Futuregrowth is Tired of ‘Ridiculous’ Rules for Bonds

Money manager wants industry collaboration to boost governance.

Publication: Moneyweb | Writer: Rene Bonorchris | Date 02/03/2018

South Africa’s biggest specialist fixed-income money manager is fed up with state-owned companies’ lack of disclosure.

“There’s no obligation for the companies to report” changes to their structure or management, Andrew Canter, the chief investment officer of Cape Town-based Futuregrowth Asset Management, which manages about R177 billion ($15.3 billion), said in a video posted on YouTube on February 25. “It’s just ridiculous.”

By way of example, Canter referred to governance lapses at Umgeni Water, which operates in the eastern KwaZulu-Natal province and provides drinking water to about 6 million consumers. It didn’t tell its bondholders in June last year when the entire board was fired, according to Canter. Shami Harichunder, a spokesman for Umgeni Water, didn’t answer a call to his office phone or an emailed request for comment. Futuregrowth

The lack of information from state-owned companies “is a classic, visibly Hollywood-style good versus evil situation,” Canter said in the video. To fix it “we need other asset managers to read what we’re writing, to listen to us, to start asking the same questions,” he said.

The company, which told Bloomberg it plans to release a full report on the issue later on Tuesday, announced in 2016 it will stop buying bonds of six state-owned companies because of concerns over governance. Last month it said it wasn’t ready to start lending again to cash-strapped Eskom, even after the company published delayed financial statements.

Colin Cruywagen, a spokesman for the Department of Public Enterprises, said he wasn’t immediately able to respond.

Scandals

State-owned companies are the second-biggest issuers of debt in South Africa, according to data compiled by Bloomberg. Some, including Eskom and Transnet, have been mired in corruption scandals. Power utility Eskom has been unable to auction debt in South Africa’s open market since 2014 because of concerns about governance.

Borrowers of listed debt need to let bondholders know of material changes, “and it needs to be done by the stock exchange news service,” Olga Constantatos, Futuregrowth’s credit and equity process manager, said in the same video. “Why should we be subject, as bond investors, to less disclosure when actually we need more because we have the longer time horizon and much less liquidity.”

Johannesburg’s stock exchange has different sets of rules for listed bonds and listed equities. While the document that outlines the listing requirements for debt is about 80 pages, a similar one for stocks is a sizable 454 pages.

“There are several areas where the debt listings requirements can be closer aligned with the equity listings requirements,” said Andre Visser, the general manager of issuer regulation at JSE. “The rights of a bondholder are very different from that of an ordinary equity shareholder. We are proposing to create very specific debt listing requirements for corporate debt issuers, which will include debt issued and listed by state-owned enterprises.”

‘An enabler’

The regulator met with Futuregrowth on the issue earlier this month, according to Visser, adding that some rule changes may be announced this year. It’s not soon enough for Canter, who said in the video that the JSE has become “an enabler of maladministration” and needs to pay better attention.

“We strongly object to the accusation,” Visser said.

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