This article was originally published on Business Insider SA.
In the past few weeks, "debt officer" suddenly became the hottest position in South Africa.
Everyone was appointing one. From Absa, Santam, Growthpoint, Telkom, and Woolworths to state-owned groups like Eskom and the South African National Roads Agency, all announced that they now had a debt officer.
This was due to new rules from the JSE – endorsed by the Financial Sector Conduct Authority (FSCA) – that require all companies who issue listed debt securities to appoint a debt officer.
- Some of SA's biggest organisations - from Eskom to Absa, Santam and Telkom - have appointed debt officers in recent weeks.
- This is a new JSE listing requirement for companies that issue bonds.
- The debt officer has to work with bondholders, but Futuregrowth reckons the role could have been more ambitious.
Debt securities are contracts over an amount of money that was borrowed, which must be repaid at a specific date and usually at a specific rate of interest. Typically, these include bonds.
In the past, debt security holders had no point of contact at companies, and no access to information about other investors, which meant they couldn’t organise themselves as a group, says Olga Constantatos, Futuregrowth’s head of credit. Futuregrowth is one of the largest fixed-income fund managers on the continent.
For example, when the former minister of water and sanitation, Nomvula Mokonyane dissolved the board of Umgeni Water – the second biggest water supplier in the country – in 2017, bondholders could gain very little insight into what was happening, says Constantatos. Bondholders also couldn’t coordinate, because there was very little information on which institutions held bonds.
A debt officer also would have been able to assist bondholders in the wake of the Land Bank’s default on its obligations earlier this year.
But Futuregrowth believes the JSE could have done more in the amended debt listings rules to ensure that the debt officer is independent of the issuer and that the duties of the debt officer should have been expanded to better protect investors.
Currently, debt managers can be employees of the company. So Eskom, Absa and most other companies have just made their financial executives their debt officers as well.
Futuregrowth wanted the debt officer to be completely independent, to represent the interests of bond holders. The debt officer should have been someone who could coordinate creditor meetings, and helped to represent creditors in negotiations following a default.
“The role and responsibilities of the debt officer are a long way off the “investor representative" initially recommended by investors,” says Constantatos. “It is not independent of the issuer and critical responsibilities that would facilitate a proper negotiation between borrower and lenders and to ensure the issuer meets its obligations to investors are absent.”
What is potentially a big breakthrough is that directors of state-owned enterprises and companies that issue debt on the JSE must from now on publicly disclose any conflicts of interest, and must pass “fit-and-proper checks” – where a person’s past actions are scrutinised to see whether they are fit and proper for the role they are undertaking.
Constantatos says that this will give investors valuable information. “This information will allow us to make adjustments to decision-making, pricing and exposure to the debt in response to changes in the risk profile of corporate and SOE debt instruments.”
“This is very significant, and a good, positive step forward.” While not a panacea to prevent corruption, she believes it may act as a deterrent.