THE Industrial Development Corporation (IDC), a South African government-owned developmental finance institution, is to finalise a “strategic partner” for Foskor after the phosphate producing subsidiary racked up R1.63bn in losses in 2020.
The move is part of efforts by the IDC to recover from a R3.8bn loss for the financial year ended March that would involve taking less risky bets whilst cutting historic loss-making investments – a move that could extend to its 20% stake in Kalagadi Manganese.
The IDC said in March Kalagadi Manganese, which is run by chairwoman, Daphne Mashile-Nkosi, had run out of road after failing to pay interest on some R6bn of debt of which half was the IDC’s. Kalagadi was able to avoid being put into business rescue by the IDC, but Tshokolo Nchocho, CEO of the IDC, told Miningmx in June that Kalagadi needed “hundreds of millions” in new investment that the institution could not provide.
Nchocho acknowledged today that non performing loans (NPLs) were higher than they ought to be “even for a development bank”. A prudential limit for NPLs had been set by the board at some 15%, he said. That would be accompanied by a tighter focus on medium- and low-risk investments.
The IDC’s predicament was largely informed by the deterioration in the economy which was exacerbated by Covid-19 related volatility, even though this only affected the IDC in the last month of its financial year.
There was also a R30bn decline in fair value adjustment on investments, largely attributed to Sasol, the petrochemical company that recorded a 50% escalation in capital costs on its Lake Charles Chemicals Project in the US, which eventually came in at $12.8bn. Sasol subsequently abandoned dividend payments.
Fair value adjustments also extended to Kumba Iron Ore and BHP during the period. Nchocho said the IDC’s mining sector portfolio was recovering in line with the sector, but it remained to some extent an industry in distress.
The problems at Foskor turned on a 46-day strike and “resultant plant breakdowns” which led to a 26% decline in revenue. The business was showing ‘green shoots’ this year, said Lucretia Khumalo, head of client support and growth at the IDC. But the company, in which the IDC has a 59% stake, would require fresh capital from a new investor.
“Our board made a decision to start a search for a strategic equity partner that is out there publicly at the moment,” said Khumalo. “It is being executed and we do expect it will be finalised in terms of how it will be managed,” she said.
“There are three or four very big investments: we have got Kalagadi, we have got Foskor and until recently Scaw (the steel producer). We are going to be fixing those that we can, we are going to be exiting those that we cannot, and then we’re going to manage,” said Khumalo.
“So over a period of two years we are going to see a significant improvement in the book because we have identified which ones sit in which bucket and we are going to be very deliberate in the execution,” she said.