No bailouts for SOEs

By Hilary Mare and Maria Kandjungu

GRAPPLING with a strained purse, government has declined to financially bailout most of the commercial public enterprises (CPEs) that are struggling to cope amid Covid-19 and had reached out to the state to rescue them.

This was confirmed by Executive Director in the Ministry of Public Enterprises, Annascy Mwanyangapo who this week told Confidente that the enterprises required billions of dollars that government could not afford.

Confidente has been reliably informed that up to 16 State-owned entities have already pleaded with the line ministry to help survive the onslaught of Covid-19.

“The Ministry required them to provide scenario planning which spells out comprehensively their state of readiness and the potential impact on their business operations. From the CPEs’ anticipated losses, the government was expected to provide billions of dollars in emergency funding and or other interventions measures over periods of three to 12 months,” she said.

However, the director noted that only four public enterprises, whose operations were strictly directly affected by Covid-19 and would require emergency financial support and would be given an additional N$550 million and government guarantee for borrowing amounting to N$910 million.

The companies that would benefit from this are Namibia Wildlife Resorts (NWR), TransNamib, Namibia Airports Company (NAC) and Meatco.

“These companies are getting guarantees owing to their balance sheets in terms of assets, cash flow and profitability which the banks have to consider for ability of the company to service its loan.

“Therefore, these four public enterprises were prioritised in consideration of not only their important role in the critical sectors of the national economy but also their ability for commercial borrowing,” Mwanyangapo further said.

Trans Namib Chief Executive Officer Johny Smith acknowledged that the entity reached out to the public enterprise ministry requesting for emergency funding following the Covid-19 pandemic.

“We are really trying to transform the company, but Covid-19 spoiled everything but, yes, we have requested for emergency funding but we have not received anything from Government yet or any confirmation,” he said adding that he however was unable to comment further on the issues of guarantees as they have not yet received official communication from the ministry.

Recently Finance Minister Iipumbu Shiimi wrote a letter to Public Enterprise Minister, Leon Jooste giving government’s commitment to guarantee a 10-year loan for Meatco from DBN that would be used to pay N$100 million due to FNB thereby enhancing Meatco’s NCA operations and virtually saving the corporation from imminent bankruptcy.

“I hereby agree to issue a N$250 million guarantee in favour of DBN to secure Meatco’s borrowing to repay FNB and enhance its operations, with a specific focus on Rundu, Katima and Oshakati as per Cabinet directive. This guarantee covers N$100 million for the repayment of the loan in favour of FNB and N$150 million of borrowing from DBN. Subsequently, Meatco, Treasury and DBN need to conclude a Memorandum of Understanding providing terms and conditions for the utilisation of the N$150 million portion of the guarantee,” Shiimi said in a letter dated June 24 2020.

Analysts speak out

Portfolio Manager at Old Mutual Tumelo Thudinyane said the move to rather give credit guarantees that financial bailouts is a good incentive which will force state enterprises to be financially responsible and accountable for their own financial status as according to him, resources will now not be readily and easily available to them in the form of bailouts.

“They are state enterprises who are mandated to create value in the supply chain but profit making should also be part of their mandate. This move will make them more accountable and responsible,” he said before saying that the new move is not supposed to open them up to more debts as corporate governance is supposed to guide them with the borrowing.

“Corporate governance plays a big role in this respect. It is the backbone of how things are managed and how an organisation is run. It helps them make sure that entities are run sustainably, and you have accounting officers and measures that ensure that you do not borrow beyond what you are able to pay back.”

Economic analyst, Klaus Schade also agreed that the credit guarantee move will force public enterprises to be accountable as they will need to make a business case when approaching financial institutions for funding.

According to Schade, the move will also relieve the government from constantly having to transfer scarce financial resources immediately to SOEs and hence avoid further increasing the budget deficit and total public debt, two important fiscal parameters which he says are closely watched among others by sovereign rating agencies. 

“Although guarantees currently account for about 6.5 percent of GDP and are therefore below the ceiling of 10 percent that is set out in the sovereign debt management strategy, this ratio can easily increase due to the Covid-19 relief measures that include guarantees for loans provided by financial institutions to eligible businesses and further guarantees for public enterprises,” he said.

He adds that decisions will however need to be taken regarding the closure of some public enterprises to avoid a further drain on state finances, while others should be considered for joint ventures with private investors in order to turn them into viable businesses.