Industrial Development Corporation rises above the slump in SA’s state-owned universe

14 Sep 2022

The Industrial Development Corporation is profitable. The value of its investments in listed and unlisted companies is growing. And the company can sustain itself without the government’s financial help – a rare occurrence in South Africa’s state-owned universe.

Lenders have staged a spectacular recovery from their Covid-19 slump since lockdown rules were substantially eased by governments. Lenders, which are regarded as key drivers and gatekeepers of economic activity, were forced to stomach financial losses because they offered relief measures such as payment holidays to help their customers survive the brutal lockdown.

But economies have reopened under eased lockdown rules. Financial markets have recovered. Unfettered public life has returned. And payment holidays and other relief measures have ended and consumers are paying their loans in full – helping to drive up the profitability of lenders.

This has happened at the Industrial Development Corporation (IDC), a state-owned lender that supports the country’s socioeconomic development agenda through loans that it extends to businesses in sectors such as mining, manufacturing and renewable energy.

The IDC is profitable. The value of its investments in listed and unlisted companies is growing. And the company can sustain itself without financial help from the government – a rare occurrence in South Africa’s state-owned universe.

In the year to end March 2022, the IDC recorded a profit (after tax) of R6.3-billion at a group level (including companies it is invested in, considered as subsidiaries), which is up from a loss in 2021 of R33-million, and a R3.8-billion loss in 2020.

The IDC closed its 2022 financial year with cash worth R7.4-billion on hand and borrowings of R37.5-billion (reduced by R5.1-billion from the previous year due to repaying its debt). The value of the IDC’s asset base – comprising investments in publicly traded companies such as Sasol, Kumba Iron Ore and BHP Billiton – grew by 21% to R174.1-billion.

The IDC is invested in other unlisted entities including the Small Enterprise Finance Agency (a provider of loans directly to small and medium-sized enterprises), Grinding Media (manufacturer of forged grinding balls and high-chrome grinding media products for mines and industrial users), and Foskor (a vertically integrated phosphate producer in South Africa). The IDC said most of these entities have either recorded profits or narrowed their financial losses.

Investments boost

The improvement in the IDC’s financial books is largely attributable to the performance of its investments, especially publicly traded companies on the JSE whose share prices have improved from the Covid slump and have started to resume dividend payments. During its latest financial period, the IDC received dividend payments worth R6.5-billion from the companies it is invested in, helping to shore up its cash and profit profile.

Read more in Daily Maverick: “Industrialisation policy and the sad tale of Cast Products and the IDC”

The businesses that the IDC has supported are also servicing their loans, reducing the level of soured loans on its books (also known as non-performing loans). For example, the IDC reported an improvement in non-performing loans, with those classified as stage three (in which the repayment of loans is seriously in arrears and with little chance of loan repayments being recovered) falling to 31.2% of the loan book (or total loans extended worth about R24-billion) from 40.3% in the prior fiscal year. The IDC’s percentage of non-performing loans against its total loan book was below its target of 21.9% (actually recorded 31.2%).

There were also improvements in the way in which the IDC ran its business; it reduced its borrowing costs and level, and operational costs.

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The IDC’s business is about backing businesses whose operations are crucial for South Africa’s economic growth and job-creation agenda, and that foster the participation of previously disadvantaged individuals in the economy.

The IDC approved R16-billion for on-balance sheet financing in the reporting period, up from R6.5-billion in 2020/21. Of that amount, R4.1-billion was allocated to black industrialists. A Department of Trade and Industry policy document describes black industrialists as “black people directly involved in the origination, creation, significant ownership, management and operation of industrial enterprises that derive value from the manufacturing of goods and services at a large scale; acting to unlock the productive potential of our country’s capital assets for massive employment locally”. The rest of the approved R16-billion funding went to black-owned companies (R5.3-billion), R1.1-billion for women-empowered businesses; and R386-million for youth-empowered businesses.

The IDC also backed businesses that are in the renewable energy space and are attempting to close gaps in South Africa’s energy generation crisis, throwing them funding worth R2-billion.

In the IDC’s 2022 annual report accompanying its financial results, the company’s CEO, TP Nchocho, said it plans to distribute R107-billion in loans over the next five years “despite a challenging economic environment and against a backdrop of the country’s immense development needs”.

“Over the three years to come, the loans advanced are set to create or save 112,000 direct jobs. By 2024/25, we aim to ramp up our support to targeted groups by deploying R18.8-billion to assist black industrialists, while black-owned companies will benefit from R30-billion in investment, with women entrepreneurs receiving R8.9-billion and youth entrepreneurs R3.9-billion. Investment in localisation will increase to R30.6-billion over three years, from R24-billion in the previous planning period.” DM/BM

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