Well, SAA might be "cheap" in your mind, but I still think it's money spent better elsewhere. However, the concern regarding systematic fiscal risk isn't SAA by itself, but all SOE's, some are bigger fiscal risks than others (e.g. Eskom). SAA, while not the biggest, seems to be closer to the cliff than others. What they do with SAA then becomes a precedent for others.Jack Welles wrote: ↑Thu Nov 29, 2018 9:34 amIn any event, do you agree with the rest of what I wrote? Ie, it's only one half of one percent of the annual budget and, in an earlier post, that if they have to suddenly meet all the existing guarantees for one SOE many are interlinked and the govt would have to kick in on many, if not all, the others even though they would not have reached their maturation dates? (Caveat: depending on the terms of the various contracts)
Basically it's a relatively cheap way (0,5% of the annual budget) of kicking the can down the road and with the power of prayer ( - I'm an agnostic ) maybe the damn SOE's will come right.
The important point being that it's "little picture vs big picture" situation ... IOW, it an't that simple as "shut it down" ...
The debt is very different. Treasury borrows money by issuing a range of bonds in different currencies (although mostly Rand), different maturities (everything from 90 days to 10 and 20 years) under different conditions (nominal coupons, inflation linked, zero coupons, etc). Thus they can manage based on their liquidity needs as well as the demand in the market. They issue these through public auction processes, but they are then tradable in the secondary market. So the holder or financial institution can always get out of a position.Jack Welles wrote: ↑Thu Nov 29, 2018 9:34 amLate Addition: Govt borrows money every year to help balance the budget - can't see why lenders should refuse to accept govt guarantees (perhaps the terms are not as acceptable?) when they are prepared to lend to govt? maybe it has something to do with the terms govt can get on, say bonds, while the terms on, say, an "overdraft" for SAA would be less attractive? There has to be some rationale for these moves? I suppose an additional point is that it's still borrowed money whether direct to SAA or via govt bonds etc.
SAA's overdraft or term loans are not tradable in a secondary market so a financial institution wants a premium since they cannot get rid of it until the term is over. If SAA default it'll take a costly and time consuming court process to attach assets (not that there are any), sequestration and liquidation proceedings in order to enforce the security and government guarantee. A financial institution isn't going to provide a loan if they believe the loanee will default, even if there is security, unless they're handsomely compensated for the extra effort and work it'll require.
The additional point is that the interest accrues to SAA on the one of the Treasury on the other. The challenge for SAA is that the debt on their own balance sheet meant significant interest burden and cash flow constraint (the loan and interest must generally be paid before anything else).