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Umgeni Water funding risked by governance, Futuregrowth says

Governance lapses at Umgeni Water, including a decision to fire its board, could jeopardize the state-owned utility's ability to raise financing, warned Futuregrowth Asset Management, South Africa's largest specialist fixed-income money manager.

Futuregrowth, which is owned by Old Mutual PLC, has raised those concerns with Umgeni Water and the Department of Water Affairs and Sanitation, and its lawyers have written to Water and Sanitation Minister Nomvula Mokonyane, said Andrew Canter, Futuregrowth's chief investment officer, in an email.

He disputed an earlier report that was based on a leaked copy of the letter. "At no time, in writing, verbally or in meetings did we threaten to withdraw funding from Umgeni," Mr. Canter said in his email. "That said, we did not hide our displeasure with the current situation. We called for corrective actions and we highlighted that their credit ratings might be at risk, their bonds could be suspended from the Johannesburg exchange and that access to capital markets in the future might be impaired."

Based in South Africa's eastern KwaZulu-Natal province, Umgeni Water provides drinking water to about 6 million consumers. Futuregrowth accused Ms. Mokonyane of flouting the Public Finance Management Act by illegally appointing Msizi Cele as the utility's acting CEO and accounting officer, Johannesburg's City Press said, citing a letter that ENS Africa, the Cape Town-based fund manager's lawyers, wrote to the minister.

"We did not call for the dismissal of the acting chief executive officer," Mr. Canter said. "Rather, we called for the legal appointment of a CEO."

Mlimandlela Ndamase, a spokesman for the Department of Water Affairs and Sanitation, said Ms. Mokonyane is taking steps to allay investors' fears and has done nothing that falls outside the prescripts of the Public Finance Management Act. The minister is expediting the appointment of a new board, he said by phone on Sunday.

Umgeni Water is satisfied that its interim independent structures are sufficient to ensure continued strict adherence to clean corporate governance, Shami Harichunder, a spokesman for the utility, said in an emailed statement. The appointment of the acting CEO is in line with the law, the company has received clean audit opinions from the auditor-general for the past five years and its bond balance, which stood at 1.5 billion rand ($113 million) at the end of June, had remained within predetermined borrowing limits set by the National Treasury, he said.

Futuregrowth said last year it would stop lending money to six state-owned companies because of concerns over governance.