PUTTING FOOT Unions peeved with the PIC
ESKOM BAILOUT: LENDERS RELUCTANT TO OPEN TAPS
The Eskom loan contradicts the PIC’s mandate, which bars it from investing in non-investment grade assets. Moneyweb
SA’s largest trade unions have blasted the Public Investment Corporation (PIC) for its decision to provide Eskom with R5 billion of public servants’ pension money as a loan to help it cover February expenses.
The Eskom bailout flies in the face of emphatic denials by finance minister Malusi Gigaba in September 2017 that the R1.8 trillion worth of funds managed by the PIC, on behalf of the Government Employees Pension Fund (GEPF), would be used to rescue struggling State-owned enterprises (SOEs).
Gigaba described media reports about the raiding of PIC funds as “malicious and unconstructive” at a time when major lenders pulled back their money to SOEs due to corruption and poor corporate governance allegations.
The GEPF is heavily exposed to Eskom debt as it already holds about R90 billion of its bonds, which were recently pushed deeper into junk territory by Fitch Ratings and Moody’s. The loan to Eskom contradicts the PIC’s mandate, which bars it from investing in non-investment grade assets.
In justifying the loan, PIC CEO Dr Daniel Matjila said it and GEPF were encouraged by the new Eskom board.
The new board hit the ground running by firing top executives implicated in corruption allegations.
Eskom has approached other lenders in search of R20 billion to boost short-term liquidity and hopes the GEPF’s R5 billion bridging facility will encourage other lenders to show it grace.
For now, Futuregrowth Asset Management is still reluctant. It stopped lending to Eskom in 2016 over poor governance and financial mismanagement concerns. “As Eskom reforms, makes amends, strengthens its governance, and improves its reporting we would expect to be able to consider resuming channelling some of South Africa’s savings toward Eskom,” said CIO Andrew Canter.
Futuregrowth’s Tarryn Sankar said Eskom has its work cut out ahead of its full-year results in July 2018, including getting a clean audit from its auditors.
“What is critical now is monitoring and evaluating improvements in the internal control environment, how the new Eskom board and management deliver on their plans and the support and cohesion provided by various government departments.”
In response to the Eskom bailout, trade union federations said they were “blindsided and “betrayed” as the PIC and GEPF boards didn’t consult them on using public servants’ pension money to save Eskom.
The boards reneged on their promise that PIC and GEPF funds wouldn’t be used at SOEs until they displayed governance improvements and prudent management of financial resources.
Zwelinzima Vavi said while the South African Federation of Trade Unions doesn’t oppose the principle of the PIC investing in SOEs, it’s “opposed to investing in SOEs that have been wrecked by government and using the PIC as a cash cow when SOEs can’t get institutions to lend them money.
“What is worse is that the bailouts are done without consultation. We’ve become strangers when it comes to the money owned by our members.”