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Status of SA's State Owned Enterprises may result in further loss of funders

Futuregrowth shocked markets with plans to cut lending money to six state owned entities.

The South African rand. Picture:EWN.

JOHANNESBURG - Analysts say the weak financial position and poor governance within some of the country's State Owned Enterprises (SOE) raises the risk of more asset managers closing the taps on future funding.

This comes after fixed income asset manager, Futuregrowth's decision to pull the plug for funding of some state-owned entities to protect their client's interests.

Futuregrowth has investments of R150 billion in domestic fixed interest, including government bonds and loans.

The company stunned the market with its bold plans to cut lending money to six SOEs worried about the power struggles within government departments and the independence of the Treasury.

Market commentator Wayne McCurrie says other asset managers may follow suit, but may do so quietly.

"A lot of asset managers would say, 'when the next auction comes up we are not buying anymore or when our debt mature we are not going to roll them over.'"

Lumkile Mondi, a senior economist at Wits, says this move would raise the cost of borrowing and make it harder for government to finance new infrastructure.

"It's a very fragile balance sheet. The state is going to find it difficult to finance some of its liabilities; particularly parastatals."

This latest development does not bode well for the economy which faces the possibility of a downgrade by credit rating's agencies later this year.

GROWING FEARS PRAVIN GORDHAN MAY BE FORCED OUT

An economist fears Pravin Gordhan will not remain in his position as Finance Minister for much longer.

The minister has been under increasing pressure to steer South Africa's economy away from a credit ratings downgrade, but he is also being probed in connection with a unit that operated at the revenue surface.

Economist, Dawie Roodt believes there are currently two forces at work.

"The one is called the Zuma force, and the other is called the Gordhan force; I have tried to analyse this to see which one of these two forces is the strongest, and my suspicion is that the Zuma force is probably still the strongest. So, my suspicion is that the Minister of Finance must be under tremendous pressure and I wouldn't be surprised if he goes. He will either jump, or he will be pushed."

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