JOHANNESBURG - The Industrial Development Corporation (IDC) has revealed that it suffered a R22billion impact when the price of Sasol shares collapsed in March as a result of the oil price war.
The development finance institution said the tough macro-economic conditions and the volatility of listed shares had seriously impacted its financial performance this past financial year.
The IDC yesterday swung to a R3.8billion loss for the year to the end of March from a R226million profit in the prior year.
Executive for support finance Gert Gouws said the IDC experienced R30bn downward adjustments on its investments in Sasol, BHP and Kumba Iron Ore during the period.
Gouws said a huge chunk of that revaluation, R22bn to be precise, was linked to a fall in the share price of Sasol, which constitutes a large part of the IDC’s investment portfolio.
“At the end of the previous financial year 2019, our Sasol shares were worth R24bn. This year at the end of March, the R24bn shrunk to R2bn,” Gouws said. “The further R8bn were in respect of BHP and Kumba. We all know that Sasol also cancelled its dividends that we would have received during the year.”
Sasol plunged 46percent to R85.35 on March 9 at the height of the oil price war, wiping out more than R47bn from its market value amid an oil bloodbath prompted by Saudi Arabia’s decision to slash its oil prices.
Gouws said the IDC had to re-evaluate its investment portfolio as at March 31 due to deterioration in the performance of its clients, resulting in higher levels of impairments.
He said the corporation also took heavy blows on the early impact of the Covid-19, which struck the IDC two weeks before the national lockdown.
“During the month of March we experienced adverse adjustments evaluations of our unlisted shares amounting to R4.9bn due to the movements in macros,” he said,
“We mainly used discounted cash flows, and at the end of February the risk free rate stood at 8.1percent. That rocketed to 9.8percent at the end of March, significantly increasing the IDC’s average weighted cost of capital, and therefore reducing the valuations.”
The IDC approved a total of 108 transitions with a value of R11.8bn, a 10percent decline from the previous year, while it disbursed R11.7bn for the year to the end of March.
The transactions for black empowered companies plunged by 38percent to R5.2bn, and those approved for black industrialists fell by 48percent to R3.1bn.
Chief executive Tshokolo Petrus Nchocho also singled out the collapse of Sasol’s share price as the “single most important” among a “number of never seen before kind of events” that impacted the financial performance of the organisation over this period.
Nchocho said the Sasol share price collapse had pushed the IDC over the brink, as the development financier was already trading in depressed economic conditions following contraction in three consecutive quarters.
“It has probably been the single most significant impact on the organisation over this reporting period,” Nchocho said.
Nchocho said the IDC’s subsidiaries, former Scaw metal companies which have since been unbundled, were also not spared by the economic downturn as those with weak collateral positions continued making substantial losses.
The Minister of Trade, Industry and Competition, Ebrahim Patel, said the weakened balance sheet reduced the IDC’s ability to drive industrial development.
“To address this, I have engaged management to increase the level of partnership with other funders and actively seek access to third-party funding that can assist the corporation in fulfilling its mandate,” Patel said.
“At the same time, the organisation should address the financial problems that many of its larger investments are experiencing and that predate the Covid-19 pandemic.”
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