ANDILE KHUMALO: SAA flight to survival could go via Telkom
“There are more than 700 state-owned companies in South Africa, but not all of them would make business sense for an investor to buy....”
When Finance Minister Malusi Gigaba unveiled plans to sell non-core state-owned assets and partially privatise state companies, he was met with much scepticism.
I was one of those who was not convinced by the Treasury's argument that the sale of non-core assets would pull the economy out of recession. This is largely because South Africa has to do much more than just sell some assets to improve economic growth. But, nonetheless, the country finds itself at a point where it needs to offload the baggage to keep South Africa afloat.
There are more than 700 state-owned companies in South Africa, but not all of them would make business sense for an investor to buy as many are regulatory boards, trusts or development agencies.
There are two main reasons for a shareholder to consider selling an asset: to make big money or to get out of a sticky situation. Falling tax revenues, rising expenditure and ballooning debt obligations are good enough reasons for the Treasury to consider selling one state entity to save another.
Many also agree that the revenue service's tax target of R1.265-trillion will be difficult to achieve in a recessionary environment. For the year to March 2017, it collected R1.144-trillion (which was R30-billion below the 2016 budget-speech forecast), and the latest target represents an increase of 10.5% on this.
South Africa faces lower economic growth, with the Reserve Bank having dropped its forecast from 1.2% to 0.6% this year, while the budget deficit is expected to stand at 2.6% of GDP in 2019-20.
This is why the recent ANC lekgotla endorsed the Treasury's plan to sell non-core state assets.
But just how did the state get to this point?
A month ago, Mampho Modise, director of strategy and risk at the Treasury, explained why SAA had had to be bailed out to the tune of R2.3-billion to settle its debt with Standard Chartered.
"If we let SAA default, the other creditors would come to Treasury for their R17-billion and demand their money at one go," she said. "They [Standard Chartered] became a bit worried about their capital. The other banks didn't think the risks were that high.
"We've issued SAA a R19-billion guarantee; however, they've only drawn down R18-billion of the amount. The worst thing that could happen to us is that we'd have to pay the R18-billion. But because of the green shoots that we've seen, we're not anticipating that we'll have to pay the entire R18-billion," said Modise.
SAA clearly remains a "strategic asset".
The Treasury says it "serves as an economic enabler with direct and indirect benefits across a wide range of economic activity".
The three-month extension given to SAA by the lender expires soon, but Modise said a future bailout should not come from the public purse.
"It has to be done in a budget-deficit neutral manner, and so government is ... selling non-core assets to make sure that we don't use taxpayer money to recapitalise state-owned companies, but use non-core asset proceeds to do that.
"Non-core assets are those we think government can live without. All those have been identified and we're in the process of identifying them," said Modise, although she would not list them.
I agree with research analyst Peter Attard-Montalto at Nomura that the Treasury's best bet to raise money lies in Telkom. He values the government's 39.29% share in Telkom at R13.4-billion.
The government also intends to sell five blocks of 4G spectrum for at least R3-billion each. Rob Shuter, group CEO at MTN, told me this week spectrum was "desperately needed by the industry".
"MTN really needs the spectrum. We were very encouraged by the 14-point plan, that [says] we need to conclude licensing by the end of 2018," said Shuter.
The answer to the SAA problem, for now at least, may lie just there in the 14-point plan and its thorough execution.
• Khumalo is chief operating officer of MSG Afrika and presents Power Business on Power98.7 at 6pm, Monday to Thursday