SOE financial health remains “poor”

The Medium Term Budget Policy Statement (MTBPS) has revealed how South Africa’s weak growth combined with arduous debt repayment obligations and other factors continue to affect the financial health of state-owned enterprises (SOEs).

The MTBPS was tabled in the National Assembly by Finance Minister Enoch Godongwana on Wednesday.

“Since 2019, weak economic growth has compounded the poor financial position of most state-owned companies. Capital investment continues to slow, falling below company budgets, with some large enterprises facing serious liquidity problems.

“Operational inefficiencies, high cost structures and onerous debt obligations continue to hamper profitability and cash flows, intensified by non-payment for services. Many companies are unable to attract funding at favourable rates and terms, and rely on fiscal funding for support,” the statement read.

Debt repayments for SOEs over the medium term are expected to reach R121 billion.

“The large domestic capital repayment in 2023/24 stems from the maturity of bonds issued by the Industrial Development Corporation, the Development Bank of Southern Africa, Transnet and the South African National Roads Agency Limited (SANRAL).

“In the following three years, capital repayments will be relatively lower as state-owned companies build cash flows to manage maturities. Capital repayments are expected to decline significantly after another spike in 2027/28,” the statement said.

Denel

According to the statement, Denel remains in “financial distress” with no annual financial statements submitted since the 2019/20 financial year.

“In March 2023, government disbursed R1.9 billion to Denel through the Special Appropriation Act (2022). The disbursement was proportionate to the entity’s share of proceeds from the sale of non-core assets. Denel used this funding to help settle debt obligations, pay for restructuring and enhance working capital.

“The remaining portion remains ring fenced until other non-core assets are sold. In September 2023, Denel requested that a further R100 million of the ring fenced funds be released to settle the last government guaranteed debt obligation. Following its settlement, Denel has no debt obligations remaining and its government guarantee will be revoked,” it said.

Land Bank

Similarly to Denel, the Land Bank is in default since failing to meet its April 2020 debt obligation.

“At the end of 2022/23, the National Treasury transferred R5.1 billion to the Land Bank, subject to conditions, as part of a R7 billion fiscal allocation. Government has repaid approximately R1.4 billion to all guaranteed lenders of the Land Bank since its default, eliminating its guarantee exposure.

“The remaining portion of the R7 billion fiscal allocation will be transferred to the Land Bank in this financial year to use in its blended finance scheme during March 2024,” the statement said.

Transnet

State freight rail, ports and logistics company, Transnet continues to face “weak profitability and deteriorating liquidity” stemming from “operational challenges, a high debt burden and low cash flows”.

“A prolonged period of underinvestment in capital infrastructure and maintenance backlogs have combined to limit revenue-generating capacity. Transnet has initiated a five-year R122.7 billion capital investment programme, including R99.5 billion for operational maintenance and R23.2 billion to expand infrastructure, starting in 2023/24.

“Further borrowing is restricted by its existing debt, which stood at R130 billion at the end of March 2023, and declining revenues. Transnet’s issued guarantee remains at R3.5 billion,” the MTBPS said.

South African National Roads Agency Limited (SANRAL)

Treasury explained that SANRAL’s investment capacity has been stymied by a long standing dispute over the Gauteng Freeway Improvement Programme.

“Government’s decision to take over the Phase 1 commitments will support SANRAL’s ability to finance the strengthening, rehabilitation and expansion of the toll road network.

“As a result of revisions to SANRAL’s borrowing limits and guarantees associated with the R23 billion injection made in the 2022 Adjustments Budget, SANRAL will now seek approval to revise its funding plan to ensure continued investment in the national road network,” the statement read. – SAnews.gov.za