PIC frets about its parastatal exposure

The Public Investment Corporation (PIC) this week said it is extremely concerned about Eskom’s continued corporate governance failures, given the risks that the utility poses to its investors.

The corporation is developing a framework to direct how it should invest in state-owned entities in future. Preliminary research and legal analysis on this has been concluded and presented to the PIC board. This will be discussed with its clients, after which it will be referred to the finance minister for consideration on how best it could become a policy directive for future PIC investments.

The public asset manager invests on behalf of a number of clients, including the Government Employees Pension Fund (GEPF). The fund, which has about 1.27-million active civil service members and 437 000 pensioners and beneficiaries, holds almost R86-billion in Eskom bonds and bills.

Eskom is heavily reliant on raising funds but it and other parastatals have been struggling to sell their bonds in the open market. This has led to concerns that the PIC has become the buyer of last resort, although both it and the GEPF strongly deny this.

The repeated governance failures by Eskom’s board and its executive management, and the utility’s longterm debt accumulation, present material risks to the PIC’s clients, head of corporate affairs Deon Botha said in reply to questions.

“At the same time, it must be understood that Eskom, to date, has not defaulted on any of the PIC’s bond investments,” he said, adding that the majority of Eskom’s bonds are government guaranteed.

In response to reports that the PIC and other lenders have instructed Eskom to appoint a new board by November, he said that, legally, it cannot prescribe when and how the current Eskom board should be reconstituted. Nevertheless, he highlighted the minister of finance’s recent comments in the medium-term budget policy statement that, in its current operational state, Eskom presents a significant risk to the fiscus.

“Given its exposure to Eskom debt, the PIC trusts the institutional, governance and financial management problems at Eskom will be dealt with urgently by government as the shareholder,” he said. —