Fix SOEs or forget loans, banks warn
• Lenders give government ultimatum • Gigaba flags Eskom as biggest risk to economy
Banks and other lenders had given the government an ultimatum to replace the Eskom board by November and that of arms manufacturer Denel by December or have their credit facilities withdrawn, Treasury officials said on Wednesday.
An Eskom default has been flagged as the single biggest risk to the economy, with Finance Minister Malusi Gigaba saying in his Wednesday briefing to journalists at Parliament that the government would be unable to bail it out should lenders refuse to roll over their loans.
“Eskom exposes government to an enormous risk because of the size of its guarantee framework, the size of the loans and the debt it has. Obviously if anything went bust in that regard, it would have an immediate impact on the national balance sheet,” he said.
“I don’t think that we will be able to step in to bail Eskom out if anything went wrong. That is why I am saying that the appointment of a new board is [an] absolute, urgent necessity.”
Eskom has total debt of R360bn, of which about R202bn is guaranteed by the government. While it still has about another R148bn of government guarantee facilities it could use, it has found it increasingly difficult to borrow in the market, because of growing evidence of widespread corruption.
Treasury deputy directorgeneral Anthony Julies said in an interview on Wednesday that lenders had asked for an undertaking from the government that a new board would be in place by the end of November.
“Investors are expressing concerns — they are less inclined to roll over. If the status quo remains, there is a high chance of lenders not rolling over,” he said.
Julies said a similar concern had been expressed with regard to Denel.
While the government has extended by a year Denel’s R1.85bn guarantee, which matured at the end of September, lenders have extended loan facilities by only three months, to the end of December.
The conditions of extending further credit to Denel include the exiting of its joint venture with the Gupta-associated VR
Laser Asia, which has been done, and the replacement of the board and the appointment of permanent executives.
A third state-owned enterprise, the Trans Caledon Tunnel Authority, which has a R25.7bn guarantee, also faced the risk that lenders would refuse to refinance its loans, said Julies.
Bail-outs for other distressed state-owned enterprises including R10bn for South African Airways and R3.7bn for the South African Post Office, will cause a breach of the Treasury’s self-imposed expenditure ceiling by R3.9bn in 2017-18 unless state assets can be sold by February to neutralise the effect on the deficit.
A further R3bn of funds have been promised to the struggling national carrier in 2019-20.
In his speech, Gigaba said the government was considering disposing of a portion of its Telkom stake as one option to finance the bail-outs.
The release of the 2.6MHz broadband frequency, which could also potentially raise a windfall for the government, is referred to in the statement as being available immediately.
The government’s contingent liabilities in the form of guarantees are of concern to ratings agencies‚ particularly because of the precarious state of several state-owned enterprises. “Stateowned companies are developing a poor reputation with the public at large and have become a major fiscal risk to the country due to government guarantees of their debt,” Gigaba said in his speech.
“Government can manage state-owned entities well and will act decisively to stabilise those which are experiencing challenges,” he said.
Gigaba said the trend of state-owned companies seeking bail-outs to finance operational expenditure, inefficiency and waste must also be brought to an end.
In due course, the Treasury would make proposals to make the government guarantee framework more stringent.