Flailing giant Eskom a threat to SA

These have alarmed the PIC, which sees Eskom as a material risk to its clients, it has said.

The PIC holds more than R84-billion in Eskom bonds on behalf of its l argest client, the Government Employees Pension Fund.

“Repeated governance failures by the board and Eskom’s executive management, as well as the institution’s long-term debt accumulation, do present material risks to the PIC’s clients who are exposed to Eskom bonds,” said head of corporate affairs Deon Botha.

The state-owned asset manager is developing a framework to better manage how it invests in Eskom and other state-owned enterprises. (See “PIC frets about its parastatal exposure”, Page 2, Business.)

In an analysis of Eskom’s latest financial results, consultancy firm Eton Group found that the utility is having to service debt without the financial means to do so. “Eskom is not generating enough cash through operation and electricity sales revenue to cover the interest on its borrowing,” the report said. “This equates to using one credit card to pay off another.”

Eskom’s reliance on borrowing was flagged at its annual results presentation by its now suspended chief financial officer, Anoj Singh.

“It’s common cause that we are in a net borrowing position and our ability to continue as a going concern is premised on the basis that we have continuing access to debt capital markets,” he said.

“If something catastrophic had to happen tomorrow that limits our access to debt capital markets, which we are not aware of currently, then we would have to approach treasury.”

But Eskom’s ability to raise funds on capital markets since Singh delivered these words is not clear.

For the 2017-2018 financial year, Eskom planned to raise R71.7-billion. At the start of the year, it said it had secured just over R32-billion, the bulk of which — R27.4-billion — came from deals with development finance institutions (DFIs). Eskom said it had secured about 53% of its funding requirements for the year, which included about R6.3-billion in available bank facilities.

It was seeking further funds from other sources, including R15-billion from domestic and international bond issuances.

But the company has not issued bonds on public auction since August 2014, thanks to private investors’ reluctance to take them up, even with government guarantees.

There is some speculation that there may be a discrepancy between the funds Eskom said were available at the beginning of its financial year and what has actually been committed, said Nazmeera Moola, the co-head of fixed income at Investec Asset Management.

There is also concern that some of the committed funds announced at the beginning of the year may now be on hold because of lenders’ concerns about the utility’s governance, notably because of the qualified audit report and the poor performance of its board.

In response to questions, Eskom said that, to date, it has secured 57% of the funding required for this financial year, although it would not disclose where the relatively small amount of additional money has come from.

But reports suggest lenders, including banks, do appear to be flexing their muscles and are threatening to freeze the company’s credit lines unless its governance crisis is resolved. Finance Minister Malusi Gigaba, in his medium-term budget, promised that Eskom would have a new board in place by the end of November.

Given the qualified audit opinion and other governance concerns, Eskom did not answer the question whether any of the committed funding for the year — notably the R27.4-billion from DFIs and the R6.3-billion in available bank facilities — is now in doubt.

But it said its liquidity is not dependent on the banks’ facilities or its debt being rolled over.

“This equates to using one credit card to pay off another”