The Industrial Development Corporation (IDC) – which reported a R3.8-billion loss for the 2019/20 financial year, driven by a surge in impairments from R4.8-billion to R9.6-billion – has revised its investment strategy with the aim of “catalysing” government’s Economic Reconstruction and Recovery Plan through risk-sharing partnerships with private and public co-financiers.
CEO TP Nchocho stressed that the State-owned development finance institution (DFI) would continue to operate at the “upper end of the risk spectrum” in supporting the plan, announced by President Cyril Ramaphosa on October 15 and which included strong infrastructure, industrial, energy and agricultural components.
However, given that the distress prevailing in many of the sectors to which the IDC was exposed was expected to persist for some time, the group would prioritise the selection of “good quality” investments that were able to attract other partners.
This depressed economic environment was reflected in the 10% fall in funding approvals to R11.8-billion during the year. Disbursements, however, declined by only 1% to R11.7-billion compared with 2019.
“The economic recovery of the country, we believe, will be well driven if investment choices are made on a strong financial-sustainability basis, on a strong development-effectiveness basis, and we believe that it will involve sharing risk with other financial institutions and development partners,” Nchocho said, adding that the IDC had no intention of going it alone.
The DFI’s historical approach of assuming senior debt in investments in which it also took equity was likely to make way for one where the financing risks were “distributed” more widely and where the IDC no longer underwrote the entire project.
Nchocho said the principle would apply equally to both medium-sized investments and those involving billions of rand.
The IDC had also overhauled its Africa strategy to focus primarily on the Southern African Development Community (SADC); this after a handful of non-South African projects were key to driving the surge in the group’s nonperforming loans (NPLs) ratio, which rose from 22% in 2019 to 26% in 2020.
Nchocho described the level of NPLs as far too high even for a DFI and said that, in future, investment activities outside of South Africa would be pursued mainly within SADC and primarily with South Africa-based partners.
He indicated that the gas developments in Mozambique were receiving priority attention in the region, while its energy and agricultural investments were poised to grow strongly within the borders of South Africa itself.
The IDC’s exposure to renewable energy had decreased from over R13-billion to about R11.2-billion, but acting CFO Gert Gouws said that with the procurement of ‘emergency’ power capacity under way, as well as with the prospect of new renewables bidding rounds, that exposure was likely to rise strongly in future.
LISTED-ASSET DIVERSIFICATION & FOSKOR SALE
In parallel, attention was also being given to diversifying its portfolio of listed assets (which took a major knock both from the collapse in Sasol’s valuation and the Covid-19 pandemic) and to decreasing it exposure to lossmaking subsidiaries, such as Foskor.
By the end of March, the IDC’s listed portfolio had slumped to only R23.5-billion, from R56.2-billion at the end of March 2019. The dramatic fall was driven largely by its holding in Sasol, the value of which plummeted from R24-billion in March 2019 to only R2-billion in March 2020.
By the end of September, the portfolio had recovered to R40.5-billion, however, with Sasol, Kumba and BHP driving the recovery.
The group has also issued an expression of interest (EoI) for those interested in acquiring a stake in Foskor, which reported a R1.6-billion loss for the year, increasing cumulative losses for the past five years to over R4-billion.
The IDC expected Foskor’s losses to moderate materially during the current financial year, and said it was open to receiving an array of suggestions from potential strategic equity partners, including the possibility of separating the phosphate mine from the plant that produces phosphoric acid and granular fertilisers.
Those interested in acquiring Foskor had been given until November 6 to respond to the EoI.
“Our subsidiaries, although contributing to losses, are starting to show improvements following implementation of turnaround strategies,” Nchocho said.