Bank of Baroda: Guptas can’t force us to stay in SA

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Pretoria –  The Bank of Baroda told the North Gauteng High Court on Thursday that Gupta-owned companies cannot force it to stay in South Africa to service them because no other bank will. 

Nineteen Gupta-owned companies, including Optimum Coal Mine, Sahara Computers and Oakbay Investments, approached the high court with an urgent application in February, seeking to interdict the bank from leaving South Africa. 

The Guptas’ banking woes started in 2017 when all four of the country’s major banks declined to do business with the controversial family’s companies. 

Advocate Azhar Bham for the Bank of Baroda said it decided to withdraw from South Africa as business was no longer economically worthwhile. He said the Bank of India, which is the majority shareholder of the Bank of Baroda, took a decision to withdraw from countries where little business is conducted. 

Bham added that a company is entitled to cease contractual business, and there can be no contractual right to keep providing services to another business if it becomes uneconomical. 

He likened the application by the Gupta companies to a failing marriage where one party refuses a divorce because of their own interests. 

“You cannot force Bank of Baroda against its will and against its economic interests to stay here and service them and only them,” said Bham. 

The application wants to force the bank to keep servicing 12 or 13 companies because no other bank will do business with them, he said.  

Advocate Arthur Cook, for the Gupta-owned companies, told the court that the bank’s withdrawal from the company was a deliberate breach of a court order. 

The court order he is referring to is an interim order granted by the same court in 2017 stipulating that the Bank of Baroda may not close the accounts of Gupta-owned companies. 

“We submit that the bank took a decision that is a blatant disregard of the court order,” Cook said. “The court order says they cannot stop the services and close accounts.”

Cook argued that closing the bank accounts would not only be in contravention of the court order, but would also have severe negative consequences for employees at the affected companies. 

News24 previously reported that it was a Bank of Baroda account that received the money from the infamous Vrede dairy project.

Judge Ntendeya Mavundla reserved his judgment, saying that the fundamental question he must answer is if a court can keep the bank in the country, open and operating against its own will. 

Judgment will be delivered on March 12.

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Anglo completes R2.3bn sale of Eskom coal suppliers

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Cape Town – Anglo American [JSE:AGL] has completed the R2.3bn sale of its South African thermal coal operations to black-owned mining company Seriti Resources.

The mining group announced the transaction in a note to shareholders on Thursday. 

The sale is part of a strategy to reshape the group’s asset portfolio, according to CEO Mark Cutifani.

The operations which include New Vaal, New Denmark and Kriel collieries supply coal to Eskom’s power stations Lethabo, Tutuka and Kriel. The sale ensures the “reliable supply of coal” to the power utility, he said.

Seriti CEO Mike Teke said the mining company is committed to providing Eskom with “cost-effective, long-term coal supply solutions”. 

Seriti also purchased closed collieries from Anglo and is a majority (84%) black-owned company. According to a statement from Seriti, 90% of its shareholding is equally held by black-owned investment companies Masimong and Thebe Investment Corporation, among others. The remaining 10% is held by employee and community trusts. 

“We believe the conclusion of the sale to Seriti, a broad-based, majority black-owned and controlled South African mining company, represents a major step change in transformation in the coal (and broader mining) sector,” said deputy chairperson of Anglo American South Africa Norman Mbazima.

No job losses

Seriti will be engaging with operational staff and stakeholders to ensure a seamless ownership transition. It will absorb the Anglo American employees, who number about 3 000, as well as the more than 3 000 contractors.

Earlier this week Anglo also completed the sale of its Australian coal mine Drayton. The terms of the transaction were confidential.

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Eskom’s Sean Maritz steps down, dodges disciplinary hearing

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Cape Town – Eskom’s former interim CEO Sean Maritz has resigned from the power utility. 

Eskom said in a statement on Thursday that by stepping down Maritz would no longer face an upcoming disciplinary hearing.  

“Maritz’s resignation comes against the backdrop of serious charges of misconduct that were levelled against him, that would have been adjudicated at his disciplinary hearing scheduled for 8 – 9 March 2018,” Eskom said in a statement on Thursday. 

“The disciplinary process to hold Maritz to account for any proven wrongdoing can no longer be pursued in light of clear legal precedent that a resignation by an employee unilaterally terminates the employment relationship,” it said.

“Eskom has, as a result, accepted Maritz’s resignation with immediate effect.”

The power utility said it reserves the right to institute legal action in respect of “any damages that the company may have suffered arising from his actions at Eskom, and to enforce its legal rights under the Pension Funds Act”.

Maritz is the second senior Eskom executive to recently have his disciplinary hearing terminated by stepping down. In mid-February the group’s former CEO Matshela Koko submitted a letter of resignation while his disciplinary hearing was taking place.  

Rotation 

Maritz, the group’s former Group Executive for Information Technology, had been placed on permanent suspension pending an investigation into allegations of impropriety in late January 2018.  

He was named Eskom’s interim group chief executive in early October 2017, taking over from Johnny Dladla. At the time the power utility’s board said Maritz’s appointment was part of a decision to rotate the interim chief executive position.

The board has since been changed. 

Maritz’s suspension is understood to be connected, in part, to a letter written on January 16 2018 to global consultancy McKinsey stating that a controversial R1bn payment made to it by Eskom was lawful, despite the power utility previously saying the opposite. 

The consultancy has previously said it is ready to pay back the money. 

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Optimism in manufacturing sector as PMI rises

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Cape Town – The seasonally adjusted Absa Purchasing Managers’ Index (PMI) has edged above the neutral 50-point mark for the first time since May 2017.

The index, which is compiled by the Bureau for Economic Research and measures business conditions in the manufacturing sector, rose to 50.8 index points in February, up from 49.9 in January, according to survey results released on Thursday.

The researchers said in a statement that the fact that the index averaged above 50 points  for the first two months of 2018 bodes well for SA’s manufacturing sector.

The increase in the headline index was driven by solid improvements in the business activity and new sales orders indices, which together account for more than half of the PMI’s weight.

The new sales orders index rose by 2.3 points to reach 52.7 in February.

“The improvement in demand supported an acceleration in output growth, with the business activity index rising to 54.1 from 52.0 in January. Unfortunately, the employment index remained subdued despite the apparent recovery in output,” the statement read.

The researchers said the most positive outcome of the February PMI survey was that a section of the index that tracks expected business conditions in six months’ time had risen to its highest level since 2001.

It surged to 79.1 points after solid increases in December and January, which means the index is now almost 30 points above where it was in November 2017.

“The sustained rise in optimism is likely supported by continued positive global growth prospects. More important, the outlook for the local economy has also improved over recent months.

“The fact that the PMI’s implied leading indicator is also above one, with new sales orders outstripping inventory levels, is another positive sign.”

Furthermore, the purchasing price index declined further in February and is now more than 20 points below the level reached as recently as November 2017 owing to the stronger rand exchange rate and lower Brent crude oil price.

“The stronger rand means that imported raw materials and intermediate products are cheaper in rand terms.”

The researchers, however, cautioned that over the longer run, this could hurt local exporters’ competitiveness in global markets.

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Implats loss narrows as it cuts 1 400 jobs at biggest mine

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Nairobi – Impala Platinum [JSE:IMP] cut 1 400 jobs at its Rustenburg operations, narrowed its loss and closed shafts as the producer of platinum-group metals seeks further cost reductions to boost cash flow by as much as R1bn in the next two years.

Implats is looking to “refocus or close unprofitable areas” and revise costs structures to return to profit in an environment of low prices for platinum-group metals, the Johannesburg-based company said in a statement on Thursday.

The headline loss, which excludes one-time items, narrowed to R150m in the six months ended December 31 from R508m a year earlier.

Prices of platinum, used to make catalytic converters in diesel vehicles that curb harmful emissions, have halved from a record reached in 2011. South African producers are grappling with a stronger local currency, which has gained 10% against the dollar since June, pushing up costs.

Impala halted operations at four shafts at its Rustenburg mine in January and is optimising operations at three others. It wants to operate lower-cost, shallower and mechanised assets and the Rustenburg operation may be profitable in a low-price environment, it said.

“The challenges and uncertainties confronting the South African PGM industry remain significant,” Impala said.

“The market fundamentals for platinum are only expected to strengthen materially from 2020 onwards, with the introduction of stricter heavy-duty diesel emission regulations, and with supply from South Africa starting to taper off.”

While the market outlook for platinum remains muted, demand for palladium and rhodium remains “robust,” supported by growing automotive gasoline demand. Impala estimates full-year refined production at 1.5 million platinum ounces.

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Standard Bank app still causing problems

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Cape Town – Standard Bank said on Thursday morning that some customers were still unable to use its app due to a technical glitch that started on Wednesday morning. 

“We are experiencing intermittent services on the mobile banking app,” the bank tweeted at 09:20. “Please be assured that our technical team is working tirelessly to resolve the issues.”

Customers on Thursday wrote on social media they were still experiencing connectivity issues. 

“Day two of the app being down and no word from standard bank. I have people depending on me for salaries who I can’t pay,” tweeted user @AmiMcd at 07:00 Thursday morning. 

“Is your internet banking down? Been trying to pay things for 2 days not and can’t get to the actual dashboard,” tweeted a user at around 08:00.

The bank on Wednesday morning had informed customers that it was experiencing issues at its ATM’s and customers making purchases at retailers. 

The issue of transacting at ATM’s were solved fairly soon on Wednesday, said the bank, but that of the banking app seems to have given the bank more trouble. 

By Thursday morning it said that its ATMs, internet banking, branch and call centre services were again operational. 

It is as still unclear what caused the issues. 

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Eskom to pay back R5bn PIC loan, as union vows ‘never again’

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Johannesburg – Eskom has confirmed that the R5bn short-term loan it received from the Public Investment Corporation (PIC) will be paid back on Thursday, according to spokesperson Khulu Phasiwe via a WhatsApp message to Fin24.

It’s been an eventful week for the power utility, which managed to secure a R20bn short-term credit facility with a consortium of local and international banks on Wednesday.

This came a day after Standard & Poor’s Global Ratings downgraded Eskom’s credit rating to ‘CCC+’ from ‘B-‘, citing concerns that the Eskom could default on its debt in the next six months.

When the loan was extended by the PIC in February, the Public Servants Association (PSA) said that it felt “betrayed” by the agreement as this could risk government employee pensions being caught up in failing state-owned enterprises.

PIC CEO Dan Matjila explained to Parliament that the R5bn was only bridging finance until the end of the month and would earn above market interest rates for the Government Employee Pension Fund (GEPF), whose assets are managed by the PIC.

The rate which was agreed on was  an addition of 75 basis points (quarter of a percent) to the one-month Johannesburg Interbank Agreed Rate (JIBAR) which is currently 6.9%.

Union vows never again

The PSA welcomed the repayment of the loan to the PIC, but said it’s “not the end of it”.

“It was still paid irregularly… [we] have to make sure that a transaction like this doesn’t happen again”, PSA deputy general manager Tahir Moepa told Fin24 by phone.

Moepa said that their demands for a reconfiguration of the PIC remain in place but they will give newly appointed Finance Minister Nhlanhla Nene a few days to settle into his job before threatening to go ahead with legal action.

The union was prepared to go to court to demand that former finance minister Malusi Gigaba include more labour representatives on the board of Africa’s largest asset manager.

“We hope he will be more receptive to the plight of public servants and the GEPF”, Moepa said.

The PSA, which represents more than 200 000 government employees, is also opposed to newly appointed Deputy Minister of Finance Mondli Gungubele being appointed as chairperson of the PIC board, as has been the tradition.

Instead, they want someone who is independent, with a business background, rather than a politician to fill the position.

Congress of South African Trade Unions president S’dumo Dlamini also welcomed the repayment of the Eskom loan, saying that the R1.9trn in assets managed by the PIC is “for the workers”.

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Could banks be the biggest losers in expropriation without compensation?

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Johannesburg – Banks could be some of the biggest losers if expropriation of farms without compensation takes place, with clients potentially defaulting on property loans that they can no longer afford to service because they no longer have land.

On Tuesday the National Assembly adopted a motion, proposed by the EFF, for a committee to review Section 25 of the Constitution, which concerns the right of property ownership. The motion was adopted with a vote of 241 in support, and 83 against.

But what exactly will happen to banks’ debt if a decision is taken to amend the land policy, is not clear at this early stage experts have told Fin24. Banks are also taking a wait-and-see approach.

If the government decides not to compensate the banks when taking land, R160bn could be wiped off the banks’ books.

Default risks

Anthea Jeffery, head of policy research at the Institute of Race Relations (IRR), told Fin24 that if banks knew there was a risk in title to land, it would have to be factored into the price of the loan facility.

“They will have to take a robust approach,” she said.

She said the Expropriation Bill of 2015, which has not been approved by Parliament yet, stipulates that on expropriation the bond on the property ends. In the current Expropriation Act of 1975 the compensation has to be used to first service the loan.

“But with the new motion undoubtedly there will not be any money,” she said. “How will the bank get the money it is still owed? It can’t foreclose on the property, because the state now owns the property.”

Jeffery said the farmer can’t service the loan anymore because there is no land to derive an income from, and will default. The bank has no relationship with the government, so it can’t recover the money from there. 

“If this default happened on a massive scale, it could be disastrous for banks,” she said.

READ: 7 issues complicating ANC’s expropriation without compensation stance

If expropriation without compensation is passed into law, it would give rise to serious difficulties both for property owners and banks which lent money against security over properties, said Pieter Niehaus, Director and Head of Real Estate, Norton Rose Fulbright SA.

“The owner of expropriated land would lose the rights of ownership and occupation of the land and the bank would lose its security for the repayment of the loan,” he said.

Invested heavily

Theo Boshoff, legal intelligence manager at Agbiz, said commercial banks as well as the Land Bank were heavily invested in the agricultural sector, of which roughly a third was collateralised through land.

The debt-to-asset ratio in the agricultural sector is extremely high and many loans are secured by registering mortgage bonds over the property, Boshoff said.

“If property is expropriated the owner as well as the bank’s real rights on the property will be extinguished,” said Boshoff. “This means that the former owner will lose his or her ownership rights and the bank will lose its collateral.”

Research shows that the sector has become highly reliant on credit, which usually takes the form of bond financing. Economists from the major banks estimate that South African farmers were indebted to the tune of about R160bn.

The majority of this debt (70%) was held by commercial banks, with the rest shared between the Land Bank (25%) and development finance institutions and agribusinesses.

Banks circumspect 

The banks, when asked about the risks they faced if the new bill was passed, were circumspect, emphasising that they would continue to engage government constructively on land reform.

Absa said at this stage the nature of the envisaged amendments to the property clause as well as other clauses are not clear, but added it would participate in public consultation to discuss the impact.  Standard Bank merely said they would work with government to drive transformation in the agricultural sector while promoting food security and social prosperity.

The Land Bank said it believed that it was premature to hold firm views on matters regarding expropriation that was still subject to consultation.

To reduce the risk in the event that a farmer cannot repay his loan, banks often couple a loan to the value of the land by registering a bond that allows them to sell the land as a last resort.

READ: Land audit’s ‘bizarre’ recommendations

“If one were to amend the Constitution to allow expropriation without compensation, it could endanger the faith banks place in the land as security and set into motion a chain reaction that eventually leads to the ordinary consumer losing out,” said Boshoff.

Policy certainty

Jeffery also believed that with the sword hanging over banks’ heads, they would be more circumspect in granting loans, until there was more policy certainty.

Niehaus said that neither the property owner nor the bank will be able to blame each other for the loss of the asset or the loss of the object of its security.  

“The loan by the bank is a separate obligation from the mortgage obligation,” he said. “The expropriation would result in in a commercially untenable situation in that the property owner would still be contractually bound to the bank to repay the loan, whilst having been deprived of the property used for residential, farming or business activities which would in many instances generate income to repay the loan.”

Niehaus said in theory, if the state decided to expropriate without compensation, a bank could lose its security.

“But the question that needs to be answered by the parliamentary committee investigating the issue is whether the bank loses its rights to claim repayment of the loan by the property owner as well and how it fits in with the rule of law,” he said.

Long process

Bulelwa Mabasa, Director and Land Claims Specialist at Werksmans Attorneys, said it was important to note this is a long process and it could be some years before the way forward is agreed upon, and the land for redistribution and land reform is identified.

She admitted that there was a risk for the banks that they would be left with the debt on the land that is currently mortgaged in favour of mortgagers.

“It will be interesting to see whether or not bonded property will be carved out as an exception and not be expropriated without compensation,” she said. “There is a question whether the state will have the money to make good on the debt sitting on the banks’ books. “

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Three truths for gearing up to the fourth industrial revolution

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THE fourth industrial revolution has the potential to disrupt every industry in every country through large-scale automation, adoption of emergent technologies, big data and artificial intelligence.

There are many predictions and estimates on how this will affect labour markets, but one thing is certain – the jobs we do, and the skills we need to perform them, will change – and rapidly.

A McKinsey report estimated that by 2030 at least one-third of the activities of 60% of occupations could be automated. This means that globally up to 375 million people may need to change jobs or learn new skills. A World Economic Forum report predicted that current trends in a disruptive labour market could lead to a loss of 7.1 million jobs, two thirds of which are in administrative roles.

And a study by Oxford University estimated that 47% of total employment in the United States is at risk due to computerisation, given that automation and computerisation are no longer confined to routine manufacturing tasks.

Big data and artificial intelligence are allowing a wide range of non-routine cognitive tasks to be performed by machines. 

While this may sound catastrophic, the good news is that while large-scale automation may redefine the workplace it does not necessarily mean we will all be out of a job. Changes in technology also create new jobs and spawn new industries. The challenge is going to be ensuring that workers have the skills they need to transition to different jobs.

The fourth industrial revolution poses a risk to job security only in the sense that not managing this transition can lead to greater unemployment and social inequality.

In approaching what lies ahead, managers and leaders should consider the following three truths.

1. Talent will be more important than capital

Klaus Schwab, chairperson of the World Economic Forum, believes that “in the future, talent, more than capital, will represent the critical factor of production”. To make sure they are ready for a future that is still emerging, organisations and people need to be adaptable, innovative and responsive.

If up to 65% of the jobs of tomorrow don’t exist yet, it is impossible to “train” people in the conventional sense. Rather, we need to invest in their essential capabilities.

To ensure we build talent that is capable of mastering change we need to invest in resilient leadership. Leadership skills are not tied to particular jobs or industries, and solid leadership development provides the kind of transferable skills likely to be needed in the future.

The WEF identified the top ten skills that will be most needed in 2020 as: complex problem solving; critical thinking; creativity; people management; coordinating with others; emotional intelligence; judgement and decision-making; service orientation; negotiation and cognitive flexibility.

These essential skills have long been part of most good leadership development, MBA and executive education programmes – and they will need to be scaled up.

2. Education needs to be flexible too

The WEF report recommends that organisations embrace talent diversity, leverage flexible working arrangements and incentivise lifelong learning to best manage the changes ahead. Lifelong learning and executive education certainly have an important role to play in a rapidly changing job market, and these programmes also need to be flexible and adaptable to students’ and organisations’ needs.

Massive open online courses (MOOCs) already offer flexible access to lifelong learning and the number of courses available is rapidly increasing to meet demand. Many perceive the downside of online learning to be the loss of face-to-face interaction, which is still regarded as critical to the quality of education – specifically when it comes to learning and practising the essential skills identified by the WEF.

Educational institutions are looking to fix this by offering a mix of traditional and online learning to reskill and prepare for workplace transition. There are opportunities for combinations and blends of one-on-one and group interactions at all levels of learning.

3. The link between education and business is a two-way street

The format of what is being taught needs to be flexible, but so does the content.

As the WEF report suggests, education systems need to be redesigned if we are going to tackle the transitions ahead. This entails businesses, governments and educational institutions working together to provide curricula that meet current and future needs.

The McKinsey report suggests governments have a role to play in maintaining economic growth, scaling job retraining and workforce skills development, and providing income and transition support to workers while retraining. But they cannot do this on their own.

Educators supply industry with critical skills, and industry has a hand in shaping the talent pool and informing educational institutions of the changes they foresee and the skills they wish to develop.

Businesses that invest in long-term partnerships with educational institutions to develop skills and respond to changes in the environment will stand a better chance of building a workforce that is future proof: suitably skilled, adaptable and ready for the challenges that we collectively face. As the African proverb goes: If we want to go far, we need to go together.

  • Kumeshnee West is director of executive education at the UCT Graduate School of Business.

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