role to Finance Minister Pravin Gordhan and other ministers.

“We cannot provide finance without having clearer sight of, and comfort around, the governance and decision-making of the SOEs,” Futuregrowth said in October.

However, on September 26, Futuregrowth announced it had lifted the suspension to the Land and Agricultural Development Bank of South Africa.

Now, the IDC and Futuregrowth announced in separate statements on Monday that Futuregrowth has lifted its suspension with immediate effect following an extensive review of the IDC’s governance and investor protection mechanisms.

IDC chief financial officer Nonkululeko Dlamini said both parties had a constructive and robust engagement during the due diligence process.

“As part of the engagement with Futuregrowth, there were some recommendations regarding enhanced transparency and public disclosures relating to governance structures,” said Dlamini.

Also read: Futuregrowth stake in ground, no more funding for coal-fired power

Dlamini stressed the IDC’s commitment to maintaining the highest levels of corporate governance, independence of decision-making and the protection of the interests of its funders.

She said Futuregrowth was one of the IDC’s key funders and that their support remained critical to achieving the corporation’s mandate and objectives of supporting growth and industrialisation of the South African economy.

Futuregrowth has direct exposure of about R10bn in Eskom and Transnet, while both have collectively raised over R470bn from other financial institutions, the Department of Public Enterprises said on 6 September.

Why Futuregrowth lifted suspension

Futuregrowth said on Monday it performed a detailed review of the board, board committees and executive management with reference to the applicable charters, policies and delegation matrices.

“Futuregrowth assessed the IDC’s lending policies and practices in order to gather evidence that decisions are made in accordance with their mandate, established processes and the requirements of applicable legislation,” it said.

The lender said on Monday that it sought to “understand the relationship, nature and extent of involvement and support from the EDD (Economic Development Department), obtain a more in-depth understanding of the IDC’s legislative/governance framework and perform a detailed review of investment policies, practices, and mandates, as well as key decision-making structures and processes”.

“Futuregrowth evaluated the practical application of the IDC’s policies and mandates, requested evidence of policies in action and reviewed examples of the application of policies.

“Futuregrowth found that currently there is a positive and constructive relationship between the board and the EDD,” it said. “Futuregrowth considers the 13 member IDC board to be appropriately constituted with a satisfactory balance of skills, experience and independence.

While noting the overall board strength, Futuregrowth observed the recent news concerning a board member as an area to monitor.

“The IDC has had a politically exposed person (PEP) policy in place since 2009, which, in its current form, appears adequate in Futuregrowth’s view,” it said. “ The IDC has a mandate to make loans to PEPs and has well developed policies for lending to PEPs, but Futuregrowth notes that such lending can give rise to particular risks.

“Futuregrowth notes that the IDC is in the process of strengthening its directors’ conflicts of interest policy.

Futuregrowth recommended that the IDC limit the authority delegated to certain committees to immaterial matters, amending the board charter to reflect that it operates on a consensus basis and voting thresholds to align with current practices and annual confirmation that board evaluations have been performed.

Also read: Another lender publicly follows Futuregrowth lead; many more do so secretly

The IDC has agreed to regular and public reporting on matters of interest, such as board and sub-committee membership and turnover, significant changes to key policies and charters and the number and quantum of transactions approved per approval threshold level, Futuregrowth said.

“Such reporting will facilitate monitoring and transparency,” it said. “Futuregrowth appreciates the IDC’s proactive and constructive engagement throughout this process, and their stated ongoing commitment to sound and rigorous governance processes and practices.”

All tags:

IDC / SOE