Abax Investments Cuts Lending to South African State Companies

(Bloomberg) -- Abax Investments (Pty) Ltd., a Cape Town-based investor, said it “significantly reduced” the level of bond purchases in state-owned South African companies over the past three years because of concerns over credit worthiness.

“As investors and South Africans we have been disappointed by the deterioration in state-owned enterprises’ fundamentals,” Rashaad Tayob, head of Abax’s fixed-interest investments, said in a reply to e-mailed questions on Thursday. “We have been very cautious in allocating our clients’ capital” to government-run entities, he said.

Futuregrowth Asset Management, Africa’s biggest specialist fixed-income money manager, said Aug. 31 it stopped lending money to six of South Africa’s largest state companies because of governance concerns. Silkeborg, Denmark-based Jyske Bank A/S said it ceased lending to utility Eskom Holdings SOC Ltd. On Thursday, the Financial Mail, a Johannesburg-based weekly magazine, cited executives from Aluwani Capital Partners and Abax as saying they were buying fewer state company bonds because of political and economic risks.

Stall Reforms

The funding halt came as Finance Minister Pravin Gordhan battled with President Jacob Zuma and the management of state companies over board appointments and spending plans. The government had also announced that Zuma will lead a new panel to oversee all state-owned companies to ensure they help develop the country -- a role previously delegated to Gordhan and other ministers.

Futuregrowth, which oversees about 170 billion rand ($12.2 billion) and is owned by Insurer Old Mutual Plc, also suspended funding to rail and ports operator Transnet SOC Ltd., South African National Roads Agency SOC Ltd., the Land and Agricultural Development Bank of SA, the Industrial Development Corp. of South Africa and the Development Bank of Southern Africa.

Abax, which has about 80 billion rand under management, analyzed pricing of the debt relative to risk and didn’t put all state companies “in the same bucket” because some are performing better than others, Tayob said.

“Like Futuregrowth, we were also very alarmed by the announcement on Aug. 22 that President Zuma would head up a committee overseeing state-owned enterprises,” Tayob said. “This has the potential to cause further credit deterioration and stall the reforms that are needed in the sector.”

--With assistance from Mike Cohen To contact the reporter on this story: Colin McClelland in Johannesburg at cmcclelland1@bloomberg.net. To contact the editors responsible for this story: Neil Callanan at ncallanan@bloomberg.net, Vernon Wessels, Robert Brand