IDC reports strong rise in support for black industrialists as disbursements fall

31st July 2017 By: Terence Creamer - Creamer Media Editor

IDC reports strong rise in support for black industrialists as disbursements fall

IDC CEO Geoffrey Qhena
Photo by: Duane Daws

South Africa’s Industrial Development Corporation (IDC) has announced that its funding approvals have increased to a record R15.3-billion in 2017, but also confirmed that it would not meet a five-year target, set in 2015, of R100-billion in approvals by 2020.

Presenting the financials in Polokwane, Limpopo, CEO Geoffrey Qhena also reported that actual disbursements decreased by 3% to R11-billion last year, partly owing to a delay in the conclusion of power purchase agreements (PPAs) for renewable-energy projects it was committed to support.

State-owned electricity producer Eskom put a halt to the signing of new contracts in 2016, citing affordability concerns and a return to an electricity surplus, following years of growth-sapping power cuts. Eskom's refusal to sign the PPAs had arisen despite that fact that some 37 utility-scale projects had been legally procured by the Department of Energy in 2015.

Of outstanding IDC commitments of R33-billion as of the end of March, some R8-billion was attributable to renewables. However, Qhena stressed that not all of the money would have been disbursed in the 2017 financial year.

Meanwhile, Economic Development Minister Ebrahim Patel stressed that government still expected the IDC to upscale its yearly approvals to the R20-billion level implied by the initial R100-billion target. He indicated that the target had since been converted into a “rolling five-year” goal.

However, the IDC cautioned that the recent downgrade of South Africa’s sovereign credit ratings, together with the prevailing recession, could have an adverse impact on both its financial stability and its ability to raise low-cost funding.

In addition, it expected that its clients would remain under pressure in the short term. “The ability of many businesses to raise debt in this environment is likely to be more challenging, with borrowing costs on the rise,” Qhena said.

Nevertheless, CFO Nonkululeko Dlamini indicated that, with gearing of 34.5%, the group still had “headroom” to raise further debt, highlighting that the board’s self-imposed gearing limit was 60%.

Dlamini revealed that the IDC had been engaging with its lenders regularly in the wake of the recent credit downgrades and that it had come away from those meetings confident that lenders would continue to support its fundraising activities. 

The group reported a profit of R2.2-billion in 2017, a significant recovery from the R223-million reported in 2016. “This was as a result of a concerted effort to closely monitor the performance of our investments, which resulted in the reversal of some impairments,” Qhena said.

The impairment charge decreased from R3.7-billion to R2.1-billion in 2017, while the impairment ratio improved from 16.9% in the previous year to 16.7%.

The IDC also approved 83 transactions, valued at R4.7-billion, for black industrialists in 2017, representing a 63% increase on the value of approvals to black industrialists reported in 2016. A target of R7.4-billion has been set for the 2018 financial year.

Qhena said the rise reflected the priority being given to economic transformation by the IDC. The increase, he stressed, had been achieved in spite of a challenging economic environment, particularly in the manufacturing sector.

Funding for black industrialists was approved across the value chains supported by the IDC, with the single-largest recipient sector being metals and mining, where R3.3-billion in funding was sanctioned for black industrialists.

However, the group’s “material” subsidiaries performed below expectation, with Foskor recording a loss of R902-million, while Scaw recorded a loss of R787-million.

Turnaround plans were in place at Foskor, while Qhena announced that the restructuring of Scaw into three standalone entities was at an advanced stage, as were plans to secure strategic equity partners for each of the businesses.