SA’s shopping centre glut squeezes property firms

Sector heavyweight Growthpoint Properties last week declared dividend growth of a decent 6.5% for the year to June 30.

Income payouts were boosted by the company’s recent entry into Romania as well as the inclusion of profits from its new trading and development business.

However, if one looks at the underlying performance of Growthpoint’s domestic assets there is no doubt it is becoming increasingly difficult to make money on SA shopping centres, offices and industrial buildings. Growthpoint is the JSE’s largest and most diversified SA-based property counter with total assets of R122.3bn (70% local), which makes it a reliable bellwether of the general state of the SA commercial property market.

Growthpoint CEO Norbert Sasse said at the annual results presentation that the SA business was operating in an “extremely tough market where any growth is good growth’’. He said as long as the local economy stayed in the doldrums, investors shouldn’t expect fireworks from Growthpoint’s SA portfolio.

Oddly enough, he said, overall vacancies were down over the past year, from 5.7% to 4.4%. But retaining tenants has come at a cost, in the form of rising pressure on rental growth.

“Tenants can now literally dictate how much rental they want to pay,” said Sasse.

The impact of a weak economy is particularly evident in Growthpoint’s retail portfolio, made up of 58 shopping centres across SA including stakes in Brooklyn Mall in Pretoria, La Lucia Mall in Umhlanga and Festival Mall in Vanderbijlpark.

Growthpoint’s flagship asset is the V&A Waterfront precinct in Cape Town, which it co-owns with the Public Investment Corp.

Trading densities (turnover/m²), a key metric used to measure the strength of retail spending, in Growthpoint’s retail portfolio, grew 1.3% on average for the year to June, down from 6.1% in the previous financial year. Trading density slowed markedly even at perennial star performer, the V&A’s Victoria Wharf shopping centre, from 13% to 2%. Sasse ascribed this to the role a stronger rand has played in dampening foreign tourist spend. He said there was no doubt that retailers were under severe pressure.

“The market has been hit by a double whammy: weaker retail spending as well as an oversupply of new retail space. Lease renewal success rates have deteriorated and vacancies are ticking up as tenants consolidate space and close underperforming stores.”

Though the advent in recent years of international retailers such as Zara, Cotton On, H&M, Forever 21, Starbucks and the like have supported demand for retail space in SA malls, Sasse said international retailers were not a natural “plug-in” to fill rising vacancies.

A similar slowdown in trading density growth and rising vacancies is evident from retail-focused Hyprop Investments’ latest results.

Hyprop owns a R27.7bn portfolio of nine malls across SA — including Canal Walk in Cape Town, Rosebank Mall and Hyde Park Corner in Johannesburg and Clearwater on the West Rand. Trading density growth in Hyprop’s SA portfolio slowed to 1.4% for the year to June, down from 5% a year earlier.

Vacancies increased to 1.9% (0.8% in June 2016) on the back of a number of store closures, among others that of Stuttafords. Hyprop nevertheless still delivered an impressive 12.1% growth in dividends for the year to June, supported by the first full-year inclusion of its European mall portfolio.

Hyprop owns stakes in four shopping centres in southeast Europe.

Peter Clark, portfolio manager at Investec Asset Management, says lower trading density growth in Growthpoint and Hyprop’s retail portfolios is indicative of some of the issues in the retail sector.

“Trading densities are under pressure from both weak consumer spending and the large increase in space in recent years. Ultimately, lower trading density growth has to put pressure on core rental growth,” says Clark.

Analysts note that the weak domestic climate will force local property players to look for new revenue sources if they want to maintain inflation-beating dividend growth. Growthpoint, for one, has recently introduced a number of initiatives in a bid to boost dividends.

For instance, for the first time the company this year included profits from its new trading and development business in income payouts to shareholders.

Kundayi Munzara, executive director and portfolio manager at Sesfikile Capital, notes that if development fees and trading profits are stripped out, Growthpoint’s dividend growth for the year to June would have been closer to 5%.

Earnings were further supported by the entry late last year into the Romanian office market via a R2.8bn stake in LSE AIM-listed Globalworth Real Estate Investments. Until now, Growthpoint’s only offshore interest was a 65% stake in Australian-listed Growthpoint Properties Australia.

Growthpoint has also created a new revenue stream by establishing a fund management business that will focus on health care, among other areas.

Health care (hospitals, clinics and medical suites) has not
traditionally been the domain of listed property funds. The company has already bought four hospitals and one medical suite with plans to grow the fund to R10bn over the next seven years.

Munzara says Growthpoint’s unlisted health-care fund is a great initiative.

“We believe the SA property market is ripe for well-run unlisted property investment products similar to those seen in developed markets such as the UK, Australia and the US.”

Growthpoint’s accelerated pace of disposals, with property sales of around R2bn over the past year, is also encouraging, notes Munzara.

“We like management’s midterm plan to sell 5% of the SA portfolio.

“We have often criticised Growthpoint for selling too little relative to acquisitions and developments, and we hope the ratio will swing towards more disposals once the large development pipeline is complete.”

By Joan Muller for Business Day

Caxton: the Naspers antithesis

Caxton and CTP Publishers & Printers, which is still earning most of its keep from newspapers, magazines and printing and packaging, could well be regarded as the antithesis of Naspers. Whereas Naspers has been ripped away from its print-media roots by an array of technology investments, Caxton still seems content to tinker with its (well-managed) traditional operations.

That’s not to say there’s not much to like about Caxton. In fact, there may be more than a few contrarian market watchers who prefer the conservative vision of Caxton prime-mover Terry Moolman to the all-conquering global thrust of Naspers chair Koos Bekker.

Caxton, on a trailing earnings multiple of around 10 times, may seem a fair rating, noting the changing media landscape. It’s worth noting the company’s operations are still churning out convincing free cash flows, and the allocation of this capital will determine Caxton’s long-term viability. The fair value of cash and cash equivalents topped R1.9bn, with cash generated by operating activities increasing over 20% to R782m — equivalent to around 195c/share. There was a R356m investment in property, plant and equipment – a large portion of this earmarked for the packaging divisions to facilitate a restructuring of the Gauteng operations. Caxton also made several acquisitions during the year, spending R158m. Perhaps the most eyecatching event is listed under the R85m investments and loans to associates. Though the most significant seems to be a 30% investment in Universal Labelling, the far more intriguing tilt is the shareholder loans made to “rapidly growing” fibre-to-home associate Octotel.

Caxton notes that Octotel will have connected more than 50,000 homes by the end of the year, making it the Western Cape’s largest independent open access fibre operator. Post-balance-sheet events may also raise market interest. Though the R11m acquisition of self-adhesive label business Tricolor in the Western Cape reinforces the old-economy tag, Caxton made a big move in clinching a 50% stake in Private Property SA, one of the leading digital real-estate portals, for R123m.

Caxton is clearly a business at an interesting juncture. I suspect the share price, which (aside from an odd spike) has dribbled downwards for five years, may find some traction fairly shortly.

Safety in numbers

Stellar Capital Partners (SCP) has pretty much been defined by its investment in JSE-listed Torre Industrial. That masks the fact the company did a rather good deal in buying out security technology firm Amecor, now apparently the subject of two takeover bids by other investment companies. Amecor delivered normalised earnings before interest, tax, depreciation and amortisation (Ebitda) of R52.3m for its year to end-March — justifying SCP’s purchase price of around R270m. If Amecor is for sale, could SCP — noting prevailing economic conditions — ask north of R300m? Market talk is that SCP may be offering Amecor in a package deal, with the stake in electronics manufacturer Tellumat tossed in as well.

Over the rainbow

RCL Foods is still counting on chickens, and executives seem determined to dismiss notions that the Rainbow poultry business will be put up for sale. This is despite the industry looking anything but the picture of plump prospects, with cheap imports still flying in and an ill-timed outbreak of avian flu.

RCL’s recent results, though, did show the poultry segment looking slightly pluckier, with a stronger second-half performance. The business model change — which will result in a volume reduction, with quick-service restaurant offerings favoured over commodity offerings like individually quick frozen — will hopefully yield further margin improvements.

It’s encouraging, too, that RCL’s chicken business is once again excelling in the “freezer to fryer” section, where market share at the end of June grew to a category-leading position of almost 40%.

By Marc Hasenfus for BusinessLive

The best bank accounts for small cash businesses

Q: I have a business account with FNB. It’s a cheque account that has operational capital of about R70,000 in it. However, this account doesn’t pay interest on a positive balance. What type of account at FNB should I use to keep such extra funds? I need to be able to access the money on 14 days’ notice, should the need arise. – EB

A: Stephanus Buys, the head of strategic business development at FNB cash investments, recommends either the FNB savings account or the seven-day notice account. The FNB savings account, which gives the customer unfettered access to their money, pays 5.25% interest on balances of between R25,000 and R74,999, but this account is exclusive to customers with an Easy Account with FNB.

Buys says that if FNB is not the customer’s primary bank, the Money on Call product can be used instead: it pays interest of 5.10% on balances of between R70,000 and R79,999.

The customer would get the best rates if invested in a seven-day notice account. A sum of R70,000 would attract interest of between 6.35% and 6.45%, depending on how long it was invested (1-32 days, 33-63 days, or more than 65 days).

Charl Nel, the head of strategic communications at Capitec Bank, says Capitec pays interest of 5.40% on positive balances of between R25,000 and R99,999, and the customer need not use Capitec as their primary bank.

While Capitec does not offer business banking, many of its clients who are small-business owners opt to use its Global One account as a business account because of the competitive interest rate offered on a positive balance, as well as the low monthly fees.

Source: BusinessLive


Shoprite to vote on Whitey’s R1,7bn share sale

Shoprite shareholders will vote on whether to approve a proposed repurchase of about R1.7bn of shares from former chief executive officer Whitey Basson.

Basson exercised a put option on May 2 that meant Cape Town-based Shoprite would buy 8.58 million shares from the ex-CEO, who stepped down as head of Africa’s biggest food retailer at the end of last year.

The original sale price of R211.01 a share was later reduced to R201.07, the 30-day weighted average price up to when Basson decided to use his put option. At least 75% of voting shareholders have to be in favour of the repurchase for it to be approved.

Shoprite shares fell 0.5% to R222 at the close in Johannesburg on Monday, valuing the company at R133bn.

Billionaire Christo Wiese, Shoprite’s largest shareholder and South Africa’s fourth-richest person with a net worth of R72.6bn, said August 22 he wasn’t expecting significant opposition from investors.

The put option, agreed to in 2003, ensured Basson didn’t “flood the market” with shares while he worked for the company and was also part of an incentive to retain him in the role, which he held for almost four decades, Wiese said at the time.

If the deal isn’t approved, Basson should have no difficulty selling the shares to money managers over the next few months, Syd Vianello, an independent retail analyst in Johannesburg, said by phone. The stock has risen since the put option was triggered, meaning Basson could get even more cash if he sells independently.

Wiese owns about 15% of Shoprite’s ordinary listed shares and a further 30% in voting rights. The Public Investment Corp, which looks after state pensions and is the continent’s biggest money manager with assets of R1.6trn, holds about 10% of the company and is its second-largest shareholder.

By Janice Kew forBloomberg News

SA exits recession

South Africa’s economy exited its second recession in almost a decade in the three months ended June 30 after agricultural output surged.

Gross domestic product increased an annualized 2.5 percent in the second quarter compared with a revised decline of 0.6 percent in the previous three months, the statistics office said in a report released on Tuesday in the capital, Pretoria. The median of 21 estimates compiled by Bloomberg was for growth of 2.3 percent. The economy expanded 1.1 percent from a year earlier.

Low demand for the country’s exports and political turmoil that’s caused instability have weighed on output by Africa’s most-industrialized economy. S&P Global Ratings and Fitch Ratings Ltd. cut the nation’s international debt to junk in April after President Jacob Zuma fired Pravin Gordhan as finance minister, with the changes roiling markets and battering business and consumer confidence. The central bank cut its benchmark rate for the first time in five years in July, citing concern about the growth outlook.

“Higher commodity prices likely continued to catalyze growth in the mining sector,” Mamello Matikinca, an economist at FirstRand Ltd.’s First National Bank unit, said in an emailed note from Johannesburg before the release of the data. “While a shallow rate-cutting cycle may provide some relief to the consumer going forward, we nonetheless expect the recovery to be short-lived given just how weak consumer confidence and real wage growth is.”

Agricultural output surged 34 percent, the agency said.

The central bank halved its economic growth forecast for this year to 0.5 percent and trimmed the outlook for 2018 to 1.2 percent from 1.5 percent. GDP expanded at the lowest annual rate since a 2009 recession last year.

The inflation rate dropped to an almost two-year low in July, reaching 4.6 percent.

The rand 0.1 percent to 12.9543 per dollar by 11:31 a.m. Yields on rand-denominated government bonds due December 2026 were little changed at 8.52 percent.

The government will probably cut its output forecast in October, when Finance Minister Malusi Gigaba delivers his first medium-term budget policy statement.

In the February budget review, the National Treasury left its growth estimates unchanged from the mid-term budget in October, with the economy forecast to expand 1.3 percent this year, 2 percent next year and 2.2 percent in 2019.

Annual growth has slumped since 2011, which has hampered the government’s ability to reduce the 27.7 percent jobless rate.

By Arabile Gumede and Thembisile Dzonzi for Business Live

Petrol price shock for motorists

Fuel prices are to rise sharply this week, mainly as a result of climbing oil prices and a slightly weaker local currency against the dollar.

The latest information from the Department of Energy on Tuesday (29 August) indicated that the price of gasoline 93 (ULP & LRP) in Gauteng is likely to increase by 57.8 cents per litre next week – Wednesday, 6 September 2017.

The price of diesel with a 0.005% sulphur content meanwhile, is expected to increase by 45.2 cents per litre, said independent economist Fanie Brink.

The economist pointed out that the price of Brent crude oil increased to an average of $51.70 a barrel over the past month compared to an average of $49.50 a barrel in July.

“This increase resulted in sharp rises in the average international price of gasoline by 54 cents per litre and an increase in the diesel price by 41.4 cents per litre,” he said.

The average R/$ exchange rate traded around R13.16 last month and was slightly weaker at R13.22 which resulted in a further increase of 3.8 cents per litre in both the gasoline and the diesel prices, Brink said.

South Africa’s economic woes are expected to continue into the last quarter of the year, according to CEO of Debt Rescue, Niel Roets, who said that all indications are that the rand will continue to weaken in the coming months, which will further increase the fuel price as well as the cost of all imported goods.

“Food inflation is also outstripping general inflation running at about 6.9%. Despite the bumper maize harvest, prices of all grains are actually expected to rise in the short-term because the new harvest prices will only feed through into the economy by next year,” Roets said.

“This (September) fuel price increase is going to hit consumers like a ton of bricks. If current trends continue we could see more of the same in October.”

Here’s what you can expect to pay in September:

Petrol (93) – R13.40
Petrol (95) – R13.63
Diesel – R11.72

Source: BusinessTech

The mysterious exit of Brian Joffe

A clipped 44-word stock exchange announcement hardly seems an appropriate way to bid adieu to one of the country’s great entrepreneurs. Yet this was the extent of the plaudits Bidvest heaped on Brian Joffe, the 70-year-old who founded its business 28 years ago, in an announcement two weeks ago simply titled: “resignation of nonexecutive director”.
It seemed so sterile it may as well have been written in Dettol on a cotton wool ball and turfed absent-mindedly in the disposables can.

It said Joffe quit “with immediate effect”, then added that icy cliché that might as well have been delivered by NetFlorist: “Bidvest expresses its appreciation to Mr Brian Joffe for his contribution over many years.”
The way it’s written, it sounds as if he’d been offhandedly drawing up the odd spreadsheet rather than being the man who, courtesy of 16-hour days, forged a R158bn empire from a measly R1m and a cash shell back in 1988. If Bidvest is what it is — a company that achieved 30% compound growth in sales over the past two decades — it’s entirely because of Joffe.

Contacted this week, he said he wouldn’t go into what was discussed at the board, but said there was “no fight, no argument over assets”.
Everything about Bidvest is still indelibly Brian Joffe, even if he’s putting all his energy into his new venture
He says he remains particularly proud of the “excellent” unbundling last year that split the company into two arms — Bidvest and Bidcorp.
Today, you can’t really head out the door without bumping into something that Joffe built.
You probably run into one of his products plenty of times a day: from mega-investments such as Comair, Rennies Travel, Bidvest McCarthy and BidAir Cargo to the small everyday services like supplying office stationery. And that’s before you even encounter the services company that delivers food to hotels and restaurants all over the world.

You’ll also have spotted the name Bidvest in almost every sporting code — which you’d expect, given that Joffe is a sports nut. It’s plastered all over Premier Soccer League champions Bidvest Wits and, until 2015, also over the less-successful English premiership team Sunderland. Bidvest is also the stadium sponsor of Wanderers.
It’s a reminder that everything about Bidvest is still indelibly Brian Joffe, even if he’s gone and is now putting all his energy into his new venture, Long4Life, which he listed only in April.
On his radio show this week, Bruce Whitfield asked Bidvest CEO Lindsay Ralphs if there had been any clash with Joffe, given his unceremonious departure. Would, he asked, there not be a potential for them to meet in the same waiting rooms, as they’re both now chasing deals for rival companies?
Ralphs replied: “You can never really tell … Long4Life, where Brian is now, [it’s] also on a shopping spree. I can’t really predict the future.”

What is clear is that Long4Life has already done a few savvy, unconventional deals that carry Joffe’s signature. For example, since April, it has snapped up beauty therapy chain Sorbet for R116m and bottling and canning company Inhle Beverages for R360m, and it’s trying to add Holdsport (which owns Sportsmans Warehouse) to its burgeoning portfolio.
It is an entirely predictable path for a man who told this magazine in April that while he planned to do nothing once he left Bidvest, “time erodes that kind of enthusiasm”. “I’m an entrepreneurial type and if opportunities arise that don’t fit exactly within that definition, maybe I’ll do that too,” he said.
Brian Joffe: Why I couldn’t retire
The entrepreneurial dynamo who turned Bidvest into a multibillion-rand conglomerate, retired last year. Now he’s making a comeback, saying he wants …
4 months ago

It’s been this way ever since, as a 30-year-old, he borrowed R49,000 from his parents in 1978 to buy half of a pet-food business. When he later sold that business for $1m, Joffe promptly retired to the US, at the age of 32, to play golf “every single day”.
But, to no-one’s surprise, he couldn’t stay away from the adrenaline. So he moved back to SA in 1982, and spent a spell with Manny Simchowitz as MD of industrial group Weil & Ascheim (he credits Simchowitz for an unerring focus on returns).

Then, in 1988, Joffe put together the R23m deal to buy catering business Chipkins, which formed the building block upon which the contemporary Bidvest was created. And, R158bn in value later, we all know how well that turned out.
Ralphs knows too. As he said on radio, Joffe “taught us everything we know”. So you can certainly see Joffe bumping heads with Bidvest at some stage. In which case, Ralphs better be on top form; there’s a long list of bruised executives who felt they could one-up Joffe on a deal and now know better.

By Rob Rose for Business Live

New venture may shake up shopping malls

Steinhoff Retail Africa, along with partner Shoprite, is set to disrupt the retail market, if they implement plans to own shopping centres.

Shoprite CEO Pieter Engelbrecht said this week: “If you look at all the brands that are currently in the company [Steinhoff] and you add ours, they could be opportunities in real estate where we could open shopping centres just with these brands on their own.

“Once we’ve combined we’ll make such a decision. But it could be a possibility because the combined value of real estate is huge between Shoprite and all these brands within Steinhoff Africa,” said Engelbrecht.

The creation of Steinhoff Africa Retail, known as STAR, will include Steinhoff’s African assets such as Ackermans, Poco South Africa, JD Group, Timbercity and men’s apparel retailers Dunns and John Craig, Pepkor South Africa and rest of Africa, and Tekkie Town, to name a few, and will result in Steinhoff acquiring a 22.7% stake in Shoprite.

Lucrative opportunity

Given the close relationship between Shoprite and Steinhoff, a move to combine the two groups’ own shopping centres could also mean Shoprite’s grocery brands, such as Checkers, Usave, Liquorshop and fast food brand Hungry Lion, could take up space in these shopping centres.
Engelbrecht added that because there was quite a big mix across the two groups, including furniture, food, liquor, pharmacies and electronics, this could be “quite a lucrative opportunity to explore”.

Earlier this month Steinhoff announced the details of the listing of its African and European assets into two companies, which would be listed separately.

This deal comes after a previous attempt to merge the two groups had failed. Under the new transaction, Engelbrecht said, it had panned out that Shoprite would stay “autonomous” and separately listed.

“For us that’s also more exciting as we as management believe that we should operate independently.”

But combining their brands in shopping centres could be one way to extract synergies and savings for Shoprite.

Keillen Ndlovu, head of listed properties at Stanlib, said “rental as a percentage of turnover and sales has been going up particularly in the bigger shopping centres. The bigger centres have been able to attract higher rents over time but unfortunately, the higher rental growth has not been catching up with sales and turnover growth.”

Slowing sales

This meant the cost of occupation for retailers had been rising with the average cost of occupation at 10% of sales as at the end of December 2016 from 8.5% as a percentage of sales between 2004 and 2016, Ndlovu said.

“Given the slowing sales and economic environments in general, this is likely to make it harder for landlords to bargain for rental increases from retail tenants. Therefore, rental growth is likely to slow down,” he said.

For Shoprite’s full year to end-July 2017, the cost of new operating leases rose 9.6% to R3.8-billion from the R3.5-billion in the previous quarter, “mainly due to a net 109 new corporate outlets opened during the year”, the company said.

And for the group that is focused on letting every rand fight for its life, a reduction in costs in the current trading environment will be welcome.

“We must drive our own strategic focus to create value for shareholders, but wherever there are synergies or saving or opportunities that we can share with the STAR group we will not be adverse to it at all,” Engelbrecht said.

Source: Business Live

Rand surprises market to dip below R13/dollar

The rand surprised the market with a strong push to below R13/$ on Tuesday afternoon as the unit capitalised on a weaker dollar.

Earlier on Tuesday the rand continued its previous session’s slide to reach R13.12 to the greenback as the local unit faced more upside pressure from the North Korean missile launch.

By 16:47 the rand was trading at R12.99/$, 0.32% firmer than its previous close. It strengthened to R12.93/$ earlier in the session.

RMB currency analyst John Cairns said in his daily note to clients that the latest missile launch was North Korea’s most provocative ballistic test yet, as the missile flew over the northern Japanese island of Hokkaido, generating warnings for citizens to take cover.

“Given that a war between Japan/Korea/US and North Korea would be devastating — and generate R2.00+ big figure rise in USD/ZAR — one can understand the market’s nervousness.

“However, the problem with the catastrophe trade is that there is only a very small chance of a massive market event and a near certain chance that nothing will happen. Betting on the catastrophe therefore is almost always going to generate a loss, which is to say that, as with all the previous missile launches, expect risk aversion to die away rapidly, and for risk assets to recoup their losses,” Cairns said.

Commenting on the latest move, TreasuryOne told Fin24 there is no particular reason for the rand’s sudden strength.

“It surprised the market. The rand is capitalising on a weaker dollar and the North Korea missile scare has fallen into the background.”

TreasuryOne dealer Andre Botha earlier said North Korea’s missile launch early on Tuesday will only serve up more geopolitical tension, and more risk-off behaviour can filter into the market which can stop the rand from breaking through the R13-level against the US dollar.

Source: Fin24

Government may sell stake in Telkom to fund SAA

The revelation on Wednesday that finance minister Malusi Gigaba is considering selling a big chunk or possibly even all of government’s 39.3% in Telkom, at face value, is fantastic news.

There is absolutely no reason for government to continue to hold onto a significant stake in the telecommunications operator — if there ever was one, which is debatable.

On paper, now is the right time to sell the company. Under the leadership of CEO Sipho Maseko and chairman Jabu Mabuza, the company’s fortunes look better now than they have in many years.

President Zuma’s disastrous eight years in office mean the chickens are coming home to roost
The problem with selling distressed assets is they go for a song, raising almost nothing for the fiscus. Telkom is no longer a distressed asset — in fact, it is in such a strong position that it is taking the fight to its big mobile rivals, winning market share and giving them a serious headache. Consumers are loving it. Maseko’s praises should be sung from the hilltops.

It’s the wrong time to privatise state-owned assets when they are in trouble. It’s far better to turn them around, and then hive them off, ensuring the private investors that are brought in contribute meaningfully to the fiscus, in the process hopefully avoiding tax increases or even allowing for tax relief. South Africa desperately needs a well-managed programme of privatisation.

Black hole

The possible sale of Telkom — revealed in a secret cabinet document leaked to the Democratic Alliance — is being considered to raise money to throw into the black hole that is the national airline, South African Airways.

(That the DA was given this document is testimony to the fact that the ANC is a house divided. Secret documents are being leaked to the opposition, providing insight into the shambolic state of the ruling party. But that’s another story.)

So, Gigaba has a R10bn-plus hole to plug at the floundering SAA, which has been mismanaged for years under the watch of chairwoman Dudu Myeni, a close friend of President Jacob Zuma.

The concern is government is selling a good asset — using good money — to prop up an airline that should have been privatised years ago (and, of course, that shouldn’t have been allowed to be driven into the ground in the first place by incompetent managers).

But there’s a bigger issue here. Gigaba, facing a crisis over SAA, appears to be caught like a deer in the headlights, unsure about what to do. This is symptomatic of a finance minister out of his depth and, worse, a government that is failing.

Government already chased away Korea’s KT Corp, sending a terrible message to foreign investors that the country is not open for business.

If Gigaba simply starts selling government’s Telkom shares on the open market, it could prove disastrous for the telecoms operator’s shareholders. Not properly managed, the company’s share price could be decimated as the state dumps its holding.

Far better would be to sell the stake to someone through a managed process, led by advisers. But sell it to who?

Government already chased away Korea’s KT Corp, sending a terrible message to foreign investors that the country is not open for business. If there are potential foreign buyers, now is the time to ask them to step forward. But is this government prepared to sell the stake to a foreign company? Remember, it was the ANC government that almost scuppered Vodafone’s acquisition of Telkom’s stake in Vodacom, sending the rand tumbling at the time. Sanity, thankfully, eventually prevailed.

Local buyer?

Who locally could buy the stake? That’s far from clear. It’s unlikely the Competition Commission would permit one of Telkom’s big rivals to buy it. It’s not in consumers’ interests for that to happen as it would concentrate the market into the hands of three players.

But Gigaba, desperate for money to prop up an airline that has been ruined by his government, faces having his hand forced. The last thing he wants to — or should — do is to expand the budget deficit even further than it’s already stretched to bail out a bankrupt airline. He needs money from somewhere. Are there other options? Maybe. Government’s already sold a chunk of its stake in Vodacom to fund another state-owned disaster, Eskom. The Public Investment Corp, which invests public servants’ pension money, bought that stake. Maybe it will be asked to get involved again.

Whatever he decides to do, Gigaba can’t be rash about it. President Zuma’s disastrous eight years in office mean the chickens are coming home to roost. And the finance minister is in the unenviable position of having to try and fix some of the mess. The wrong decisions now could make things even worse.

By Duncan McLeod for TechCentral 

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