The State-owned Industrial Development Corporation (IDC) reported a sharp rise in impairments during its 2018 financial year, which surged 178% to R2.7-billion, from R954-million in 2017.
Impairments as a percentage of total financing also increased to R4.9-billion, from R2.1-billion in 2017, or 17.4%, which is only marginally below the IDC’s self-imposed threshold of 20%.
The development finance institution attributed the increase largely to a R1.8-billion impairment associated with Foskor, which was negatively affected by a combination of lower fertilizer prices and a stronger rand during the period.
CEO Geoffrey Qhena said the board and management were currently preoccupied with ways to turn around Foskor and reported that all options were being considered, without offering further details.
The company recently disposed of stakes in loss-making subsidiary Scaw to strategic equity partners, with only one of the three Scaw units set aside for disposal not yet sold. As a result of the transactions, the IDC wrote off R1.5-billion relating to the Scaw assets.
CFO Nonkululeko Dlamini attributed the impairments to the difficult business cycle, as well as to the fact that the IDC's impairment figure was vulnerable to material shifts, owing to the large position held in certain businesses. In the 2018, the R1.8-billion Foskor impairment was the most significant swing factor.
She also reported that a specialised unit had been established to monitor some of the IDC’s large investments and subsidiaries with the intention of lowering the risk of future impairments, or even reversing impairments. Qhena expressed optimism that the Foskor-related impairment could be reversed as a result of the turnaround plans being considered for the company.
The IDC still reported a profit of R3.8-billion for the year, largely as a result of the disposal of legacy investments. The group reported a 384% rise, to R1.6-billion, in “other income”, which arose as a result of the unwinding of an Exxaro empowerment structure in late 2017. It also exited a range of “mature” investments, which resulted in a 41% increase in net capital gains to R2.4-billion.
Qhena stressed that, as a self-financing institution, its funding model could not rely on borrowings alone. He added that the disposals undertaken during the 2018 financial year had been considered by the board and were in line with the corporate plan.
Therefore, the IDC’s record disbursements of R15.4-billion, which rose from R11-billion in 2017, had been funded, in part, by disposals of legacy investments.
The gap between approvals and disbursements was also narrowed during 2018, despite record approvals of R16.7-billion, which increased from R15.3-billion in 2017.
Qhena said that the IDC expected to play a central role in helping government to achieve its target of attracting $100-billion-worth of investment in the coming five years and reported that it was acting as the secretariat for the initiative.
He said that the organisation was helping firm up a project pipeline, which it was sharing with investment envoys appointed by President Cyril Ramaphosa to galvanise domestic and international support for the programme.
He acknowledged that policy uncertainties in the areas of mining, land and agriculture, as well as energy were a constraint to investment. However, he believed recent political developments would help improve the climate for investment.
IDC chairperson Busisiwe Mabuza added that the IDC was raising the need for policy certainty in all its interactions with government. However, she said the organization was sensitive to the need for government to balance “prudence and speed” when dealing with such fundamental changes as those being contemplated in the areas of land and mining.