Eskom sits tight as its debt default looms
As its debt obligations draw close, Eskom is immobilised.
It is anybody’s guess whether the company will still issue the $1bn bond it had planned for January; it is also anybody’s guess whether it will meet its promise to release its interim financial statements by the end of January. On both counts, the safer guess is no.
There is talk among some bankers that the international bond issue has been postponed to March after the bank it approached refused bridge to bond facilities and the arranging has not been done.
Eskom will not answer any specific questions and said vaguely on Wednesday that the international debt capital markets remained a source that it could explore and that bonds “are issued as and when the market conditions allow”.
The last willing lender, Absa, closed its doors to Eskom in September. Most banks could probably have recalled their short-term loans around then and the qualification on Eskom’s annual financial results would already have put it in default.
While they chose not to recall, risk committees put conditionalities on new loans, including that the Eskom board be strengthened and that the acting chairman, Zethembe Khoza, be replaced. Permanent and experienced executives must be appointed, they added.
In December, Public Enterprises Minister Lynne Brown appointed two additional members to the board and made Khoza the permanent chairman. Eskom again approached the banks in the hope that this was sufficient and the bridge to bond facility could be provided.
The thinking seems to have been that as international investors are not as concerned about governance, Eskom could go ahead with a $1bn bond, provided of course that it could get the bridging finance to solve its going concern status.
The going-concern problem, which has prevented it so far from publishing interim financial results, arose because the Treasury has said Eskom is unable to demonstrate that it will be able to make good on some R15bn of short-term debt that has been rolled over until March. The prospects for the international bond issue therefore seem to have vanished for now.
The evidence is mounting that Eskom executives have decided instead to sit tight and do nothing, leaving it to the government to step in.
Unless Eskom has the cash to pay the coupons on bonds that fall due next week – around R600m — and then again at the start of February – about R1.5bn – the Treasury will have to step in. Neither the Treasury nor Eskom will reveal what is planned. The Treasury says that it is “in discussions with Eskom and the Department of Public Enterprises out of concern for a default”.
Beyond February, the financial situation gets more serious with short-term bank debt of about R15bn due in March, more interest payments and principal debt repayments of around R4bn due in April.
On this one, Eskom executives seem to be hoping to be saved by political machinations. (The same cannot be said for the board, which still seems set on saving itself and tainted executives with whom it has collaborated.)
Like everyone else watching the Eskom situation, Eskom’s finance team will have made the same rough calculation: there is perhaps just enough time for Jacob Zuma to be removed as president and Cyril Ramaphosa to step in for the necessary changes to be made to the minister, board and leadership team before the March countdown begins.
For all of this to take place comfortably in time, Ramaphosa must be in the driving seat by the beginning of February. Eskom could then escape a default with days to spare.
Things could still go wrong. Should Zuma not be removed this weekend, as anticipated, the entire R350bn Eskom tower of debt will come crashing down.
EVIDENCE IS MOUNTING THAT ESKOM HAS … DECIDED TO LEAVE IT TO THE GOVERNMENT TO STEP IN