Futuregrowth, Old Mutual’s Fixed Income asset management boutique, has announced a decision to suspend any additional loans to certain State-Owned Enterprises (SOEs) in South Africa until they obtain further clarity and comfort around the governance and oversight of these SOEs.

Futuregrowth’s decision initially includes the suspension of new loans, and roll-overs of existing debt to Eskom, Transnet, Sanral, Landbank, IDC and DBSA.

Andrew Canter, CIO of Futuregrowth, said this decision is driven by growing concerns about the governance and decision structures of the SOEs and will remain in place pending a review thereof.

“We have now suspended negotiations on over R1.8bn of debt finance to three different SOEs,” he said.

“While we have initially identified the six large SOEs (principally due to their capital/money market funding), we may expand that list as we consider appropriate,” he added.

Canter said that recent reports strongly hint of conflict between branches of South Africa’s government, the possible machinations of patronage networks, and a seeming challenge to the independence of the National Treasury.

“This follows many months of such information flow, and stories of evidently patronage-driven contracts/potential contracts by SOEs to what appear to be politically connected persons,“ he said.

“As responsible investors – and signatories of the PRI and CRISA – we have a duty to ensure the entities in which we invest have suitable governance and decision-making structures. The asset management industry is the caretaker of, and gatekeeper to, peoples’ savings and it is entirely suitable for capital to be provided, or denied, to various companies or sectors based on our considered assessments,” he added.

Commenting on the announcement, Ralph Mupita, CEO of Old Mutual Emerging Markets, said Futuregrowth is one of a number of asset management boutiques owned by Old Mutual, and has a mandate to make independent investment calls on behalf of its clients.

“Old Mutual values the broad and deep relationships it has developed with SOEs over many years. These relationships have been key in building and increasing socio-economic development and driving financial inclusion in South Africa,” he said.

Old Mutual believes that public-private partnerships are critical for much-needed and shared growth in South Africa.

Mupita said that comments by Futuregrowth do not represent the broader views of Old Mutual.

“We respect the independence that fund managers need to deliver investment performance for clients, and believe that a more constructive model of engagement is needed and necessary to build and increase socio-economic development and drive financial inclusion in our country. We will engage the fund manager around these issues,” he said.

“Old Mutual remains committed to our existing commercial relationships and public-private partnerships with SOEs and will continue playing a constructive and value-adding role in capital markets, in both listed and unlisted investments,” he added.