Nationalization Lite Revisited

The decision by Anglo American Platinum to revise the restructuring plan they had set out originally in January sets a bad precedent for all of industry operating in South Africa. We have mentioned in past blogs that private companies must be allowed to rationalize their cost structures, even if that rationalization means job cuts. While we understand that employers must be sensitive to local employment conditions, governments must reciprocate with a sensitivity to the reality that companies must operate at a profit. The president of Anglo stated that the shift reflected a commitment to our role in ” addressing the social economic challenges facing the country, while recognizing that we need to take actions to return the company to profitability”.  The markets were paying attention to this governmental meddling, with the yields on corporate bonds in the platinum sector skyrocketing over 80 basis points in a single day ( The Rand sold off sharply after this announcement as well).  While nationalization has always been a concern when dealing with foreign governments, companies must now deal with what we call nationalization lite. This type of intrusive behavior however, does not involve overt takeover of private assets, but rather involves a governmental co-opting of private decision making. The swift response on the part of investors  has sent a message to the governments of South Africa and others, that such heavy handed political moves will have immediate real world consequences.