IDC: Is it rock solid?

The Industrial Development Corporation (IDC) can reflect on its results in one of two ways. It can bask in the glory of a robust nine-month period, as it did on Wednesday. The other view is to say that the stock market boom has given it considerable but artificial strength.

The funder unveiled its results for the nine months to March as it prepares to move up a gear in its big project investments.

It announced that its net attributable income rose from R697-million to R1,2-billion. The single biggest reason for this leap is that its net capital gains realised from investment rose from R628-million to R1,2-billion. This has largely been owing to the robust performance of its listed investments, which include Sasol — where it holds 8,8% and which was valued at R5,1-billion at the end of June — and BHP Billiton, whose 2,2% holding was valued at R2,9-billion at the same point. Outside its listed portfolio, and along with BHP Billiton and Mitsubishi, the IDC owns the highly successful Mozal aluminium smelter, just outside Maputo in Mozambique. The investment is now valued at R3-billion. Its overall loans, advances and investments are valued at R30,5-billion, 83% of its R36-billion asset base.

The IDC has reserves of R30-billion, which its chief financial officer, Gert Gouws, describes as being in line with the big four commercial banks. It also has a gearing, or ratio of debt to-equity, of 16% at a time when Maria Ramos at Transnet is fighting to bring hers down to 50% from 83% last year. The IDC is permitted by legislation to have a gearing of 100%: that is, to borrow against the full value of its assets.

President and CEO of the IDC Geoffrey Qhena told the Mail & Guardian that he concedes its gearing looks good and very conservative because of the performance of its listed investments. He says he would be comfortable with a gearing of about 40%.

That gives him considerable scope to borrow and invest in new ventures. Two reasons why he would not do that are: if the stock market were to turn, or worse, crash, the IDC would be quite exposed; and there are probably not enough projects to warrant borrowing.

The IDC’s success story has been about funding medium-sized businesses and empowerment. The corporation approved R3,8-billion worth of investments to 181 projects. It estimates that this accounts for about 3% of private-sector fixed investments.

Of these approved investments, 72% went to medium-sized businesses. Small and medium-sized businesses are estimated to employ 52% of all formal sector employees. The IDC expects its approvals to create 16 700 jobs. Of the total value of approvals, 83% has gone to empowerment companies.

That explains why the BusinessMap Foundation awarded the IDC the top empowerment funder award for 2005. The foundation found that, in the year ended April, the IDC had funded 113 deals worth R2,6-billion. In second place was the Public Invest-ment Corporation, which had funded six deals worth R7,5-billion. But the organisers noted that, of the 113 IDC deals, 72% were start-up companies, “showing that the IDC is taking significant risks in [empowerment] entrepreneurs and, more importantly, the growth that comes with increasing entrepreneurship”.

The IDC is now gearing up to take a 15% stake in the Coega aluminium smelter, a $2,5-billion investment with Canadian company Alcan.

Qhena’s optimism that the project will go ahead is founded on the fact that “Alcan have committed resources and sent people on a number of visits”. This is much like saying, “I know that he/she loves me cause he/she tells me so.” The board has also committed R2-billion to the pebble bed modular reactor.

The results were also an opportunity for Qhena to show his face in public. It has been less than a year since he replaced the flamboyant and larger-than-life Khaya Ngqula.

Qhena brings a new style. He is affably demure and compensates for his lack of a commanding presence with a technocratic grasp of his mandate — to make a positive return, “but also have a development impact and create jobs”.

Operational highlights

Financial highlights

Listed investments at June 30

The Industrial Development Corporation realised R1,3-billion in March on these investments

Source: IDC