Sep 03, 2012
IDC looks to raise R65bn as dividend payments take strainBack
ArcelorMittal South Africa|BHP Billiton|Development Bank Of Southern Africa|Eskom|Industrial Development Corporation|Kumba Iron Ore|PROJECT|Projects|Renewable Energy|Sasol|Unemployment Insurance Fund|Brazil|China|India|Russia|South Africa|Development Finance Institutions|Ebrahim Patel|Geoffrey Qhena|Gert Gouws|R13|R8|South Africa|Southern Africa
© Reuse this
These borrowings would be raised primarily on the domestic bond market and from other development finance institutions (DFIs). But the IDC was also considering other international sources, including the offshore capital markets.
CEO Geoffrey Qhena remained adamant that the R102-billion “stretch target”, which was reaffirmed by Economic Development Minister Ebrahim Patel, remained realistic. This, notwithstanding weaker-than-expected economic activity and approval levels, as well as growing pressure on its main current source of funding, which are currently dividends from companies listed on the JSE.
The IDC received R2.9-billion in dividends from companies such as ArcelorMittal South Africa, BHP Billiton, Kumba Iron Ore, Sasol and other listed entities in the year to March 31, 2012, as well as a further R781-million from unlisted holdings, such as Foskor. But in light of the prevailing downturn in the commodity cycle, dividend flows were expected to decline materially during the current financial year.
Therefore, CFO Gert Gouws confirmed that the group would rely increasingly on borrowings to fund its State-backed mandate. He stressed that the group’s balance sheet, with a debt-to-equity ratio of 11%, had borrowing capacity and indicated that the ratio was likely to rise to around 30% by 2016.
Given the lag between approvals and disbursements, the IDC was budgeting to disburse about R90-billion between 2012 and 2016, of which about R25-billion would be recovered through interest payments.
About R40-billion of the R65-billion shortfall would, therefore, be met through borrowings, with the R25-billion balance arising from profits associated with the sale of listed and unlisted shares – these sales would only be pursued once the commodity cycle recovered and would probably be timed towards the end of the five-year cycle.
About half the borrowings would be raised through bonds, with the IDC having already listed a R15-billion Domestic Medium-Term Note Programme, which it would start tapping in October.
A further 25% could be secured from international DFIs, as well as from local entities such as the Unemployment Insurance Fund and the Compensation Fund. The balance would be sourced from commercial banks.
Patel said that the proposed DFI involving the Brics-bloc countries of Brazil, Russia, India and China, could offer a new source of funding to domestic DFIs, such as the IDC and the Development Bank of Southern Africa.
Qhena was also not overly concerned about the group’s capacity to materially increase the level of approvals over the remaining four-year period, but acknowledged that it would require a major push from the bank’s staff.
In 2012/13, IDC approved a record R13.5-billion to fund start-ups, business expansions, ownership changes and to support firms in distress. The approvals were well up from the R8.7-billion approved in 2010/11, but fell well short of the yearly approval levels of around R20-billion that would be required to meet the outlined budget.
About 30% of the approvals were directed towards so-called ‘green economy’ investments, with the IDC participating in 12 of the 28 preferred projects selected during the first bid window of the Department of Energy’s renewable energy procurement programme.
The fact that only R8.4-billion of the R13.5-billion in IDC approvals was actually disbursed during the year was partly attributed to the well-publicised delay in closing the first wind and solar bids. These are expected to reach financial closure in the coming weeks.
Besides further green-economy-related investments, Qhena saw significant potential in supporting the localisation component of the capital programmes being pursued by State-owned companies such as Eskom and Transnet. All told, South Africa was expected to invest some R860-billion on infrastructure programmes until around 2015.
Edited by: Creamer Media Reporter© Reuse this Comment Guidelines
Other Infrastructure News
Article contains comments
Recent Research Reports
Steel 2014: A review of South Africa's steel sector (PDF Report)
Creamer Media’s Steel 2014 report provides an overview of the global steel industry and particularly of South Africa’s steel sector over the past year, including details of production and consumption, as well as the country's primary carbon steel and stainless...
Projects in Progress 2014 - First Edition (PDF Report)
This publication contains insight into progress at the delayed Medupi and Kusile coal-fired projects, in Mpumalanga and Limpopo respectively, as well as at the Ingula pumped-storage scheme, which is under construction on the border between the Free State and...
Automotive 2014: A review of South Africa's automotive sector (PDF Report)
The report provides insight into the business environment, the key participants in the sector, local construction demand, geographic diversification, competition within the sector, corporate activity, skills, safety, environmental considerations and the challenges...
Construction 2014: A review of South Africa's construction sector (PDF Report)
Construction data released during 2013 hints at a halt to the decline in the industry during the last few years, with some commentators averring that the industry could be poised for recovery. However, others have urged caution, noting that the prospects for a...
Electricity 2014: A Review of South Africa's Electricity Sector (PDF Report)
This report provides an overview of the state of electricity generation and transmission in South Africa and examines electricity planning, investment in generation capacity, electricity tariffs, the role of independent power producers and demand-focused initiatives,...
Defence 2013: A review of South Africa's defence industry (PDF Report)
Creamer Media’s 2013 Defence Report examines South Africa’s defence industry, with particular focus on the key players in the sector, the innovations that have come out of the defence sector, local and export demand, South Africa’s controversial...
This Week's Magazine
The Electronic Systems Laboratory (ESL) of the Department of Electrical and Electronic Engineering at Stellenbosch University is strongly reaffirming its position as one of South Africa’s leading centres for satellite technology and expertise. It is currently...
The world’s lowest-cost diesel-electric locomotive is not made in China, but in Pretoria, at RRL Grindrod Locomotives’ newly upgraded 30 000 m2 plant. The company’s locomotive pricing is “more competitive than any other original-equipment manufacturer (OEM)...
The South African Defence Review 2012, released to the public at the end of last month (despite the year given in its title) recommends the creation of the post of Chief Defence Scientist. This official would be responsible for the management of defence technology...
AltX-listed engineering technology company Ansys has been awarded an R188-million contract by Transnet to supply integrated dashboard display systems to the freight rail utility’s locomotives. Black-owned and controlled Ansys developed the bespoke integrated system...
South Africa’s sole nuclear power station Koeberg, which is located in the Western Cape, breached a major operations milestone on April 4, which marked the thirtieth anniversary of Unit 1 having been connected to the grid. Eskom, which operates the two-unit plant,...