Eskom, Treasury to turn to local banks

• Utility needs to raise R20bn in coming weeks • Race to head off World Bank default letter

Eskom executives and the Treasury will approach local banks as early as Monday to restore lending as the company races to avoid the suspension of its bonds by the JSE and to dodge a pending letter of default from the World Bank.

The state-owned company needs to raise R20bn over the next few weeks to persuade its auditors that it is a going concern. This will enable it to publish interim financial statements and allow access to foreign debt capital markets.

If the World Bank issues a default letter during a scheduled meeting with Deputy President Cyril Ramaphosa at the World Economic Forum in Davos, Switzerland this week, it will trigger a 14-day recall on its $3.75bn loan, which could trigger a recall on Eskom’s R350bn debt mountain.

On Saturday, the Presidency announced a new board for Eskom, to be headed by Telkom chairman and business leader Jabu Mabuza.

The new interim group CE is Phakamani Hadebe, a former Absa executive and former Treasury official.

Finance Minister Malusi Gigaba said on Sunday he expected that with the promise of a new board in place Eskom would again be able to raise money. Local banks suspended new lending to Eskom at the end of September and have rolled over short-term debt to March.

“The main issue for the banks were the governance issues. The Treasury director-general, Dondo Mogajane, is preparing as of Monday to raise money; we think lenders will be open to us again,” Gigaba said.

The announcement of the new board came after a week of frenetic activity by the Treasury to engage with Eskom’s auditors and Department of Public Enterprises officials over its financial position and to drive a process by President Jacob Zuma and Ramaphosa to appoint new board members.

Eskom said on Sunday that it was in a position to make interest repayments in January and to pay salaries as it continued to raise revenue through electricity

sales. However, in terms of its funding plan, if it were unable to raise R14bn in February and R6bn in March, it would run into liquidity problems on every front from salaries to the repayment of short-term debt.

To avoid the suspension of its bonds, Eskom must publish its interim financial statements, which are more than three months overdue, by the end of January.

But to do so, it must first remedy its going-concern status by solving its funding shortfall.

A solution to these problems would allow it to raise a $1bn bond on the international market that has been scheduled for February.

Analysts said on Sunday that the suspension of its bonds would render raising debt on the international capital market impossible.

Nazmeera Moola, co-head of fixed income at Investec Asset Management, said the main implication of a bond suspension would be “the signalling issue”, which could affect both investor perceptions and credit ratings decisions.

Adding to the week’s drama was pressure from the World Bank that it would issue a letter of nonperformance this week. Gigaba met World Bank officials in Washington in November and made undertakings to improve Eskom’s governance. Until Saturday, none of those conditions had been met.

Treasury officials hope the steps taken at the weekend will enable them to delay the Davos meeting and get the bank to “pause” its processes.

While Eskom has fully used the World Bank loan, it has not met most of the project-related conditions, including the construction of a 100MW concentrated solar plant and fitting flue gas desulphurisation at Medupi to reduce carbon emissions.

The World Bank could not be reached for comment.