Mike Brown Managing Director etfSAcoza CBPEP Employment amp Growth Colloquium Pretoria 11 March 2020 In consultation with the Presidential SOE Council we will undertake a process of ID: 919887
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Slide1
The SOE Debt Crisis –What is to be Done?
Mike BrownManaging DirectoretfSA.co.za
CBPEP Employment &
Growth Colloquium
Pretoria
11 March 2020
Slide2“In consultation with the Presidential SOE Council, we will undertake a process of rationalisation of our State-owned enterprises and ensure that they serve strategic economic or developmental purposes.”
“This requires both a drastic reduction in costs – including a review of irregular contracts – and measures to mobilise resources that will reduce
Eskom’s
debt and inject fresh capital where needed .”
President Cyril Ramaphosa
2020 State of The Nation Address
Slide3Can The Government Employees Pension Fund (GEPF) Come to Eskom’s (SOE’s) Rescue?March 2018
Government Employees Pension Fund (GEPF)
Rand Billion
Total assets under management
1 805
SOE exposure:
Eskom
87,6
Transnet
21,8
Sanral
26,0
TCTA
12,5
Other
2,5
Total SOE exposure
150,4
COSATU proposal
245,0
Total SOE debt
395,4
% of total assets
22%
GEPF holdings of SA Government Bonds
585,1
Proposed SOE debt as % of total GEPF Government debt
47,6%
Slide4Why This Would Not Work for GEPF
Concentration Risk
22% of total assets
47% of total debt.
Credit Risk
SOE debt is currently Junk Bond (default rated) risk.
Funding Risk
Trustees have defined benefit liability towards GEPF members.
Fiduciary Risk
Member resistance
Trustee approval.
Slide5Can The SA Pension Fund/Insurance Industry Come To The Party?Retirement Fund Assets in South Africa
31 March 2018
Rand Billion
GEPF
1 805
Eskom Pension Fund
147
Other Public Retirement Funds
99
Privately Administered Funds
2 953
Insurance Policies
2 166
Pension Fund Administrators
170
Total
7 340
Slide6Infrastructure Development Funding By The Retirement IndustryTypically ring-fenced for a specific project or facility:Renewable energy IPP’s
Toll roads or bridges (tunnels)Hospitals, healthcareWaterHousing developmentsTransport and logistic infrastructure. Projects should provide returns to pension funds relatively quickly in the form of interest, share of income collections, dividends and can include an equity participation.
Slide7Are There Benefits In Investing In “Real Assets”?Risk adjusted returns can be quantified. Allow for hybrids between bonds and equities.
Can be term defined with profits on exit. Will deliver annuity income, steady cashflows, can be inflation linked to match the liabilities for pension funds. Retirement funds typically look for CPI +3% to CPI +7% returns. Infrastructure investments should deliver these returns with some reliability. Developmental infrastructure programmes familiar to global investments and developmental agencies, so can attract foreign capital.
Slide8Regulation 28 ComplianceAlternative investments have regulatory bands of 0%-15% of a pension fund’s assets (includes hedge funds, private equity and other unlisted assets).
Possible introduction of a minimum of 5%-20% for such alternative assets. 5% of R7349 billion = R367 billion