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Governance improvements are key to Futuregrowth’s funding of South African National Road Agency (SANRAL)

05 Jul 2017

Press Release

Futuregrowth Asset Management has concluded its governance review of SANRAL. Futuregrowth’s funding decisions will be guided by the continued monitoring of SANRAL’s governance structures and practices, the satisfactory implementation of governance recommendations, and the continued assessment of SANRAL’s financial position and performance.

Futuregrowth’s review revealed that SANRAL’s current governance practices appear adequate, but there are areas where Futuregrowth does not believe they meet the standards required by responsible investors in public capital markets. “We are concerned that the SANRAL Act and the existing governance framework have few controls to prevent a speedy degradation of governance or practices,” said Futuregrowth analyst, Tarryn Sankar, “notably that the SANRAL Act gives wide powers to any Minister of Transport to unilaterally and materially alter the Board of Directors”.  

Futuregrowth noted that it would be more likely to take a long-term view of SANRAL debt if there were improved protections against adverse changes in SANRAL’s Board, and better reporting to the capital market. “Failing those changes, future debt advances may be limited to short- or medium-term debt,” said Sankar.

While noting the apparent adequacy of SANRAL’s current governance, Futuregrowth has made a number of recommendations which include improvements to the Board and its sub-committees, for example increasing the number of Board members, improving the Board’s skills mix, and introducing more staggered terms for directors.  Futuregrowth has also proposed changes to SANRAL’s loan agreements to protect against adverse changes to the Board.

Futuregrowth and SANRAL have agreed to a higher standard of regular, timeous and public reporting on key matters, amongst these are: SENS (or similar) announcements of changes to the Board or committees; enhanced reporting in SANRAL’s Integrated Annual Report on mandates and limits-of-authority (and changes thereto) of approval committees; and the disclosure of the Key Performance Indicators in the Shareholder’s Compact that governs SANRAL.  

 “As a borrower in the public capital markets, SANRAL has a responsibility to provide relevant, timely and transparent information so that investors can make informed investment decisions,” said Olga Constantatos, Head of Credit at Futuregrowth.

SANRAL and Futuregrowth have come to agreement on some recommendations, notably the introduction of a Politically Exposed Persons (PEP) policy (to be considered for implementation by the Board during  2017). “A PEP policy is vital to cover potential risks associated with SANRAL’s large-scale procurement programme,” said Sankar. While SANRAL indicates that it has had no procurement from PEPs in the past, they have agreed to an annual disclosure of transactions with PEPs should there be any.  SANRAL has also agreed to implement a “cooling off” period of 12 months during which ex-directors and managers would be prohibited from doing business with the company. SANRAL has indicated that they have had no history of such dealings with ex-employees or directors.  SANRAL will continue to undergo biennial third party governance reviews, and will publish summaries of these findings in their Integrated Annual Report.  

Some of Futuregrowth’s recommendations must be considered by the Minister of Transport, including changing the SANRAL Act to increase the number of board members, improving the board appointment process, changing loan documentation, and certain reporting requests.  SANRAL has not offered any concrete timelines for such consideration or subsequent implementation of these matters.

Futuregrowth is encouraged by SANRAL’s engagement, however, the appropriateness, extent and timeliness of the execution of these recommendations will continue to guide any future funding discussions.

With the conclusion of this review Futuregrowth is now removing its self-imposed embargo on trading SANRAL debt instruments. This indicates Futuregrowth may now sell, hold or buy SANRAL debt instruments, and does not imply Futuregrowth will advance additional loans to SANRAL.

Futuregrowth would like to thank SANRAL for their constructive engagement as partners in national development.


Read the SANRAL letter.