GEPF's Mokate: Pension fund healthy despite Steinhoff, VBS 'elephants in the room'

The Government Employee Pension Fund (GEPF) has maintained a healthy portfolio despite a collapse in the Steinhoff share price and the impairment of certain assets, board of trustees chair Dr Renosi Mokate has said.

Mokate noted the GEPF's investment portfolio performance in a statement in the annual report for 2018, tabled in Parliament on Monday.

The PIC manages 87% of the GEPF's investment portfolio directly. The report reflected growth of the investment portfolio by 8.3%, from R1.7trn in 2017 to R1.8trn 2018. Investments yielded a return of 8.5% over the period, compared to 4.3% reported in 2017. 

During the period, total benefits paid to government employees increased by R6.6bn. Benefits are paid on a member's resignation, retirement or death.

Mokate noted the "impressive growth" of the investment portfolio, but added that the "proverbial elephants in the room" could not be ignored – these being Steinhoff and VBS.

Elephant in the room

"As at 31 March 2017 the GEPF, through PIC, owned about R28bn in Steinhoff International Holdings [JSE:SNH], which is about 10% of the shares of the company and 1% of the total assets of the GEPF.

"Notwithstanding the collapse in the Steinhoff share, the GEPF portfolio remains financially healthy, because of its diversified nature.

"It is also important to note that GEPF members’ benefits will not be affected by these developments, given that the GEPF is a defined benefit pension fund," Mokate said.

The investment loss recorded, following the collapse of the Steinhoff share on December 6, 2017, was 0.7%.

"The GEPF continues monitoring the developments in the Steinhoff case and will report once the investigations and hearings have been finalised," Mokate added.

Makote said it was "too early to comment" on VBS Mutual Bank - which most recently the North Gauteng High court ordered to be liquidated following an application by the SA Reserve Bank. The PIC is the second biggest shareholder of VBS Mutual Bank, with a stake of 27%.

Loan to Eskom

Further to the PIC, Makote commented on the bridging facility of R5bn it extended to power utility Eskom for one month. "It was never an elephant," she said.

Eskom repaid the loan, with interest, she confirmed.

"We believe that the investment was in the best interest of the fund, and South Africa and its economy seeing that failure of Eskom to service its debt would have resulted in a cross-default, with catastrophic consequences.

"While the GEPF pursues good risk-adjusted investment returns for the benefit of its members and pensioners, it also recognises its role in the economic development of South Africa, Africa and the world," she explained.

Impairments

Mokate also listed impairments of certain assets.

This includes Lancaster 101 – Steinhoff's BEE partner. "The impairment in Lancaster 101 is directly linked to the collapse of Steinhoff’s share price," said Mokate. According to the impairment schedule for 2018, the impairment of Lancaster is to the value of R4.3bn.

The GEPF has also impaired Independent News Media (INMSA) due to declining traditional print and advertising revenue, among other things.

"The Sekunjalo term loan, INMSA shareholder loan and Preference Shares were impaired as INMSA and Sekunjalo did not honor their payment obligations under the transaction agreements. Cost containment strategies are being implemented and the investment continues to be closely monitored," she said. This impairment is to the value of R1bn.

Further, Agri Poultry will be impaired to the value of R491m. "The decrease in the recoverability of these instruments was as a result of industry and operational challenges."

The VBS impairment is to the value of R374m.

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